SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
Commission File Number 33-3385
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0430816
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
215 South State Street, Suite 1100, Salt Lake City, Utah 84111
--------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(801) 323-2394
--------------
(Issuer's telephone number including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 No XX
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of March 31, 1997, the Issuer had issued and outstanding an aggregate
of 30,370,000 common voting shares, par value $0.001.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited financial statements of Environmental Plasma Arc
Technology, Inc. ("the Company") for the quarter ended March 31, 1997 are
attached hereto and incorporated by reference.
ITEM 2. PLAN OF OPERATION.
The Company had no revenues from operations for its quarter ended
March 31, 1997, nor for the corresponding quarter for the period of this
report, ended March 31, 1996, nor for the fiscal year ended December 31, 1996.
The Company owns an exclusive license in certain technology,
equipment and devices which employ the principles of Environmental Plasma Arc
Technology in emission, exhaust reduction, and purification systems
(hereinafter referred to as the "EPAT Technology").
Since 1992, it has been the intent of the Company to develop a
plan to exploit the EPAT Technology as an exclusive licensee. As of the date
hereof, the Company's inventory of systems utilizing the EPAT Technology
("EPAT Systems") is limited to two demonstration/test models, one production
model to be utilized for beta testing purposes and one commercially viable
model which the Company feels is ready for market with a commercial value of
approximately $250,000.
The Company is pursuing and will continue to pursue opportunities
to market the EPAT Technology to potential customers as well as to pursue
strategic combinations with potential business partners in an attempt to
maximize the value of the EPAT Technology and the EPAT Systems.
Although the Company has several potential sources of capital
resources, its liquidity position is not sufficient to allow for substantial
growth activity. The Company currently has no employees and is in need of
significant capital to enable it to pursue its objective of demonstrating the
EPAT Technology to potential customers and to obtain orders for the EPAT
Systems and to produce EPAT Systems in a timely manner.
On April 15, 1997, the Company executed a letter of intent with
Environmental Water Systems, Inc. Of Denver, Colorado ("EWS") to acquire EWS
as a subsidiary. Upon consummation of this transaction, the Company will own
85% of the outstanding stock of EWS. EWS has an advanced technology for the
purification of industrial waste water and currently has several commercial
sites in operation. The Company anticipates that this acquisition will give
the Company a broader base in the environmental pollution abatement industry.
In addition, EWS has an established network of environmental equipment
marketers who could be beneficial to the Company in promoting the commercial
application of the EPAT Technology.
On April 21, 1997, the Company's Board of Directors recommended,
and a majority of the Company's shareholders approved by written consent, the
following actions: first, the transfer of all of the Company's assets and
liabilities to a newly formed, wholly owned subsidiary corporation of the
Company formed under the laws of the State of Delaware; and second, a reverse
split of the Company's common stock on a one for ten basis. This reverse
split took effect on May 2, 1997.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 25, 1997, the Company entered into a confidential
settlement agreement with the plaintiffs in the matter of Philip and Mary
Sarver v. Nu Arc Scientific, Edward and Carole Taylor, and Environmental
Plasma Arc Technology, Inc. As specified in such agreement, the exact terms of
this settlement agreement may not be disclosed. The settlement agreement
releases the Company from any and all liabilities and future liabilities with
respect to the subject matter of this case. The Company, however, maintains
the right to pursue both Nu Arc Scientific and Edward and Carole Taylor for
indemnification of the settlement amount.
Other than as set forth above, as of March 31, 1997, the Company
is not a party to any proceedings or threatened proceedings other than those
discussed in its Report on Form 10-KSB for its year ended December 31, 1996,
which discussion, pursuant to Rule 12b-23, is incorporated herein by this
reference. There have been no material developments in any legal proceedings
reported on in the Form 10-KSB for the year ended December 31, 1996, nor are
there any new proceedings or threatened proceedings to which the Company is a
party or threatened to be made a party.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are attached hereto and
incorporated herewith.
