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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to __________
Commission File Number 0-29838
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INDUSTRIAL ECOSYSTEMS, INC.
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(Exact name of registrant as specified in charter)
UTAH 94-3200034
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State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization
2040 West Broadway, Bloomfield, New Mexico 87413
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (505) 632-1786
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Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None N/A
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Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.001
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(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. (1) Yes [X]
No [ ] (2) Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $494,796
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State the aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days:
Based on the average bid and asked prices of the common stock at March 28,
2000, of $.325 per share, the market value of shares held by nonaffiliates
would be $9,799,590.
As of March 28, 2000, the Registrant had 42,966,683 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
part of the form 10-KSB (e.g., part I, part II, etc.) into which the document
is incorporated: (1) Any annual report to security holders; (2) Any proxy or
other information statement; and (3) Any prospectus filed pursuant to rule
424(b) or (c) under the Securities Act of 1933: NONE
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
Business in General
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The Company was incorporated in the state of Utah in July 1993 under the name
Agri World Development Corp. In January 1994, the name was changed to
Industrial Ecosystems, Inc. n March 1994, IEI acquired 100% of the equity
securities of Environmental Protection Company, a New Mexico corporation
("EPC") in exchange for shares of IEI's Common Stock. Until the acquisition
of EPC, IEI had no operating activities. Also, the exchange of IEI's Common
Stock for the Common Stock of EPC resulted in the former stockholders of EPC
obtaining control of IEI. Accordingly, EPC became the continuing entity for
accounting purposes, and the transaction was accounted for as a
recapitalization of EPC with no adjustment to the basis of EPC's assets
acquired or liabilities assumed. For legal purposes, IEI was the surviving
entity. EPC is in the excavation and bioremediation business and operates
principally in the Farmington, New Mexico area.
In June 1994, IEI, through IEI's wholly-owned Canadian subsidiary, IEI Canada,
Inc. ("IEI Canada"), acquired 100% of I.T.E. Ecosystems, Inc., Amlin Grain
Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc. The
operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994. In September 1994, IEI incorporated three separate
wholly-owned subsidiaries, RFP Management & Development Corp., ROP Management
& Development Corp. and IEI Canada, Inc. In December 1996, IEI incorporated
another wholly owned subsidiary, ROP Liquid Feed Corp. with the intent of
separating various business activities into different entities. Thereafter, in
March 1998, IEI created a Canadian entity (merger company) for the purpose of
consolidating IEI Canada, Inc., ROP Liquid Food Corp, ROP Management &
Development Corp. and RFP Management and Development Corp. into the merger
company. The resulting consolidated entity was named IEI Canada, Inc. The
assets and certain liabilities of all of these companies were later assumed by
ROP North America, LLC, a joint venture company formed in March, 1998 (the
"JV"), and the consolidated companies' operations were discontinued.
In June 1998, the Company incorporated two wholly-owned Canadian subsidiaries,
1297833 Ontario Ltd. and 1303873 Ontario, Ltd. The Company anticipated that
these subsidiaries would enable it to carry out certain proposed remediation
and waste processing operations which never materialized. Management believed
that development loans for these operations might be available only to
Canadian corporations. The Company is now in the process of assessing the
merits of maintaining or closing these subsidiaries which have never had any
business operations.
In January 1999, due to the need for working capital for both the JV and the
Company, the terms of the joint venture agreement were renegotiated, as
described more fully below. See Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS: Restructure of Interest in ROP. At the request of JFJ
Ecosystems, Inc. ("JFJ"), the terms of the restructuring were presented to and
ratified by the Company's shareholders at a Special Meeting in April 1999.
On January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights. In light of this notice, management is currently
assessing the best strategy for ROP's business operations.
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Summary of Business Operations
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Environmental Protection Company
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As indicated above, the Company operates a wholly owned subsidiary, EPC,
which, among other things, utilizes a unique bioremediation process to reclaim
contaminated soil. A majority of the Company's excavating and soil
remediation jobs are done on sites owned and operated by BP-Amoco, in and
around the Farmington, New Mexico area. If timing and logistics dictate, the
contaminated soil is excavated and transported from the BP-Amoco site to a ten
acre parcel of land located five miles from Farmington, New Mexico. This
parcel which is owned and operated by EPC is permitted to receive and bio-
convert hydrocarbon impacted soils. EPC's agreement with BP-Amoco allows for
the bioremediation of only BP-Amoco soil on the EPC parcel. In 1998,
approximately 20% of the BP-Amoco remediation jobs were performed on site by
treatment of contaminated soil. For the remaining jobs, contaminated soil was
removed to EPC's treatment site, then returned to BP-Amoco following
treatment.
EPC engages in soil remediation of hydrocarbon spills using proprietary
biotechnology knowhow. The EPC process involves the use of a matrix of
bacteria. These bacteria are acquired from a number of different media which
are controlled by EPC. These bacteria, along with certain enzymes which are
produced by the bacteria, aid in the remediation of the contaminated soil.
