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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-18995
INTERLINE RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0461653
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
160 West Canyon Crest Road, Alpine, UT 84004
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 756-3031
Securities registered pursuant to Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock $.005 Par Value
Title of Class
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the 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 X No____.
APPLICABLE TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
PRECEDING FIVE YEARS Indicate by check whether the Registrant has filed all
documents and reports required to be file by Section 12,13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes X No____.
Common stock outstanding at May 12, 2000 - 14,066,052 shares of $.005 par value
Common stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
1
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<PAGE>
FORM 10-QSB
INTERLINE RESOURCES CORPORATION
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
Item 1 Financial Statements Page
Condensed Consolidated Balance Sheet at March 31, 2000 5
Condensed Consolidated Statement of Operations for the
three months ended March 31, 2000 and 1999 7
Condensed Consolidated Statements of Cash Flows for
three months ended March 31, 2000 and 1999 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. - OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in the Securities 22
Item 3 Defaults Upon Senior Securities 22
Item 4 Submission of Matters to a Vote of Security Holders 22
Item 5 Other Information 23
Item 6(a) Exhibits 23
Item 6(b) Reports on Form 8-K 23
Signatures 24
2
<PAGE>
FORWARD LOOKING INFORMATION AND RISK FACTORS
Interline Resources Corporation (the "Company") or its representatives may
make forward looking statements, oral or written, including statements in this
report's Management's Discussion and Analysis of Financial Condition and Results
of Operation, press release and filings with the Securities and Exchange
Commission, regarding estimated future net revenues from operations, planned
capital expenditures (including the amount and nature thereof), the effects of
the Company's prior Bankruptcy proceeding, the Company's projected financial
position, results of operations, business strategy and other plans and
objectives for future operations. These statements are forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1993 and
Section 21E of the Securities Exchange Act, which reflect Management's current
views with respect to future events and financial performance.
Although the Company believes that the expectations reflected in these
forward looking statements are reasonable, there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected effects on its
business or results of operations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include but are not limited to the
outcome of the Company's current Bankruptcy Proceeding, the timing and extent of
changes in commodity prices, unforeseen engineering and mechanical or
technological difficulties in connection with the Company's business operations
and other risks.
Theses forward-looking statements are subject to certain risks and
uncertainties including, but not limited to, future financial performance and
future events, competitive pricing for services, costs of obtaining capital as
well as national, regional and local economic conditions. Actual results could
differ materially from those addressed in the forward-looking statements. Due to
such uncertainties and risks, readers are cautioned not to place undue reliance
on such forward-looking statements, which speak only as of the date whereof.
All subsequent oral and written forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
3
<PAGE>
INTERLINE RESOURCES
CORPORATION AND
SUBSIDIARIES
PART I - ITEM 1
FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000
The condensed financial statements included have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The Company presumes that the
user of this interim financial information has read or has access to the audited
financial statements for the preceding fiscal year----and in that context, this
disclosure is adequate for a fair presentation of the Company's financial
position.
In the opinion of the Company, all adjustments consisting of only normal
recurring adjustments as of March 31, 2000, have been made. The results of
operations for the interim period are not necessarily indicative of the results
to be expected for the entire year.
4
<PAGE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
March 31,
2000
-----------
Assets
Current assets:
Cash and cash equivalents $560,137
Accounts receivable - trade 493,037
Inventories 35,339
Other current assets 11,712
-----------
Total current assets 1,100,225
Property, plant and equipment 6,590,223
Accumulated depreciation and depletion (2,960,032)
-----------
Net property, plant & equipment 3,630,191
Technology and marketing rights 533,571
-----------
Total assets $5,263,987
============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
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INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
March 31,
2000
------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $291,572
Accrued liabilities 60,596
Note payable, related party 3,595,920
Current portion of long-term debt 154,497
-----------
Total current liabilities 4,102,585
-----------
Long-term debt less current maturities 676,719
-----------
Total liabilities 4,779,304
Stockholders' equity:
Preferred stock - $.01 par value,
25,000,000 shares authorized; 1,000,000
series A shares authorized; 0 series A
shares issued and o/s -
Common stock - $.005 par value, 100,000,000
shares authorized; 14,066,052 shares
outstanding at March 31, 2000 70,330
Additional paid-in capital 9,209,058
Retained earnings (8,794,705)
-----------
Total stockholders' equity 484,683
-----------
Total liabilities & stockholders' equity $5,263,987
============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
<PAGE>
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
Three months ended
March 31
2000 1999
----------------------------
Revenue $1,316,803 $816,934
Direct costs 825,144 534,212
----------------------------
Gross margin 491,659 282,722
Selling, general and
administrative expenses 258,509 240,416
Research and development 7,128 19,678
Depreciation, depletion and amortization 184,617 168,712
----------------------------
Income (loss) from operations 41,405 (146,084)
Other income (expense) net
Interest income (expense) (17,082) (14,226)
Interest expense, related party (76,619) (63,000)
Gain from sale of assets - 18,908
----------------------------
Net loss before income taxes ($52,296) ($204,402)
Income tax benefit
Current - -
Deferred - -
----------------------------
Net (loss) ($52,296) ($204,402)
============================
Loss per common share - basic and diluted ($0.00) ($0.01)
============================
Weighted average shares - basic and diluted 14,066,052 14,066,052
============================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
7
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INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31
2000 1999
----------------------------
Cash flows from operating activities:
Net (loss) ($52,296) ($204,402)
Adjustment to reconcile net (loss) to net
cash (used in) provided by operating activities:
Depreciation, depletion and amortization 184,617 168,711
Gain on disposal of asset - (18,908)
(Increase) decrease in:
Accounts receivable 28,043 (130,618)
Inventories 5,433 9,834
Other current assets 4,916 (13,041)
Note receivable 77,500 3,975
Increase (decrease) in:
Accounts payable 100,560 (109,200)
Accrued liabilities 21,128 (25,504)
Deferred income - (1,888)
----------------------------
Net cash provided (used) by operating activiies 369,901 (356,754)
Cash flows from investing activities:
Proceeds from sale of equipment - 3,000
Purchase of property, plant & equipment (102,710) (82,123)
----------------------------
Net cash used in investing activities (102,710) (79,123)
The accompanying notes are an integral part of these consolidated condensed
financial statements.
