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 June 30, 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 [XX] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of June 30, 1997, the Issuer had issued and outstanding an
aggregate of 3,037,004 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 June 30, 1997 are
attached hereto and incorporated by reference.
ITEM 2. PLAN OF OPERATION
-----------------
The Company is a holding company which owns two subsidiaries,
Environmental Water Systems, Inc., a Nevada corporation ("EWS"), and EPAT,
Inc., a Delaware corporation ("EPAT"). In addition, the Company is actively
seeking to acquire additional businesses involved in the environmental
industry.
The Company had $23,991 in revenues from operations for the quarter
ended June 30, 1997, The Company had no revenues from operations for any other
period relevant to this report, including the quarter ended June 30, 1996.
ENVIRONMENTAL WATER SYSTEMS, INC.
- ---------------------------------
The Board of Directors of the Company approved a plan for the
Company to acquire substantially all of the issued and outstanding shares of
Environmental Water Systems, Inc. ("EWS") on June 7, 1997. This Acquisition
was completed on July 21, 1997.
EWS was incorporated in 1995 in the State of Nevada and operates
with corporate headquarters in Denver, Colorado. EWS's primary business is
providing turn-key waste water treatment systems. This turn-key solution
includes marketing, designing, manufacturing, installation and maintenance of
its patented and proprietary industrial waste water systems. EWS initially
obtained a marketing and manufacturing license for a patented
electrocoagulation reaction chamber. Since obtaining this license, EWS has
further developed technology which, when combined with the aforementioned,
provides a complete wastewater treatment system for industries whose
wastewater contains heavy metals, emulsified oil and other organic and
inorganic matter. To date the EWS system is in use by several businesses in
the greater Denver, Colorado area.
In addition to the design of systems, EWS has a complete water
testing laboratory to support the specific design of treatment systems and to
continue a very aggressive research and development program which will open
additional markets.
The EWS Technical Team is comprised of over 30 professionals that
specialize in different technologies used in the treatment of wastewater.
Many members of the Team have one or more Doctorate Degrees in the areas of
chemistry, metallurgy and electronics. In the customer evaluation process the
Team studies the specific needs of the customer and a customized waste water
treatment system is designed utilizing the patented and proprietary systems
licensed and owned by EWS.
-The Market-
In the past 20 years the United States government and other
governments throughout the world have enacted many environmental laws. The
U.S. Environmental Protection Agency ("EPA") has established progressively
stricter discharge standards based on Best Demonstrated Available Technology,
with the ultimate goal being ZERO DISCHARGE and the restoration of ground
water to drinking water standards. Industry throughout the world is now being
forced by government regulation to clean up their discharge water. With these
mandates being enforced, there is a need for effective and economical
treatment systems. These systems must accommodate the most stringent water
users today and in the future.
There are many different technologies dealing with water treatment
in the market today. None of these use the same type of technology as the
patented and proprietary component of the EWS Treatment System. Industry has
used chemicals and forms of filtration devices to clean its waste water to
date. EWS does not use these systems as its key technology. Through the use
of existing filtration systems and the EWS patented and proprietary process,
EWS's system results in significantly less harmful particulates in the
discharge water with lower overall operational costs.
-Competition-
The Company is aware of no other companies in the water purification
business using the same type of technology which makes up the basic component
of the proprietary EWS Treatment System. The industry has and currently is
using chemicals or some types of filtration systems as key parts of their
systems to clean the water. EWS can supply its customers with a complete
treatment system or can retrofit specific components to an existing treatment
system, often lowering overall system operating cost. EWS combines its
treatment system with the customer's existing treatment system resulting in a
reduction in overall operational costs and compliance with water discharge
requirements.
EPAT, INC.
- ---------
EPAT is continuing to document and engineer it's air purification
system. The EPAT Technology is an electro-mechanical system that has proven,
in monitored trials, that it is capable of reducing air pollutants from
commercial and industrial facility discharge systems by means of an electrical
field. The process uses "non-thermal plasmas" generated by electric arcs and
coronas that energize air stream molecules and remove pollutants by causing
them to undergo molecular changes. Research engineers retained by the Company
believe that the applications of this process have potential to be used by oil
refineries, steel production plants, public utility power plants, cogeneration
facilities, chemical products, commercial printers, waste disposal facilities,
incinerators and other discharge facilities.
The research engineers retained by EPAT are currently in the process
of testing a prototype configuration of the EPAT Technology. Tests of the
EPAT Technology have occurred, among others, on biomedical incineration and
commercial printing facilities. These tests were conducted by independent
testing agencies that measured removal rates of pollutants in industrial
discharge. Such tests of the EPAT prototype offers considerable promise for
the development of the EPAT Technology for numerous applications, although
there can be no assurance that such development will be successful.
-Marketing Strategy-
EPAT's short-term marketing strategy is to install a
test/demonstration unit at a host facility, which would agree to purchase a
system from the Company at such time as the unit demonstrates its
effectiveness. It is intended that a complete set of third party tests will
be conducted at this site to evaluate the capabilities and effectiveness of
the EPAT Technology. Other opportunities will be sought to install units for
other applications that are compatible with the current stage of development
of the EPAT Technology in an attempt to attain technical credibility for the
systems. Assuming the EPAT Technology is demonstrated to be successful in
effectively removing and reducing air pollutants, of which there can be no
assurance, it is anticipated that the devices using the EPAT Technology will
be manufactured in various sizes, and would be capable of removing and
reducing emissions of a wide range of pollutants and compounds and of
providing either primary or secondary air stream treatment.