When soils are treated using the bioconversion process, enzymatic metabolism
of the hydrocarbons can begin immediately. The bioconversion process causes
the breakdown and emulsification of hydrocarbon at the hydrocarbon/aqueous
interface. Once the hydrocarbons are emulsified, they are readily accessible
to the large number of naturally occurring bacteria present in the
biopreparation. Bacterial enzymes bind to the hydrocarbons forming enzyme-
substrate complexes which subsequently serve to breakdown the hydrocarbons.
The biopreparation itself is believed to be non-toxic.
Customers
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EPC's chief revenue source has been and continues to be its work for BP-Amoco.
During fiscal year 1998, 100% of EPC's revenues were derived from BP-Amoco.
At June 30, 1999, the Company had no significant revenues from sources other
than BP-Amoco's New Mexico sites, but the Company intends to continue its
efforts to expand its customer and revenue base. However, EPC and the Company
are highly dependent on BP-Amoco as a customer. Even though BP-Amoco has
provided EPC with a fairly steady flow of business over the years, BP-Amoco is
under no obligation to continue as such in the future. The recent British
Petroleum merger with Amoco has not financially impacted EPC, however, there
can be no assurance that EPC's business with BP-Amoco will continue as it has
in the past. In an effort to broaden its customer base in the New Mexico area,
EPC recently signed an excavation and remediation agreement with Public
Service Company of New Mexico ("PSCNM"), a local public utility. The financial
impact of this agreement is not as yet known. The Company estimates that 90%
of the PSCNM jobs will be on-site treatment through commercially acceptable
land-farming and spreading operations and the remainder will require
excavating. The excavated soil will be transported, per the agreement, to
other commercial landfarming or composting operations.
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Outside of New Mexico, the Company has had little success to date marketing
its bioremediation service. The Company is conducting a demonstration of its
bioremediation technology for the U.S. Navy at the Pt. Molate naval fuel depot
in Richmond, California. Should the demonstration prove to be successful, the
Company believes that demand for its bioremediation technology will increase.
In order to enjoy the possible benefit associated therewith, the Company plans
to license its bioremediation technology to contractors that may be better
positioned to garner contracts than the Company.
In an effort to increase the Company's revenues the Company has entered into
an independent sales representative agreement with a third party to market the
Company's product and services. The Company is in the process of negotiating
other similar agreements.
The Company may look to form a strategic alliance or business combination with
an operating company in a similar or substantially related industry. The
Company intends to utilize various sources in its search for potential
relationships, including its officers and directors, venture capitalists, and
others who may present management with unsolicited proposals. To date, the
Company has not engaged or entered into any discussions, negotiations,
agreements or understandings regarding any potential alliances or business
combinations, nor has management engaged any consultants to specifically
assist the Company for such purposes.
Raw Materials and Suppliers
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All of the raw materials needed for EPC's bioremediation work are available
from a wide variety of local suppliers. Raw materials are obtained on an as-
needed basis and the Company does not anticipate any problems with obtaining
all necessary materials in the future.
Research and Development
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In the past two fiscal years, EPC has not spent any significant sums on
research and development, because its bioremediation process has not required
any substantial changes. Therefore, there have been no research and
development costs to pass on to customers.
Competition
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Traditional hydrocarbon spill remediation methods have been based on
conventional civil engineering techniques such as excavation and removal to
landfill. These methods can be expensive because of cost of transporting large
volumes of material. The excavation and disposal methods are under increasing
regulatory scrutiny as landfill standards are tightened and disposal costs
rise. These traditional methods are being replaced by newer methods which use
a variety of physical, biological and chemical methods to either immobilize or
destroy contaminants.
Traditional remediation services are predominantly provided by environmental
firms, construction contractors and environmental engineering firms. Numerous
small companies are offering newer remediation services with varying degrees
of success in treating a wide array of contaminated soils. These small
companies generally have operations like EPC's New Mexico operations which are
relatively local in scope.
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EPC's technology has only been utilized for the bioremediation of hydrocarbon
contamination and management does not know if it is appropriate or effective
for multiple contaminants. Direct competition in the limited area of
hydrocarbon contamination is primarily from landfill and land-spreading
operations permitted to handle soils contaminated with hydrocarbons. Because
EPC has access only to the Company's existing remediation site for BP-Amoco
soil, it cannot remediate contaminated soil from any other customers if the
soil must be physically removed immediately from the customers' sites for
health and/or safety reasons, such as proximity to residential housing.
Certain of the PSCNM sites fall into this category, for instance, so that EPC
becomes essentially a waste hauler transporting contaminated soil to third
party landfill and land-spreading operations.
In essence, the Company's lack of an open site for remediation of contaminated
soils puts it at a competitive disadvantage with landfill and land-spreading
operations which can accept contaminated soils from any potential customer.
The Company's remediation opportunities are, therefore, limited to those
customers for whom the Company can perform on-site work. The Company is in
the process of assessing whether this disadvantage merits the acquisition of
another remediation site.