Exhibit # Description
27 Financial Data Schedule
(b) No Reports on 8-K were filed during the quarter ended
March 31, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf of the undersigned, thereunto
duly authorized.
DATED this 9th day of May, 1997.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
By:/s/ Mitchell T. Godfrey
-----------------------------------
Mitchell T. Godfrey
President
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Consolidated Financial Statements
March 31, 1997 and 1996
(Unaudited)
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Balance Sheets
ASSETS
--------
MARCH 31, DECEMBER 31,
1997 1996
-------------- -------------
CURRENT ASSETS:
Cash $ 749 $ 6,714
-------------- -------------
Total Current Assets 749 6,714
-------------- -------------
PROPERTY AND EQUIPMENT (Note 4) 16,065 16,065
-------------- -------------
OTHER ASSETS:
Work in process inventory (Note 1) 381,143 366,143
-------------- -------------
Total Other Assets 381,143 366,143
-------------- -------------
TOTAL ASSETS $ 397,957 $ 388,922
============== =============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 98,501 $ 98,501
Accrued expenses 16,325 16,325
Payroll taxes payable 32,670 32,670
Notes payable shareholders (Note 3) 24,336 2,336
-------------- --------------
Total Current Liabilities 171,832 149,832
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 2) - -
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value;
50,000,000 shares authorized,
30,370,200 shares issued and
Outstanding 30,370 30,370
Additional paid-in capital 2,410,736 2,410,736
Stock subscription receivable (15,000) (15,000)
Deficit accumulated during the
development stage (2,199,981) (2,187,016)
--------------- --------------
Total Stockholder's Equity 226,125 239,090
--------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 397,957 $ 388,922
=============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
1
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Operations
For the Three Months
Ended March 31,
--------------
1997 1996
--------------- ---------------
REVENUE $ - $ -
EXPENSES
Selling expense - -
Depreciation and amortization - 6,104
Research and development - 111,281
General and administrative 12,965 138,069
-------------- ----------------
Total Expenses 12,965 255,454
-------------- ----------------
OPERATING LOSS (12,965) (255,454)
OTHER INCOME (EXPENSE)
Gain on disposition of debt (Note 2) - 87,584
Interest - (26,224)
-------------- ----------------
Total Other Income (Expense) - 61,360
-------------- ---------------
NET LOSS $ (12,965) $ (194,094)
============== ================
WEIGHTED AVERAGE LOSS
PER SHARE $ ( 0.00) $ (0.01)
============== ================
The accompanying notes are an integral part of these consolidated financial
statements.
2
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Cash Flows
For the Three Months
Ended March 31,
1997 1996
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from operations $ (12,965) $ (12,266)
Adjustments to reconcile net cash
provided by operating activities
Depreciation - 6,104
Increase (decrease) in accrued expenses - (9,844)
---------------- ---------------
Net Cash used by operating activities (12,965) (20,480)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Investment in inventory (15,000)
Cash received from debt financing 22,000 20,480
---------------- ---------------
Net cash provided from financing
activities 7,000 20,480
---------------- ---------------
Net increase (decrease) in cash ( 5,965) -
---------------- ---------------
Cash at beginning of period 6,714 -
---------------- ---------------
Cash at ending of period $ 749 -
================ ===============
The accompanying notes are an integral part of these consolidated financial
statements.
3
ENVIRONMENTAL PLASMA ARC TECHNOLOGY INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Environmental Plasma Arc
Technology, Inc. (The Company). The Company was incorporated under the laws of
the State of Nevada on February 10, 1986 as Mainstay Investments, Inc. The
Company was organized for the purpose of searching out and acquiring or
participating in a business or business opportunity. In 1987, the Company
changed its name to Bio-Helix, Inc. On July 13, 1990, the Company's name was
changed to Concept Gold, Inc., and on September 30, 1992, the shareholders of
the Company voted to change the name to Environmental Plasma Arc Technology,
Inc. At such time, the Company resolved to issue stock for an agreement
between Nu-Arc Scientific, Inc., Edward Taylor and Carole Taylor, which gave
the Company exclusive marketing and manufacturing rights of certain patented
air purification systems for internal combustion engines and other
applications. The Company is currently in the beginning stages of marketing
and manufacturing these purification systems, and no significant revenues have
been realized from the sale of these purification system units. Accordingly,
the Company is classified as a development stage company as defined in SFAS
No. 7.
