UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ending June 30, 2005
[ ] 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 98-0420750
------------------------ ------------------------
(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 June 30, 2005, there were 46,003,605 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
June 30, 2005 and December 31, 2004.............................. 3-4
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2005 and 2004................ 5
Condensed Consolidated Statements of Operations
For the Six Months Ended June 30, 2005 and 2004.................. 6
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005 and 2004.................. 7-8
Notes to Condensed Consolidated Financial Statements............. 9-13
Item 2 - Management's Discussion and Analysis or Plan of Operation ....... 14-19
Item 3 - Controls and Procedures.......................................... 20
PART II - Other Information
Item 1 - Legal Proceedings................................................ 21
Item 2 - Changes in Securities and Use of Proceeds........................ 21
Item 3 - Defaults Upon Senior Securities.................................. 22
Item 4 - Submission of Matters to a Vote of Security Holdings............. 22
Item 5 - Other Information................................................ 22
Item 6 - Exhibits and Reports on Form 8K.................................. 23
Signature................................................................. 24
-2-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
June 30, 2005 December 31, 2004
----------------- -----------------
(Unaudited)
Current Assets:
Cash $ 7,598 $ 5,929
Accounts Receivable 20,653 153,987
Note Receivable 85,000 0
Prepaid Expenses 17,983 72,294
----------------- -----------------
Total Current Assets 131,234 232,210
----------------- -----------------
Property Plant and Equipment, Net 485,380 516,479
----------------- -----------------
Other Assets:
Assets Held For Sale 0 342,213
Deposits 199,439 12,970
License, Net 71,435 80,434
Intangible Asset 33,585 33,585
----------------- -----------------
Total Other Assets 304,459 469,202
----------------- -----------------
Total Assets $ 921,073 $ 1,217,891
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-3-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
June 30, 2005 December 31, 2004
----------------- -----------------
(Unaudited)
Current Liabilities:
Accounts Payable and
Accrued Expenses $ 1,140,278 $ 1,055,720
Note Payable - Current Maturities 171,741 260,461
----------------- -----------------
Total Current Liabilities 1,312,019 1,316,181
Long-Term Debt 6,610 9,661
Due to Related Parties 1,124,151 1,941,808
----------------- -----------------
Total Liabilities 2,442,780 3,267,650
----------------- -----------------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Preferred Stock, $0.01 par value
10,000,000 shares authorized, none issued -- --
Common Stock, $.001 par value per share,
50,000,000 shares authorized;
37,900,664 shares issued and
outstanding December 31, 2004
46,003,605 shares issued and outstanding
June 30, 2005 4,600 3,790
Additional Paid-in Capital 2,900,172 1,591,731
Accumulated (Deficit) (4,426,479) (3,645,280)
----------------- -----------------
Total Stockholders' (Deficit) (1,521,707) (2,049,759)
----------------- -----------------
Total Liabilities and
Stockholders' (Deficit) $ 921,073 $ 1,217,891
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
June 30, 2005 June 30, 2004
------------- -------------
Revenues: $ 8,889 $ 0
------------- -------------
Expenses:
Cost of Sales 2,504 3,060
Operating Expenses 21,928 92,266
Depreciation & Amortization 24,339 18,265
Interest 32,480 18,391
Officer's Salary 30,000 30,000
Selling, General and Administrative 232,590 686,383
------------- -------------
Total Expenses 343,841 848,365
------------- -------------
Net (Loss) From Continuing Operations (334,952) (848,365)
Net Income (Loss)
From Discontinued Operations 42,853 (114,176)
------------- -------------
Net (Loss) $ (292,099) $ (962,541)
============= =============
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) From Continuing Operations $ (0.01) $ (0.03)
