<PAGE> 1
FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997
Commission File No. 33-68304
Green Oasis Environmental, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 57-0970282
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
184 East Bay Street
Suite 302
Charleston, South Carolina 29401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (803) 722-5771
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes * NO
----- -----
State the number of shares outstanding of each of the issuer's classes of
Common Equity as of the latest practicable date.
Class of Common Stock Outstanding at September 10,1997
- --------------------- --------------------------------
$.01 Par Value 6,465,134 Shares
*The issuer voluntarily files periodic reports required to be filed by the
Securities Exchange Act of 1934 and has done so since November, 1993. The
issuer has filed all such reports required to be filed during the past 12
months.
1
<PAGE> 2
Green Oasis Environmental, Inc.
Index
<TABLE>
<CAPTION>
Part l. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
<S> <C> <C>
CONDENSED BALANCE SHEETS
June 30, 1997, and
December 31, 1996....................................................................... 4
Condensed Statements of Operations
Three and Six months ended June 30,
1997 and 1996, and
September 24, 1991(Inception),
through June 30, 1997.................................................................... 5
Condensed Statements of Cash Flows
Six months ended June 30, 1997
and 1996, and September 24,
1991 (Inception), through
June 30, 1997............................................................................ 6
Notes to Condensed Financial Statements......................................................... 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................................................. 11
Part II. Other Information
Item 1. Legal Proceedings.......................................................... 14
Item 3. Preferred Stock Dividends in Arrears....................................... 16
Item 4. Submission of Matters to a Vote of Security Holders........................ 16
Item 5. Other Information.......................................................... 17
Item 6. Exhibits and Reports on Form 8-K........................................... 33
Signature.................................................................. 34
</TABLE>
2
<PAGE> 3
Part 1. Financial Information
Item 1. Financial Statements
3
<PAGE> 4
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1997 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 84,000 $ 32,000
Accounts receivable-related party(Note B) 186,000 55,000
Prepaid expenses (Note C) 18,000 59,000
----------- -----------
Total Current Assets 288,000 146,000
PROPERTY AND EQUIPMENT, NET OF
ACCUMULATED DEPRECIATION (Note D) 119,000 86,000
OTHER ASSETS
Loans - related parties 117,000 117,000
Patent costs 51,000 51,000
Deferred tax assets, net of valuation allowance -- --
----------- -----------
TOTAL ASSETS $ 575,000 $ 400,000
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes payable (Note E) $ 51,000 $ 650,000
Accounts payable (Note F) 334,000 575,000
Accrued expenses (Note G) 65,000 24,000
Accrued wages and payroll taxes(Note G) 20,000 71,000
Deposits received for equipment sales(Note F) 5,000 80,000
Deposits received for distribution fees (Note E) -- 100,000
Deposits for equipment from related party(Note B) -- 63,000
----------- -----------
Total current liabilities 475,000 1,563,000
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note K) -- --
----------- -----------
REDEEMABLE, CONVERTIBLE PREFERRED
STOCK ($1.00 par value, 9% cumulative, nonvoting, 1,000,000
shares authorized, 998,500 shares issued, 36,950 (1997)
and 46,950 (1996) shares outstanding) 37,000 42,000
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Series A preferred stock ($1.00 par value, 9% cumulative, nonvoting,
500,000 shares authorized, 104,900 shares issued
7,500 shares outstanding) 6,000 6,000
Common stock, $.01 par value;
20,000,000 shares authorized, 6,465,134 (1997) and
5,966,026 (1996) issued and outstanding 65,000 60,000
Additional paid-in capital 5,569,000 4,433,000
Deficit accumulated during the development stage (5,577,000) (5,654,000)
Note receivable - related parties -- (50,000)
----------- -----------
Total stockholders' equity (deficiency) 63,000 (1,205,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 575,000 $ 400,000
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements
4
<PAGE> 5
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Period From
June 30, June 30, September 24
--------------------------- ----------------------------- 1991
(Inception),
Through
1997 1996 1997 1996 June 30, 1997
----------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales of equipment $ -- $ -- $ -- $ -- $ 2,112,000
Sales of equipment-related party
(Note B) -- -- 1,338,000 -- 1,338,000
Interest and other income 2,000 -- 20,000
----------- ----------- ----------- ----------
Total revenues -- -- 1,340,000 -- 3,470,000
----------- ----------- ----------- ---------- -----------
COSTS AND EXPENSES
Research and development 284,000 6,000 575,000 11,000 5,211,000
Legal and accounting 250,000 78,000 368,000 125,000 1,643,000
General and administrative 34,000 57,000 89,000 84,000 981,000
Salaries and benefits 40,000 -- 40,000 -- 847,000
Operations and marketing 10,000 16,000 150,000 16,000 636,000
Interest expense and loan costs 5,000 13,000 11,000 28,000 349,000
Stockholder relations 116,000 -- 146,000 -- 146,000
----------- ----------- ---------- -----------
Total expenses 739,000 170,000 1,379,000 264,000 9,813,000
----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES (BENEFIT) AND
EXTRAORDINARY GAIN (739,000) (170,000) (39,000) (264,000) (6,343,000)
INCOME TAXES (BENEFIT) -- -- -- -- --
EXTRAORDINARY GAIN
Restructuring of debt(Note F) -- 266,000 116,000 266,000 782,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (739,000) $ 96,000 $ 77,000 $ 2,000 $(5,561,000)
=========== =========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON
SHARE
Primary
Earnings (loss) before
extraordinary gain $ (0.11) $ (0.03) $ (0.01) $ (0.05) $ (1.48)
Extraordinary gain -- 0.05 0.02 0.05 0.18
----------- ----------- ----------- ----------- ----------
Net income (loss) $ (0.11) $ 0.02 $ 0.01 $ -- $ (1.30)
=========== =========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 6,465,134 5,205,930 6,796,693 5,189,357 4,379,378
=========== =========== =========== =========== ==========
Fully diluted
Earnings (loss) before
extraordinary gain $ (0.11) $ (0.03) $ (0.01) $ (0.05) $ (1.48)
Extraordinary gain -- 0.05 0.02 0.05 0.18
----------- ----------- ----------- ----------- ----------
Net income (loss) $ (0.11) $ 0.02 $ 0.01 $ -- $ (1.30)
=========== =========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 6,465,134 5,369,266 7,021,859 5,347,693 4,379,378
=========== =========== =========== =========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
5
<PAGE> 6
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Period From
September 24,
Six Months Ended 1991
June 30 (Inception)
------------------------ Through
1997 1996 June 30, 1997
------- ------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash provided by (used in) operating activities $(131,000) $ (168,000) $(3,709,000)
--------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (46,000) -- (266,000)
Proceeds of sale of property and equipment -- -- 62,000
Loans to related parties (186,000) -- (522,000)
Collection of loans to related parties -- -- 259,000
Patent costs -- (1,000) (51,000)
Deposits paid -- (1,000) --
Loans granted to distributors -- -- (7,000)
Initial payments received for distribution rights -- -- 198,000
--------- ----------- -----------
Net cash provided by (used in) investing activities (232,000) (2,000) (327,000)
--------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of common stock issues 425,000 110,000 1,681,000
Proceeds of preferred stock issues -- 1,024,000
Proceeds of convertible debt securities 565,000
Proceeds of loans from stockholders -- 60,000 561,000
Proceeds of notes -- 520,000
Proceeds of Series A notes -- -- 105,000
Payments of notes and debentures -- -- (155,000)
Issue costs -- -- (21,000)
Purchase of treasury stock -- -- (24,000)
Payments of loans from stockholders -- -- (122,000)
Payments of capital leases -- -- (4,000)
Redemption of preferred stock (10,000) (10,000)
--------- ----------- -----------
Net cash provided by financing activities 415,000 170,000 4,120,000
Cash and cash equivalents
Net increase (decrease) during the period 52,000 -- 84,000
Balance at beginning of period 32,000 5,000 --
--------- ----------- -----------
Balance at end of period $ 84,000 $ 5,000 $ 84,000
========= =========== ===========
INVESTING AND FINANCING ACTIVITIES
Common stock issued for services rendered,
preferred stock conversion,
debt conversion and loan costs $ 666,000 $ 614,000 $ 3,961,000
========= =========== ===========
Capital lease obligation incurred to
purchase equipment $ -- $ -- $ 12,000
========= =========== ===========
Deposits converted to common or preferred stock $ 100,000 $ -- $180,000
========= =========== ===========
Debt issued for equipment and services and
loans collected or exchanged for services $ -- $ -- $ 56,000
========= =========== ===========
</TABLE>
No income taxes were paid in any period. $6,000 in interest was paid during the
six months ended June 30, 1997. No interest was paid in the six months ended
June 30, 1996.
See Notes to Condensed Financial Statements.
6
<PAGE> 7
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The balance sheet as of June 30, 1997, the statements of operations for
the three months and six months ended June 30, 1997 and 1996, and
September 24, 1991 (inception) to June 30, 1997, and the statements of
cash flows for the six months ended June 30, 1997 and 1996, and September
24, 1991 (inception) to June 30, 1997, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted as
allowed by the rules and regulations of the SEC. In the preparation of the
above described financial statements, all adjustments of a normal and
recurring nature have been made. The Company believes that the
accompanying unaudited financial statements contain all adjustments
necessary to present fairly the results of operations and cash flows for
the interim periods presented. Further, management believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that the financial statements be read in conjunction with
the annual financial statements and notes thereto. The results of
operations for the three months and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the year.
B. RELATED PARTY TRANSACTIONS
Investment in Limited Partnership. The Company is the general partner in a
South Carolina limited partnership known as GOE Plant Partnership I, L.P.
(the Partnership). The purpose of the Partnership is to own and operate
the prototype of the Company's distillation processing equipment (the Unit
or Units). The Company prepared the site, upgraded its prototype to a
Model 400, and installed the Unit on land the Company leases. The sale was
completed under the terms of the sales agreement between the Company and
the Partnership, and the ownership of the unit was transferred to the
Partnership on March 31, 1997. The purchase price to the Partnership for
the Unit, auxiliary equipment, site preparation and installation was
$1,338,000. Although the sale is complete under the terms of the agreement
between the Company and the Partnership, some adjustments and
modifications to the Unit may be made.
The Company's duties as general partner are to operate and maintain the
Unit and to perform all duties of general management. The company will
receive 10% of the net income from the Partnership while the limited
partners will receive a 90% allocation. All amounts due to or from the
Partnership during the period have been paid.
The Company issued warrants at no additional cost to the 30 limited
partners. Each warrant may be exercised to purchase up to 15,000 shares of
the Company's common stock and is exercisable for 180 days from March 31,
1997, at a price of $3.00 per share. In accordance with the terms of such
warrants, the warrants expired on September 30, 1997. The Company is
considering whether to extend the exercise
7
<PAGE> 8
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
period of such warrants. The Company has assigned no value to the
warrants, but has reserved 450,000 shares of common stock to be issued
upon their exercise.
The Company loaned the Chief Executive Officer $186,000 during the second
quarter of 1997. The monies were repaid in the following quarter. In
addition, during the same period the Company paid $100,000 in legal fees
for its Chief Executive Officer and other directors which are related to
the SEC investigation.
C. PREPAID EXPENSES
On March 15, 1997, the Company issued 12,000 shares of common stock at
$5.00 per share to a public relations consulting firm, MicroCorp
Communications & Consulting, pursuant to an agreement to provide
consulting services for investor relations for a period of one year. The
Company terminated the agreement May 1, 1997 and the shares have been
returned to the Company (see Part II, Item 5--Other Information). Prepaid
amounts related to the contract have been expensed until such time as the
shares are canceled by the stock registrar. Prepaid engineering consulting
services amounting to $36,000 were expensed during the six months ended
June 30, 1997.
D. PROPERTY AND EQUIPMENT
The Company refurbished its offices during 1997 by purchasing furniture,
office equipment, and leasehold improvements totaling $46,000.
E. NOTES PAYABLE AND DEPOSITS FOR DISTRIBUTION FEES
During the quarter ended March 31, 1997, the Company and two noteholders
agreed to convert the debts to common stock. One noteholder converted
$250,000 of principal and accrued interest to 100,000 shares of common
stock at $2.50 per share. The second noteholder agreed to convert a debt
of $356,000 to 71,108 shares of common stock at $5.00 per share on the
condition that a registration statement permitting the sale of these
shares were filed with the SEC and became effective on or before July 31,
1997. If such registration statement were not filed and effective, the
noteholder has the option either to retain the common stock or to exchange
the stock for the Company's promissory demand note for $356,000 with a 10%
interest rate. The Company has not filed a registration statement to date,
nor has the noteholder exercised its right to exchange such stock for the
Company's note. The Company also agreed to convert a deposit paid by an
individual for exclusive distribution rights to common stock at $5.00 per
share; the individual relinquished all distribution rights.
F. GAIN ON RESTRUCTRUING OF DEBT
During the first quarter of 1997, the Company paid certain of its trade
debts and settled certain outstanding judgments and claims against it.
Cash payments of $206,000 were paid to settle $317,000 of trade accounts
payable, and $75,000 of refund demands for deposits on equipment were
settled by the payment of $70,000 to certain customers.
8
<PAGE> 9
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
An extraordinary gain of $116,000 was recognized from these transactions.
G. ACCRUED EXPENSES
As of June 30, 1997, the Company has accrued $50,000 of unbilled legal
fees. The Company paid a tax lien and other payroll taxes amounting to
$66,000 during the first quarter.