Government Regulation
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Various environmental protection laws have been enacted and amended during
recent decades in response to public concern over the environment. The
Company's bioremediation operations may be subject to these evolving laws and
the implementing regulations. The Company believes, however, that the
requirements of these laws may ultimately contribute, in a number of respects,
to the demand for its services. The United States environmental laws which the
Company believes are or may be, applicable to EPC's bioremediation operations
include the Resource Conservation and Recovery Act ("RCRA"), as amended by the
Hazardous and Solid Waste Amendments of 1984 ("HSWA"), the Federal Water
Pollution Control Act of 1972 (the "Clean Water Act"), the Clean Air Act of
1970, as amended (the "Clean Air Act"), Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Pollution Prevention Act of
1990 and the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA").
These laws regulate the management and disposal of wastes, control the
discharge of pollutants into the air and water, provide for the investigation
and remediation of contaminated land and groundwater resources and establish a
pollution prevention program. Various states in the United States have
implemented environmental protection laws that are similar to the applicable
federal laws and, in addition, states may require, among other things, permits
to maintain existing or construct additional EPC facilities, if necessary.
EPC's remediation work to date has only been performed on sites permitted
through either BP-Amoco or PSCNM. The Company has, therefore, not been
subject to any specific regulations other than the New Mexico State
Contractor's License and the Federal Heavy Highway Usage permits for its
hauling work, and the OSHA Hazardous Materials regulations which require the
training of employees addressed below. Therefore, there have been no
significant costs or effects of compliance with regulations on the Company's
remediation business.
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If the Company decides to acquire its own remediation site, it will be
required to obtain permits and meet federal and state environmental compliance
standards. The costs of obtaining permits and complying with such standards
could be significant and might have a material adverse effect on the viability
of expanded remediation operations.
Employees
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As of March 28, 2000, EPC had six full-time employees, all of whom are
employees-at-will. EPC hires additional part-time employees on an as-needed
basis. All employees receive special training in the handling of contaminated
materials related to the EPC's bioremediation process.
As of March 28, 2000, IEI had three full-time employees in its executive
office, all of whom are employees-at-will.
IEI Canada has no employees.
ROP North America, LLC
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As indicated above, the Company's Canadian subsidiary IEI Canada, Inc., owns a
50% membership interest in ROP North America, LLC (the "JV"). The JV, through
its wholly owned subsidiary, ROP North America, Inc.("ROP"), has the equipment
to operate a blending/processing plant in Amherstburg, Ontario, Canada to
convert organic by-products from commercial food processors, such as potato
and corn by-products, and certain organic material from other commercial,
industrial and institutional sources, such as the syrup from ethanol
production, into a livestock feed ingredient.
The potential benefits of the blending/processing plant include the diversion
of waste from landfills and the reduction of the use of other environmentally
unsuitable disposal methods. The availability of such waste processing offers
reduced disposal costs to food processors and other waste generators. To the
extent energy conversion and increased handling/transportation costs can be
minimized, blended/processed waste provides an economical alternative for the
livestock feed industry.
ROP currently operates a facility in Amherstburg Ontario in which
approximately 3,000 pigs per cycle (up to 3 cycles per year) are raised for a
local pig producer. Once the pigs have reached the specified weight, the pigs
are picked up by the producer and replaced by new piglets.
On January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights. In light of this notice, Management is currently
reassessing the best strategy for expanding ROP's business.
The JV is governed by a three person Board of Managers, two of whom were
appointed by JFJ Ecosystems, LLC (the Company's JV partner) and one of whom
was appointed by IEI Canada. Tom Jarnagin, the Company's President, has been
appointed by IEI Canada to serve as the Company's representative on the Board
of Managers. In connection with the formation of the JV, the JV entered into a
consulting agreement with the Company by which the JV agreed to pay the
Company certain consulting fees if the JV's income and expenses matched
certain financial projections established by the Company for the JV. The
Company received $100,000 after formation of the JV and was to receive
$100,000 on December 31, 1998, if the projections were met. The projections
were not attained on December 31, 1998, and the Company will not receive the
additional $100,000.
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ITEM 2. DESCRIPTION OF PROPERTIES
Executive office
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The Company's principal executive office is located in Bloomfield, New Mexico,
in a building owned by EPC. The building is a wood-framed mobile building of
approximately 660 square feet. The building is located at 2040 West Broadway,
Bloomfield, New Mexico, on land leased at a rate of $300 per month. The lease
is on a month to month basis.
The Company owns a ten acre parcel of land five miles from Farmington, New
Mexico, which it uses to receive and bioconvert hydrocarbon impacted soils,
based on a joint permit with BP-Amoco. The site is fenced and configured to
safely handle storm runoff.
