<PAGE> 1
SECURITIES & 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 ended July 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____________ To __________________
Commission file number 000-25875
EXHAUST TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Washington 91-1970433
(State or other jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
230 North Division Street, P.O. Box 2822, Spokane Washington 99220-2822
(Address of principal executive office)
(509) 838-4401
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(D) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
YES [ x ] NO [ ]
As of August 31, 2000 there were 4,692,750 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check one)
YES [ ] NO [ x ]
<PAGE> 2
EXHAUST TECHNOLOGIES, INC.
Form 10-QSB
For the Quarter Ended July 31, 2000
INDEX
Page
PART I - Financial Information . . . . . . 3
Item 1 - Financial Statements (all financial
statements are unaudited except the
January 31, 2000 balance sheet): . . . 3
- Balance Sheets - July 31, 2000 and
January 31, 2000 . . . . . . 4
- Statements of Loss - Three months and
six months ended July 31, 2000 and 1999 . . 4
- Statements of Cash Flows - Six months
ended July 31, 2000 and 1999 . . . . 5-6
- Notes To Financial Statements . . . . 7-9
Item 2 - Management's Discussion and Analysis
and Plan of Operation . . . . . 10-11
PART II - Other Information . . . . . . . 12
Signature . . . . . . . . . . . 13
<PAGE> 3
Part I - Financial Information
Item 1 - Financial Statements
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
July 31, January
2000 31,
(Unaudited) 2000
ASSETS (Note 2)
CURRENT:
Cash $ 2,638 $ 352
Accounts receivable 14,823 -
Inventory 103,238 108,545
Prepaid expenses 10,177 -
---------- ---------
TOTAL CURRENT ASSETS 130,876 108,897
---------- ---------
EQUIPMENT, net of accumulated
depreciation of $12,438 and $6,715 112,707 95,186
---------- ----------
OTHER ASSETS:
Licenses, net of accumulated
amortization of $10,871 and $7,871 20,562 23,562
Deferred stock offering costs 73,892 39,300
---------- ----------
TOTAL OTHER ASSETS 94,454 62,862
---------- ----------
$ 338,037 $ 266,945
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT:
Accounts payable $ 98,808 $ 34,955
Accrued interest 32,562 9,503
Line of credit-related party 465, 842 345,266
---------- ----------
TOTAL CURRENT LIABILITIES 597,212 389,724
---------- ----------
STOCKHOLDERS' DEFICIT:
Common stock, $.00001 par value,
100,000 shares authorized,
4,692,750 shares outstanding 47 47
Additional paid-in capital 112,088 102,088
Deficit accumulated during the
development stage (371,310) (224,914)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIT (259,175) (122,779)
---------- ----------
$ 338,037 $ 266,945
========== ==========
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EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF LOSS
(Unaudited)
Three Three Six Six Date of
Months Months Months Months Inception
Ended Ended Ended Ended 07/21/98
July 31, July 31, July 31, July 31, Through
2000 1999 2000 1999 07/31/00
SALES $ 22,188 $ - $ 60,041 $ - $ 60,041
COST OF SALES 14,618 - 45,564 - 45,564
-------- -------- -------- -------- --------
Gross profit 7,570 - 14,477 - 14,477
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Professional services 20,404 19,272 45,508 41,445 10,138
Research and development 15,286 15,171 40,608 15,171 84,311
Advertising 7,907 319 21,507 1,619 45,173
Office expense 745 375 939 1,300 4,353
Compensation 10,000 - 10,000 - 40,000
Amortization 1,500 724 3,000 1,274 10,871
Travel - - 666 - 9,872
Director's fees - - - - 30,000
Dues and subscriptions 971 - 3,851 - 4,126
Supplies 557 - 622 - 3,268
Repairs - - 800 - 800
Depreciation 3,129 - 5,723 - 5,723
Insurance 810 - 810 - 810
Royalties 3,619 - 3,619 - 3,619
-------- -------- -------- -------- --------
Total operating expenses 64,928 35,861 137,653 60,809 353,064
-------- -------- -------- -------- --------
Loss from operations (57,358) (35,861) (123,176) (60,809) (338,587)
Interest expense (12 370) (782) (23,220) (1,232) (32,723)
-------- -------- -------- -------- --------
Net loss $(69,728) $(36,643) $(146,396) $(62,041) $(371,310)
======== ======== ======== ======== ========
Net loss per share-
basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.01)