Net (Loss) From Discontinued Operations (0.00) (0.00)
------------- -------------
Total $ (0.01) $ (0.03)
============= =============
Weighted Average Number of Common
Shares Outstanding 42,077,135 34,325,664
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 2005 June 30, 2004
------------- -------------
Revenues: $ 8,889 $ 71,117
------------- -------------
Expenses:
Cost of Sales 2,504 34,215
Operating Expenses 76,182 135,015
Depreciation & Amortization 47,595 35,009
Interest 62,815 32,989
Officer's Salary 60,000 60,000
Selling, General and Administrative 454,784 913,198
------------- -------------
Total Expenses 703,880 1,210,426
------------- -------------
Net (Loss) From Continuing Operations (694,991) (1,139,309)
Net Income (Loss) From
Discontinued Operations (86,208) (132,318)
------------- -------------
Net (Loss) $ (781,199) $ (1,271,627)
============= =============
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) From Continuing Operations $ (0.02) $ (0.04)
Net (Loss) From Discontinued Operations (0.00) (0.00)
------------- -------------
Total $ (0.02) $ (0.04)
============= =============
Weighted Average Number of Common
Shares Outstanding 41,592,135 32,550,664
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, 2005 June 30, 2004
------------- -------------
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss)
From Continuing Operations $ (694,991) $ (1,139,309)
From Discontinued Operations (86,208) (132,318)
Adjustments To Reconcile Net (Loss)
To Net Cash Provided (Required)
By Operating Activities:
Depreciation and Amortization
From Continuing Operations 47,595 35,009
From Discontinued Operations 35,712 14,275
Issuance Of Common Stock
For Services Provided 47,250 557,500
(Gain) On Sale Of Assets (60,653) 0
Officer's Salary 60,000 60,000
Changes In:
Accounts Receivable 133,334 (37,701)
Prepaid Expenses 54,311 (9,492)
Deposits 10,970 (12,570)
Accounts Payable and
Accrued Expenses 36,558 42,195
------------- -------------
Net Cash (Required)
By Operating Activities (416,122) (622,411)
------------- -------------
Cash Flows Provided (Required)
By Investing Activities:
Deposits And Advances For
Pending Acquisitions (197,439) 0
Proceeds - Sale of Assets 385,856 0
Acquisitions of Property, Plant & Equipment (26,198) (467,865)
------------- -------------
Net Cash Provided (Required)
By Investing Activities 162,219 (467,865)
------------- -------------
See Accompanying Notes to Condensed Consolidated Financial Statements
-7-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
(CONTINUED)
Six Months Six Months
Ended Ended
June 30, 2005 June 30, 2004
------------- -------------
Cash Flows Provided (Required) By
Financing Activities:
Note Receivable - Sale of Assets (85,000) 0
Payment Of Short-Term Loans (88,720) 0
Payments Of Long-Term Loans (3,051) (27,414)
Proceeds From Issuance
Of Common Stock 0 500,000
Proceeds of Loans From
Related Parties 432,343 909,731
------------- -------------
Net Cash Provided by Financing Activities 255,572 1,382,317
------------- -------------
Net Increase in Cash 1,669 292,041
Cash at Beginning of Period 5,929 2,532
------------- -------------
Cash at End of Period $ 7,598 $ 294,573
============= =============
Supplemental Disclosures of
Cash Flow Information
Cash Payments for Interest $ 16,975 $ 829
============= =============
Cash Payments for Income Taxes $ 0 $ 0
============= =============
Non-Cash Financing Activities:
Issuance of Common Stock:
Repayment of Loan
From Related Party $ 1,250,000 $ 0
Operating Activities 47,250 557,500
Payment of Prepaid Expenses 0 143,000
Payment of Accounts Payable 12,000 0
------------- -------------
Total Non-Cash Financing Activities $ 1,309,250 $ 700,500
============= =============
See Accompanying Notes to Condensed Consolidated Financial Statements
-8-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed consolidated financial statements
for the six month periods ended June 30, 2005 and 2004 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,
2004 is derived from the registrant's Form 10-KSB for the year ended
December 31, 2004. 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, 2004, included in
the registrant's Form 10-KSB for the year ended December 31, 2004.