8
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INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31
2000 1999
----------------------------
Cash flows from financing activities:
Proceeds from debt obligations 72,600 76,280
Payment on long-term debt (35,389) (25,309)
----------------------------
Net cash provided by financing activities 37,211 50,971
----------------------------
Net increase (decrease) in cash 304,402 (349,193)
Cash, beginning of period 255,735 762,459
----------------------------
Cash, end of period $560,137 $413,266
============================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
9
<PAGE>
PART 1 - ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Interline Resources Corporation (the Company), is a Utah corporation with
its principal and executive offices located at 160 West Canyon Crest Road, Utah
84004 (801) 756-3031. The Company's current operating subsidiaries are (1)
Interline Energy Services, Inc. ("Interline Energy") a Wyoming corporation which
manages the Company's oil and gas operations located in Wyoming which consist of
natural gas gathering, natural gas processing, over the road NGL truck
transportation and oil well production. and (2) Interline Hydrocarbons, Inc.
("Interline Hydrocarbons") a Wyoming corporation which owns and operates the
Company's used oil refining technology.
On September 26, 1997, the Company filed a Petition for Reorganization
under Chapter 11 (the Petition) of the United States Bankruptcy Code. The
Company continued its operations as a debtor-in-possession under the Bankruptcy
Code. The Company's subsidiaries did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceedings.
On June 18, 1998, the Company filed a Plan of Reorganization and
Disclosure Statement to the Plan of Reorganization with the United States
Bankruptcy Court for the District of Utah, Central Division. On July 14, 1998,
the Company's Plan of Reorganization and Disclosure Statement to the Plan of
Reorganization was approved and circulation thereof was authorized by the United
States Bankruptcy Court for the District of Utah, Central Division.
On September 10, 1998, the Plan of Reorganization was confirmed by the
United States Bankruptcy Court for the District of Utah. As a result, restraints
on the activities of Interline imposed by the Bankruptcy code were removed.
Interline reached agreement with its major creditor during the Chapter 11 case
and the terms of the agreement (See Part 1 - Item 2 Liquidity and Capital
Resources) were incorporated in the plan. All other creditors were paid in full
under the plan.
Interline Energy Services - Oil and Gas Operations.
The Company has been engaged in the oil and gas industry since 1990, and
currently operates in east-central Wyoming near Douglas. The Company's oil and
gas operations include the Well Draw Gas Plant, a crude gathering pipeline, a
20.4% interest in the Hat Creek Partnership, NGL trucking and four producing oil
and gas wells.
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Well Draw Gas Plant
The Well Draw Gas Plant (the "Plant"), is a natural gas liquids (NGLs)
processing plant with a 150,000 gallon per day capacity. The Plant processes
NGL's into propane, butane and natural gasoline. As part of the Plant system,
the Company owns a natural gas gathering pipeline system. The gathering system
is connected to the Well Draw Gas Plant and supplies a small percentage of
liquids for the Plant. Most of the NGL's originate from liquids that are trucked
into the Plant from outside sources.