======== ======== ======== ========
Weighted average number
of shares outstanding-
basic and diluted 4,692,750 4,687,405 4,692,750 4,687,405
========= ========= ========= =========
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EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
Unaudited
Six Six Date of
Months Months Inception
Ended Ended (July 21, 1998)
July 31, July 31, Through
2000 1999 July 31, 2000
Cash flows from operating activities:
Net loss $ (146,396) $ (62,041) $ (371,310)
Adjustments to reconcile net loss
to net cash used in operating activities:
Amortization and depreciation 8,723 1,274 16,594
Contributed services 10,000 - 40,000
Issuance of common stock
for services - - 30,000
Changes in assets and liabilities:
Accounts receivable (14,823) - (14,823)
Accounts payable 63,853 16,256 98,808
Inventory 5,307 7,991 (96,027)
Prepaid expenses (10,177) (26,105) (10,177)
Accrued interest 23,059 1,232 32,562
---------- --------- ----------
Net cash used in operating
activities (60,454) (61,393) (274,373)
---------- --------- ----------
Cash flows from investing activities:
Cash paid for licenses - (15,602) (15,592)
Cash paid for property and
equipment (23,244) (10,239) (118,430)
---------- --------- ----------
Net cash used in investing
activities (23,244) (25,841) (134,022)
---------- --------- ----------
Cash flows from financing activities:
Borrowings under line of
credit-related party 120,576 52,000 458,631
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<PAGE> 6
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
Unaudited
Six Six Date of
Months Months Inception
Ended Ended (July 21, 1998)
July 31, July 31, Through
2000 1999 July 31, 2000
Net proceeds from sale of
common stock - 10,050 26,294
Deferred stock offering costs (34,592) - (73,892)
---------- --------- ----------
Net cash provided by financing
activities 85,984 62,050 411,033
---------- --------- ----------
Net increase (decrease) in cash 2,286 (25,184) 2,638
Cash, beginning of period 352 27,265 -
---------- --------- ----------
Cash, end of period $ 2,638 $ 2,081 $ 2,638
========== ========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During Period for:
Interest $ - $ - $ -
========== ========= ==========
Taxes $ - $ - $ -
========== ========= ==========
Non-Cash Financing Activities:
Common stock for licenses $ - $ - $ 15,841
========== ========= ==========
Inventory Advanced Under Line of
credit-related party $ - $ - $ 7,211
========== ========= ==========
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<PAGE> 7
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Regulation S-B as
promulgated by the Securities and Exchange Commission. Accordingly, these
financial statements do not include all of the disclosures required by
generally accepted accounting principles for complete financial statements.
These unaudited interim financial statements should be read in conjunction
with the audited financial statements for the period ended January 31, 2000.
In the opinion of management, the unaudited interim financial statements
furnished herein include all adjustments, all of which are of a normal
recurring nature, necessary for a fair statement of the results for the
interim period presented.
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities known to exist as of the date the financial
statements are published, and the reported amounts of revenues and expenses
during the reporting period. Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of the Company's financial
statements; accordingly, it is possible that the actual results could differ
from these estimates and assumptions that could have a material effect on the
reported amounts of the Company's financial position and results of operations.
Operating results for the three-month and six-month period ended July 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending January 31, 2001.
2. DEVELOPMENT STAGE OPERATIONS AND GOING CONCERN
The Company has been in the development stage since its inception. The Company
has incurred losses since inception. While the Company has commenced selling
its product, sales have not been sufficient to pay expenses. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that may be
necessary if the Company is unable to continue as a going concern.