Operating results for the six-month period ended June 30, 2005 are not
necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 2005. The accompanying
unaudited condensed consolidated financial statements include the
accounts of the registrant and its wholly-owned subsidiaries,
Ecoloclean, Inc., World Environmental Technologies, Inc., Ecoloclean of
Texas, Inc. and Reliant Drilling Systems, Inc. All significant
inter-company accounts and transactions have been eliminated in
consolidation.
-9-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 2 - GOING CONCERN
------ -------------
The accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis, which anticipates the
realization of assets and the liquidation of liabilities during the
normal course of operations. However, as shown in these condensed
consolidated financial statements, the Company during the six-month
period ended June 30, 2005, incurred a net loss from continuing
operations of $694,991 and a net loss from discontinued operations of
$86,208. In addition, as at June 30, 2005, the Company's total
liabilities exceeded its total assets by $1,521,707. The Company has
experienced significant recurring operational losses and negative cash
flows from operations and at June 30, 2005 has an accumulated deficit
of $4,426,479. These factors raise doubt about the Company's ability to
continue as a going concern if changes in operations are not
forthcoming. Management, in the first six months of 2005 has taken a
position that by discontinuing operations in certain of its
wholly-owned subsidiaries, and concentrating its efforts on more
productive resources, the Company will achieve more favorable operating
results. The Company's ability to continue as a going concern will
depend on management's ability to successfully implement a business
plan which will increase revenues, control costs, and obtain additional
forms of debt and/or equity financing. These financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
-10-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 3 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. As
of June 30, 2005, the cumulative amount of unpaid officer's salary was
$340,000 and is included in accounts payable and accrued expenses.
At June 30, 2005, cumulative advances bearing interest at 5% per annum
due to officers of the Company amounted to $1,124,151 plus $150,451
accrued interest after reducing the balance of $2,374,151 by $1,250,000
as a result of the issuance of 7,352,941 shares of restricted common
stock to Royis Ward, the Company's President. The accrued interest is
included in accounts payable and accrued expenses. The advances are due
July 10, 2006 with the right of prepayment.
NOTE 4 - DISCONTINUED OPERATIONS
------ -----------------------
During the first and second quarters of 2005, Reliant Drilling Systems,
Inc. ("RDS"), a wholly-owned subsidiary of the Company, which had been
engaged in providing solids control services for oil and gas drillers
and producers, began to sell certain of its equipment assets in order
to implement its decision to no longer offer these services. For the
year ended December 31, 2004, RDS had revenues of $718,025 with a
reported loss of $280,091.
Sales of equipment recorded by "RDS" during the first six months of
2005 were in excess of $265,000 with a resulting loss of $14,307.
Following these sales, "RDS" has equipment remaining with a book value
approximating $43,000 which is expected to be utilized by another
subsidiary.
Also during the first quarter of 2005, Ecoloclean of Texas, Inc.,
("ECOT") a wholly-owned subsidiary of the Company, which had been
engaged in providing enviro cleanup services to industrial customers,
executed a Letter of Intent to sell certain of its equipment with a
book value of $41,574, job materials and supplies and its customer
contracts for $120,000 in order to implement its decision to no longer
offer these services. For the year ended December 31, 2004, this
wholly-owned subsidiary had revenues of $132,668 with a reported loss
of $285,651.
-11-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 4 - DISCONTINUED OPERATIONS (CONTINUED)
------ -----------------------------------
On April 18, 2005, Ecoloclean of Texas, Inc. ("ECOT") completed the
transaction to sell its equipment assets and customer contracts for
$120,000 payable over a one-year period. The effective date of the
transaction was April 1, 2005 and resulted in a gain of approximately
$75,000.
As a result of the Company discontinuing the operations of "RDS" and
"ECOT", the condensed consolidated financial statements and the related
notes contained herein have been restated to reflect the financial
position, results of operations and cash flows of "RDS" and "ECOT" as
discontinued operations.
The following table sets forth, for the periods indicated, selected
financial data of the Company's discontinued operations.