The property is used as a staging area to which BP-Amoco's contaminated soil
is brought for treatment and then returned to either the original site or
another site designated by BP-Amoco to receive the treated soil. The site is
large enough to handle all current and future anticipated contaminated soil,
and the nature of the remediation is such that the site can be used over and
over as treated soil is removed.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in litigation with 54GO Products, a New Mexico limited
liability company ("54GO"), regarding an open account and a distribution
agreement between 54GO and the Company's subsidiary Environmental Protection
Company, a New Mexico corporation ("EPC"). 54GO filed a complaint in July
1997 in the Eleventh District Court of San Juan County, New Mexico, alleging
that the Company owed money on an open account for products delivered by 54GO
to EPC, and also for products to be delivered pursuant to the distribution
agreement. In August 1997, the Company filed an answer to the complaint in
which the Company contended that the products delivered by 54GO were not
ordered by EPC, that EPC specifically requested the products not be delivered,
and that 54GO refused to take the products back. The Company also contended
that the distribution agreement was breached by 54GO before it became
operational and that any obligation to purchase products under the agreement
was negated by the failure of conditions precedent. A judgment against the
Company was entered on January 3, 2000 for $31,991 plus legal fees. On March
31, 2000, the Company entered into a final negotiated settlement and payment
schedule for a total payment of $58,194.
On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc., a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994. The negotiations were never consummated, and no
contract was ever signed. On August 6, 1999, the Company's Canadian counsel
was served with a Statement of Claim filed in the Superior Court of Justice in
Windsor Ontario on August 4, 1999, by Diamond Measure, Inc. and Ronald
McGuire, against the Company. The claim is for a total of $1.5 million
dollars Canadian for breach of contract and detrimental reliance, $1 million
to Diamond Measure, Inc., and $500,000 to Ronald McGuire. Because no
agreement was ever reached and no written contract signed, the Company
believes that the action is without merit.
On April 13, 1999, ROP received a letter from Canadian counsel representing
Middlemarch Farms, Ltd., a Canadian company ("Middlemarch"), claiming a
security interest in certain property transferred to ROP from IEI Canada in
March 1998 as part of the transaction creating the JV. This claimed security
interest was created in 1992, in connection with a loan transaction between
Middlemarch and a precursor company to a former IEI Canada subsidiary.
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Middlemarch claims that at March 29, 1999, there is an outstanding balance due
on the loan of $230,299.79, plus accrued interest and costs forward from that
date. The property subject to the security interest is all of the assets,
liabilities, property and equipment which was transferred to ROP in March
1998.
The claim is apparently based on the premise that there are monies owing to
Middlemarch. The Company believes that the debt was fully satisfied in April
1996 through an oral agreement between the Company and Middlemarch converting
debt to equity, represented by the Company's issuance to Middlemarch of
400,000 shares of the Company's common stock, plus cash payment of all
outstanding interest. If Middlemarch proceeds with its claim, the Company may
be involved in litigation with regard to the circumstances surrounding the
creation of the claimed security interest and the payment of the debt.
On May 19, 1999, the Company received from Middlemarch a copy of a "Security
Agreement" referring to the above property. The Security Agreement required
payment in full by July 1994. However, the Company has letters dated April
1996 from A. Spangenberg, a principal of Middlemarch, and Pensa and
Associates, counsel for Middlemarch, referencing receipt of a $400,000
principal payment and stating that a remaining balance was owing of
approximately $21,500. The Company paid the balance owing by check in April
1996. Based on the above, the Company believes that the debt on which the
claimed security interest is based has been fully satisfied. Therefore, the
Company believes that this threatened claim has no merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of the fiscal year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 28, 2000, the Company's common stock was quoted on the NASD's OTC
Bulletin Board under the symbol "IECS".
The table below sets forth, for the respective periods indicated, the prices
of the Company's common stock in the over-the-counter market as reported by
the NASD's OTC Bulletin Board. The bid prices represent inter-dealer
quotations, without adjustments for retail markups, markdowns or commissions
and may not necessarily represent actual transactions.
Fiscal Year Ended December 31, 1998 High Bid Low Bid
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First Quarter $0.31 $0.13
Second Quarter* $0.94 $0.19
Third Quarter $0.81 $0.31
Fourth Quarter $0.38 $0.13
Fiscal Year Ended December 31, 1999 High Bid Low Bid
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First Quarter $0.20 $0.15
Second Quarter $0.28 $0.14
Third Quarter $0.26 $0.14
Fourth Quarter $0.19 $0.04
*Effective March 31, 1998, the Company effected a 2-for-3 share reverse split
of its issued and outstanding shares of common stock.
As of March 28, 2000 there were approximately 466 shareholders of record of
the Company's common stock and the reported bid or asked prices for the
Company's common stock was $0.31 and $0.34, respectively.
As of March 28, 2000, the Company has issued and outstanding 42,966,683 shares
of common stock.