H. STOCK ISSUANCES
In addition to the common stock issued in exchange for services and
conversion of debt and deposits, the Company sold 296,000 shares of common
stock at $1.25 per share in a private placement during the first quarter
of 1997. Warrants exercisable for three years at prices of $2.50 and $5.00
per share were issued in conjunction with such stock.
I. STOCK OPTIONS
In exchange for the waiver of the payment of his salary for the first
quarter of 1997, the Board of Directors granted a stock option to the
Chief Executive Officer for 48,000 shares of common stock at $1.50 per
share. The option is exercisable for a period of two years from January
1997.
J. UNCERTAINTY - GOING CONCERN
The Company's continued existence is dependent upon its ability to
complete development of its products to meet design specifications and
regulatory requirements as well as to continue production. Without fully
operational products, adequate working capital, and regulatory approvals,
there is substantial doubt about the Company's ability to continue as a
going concern.
Management continues to modify and develop its products and to pursue
regulatory approval as well as to seek additional sources of financing.
However, there is no exact date determinable when either completion of its
products or regulatory approval will be achieved, nor any assurance that
additional financing will be available.
K. COMMITMENTS AND CONTINGENT LIABILITIES
The Company continues to be subject to a number of lawsuits and claims
arising out of the ordinary conduct of its business, including those
related to commercial transactions. Various suppliers have obtained
judgments against the Company for amounts owed to them for products and
services sold to the Company; the Company has recorded as liabilities the
amounts that it believes are due at settlement of these obligations.
Additionally, the SEC is conducting a formal investigation of the Company,
its officers and directors, and its business practices. See further
discussion of this matter at Part II, Item 5 of this Report.
9
<PAGE> 10
GREEN OASIS ENVIRONMENTAL, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with the sale of unregistered securities, the South Carolina
Secretary of State and the Company executed a Consent Order on July 25,
1995, in which the Company agreed to discontinue issuing, offering and
selling securities in South Carolina until such securities are registered
and also to make a good faith effort to honor a previous rescission offer
made to the South Carolina investors. During the first quarter of 1997,
the Company paid all amounts owed to those remaining shareholders who had
accepted such rescission offer and had requested payment. Accordingly, the
Company believes that it has honored the terms of such offer.
During 1994, the Company was involved in discussions with the South
Carolina Department of Health and Environmental Control (DHEC) regarding
environmental issues in order to obtain an operating permit in the State
of South Carolina for its waste oil processing equipment. DHEC had
suspended the Company's normal operation of the equipment in November 1993
until an operating permit was obtained. The Company completed an on-site
operational test for purposes of obtaining an operating permit and met
with DHEC officials in March 1994. On July 27, 1994, the Company and DHEC
signed a Consent Order imposing a civil penalty on the Company in the
amount of $20,000 for operation of the Unit without the necessary permits;
the Company has paid the penalty. DHEC subsequently denied an air
construction permit after having written a draft permit, and the Company
was unable to operate its equipment. On March 23, 1995, the Company and
DHEC signed a second Consent Order following the Company's appeal of the
denial of the permit. The second Consent Order allowed the Company to test
its waste oil conversion equipment to demonstrate that air pollutant
emissions meet DHEC's standards. A 60 day period of operation for the
purpose of testing air emissions to meet DHEC's standards began in
mid-March 1997. On June 4, 1997, the emissions test was conducted by a
third party testing lab, supervised by DHEC. The equipment passed the test
with an emission rate of .9 ppm of an Environmental Protection Agency
allowable rate of 20 ppm. Following a thirty-day public notice and comment
period, a final permit was issued, permitting operation of the prototype
Unit at an output rate of 200 gallons per hour. Continuous monitoring and
other requirements regarding the operation of the equipment as well as
storage and disposal of fuel are imposed by the Consent Order.
On July 19, 1995, a lawsuit was filed by LifeChoice International, S.A., a
Greek company, which purchased two Units of waste oil conversion equipment
manufactured by the Company. The suit alleged breach of contract arising
from the sale of the two Units and asked for unspecified damages. In
addition, a related Antiguan company filed suit on July 19, 1995, claiming
that the Company defaulted on payment of a $100,000 loan. The Company
answered both complaints on September 27, 1995, and has filed a
counterclaim alleging a breach of the plaintiff's agreement to purchase
the European distribution rights from the Company. On October 15, 1996,
the Company entered into two separate Court Orders with LifeChoice
International, S.A. and its related company, whereby such companies agreed
to withdraw their claims against the Company, with leave to move for
restoration of the case, within one year from the date of the Order. If,
at the end of the one-year period, neither LifeChoice International, S. A.
nor its related company has filed a motion requesting that the case be
restored to the docket, the
10
<PAGE> 11
cases will be dismissed with prejudice in favor of the Company. The
Company's counterclaims in these cases have also been withdrawn with the
same permission to refile. Subsequent to the entry of such orders, the
parties settled both suits. Orders dismissing both suits with prejudice
were entered on April 9, 1997.
A settlement was reached in a lawsuit with a supplier who claimed the
Company owed $123,000. A Confession of Judgment was signed on October 5,
1995, in which the Company agreed to pay $85,000 to the supplier in four
equal payments beginning 90 days from the date of execution of the
judgment. Said amount has been recorded as a liability; however, no
payments have been made as of October 1, 1997.
On March 13, 1997, Jerry F. Everidge filed suit against the Company
alleging breach of a contract that he states he had with the Company to
manufacture and assemble Units for the Company. Mr. Everidge is seeking
unspecified damages. The Company has answered Mr. Everidge's complaint,
denying the existence of such a contract and asserting, among other
things, statute of limitations defense. The suit is in the initial stages
of discovery.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Green Oasis is a development stage company which was organized as a
Florida corporation on September 21, 1991. Since its inception Green Oasis has
been engaged principally in product design, development, testing and production
activities and in the marketing and distribution of waste oil refining
equipment (the Unit or the Units) known as EnviroEconomics Systems in various
geographical areas of the United States and other countries. It had shipped
three Units to customers by the end of 1994. One additional Unit was sold in
the first quarter of 1997 to GOE Plant Partnership I, L.P. (the Partnership), a
South Carolina limited partnership whose general partner is Green Oasis. There
were no sales in the three months ended June 30, 1997, or in the first or
second quarter of 1996. The Company's net income or loss for the three months
ended June 30, 1997 and 1996, was a loss of $(739,000) and net income of
$96,000 respectively. For the six months ended June 30, 1997, Green Oasis
reported net income of $77,000 as compared to $2,000 during the first six
months of 1996. For the period from September 24, 1991 (inception), to June 30,
1997, Green Oasis has incurred a cumulative net loss of $5,561,000. Green
Oasis' ability to fully utilize net operating loss carryforwards is subject to
certain limitations.
RECOGNITION OF REVENUE. Revenues were recognized in the first quarter 1997
in the amount of $1,338,000 from the sale of a Unit to the Partnership under a
sales agreement to sell an upgraded Model 400. The sale occurred on March 31,
1997, when the Company transferred ownership of the Unit to the Partnership.
The sales agreement between Green Oasis and the Partnership specifies that the
Partnership will purchase the Unit, and Green Oasis may continue to make
improvements to it. Green Oasis is responsible for obtaining a final operation
permit from the South Carolina Department of Health and Environmental Control
(DHEC). See Note K to the Condensed Financial Statements and Part 2, Item
5--Other Information, of this Report.
11
<PAGE> 12
RESEARCH AND PRODUCT DEVELOPMENT. To date the Company has expensed all the
costs associated with designing and producing its equipment as research and
development costs. Such costs incurred in the first six months of 1997 in the
amount of $575,000 include reconstructing a Unit at a new location and adding a
thermal oxidizer, an enhanced computer system, and other improvements to the
design and operation of the Unit. Research and development costs during the
second quarter of 1997 were $284,000 as compared to $6,000 in the same quarter
of 1996. The increase was due to adding further improvements to the Unit to
prepare for and conduct the air emission tests required by DHEC and for
commercial operations. Costs added in the second quarter 1997 include $34,000
of materials, $130,000 of direct labor, $56,000 of consulting engineers' fees,
$35,000 for environmental testing, and $29,000 of other subcontract work. This
Unit was sold to the Partnership for operation and will also be used for
demonstration purposes. Research and product development expenses were $11,000
in the first six months of 1996. The reason for the minimal amount of research
and development in 1996 was a lack of funds to continue such activities; the
plant had closed in 1995 and did not reopen until late 1996.
OPERATIONS AND MARKETING. Operations and marketing expenses were $150,000 for
the first six months of 1997 as compared to none in the prior corresponding
quarters. The Company prepared the site for and installed the Unit at a cost of
$109,000. Green Oasis also paid rent on the property, depreciated the
equipment, and paid utilities and other indirect costs in the amount of $25,000
including $10,000 of rent, utilities, and depreciation expense incurred during
the second quarter . Marketing expenses included promotions, travel, and meals
and entertainment totaling $16,000. There were no operations or marketing
activities in 1996 due to a lack of funds.
SALARIES AND BENEFITS. The company's officers waived the payment of their
salaries for the first quarter of both 1996 and 1997. The Chief Executive
Officer was granted a stock option in lieu of his 1996 salary. A second stock
option was granted in January 1997 in exchange for the waiver of salary in the
first quarter of 1997. The exercise price of each stock option is the fair
market value of the Company's common stock on the date of the grant, and no
compensation expense was recorded for the difference between the value of the
options and the exercise price. Salaries and benefits in the second quarter of
1997 totaled $40,000.
GENERAL AND ADMINISTRATIVE. For the three months ended June 30, 1997 and
June 30, 1996, legal and accounting fees were $250,000 and $78,000,
respectively. The increase is due primarily to legal costs associated with the
SEC investigation (See Part II, Item 5--Other Information). Green Oasis has
incurred $368,000 of legal and accounting fees in the first six months of 1997
as compared to $125,000 in the first six months of 1996. The expenses for 1997
were for the SEC investigation, regulatory filings, routine corporate and
shareholder activities, environmental disputes, and litigation defense. The
expenses in 1996 were for regulatory filings and routine corporate work. The
increase in 1997 was due to the legal work required in connection with the SEC
investigation, to settle creditors' claims against the Company and shareholder
activities as well as meetings and negotiations with DHEC in restarting the
Unit for testing purposes.
General and administrative expenses other than legal and accounting fees
were $235,000 and $84,000 for the first six months of 1997 and 1996,
respectively. These
12
<PAGE> 13
expenses were $150,000 and $57,000 for the second quarter of 1997 and 1996,
respectively. The second quarter 1997 increase was due primarily to increased
shareholder relation costs for the annual meeting and expensing all amounts
heretofore treated as prepaid expenses related to the Company contract with its
public relations firm, Microcap Consulting & Communications (MicroCap). When
the 12,000 shares of common stock formerly issued to MicroCap are formally
canceled, the Company will record a reduction in expenses of $60,000 related to
the MicroCap transaction.
LIQUIDITY AND CAPITAL RESOURCES
Green Oasis is a development stage enterprise. Green Oasis has funded its
operations from inception through June 30, 1997 primarily through loans and
sales or exchanges of common and preferred stock in the aggregate amount of
$5,480,000 and through revenues from the sale of four Units of waste oil
conversion equipment of $3,450,000.
During the period from December 31, 1996 to June 30, 1997, Green Oasis
sold 296,000 shares of common stock for cash at $1.25 per share. It collected
$50,000 owed for the purchase of stock in December 1996. The Company also
converted $250,000 of a note and accrued interest to 100,000 shares of common
stock. Green Oasis issued common stock at $5.00 per share in exchange for a
note of $356,000 and for a deposit for distribution rights of $100,000. The
Company also issued stock in exchange for $60,000 in stockholder relation
services. These services were terminated in the second quarter of 1997.
During the first quarter of 1997 the Partnership paid $1,338,000 to Green
Oasis for the purchase and installation of the Unit, site preparation, and
auxiliary equipment. The Partnership sold 30 partnership interests to
individual investors (see Part II, Item 5--Other Information). The proceeds of
the sale of the partnership interests were paid to Green Oasis toward the
purchase of the equipment as the Partnership collected the funds. The receipt
of the funds from the Partnership provided the Company with a portion of its
operating capital for the first half of 1997.
Green Oasis' accounts payable and accrued expenses as of June 30, 1997,
decreased by $251,000 because the Company settled certain of its debts by
paying agreed-upon amounts to creditors which were often less than the amounts
recorded as liabilities at December 31, 1996. A total of $317,000 of vendor
accounts payable were settled for payments in cash of $206,000. Two customers'
deposits were returned by paying $70,000 for deposits of $75,000. The Company
also paid a federal tax lien and other payroll taxes amounting to $66,000.
Green Oasis purchased office furniture and fixtures and painted and
re-carpeted its offices during the first six months of 1997. The cost of the
project was $46,000. The Company has not made any material commitments for
capital expenditures. It is searching for a facility to lease but has made no
definite arrangements therefor.
Green Oasis sold certain of its securities under Regulation D of the 1933
Securities Act in January and early February of 1997. Each of the 37 "packages"
of securities sold for $10,000 and contained 8,000 shares of common stock, an A
warrant, and a B warrant. The A warrants entitle the holders to purchase up to
8,000 shares each of common stock at an exercise price of $2.50 per share for
three years; the B warrants entitle the holders to
13
<PAGE> 14
purchase up to 8,000 shares of common stock at $5.00 per share for three years.