At the Well Draw Gas Plant ("Well Draw") the Company buys mixed liquids
from several different plants, transports them to Well Draw, fractionates the
liquids into commercial propane, butane, and natural gasoline, and re-markets
these products for its own account. The Company enters into agreements for
fractionation of liquids from others on a fee basis. The plant processed and
fractionated a total of 107,988 gallons a day of natural gas liquids for the
three months ended March 31, 2000 compared to 100,007 gallons a day for the
three months ended March 31, 1999. Of the total gallons fractionated and
processed, 8,807 gallons per day was for the Company and 99,181 gallons per day
for others, as compared to 9,228 and 90,779 gallons per day respectively for the
three month ended March 31, 2000 and 1999
Merit (formerly Amoco) Agreement
During 1994, the Company entered into a six year contract with Amoco
Production Company ("Amoco") to process NGLs located at its Baroil Plant located
in Wyoming. On December 1, 1999, Amoco Production Company sold its Baroil Plant
assets to Merit Energy Company ("Merit"). The initial term of the six year
agreement was to expire on June 1, 2000. Thereafter, the contract automatically
renews for one year terms, unless Merit serves the Company with notice to
terminate 90 days prior to the end of a term. The Company did not receive a
termination notice from Merit, so the next expirations date is June 1, 2001. The
Merit agreement is the largest liquids contract the Company has. To fulfill the
contract, the Company made modifications to the Well Draw Gas Plant to increase
its processing capacity from 90,000 to approximately 150,000 gallons per day.
The Company also constructed an amine treating unit to reduce sulfur
concentrations of the NGLs at the Bairoil, Wyoming plant where the NGLs are
collected. During the three months ended March 31, 2000 the Company processed an
average of 47,264 gallons per day of Merit liquids compared to 50,182 gallons
per day for the three months ended March 31, 1999. The Merit contract accounted
for 43.77% of the total NGLs processed for the three months ended March 31, 2000
and 50.17% for 1999.
KN Gas Gathering Agreement
During 1998, the Company entered into an agreement with KN Gas Gathering,
Inc. ("KNGG") to process NGLs on a month to month basis. On October 7, 1999, all
assets of KNGG was purchase by Kinder Morgan ("KM"). During the three months
ended March 31, 2000, the Company processed an average of 47,383 gallons per day
of NGLs under the KM contract compared to 40,599 gallons per day for the three
months ended March 31, 1999. The
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KM contract accounted for 43.87% of the total NGLs processed by the plant for
the three months ended March 31, 2000 compared to 40.59% of the total NGLs
process for the three months ended March 31, 1999. On March 1, 2000, due to
decreases in NGL prices, KM informed the Company of its intentions to decrease
NGL's processed at the Company's plant to approximately 10,000 to 20,000 gallons
a day.
Conoco Pipeline
The Conoco Pipeline, purchased by the Company from Conoco Pipeline Company
in January of 1995 is a 180 mile crude gathering and trunk pipeline with
associated pumping stations and storage tanks. The pipeline transports oil from
oil producing fields in Converse County, Wyoming to Conoco's Lance Creek Station
where it connects with an interstate crude oil pipeline system. The Company
receives revenues from operation of the Conoco Pipeline by charging a
transportation fee. The pipeline gathered and transported approximately 60,968
barrels of oil for the three months ended March 31, 2000 compared to 45,041 for
the three months ended March 31, 1999.
Hat Creek Partnership
The Hat Creek Partnership, of which Interline Energy owns a 20.4%
interest, owned working interests in two oil and gas wells -- the Hat Creek #2,
and CH Federal wells -- and a 13 mile gathering line interconnected to the Well
Draw Gas Plant. Effective July 1, 1999, the Company sold its interests in the
Hat Creek #2 well for the sum of $2,040 to Dakota Oil LLC. Dakota Oil LLC is a
company formed and owned in part by Company insiders, to attempt a recompletion
of the Dakota producing zone in the Hat Creek #2 well, which if successful,
would have provided additional natural gas reserves to the Company's Well Draw
Gas Plant.
Unfortunately, the recompletion was unsuccessful.
Oil Well Production
The Company owns working interests in four wells located in Converse
County, Wyoming. The Company is also the operator of these wells. During the
three months ended March 31, 2000, the wells produced approximately 1,979
barrels of oil and 3,741 Mcf of natural gas compared to approximately 1,358
barrels of oil and 3,016 Mcf of natural gas for the three months ended March 31,
1999.
NGL Trucking Operations
The Company's NGLs transportation operation consists of seven
tractor-trailer-pup combination units. These units move unprocessed natural gas
liquids to Well Draw fractionation, and takes propane, butane and natural
gasoline from Well Draw to various refiner, chemical plants, and end-users. When
time permits, these trucks also move liquids on a common carrier basis for third
parties. The Company intends to continue to emphasize this profitable business
segment, and believes that our reputation for flexibility and customer service
will allow us to maximize opportunities.
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During the three months ended March 31, 2000, the Company's trucks
collectively traveled 269,173 miles and carried a total of 12 million gallons of
raw and finished product for the three months ended March 31, 2000 compared to
213,457 miles and 9 gallons of raw and finish product for the three months ended
March 31, 1999.
Interline Hydrocarbon - Used Oil Refining.