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EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
Management of the Company has undertaken certain actions to address these
conditions. Management has commenced operations and has found companies to
manufacture its products. Funds required to carry out management's plans are
expected to be derived from future stock sales, borrowings from the Company's
shareholders or sales of its products. There can be no assurances that the
Company will be sucessful in executing its plans.
3. STOCK OFFERING
The Company has entered into a letter of intent with an underwriter pursuant
to which the underwriter has agreed to sell, on a best efforts basis, up to
1,000,000 units (each unit consisting of one share of the Company's common
stock and one warrant) at a per unit price of $5.10 and 1,000,000 warrants
at a per warrant price of $0.10. Each warrant would grant the holder the
right to purchase a share of the Company's common stock at an initial per
share price of $7.00 for a one year period from the date of the offering,
then increasing to $9.00 through the date of the second anniversary from
the offering. The Company has advanced a fee of $25,000, which is refundable
under certain circumstances, to the underwriter and has agreed to pay the
underwriter commissions and, based on the results of the offering, to issue
the underwriter warrants to purchase up to 100,000 units at $8.415 per
warrant (each unit consisting of one share of the Company's common stock
and one warrant to purchase one share of stock at $11.55 to $13.05 per
share). This nonrefundable fee and certain other costs incurred in connection
with the offering have been capitalized as deferred offering costs which will
be offset against proceeds received.
In connection with the underwriting, the Company has entered into employment
agreements with its present President and its proposed Chief Executive Officer
and Vice President. The agreement with the proposed Chief Executive Officer
and Vice President of Operations commence upon receipt of $1,000,000 from the
offering. These employment agreements will be effective for a period of three
years and contain terms, which specify annual compensation of $100,000,
$100,000 and $75,000, respectively. Further, one of the Company founders
will deliver back to the Company at the date of the Company's registration
statement is declared effective a total of 1,692,750 shares of the Company's
common stock held by him. Additionally, this founder will place 1,000,000
shares of the Company's common stock held by him into an escrow account.
These shares will be held until the Company achieves annual sales of
$35,000,000 and pretax income of $7,500,000. If these targets are not
attained by January 1, 2004, the shares will be canceled.
-8-
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EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM FINANCIAL STATEMENTS
The 1,000,000 shares as well as the dollar amount of sales and pretax income
set forth above shall be prorated downward if less than $5,000,000 is raised
in this offering. The 1,000,000 shares as well as the dollar amount of the
sales and pretax income will be prorated downward if less than $5,000,000 is
raised in the offering.
-9-
<PAGE> 10
Item 2. Management's Discussion and Analysis or Plan of Operation
General
This Quarterly Report on Form 10-QSB, including the information incorporated
by reference herein, includes "forward looking statements" within the meaning
of section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All of the statements contained in this Quarterly Report
on Form 10-QSB, other that statements of historical fact, should be considered
forward looking statements, including, but not limited to, those concerning the
Company's strategies, objectives and plans for expansion of its operations,
products and services and growth in demand for the Company's services. There
can be no assurance that these expectations will prove to have been correct.
Certain important factors that could cause actual results to differ materially
from the Company's expectations (the "Cautionary Statements") are disclosed in
the annual report filed on Form 10-KSB. All subsequent written and oral
forward looking statements by or attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by such
Cautionary Statements. Investors are cautioned not to place undue reliance
on these forward looking statements, which speak only as of the date hereof
and are not intended to give any assurance as to future results. The Company
undertakes no obligation to publicly release any revisions to these forward
looking statements to reflect events or reflect the occurence of unanticipated
events.
Plan of Operation
Pending successful completion of the stock offering described in Note 3 of the
Financial Statements, we plan to complete the machinery necessary to allow the
manufacturers of our products to manufacture all our product lines, increase
our distribution points, increase our customer base through advertising and
marketing and aggressively promote all our product lines.
We have inadequate cash to maintain operations during the next twelve months.
