UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ending March 31, 2004
[_] Transition Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from ______________ to _____________
ECOLOCLEAN INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 65-1060612
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
2242 South Hwy #83, Crystal City, TX 78839
(Address of principal executive offices)
(830) 374-9100
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 31, 2004, there were 32,600,664 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
ECOLOCLEAN INDUSTRIES, INC.
FORM 10-QSB
INDEX
-----
Page
PART I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2004 and December 31, 2003.............................. 3-4
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2004 and 2003................ 5
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2004 and 2003................ 6-7
Notes to Condensed Consolidated Financial Statements.............. 8-10
Item 2 - Management's Discussion and Analysis or Plan of Operation......... 11
Item 3 - Controls and Procedures........................................... 13
PART II - Other Information
Item 1 - Legal Proceedings ................................................ 14
Item 2 - Changes in Securities and Use of Proceeds......................... 14
Item 3 - Defaults Upon Senior Securities................................... 14
Item 4 - Submission of Matters to a Vote of Security Holdings.............. 14
Item 5 - Other Information................................................. 14
Item 6 - Exhibits and Reports on Form 8K .................................. 14
Signature.................................................................. 15
-2-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
March 31, 2004 December 31, 2003
----------------- -----------------
(Unaudited)
Current Assets:
Cash $ 36,932 $ 2,532
Accounts Receivable 40,530 77,037
Prepaid Expenses 11,266 19,616
----------------- -----------------
Total Current Assets 88,728 99,185
----------------- -----------------
Property Plant and Equipment, Net 592,226 425,718
----------------- -----------------
Other Assets:
Deposits 400 200
License, Net 19,128 20,528
Intangible Asset 33,585 33,585
----------------- -----------------
Total Other Assets 53,113 54,313
----------------- -----------------
Total Assets $ 734,067 $ 579,216
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-3-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
March 31, 2004 December 31, 2003
----------------- -----------------
(Unaudited)
Current Liabilities:
Accounts Payable and
Accrued Expenses $ 559,413 $ 488,823
Note Payable 26,870 27,414
----------------- -----------------
Total Current Liabilities 586,283 516,237
Long-Term Debt 0 0
Due to Related Parties 1,119,260 775,369
----------------- -----------------
Total Liabilities 1,705,543 1,291,606
----------------- -----------------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common Stock, $.001 par value per share,
50,000,000 shares authorized;
32,500,664 shares issued and
outstanding December 31, 2003
32,600,664 shares issued and outstanding
March 31, 2004 3,260 3,250
Additional Paid-in Capital 240,548 190,558
Accumulated (Deficit) (1,215,284) (906,198)
----------------- -----------------
Total Stockholders' (Deficit) (971,476) (712,390)
----------------- -----------------
Total Liabilities and
Stockholders' (Deficit) $ 734,067 $ 579,216
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
------------------ ------------------
Revenues: $ 138,727 $ 0
------------------ ------------------
Operating Expenses:
Cost of Sales 48,553 0
Operating Expenses 78,766 21,676
Depreciation & Amortization 19,675 7,515
Interest 14,598 2,611
Officer's Salary 30,000 30,000
General and Administrative 256,221 157,739
------------------ ------------------
Total Operating Expenses 447,813 219,541
------------------ ------------------
Net (Loss) $ (309,086) $ (219,541)
================== ==================
Net (Loss) Per Common Share
Basic and Diluted $ (0.01) $ (0.01)
================== ==================
Weighted Average Number of Common
Shares Outstanding, Basic and Diluted 32,550,664 30,783,850
================== ==================
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
------------------ ------------------
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss) $ (309,086) $ (219,541)
Adjustments to Reconcile Net (Loss)
to Net Cash Provided (Required) By
Operating Activities:
Depreciation and Amortization 19,675 7,515
Issuance of Common Stock
For Services Provided 50,000 44,800
Officer's Salary 30,000 30,000
Changes in
Accounts Receivable 36,507 16,056
Prepaid Expenses 8,350 1,289
Accounts Payable and Accrued Expenses 40,590 50,522
Customer Deposits (200) 0
Current Maturities of Long-Term Debt (544) (27,847)
------------------ ------------------
Net Cash (Required)
by Operating Activities (124,708) (97,206)
------------------ ------------------
Cash Flows (Required)
by Investing Activities:
Acquisitions of Property, Plant & Equipment (184,783) (135,320)
------------------ ------------------
Net Cash (Required)
By Investing Activities (184,783) (135,320)
------------------ ------------------
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
(CONTINUED)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
-------------- --------------
Cash Flows Provided by Financing Activities
Proceeds From Collection of
Stock Subscriptions 0 10,000
Proceeds From Issuance of Common Stock 0 25,000
Proceeds of Loans From
Related Parties 343,891 198,343
-------------- --------------
Net Cash Provided by Financing Activities 343,891 233,343
-------------- --------------
Net Increase in Cash 34,400 817
Cash at Beginning of Period 2,532 704
-------------- --------------
Cash at End of Period $ 36,932 $ 1,521
============== ==============
Supplemental Disclosures of
Cash Flow Information
Cash Payments for Interest $ 3,032 $ 102
============== ==============
Cash Payments for Income Taxes $ 0 $ 0
============== ==============
Non-Cash Financing Activities:
Issuance of Common Stock:
Operating Activities $ 50,000 $ 44,800
Payment of Accounts Payable 0 81,874
-------------- --------------
Total Non-Cash Financing Activities $ 50,000 $ 126,674
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
-7-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed consolidated financial statements
for the three month periods ended March 31, 2004 and 2003 have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Regulation S-B. The financial information as of December 31,
2003 is derived from the registrant's Form 10-KSB for the year ended
December 31, 2003. Certain information or footnote disclosures normally
included in condensed consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission.