b. Consolidation
The consolidated financial statements include those of Environmental Plasma
Arc Technology, Inc. and its wholly-owned subsidiary, EPAT Marketing
Corporation. All intercompany accounts have been eliminated in the
consolidation.
c. Work in Process Inventory
Work in process inventories are stated at the lower of cost or market and
consist of the following:
March 31,
1997
-------------
Materials $ 277,915
Labor 103,228
-------------
$ 381,143
These costs have been incurred in manufacturing air purification systems for
resale. At March 31, 1997, the estimated market value was determined to be
greater than the cost of the inventory.
4
<PAGE>
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Continued)
March 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
d. Organization Costs
The Company amortized its organization costs, which reflect amounts expended
to organize the Company, over sixty months using the straight-line method.
e. Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
f. Income Taxes
No federal income taxes have been accrued due to net operating losses in each
year presented. The Company has net operating loss carryforwards of
approximately $2,184,000 which begin to expire in 2007 through 2011. No tax
benefit has been reported in the consolidated financial statements for the net
operating loss carryforward because of the uncertainty that sufficient future
income will be generated to offset the losses. The valuation allowance of the
loss carryforwards offsets any potential tax benefit.
g. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company was included in a lawsuit as a co-defendant with Nu-Arc
Scientific, Inc., Edward Taylor and Carole Taylor. The litigation concerned
the marketing and manufacturing rights of the plasma arc technology, which
rights were purchased by the Company. An out of court settlement of cash and
stock totaling $23,750 was negotiated on the case. An order dismissing the
action was subsequently signed on June 29, 1994.
The Company is involved as a co-defendant in a lawsuit with Bank One. Bank One
instituted a suit against the Company and certain affiliates of the Company
seeking to recover certain sums relating to overdrafts in the Company's bank
account. On March 18, 1994 the Company and its affiliates entered into a
settlement agreement with Bank One. The Company was unable to meet the terms
of the settlement agreement and on September 19, 1994, the co-defendants took
assignments of the bank's claim. The claims were paid by co-defendants and
were contributed to additional paid-in capital.
5
<PAGE>
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Continued)
March 31, 1997
NOTE 2 - COMMITMENTS AND CONTINGENCIES (Continued)
During 1996, the Company wrote off accounts payable of $81,012. The statute of
limitations has run for the amounts written off, and there have been no recent
collection actions by the former creditors. The Company believes that the
probability that it will be required to pay any of these amounts to be remote.
NOTE 3 - RELATED PARTY TRANSACTIONS AND NOTES PAYABLE - SHAREHOLDERS
All of the original common shares issued were "restricted" shares and not to
be resold except in compliance with the provisions of Rule 144 promulgated by
the Securities and Exchange Commission.
Various shareholders advanced funds to the Company on a short-term basis as
needed. The balances owed to the shareholders at March 31, 1997 were $24,336.
The notes accrue interest at 12.0%, are due on demand and are unsecured.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
Automobiles $ 2,500
Equipment 1,920
Furniture and fixtures 497
Promotional video 25,597
-----------
Total 30,514
Less accumulated
depreciation (14,449)
-----------
$ 16,065
===========
Property and equipment are recorded at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the related assets.