The offering closed in early February when the market price of the stock
increased to levels above the offering price. Monies raised from the offering
were used to fund operations.
Green Oasis currently has a working capital deficit of $187,000. Green
Oasis is and will continue to be dependent upon other financing sources such as
the proceeds of debt and equity financing and customer deposits and loans to
complete production of the EnviroEconomics System and to fund other working
capital requirements.
Additional costs may be incurred for engineering consultants and modeling
to improve the Unit for commercial success. Consequently, Green Oasis has not
completed all the research for its Units, and should it be more extensive than
now believed, there can be no assurance that it will be able to successfully
obtain the financing to complete the Units.
On September 15, 1997, the Company received construction permits and a
used oil processing facility permit from DHEC. Such permits are subject to a
number of specifications and conditions, and, in the case of the construction
permits, are not effective until fifteen calendar days following the date of
issue of such permits. The Company must apply for an operating permit not later
than fifteen days prior to placing a new, increased or altered source in
operation. See Part II, Item 5--Other Information, of this Report for
additional information.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Some statements in this Report are
forward-looking and are subject to certain risks and uncertainties. These
include, but are not limited to, economic conditions, changes in laws or
regulations, demand for the products and services of the Company, and the
effects of competition. These risks and uncertainties could significantly
affect anticipated results in the future and actual results may differ
materially from any forward-looking statements.
Part II Other Information
Item 1. Legal Proceedings
On November 9, 1995, Environmental Oil Service, L.L.C., which purchased one of
the units manufactured by the Company, filed suit in state court in Idaho,
alleging breach of contract for failure to manufacture and install equipment
that conformed to the terms and conditions of its purchase contract. The suit
sought a refund of $525,000 paid to the Company and $1,475,000 in lost profits.
On December 14, 1995, the Company filed a notice of removal in U.S. District
Court to remove the case from the jurisdiction of the state court to the
federal court system. The case was removed to the District Court of South
Carolina, in Charleston, on February 1, 1996. An answer was filed on March 4,
1996, which asserted general denials as well as other defenses, including the
destruction of the equipment by the plaintiff. In addition, the Company
asserted a counterclaim against the plaintiff for the misrepresentation of
facts to potential customers of the Company which interfered with its ability
to sell its equipment to these customers. The plaintiff filed an answer to the
counterclaim on March 28, 1996. The parties reached a settlement agreement on
December 9, 1996, the terms of which required both parties to dismiss all
claims and waive all rights regarding the underlying controversy.
14
<PAGE> 15
On July 19, 1995, a lawsuit was filed by LifeChoice International, S.A., a
Greek company, which had purchased two units manufactured by the Company. The
suit alleged breach of contract arising from the sale of the two units and
asked for unspecified damages. In addition, a related Antiguan company filed
suit on July 19, 1995, claiming that the Company had defaulted on payment of a
$100,000 loan. The Company answered both complaints on September 27, 1995, and
filed a counterclaim alleging a breach of the plaintiff's agreement to purchase
European distribution rights from the Company. In October, 1996, the Company
consented to the entry of two separate court orders with LifeChoice
International, S.A. and the related company, whereby the parties agreed that
their claims against each other would be stricken, with leave to file a motion
for restoration of the cases within one year of entry of the order. The orders
with respect thereto were entered on December 22, 1996. Subsequent to the entry
of such orders, the parties settled both suits. Orders dismissing both suits
with prejudice were entered on April 9, 1997.
In connection with the sale of unregistered securities, the South Carolina
Secretary of State and the Company executed a Consent Order on July 25, 1995,
in which the Company agreed to discontinue issuing, offering, and selling
securities in South Carolina until such securities were registered and also to
make a good faith effort to honor a previous rescission offer made to the South
Carolina investors in 1994. During the first quarter of 1997, the Company paid
all amounts owed to those remaining shareholders who had accepted such
rescission offer and had requested payment. Accordingly, the Company believes
that it has honored the terms of its rescission offer made to such investors.
On December 4, 1995, Caribe Environmental, Inc. and Caribbean Sales Group filed
suit alleging breach of contract, demanding that $50,000 paid as a deposit on
equipment to be delivered by the Company be returned. The parties subsequently
agreed to cancel the contract, and the Company paid $50,000 in satisfaction of
the claim in March, 1997.
On December 28, 1995, Pensacola Pollution Control, Inc. filed suit against the
Company seeking return of a $25,000 deposit paid toward the purchase of a Unit
manufactured by the Company. Prior to answering the complaint, the parties
entered a Confession of Judgment for the amount of the debt and accrued
interest and attorneys' fees of 10%. A settlement payment of $20,000 in
satisfaction of this claim was paid in March, 1997.
During 1995 and 1996, the Company was unable to meet its obligations owed to
certain vendors, service providers, note holders and other account holders,
many of which filed suit against the Company and received default or consent
judgments. Although the Company has been able to compromise a number of these
claims, largely by settlement of amounts owed by issuance of common stock of
the Company, there still remain a total of $85,000 in unsatisfied judgments
against the Company.
On March 13, 1997, Jerry F. Everidge filed suit against the Company alleging
breach of a contract that he states he had with the Company to manufacture and
assemble Units for the Company. Mr. Everidge is seeking unspecified damages.
The Company has answered Mr. Everidge's complaint, denying the existence of
such a contract and asserting, among other things, a statute of limitations
defense. The suit is in the initial stages of discovery.
15
<PAGE> 16
Part II Other Information
Item 3. Preferred Stock Dividends in Arrears
<TABLE>
<CAPTION>
Amount of
Dividends in
Due date of arrears at
Dividends October 1, 1997
------------------ ---------------
<S> <C>
June 30, 1993 $ 10,451
December 31, 1993 32,772
June 30, 1994 43,436
December 31, 1994 50,479
June 30, 1995 3,080
December 31, 1995 3,080
June 30, 1996 2,450
December 31, 1996 2,450
June 30, 1997 2,000
-----------
$ 150,198
===========
</TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
On May 16, 1997, the Company held its Annual Meeting of Shareholders (the
"Annual Meeting"). A total of 5,547,077 shares, out of 6,465,134 shares
outstanding as of the record date, or 85.7 percent, were represented in person
or by proxy at the Annual Meeting. All of management's nominees for election as
director were elected. Set forth below are the matters considered, and the
tally of the votes cast with respect to each such matter, at the Annual
Meeting:
16
<PAGE> 17
1. Election of Directors. Four directors were elected at the Annual Meeting.
Set forth below is the name of each such director and the votes cast for and
against his or her election:
<TABLE>
<CAPTION>
Against/ Abstain/
Name For Withheld Not/Voting
- ---- --- -------- ----------
<S> <C> <C> <C>
William D. Carraway 5,522,295 24,782 0
Mary Ann Carraway 5,533,382 13,695 0
Larry S. King 5,533,382 13,695 0
Jon Lee Andersen1(1) 5,533,382 13,695 0
</TABLE>
2. Amendment of Bylaws. A proposal to approve amendments to the Company's
Bylaws to delete a requirement that 80% of the total shares eligible to vote
approve the election or removal of directors was not adopted, because the
proposal failed to obtain the approval of at least 80% of the shares eligible
to vote. The vote tally was as follows: For: 4,008,049; Against/Withheld:
69,270; Abstain/Not Voting: 1,469,758.
3. Adoption of Stock Option Plan. A proposal to approve the Green Oasis
Environmental, Inc. 1997 Stock Option Plan was approved. The vote tally was as
follows: For: 3,851,800; Against/Withheld: 87,936; Abstain/Not Voting:
1,607,341.
4. Ratification of Appointment of Independent Auditors. A proposal to ratify
the appointment of Chellis, Bryan & Associates, L.L.C. as independent auditors
to the Company was approved. The vote tally was as follows: For: 5,499,895;
Against/Withheld: 40,487; Abstain/Not Voting: 6,695.
Item 5. Other Information
On March 18, 1997 the Securities and Exchange Commission (the "Commission" or
the "SEC") initiated an informal, nonpublic inquiry to determine whether any
violations of the federal securities laws had been committed by the Company.
The Company and its officers and directors cooperated fully with the
Commission's inquiry. On May 8, 1997, the Commission entered a Formal Order of
Private Investigation with respect to the Company and certain others, thereby
elevating the informal inquiry into a formal, nonpublic investigation. On May
9, 1997, pursuant to its authority under Section 12(k) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Commission ordered the temporary
suspension of over-the-counter trading of the Company's common stock, which
suspension remained in effect through May 22, 1997. In its press release with
respect to the suspension of trading, the Commission identified four areas in
which it questioned the accuracy and adequacy of publicly disseminated
information (including the Company's press releases): (1) the development of
the Company's products; (2) the conduct of the Company's business, including
product testing; (3) the relationship between the Company and a financial
analyst who recommended the Company's stock, subsequently identified as
- ------------------------
(1) On May 20, 1997, Mr. Andersen resigned as a director. See Item 5 -- Other
Informaton -- "The Company".
17
<PAGE> 18
Raymond C. O'Brien; and (4) the commercial viability of announced contracts for
the purchase of the Company's products (collectively the "Areas of Concern").
As reported in a Current Report on Form 8-K dated May 22, 1997, the Company
retained independent outside counsel to investigate the Areas of Concern and
advise it with respect to other matters.
The material set forth herein and elsewhere in this Report is intended to
address the Areas of Concern and any other matters determined by counsel to be
in need of clarification. Although this material should be read in conjunction
with the Company's prior filings with the Commission and other publicly
available information relating to the Company, the Company expressly disavows
all information and statements contained in prior filings, public announcements
and other information disseminated by the Company (including, without
limitation, press releases and electronically disseminated information) to the
extent such information or any such statements conflict or are otherwise
inconsistent with the material set forth herein or elsewhere in this Report. In
the event of any such conflict or inconsistency, the information contained
herein and elsewhere in this Report shall control, and no reliance should be
placed on such conflicting or inconsistent prior information.
The SEC Investigation
On September 9, 1997, the Company was informed by the staff of the Commission
that, as a result of their formal investigation, the staff intended to
recommend that the Commission bring civil charges against the Company and
certain others for alleged violations of Sections 5(a) and (c) and 17(a) and
(b) of the Securities Act of 1933 (the "Act") and Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder. The Company was advised that the staff intended
to recommend that the Commission seek a permanent injunction barring the
Company from future violations of such provisions, but did not intend to
recommend that the Commission seek economic sanctions against the Company. The
Company intends to explore with the staff the possibility of settling this
matter with the Commission by consenting to the entry of an order barring the
Company permanently from violating such provisions, without admitting or
denying the Commission's allegations. Although the Company believes that the
staff of the Commission would recommend that the Commission agree to settle the
matter on such basis, there can be no assurance that the staff will make such
a recommendation or that the Commission will accept such recommendation, if
made.
The Company was also advised that the staff of the Commission intended to
recommend that the Commission bring similar civil charges against certain
officers and directors of the Company, including William D. Carraway, a
director and Chief Executive Officer of the Company. Possible sanctions that
the Commission may seek against Mr. Carraway would include barring him
permanently from serving as an officer or director of a public company. The
staff also advised the Company that it intends to recommend that the Commission
name Mary Ann A. Carraway, a director of the Company, as a "relief defendant,"
and seek disgorgement of certain amounts from her as a result of certain
alleged violations of the securities laws by her husband, William D. Carraway.
The Company
The Company was incorporated in Florida on September 21, 1991 under the name
Green Oasis, Inc., and on April 24, 1992, amended its charter to change its
name to Green Oasis Environmental, Inc. The executive offices of the Company
are located at 184 East Bay
18
<PAGE> 19
Street, Suite 302, Charleston, South Carolina 29401, and the telephone number
is (803) 722-5771. The Chief Executive Officer of the Company is William D.
Carraway. The members of the Board of Directors of the Company are Mr.
Carraway, Mary Ann A. Carraway and Larry King. Jon Andersen, who was elected a
director of the Company at the Annual Meeting of Shareholders held on May 16,
1997 (see Item 4 -- Submission of Matters to a Vote of Security Holders),
resigned as Secretary and Director of the Company on May 20, 1997. Prior to his
election as a director, Mr. Andersen had served as outside legal counsel to the
Company.
The Company is a development stage company, which intends to develop,
manufacture and market waste oil refining equipment (the "Units"), the
operation of which will, through a thermal cracking and distillation process,
convert waste motor and industrial oils into useable fuel oils, in particular
No. 2 diesel fuel for off-road use (See "Description of the Process" herein).
The Company is also the General Partner of GOE Plant Partnership I, L.P., a
South Carolina limited partnership formed in July, 1996 (the "Partnership").
Background of the Company
The Company was initially formed to acquire distribution rights to various
products within the environmental and energy industries. In February, 1992, the
Company entered into an agreement with Waste Energy, Inc. ("Waste Energy"),
pursuant to which the Company acquired the distribution rights for most of the
United States and Australia and New Zealand for products intended to process
waste crankcase oil into a fuel usable in electric generators. In August, 1992,
without having produced a functioning product, Waste Energy filed a petition
under Chapter 11 of the United States Bankruptcy Code, which petition was later
converted to Chapter 7. Shortly after Waste Energy's bankruptcy filing, the
Company contracted with engineering consultants to develop a process to convert
waste motor and industrial oils into usable fuels. The Company financed its
activities through the issuance of stock and through loans from Woodland
Partners Ltd. ("Woodland Partners").