Dividend Policy
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The Company has not declared or paid cash dividends or made distributions in
the past, and the Company does not anticipate that it will pay cash dividends
or make distributions in the foreseeable future. The Company has not entered
into any credit or other agreements that would restrict its ability to pay
dividends, however, the Company currently intends to retain and reinvest
future earnings, if any, to finance its operations.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
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This report may contain "forward-looking" statements. Examples of forward-
looking statements include, but are not limited to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and objectives
of the Company or its management or Board of Directors; (c) statements of
future economic performance; (d) statements of assumptions underlying other
statements and statements about the Company and its business relating to the
future; and (e) any statements using the words "anticipate," "expect," "may,"
"project," "intend" or similar expressions.
Year 2000 Disclosure
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The Company believes it has resolved the potential impact of the year 2000 on
the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a minimum
number of computer programs in its operations. The Company has completed its
assessment, and currently believes that costs of addressing this issue have
not and will not have a material adverse impact on the Company's financial
position. However, if the Company and third parties upon which it relies
experience further effects from this problem, it could result in a material
financial risk to the Company. In order to assure that this does not occur,
the Company plans to continue to monitor its computer systems.
State of Readiness
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The Company has completed an assessment of its operations. As far as its
information technology systems ("IT"), the Company uses newer model desktop in
its operations and all PCs are all running commercial software with the
patches and updates added as they are available.
Certain non-IT microprocessors are used in the IEI Canada joint venture waste
management and blending operations, but the internal software which drives
these systems has been assessed and changed where necessary. The Company does
not utilize any other non-IT systems which could be affected by the Y2K
problem.
The Company has made inquiries to its major customers (BP-Amoco, PSCNM) and
suppliers (FritoLay) concerning their respective experience with Y2K problems.
At this time, the Company has not received any responses suggesting a
significant impact to the Company's business operations.
Costs of Y2K
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The Company has gradually replaced its IT systems in the ordinary course of
business and therefore cannot attribute specific costs of such upgrades to
Y2K. The costs of assessing potential non-IT problems have involved various
supervisors' evaluation time which has likewise been incorporated into
ordinary business costs. There have been no significant hardware costs
directly attributable to Y2K.
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Risks of Y2K
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The Company does not anticipate that Y2K problems pose substantial risks to
its current operations, unless as yet unresolved Y2K problems cause EPC's
major customers, BP-Amoco and PSCNM, to experience severe operations failures.
The worst case scenario contemplated to date would involve a temporary
suspension of EPC's remediation activities while its principal customers
resolved their problems. Any such suspension of operations might have a
significant adverse impact on the Company's overall revenues. At the date of
this registration, the Company considers that any such event is unlikely.
Contingency Plans
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The Company does not have any contingency plans at this time and does not
intend to prepare any such plan because the most critical factors in its worst
case scenario are essentially beyond the Company's control. The Company
intends to continue its maintenance and upgrades of its internal systems, and
will continue to query its major customers concerning their respective
experiences with Y2K problems.
Results of Operations
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General
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The Company's revenues are generated primarily by its business operations in
the United States through EPC. Since March, 1998, the Company has pursued the
development of ROP, through the Company's Canadian subsidiary, IEI Canada,
which at December 31, 1999, was still in the stages of development. The
Company's results of operations include the costs of its investment in ROP.
For fiscal years ended December 31, 1999 and 1998, the functional currency for
the Company's foreign subsidiary (IEI Canada and its subsidiaries) has been
determined to be the Canadian Dollar. Assets and liabilities have been
translated at year end exchange rates and operating statement items are
translated at average exchange rates prevailing during the year. For the
fiscal years ended December 31, 1999 and 1998, the Company had a foreign
currency translation adjustment of $(8,797) and $14,664, respectively.
Year ended December 31, 1999 compared to December 31, 1998
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Substantially all revenue during year ended December 31, 1999 was derived from
EPC's operations, with net sales being $472,865 and direct costs associated
therewith being $405,100 or approximately 85.7% of revenues. Net sales for the
year ended December 31, 1998 were $626,545 and direct costs associated
therewith were $405,787, or approximately 64.8% of revenues. The direct costs
for the year ended December 31, 1999 as a percent of sales was approximately
20% higher than the direct costs as a percentage of sales realized by the
Company same period in the preceding year. The increase in direct costs as a
percent of revenues for the current period as compared to the prior
comparative period can be attributed to the fact that, during the current
period, the Company performed a greater number of general roustabout jobs with
lower revenues and higher direct costs as opposed to remediation jobs with
higher revenue and lower direct costs. EPC's bioremediation work for BP-Amoco
is allocated between routine site maintenance and emergency
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clean-up. In the past, substantially all of the Company's revenues have been
derived from bioremediation work performed for BP-Amoco. During the year
revenues from BP-Amoco began to decrease. Amoco recently merged with British
Petroleum (now "BP-Amoco")and has been undergoing a review of all of its
operations, including those in the Farmington, New Mexico area. As a result
of BP-Amoco's review, much of the anticipated bioremediation work during 1999
has been delayed. Management of the Company expects this trend to reverse for
fiscal year 2000. The Company's relationship with BP-Amoco provides for the
Company to provide bioremediation work for BP-Amoco sites in Colorado and New
Mexico on an as needed basis. There is no specific time limit, guaranteed
dollar amount of work, or term for the agreement. In addition, there is no
guarantee that the Company's revenues will continue and the Company cannot
predict what events or uncertainties may be reasonably expected to have a
material impact on the net sales revenues or income from continuing
operations.