In order to meet our cash requirements we have to raise additional capital
through a stock offering as disclosed in Note 3 of our Financial Statements.
If the offering is unsuccessful, we may have to cease operations. Other than
the stock offering, we have no other plans to raise additional capital.
Further, we have not initiated any negotiations for additional loans, other
than a $500,000 line of credit from our president. At July 31, 2000, we owed
Mr. Sterling $465,842. We believe that we will need to raise at least
$3,000,000 from the offering in order to maintain operations during the next
twelve months.
The Company anticipates spending monies for capital expenditures only for
molds necessary to manufacture Company product lines to meet requests by
customers for all sizes in product lines currently being sold in a limited
capacity.
The research and development previously expended is expected to be
substantially reduced as the majority of our product lines are ready
for production.
-10-
<PAGE> 11
Three and Six Months Ended July 31, 2000 (Unaudited) compared to the three
and six months ended July 31, 1999 (Unaudited)
During the three months and six months ended July 31, 2000, the Company sold
limited quantities of its products. The Company recognized total revenue in
the second quarter of 2000 of approximately $22,000 as compared to $-0- for
the same period of the prior year and approximately $60,000 for the six months
ended July 31, 2000 as compared to $-0- for the same period of the prior year.
The small sales quantities are the result of changes to the make-up of the
product components to increase product efficiency, causing delays in shipping
from the manufacturer. In addition, anticipated stock sales were not made
and their delay has not given the Company the funds to acquire the inventory
necessary to comply with sales requests on a timely basis.
Operating expenses include those costs incurred to bring the Company's product
to market relative to research and development, sales, marketing, and general
administration. Operating expenses increased for the three months ended July
31, 2000 to approximately $65,000 from approximately $36,000 for the same
three-month period in 1999 and increased for the six months ended July 31,
2000 to approximately $138,000 from approximately $61,000 for the same
six-month period in 1999. The increases of $19,000 and $77,000 for the
three months and six months respectively were primarily due to the Company
ramping up operations to begin sales efforts related to market penetration.
Specifically, for the three months ended July 31, 2000, advertising increased
approximately $7,500, royalties were incurred as a result of sales of
approximately $3,600 and general and administrative expenses increased
approximately $7,900. Additionally, interest increased approximately $12,000
as a result of borrowings from the Company president. For the six months ended
July 31, 2000, research and development increased approximately $26,000 due to
finalization of readying the products for market, advertising increased
approximately $20,000 due to sales efforts, royalties of approximately $3,600
were incurred on sales and administrative expenses increased approximately
$27,400. Interest accruing to the President of the Company increased
approximately $22,000 because of increased borrowings by the Company to
complete preparations to bring the products to market.
Net Loss
Primarily as a result of the foregoing factors, the Company's net loss was
approximately $59,000 and $36,000, respectively, for the three month period
ended July 31, 2000 and 1999.
Financial Conditions and Liquidity
At July 31, 2000, the Company had $2,638 of cash. For the six months ended
July 31, 2000, the Company received approximately $60,000 from product sales
and approximately $121,000 from borrowings from the Company's President.
The Company expended the majority of funds to bring the Company's products to
market. Future funds required to carry out management's plans are expected
to be derived from future stock sales as explained in Note 3 of the Financial
Statements. If the offering is unsuccessful, we may have to cease operations.
Other than the stock offering, we have no other plans to raise capital.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company knows of no litigation present, threatened or contemplated or
unsatisfied judgment against the Company, its officers or directors or any
proceedings in which the Company, its officers or directors are a party.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The rights of the holders of the Company's securities have not been modified
nor have the rights evidenced by the securities been limited or qualified by
the issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no senior secutities issued by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters presented to the shareholders for vote during the
three months ended July 31, 2000.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the quarter ended July 31, 2000.
-12-
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
EXHAUST TECHNOLOGIES, INC.
September 12, 2000 /s/ Robert E. Sterling
(Date) Robert E. Sterling
President
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