By early 1993, the Company had developed a bench model test unit that processed
approximately 7 gallons per hour ("GPH") of waste motor and industrial oils.
Based on this bench model, and using computer simulation, the Company completed
construction of a commercial scale unit (the "Test Unit"), which had a designed
input capacity of approximately 275 GPH of waste oil and an output capacity of
approximately 200 GPH of No. 2 diesel fuel.
In November, 1993 the Company filed a registration statement on Form S-1 with
the Commission, pursuant to which shares of common stock of a new holding
company to be formed by the Company would be registered and exchanged for the
Company's common and preferred stock as well as for the common stock of Kelly
Motors, Ltd. (the "Exchange Offer"). Consummation of the Exchange Offer was
conditioned on a sufficient number of holders of certain warrants of Kelly
Motors, Ltd. exercising such warrants for cash. Because a sufficient number of
such holders did not exercise their warrants, the conditions of the Exchange
Offer were not satisfied and the Exchange Offer was terminated. In connection
with the Exchange Offer, the Company made an offer of rescission to all of its
common and preferred shareholders, because the Company believed that it might
have offered and sold unregistered securities of the Company prior to the date
of the Exchange Offer. None of the Company's shareholders accepted the
rescission offer. Although the registration statement was declared effective,
the conditions underlying the Exchange Offer
19
<PAGE> 20
were not met and the Exchange Offer was terminated. Prior to the termination of
the Exchange Offer, the Company filed periodic reports required under the
Exchange Act, and has continued to do so on a voluntary basis thereafter (see
"Availability of Information; Market for its Stock" herein).
Also in November, 1993, the South Carolina Department of Health and
Environmental Control ("DHEC") ordered that the Company's operations be
suspended until appropriate environmental permits were obtained. Pursuant to
such order, the Company ceased operations except for certain testing conducted
with DHEC consent through March, 1994 (see "Environmental Matters" herein). The
Company financed its activities during 1993 by issuance of stock and
convertible debt. During this period, the Company also issued stock in lieu of
payment for certain services and equipment.
In 1994, the Company received orders for one Model 200 (200 GPH output) and two
Model 400 (400 GPH output) Units and commenced production of the Units.
Pursuant to engineering design changes and specifications requested by DHEC
(see "Environmental Matters" herein), the design of both models was changed to
include the integration of a thermal oxidizer, the purpose of which was to
contain any air emissions and to supply heat for the thermal cracking process
(see "Description of the Process" herein). All production costs, including
materials, labor, indirect costs of overhead, shipping and installation for
such Units, were recorded as research and development costs. The Company
shipped the Units ordered during 1994 and commenced installation of such Units
during the fourth quarter of 1994 and first quarter of 1995. None of the Units
shipped is currently in operation. One of the Units, sold to a customer in the
United States, developed operational difficulties with the thermal oxidizer
(see Item 1 -- Legal Proceedings). The other Units were shipped to Bulgaria for
installation. Due to disputes regarding safety of the installation sites, the
Company discontinued efforts to install these Units (see Item 1 -- Legal
Proceedings).
In June, 1994, the Company entered into a consent order with DHEC pursuant to
which it agreed to ensure compliance with U.S. Environmental Protection Agency
and DHEC regulations and to pay a fine of $20,000 (see "Environmental Matters"
herein). The Company has paid the fine.
In November, 1994, the Company made a second rescission offer (the "1994
Rescission Offer") to all of its shareholders, which gave all shareholders the
right to revoke and rescind all purchases of the Company's stock. Shareholders
holding 20,000 shares of common stock and 7,000 shares of preferred stock
initially accepted the 1994 Rescission Offer, but no rescission payments were
made to such shareholders (see Item 1 -- Legal Proceedings). The Company funded
its activities during 1994 through sales of its common stock and convertible
debentures, issuance of convertible promissory notes, loans from unrelated
parties and deposits paid for Units ordered by customers. In addition, the
Company satisfied its indebtedness of $430,000 (plus accrued interest of
$99,000) owed to Woodland Partners with a payment of $150,000. As part of the
settlement of the Company's indebtedness to Woodland Partners, Woodland
Partners also surrendered 320,000 shares of the Company's common stock held by
it, which shares were subsequently issued to LifeChoice International, Inc. in
connection with its purchase of two Units and the anticipated execution of a
distribution agreement with the Company. During 1994, the Company also issued
stock in lieu of payment for certain services and equipment.
20
<PAGE> 21
Because the Company believed that it had fulfilled its obligations to
construct, ship and deliver the Units shipped to customers during the fourth
quarter of 1994 and that circumstances beyond its control had prevented the
completion of installation of such Units, it recognized revenue derived from
the sale of such Units during the second and third quarters of 1995, which
resulted in a profit for such quarters and for the year 1995. Had the Company
expensed the cost to manufacture such Units as research and development expense
in 1995 rather than 1994, no profit would have been reported for 1995; rather,
the Company would have reported a loss of approximately $1,254,000. Cash
payments received for such Units during 1994 had been previously carried as
deposits, and the Company received no additional cash payments from such
customers during 1995.
By the second quarter of 1995, the Company had exhausted its cash and working
capital resources and production of Units and research and development
activities had ceased. During 1995, the Company and its Chief Executive Officer
also entered into a consent order with the South Carolina Secretary of State
pursuant to which the Company agreed to discontinue issuing, offering and
selling unregistered securities in South Carolina and to make a good faith
effort to honor the 1994 Rescission Offer (see Item 1 -- Legal Proceedings).
The Company financed its operations during 1995 through borrowings and sales of
its common stock. The Company also issued shares of its common stock in
exchange for certain services and received deposits from two customers for two
Units ordered during 1995. The Company was unable to satisfy such orders and
the customers sued the Company for return of the deposits (see Item 1 -- Legal
Proceedings).
On March 21, 1996, the Company's common stock commenced trading on the NASDAQ
OTC Bulletin Board. Simultaneously therewith, the Company entered into a
consulting agreement with MicroCap Consulting & Communications, Inc., a
financial and public relations consulting firm owned by Raymond C. O'Brien, a
significant shareholder of the Company (see "Relationships with Certain
Significant Shareholders" herein). The Company commenced negotiations with
various creditors and suppliers with respect to amounts owed by the Company. As
of April, 1996, creditors that were owed approximately $187,000 accepted the
Company's common stock in satisfaction of amounts owed to them. As of June 27,
1996, the Company had agreed to issue common stock in satisfaction of
approximately $476,000 in debt, $57,000 in liabilities for pre-paid expenses
and a $16,000 liability incurred in settlement of a law suit. Because the
market value of the common stock issued in satisfaction of such obligations had
declined at the time of the issuance of such shares, the Company recognized an
extraordinary gain of approximately $266,000.
During the third quarter of 1996, the Company satisfied an additional $40,000
in trade payables in exchange for the Company's common stock, resulting in an
additional $19,000 of extraordinary gain. During the same period, the Company
negotiated the restructuring of certain accounts and notes payable into
non-interest bearing notes, but was subsequently unable to make payments on
such notes.
In April, 1996, the Company moved its operations from Mt. Pleasant, South
Carolina to the site of Allied Terminals, Inc. in Charleston, South Carolina.
The Company's lease with Allied Terminals required approval by the Company's
occupancy of the site by the prior tenant, Exxon Company, which approval was
received in August, 1996. In April, the Company also executed a letter of
intent to purchase Approved Oil Services, Inc., a waste
21
<PAGE> 22
oil collection company. Negotiations for such purchase were deferred during
July, 1996, and resumed during the first quarter of 1997.
On June 28, 1996, the Company commenced a purported private offering of
participating units ("Partnership Interests") in the Partnership. A copy of a
summary of such offering was thereafter posted on the Company's home page on
the World Wide Web. Each Partnership Interest included a warrant to purchase up
to 15,000 shares of the Company's common stock at $3.00 per share.
The purpose of the Partnership is to purchase and operate the Company's Test
Unit. The Company's responsibilities as general partner of the Partnership
include operation and maintenance of the Test Unit. Under the terms of certain
agreements with the Partnership, the Company agreed to sell the Test Unit to
the Partnership, make modifications to the Test Unit to incorporate a thermal
oxidizer, increase its output capacity to approximately 400 GPH and obtain from
DHEC all necessary operating permits.
The Partnership sold its first Partnership Interest on August 13, 1996.
Thereafter, the Company hired both engineering and environmental consultants to
assist it in meeting its obligations as general partner to the Partnership and
commenced making necessary improvements to its operations facilities at its
Allied Terminal location and modifications to the Test Unit. It also reopened
discussions with DHEC with a view to implementing the terms of a second consent
order to demonstrate the Test Unit's compliance with air quality standards at
the new location (see "Environmental Matters" herein).
On December 12, 1996, the Company commenced a private offering of a package of
securities of the Company (the "1996 Offering"). Each package consisted of
8,000 shares of the Company's common stock, a Series A Warrant to purchase up
to 8,000 shares of the Company's common stock at $2.50 per share and a Series B
Warrant to purchase up to 8,000 shares of the Company's common stock at $5.00
per share. The offer was terminated in early February, 1997 when the market
price of the Company's common stock increased to levels above the offering
price of the securities package. A total of 37 securities packages was sold
during the first quarter of 1997 prior to termination of the 1996 Offering.
The Partnership Offering closed on March 31, 1997, at which time the Company
transferred the Test Unit to the Partnership. The proceeds of the sale of
Partnership Interests were paid to the Company toward the purchase of the Test
Unit as the Partnership collected the funds. Such funds provided the Company
with a portion of its operating capital for the first half of 1997. In March,
1997, the Company also recommenced operation of the Test Unit under the terms
of Consent Order II (as hereinafter defined, as modified by a November, 1996
agreement with DHEC). As noted above, the SEC commenced an informal, nonpublic
inquiry regarding Company on March 18, 1997, which informal inquiry was
elevated to a formal investigation on May 8, 1997. In May, 1997, the Company
also announced that it had reached an agreement with Approved Oil Services,
Inc., a waste oil collector, to acquire substantially all of its assets. In
July, 1997, the Company announced that it had terminated its agreement with
Approved Oil Services, Inc., citing a change in the Company's business plan
(see "Markets, Competition, Distribution and Customers" herein).
22
<PAGE> 23
Description of the Process
The Company's waste oil refining process (the "Process"), called the
EnviroEconomics System, is designed to convert waste oils into marketable
fuels in a one-step process of thermal cracking and distillation. The Process
involves a continuous feed of heated waste oil into a distillation chamber,
where lower grade heating oil, light ends (primarily gasses) and No. 2 diesel
fuel is produced. The heavier heating oil is drawn off to prevent fouling.
Light ends are mixed with a controlled proportion of air and fed into the
thermal oxidizer, which releases heat for the Process. The heat generated is
used to heat the feedstock in the distillation column. Assuming good quality
feedstock, the proportions of end products intended to be produced are: 20% low
end heating oil; 10% light ends (of which 99.9% are used in the thermal
cracking process); and 70% No. 2 diesel fuel. The fuels are passed through a
filtration system prior to flowing into a finished product tank. Sludge from
the filtration system is reduced to a disposable powder or clay.
Feedstock for the Process is used motor and industrial oils purchased on the
open market at spot market rates. Since January 1, 1997, the Company has made
such purchases at prices ranging from $.18 to $.28 per gallon. Feedstock can be
purchased preprocessed and pretested, thus requiring no processing to remove
water or other contaminates. Because the sulfur content of feedstock varies,
the sulfur levels of No. 2 diesel fuel produced by the Process do not meet
those required under current Environmental Protection Agency ("EPA") clean air
standards for "over-the-road" fuel use. Accordingly, the diesel fuel end
product must be dyed dark blue as required by EPA regulations to identify it as
suitable only for agricultural, marine, industrial and other off-road use. The
Company intends to test various additives to the Process, which may lower
sulfur levels in the end product; however, it can make no assurances that it
will develop such additives or that such additives will consistently result in
producing No. 2 Diesel Fuel that meets over-the-road EPA standards.
Description of Unit Development
Since inception, the Company has assembled four Units, three of which were sold
to customers and one of which, the Test Unit, was modified and sold to the
Partnership. As outlined above (see "Background of the Company" herein),
operation of the Test Unit ceased in November, 1993 until appropriate permits
could be obtained from DHEC (see "Environmental Matters" herein) and product
assembly and research and development ceased during the first quarter of 1995
due to lack of funds. During the third quarter of 1996, the Company engaged an
engineering consulting firm to assist it in integrating the thermal oxidizer
into the Test Unit and to make the necessary modifications to convert the Test
Unit to a Model 400 Unit. The Company also made the necessary modifications and
improvements to its operations facilities to accommodate the Test Unit
modification and operation.
The Company believes that problems with one of the Units sold to a customer in
1995 were attributable to the unsuccessful integration of the thermal oxidizer
into the Process. Although the Company believes that recent product design
modifications have remedied these types of problems, until the Test Unit can
operate on a continuous basis, the Company can make no assurances that further
development and modifications to the design of the Units will not be necessary
before additional Units can be successfully marketed. The Company has modified
the Test Unit for the Partnership so that it will meet
23
<PAGE> 24
Model 400 specifications and may make further modifications so that the Test
Unit meets the specifications for a Model 600 Unit. The Company will continue
to work with the thermal oxidizer in place on the Test Unit to resolve
operational difficulties.