In January, 1993, the Company acquired certain patent rights to a used oil
reprocessing technology from Petroleum Systems Inc., ("PSI"). However, as a
result of substantial independent research and development of used oil
technologies and processes since 1993, the Company has been able to develop a
new process which does not utilize the PSI technology. On May 28, 1998, the
Company filed a patent application in the United States Patent Office for a new
and alternative method from the PSI technology for processing used oil. This new
technology has been implemented in the Korean, Australian and Spanish Plants. As
a result, on September 10, 1998 the Company reassigned to PSI all of the
intellectual rights it obtained from it under the assignment agreement. In
making that re-assignment, the Company assigned all rights it had to receive
royalties from any plants constructed by the Company which utilized PSI
technology.
To date, the Company has constructed or licensed six used oil plants. For
full disclosure on each plant, refer to the Company's December 31, 1999 10-KSB
filing.
Revenues to the Company, from its used oil refining technology can come
from five sources: 1) profits made from constructing used oil plants, 2)
granting exclusive territories to licensee, 3) receiving royalties based on
either production or a flat yearly licensing fee, 4) taking partnership
interests in operating Plants by either contributing the technology and/or
making cash contributions for partnership interests and, 5) rather than build
plants, sell the construction plans and provide consultation and expertise so
the customer can then build the Plant.
Based on the experiences with the six Plants that have been constructed or
licensed by the Company, management's current belief is to stay out of the
construction business. Further, until the Company becomes more financially
stable, it is not in a position to take interests in operating Plants.
Management believes the best way for it to capitalize on the technology is to
sell the construction plans for a Plant and provide consultation services to the
purchaser.
It has also become evident to management that demanding royalties based on
production in many situations and countries is difficult. Unless and until the
re-refined oil produced in a Plant can be sold at higher values based on pricing
similar to base lubricating oils, on-going royalties based on production is
difficult to obtain. This reality has been seen in both Korea, where the royalty
was terminated for the first plant, and England where, as described in previous
filings, the royalties were reduced and not payable until profitable.
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Management still believes that there exists economic justification and
interest in the used oil refining technology. The most viable opportunities
management has discovered are in countries that have governmental concessions
resulting in economic incentives for collecting and processing used oil. In
March of 2000, the Company hired Delphos International, a Washington DC based
consulting firm specializing in international business development to help
develop the technology in foreign nations. Delphos has experience in working
with world wide government agencies which offer special funding and
consideration for environmental projects throughout the world.
From experience, management is aware of the complicated nature between the
balance of supply and demand. Management has become much more selective in its
consideration of selling the technology to prospective purchasers and unless
favorable conditions exist the Company discourages the purchaser. Management has
become much more active in helping potential customers evaluate their end
product sales markets.
Transpacific Industries - Australia
In September 1996, the Company signed an exclusive purchase agreement with
Transpacific Group of Companies granting them exclusive rights to the Technology
for all of Australia. Under the terms of the agreement, Transpacific purchased
from the Company a 24,000 gallon per day plant for $3.4 million. On July 16,
1997, Transpacific announced that it had formed a new Australian national used
oil collection, recycling and refining company called Nationwide Oil Pty. Ltd.
with Shell Australia Ltd., and Mobil Oil Australia Ltd. to own and operate the
plant.
The Company completed construction of the Nationwide plant in Sydney in
August of 1998 and the plant has been operating since that time. Per the
purchase agreement, upon completion of the plant the Company is entitled to
retention monies in the amount of $186,509 and ongoing royalties of 6 cents per
gallon. Since the inception of the startup of the Australian plant, the Company
has tried on many occasions to receive these outstanding sums and to resolve the
royalty issues with Transpacific. These negotiations have not been successful.
In February of 2000, the Company hired legal counsel in Australia to pursue
money due under the purchase agreement.
Ecolube, S.A. - Madrid, Spain
On June 10, 1998 the Company signed an engineering and marketing agreement
with Ecolube, S.A., a subsidiary of Sener Engineering of Madrid, Spain. Under
the agreement, the Company provided Ecolube with engineering specifications and
construction drawings for the building of a 24,000 gallon per day waste oil
re-refinery in Madrid. Under the agreement, Ecolube will construct and operate
the plant and produce lubricant base oil. Interline receives a $534,000
engineering and licensing payment and running royalties of $0.0175 on each
gallon produced and sold for 10 years. Ecolube has the right to build additional
plants in the Iberian Peninsula (Spain and Portugal) for a four year period
commencing from the date of plant start up. The Ecolube Plant has now been
constructed, and is currently (May 12, 2000) being started up. Full
commissioning is expected to be complete during June 2000.
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Results of Operations
The following analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto, included elsewhere in this report.