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. In the opinion of
management, the accompanying consolidated financial statements include
all adjustments necessary (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods
presented. While the registrant believes that the disclosures presented
are adequate to keep the information from being misleading, it is
suggested that these accompanying financial statements be read in
conjunction with the registrant's audited consolidated financial
statements and notes for the year ended December 31, 2003, included in
the registrant's Form 10-KSB for the year ended December 31, 2003.
Operating results for the three-month period ended March 31, 2004 are
not necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 2004. The accompanying
unaudited condensed consolidated financial statements include the
accounts of the registrant and its wholly-owned subsidiaries. All
significant inter-company accounts and transactions have been
eliminated in consolidation.
-8-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 2 - LICENSE COSTS
------ -------------
The Company acquired an industry exclusive, perpetual worldwide license
to commercialize the inventions on patents and market, manufacture,
sell, lease and, or utilize, for processing electrocoagulation units
for the treatment of effluent water. Royalties are $3,000 per unit
manufactured and 2% of gross processing revenues.
A summary of license costs amortized over a 5-year life are as follows:
License $ 27,993
Less: Accumulated Amortization 8,865
------------
$ 19,128
============
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
------ -----------------------------
A summary of property, plant and equipment at March 31, 2004 is as
follows:
Land $ 80,000 N/A
Warehouse 29,726 40 Years
Electrocoagulation Units 236,249 5 Years
Machinery & Equipment 263,326 5 Years
Office Equipment 6,607 5 Years
Computers & Related Equipment 11,101 5 Years
Transportation Equipment 25,713 5 Years
-----------
Total 652,722
Less Accumulated Depreciation 60,496
-----------
Net Property, Plant & Equipment $ 592,226
===========
-9-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 4 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. At
March 31, 2004 the cumulative amount of unpaid officer's salary was
$190,000 and is included in accounts payable and accrued expenses.
At March 31, 2004 cumulative advances bearing interest at 5% P.A. due
to officers of the Company amounted to $1,119,260 plus $35,207 accrued
interest. The advances are due January 10, 2005 with the right of
prepayment.
NOTE 5 - OTHER
------ -----
On January 2, 2004, the Company approved the issuance of 100,000 shares
of restricted common stock for consulting services valued at $50,000.
These shares were issued March 15, 2004.
-10-
Item 2. Management's Discussion and Analysis or Plan of Operation
OVERVIEW AND PLAN OF OPERATION
During the quarter ending March 31, 2004 the Company had gross operating
revenues of $138,727. These revenues were generated by our Louisiana
subsidiaries, World Environmental Technologies, Inc. (WET) and Reliant Drilling
Systems, Inc. (RDS).
The Company is becoming well known as a leader in the field of industrial liquid
& solids waste remediation. The company is able to use its patented Electro
Coagulation (EC) treatment systems and support technologies to deal with a wide
variety of liquid waste streams.
During 2004, the Company has continued to be contacted in regard to our electro
coagulation process and our solids control capabilities. Currently, we are
handling the solids control program on a well for a major producing oil company.
We are standing by for 2 more locations for another major oil producer. All of
these wells are located in the South Louisiana area.
The Company was invited to be the principal exhibitor at The Dairy Waste
Technology Tour held by the Hamilton, Comanche and Erath County Dairy Operators
on April 15, 2004. This exhibition was attended by 104 dairy farmers in the area
and the Company was applauded for its effectiveness and equipment. As outlined
previously, the dairy industry has a difficult time removing solids and reducing
the phosphate levels from their dairy farm waste. We have previously shown to
The Texas A&M Extension Service and other State and Government Agencies that we
can successfully remove most of the phosphate contaminates from dairy waste,
thus allowing the dairy farms to be in compliance with the State and Federal
Regulations pertaining to dairy waste.
The Company has also been invited to be the featured process to be exhibited at
the 2004 Watershed Heroes Core4 Conference to be held at Waco, Texas on June
21-23, 2004 sponsored by The American Farm Bureau Federation, American Farm
Bureau Foundation for Agriculture, and The Texas Farm Bureau Federation. This
conference is directed at the problem of pollution in Lake Waco and the Bosque
Watershed that feeds into Lake Waco which has been caused by farm waste
originating in Hamilton, Comanche and Erath Counties, Texas located north of the
lake.
The Company continues to explore new ways to be of service to our customers. By
utilizing our State Wide Water Discharge Permit, the formation of RDS, and the
employment of Mr. John Cale with his reputation in the industry we are
continuing our mission to become a leader in industrial waste remediation. In
the ensuing 12 months we anticipate that all of our existing 3 EC units and the
solids control equipment now owned by RDS will be in operation on a nearly
continual basis at various drilling sites and at other types of locations
needing our services.