On June 4, 1997, in connection with a stack emissions test performed by the
Company's environmental consultants (see "Environmental Matters" herein), the
Test Unit demonstrated a feed rate of 250-270 GPH with production of No. 2
diesel fuel of approximately 192 GPH and lower grade heating oil of
approximately 60 GPH. Because there has been no sustained operation of any of
the Units, reliability of the Unit is uncertain.
The Company plans to offer Model 400 and 600 Units for sale. Although it has
received expressions of interest for ten Model 600 Units (see "Markets,
Competition, Distribution and Customers" herein), research and development for
such a model has not been completed. The Company has not produced a prototype
of such a model, and its ability to bring such a model to market and to fulfill
any orders it may receive is uncertain.
Status of Intellectual Property
The Company filed an application for a patent on the Process in November, 1992,
and made the necessary filings pursuant to the Patent Cooperation Treaty
("PCT") to preserve its patent rights in member countries in November, 1993.
The Company also filed foreign patent applications in non-member countries of
the Republic of Mexico and the People's Republic of China. The Company
continued to make refinements and improvements to the Process, which became the
basis of a second-filed application, a continuation-in-part. The subject matter
of the second-filed application is currently in active prosecution within the
U.S. Patent Office. Previous applications had been rejected by the Patent
Examiner as being obvious in light of known teachings in the petroleum cracking
field. The Company decided to refile the previously rejected
continuation-in-part application in order to assert additional arguments and
claims in an effort to overcome the Patent Examiner's prior rejections.
The most recent filing of the continuation-in-part application occurred on
March 3, 1997, with additional claims and a supporting affidavit filed on July
10, 1997. On August 22, 1997, the Patent Examiner rejected the claims, giving
the Company until November 22, 1997 to submit an additional response. Although
patent counsel has advised the Company that it believes that the Company will
have grounds to appeal any denial of the pending application, there can be no
assurance that the Company will have the necessary resources to pursue such an
appeal or, if it does, that a patent for the process will ultimately issue.
Due to financial constraints, the Company did not make the necessary timely
filings with member countries under the PCT. Accordingly, the Company will be
able to pursue foreign patent protection for the Process as disclosed in the
original application only in Mexico and China.
Markets, Competition, Distribution and Customers
The Company believes that the continuous feed, one-step process through which
the Units are designed to refine waste oil, and the relatively compact size of
the Units, will make the
24
<PAGE> 25
Units attractive to domestic waste oil collectors and accumulators, who
typically sell waste oil to asphalt plants or other industrial users rather
than re-refining such products.
According to a study prepared for the National Oil Recyclers Association in
1992, approximately 1.4 billion gallons of waste oil are generated in the
United States each year, of which approximately 1 billion gallons are
accumulated for collection and recycling, while the remainder is disposed of in
land fills or other disposal sites or illegally dumped or incinerated. Waste
oil is accumulated from a variety of sources, including quick-change oil shops,
automobile and truck repair garages, municipal garages, automobile and truck
dealerships, truck fleet terminals, bus operators, equipment dealerships and
automobile and truck leasing fleets. Most accumulators either give the waste
oil directly to waste oil collectors or contract with third parties for
disposal, usually to a waste oil collector.
The waste oil collection industry is highly fragmented, with an estimated 650
waste oil collectors in the United States. Waste oil collectors typically
process waste oil to remove contaminants and water content and then sell it to
asphalt plants or other industrial users. As of September 15, 1997, spot market
prices for No. 2 diesel fuel for on-road use were $.5215 per gallon, according
to The Wall Street Journal. The Company believes that prices for off-road fuel
are usually $.02 to $.03 lower per gallon than for over-the-road fuel. The
Company believes that the EnviroEconomics System could be attractive to waste
oil collectors, either through ownership of a Unit or access to the system
through a regional processor.
Although the Company is not aware of any products that compete directly with
the Units, thermal cracking and distillation are well-known in the petroleum
industry, and the refining and marketing segment of the petroleum industry is
intensely competitive. Many of the Company's potential competitors are major
energy service companies or integrated, multi-national oil companies that have
substantially greater financial, technical and marketing resources than the
Company. Existing technologies and facilities (such as large-scale refineries)
operated by competitors could become a possible outlet for waste oil sales for
the accumulator and collector markets. To the extent that scale economies apply
to any such technologies or products, the Company would be at a competitive
disadvantage because its equipment is designed to operate at relatively low
levels of feedstock volume. In addition, many of the Company's potential
competitors have significantly greater experience than the Company in obtaining
regulatory approvals and, accordingly, they may succeed in obtaining such
approvals for new products or technologies more rapidly than the Company. Such
potential competitors have significant market power not available to the
Company, including national brand name recognition and established distribution
channels.
The Company has used various approaches to market the Units, both in the United
States and abroad. Initially, the Company intended to establish a
distributorship system, pursuant to which a distributor would gain the
exclusive rights to market the Units in an assigned territory for 99 years and
the right to purchase Units at a discount from the Company, in exchange for
payment of a distribution fee and, in some cases, a royalty based upon the
number of gallons of No.2 diesel fuel distilled.
Although the Company has entered into several distribution agreements and
letters of intent with respect to such agreements over the years, as of the
date hereof only three distribution agreements are extant, all of which are
with companies owned or controlled by
25
<PAGE> 26
persons who are, or may be considered to be, related to the Company, and none
of which has commenced business operations. Midwest Fuel Refining Company
("Midwest Fuel"), which holds the distribution rights for the states of Iowa,
Kansas, Minnesota, Nebraska, North Dakota, South Dakota and Wisconsin, and
Process Technology Investors, which holds the distribution rights for the
states of Alabama, Arkansas, Florida, Kentucky, Mississippi and Tennessee, are
believed by the Company to be owned or controlled by John Kruse, members of his
family or entities owned or controlled by Mr. Kruse or his family. Mr. Kruse is
a shareholder of the Company and served as a member of the Company's Board of
Directors from March, 1993 to November, 1994 (see "Relationships with Certain
Significant Shareholders" herein). RecOil, Inc. ("RecOil"), which holds the
distribution rights for the states of Texas, Louisiana and Oklahoma, is
believed by the Company to be owned or controlled by Raymond C. O'Brien and
members of his immediate family (see "Relationships with Certain Significant
Shareholders" herein). None of the companies holding distribution rights has
paid any distribution fees, with the exception of Midwest Fuel, which paid
$18,000 toward a total fee of $615,000 in 1993. Payment of distribution fees in
all other cases has been deferred until the Company has commenced the sale of
commercially viable Units.
The Company's agreement with RecOil required that RecOil place a firm order for
a Unit by July 31, 1997 in order to retain its territory. Although no such
order has been placed, the Company has continued to have discussions with a
customer of RecOil regarding purchase of a Unit.
From time to time, the Company has engaged the services of sales and marketing
agents, who attempt to sell the Units on a commissioned basis. The Company has
terminated all such relationships.
In the future, the Company intends to market its Units directly to waste oil
accumulators and collectors, through its existing distributors, by entering
into joint venture arrangements with both domestic and international waste oil
collectors and processors and by establishing, either on its own or in
conjunction with waste oil collectors, regional processing centers in the
United States.
In recent months the Company has made formal offers to, or entered into letters
of intent with, various entities with respect to the sale of Units, primarily
in overseas markets, including Brennan, Ltd. with respect to the Hungarian
market, SMEBA AB with respect to the Swedish, Finnish, Danish and Norwegian
markets and Maneks Ltd. with respect to the Turkish market. In the case of
Brennan, Ltd., an order for three Model 600 Units was placed, but no deposit
was paid. In some cases the Company has granted exclusivity for such markets
for a limited period in order to permit such entities to obtain the necessary
operating and environmental permits for, as well as financing of, the Units.
Although the Company continues to correspond with some such entities, it
believes that such relationships are nonbinding and are expressions of interest
only.
In late December, 1996, the Company received orders for four Model 600 Units
from Midwest Fuel and for three Model 600 Units from RecOil. As noted above
(see "Description of Unit Development" herein), the Company has not yet
developed the Model 600 Unit. The Company believes that such orders were placed
in order for Midwest Fuel and RecOil to preserve their respective positions for
certain tax credits that may be available to them under Section 29 of the
Internal Revenue Code of 1986, as amended,
26
<PAGE> 27
which provides for a tax credit for the development of synthetic fuels. The
Company has not sought to verify independently the applicability of Section 29
or the availability of credits thereunder nor has it sought a letter ruling
from the Internal Revenue Service with respect thereto.
The Company has no firm orders for any of the Units. Whether any of the
expressions of interests for Units will result in firm orders will depend
largely upon the Company's ability to (a) obtain the necessary permits to
operate the Test Unit on behalf of the Partnership at increased capacity, (b)
demonstrate a sustained successful operating record for the Test Unit so that
operational reliability can be verified, (c) develop a commercially viable
Model 600 Unit and (d) develop additional Unit models with higher processing
capacity that can meet environmental standards for air emissions. Whether the
Company can satisfy any or all of these conditions will depend, among other
things, upon receipt of sufficient capital to complete research and development
of the Units, and the Company can give no assurance that such capital will be
available to it. In addition, the Company believes that purchase of the Units
by its customers, including potential purchases by Midwest Fuels and RecOil,
will require a substantial capital investment, and there can be no assurance
that adequate financing for such entities will be obtained or is obtainable.
Environmental Matters
Operation of the Company's Units is subject to environmental regulation by
federal, state and local governmental authorities. Thermal cracking and
distillation of petroleum products by the Company on behalf of the Partnership
expose the Company to risks of causing or being deemed to have caused
environmental and other damages. The Company did not obtain the necessary
permits to conduct the construction, operation and testing of the Test Unit,
and in November, 1993, DHEC suspended operation of the Test Unit until a permit
was obtained. During 1994, while its permit applications were pending before
DHEC, the Company and DHEC met to discuss allegations that the Company had
violated various environmental laws by having constructed, operated and
modified the Test Unit prior to the issuance of such permits. As a result of
these meetings, the Company and DHEC entered into a Consent Order ("Consent
Order I"), pursuant to which the Company admitted to certain violations and
agreed to pay a fine of $20,000. In September, 1994, the Company's permit
application was denied. The Company appealed the denial of its permit
application and in March, 1995, the Company and DHEC entered into another
Consent Order ("Consent Order II"), which permitted the Company to continue
modifications to the Test Unit and to test the operation of the Test Unit for a
limited period to demonstrate that operation of the Test Unit would meet DHEC
standards.
Due to lack of funds, the Company was unable to make the necessary
modifications to the Test Unit to meet the conditions of Consent Order II until
the third quarter of 1996. At that time, it hired an environmental consultant
to assist it in meeting the conditions of Consent Order II and in making the
necessary additional permit applications. In November, 1996, the Company and
DHEC met and concluded an agreement regarding actions necessary prior to
commencement of the test period. The test period commenced on March 13, 1997
and ended on June 4, 1997. On June 4, 1997, an independent third party
performed a stack emission test as required under Consent Order II. The purpose
of the stack test was to demonstrate compliance with certain limits for total
organic compounds, volatile organic compounds and hydrogen chloride levels. The
emissions from the Test Unit were determined to be below each of the specified
maximum permissible limits during operation
27
<PAGE> 28
at intended permit rates. The Test Unit ceased operation on June 4, 1997, as
required by Consent Order II. Results of the stack emission test were filed
with DHEC on July 10, 1997. Following a thirty day public comment period, which
commenced on August 3, 1997 and ended September 2, 1997, on September 15, 1997
the Company received construction permits and a used oil processing facility
permit from DHEC with respect to the Test Unit in its unmodified state. Such
permits are subject to a number of specifications and conditions, and, in the
case of the construction permits, are not effective until fifteen calendar days
following the date of issue of such permits. The Company must apply for an
operating permit not later than fifteen days prior to place a new, increased or
altered source in operation. Operation of the Test Unit in its current Model
400 configuration will require amendment of the permits issued. Although the
Company does not believe that modification or amendment of such permits will be
denied, it can give no assurance that modified or amended permits will be
issued or when, if ever, such modifications or amendments may be received.
Unless and until such time as modified or amended permits are issued, the Test
Unit may only operate at the lower 200 GPH output rate.
Although the Company has been informally advised that its Units would qualify
for necessary environmental permits in other states, it has not applied for, or
been granted, any environmental operating permits in any other states.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of September 10, 1997, regarding
the beneficial ownership of shares of the Company's common stock by (a) each
person known by the Company to own beneficially more than 5% of the outstanding
common stock of the Company, (b) each director of the Company, (c) each
executive officer of the Company and (d) all directors and officers of the
Company as a group. Except as otherwise specified, the named beneficial owner
has sole voting and investment power.
<TABLE>
<CAPTION>
Name and Address of Percent
Title of Class Beneficial Owner Amount of Class
- -------------- ---------------- ------ --------
<S> <C> <C> <C>
Common Stock William D. Carraway(2) 676,0003(3) 9.6%
President & Director
</TABLE>
- ------------------------
(2) The address of the shareholder is c/o Green Oasis Environmental, Inc.,
184 E. Bay Street, Suite 302, Charleston, South Carolina 29401.
(3) Includes 80,000 shares issuable upon exercise of an option granted by
the Company in May, 1994, 448,000 shares issuable upon the exercise of an
option granted by the Company in August, 1996, 20,000 shares issuable upon the
exercise of an option granted by the Company in September, 1996 and 48,000
shares issuable upon the exercise of an option granted by the Company in
January, 1997.