SELECTED FINANCIAL DATA FOR DISCONTINUED OPERATIONS
---------------------------------------------------
Six Months Ended
June 30, 2005 June 30, 2004
------------- -------------
Revenue $ 75,863 $ 199,941
Cost of Sales 49,066 117,680
------------- -------------
Gross Profit 26,797 82,261
Expenses (Net of Gains on
Sales Of Assets) 113,005 214,579
------------- -------------
(Loss) From Discontinued Operations $ (86,208) $ (132,318)
============= =============
NOTE 5 - COMMON STOCK TRANSACTIONS
------ -------------------------
On June 3, 2005, the Company issued 250,000 shares of its restricted
common stock for consulting services valued at $18,750.
On June 22, 2005, the Company issued 250,000 shares of its restricted
common stock for consulting services valued at $12,500.
On June 22, 2005, the Company issued 7,352,941 shares of its restricted
common stock as payment for $1,250,000 of loans from the Company's
President, Royis Ward.
-12-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 6 - SUBSEQUENT EVENTS
------ -----------------
On May 13, 2005, the Company executed a non-binding Letter of Intent
(LOI) to acquire 100% ownership of a company engaged in providing
creative and cost effective solutions to a wide range of industrial
pure water, waste water and solid waste management problems. In order
to complete the proposed transaction, the Company is required to
provide $300,000 of working capital and other considerations including
2,500,000 shares of its restricted common stock. As of June 30, 2005,
the Company has provided $131,000 of deposits/advances to the company
pursuant to the LOI. With the expectation of an August 2005 closing on
this acquisition, the Company, during the period July 1, 2005 through
August 5, 2005, advanced an additional $60,000 under the terms of the
LOI.
The Company has also been in discussions and negotiations with a
water-processing company for a possible joint venture. In furtherance
of this pending joint venture, the Company has advanced funds and
incurred expenses in excess of $68,000 as of June 30, 2005.
-13-
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview and Plan of Operation
Background
During the quarter ended June 30, 2005, Ecoloclean Industries, Inc. ("ECCI") had
gross operating revenues of $8,889 from continuing operations and $123,984 from
discontinued operations which were generated by its Louisiana subsidiary,
Reliant Drilling Systems, Inc. ("RDS"), and its Texas Subsidiary, Ecoloclean of
Texas, Inc. ("ECOT"), whose operations were discontinued during the quarter
ending March 31, 2005.
Current Operations
A. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc. ("WET"), a wholly owned subsidiary of
Ecoloclean, Inc., has reached an agreement to utilize its Louisiana State-Wide
Water Discharge Permit as the basis to establish a permanent wastewater
treatment facility at AB Dock's receiving and servicing station, located in
Cameron, Louisiana. AB Dock currently assists several offshore rig operators and
provides peripheral services to satisfy the needs of those offshore operators.
Pending implementation by governmental organizations due to the ever expanding
environmental issues, it will soon be mandated that any gray water (wash water)
or bilge water resulting from normal offshore operations will not be permitted
to be returned back into the environment prior to a remediation process. WET's
facility will have tanks to receive wastewater from offshore operators and will
utilize its electro coagulation process (EC Units) as well as other specialized
remediation equipment to facilitate the cleansing process. Once run through the
system/facility, the treated wastewater can be safely returned back into the
environment.
This opportunity developed because the present owners do not have the authority
to treat and discharge the waste water being brought ashore for treatment,
disposal and/or reuse. Under the arrangement, the AB Dock owners anticipate an
increase in the amount of waste water being brought ashore which will cause an
immediate need for additional storage and treatment facilities.
WET has agreed to install and operate this facility on a revenue-sharing basis
whereby WET would receive the greatest majority of the generated revenue. The
contract would be for a one-year term with optional renewal periods.
-14-
Ecoloclean is currently searching for potential locations to establish two
additional facilities that will provide the same remediation capabilities as the
one at AB Dock in Cameron. We believe the remediation marketplace, as it relates
to offshore operators, provides us several opportunities to demonstrate the
effectiveness of our remediation equipment and further augment our scope of
business while establishing our presence in this market.
