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 September 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
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(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
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(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 September 30, 1997, the Issuer had issued and outstanding an
aggregate of 6,697,004 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 September 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 has $27,492 in revenues from operations for the quarter
ended September 30, 1997 as compared to $48,929 in revenues for the previous
quarter which ended on June 30, 1997. The Company has no revenues from
operations for any other period relevant to this report, including the quarter
ending on September 30, 1997.
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
Colorado, Mississippi, California and Louisiana.
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
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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
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
On June 20, 1997 the Company issued 3,000,000 shares of its common
stock to complete its obligations under the Share Exchange Agreement entered
into between the Company and Environmental Water Systems, Inc. An additional
660,000 shares of the Company's common stock was issued on August 15, 1997 for
the release of the Company from certain indebtedness evidenced by promissory
notes that were in default. All shares were issued pursuant to applicable
exemptions from the registration requirements of the Securities Act of 1933 as
amended and are restricted securities as that term is defined by Reg.
230.144(a)(3).
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) The Company filed a Report on Form 8-K on September 9, 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 14th day of November, 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
September 30, 1997 and 1996
(Unaudited)
ENVIRONMENTAL PLASM ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Financial Statements
ASSETS
------
September 30, DECEMBER 31,
1997 1996
---- ----
CURRENT ASSETS:
Cash $ 38,933 $ 6,714
Accounts receivable 13,135 -
Inventory 66,734
---------
Total Current Assets 118,802 6,714
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PROPERTY AND EQUIPMENT 216,914 16,065
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OTHER ASSETS:
Work in process inventory 381,143 366,143
Goodwill 4,105,124 -
Other 2,500 -
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Total Other Assets 4,488,767 366,143
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TOTAL ASSETS $4,824,483 $ 388,922
========== ===========
LIABILITIES AND STOCKHOLDERS (DEFICIT)
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 227,152 $ 98,501
Accrued expenses 16,325 16,325
Payroll taxes payable 74,216 32,670
Notes payable - shareholders 383,836 2,336
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Total Current Liabilities 701,529 149,832
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COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common Stock, $0.001 par value;
50,000,000 shares Authorized,
6,037,020 shares issued
and outstanding (Notes 1 & 2) 6,037 30,370
Additional paid-in capital (Note 1) 6,485,069 2,410,736
Stock subscription receivable 110,000 (15,000)
Deficit accumulated during the
development stage (2,478,152) (2,187,016)
--------- ----------
Total Stockholder's Equity 4,122,954 239,090
--------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $4,824,483 $ 388,922
============ ==========
The accompanying notes are an integral part of these consolidated financial
statements.
ENVIRONMENTAL PLASM ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Operations
For the Three Months
Ended September 30,
-------------------------
1997 1996
----------- -----------
REVENUE $ 27,492 $ -
COST OF GOOD SOLD 90,016
-----------
Gross Profit (62,524) -
EXPENSES
Selling expense 19,844 -
Depreciation and amortization - 1,630
Research and development - -
General and administrative 207,512 7,744
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Total Expenses 227,356 9,374
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OPERATING LOSS (289,880) (9,374)
OTHER INCOME (EXPENSE)
Interest (284) (6,227)
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Total Other Income (Expense) (284) (6,227)
--------- ----------
NET LOSS $(290,164) $ (15,601)
=========== ==========
WEIGHTED AVERAGE LOSS
PER SHARE $ (0.05) $ (0.001)
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
ENVIRONMENTAL PLASM ARC TECHNOLOGY, INC.
(A Development Stage Company)
Unaudited Consolidated Statements of Operations
For the Three Months
Ended September 30,
--------------------------
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (Loss) from operations $ (290,164) $ (15,601)
Adjustments to reconcile net cash provided
by operating activities
(Increase) decrease in accounts receivable 11,950 -
Depreciation - 1,630
(Increase) in inventories (15,831) -
Increase in accounts payable 67,456 -
Increase (decrease) in current liabilities 36,506 6,471
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Net Cash (used by) operating activities (190,083) (7,500)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (29,528) -
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in notes payable 126,635 7,500
Proceeds from stock subscription 125,000 -
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Net cash provided from financing activities 251,635 7,500
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Net increase (decrease) in cash 32,024 -
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Cash at beginning of period 6,909 -
--------- ------------
Cash at ending of period $ 38,933 -
=========== =============
The accompanying notes are an integral part of these financial statements.
ENVIRONMENTAL PLASM ARC TECHNOLOGY, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 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 purchase. The Company issued 3,000,000
shares of restricted stock for 100% of the outstanding stock of the
subsidiary. The balance sheet and income statement reflect the combined
numbers of the companies as of September 30, 1997 and the statement of
operations for the three months ended September 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> SEP-30-1997
<CASH> 38,933
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<RECEIVABLES> 13,135
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