28
<PAGE> 29
<TABLE>
<S> <C> <C>
Mary Ann A. Carraway(2) 1,080,000(4) 16.6%
Director
Brian D. Carraway(2) 400,000 6.2%
Larry S. King(5) 45,000(6) *
Director
Raymond C. O'Brien(7) 786,000(8) 11.3%
All current directors 2,201,000 31.1%
and officers as a group
(3 persons)(9)
</TABLE>
Since March 21, 1996, the date that the Company's common stock commenced
trading on the NASDAQ OTC Bulletin Board, Mr. Carraway has sold 223,383 shares
of the Company's common stock at prices ranging from $1.75 to $7.75 per share,
and at a weighted average price per share of $4.18 and Mrs. Carraway has sold
209,000 shares of the Company's common stock at prices ranging from $1.314 to
$7.812 per share, and at a weighted average price per share of $2.98.
- ------------------------
(4) Includes 20,000 shares issuable upon exercise of an option granted by
the Company in May 1994, 5,000 shares issuable upon exercise of an option
granted by the Company in March, 1996, and 5,000 shares issuable upon
exercise of an option granted by the Company in September, 1996.
(5) The address of Mr. King is 1868-A Independence Square, Atlanta, Georgia
30338.
(6) Includes 20,000 shares issuable upon exercise of an option granted by the
Company in May, 1994, 5,000 shares issuable upon exercise of an option
granted by the Company in March, 1996 and 5,000 shares issuable upon
exercise of an option granted by the Company in September, 1996.
(7) The address of Mr. O'Brien is 577 Woodlawn Avenue, Glencoe, Illinois
60022.
(8) Includes shares held of record by the shareholder as well as members of
his immediate family and entities known to the Company that are owned or
controlled by the shareholder or members of his immediate family,
including the following: Tecumseh Capital Management, Inc., Tecumseh
Capital Fund L.P., the Ronin Group, Inc., Microcap Consulting &
Communications, Inc., RecOil, Inc. and Dialin Corporation. Does not
include shares held by employees of certain entities owned or controlled
by Mr. O'Brien (see "Relationships with Certain Significant Shareholders"
herein). Also includes 467,000 shares issuable upon exercise of warrants
issued to the shareholder or members of his immediate family.
(9) Including the shares of Brian D. Carraway, son of William D. and Mary Ann
A. Carraway.
29
<PAGE> 30
Relationships with Certain Significant Shareholders
During its history, the Company has relied upon the advice and counsel of
several of its shareholders, some of whom have provided the Company with
additional financial support, including loans, to the Company. Such loans have
been satisfied, for the most part, by exchanging the promissory notes therefor
for shares of common stock of the Company.
As noted above (see "Marketing, Competition, Distribution and Customers"), the
Company has also entered into contractual relationships with entities owned or
controlled by some of its shareholders, including John Kruse, a former member
of the Board of Directors of the Company, who the Company believes holds,
directly or indirectly, 37,000 shares of the Company's common stock.
The Company's relationship with Raymond C. O'Brien is a long-standing one. Mr.
O'Brien, and Tecumseh Capital Fund L.P., a partnership controlled by Mr.
O'Brien, were initial subscribers for 16,00010/ and 200,000 shares of the
Company's stock, respectively; however, shares initially issued to Tecumseh
Capital Fund L.P. were cancelled and issued to Woodland Partners as part of the
loan facility extended to the Company by Woodland Partners in 1992. Mr. O'Brien
is believed to have been a principal in Woodland Partners. Mr. O'Brien was
issued an additional 33,800 shares of the Company's common stock on August 29,
1992 as compensation for arranging the Woodland Partners loan, and purchased
4,000 additional shares in a private transaction on May 24, 1993 for $5,000.
Mr. O'Brien and Woodland Partners owned a controlling interest in Kelly Motors,
Ltd., which was a party to the Exchange Offer proposed by the Company in
November, 1993. Had the Exchange Offer been consummated, indebtedness owed by
both Kelly Motors and the Company to Woodland Partners would have been
satisfied.
RecOil, which is owned by Mr. O'Brien and members of his immediate family,
entered into an agreement with the Company in 1994 for the exclusive
distribution rights for the states of Illinois, Indiana and Michigan. Such
rights were terminated by mutual agreement in 1995. RecOil subsequently entered
into a letter of intent in November, 1996 for the exclusive distribution rights
for the States of Illinois, Indiana and Michigan. In late December, 1996, prior
to finalizing such agreement, RecOil placed an order for three Model 600 Units
and paid a refundable deposit of $50,000 in respect of such order. In January,
1997, by mutual agreement with the Company, the territory of the distribution
agreement was changed to Texas, Louisiana and Oklahoma. Also by mutual
agreement with the Company, the $50,000 refundable deposit for the order was
applied to a Partnership Interest for Mr. O'Brien and his wife.
During 1995, Mr. O'Brien provided a variety of financial consulting services to
the Company, including assisting the Company in identifying potential investors
and sources of capital, as well as advising the Company in connection with the
conversion of the Company's debt into equity. Mr. O'Brien was instrumental in
assisting the Company in having its common stock admitted for trading on the
NASDAQ OTC Bulletin Board, upon which the Company's common stock commenced
trading on March 21, 1996.
- ------------------------
(10) The Company's stock was split 2-for-1 in March, 1994. For consistency
purposes, share numbers given are on a post-split basis.
30
<PAGE> 31
On March 15, 1996, just prior to the commencement of such trading, the Company
contracted with MicroCap Consulting & Communications, Inc. ("MicroCap"), a
company controlled by Mr. O'Brien, to provide it with public and investor
relations services and support. Pursuant to the terms of its agreement with
MicroCap, the Company issued to Microcap 25,000 shares of the Company's common
stock as payment for services rendered between March 15, 1996 and March 15,
1997. The Company entered into a similar agreement with MicroCap for the period
March 15, 1997 through March 15, 1998, but terminated the agreement on May 15,
1997. Shares of restricted stock issued in respect of the renewal period were
returned upon termination of the agreement, and the Company paid MicroCap the
sum of $10,000 for services for the period March 15, 1997 through May 15, 1997.
During the term of the Company's agreement with MicroCap, two employees of
MicroCap purchased units of the 1996 Offering and were issued 8,000 and 56,000
shares, respectively, of the Company's common stock in connection therewith,
representing a combined 8 units of the 1996 Offering. One such employee
purchased an additional 56,000 shares for $1.25 per share.
On March 22, 1996, the day following the first trading day of the Company's
common stock on the NASDAQ OTC Bulletin Board, Tecumseh Asset Management, Inc.,
a financial management firm controlled by Mr. O'Brien, issued a
Flash-Aggressive Buy Recommendation of the Company's common stock. The report
accompanying the recommendation erroneously reported that the Company had a
backlog of Unit orders in excess of $25 million. On that date, Tecumseh Capital
Fund LP, an investment fund managed by Mr. O'Brien and Ronin Group, a company
controlled by Mr. O'Brien, owned 45,000 and 40,000 shares, respectively, of the
Company's common stock. A copy of such recommendation containing such erroneous
report was subsequently posted on the Company's home page on the World Wide
Web.
On August 30, 1996, the Company sold 35,000 shares of its common stock to Mr.
O'Brien in a private transaction for $52,500. In September, 1996, the Company's
Chief Executive Officer assigned to Mr. O'Brien an agreement to purchase
200,000 shares of the Company's common stock from the estate of a shareholder
for $1.125 per share. Mr. O'Brien subsequently acquired such shares from the
estate. In December, 1996, Mr. O'Brien purchased 120,000 shares of the
Company's common stock for $1.25 per share, and the Company issued to Mr.
O'Brien warrants to purchase 250,000 shares of the Company's common stock at an
exercise price of $1.375 per share. The warrants were issued in consideration
of Mr. O'Brien's services to the Company in making placements of Partnership
Interests as well as units of the 1996 Offering. Mr. O'Brien and members of his
immediate family purchased 19 of the 37 units sold in the 1996 Offering and, in
addition to the 8 units purchased by employees of MicroCap noted above, an
additional 2 units were purchased by an employee of Mr. O'Brien to whom Mr.
O'Brien loaned funds to make the purchase. One unit was sold to a member of Mr.
O'Brien's extended family. Since January, 1996, the Company believes that Mr.
O'Brien, members of his immediate family or entities that he owns or controls
have sold approximately 323,500 shares of the Company's common stock, at prices
ranging from $1.00 to $7.3125 per share, and at an average price per share of
$2.879.
Another individual believed by the Company to be a shareholder is alleged by
the staff of the Commission to have received compensation from both the Company
and Mr. O'Brien for writing and disseminating favorable reports concerning the
Company through investor "chat rooms" and an electronic newsletter circulated
on the Internet. This individual is
31
<PAGE> 32
alleged to have received a check for $600 from Mr. O'Brien. The Company has
been informed that the purpose of such payment was to enable the individual to
purchase a scanning device to enable him to upload photographs of Company
facilities onto the Internet, but the Company has not sought independently to
verify such information.
The Company is also alleged to have compensated such individual by permitting
him to purchase a Partnership Interest for $30,000, representing a forty
percent discount to the offering price of $50,000 per Partnership Interest. The
Company received a check for $30,000 in respect of a Partnership Interest on
February 28, 1997. The individual executed a note dated February 28, 1997 for
$20,000 payable to the Company during August, 1997.
Between September, 1996 and February, 1997, such individual visited the
Company's facilities in Charleston at least three times. The Company paid for
the individual's hotel bills and meals during these visits.
Another individual who is a record owner of the Company's stock was permitted
to purchase a Partnership Interest for $40,000. The discount was granted to
such shareholder as a finder's fee for identifying individuals to the Company
who subsequently purchased Partnership Interests.
Availability of Information; Market for Its Stock
Although the Company has filed periodic reports with the Commission under the
Exchange Act since November, 1993, it has never registered its securities
pursuant to the Exchange Act. Although it presently intends to continue to file
such reports, it is under no legal obligation to do so and could legally
discontinue filing such reports at any time. Because the Company has not
registered its securities under the Exchange Act, neither it, nor its officers,
directors and 5% shareholders have filed other reports otherwise required
thereunder, including reports required pursuant to Sections 13 and 16 of the
Exchange Act. The Company, and, to the best of its knowledge, such officers,
directors and shareholders, have no present intention of filing such reports.
Since the expiration of the order suspending trading in the Company's common
stock on May 22, 1997, the Company's common stock has been traded only
sporadically on the "pink sheets"; the stock has not traded on the NASDAQ OTC
Bulletin Board. The Company can give no assurance that trading will recommence
on the NASDAQ OTC Bulletin Board, or that an orderly market will develop for
its securities.
Registration of Securities
In connection with the negotiation and settlement of certain outstanding claims
against it, the Company issued shares of its common stock in settlement of such
claims (see "Background of the Company" herein). In certain cases, the Company
agreed to include such shares in the next registration statement filed by the
Company with the Commission. In the case of one shareholder receiving such
shares, the Company agreed, as a condition of such settlement, to conclude the
filing of a registration statement in respect of such shares by July 31, 1997.
To date, the Company has not filed any such registration statement, and, as a
result of the Company's failure to so file and conclude the registration of
such shares, such shareholder has the right to exchange the common stock it
received
32
<PAGE> 33
in satisfaction of its claims against the Company for the Company's demand note
in an amount equal to $396,000.
In connection with the sale of the Partnership Interests and the 1996 Offering,
the Company agreed to file a registration statement with respect to the shares
underlying warrants included in the terms of such offerings by July 31, 1997.
The Company has no present intention of filing a registration statement with
the Commission.
Part II. Other Information
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
10.28 Green Oasis Environmental, Inc. 1997 Stock Option Plan
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
(1) Report on Form 8-K dated May 22, 1997 reporting the
issuance of a press release confirming expiration of an
Order by the Commission temporarily suspending trading and
announcing the Company's retention of independent outside
counsel to investigate the concerns noted by the Commission
in ordering such temporary trading suspension.
(2) Report on Form 8-K dated July 10, 1997 reporting the
issuance of two press releases, the first of which
concerned filing by the Company with DHEC the results of a
stack test performed on the Test Unit, and the second of
which concerned the termination of an agreement, previously
announced on May 5, 1997, to acquire the assets of Approved
Oil Services, Inc.
(3) Report on Form 8-K dated August 6, 1997 reporting the
issuance of a press release reporting that DHEC had
published a Public Notice of proposed issuance of
construction permits with respect to the Test Unit.
33
<PAGE> 34
SIGNATURE
In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Green Oasis Environmental, Inc.
(Registrant)
October 7, 1997
/s/ William D. Carraway
-------------------------------------
William D. Carraway
President and Chief Executive Officer
(Chief Financial Officer)
34
<PAGE> 1
EXHIBIT 10.28
GREEN OASIS ENVIRONMENTAL, INC.
1997 STOCK OPTION PLAN
Green Oasis Environmental, Inc., a Florida corporation (the
"Company"), hereby establishes the Green Oasis Environmental, Inc. 1997 Stock
Option Plan (the "Plan"), effective as of May 16, 1997.