Total Revenues For Three Months Ended March 31, 2000 and 1999
Revenues increased $499,869, or 61.19%, to $1,316,803 for the three months
ended March 31, 2000 as compared to $816,934 for the three months ended March
31, 1999. The revenue increase included a $430,521 or 52.70%, increase in oil
and gas revenues and a $69,348 increase in used oil refining revenues. The
Company's total revenues, on a segment basis, for the three months ended March
31, 2000 and 1999 were as follows:
Revenues For Three Months Ended March 31, 2000 and 1999
2000 % 1999 %
- -----------------------------------------------------------------------------
Oil and Gas $1,247,455 94.733% $816,934 100%
Used Oil refining 69,348 5.27% 0 0%
Other 0 0% 0 0%
- -----------------------------------------------------------------------------
Total Revenue $1,316,803 100% $816,934 100%
=============================================================================
Oil and Gas Revenues
Oil and gas revenues contributed 94.73% of total revenues for the three
months ended March 31, 2000, as compared to approximately 100% for the three
months ended March 31, 1999. Revenues increased $430,521 or 52.70% to $1,247,455
for the three months ended March 31, 2000 as compared to $816,934 for the three
months ended March 31, 1999.
During the three months ended March 31, 2000 revenues increased $430,521,
or 52.70%. This revenue increase was mainly attributed to a $231,096, or 115.63%
increase in liquids (NGLs) sold to the local market under the account of the
Company, a $47,526, or 21.62% increase in fractionation fees, a $78,369, or
23.13% increase in transportation fees, a $11,560, or 34.45% increase crude oil
tariff fees, a $40,079 or 287.06% increase in crude oil sales and an increase of
$16,264, or 257.22% in residue sales.
The increase in liquids (NGLs) sold to the local market was mainly
attributed to an increase of 77.77%, in liquid prices for the three months
ending March 31, 2000 compared to the three months ending March 31, 1999. The
increase in fractionation fees and transportation fees was mainly attributed to
an increase in liquids (NGLs) processed for others at the Well Draw Gas Plant.
During the three months ended March 31, 2000 the Company processed an average
15
<PAGE>
of 93,318 gallons per day of NGLs compared to 89,198 gallons a day for the three
months ended March 31, 1999.
The Company's Oil & Gas Operations revenue for the three months ended March 31,
2000 and 1999 were as follows:
Oil & Gas Operations Revenue For Three Months Ended March 31, 2000 and 1999
2000 % 1999 %
- -----------------------------------------------------------------------------
Liquids (NGL) Sold $430,949 34.55% $199,853 24.46%
Fractionation Fees 267,350 21.43% 219,824 26.91%
Transportation Fees 417,121 33.44% 338,752 41.47%
Crude Tariff Fees 45,116 3.62% 33,556 4.11%
Crude Oil Sold 54,041 4.33% 13,962 1.71%
Residue Gas Sold 22,587 1.81% 6,323 .77%
Other 10,291 .82% 4,664 .57%
- -----------------------------------------------------------------------------
Total Revenue $1,247,455 100% $816,934 100%
=============================================================================
Used Oil Refining Revenues
Since it commenced operations in the used oil refining business, the
Company has primarily derived revenues attributed to fees for engineering, plant
design, license, exclusively or other services associated with the Company's
used oil refining technology. The revenue attributed to the used oil refining
business varies significantly from quarter to quarter reflecting the status of
the Company's fees and plant design services.
Used oil refining revenues contributed $69,348 total revenues for the
three months ended March 31, 2000 compared to $-0- for the three months ended
March 31, 1999. The $69,348 received for the three month ending March 31, 2000
was revenue attributed to the startup of the Ecolube used oil refinery in
Fuenlabrada which is located south of Madrid, Spain. In June of 1998, the
Company entered into an engineering and licensing agreement with Ecolube, S.A.,
a subsidiary of Sener Engineering of Madrid, Spain. Under the Ecolube agreement,
the Company will receive a total engineering and licensing payment of $534,000
and will also receive payment for assisting in the startup and commissioning of
the plant. From the inception of the Ecolube agreement, the Company has recorded
revenues of $409,000 attributed to the engineering and licensing agreement and
$69,348 attributed to the startup of the plant. During the three months
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<PAGE>
ended March 31, 2000 and 1999, the Company received no revenues for royalties
for its used oil technology.
Direct Costs
Direct costs increased $290,932 or 54.46%, to $825,144 for the three
months ended March 31, 2000 compared to $534,212 for the three months ended
March 31, 1999. As a percent of revenues, direct costs decreased to 62.66% for
the three months ended March 31, 2000 compared to 65.39% for the three months
ended March 31, 1999.
The $290,932 increase in direct costs was mainly related to the Company's
61.19% increase in total revenues which was mainly attributed to favorable
market prices in its oil and gas segment. The decrease of 2.73%, as a percent of
revenues is mainly attributed to the oil and gas segment where direct cost are
considered partly fixed and do not change in proportion to increases in
revenues. Because of these partially direct costs, when revenues increase,
direct costs as a percent of revenue have a tendency to decrease.
Selling, General and Administrative
Selling, general and administrative expenses consist principally of
salaries and benefits, travel expenses, insurance, legal and accounting, outside
contract services, information technical services and administrative personnel
of the Company.