The Company has performed general contracting work during the year ended
December 31, 1999 for Public Service Company of New Mexico. In addition, to
expand its revenue base for fiscal year 2000, the Company is conducting a
bioremediation demonstration for the Department of Defense at the U.S. Navy's
Pt. Molate Fuel Depot in Richmond, California. This technical demonstration
represents the culmination of years of effort. The demonstration was sponsored
by the Bay Area Defense Conversion Action Team (BADCAT), a public private
partnership of: Bay Area Economic Forum (BAEF), Bay Area Regional Technology
Alliance (BARTA), California Environmental Protective Agency (CAL EPA),
Chevron Research and Technology Company, Engineering Field Activity West,
Naval Facilities Engineering Command (EFA West), Naval Facilities Engineering
Service Center (NFESC), San Francisco State University Center for Public
Environmental Oversight (CPEO) and the U.S. Environmental Protection Agency
(US EPA). The evaluation period, originally expected to be from five to six
months after the demonstration commenced, has been extended in order for the
Department of Defense and others to fully evaluate the results of the
demonstration. Should this evaluation be favorable, the Company's technology
and process could become, given certain site characteristics, the preferred
method for reducing hydrocarbon contamination in soil.
Corporate Expense. For the year ended December 31, 1999 total operating
expenses were $1,186,833, consisting of general and administrative expenses of
$1,089,270 and depreciation and amortization expenses of $97,563, resulting in
a loss from operations of $(1,119,068). For the year ended December 31, 1998
total operating expenses were $1,714,528, consisting of general and
administrative expenses of $1,586,049, bad debt expense of $19,802, and
depreciation and amortization expenses of $108,677, resulting in a loss from
operations of $(1,493,770). The operating expenses for the year ended
December 31, 1999, represent a reduction of $527,695 in overall operating
expenses (approximately 30%) compared to the Company's operating expenses
incurred for the year ended December 31, 1998. This is particularly important
in lieu of the Company's approximately 25% reduction in net sales for the 1999
fiscal year as compared to the 1998 fiscal year. The reduction in operating
expenses for the fiscal year just ended is a direct result of the efforts the
Company has undertaken to reduce cash outflows in non-revenue producing areas.
Interest Expense. Interest expense for the year ended December 31, 1999 was
$94,065, more than double that of fiscal 1998, which is attributed to the
line-of-credit obtained from a related party. Interest expense for the year
ended December 31, 1998 was $40,236, and is attributed to corporate borrowing
during the normal course of business.
<PAGE>
<PAGE> 14
Other Income. Other income for the year ended December 31, 1999 was $55,155,
which represents a decrease over other income of $95,118 for the year ended
December 31, 1998. During the year ended December 31, 1998, the Company had
expenses of $-0- and $353,117, associated with loss on investment in the joint
venture and disposition of assets, respectively, so that total other expenses
for the 1999 fiscal year was $46,487 compared to $400,979 in the 1998 fiscal
year.
Extraordinary Item. During the year ended December 31, 1999 the Company
recognized income from the forgiveness of $350,957 in debt by certain
creditors of the Company. The Company had no extraordinary items of income or
expense during the year ended December 31, 1998.
Including the extraordinary item the Company had net comprehensive loss of
$826,257 for the year ended December 31, 1999. The basic loss per share for
the period before extraordinary items was $0.02. For the year ended December
31, 1998, the Company had a net comprehensive loss of $1,880,085 and a basic
lose per share of $0.06, for a reduction in net comprehensive loss of
$1,053,728 in fiscal year 1999 over fiscal year 1998.
Liquidity and Capital Resources
- -------------------------------
Historically, the issuance of common stock has been utilized by the Company
for working capital, conversion of debt, payment of professional services, the
expansion capital required by ROP and for the continued development activities
of the Company.
The Company had a working capital deficit of $(1,106,499) and cash and cash
equivalents of $44,277, and restricted cash of $43,306 at December 31, 1999.
Cash used in operations for the year ended December 31, 1999, was
$(1,214,091)and was derived primarily from cash received from accounts
receivable, the sale of shares, borrowing against the line-of-credit, and the
issuance of common stock for the conversion of debt. The Company's accounts
receivable decreased over $25,177 during the year to $9,902 at December 31,
1999. Due to inclement weather in the Farmington, New Mexico area during
August and September 1999, the Company moved around between 15 different sites
and the jobs could not be completed in sequence. Therefore, at December 31,
1999, several of these job sites were still open.