B. Agricultural Clean Up
Ecoloclean, Inc. ("ECI"), a wholly owned subsidiary of the Company, continues to
devote efforts to the Dairy Industries as it pertains to the animal waste
created by cows, swine and chickens. Recently during the first quarter of 2005,
ECI formed an alliance with another company in this field. By combining the EC
Unit technology with that of the new partner, the Company was successfully able
to demonstrate a ninety-nine percent plus (99% +) phosphate removal from dairy
waste.
During the second quarter of 2005, and for the period ended August 2, 2005, the
Company performed additional demonstrations for approximately two hundred (200)
dairy farmers, representatives from Texas A&M University, American Dairy
Association, Texas Farm Bureau, the EPA and other interested parties. These
tests were concluded on August 2, 2005 and the Company was notified that
sufficient samples had been taken by the various agencies and no further
evaluation was necessary. The Company's equipment has been removed and taken
back to its facility for storage. The Company has been informed that Texas A&M
will prepare a technical paper upon approval by the EPA, American Dairy
Association, Texas Farm Bureau and other interested agencies, which will be
published in all of the various agencies for public information.
Based on the test results from these further demonstrations, the Company expects
to be able to offer the dairy industry along with swine and chicken producers a
much needed solution to their waste disposal problems. However, the Company does
not expect any revenue producing activities from the agricultural business until
the middle of 2006 at the earliest.
C. Coale Separator aka "Diesel Pure"
As previously discussed, ECCI obtained the Worldwide Exclusive Rights for the
patented Coale Separator. To date, a number of these units have been installed
on various vessels employing large diesel powered engines and have proved that
the technology does perform as expected. One installation has been on a shrimp
vessel that, prior to installation, required fuel filters to be changed every 8
- 10 hours of operation. Since the installation, the vessel has operated for
approximately 2000 hours without a filter change or any downtime. Another
installation is on a diesel powered "pile driver" which has exhibited a similar
extended filter life with no downtime. The Company recently shipped 24 "Diesel
Pure" units to a Louisiana sales representative for installation on trucking
company vehicles utilizing highway trucks (18 wheelers) and the Company
-15-
is preparing to ship 20 additional units to the same individual for future
installation. These sales have been managed by an in-house employee and marketed
by "word-of-mouth" advertising, without any other sales force. The Company has
not found a suitable large-scale marketing group to market this product
nation-wide. The Company anticipates utilizing such a marketing group within the
near future in order to expand our sales efforts.
D. New Developments
On April 18, 2005, Ecoloclean of Texas, Inc. ("ECOT") completed the transaction
to sell its equipment assets and customer contracts for $120,000 payable over a
one-year period. The effective date of the transaction was April 1, 2005 and
resulted in a gain of approximately $75,000.
On May 13, 2005, the Company executed a non-binding Letter of Intent to acquire
100% ownership of a company engaged in providing creative and cost effective
solutions to a wide range of industrial pure water, waste water and solid waste
management problems. In order to complete the proposed transaction, the Company
is required to provide the $300,000 of working capital and other considerations
including 2,500,000 shares of its restricted common stock. Prior to the
execution of the Letter of Intent, the Company provided $51,000 of
deposits/advances of which $31,000 was advanced as of March 31, 2005.
During the period from May 13, 2005 to June 30, 2005, the Company provided an
additional $80,000 in funding. Subsequently, between July 1, 2005 and August 5,
2005, the Company provided $60,000 of additional funds as Closing Documents are
being prepared. The Company is anticipating completion of this acquisition to
occur in August, 2005 with an effective date of August 1, 2005.
The Company has also been involved in discussions and negotiations with a
water-processing company for possible acquisition. At this time, these
discussions and negotiations concern a possible joint venture involving certain
water processing activities. The funds previously advanced which total
approximately $68,000 have been recast in July to reflect $22,600 of accounts
receivable (which includes water processing charges) and repayable advances
amounting to $51,600.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $750,000, after
taking into consideration the sales of equipment assets and customer contracts
of the discontinued operations of Reliant Drilling Systems, Inc. and Ecoloclean
of Texas, Inc. subsidiaries. Until the Company obtains the amount of working
capital required to meet its continuing operating overhead, it will be necessary
to call upon the investment community and/or the Company's officers and
directors for financial assistance. In addition, the Company will be continuing
its efforts to obtain the capital necessary to complete to the acquisition
discussed above in the "New Development" section.