Selling, general and administrative expenses increased $18,093, or 7.53%
to $258,509 for the year ended March 31, 2000 compared to $240,416 for the three
months ended March 31, 1999. As a percent of revenues, selling, general and
administrative expenses were 19.63% for the three months ended March 31, 2000
compared to 29.43% for the three months ended March 31, 1999.
The increase of $18,093, or 7.53%, in selling, general and administrative
expenses were mainly attributed to an increase in legal and accounting, outside
contract service and travel. The Company incurred additional outside legal and
accounting fees by $74,583, to $89,695 for the three months ended March 31, 2000
compared to $164,278 for the year ended March 31, 1999. These legal costs were
mainly attributed to the Company's legal proceedings, patent protection and
bankruptcy filing. The Company also reduced outside contract services by $34,615
and travel expense by $23,826.
Depreciation and Amortization
Depreciation and amortization expenses increased $15,905 or 9.43% to
$184,617 for the three months ended March 31, 2000 compared to $168,712 for the
three months ended March 31, 1999. As a percent of revenues, depreciation and
amortization expenses decreased to 14.02% for the three months ended March 31,
2000 compared to 20.65% for the three months ended March 31, 1999.
17
<PAGE>
Research and Development
Research and development expenses were mainly attributable to the
development and enhancement of the Company's used oil refining technology. The
Company will continue to incur research and development expenses as it continues
to develop its used oil refining technology.
Research and development expenses decreased $12,550, or 63.78%, to $7,128
for the three months ended March 31, 2000 compared to $19,678 for the three
months ended March 31, 1999. As a percent of revenues, research and development
expenses decreased to .54% for the three months ended March 31, 2000 compared to
2.41% for the three months ended March 31, 1999.
Income (loss) from operations
Income (loss) from operations decreased $187,489, or 128.34%, to $41,405
income from operations for the three months ended March 31, 2000 compared to a
$146,084 loss from operations for the three months ended March 31, 1999. The
$187,489 decrease in income (loss) from operations was credited to an increase
in gross margin of $208,937, which was attributed to the Company's 61.19%
increase in revenues due to favorable market prices in the oil and gas segment.
Also the Company's selling, general and administrative expenses increase by
$18,093, or 7.53%, and research and development expenses decrease by $12,550, or
63.78%.
Other income (expenses)
Net interest income (expense) increased $2,856, or 20.08%, to $17,082 for
the three months ended March 31, 2000 compared to $14,226 for the three months
ended March 31, 1999. The net increase was mainly attributed to a decrease in
interest earned during 1999 on the Company's money market and interest bearing
accounts due to less cash and cash equivalents.
Interest expense to a related party increased $13,619 or 21.62%, to
$76,619 for the three months ended March 31, 2000 compared to $63,000 for the
three months ended March 31, 1999. This $18,908 increase in interest expense to
a related party was attributed to the Company note agreement with its major
creditor. On September 22, 1999, the Company did not pay this major creditor the
first installment ($750,000) due under the note agreement. As a result, the note
($3,595,920) is currently in default. Under the note agreement, if default
occurs any installments not paid when due shall bear an increase in interest
from seven (7%) to fourteen (14%).
Liquidity and Capital Resources
Sources of liquidity for the Company are revenues from oil and gas
operations and revenues from the sale of its hydrocarbon refining technology.
Currently, the only consistent ongoing revenue sources to the Company are from
its oil and gas operations in Wyoming. The Company receives revenues from its
used oil refining technology when a sale or license is executed. On-going
royalty fees will be received only from the Australia Plant (see Part II Item 1
- - Legal Proceeding), and the Spanish Plant when startup and commissioning is
18
<PAGE>
completed. While the Company continues to work with potential purchasers of its
technology, such sales and expected revenues are uncertain and unpredictable.
On September 9, 1998, the plan of reorganization under Chapter 11 was
confirmed by the United States Bankruptcy Court for the District of Utah. The
Company reached agreement with its major creditor during the Chapter 11 case and
the terms of the agreement were incorporated in the plan. The terms of the
agreement included a new trust deed note dated September 22, 199,8 for
$3,600,000, together with interest at the rate of 7% per annum on the unpaid
principal. The Company is obligated to make quarterly payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company is also obligated to make principal payments of $750,000 on
September 22, 1999 (the Company did not make this installment - see below);
$1,000,000 on September 22, 2000; $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
new Pledge Agreement with this major creditor pledging stock of all subsidiaries
of the Company.
In August of 1999, the Company received $4,080 for its interest in the Hat
Creek #2 well. Under the pledge agreement with this major creditor, all proceeds
from the sell of Company assets will go to pay down the principal portion of the
note. After applying the proceeds from this sell the note was reduced to
$3,595,920.