Because the Company has an accumulated deficit of $(22,808,487)at December 31,
1999, has a working capital deficit and limited internal financial resources,
the report of the Company's auditor at December 31, 1999 contains a going
concern modification as to the ability of the Company to continue. Beginning
in late fiscal year 1998 and throughout fiscal year 1999, the Company has
implemented measures to reduce cash outflows and increase working capital thru
the issuance of additional shares of common stock for cash, services and
conversion of debt. The Company is aware of its ongoing cash requirements and
will continue to reduce its general and administrative expenses until
increased revenues justify increased expenditures. Additionally, the
Company's management has developed an overall strategy and certain financing
options to meet its operating needs through December 31, 2000.
Due to the need for working capital for both the Company, IEI Canada and its
JV partner, JFJ Ecosystems, Inc. ("JFJ") restructured the JV to provide
among other things, the establishment of a $750,000 line-of-credit for the
Company from JFJ. As a result of the restructuring, JFJ has an equal 50%
member of the JV with IEI Canada and IEI Canada's option to reduce JFJ's
membership interest to 19% was terminated.
<PAGE>
<PAGE> 15
The line-of-credit bears interest at 6% per annum until December 31, 2000, at
which time all principal advanced under the line of credit, and any interest
accrued thereon, will be due and payable in full. As security for the line of
credit, the Company caused IEI Canada to pledge as security IEI Canada's 50%
membership interest in the JV. If the line of credit is not timely repaid in
full, IEI Canada's membership interest in the JV shall be conveyed to JFJ in
satisfaction of the line of credit, thus making JFJ the 100% owner of the JV.
At December 31, 1999, the Company had drawn the entire $750,000 against the
line-of-credit. During May 1999 the company sold 2,500,000 shares of the
Company's common stock at $0.10 per share to affiliates of JFJ for $250,000
cash.
At December 31, 1999, the Company had recorded $326,346 in accrued expenses
consisting primarily of accrued interest and unpaid payroll taxes,
unemployment taxes, sales taxes and gross receipts taxes due both the federal
and state taxing authorities, including reasonable interest and penalties for
delinquent filings. During the year ended December 31, 1999 the Company
extended a preliminary settlement offer to the IRS on Form 433. The
settlement offer to the IRS was based on the Company's anticipated need to
raise additional working capital without exposing such capital to potential
seizure by the IRS. The terms of the preliminary settlement offer are based
on the trustee portion (the amount the Company withheld from its Employees' W-
2 wages) of tax due and contingent on the IRS finalizing its examination
confirming the financial condition of the Company and the financial condition
of those officers and directors of the Company during the time that the tax
liability arose (the "Responsible Parties"). The trustee portion due is
approximately $90,000 and will require the Company to make installment
payments to the IRS of approximately $5,000 per month over 24 months. Upon
payment in full of the settled amount the IRS will provide the Company and any
Responsible Parties with a full release from liability. Should the Company
fail to maintain the monthly payments to the IRS, the IRS will have the right
to collect from the individual Responsible Parties as well as the Company.
To finalize the settlement offer with the IRS, the Company has provided the
IRS with a narrative description of the Company's current plan of business
operations and a logical reason for the offer and compromise. In addition,
the IRS is conducting an investigation of the assets of the Responsible
Parties to determine whether or not the Responsible Parties have sufficient
liquid assets to satisfy the trustee portion of the tax due.
The Company has reserved and recorded possible contingent liabilities to
individuals who claim they are still owed money by the Company although the
Company has issued shares of its common stock to such individuals as payment
of such debts or because the Company is uncertain as the whether the creditors
are holding the Company responsible to certain debts incurred by former
officers and directors of the Company. At December 31, 1999, the Company had
recorded total contingent liabilities of $582,336, a reduction from $747,819
recognized at December 31, 1998.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material impact on
its current or proposed operations.
<PAGE>
<PAGE> 16
Seasonality
- -----------
The Company's bioremediation business operations tend to have varying degrees
of seasonality. A majority of the Company's bioremediation jobs are done on
sites in and around Farmington, New Mexico, during the warm weather months.
Since many of the clean-up sites are located in rural areas and accessible
only over dirt or unimproved roads, the Company's ability to excavate and
remove contaminated soil can be restricted during inclement weather. In
addition, soil is difficult or impracticable to dig and turn when the ground
is frozen, the bioremediation process requires above freezing temperatures to
be effective.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately following
the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public accountants
with respect to accounting practices or procedures or financial disclosure.
See ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Company believes that under the SEC's rules for reporting of securities
transactions by directors and executive officers, all required reports have
been timely filed.
<PAGE>
<PAGE> 17
ITEM 10. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1999 the
end of the Registrant's last completed fiscal year). During the periods
covered by the table, Walter Kolbe served as President of the Company. Mr.