At this time, there is not sufficient income to offset our operating overhead
which is now estimated at approximately $1,200,000 per year. Until we obtain the
amount of work required to meet our total costs, it may be necessary to go to
the investment community for additional capital by way of private placements of
our stock and, or call upon our officers and directors for assistance. During
the period ending 03/31/04 our President, Royis Ward, has provided a total of
$343,891 in advances to the Company to offset our operating deficit. Mr. Ward
has indicated a willingness to continue providing funds until such time as cash
flows can offset operating overhead.
-11-
The Company plans to continue it efforts to obtain capital from outside sources
while aggressively marketing its services so that revenues can fully offset
operating expenses.
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $138,727 for the three months ended
March 31, 2004 as compared with $0 revenues for the three months ended March 31,
2003. The increased revenue was due to the availability of our "Water Discharge
Permit" that was issued early this year and the initiation of activities by our
solids control affiliate.
TOTAL COSTS AND EXPENSES: Total costs and expenses increased from $219,541 for
the three months ended March 31, 2003 to $447,813 for the three months ended
March 31, 2004.
OPERATING EXPENSES: Operating expenses increased from $21,676 for the three
months ended March 31, 2003 to $78,766 for the three months ended March 31,
2004. The increase of $57,090 was primarily due to ramping up support activities
in anticipation of increased business.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses increased from $157,739 for the three months ended March 31, 2003 to
$256,221 for the three months ended March 31, 2004. The increase of $98,482 was
primarily due to increased consulting fees and additional sales, management and
administrative personnel costs.
INCOME TAX: The pretax loss increased from ($219,541) for the three months ended
March 31, 2003 to ($309,036) for the three months ended March 31, 2004, an
increased loss of $89,545.
LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures during the three months
ended March 31, 2004 totaled $184,783 as compared with $135,320 for the three
months ended March 31, 2003. The increase of $49,463 represents capital asset
purchases and costs of $110,000 for our solids control division, $64,793 for an
Elc Unit and related equipment construction and $9,990 of office furniture and
equipment, computers and machinary and equipment expended duing the quarter
ended March 31, 2004 compared with a $109,000 cost of qcquiring our warehouse
building in Louisiana and $26,320 spent for other operating assets during the
quarter ended March 31, 2003.
Total debt increased from $1,291,606 at December 31, 2003 to $1,705,543 at March
31, 2004. Total debt as of March 31, 2004 and December 31, 2003 expressed as a
percentage of the sum of total debt and shareholders' equity was 232.35% and
223.00% respectively.
Net loss for the three months ended March 31, 2004 was ($309,086) an increase of
140.79% from the net loss of ($219,541) for the three months ended March 31,
2003. Diluted net loss per common share remained at ($0.01). The net loss per
share calculation for the three months ended March 31, 2004 included an increase
in actual and equivalent shares outstanding.
-12-
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Within the 90 days prior to the date of this Quarterly Report for the
period ended March 31, 2004, we carried out an evaluation, under the supervision
and with the participation of our management, including the Company's Chairman
and Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the
"Exchange Act"), which disclosure controls and procedures are designed to insure
that information required to be disclosed by a company in the reports that it
files under the Exchange Act is recorded, processed, summarized and reported
within required time periods specified by the SEC's rules and forms. Based upon
that evaluation, the Chairman and the Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's period SEC filings.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph
(a)above, there were no significant changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
-13-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the first quarter of 2004 the Company authorized, offered and
sold the following securities pursuant to exemptions from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
On March 15, 2004, we issued the members of Rage Resources, LLC 100,000
common shares for business consulting services. We issued Gary Alexander and C.
James Rogers 33,333 common shares each. We issued Terry Gee 33,334 common
shares. The value of the business services was $50,000.
We believe the shares issued above were issued in private transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended, (the
"Securities Act"). These shares are considered restricted securities and may not
be publicly resold unless registered for resale with appropriate governmental
agencies or unless exempt from any applicable registration requirements.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the quarter of the fiscal year
covered by this report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Exhibit Name
31.1 Chief Executive Officer-Section 302 Certification
pursuant to Sarbane-Oxley Act.
31.2 Chief Financial Officer- Section 302 Certification
pursuant to Sarbane-Oxley Act.
32.1 Chief Executive Officer-Section 906 Certification
pursuant to Sarbane-Oxley Act.
32.2 Chief Financial Officer- Section 906 Certification
pursuant to Sarbane-Oxley Act.
(b) Reports on Form 8-K. During the first quarter of 2004 we filed one
Current Report on Form 8-K on February 11, 2004 reporting under Item 5, Other
Events.
-14-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ECOLOCLEAN INDUSTRIES, INC.
/s/ Royis Ward
Dated: May 14, 2004 ---------------------------
By: Royis Ward
Title: President, CEO
/s/ Michael Ward
Dated: May 14, 2004 ---------------------------
By: Michael Ward
Title: Secretary, CFO
-15-