1. Purpose. The purpose of the Plan is to attract and
retain the best available talent and encourage the highest level of performance
by executive officers, key employees, directors, advisors and consultants, and
to provide them with incentives to put forth maximum efforts for the success of
the Company's business in order to serve the best interests of the Company.
Options granted under the Plan may be Incentive Options or Nonqualified Stock
Options, as such terms are hereinafter defined.
2. Definitions. The following terms, when used in the
Plan with initial capital letters, will have the following meanings:
(a) "Act" means the Securities Exchange Act of 1934
as in effect from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
in effect from time to time.
(d) "Common Stock" means the common stock of the Company
or any security into which such common stock may be changed by reason of any
transaction or event of the type described in Section 8.
(e) "Date of Grant" means (i) with respect to
Participants, the date specified by the Stock Option Committee or the Special
Stock Option Committee, as applicable, on which a grant of Stock Options will
become effective (which date will not be earlier than the date on which such
committee takes action with respect thereto) and (ii) with respect to
Nonemployee Directors, the applicable date specified in Section 6.
(f) "Incentive Stock Option" means a Stock Option
granted in accordance with Section 422 of the Code.
(g) "Market Value per Share" means either (i) the fair
market value per share of the Common Stock on the Date of Grant as determined
by the Stock Option Committee or the Special Stock Option Committee, as
applicable, with respect to Stock Options granted to Participants, or (ii) if
the Company's Common Stock become listed on any national securities exchange or
automated quotation system, the average of the high and low closing sale prices
as reported on such national securities exchange or automated
35
<PAGE> 2
quotation system on the Date of Grant if such date is a trading day and, if
such date is not a trading day, on the immediately preceding date which is a
trading day.
(h) "Nonemployee Director" means a member of the Board
who is not an employee of the Company or any Subsidiary and who qualifies as a
"disinterested person" within the meaning of Rule 16b-3.
(i) "Nonqualified Stock Option" means a Stock Option
other than an Incentive Stock Option.
(j) "Option Price" means the purchase price per share
payable on exercise of a Stock Option.
(k) "Participant" means a person who is selected by the
Stock Option Committee or the Special Stock Option Committee, as applicable, to
receive Stock Options under Section 4 or Section 5 of the Plan and who is at
that time (i) an executive officer or other key employee of the Company or any
Subsidiary, (ii) an advisor or consultant to the Company or any Subsidiary, or
(iii) a member of the Board other than a Nonemployee Director.
(l) "Rule 16b-3" means Rule 16b-3 under Section 16 of
the Act, as such Rule is in effect from time to time.
(m) "Special Stock Option Committee" means a committee
that at all times consists of at least two Nonemployee Directors and all of
whose members qualify as "outside directors" within the meaning of Section
162(m) of the Code.
(n) "Stock Option" means the right to purchase shares of
Common Stock upon exercise of an option granted pursuant to Section 4, 5 or 6.
(o) "Stock Option Committee" means the Stock Option
Committee appointed by the Board. Prior to the appointment of such a committee,
the Board shall be deemed the Stock Option Committee.
(p) "Subsidiary" means any corporation, partnership,
joint venture or other entity in which the Company owns or controls, directly
or indirectly, not less than 50% of the total combined voting power or equity
interests represented by all classes of stock issued by such corporation,
partnership, joint venture or other entity.
(q) "10-Percent Shareholder" means any person who at the
time of a Stock Option grant owns capital stock of the Company possessing more
than 10% of the combined voting power of all classes of capital stock of the
Company.
36
<PAGE> 3
3. Shares Available Under Plan. The shares of Common
Stock which may be issued under the Plan will not exceed in the aggregate
500,000 shares, subject to adjustment as provided in Section 8. Such shares may
be shares of original issuance or treasury shares or a combination of the
foregoing. Any shares of Common Stock that are subject to Stock Options that
are terminated, unexercised, forfeited or surrendered or that expire for any
reason will again be available for issuance under the Plan.
4. Stock Options for Participants -- Nonexempt Grants.
The Stock Option Committee or the Special Stock Option Committee may from time
to time authorize grants to any Participant of options to purchase shares of
Common Stock upon such terms and conditions as such committee may determine in
accordance with the provisions set forth below. Grants made by the Stock Option
Committee or the Special Stock Option Committee pursuant to this Section 4 are
not intended to comply with or otherwise satisfy the requirements of Rule
16b-3.
(a) Each grant will specify the number of shares of
Common Stock to which it pertains.
(b) Each grant will specify the Option Price, which,
in the case of an Incentive Stock Option, will be not less than 100% of the
Market Value per Share on the Date of Grant or, in the case of an Incentive
Stock Option granted to a 10% Shareholder, not less than 110% of the Market
Value per Share on the Date of Grant.
(c) Each grant will specify whether the Stock Option
is intended to be an Incentive Stock Option or a Nonqualified Stock Option.
(d) Each grant may specify whether the Option Price
will be payable (i) in cash or by check acceptable to the Company, (ii) by the
transfer to the Company of shares of Common Stock owned by the Participant for
at least six months (or, with the consent of the Stock Option Committee, for
less than six months) having an aggregate fair market value per share at the
date of exercise equal to the aggregate Option Price, (iii) with the consent of
the Stock Option Committee, by authorizing the Company to withhold a number of
shares of Common Stock otherwise issuable to the Participant having an
aggregate fair market value per share on the date of exercise equal to the
aggregate Option Price or (iv) by a combination of such methods of payment;
provided, however, that the payments methods described in clauses (ii) and
(iii) will not be available at any time that the Company is prohibited from
purchasing or acquiring such shares of Common Stock. In the absence of any such
specification, only the payment method in clause (i) shall be permitted. Any
grant may provide for deferred payment of the Option Price from the proceeds of
sale through a bank or broker of some or all of the shares to which such
exercise relates.
(e) Successive grants may be made to the same Participant
whether or not any Stock Options previously granted to such Participant remain
unexercised.
37
<PAGE> 4
(f) Each grant will specify the term of the Stock
Options, which in the case of an Incentive Stock Option granted to a
10% Shareholder shall not be greater than five years and for all other
Incentive Stock Options shall not be greater than ten years.
(g) Each grant will specify the required period or
periods (if any) of continuous service by the Participant with the
Company or any Subsidiary and/or any other conditions to be satisfied
before the Stock Options or installments thereof will become
exercisable, and any grant may provide, or may be amended to provide
for the earlier exercise of the Stock Options in the event of a change
in control of the Company (as defined in the stock option agreement
evidencing such grant or in any agreement referred to in such stock
option agreement) or in the event of any other similar transaction or
event.
(h) Each Stock Option granted pursuant to this Section 4
will be subject to the transfer restrictions set forth in Section 7.
(i) Each grant will be evidenced by a stock option
agreement executed on behalf of the Company by the Chief Executive
Officer (or another officer designated by the Stock Option Committee)
and delivered to the Participant and containing such further terms and
provisions, consistent with the Plan as Committee may approve.
5. Stock Options for Participants -- Exempt Grants. The
Special Stock Option Committee may from time to time authorize grants to any
Participant of options to purchase shares of Common Stock upon such terms and
conditions as it may determine in accordance with the provisions set forth
below. Grants made by the Special Stock Option Committee pursuant to this
Section 5 are intended to comply with and otherwise satisfy the requirements of
Rule 16b-3. To the extent that (i) any provision of the Plan applicable to a
Stock Option granted pursuant to this Section 5, or (ii) any act of the Board,
Stock Option Committee or Special Stock Option Committee would cause such Stock
Option to fail to satisfy or comply with any requirements of Rule 16b-3, such
provision or act will be deemed null and void for purposes of such Stock
Option.
(a) Each grant will specify the number of shares of
Common Stock to which it pertains.
(b) Each grant will specify the Option Price, which, in
the case of an Incentive Stock Option, will be not less than 100% of
the Market Value per Share on the Date of Grant or, in the case of an
Incentive Stock Option granted to a 10% Shareholder, not less than
110% of the Market Value per Share on the Date of Grant.
38
<PAGE> 5
(c) Each grant will specify whether the Stock Option is
intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
(d) Each grant will specify whether the Option Price will be
payable (i) in cash or by check acceptable to the Company, (ii) by the
transfer to the Company of shares of Common Stock owned by the
Participant for at least six months (or, with the consent of the
Special Stock Option Committee, for less than six months) having an
aggregate fair market value per share at the date of exercise equal to
the aggregate Option Price, (iii) with the consent of the Special
Stock Option Committee, by authorizing the Company to withhold a
number of shares of Common Stock otherwise issuable to the Participant
having an aggregate fair market value per share on the date of
exercise equal to the aggregate Option Price or (iv) by a combination
of such methods of payment, provided, however, that the payment
methods described in clauses (ii) and (iii) will not be available at
any time that the Company is prohibited from purchasing or acquiring
such shares of Common Stock. In the absence of any such specification,
only the payment method in clause (i) shall be permitted. Any grant
may provide for deferred payment of the Option Price from the proceeds
of sale through a bank or broker of some or all of the shares to which
such exercise relates.
(e) Successive grants may be made to the same Participant
whether or not any Stock Options previously granted to such
Participant remain unexercised.
(f) Each grant will specify the term of the Stock Options,
which in the case of an Incentive Stock Option granted to a 10%
Shareholder shall not be greater than five years and for all other
Incentive Stock Options shall not be greater than ten years.
(g) Each grant will specify the required period or periods
(if any) of continuous service by the Participant with the Company or
any Subsidiary and/or any other conditions to be satisfied before the
Stock Options or installments thereof will become exercisable, and any
grant may provide, or may be amended to provide for the earlier
exercise of the Stock Options in the event of a change in control of
the Company (as defined in the stock option agreement evidencing such
grant or in any agreement referred to in such stock option agreement)
or in the event of any other similar transaction or event.
(h) Each Stock Option granted pursuant to this Section 5 will
be subject to the transfer restrictions set forth in Section 7.
(i) Each grant will be evidenced by a stock option agreement
executed on behalf of the Company by the Chief Executive Officer (or
another officer designated by the Special Stock Option Committee) and
delivered to the Participant and containing such further terms and
provisions, consistent with the Plan, as the Special Stock Option
Committee may approve.
39
<PAGE> 6
6. Stock Options for Nonemployee Directors. Each Nonemployee
Director will be granted an option as of the first business day following his
or her election or appointment to the Board, to purchase 20,000 shares of
Common Stock. Each Nonemployee Director will also be granted an additional
option to purchase 20,000 shares of Common Stock every year on the anniversary
date of his or her initial option grant under this Section 6, beginning on the
first anniversary of such initial election or appointment, provided that such
individual has served continually as a Nonemployee Director through the close
of business on such anniversary date. All Stock Options granted pursuant to
this Section 6 will contain the terms and conditions set forth below. Stock
Options granted pursuant to this Section 6 are intended to comply with and
otherwise satisfy the requirements of Rule 16b-3. To the extent that (i) any
provision of the Plan applicable to a Stock Option granted pursuant to this
Section 6, or (ii) any act of the Board, Stock Option Committee or Special
Stock Option Committee would cause such Stock Option to fail to satisfy or
comply with any requirements of Rule 16b-3, such provision or act will be
deemed null and void for purposes of such Stock Option.
(a) Each grant will specify the number of shares of Common
Stock to which it pertains.
(b) Each grant will specify the Option Price, which will not
be less than 100% of the Market Value per Share on the Date of Grant.
(c) Each grant will specify whether the Option Price will be
payable (i) in cash or by check acceptable to the Company, (ii) by the
transfer to the Company of shares of Common Stock owned by the
Participant for at least six months (or, with the consent of the
Special Stock Option Committee, for less than six months) having an
aggregate fair market value per share at the date of exercise equal to
the aggregate Option Price, (iii) with the consent of the Special
Stock Option Committee, by authorizing the Company to withhold a
number of shares of Common Stock otherwise issuable to the Participant
having an aggregate fair market value per share on the date of
exercise equal to the aggregate Option Price or (iv) by a combination
of such methods of payment, provided, however, that the payment
methods described in clauses (ii) and (iii) will not be available at
any time that the Company is prohibited from purchasing or acquiring
such shares of Common Stock. In the absence of any such specification,
only the payment method in clause (i) shall be permitted. Any grant
may provide for deferred payment of the Option Price from the proceeds
of sale through a bank or broker of some or all of the shares to which
such exercise relates.
(d) Stock Options for Nonemployee Directors will become
exercisable in cumulative annual installments of one-fourth of the
shares subject to the Stock Options, beginning one year after the Date
of Grant, and will expire on the tenth anniversary of the Date of
Grant. Such Stock Options will also provide for immediate exercise in
the event of a Change in Control, as hereinafter defined.
40
<PAGE> 7
(e) Each Stock Option granted pursuant to this Section 6
will be subject to the transfer restrictions set forth in Section 7.
(f) Each grant will be evidenced by a stock option
agreement executed on behalf of the Company by the Chief Executive
Officer (or another officer designated by the Special Stock Option
Committee) and delivered to the Participant and containing such
further terms and provisions, consistent with the Plan, as the Special
Stock Option Committee may approve.