At the time the plan was confirmed, management believed the Company's cash
from the oil and gas operating activities, cash received from the sale of its
hydrocarbon refining technology and cash retained under the reorganization plan
would be adequate to meet its operating needs in the near term and would provide
a plan to meet debt obligations. Certain assumptions where made in the plan of
reorganization that the Company would receive cash from the marketing of its
hydrocarbon refining technology. Since September 10, 1998 when the Bankruptcy
Plan was confirmed, the Company has received $137,348 cash from the marketing of
it refining technology.
On September 22, 1999, the Company was obligated to pay this major
creditor $812,000 which consists of principal of $750,000 and interest of
$63,000 under the new trust deed note (see new terms of trust deed above). On
September 22, 1999, the Company paid this major creditor an interest payment of
$63,000, but did not make the principal payment of $750,000 due under the trust
note. As a result, the note for $3,595,920 due to this major creditor is
currently in default. Under the trust deed note if default occurs in the payment
of installments of principal or interest, the holder hereof, at its option and
without notice or demand, may declare the entire principle balance and accrued
interest due and payable. Also if default occurs any installments not paid when
due shall bear interest thereafter at the rate of fourteen percent (14%) per
annum until paid. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
pledge agreement with this major creditor pledging stock of all subsidiaries of
the Company. Per the trust deed note and pledge agreement, upon default, the
major creditor can exercise his rights and sell or demand the Company to sell
the collateral or
19
<PAGE>
any part of the collateral to cure the installment in default ($750,000) or the
total ($3,595,920) due under the note. As of April 5, 2000, the Company is
current on all interest payments.
In an effort to cure the default status with its major creditor, the
Company is seeking to sell its Alpine Office Building located in Utah. Also the
Company is trying to raise cash from the marketing of it refining technology or
raise additional financing through the sale of equity, sale of debt or assets.
If the Company is unable to raise additional cash it may be forced to cease
operations and liquidate the assets of the Company.
Management has put strict restraints on all capital expenditures with the
exception of any necessary expenditures to maintain current operations.
Management is unaware of any significant future capital expenditures except for
the upgrade and overhaul of its compressor located at the Well Draw Gas Plant.
The total cost of this addition will be approximately $80,000. However the very
nature of equipment operation, ware and tear and replacement in this type of
operation can be significant. The Company will continue to incur research and
development costs as it continues to develop its refining technology. At present
these activities are being performed by current Company employees and part time
contract consultants.
The Company's net cash provided by operations was $369,901 for the three
months ended March 31, 2000 compared to net cash used by operations of $321,041
for the three months ended March 31, 1999. The net increase of $690,942 in cash
provided by operations for the three months ended March 31, 2000 was mainly
attributed to a $152,106 decrease in net loss and significant timing difference
in collection of accounts receivable and disbursement of accounts payable
between quarter ended March 31, 2000 and quarter ended March 31, 1999. Also the
Company received payment in full ($77,500) on a note receivable from Wold Oil
Properties.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
LEGAL PROCEEDINGS
Interline U.K.
In February 1995, the Company formed Interline (UK) Limited, a joint
venture with Whelan Environmental Services, Ltd. of Birmingham, England, to
construct a refinery in Stoke, England. As part of the transaction, the Company
executed a licensing agreement with the joint venture giving it the right to
own, operate and practice the Interline used oil technology. The terms of the
joint venture provided the Company a 40% ownership interest, and under the
license agreement, the right to receive a 6 cent gross royalty per gallon of oil
processed. The refinery was completed in early 1996 and officially opened in
July 1996. The refinery, with a capacity to process 24,000 gallons of used oil
per day, is in current production. In April of 1997 the Company sold its 40%
interest in the joint venture to John Whelan for $500,000. Whelan is now the
sole owner of the used oil refinery in Stoke-on-Trent, and is authorized to use
the Interline technology under the original licensing agreement. As a result of
the realities of the pricing structure in England for used oil products, and the
higher than expected operating costs to operate the England plant, the 6 cent
royalty called for in the license agreement was reduced to 3 cents and is not
payable until the refinery is profitable. To date, the Company has not received
any royalty revenue from the English plant. Further, John Whelan had only paid
$200,000 of the purchase price. After attempted settlement negotiations broke
down, on November 19, 1998 the Company instituted a legal proceeding against him
in the High Court of Justice, Queens Bench Division, Bristol District Registry,
Bristol Mercantile Court
In January of 2000, the Company was required to deposit approximately
$80,000 security bond with Bristol Mercantile Court. The Company was also faced
with spending $50,000 to litigate the case. Due to the Company's cash restraints
and in the best interest of the Shareholders, the Company elected not to proceed
with the case and the action against John Whelan was dismissed. The Company has
the option to re-file this claim against John Whelan for five years.
Transpacific Industries - Australia
In September 1996, the Company signed an exclusive purchase agreement with
Transpacific Group of Companies granting them exclusive rights to the Technology
for all of Australia. Under the terms of the agreement, Transpacific purchased
from the Company a 24,000 gallon per day plant for $3.4 million.