NOTE 5 - STOCKHOLDER TRANSACTIONS
On September 25, 1992, stockholders ratified an agreement dated August 10,
1992, to purchase the manufacturing and marketing and manufacturing rights of
air purification systems held by Nu-Arc Scientific, Inc., Edward Taylor and
Carole Taylor. The agreement provided that 70% of the total issued and
outstanding stock would be owned by Nu-Arc Scientific, Inc. and the Taylors,
10% would go to an investor group for services, 10% would be issued for a
private placement and 10% would be held by the shareholders of Concept Gold,
Inc.
6
<PAGE>
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
A Development Stage Company)
Notes to the Consolidated Financial Statements (Continued)
March 31, 1997
NOTE 5 - STOCKHOLDER TRANSACTIONS (Continued)
In November of 1992, the Company issued 14,000,000 shares for the marketing
and manufacturing rights to the "Plasma Arc Technology." The value of the
rights was recorded at predecessor cost which was $-0-.
Also in November of 1992, the Company issued 2,000,000 shares to an investor
group for services performed and 2,000,000 shares were issued and kept in
treasury for the private placement. 1,808,000 shares were sold for cash of
$455,500 with the remaining 192,000 shares remaining in treasury at December
31, 1992. During 1993, the remaining 192,000 shares were sold for cash at
$0.25 per share.
In June of 1993, the board of directors approved the cancellation of 2,000,000
shares issued to Nu-Arc Scientific, Inc.
In July of 1993, the Company issued 332,000 shares of common stock for cash at
$0.50 per share.
As mentioned in Note 3, Nu-Arc Scientific, Inc. sold some of its stock in the
Company to pay liabilities incurred by the Company, with the remainder being
contributed to capital.
During 1993, Edward Taylor and Carole Taylor, major shareholders of the
Company, filed for bankruptcy. Their stock was sold at a sheriff's sale to a
group of investors and certain shareholders of the Company, thus changing the
majority control of the Company. In 1994, some of these shares were used to
settle debts of the Company (see Note 8).
During 1994, the board of directors approved the cancellation of 57,000 shares
issued to Nu-Arc Scientific, Inc.
During 1995, 80,000 shares issued to a vendor in lieu of payment were returned
to the Company and were canceled. The corresponding liability was added back
to accounts payable.
NOTE 6 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company has not yet realized
significant revenue from the sale of the purification systems, and must rely
on proceeds from stock sales to continue operations. The Company plans to
continue to market the systems in order to increase revenues to a level
sufficient to support operations. Until these sales levels are reached,
without realization of additional adequate financing, it would be unlikely
that the Company will be able to pursue and realize its objectives.
7
<PAGE>
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements (Continued)
March 31, 1997
NOTE 7 - STOCK SETTLEMENTS
During 1994, the Company negotiated stock settlement agreements with several
vendors and creditors of the Company. The board of directors also approved the
settlement of several obligations of Nu-Arc Scientific, Inc. and Edward and
Carole Taylor, with stock of the Company owned by shareholders of the Company.
This was done to alleviate the risk of any future claims being brought against
the Company's right to market the technology purchased from Nu-Arc Scientific,
Inc. and Edward and Carole Taylor.
Approximately $271,553 of accounts payable and accrued expenses recorded on
the books of the Company at December 31, 1993 were satisfied through these
settlement agreements.
During 1996, the Company settled accounts payable of $229,601 by issuing
920,000 shares of its common stock. The Company also settled shareholder loans
totaling $381,921 by issuing 8,919,000 shares of its common stock.
NOTE 8 - INTANGIBLE ASSETS
In November of 1993, a group of investors and certain shareholders of the
Company acquired the patent rights of the "Plasma Arc Technology". The group
of investors and certain shareholders of the Company contributed the patent to
the Company. No dollar value has been assigned to the patent.
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 749
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 749
<PP&E> 30,514
<DEPRECIATION> 14,449
<TOTAL-ASSETS> 397,957
<CURRENT-LIABILITIES> 171,832
<BONDS> 0
0
0
<COMMON> 30,370
<OTHER-SE> 195,755
<TOTAL-LIABILITY-AND-EQUITY> 397,957
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,965)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,965)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