-16-
During the second quarter, the Company's President and the Secretary/CFO have
provided $235,184 in loans to the Company. All of the funds advanced during the
second quarter were utilized to offset operating overhead expenses and provide
advances described in the "New Development" section above. The officers have not
indicated a willingness to continue providing funds during the remaining six
months of 2005 in amounts, commensurate to the $423,343 advanced during the
first six months of 2005. Efforts are ongoing to obtain funding from sources
outside of the Company. At this time, the Company has not received any other
financing commitments.
Going Concern
The Independent auditors' report contains language indicating that the financial
statements have been prepared on a going concern basis, which contemplates
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has continuously incurred losses from operations and has a
significant accumulated deficit. The appropriateness of using the going concern
basis is dependent upon the Company's ability to obtain additional financing or
equity capital and, ultimately, to achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
It is the Company's belief that it will continue to incur losses for at least
the next six months, and as a result will require additional funds from debt or
equity investments to meet such needs. Without realization of additional
capital, it would be unlikely for the Company to continue as going concern. The
Company anticipates that its officers will contribute a portion of the funds
needed to satisfy the cash needs of the Company for the next six months.
However, there can be no assurances to that effect, as the Company has limited
revenues and the Company's need for capital may change dramatically if it is
successful in acquiring a new business. If the Company cannot obtain needed
funds, it may be forced to curtail or cease its activities. To meet these
objectives, management's plans continue to be (i) raise capital by obtaining
financing through private placement efforts; (ii) issue common stock for
services rendered in lieu of cash payments and (iii) obtain loans from officers
to the extent possible.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
Conclusion
Although the Company expended substantial financial resources to establish its
field service operations, the expected results were not achieved. Accordingly,
as indicated above, two of the Company's subsidiaries discontinued operations
during the first quarter of 2005 and their assets have been substantially
liquidated during the six months ended June 30, 2005.
-17-
The Company is now concentrating its efforts on the marketing and sales of its
Coale Separator and liquid waste remediation services along with the development
of services for offshore drilling contractors and platform operators. In
addition, the Company is expending its full efforts to be in position to
complete the acquisition opportunity described above, along with structuring a
beneficial venture per the above discussion.
As stated herein, all future activities of the Company will be dependent on its
ability to obtain additional funding in the near future.
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $8,889 from continuing operations for
the three months ended June 30, 2005 as compared with $0 revenues for the three
months ended June 30, 2004. The increased revenues of $8,889 were due to the
initial wastewater treatment billings at the AB Dock by World Environmental
Technologies, Inc., the Company's water processing subsidiary, and sales of
"Diesel Pure" Units.
TOTAL COSTS AND EXPENSES: Total costs and expenses decreased from $848,365 for
the three months ended June 30, 2004 to $343,841 from continuing operations for
the three months ended June 30, 2005.
OPERATING EXPENSES: Operating expenses decreased from $92,266 for the three
months ended June 30, 2004 to $21,928 from continuing operations for the three
months ended June 30, 2005. The decrease of $70,338 was primarily due to the
Company's cost reduction program.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses decreased from $686,383 for the three months ended June 30, 2004 to
$232,590 for the three months ended June 30, 2005. The decrease of $453,793 was
due to decreases of personnel costs, professional fees, consulting fees and
other period costs.
INCOME TAX: The pretax loss decreased from $962,541 for the three months ended
June 30, 2004 to $292,099 for the three months ended June 30, 2005, a decrease
of $670,442.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures
during the six months ended June 30, 2005 totaled $26,198 as compared with
$467,865 for the six months ended June 30, 2004. The expenditures of $26,198
primarily consist of equipment purchased for the Coale Separator manufacturing
efforts; whereas, the $467,865 of capital expenditures for the six months ended
June 30, 2004, primarily consisted of equipment purchased for the Company's
solids control subsidiary which has now been discontinued.