The plant was completed and has been operating since August of 1998. Per
the purchase agreement, upon completion of the plant the Company is untitled to
retention monies in the amount of $186,509 and ongoing royalties of 6 cents per
gallon. Since the inception of the startup of the Australian plant, the Company
has tried on many occasions to receive these outstanding sums and to resolve the
royalty issues with Transpacific. These negotiations have
21
<PAGE>
not been successful. In February of 2000, the Company hired legal counsel in
Australia to pursue money due under the purchase agreement.
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
On September 9, 1998, the plan of reorganization under Chapter 11 was
confirmed by the United States Bankruptcy Court for the District of Utah. The
Company reached agreement with its major creditor during the Chapter 11 case and
the terms of the agreement were incorporated in the plan. The terms of the
agreement included a new trust deed note dated September 22, 199,8 for
$3,600,000, together with interest at the rate of 7% per annum on the unpaid
principal. The Company is obligated to make quarterly payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company is also obligated to make principal payments of $750,000 on
September 22, 1999 (the Company did not make this installment - see below);
$1,000,000 on September 22, 2000; $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
new Pledge Agreement with this major creditor pledging stock of all subsidiaries
of the Company.
In August of 1999, the Company received $4,080 for its interest in the Hat
Creek #2 well. Under the pledge agreement with this major creditor, all proceeds
from the sell of Company assets will go to pay down the principal portion of the
note. After applying the proceeds from this sell the note was reduced to
$3,595,920.
On September 22, 1999, the Company was obligated to pay this major
creditor $812,000 which consists of principal of $750,000 and interest of
$63,000 under the new trust deed note (see new terms of trust deed above). On
September 22, 1999, the Company paid this major creditor an interest payment of
$63,000, but did not make the principal payment of $750,000 due under the trust
note. As a result, the note for $3,595,920 due to this major creditor is
currently in default. Under the trust deed note if default occurs in the payment
of installments of principal or interest, the holder hereof, at its option and
without notice or demand, may declare the entire principle balance and accrued
interest due and payable. Also if default occurs any installments not paid when
due shall bear interest thereafter at the rate of fourteen percent (14%) per
annum until paid. The note is secured by Trust Deeds securing a security
interest in the Company's Alpine Office located in Alpine, Utah and a security
interest in all assets of Interline Energy Service, Inc. The Company executed a
pledge agreement with this major creditor pledging stock of all subsidiaries of
the Company. Per the trust deed note and pledge agreement, upon default, the
major creditor can exercise his rights and sell or demand the Company to sell
the collateral or any part of the collateral to cure the installment in default
($750,000) or the total ($3,595,920) due under the note. As of May 12, 2000, the
Company is current on all interest payments.
22
<PAGE>
In an effort to cure the default status with its major creditor, the
Company is seeking to sell its Alpine Office Building located in Utah. Also the
Company is trying to raise cash from the marketing of it refining technology or
raise additional financing through the sale of equity, sale of debt or assets.
If the Company is unable to raise additional cash it may be forced to cease
operations and liquidate the assets
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
The Company announced on August 13, 1997 that the American Stock Exchange
(AMEX) made a final determination to delist the Company from the AMEX's Emerging
Company marketplace.
As of October 30, 1998, a market is being made of the Company's common
stock on the NASD Bulletin Board under symbol "IRCE.OB".
Item 6(a). Exhibits:
None
Item 6(b) Form 8-K:
None
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 12, 2000 INTERLINE RESOURCES CORPORATION
By/s/ Michael R. Williams
---------------------------------
Michael R. Williams
CEO/President
Principal Executive Officer
Director
By/s/ Mark W. Holland
---------------------------------
Mark W. Holland
Chief Financial Officer / Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
Date Title Signature
May 12, 2000 CEO/President /s/ Michael R. Williams
and Director Michael R. Williams
May 12, 2000 Director/ /s/ Laurie Evans
Secretary Laurie Evans
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERLINE RESOURCES CORPORATION'S FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 560,137
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 560,137
<SECURITIES> 0
<RECEIVABLES> 493,037
<ALLOWANCES> 0
<INVENTORY> 35,339
<CURRENT-ASSETS> 1,100,225
<PP&E> 6,590,223
<DEPRECIATION> (2,960,032)
<TOTAL-ASSETS> 5,263,987
<CURRENT-LIABILITIES> 4,102,585
<BONDS> 0
0
0
<COMMON> 70,330
<OTHER-SE> 414,353
<TOTAL-LIABILITY-AND-EQUITY> 5,263,987
<SALES> 0
<TOTAL-REVENUES> 1,316,803
<CGS> 825,144
<TOTAL-COSTS> 450,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,701
<INCOME-PRETAX> (52,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,296)
<EPS-BASIC> (.004)
<EPS-DILUTED> 0
</TABLE>