For purposes of this Section 6, a "Change in Control" means
the occurrence, prior to the expiration of a Stock Option granted to a
Nonemployee Director, of any of the following events:
(i) the Company is merged, consolidated or reorganized
into or with another corporation or other legal person, and
as a result of such merger, consolidation or reorganization
less than two-thirds of the combined voting power of the
then-outstanding securities entitled to vote generally in the
election of directors ("Voting Stock") of such corporation or
person immediately after such transaction are held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to another corporation or
other legal person, and as a result of such sale or transfer
less than two-thirds of the combined voting power of the
then-outstanding Voting Stock of such corporation or person
immediately after such sale or transfer is held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such sale or transfer;
(iii) there is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as
promulgated pursuant to the Act, disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section
14 (d)(2) of the Act) has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the Act) of
securities representing 20% or more of the combined voting
power of the then-outstanding Voting Stock of the Company;
(iv) the Company files a report or proxy statement with
the Securities and Exchange Commission pursuant to the Act
disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a
change in control of the Company has occurred or will occur
in the future pursuant to any then-existing contract or
transaction; or
(v) if, during any period of two consecutive years,
individuals who at the beginning of any such period
constitute the directors of the Company cease for any reason
to constitute at least a majority thereof,
41
<PAGE> 8
provided, however, that for purposes of this clause (v) each
director who is first elected, or first nominated for
election by the Company's stockholders, by a vote of at least
two-thirds of the directors of the Company (or a committee
thereof) then still in office who were directors of the
Company at the beginning of any such period will be deemed to
have been a director of the Company at the beginning of such
period. Notwithstanding the foregoing provisions of clauses
(iii) or (iv) above, unless otherwise determined in a
specific case by majority vote of the Board, a "Change in
Control" will not be deemed to have occurred for purposes of
clause (iii) or clause (iv) above solely because (A) the
Company, (B) a Subsidiary, or (C) any Company- sponsored
employee stock ownership plan or any other employee benefit
plan of the Company or any Subsidiary either files or becomes
obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or
item therein) under the Act disclosing beneficial ownership
by it of shares of voting Stock of the Company, whether in
excess of 20% or otherwise, or because the Company reports
that a change in control of the Company has occurred or will
occur in the future by reason of such beneficial ownership or
any increase or decrease thereof.
7. Transferability. Except as otherwise expressly
provided in the agreement evidencing a Stock Option granted pursuant to Section
4 or Section 5, or in any amendment to such agreement, no Stock Option will be
transferable by a Participant or Nonemployee Director other than (i) by will or
the laws of descent and distribution or (ii) pursuant to a qualified domestic
relations order, as that term is defined under the Code or the Employee
Retirement Income Act of 1974, as amended.
8. Adjustments. The Stock Option Committee, with respect
to Stock Options granted under Section 5, and the Special Stock Option
Committee, with respect to all other Stock Options, may make or provide for
such adjustments in the maximum number of shares specified in Section 3, in the
number of shares of Common Stock covered by outstanding Stock Options granted
hereunder, in the Option Price applicable to any such Stock Options, and/or in
the kind of shares covered thereby (including shares of another issuer), as
such Committee in its sole discretion, exercised in good faith, may determine
is equitably required to prevent dilution or enlargement of the rights of
Participants and Nonemployee Directors that otherwise would result from any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Company, merger, consolidation,
spin-off, reorganization, partial or complete liquidation, issuance of rights
or warrants to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing. Any fractional shares
resulting from the foregoing adjustments will be eliminated.
9. Withholding of Taxes. To the extent that the Company
is required to withhold federal, state, local or foreign taxes in connection
with any benefit realized by an optionee under the Plan, or is requested by any
optionee to withhold additional amounts with respect to such taxes, and the
amounts available to the Company for such withholding are insufficient, it will
be a condition to the realization of such benefit that the optionee make
arrangements satisfactory to the Company for payment of the
42
<PAGE> 9
balance of such taxes required or requested to be withheld. In addition, if
permitted by the Stock Option Committee, with respect to Stock Options granted
under Section 4, or by the Special Stock Option Committee, with respect to all
other Stock Options, an optionee may elect to have any withholding obligation
of the Company satisfied with shares of Common Stock that would otherwise be
transferred to the optionee on exercise of the Stock Option.
10. Administration of the Plan.
(a) The Plan will be administered by the Stock Option
Committee with respect to Stock Options granted under Section 4 and by
the Special Stock Option Committee with respect to all other Stock
Options. For purposes of any action taken by the Stock Option
Committee or the Special Stock Option Committee, whichever is
applicable, a majority of the members will constitute a quorum, and
the action of the members present at any meeting at which a quorum is
present, or acts unanimously approved in writing, will be the acts of
the Stock Option Committee or the Special Stock Option Committee.
(b) Subject to the allocation of administrative
responsibilities set forth in Section 10(a), the Stock Option
Committee and the Special Stock Option Committee have the full
authority and discretion to administer the Plan and to take any action
that is necessary or advisable in connection with the administration
of the Plan, including without limitation the authority and discretion
to interpret and construe any provision of the Plan or of any
agreement, notification or document evidencing the grant of a Stock
Option. The interpretation and construction by the Stock Option
Committee or the Special Stock Option Committee, as applicable, of any
such provision and any determination by the Stock Option Committee or
the Special Stock Option Committee pursuant to any provision of the
Plan or of any such agreement, notification or document will be final
and conclusive. No member of the Stock Option Committee or the Special
Stock Option Committee will be liable for any such action or
determination made in good faith.
(c) Notwithstanding the provisions of Section 10(b), if
any authority, discretion or responsibility granted to the Special
Stock Option Committee under the Plan would, if exercised or
discharged by the Special Stock Option Committee, cause the provisions
of Section 5 or 6 or any Stock Option granted under Section 5 or 6 to
fail to satisfy the requirements of Rule 16b-3, such authority,
discretion or responsibility may be exercised by the Board to the same
extent and with the same effect as if exercised by the Special Stock
Option Committee, provided such act of the Board will not cause the
provisions of Section 5 or 6 or any Stock Option under Section 5 or 6
to fail to satisfy the requirements of Rule 16b-3 or cause any member
of the Special Stock Option Committee to cease to be a disinterested
administrator for purposes of Rule 16b-3.
11. Amendments, Etc.
(a) The Stock Option Committee or the Special Stock
Option Committee, as applicable, may, without the consent of the
optionee, amend any
43
<PAGE> 10
agreement evidencing a Stock Option granted under the Plan or
otherwise take action, to accelerate the time or at which the Stock
Option may be exercised, to extend the expiration date of the Stock
Option, to waive any other condition or restriction applicable to such
Stock Option or to the exercise of such Stock Option, to reduce the
exercise price of such Stock Option, to amend the definition of a
change in control of the Company (if such a definition is contained in
such agreement) to expand the events that would result in a change in
control of the Company and to add a change in control provision to
such agreement (if such provision is not contained in such agreement)
and may amend any such agreement in any other respect with the consent
of the optionee. Notwithstanding the foregoing, no amendment will be
made to an agreement evidencing a Stock Option granted to a
Nonemployee Director pursuant to Section 6 if such amendment would
cause such Nonemployee Director to cease to qualify as a
"disinterested person" within the meaning of Rule 16b-3.
(b) The Plan may be amended from time to time by the
Stock Option Committee or the Board but may not be amended without
further approval by the shareholders of the Company if such Plan
amendment would result in any grant or other transaction with respect
to Stock Options under Section 5 or 6 no longer satisfying the
requirements of Rule 16b-3. Notwithstanding the foregoing, the
provisions of Section 6 that designate Nonemployee Directors eligible
to receive Stock Options and specify the amount, Option Price and
timing of Stock Option grants may be amended only by the Board and may
be amended no more than once every six months except to comply with
changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules and regulations thereunder. In the
event any law, or any rule or regulation issued or promulgated by the
Internal Revenue Service, the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc., any stock exchange
upon which the Common Stock is listed for trading, or any other
governmental or quasi-governmental agency having jurisdiction over the
Company, the Common Stock or the Plan, requires the Plan to be
amended, or in the event Rule 16b-3 is amended or supplemented (e.g.,
by addition of alternative rules) or any of the rules under Section 16
of the Act are amended or supplemented, in either event to permit the
Company to remove or lessen any restrictions on or with respect to
Stock Options, the Stock Option Committee and the Board each reserves
the right to amend the Plan to the extent of any such requirement,
amendment or supplement, and all Stock Options then outstanding will
be subject to such amendment.
(c) The Plan may be terminated at any time by action of
the Board. The termination of the Plan will not adversely affect the
terms of any outstanding Stock Option.
(d) The Plan will not confer upon any Participant or
Nonemployee Director any right with respect to continuance of
employment or other service with the Company or any Subsidiary, nor
will it interfere in any way with any right the Company or any
Subsidiary would otherwise have to terminate a Participant's
employment or other service at any time.
44
<PAGE> 11
GREEN OASIS ENVIRONMENTAL, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
45
<PAGE> 1
EXHIBIT 11
GREEN OASIS ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Period
From
September
24, 1991
Three Months Ended Six Months Ended (Inception)
June 30, June 30, Through
---------------------------------- ----------------------------- June 30,
1997 1996 1997 1996 1997
---------------- -------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
INCOME (LOSS)
Net loss before extraordinary items $ (739,529) $ (168,945) $ (38,083) $ (263,363) $(6,341,622)
Dividends on preferred shares 2,000 3,080 2,000 3,080 150,198
----------- ---------- ----------- ----------- -----------
(741,529) (172,025) (40,083) (266,443) 6,491,820)
Extraordinary gain - 265,971 115,577 265,971 781,111
----------- ---------- ----------- ----------- -----------
Loss applicable to common stock $ (741,529) $ 93,946 $ 75,494 $ (472) $ 5,710,709)
=========== ========== =========== =========== ===========
PRIMARY
INCOME (LOSS) PER SHARE
Net income (loss) before extraordinary gain $ (0.11) $ (0.03) $ (0.0) $ (0.05) $ (1.48)
Extraordinary gain - 0.05 0.02 0.05 0.18
=========== ========== =========== =========== ===========
Primary income (loss) per common share $ (0.11) $ 0.02 $ 0.01 $ - $ (1.30)
=========== ========== =========== =========== ===========
Shares (1)
Weighted average number of common
shares outstanding 6,465,134 5,205,930 6,796,693 5,189,357 4,379,378
=========== ========== =========== =========== ===========
FULLY DILUTED
INCOME (LOSS) PER SHARE
Net income (loss) before extraordinary gain N/A (3) $ (0.03) $ (0.01) $ (0.05) N/A (3)
Extraordinary gain 0.05 0.02 0.05
---------- ----------- -----------
Fully diluted income (loss) per common
share $ 0.02 $ 0.0 $ -
========== =========== ===========
INCOME (LOSS) FOR FULLY DILUTED EPS
Net income (loss) before extraordinary gain $ (168,945) $ (38,083) $ (263,363)
Preferred dividends (3,080) (2,000) (3,080)
Interest expense adjustment for convertible debentures 12,500 - 25,000
Interest expense adjustments for convertible debt 47 - 94
---------- ----------- -----------
(159,478) (40,083) (241,349)
Extraordinary gain 265,971 115,577 265,971
---------- ----------- -----------
Fully diluted income (loss) per common share $ 106,493 $ 75,494 $ 24,622
========== =========== ===========
Shares (2)
Weighted average number of common shares
outstanding 5,369,266 7,021,859 $ 5,347,693
========== =========== ===========
</TABLE>
<PAGE> 2
GREEN OASIS ENVIRONMENTAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
Period
From
September
24, 1991
Three Months Ended Six Months Ended (Inception)
June 30, June 30, Through
----------------------------- ------------------------ June 30,
1997 1996 1997 1996 1997
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(1) Weighted average number of shares
outstanding 6,465,134 5,205,930 6,381,695 5,189,357 4,379,378
--------- --------- --------- --------- ---------
Common stock equivalents
Assume conversion of stock options
and warrants, whose exercise price is
less than average market price,
are exercised (3) - 753,000 - -(3)
Less assumed shares reacquired under
Treasury Stock Method - - 338,002 - -
--------- --------- --------- --------- ----------
Incremental number of shares - - 414,998 - -
--------- --------- --------- --------- ----------
Denominator for primary earnings per
share calculation 6,465,134 5,205,930 6,796,693 5,189,357 4,379,378
========= ========= ========= ========= =========
(2) Weighted average number of shares
outstanding 5,205,930 6,381,695 5,189,357
--------- --------- ---------
Assume conversion of stock options
and warrants, whose exercise price
is less than the greater of average
market price or end period price,
are exercised 70,000 1,439,088 70,000
Less assumed shares reacquired under
\ Treasury Stock Method 44,617 798,924 44,617
--------- --------- ---------
Inrecmental number of shares 25,383 640,164 25,383
Assume conversion of debenture 1,676 - 1,676
Assume conversion of convertible debt 100,000 - 100,000
Assume conversion of interest accrued 36,277 - 31,277
--------- --------- ---------
Denominator for fully diluted earnaings
per share calcuation 5,369,266 7,021,859 5,347,693
========= ========= =========
(3) Computation is antidilutive; presentation
is omitted.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 186
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 288
<PP&E> 152
<DEPRECIATION> 33
<TOTAL-ASSETS> 575
<CURRENT-LIABILITIES> 475
<BONDS> 0
37
6
<COMMON> 65
<OTHER-SE> (8)
<TOTAL-LIABILITY-AND-EQUITY> 575
<SALES> 1,338
<TOTAL-REVENUES> 1,340
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> (39)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39)
<DISCONTINUED> 0
<EXTRAORDINARY> 116
<CHANGES> 0
<NET-INCOME> 77
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