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Sales of assets, including equipment, customer lists and contracts for the six
months ended June 30, 2005 were $385,856 including a $6,685 cost adjustment as
compared to $0 for the six months ended June 30, 2005. The increase of $385,856
was due to sales of assets by the Company's Reliant Drilling Systems, Inc. and
Ecoloclean of Texas, Inc. subsidiaries, after discontinuance of their
operations.
Total debt decreased from $3,267,650 at December 31, 2004 to $2,442,780 at June
30, 2005, a decrease of $824,780. The decrease of debt was substantially
attributable to a conversion of $1,250,000 debt due the President to 7,352,941
shares of restricted common stock offset by $432,343 additional loans from the
President and the Secretary/CFO of the Company. These additional funds advanced
allowed the company to continue operations. Total debt as of June 30, 2005 and
December 31, 2004 expressed as a percentage of the sum of total debt and
shareholder deficits was 265.2% and 268.3% respectively.
Net loss for the six months ended June 30, 2005 was $781,199, a decrease of
61.5% from the net loss of $1,271,627 for the six months ended June 30, 2004.
Diluted net loss per common share decreased 50% to $0.02. The net loss per share
calculation for the six months ended June 30, 2005 included an increase in
actual and equivalent shares outstanding.
DISCONTINUED OPERATIONS: The loss from discontinued operations for the six
months ended June 30, 2005, includes losses of $76,947 incurred by Reliant
Drilling Systems, Inc., and $9,261 incurred by Ecoloclean of Texas, Inc. These
losses of each subsidiary, which total $86,208, are primarily attributable to
their inability to obtain gross revenue levels and margins in sufficient enough
amounts to cover operating support costs and other overhead of each company.
Losses of these two subsidiaries were $132,318 for the six months ended June 30,
2004, which was the first six months of operations for Reliant Drilling Systems,
Inc., and the pre-operating period of Ecoloclean of Texas, Inc.
GOING CONCERN: While the Company's unaudited condensed consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and liquidation of liabilities during the normal course of
operations, certain adverse conditions and events cast substantial doubt upon
the validity of this assumption. Factors contributing to this substantial doubt
include recurring losses from operations and net working capital deficiencies.
As mentioned in the Financial Condition, Liquidity and Capital Resources section
above, we are currently dependent on funding from the President to continue the
Company's operations. The discontinuance of such funding and the unavailability
of outside financing to replace such funding could result in the Company ceasing
operations.
FORWARD-LOOKING STATEMENTS:
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward looking statements. Without limiting the
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foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate", "plan" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, impact and other
uncertainties of our future acquisition plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, are not subject to material
foreign currency exchange risk. Although the Company has outstanding debt and
related interest expense, market risk of interest rate exposure in the United
States is currently not material.
Item 3. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that material
information related to our company is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms.
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation
under the supervision and with the participation of management, including our
Principal Executive Officer and Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, our Principal Executive
Officer and Principal Financial Officer concluded, as of the date of such
evaluation, that the design and operation of such disclosure controls and
procedures were effective.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in subparagraph (a)above,
there were no 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.
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(c) Limitations.
Our management, including our Principal Executive Officer and Principal
Financial Officer, does not expect that our disclosure controls or internal
controls over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and any design may not
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various legal proceedings and
claims incidental to our normal business operations for which no material
liability is expected beyond that which has been recorded. While the ultimate
resolution of the above matters is not known, management does not expect that
the resolution of these matters will have a material adverse effect on the
Company's financial statements and results of operation.
We are not aware of any material legal proceedings to which, any director,
officer or affiliate of the Company, any owner of record or beneficial owner of
more than 5% of our Company common stock, is a party to a legal proceeding
adverse to our Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 3, 2005, the Company issued 250,000 shares of its restricted common
stock to Carcas Capital for consulting services valued at $18,750.
On June 22, 2005, the Company issued 250,000 shares of its restricted common
stock to Shirin Gangji for consulting services valued at $12,500.