-Competition-
If EPAT is able to develop a product using the EPAT Technology that
is demonstrated to be effective in removing or reducing air pollutants, the
Company believes that the EPAT Technology can compete effectively with other
technologies currently available. These include, for example, scrubbers,
electrostatic precipitators, catalytic converters, carbon absorption systems,
filtration devices, thermal incinerators and other methods of controlling
emissions. If a system using the EPAT Technology is successfully developed,
of which there can be no assurance, the Company believes that such system will
compete favorably in a number of areas. The Company's system is intended to
reduce multiple pollutants in a single process, while most currently existing
systems are effective in reducing only one pollutant in the air stream and
require by-product removal and clean-up. The Company believes that its system
will most likely compete favorably in the area of initial cost, the costs of
continued maintenance and effectiveness. The Company faces substantial
competition, however, from conventional environmental control methods and may
compete with companies that have more extensive research, marketing and
manufacturing capabilities and significantly greater financial, technical and
personnel resources than the Company.
-Patent and Patent Applications-
The Company has been issued a patent relating to the EPAT Technology
from the United States Patent and Trademark Office and has filed patent
applications in several foreign jurisdictions. The Company may seek
additional patents with respect to the EPAT Technology in the United States
and internationally.
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 June 30, 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
---------------------------------------------------
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.
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 June
30, 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 13th day of August, 1997.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
By: /s/John W. Peters
------------------------
John W. Peters
President and Chairman of the Board of Directors
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Consolidated Financial Statements
June 30, 1997 and 1996
(Unaudited)
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Financial Statements
ASSETS
------
JUNE 30, DECEMBER 31,
1997 1996
---- ----
CURRENT ASSETS:
Cash $ 6,909 $ 6,714
Accounts receivable 25,085 -
Inventory 50,903
---------
Total Current Assets 82,897 6,714
--------- ----------
PROPERTY AND EQUIPMENT (Note 4) 187,386 16,065
--------- ----------
OTHER ASSETS:
Work in process inventory (Note 1) 381,143 366,143
Minority interest 31,691 -
Goodwill 4,073,434 -
Other 2,500 -
--------- ----------
Total Other Assets 4,488,768 388,143
--------- ----------
TOTAL ASSETS $4,759,051 $ 388,922
========== ===========
LIABILITIES AND STOCKHOLDERS (DEFICIT)
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 159,696 $ 98,501
Accrued expenses 16,325 16,325
Payroll taxes payable 37,710 32,670
Notes payable - shareholders (Note 3) 257,202 2,336
--------- ---------
Total Current Liabilities 470,933 149,832
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 2) - -
STOCKHOLDERS' EQUITY:
Common Stock, $0.001 par value;
50,000,000 shares
Authorized, 6,037,020 shares issued and
outstanding 6,037 30,370
Additional paid-in capital 6,485,069 2,410,736
Stock subscription receivable (15,000) (15,000)
Deficit accumulated during the
development stage (2,187,988) (2,187,016)
--------- ---------
Total Stockholder's Equity 4,288,118 239,090
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $4,759,051 $ 388,922
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Operations
For the Three Months
Ended June 30,
1997 1996
---------- -----------
REVENUE $ 23,991 $ -
COST OF GOODS SOLD 5,871 -
--------- -----------
Gross Profit 18,120 -
EXPENSES
Selling expense 10,774 -
Depreciation and amortization - 6,104
Research and development 6,301 111,281
General and administrative 207,441 138,069
--------- ---------
Total Expenses 224,517 255,454
--------- ---------
OPERATING LOSS (206,395) (255,454)
OTHER INCOME (EXPENSE)
Gain on disposition of debt (Note 2) - 87,584
Minority Interest 24,535
Interest (2,035) (26,224)
---------- ----------
Total Other Income (Expense) 22,500 61,360
---------- ----------
NET LOSS $ (183,895) $(194,094)
=========== ==========
WEIGHTED AVERAGE LOSS
PER SHARE $ (0.03) $ (0.01)
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Operations
For the Three Months
Ended June 30,
1997 1996
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from operations $ (204,505) $ (12,266)
Adjustments to reconcile net cash provided
by operating activities
(Increase) decrease in accounts receivable (12,085) -
Depreciation - 6,104
(decrease) in minority interest (35,938) -
(Increase) in inventories (39,403) -
Increase in accounts payable 34,941 -
Increase (decrease) in current liabilities (1,248) (9,844)
---------- ------------
Net Cash (used by) operating activities (294,238) (20,480)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (27,689) -
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 304,944 20,480
Cash received in acquisition 17,178 20,480
---------- ----------
Net cash provided from financing activities 322,122 20,480
---------- ----------
Net increase (decrease) in cash 195 -
--------- ----------
Cash at beginning of period 6,714 -
--------- ----------
Cash at ending of period $ 6,909 -
========== ==========
The accompanying notes are an integral part of these financial statements.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 1997
NOTE 1 - ACQUISITION OF NEW SUBSIDIARY
On June 20, 1997 the Company acquired Environmental Water Systems in a
share exchange that qualified as a pooling of interests. The Company issued
3,000,000 shares of restricted stock for 87% of the outstanding stock of the
subsidiary. The balance sheet and income statement reflect the combined
numbers of the companies as of June 30, 1997 with intercompany accounts
eliminated in the consolidation. 1996 numbers are those of the parent company
only.
NOTE 2 - STOCK TRANSACTIONS
On May 2, 1997 the company effected a 10 to 1 reverse split of its common
stock, issuing one share of stock for each ten shares held by stockholders.
The reverse split did not affect the par value of the stock.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,909
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