On June 28, 2005, we authorized the conversion of $1,250,000 of our outstanding
debt owed to Royis Ward, our President and member of the board of directors in
exchange for common stock. We issued Mr. Ward 7,352,941 common shares converting
debt to equity at the rate of $0.17 Cents per share.
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We relied on Section 4(2) as the securities transaction exemption afforded by
the Securities Act of 1933, as amended. These are restricted securities and may
not be publicly resold without registration or an exemption from registration.
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
(a) DISCONTINUED OPERATIONS
-----------------------
During the first and second quarters of 2005, Reliant Drilling Systems, Inc.
("RDS"), a wholly-owned subsidiary of the Company, which had been engaged in
providing solids control services for oil and gas drillers and producers, began
to sell certain of its equipment assets in order to implement its decision to no
longer offer these services. For the year ended December 31, 2004, RDS had
revenues of $718,025 with a reported loss of $280,091.
Sales of equipment recorded by "RDS" during the first six months of 2005 were in
excess of $265,000 with a resulting loss of $14,307.
Following these sales, "RDS" has equipment remaining with a book value
approximating $43,000 which is expected to be utilized by another subsidiary.
Also during the first quarter of 2005, Ecoloclean of Texas, Inc., ("ECOT") a
wholly-owned subsidiary of the Company, which had been engaged in providing
environmental cleanup services to industrial customers, executed a Letter of
Intent to sell certain of its equipment with a book value of $41,574, job
materials and supplies and its customer contracts for $120,000 in order to
implement its decision to no longer offer these services. For the year ended
December 31, 2004, this wholly-owned subsidiary had revenues of $132,668 with a
reported loss of $285,651.
On April 18, 2005, Ecoloclean of Texas, Inc. ("ECOT") completed the transaction
to sell its equipment assets and customer contracts for $120,000 payable over a
one-year period. The effective date of the transaction was April 1, 2005 and
resulted in a gain of approximately $75,000.
As a result of the Company discontinuing the operations of "RDS" and "ECOT", the
condensed consolidated financial statements and the related notes contained
herein have been restated to reflect the financial position, results of
operations and cash flows of "RDS" and "ECOT" as discontinued operations.
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The following table sets forth, for the periods indicated, selected financial
data of the Company's discontinued operations.
Selected Financial Data For Discontinued Operations
---------------------------------------------------
Six Months Ended
June 30, 2005 June 30, 2004
------------- -------------
Revenue $ 75,863 $ 199,941
Cost of Sales 49,066 117,680
------------- -------------
Gross Profit 26,797 82,261
Expenses (Net of Gains on
Sales Of Assets) 113,005 214,579
------------- -------------
(Loss) From Discontinued Operations $ (86,208) $ (132,318)
============= =============
(b) LETTER OF INTENT
----------------
On May 13, 2005, the Company executed a non-binding Letter of Intent to acquire
100% ownership of a company engaged in providing creative and cost effective
solutions to a wide range of industrial pure water, waste water and solid waste
management problems. In order to complete the proposed transaction, the Company
is required to provide $300,000 of working capital and other consideration
including the issuance of 2,500,000 shares of its restricted common stock. As of
June 30, 2005, the Company has provided $131,000 of deposits/advances to the
Company with the expectation of closing the acquisition in August 2005. Since
July 1, 2005, we have advanced an additional $60,000 toward the $300,000 working
capital requirement under the terms of the Letter of Intent.
The Company has also been in discussions and negotiations with a
water-processing company for a potential joint venture. The Company has advanced
funds and incurred expenses in excess of $68,000 as of June 30, 2005.
Item 6. Exhibits
Exhibit No. Exhibit Name
31.1 Chief Executive Officer-Section 302 Certification
pursuant to Sarbanes-Oxley Act.
31.2 Chief Financial Officer- Section 302 Certification
pursuant to Sarbanes-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
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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.
Dated: August 10, 2005 /s/ Royis Ward
---------------------------
By: Royis Ward
Title: President, CEO
Dated: August 10, 2005 /s/ Michael Ward
---------------------------
By: Michael Ward
Title: Secretary, CFO
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