Kolbe resigned all positions effective April 19, 1999. During the periods
covered by the table, Gerard Amlin served as Vice-President of the Company,
and President of IEI Canada. Mr. Amlin was also President of the two Canadian
subsidiaries incorporated in July 1998. Mr. Amlin resigned all positions
effective September 1998. Mr. Jarnagin was appointed as President effective
April 19, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tom Jarnagin 1999 $ 36,833 -0- -0- -0- -0- -0- -0-
President 1998 $ -0- -0- -0- -0- -0- -0- -0-
1997 $ -0- -0- -0- -0- -0- -0- -0-
Walter Kolbe 1999 $ -0- -0- -0- -0- -0- -0- -0-
President 1998 $ 103,002 -0- -0- -0- -0- -0- -0-
1997 $ 28,037 -0- -0- -0- -0- -0- -0-
Gerard Amlin 1999 $ -0- -0- -0- -0- -0- -0- -0-
Vice-President 1998 $ 131,152 -0- -0- -0- -0- -0- -0-
1997 $ 17,298 -0- -0- -0- -0- -0- -0-
</TABLE>
Additional Executive Compensation
- ---------------------------------
Tom Jarnagin, the Company's President, has been employed by the Company as an
employee-at-will, beginning April 19, 1999, at a salary of $5,000 per month
(pro-rata in the first month), plus a quarterly performance bonus of up to
$15,000 per quarter based on meeting certain per share earnings criteria set
forth in the operating plan currently being prepared. In 1999, no bonus was
earned or paid. Mr. Jarnagin's compensation includes management
responsibilities for ROP. The Company has no other employment agreements with
members of management and or any other personnel. All employees are treated
as employees-at-will. The Company reimburses each officer for expenses
incurred in connection with the Company's business.
Joseph Knox, the Company's vice-president, has been employed by the Company
since June 6, 1999, at a salary of $7,500 per month. Mr. Knox was also granted
options pursuant to the Company's 1999 Stock Option and Award Plan, to
purchase up to 400,000 shares of the Company's common stock for an exercise
price of $0.20 per share. The options vest over a two year period from the
date of his employment.
<PAGE> 18
Board Compensation
- ------------------
During the fiscal year ended December 31, 1998, the Company's directors
adopted a resolution providing for the payment of $1,000 to each director per
meeting attended up to a maximum of $1,000 per quarter or $4,000 per year. In
addition, board members are to be reimbursed for all reasonable out-of-pocket
expenses incurred by them in connection with their attendance at the board
meetings. At December 31, 1999, each board member had received payment for
one board meeting in April, and were each entitled to payment for one
additional board meeting held in August.
Bonuses and Deferred Compensation
- ---------------------------------
There are no compensation plans or arrangements, including payments to be
received from the Company, with respect to any person named as a director,
executive officer, promoter or control person above which would in any way
result in payments to any such person because of his resignation, retirement,
or other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities.
Compensation Pursuant to Plans
- ------------------------------
Effective March 19, 1999, the Board of Directors of the Company approved the
terms of the 1999 Stock Option and Award Plan (the "Award Plan"). The Award
Plan was approved by the stockholders of the Company at a Special Meeting on
April 19, 1999. At December 31, 1999, 1,300,000 options to purchase shares
have been awarded under this plan.
The following summary of the Award Plan is qualified in its entirety by the
specific provisions of the Award Plan.
Award Plan Summary
- ------------------
The Board of Directors of the Company believes that it is important that
employees and other individuals who contribute to the success of the Company
have a stake in the enterprise as shareholders. Consistent with this belief,
the award of stock options has been and will continue to be an important
element of the Company's compensation program.
The Award Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) the retention of the services of existing
directors, executive personnel, and employees, and (c) provide incentives to
all of such personnel to devote the utmost effort and skill to the advancement
and betterment of the appropriate corporation by permitting them to
participate in ownership and thereby permitting them to share in increases in
the value which they help produce.
<PAGE>
<PAGE> 19
The Award Plan is to be administered either by the Board of Directors or
by a committee (the "Committee") to be appointed from time to time by such
Board of Directors. Awards granted under the Award Plan may be incentive stock
options ("ISOs") as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), appreciation rights, options which do not qualify as ISOs, or
stock bonus awards which are awarded to employees, including officers and
directors, who, in the opinion of the board or the Committee, have
contributed, or are expected to contribute, materially to the success of the
Company. In addition, at the discretion of the Board of Directors or the
Committee, options or bonus stock may be granted to individuals who are not
employees but contribute to the success of the Company.
The exercise price of options granted under the Award Plan will be based on
the fair market value of the underlying Common Stock at the time of grant and,
in the case of ISOs may not be less than 100% of the fair market value of such
capital stock on the date the option is granted (110% of the fair market value
in the case of 10% stockholders). Options granted under the Award Plan
shall expire no later than ten years after the date of grant (five years in
the case of ISOs granted to 10% stockholders). The option price may be paid by
cash or, at the discretion of the Board of Directors or Committee, by delivery
of a promissory note or shares of Common Stock of the Company already owned by
the optionee (valued at their fair market value at the date of exercise), or a
combination thereof.
All of the employees, officers, and directors of the Company are eligible to
participate under the Award Plan. A maximum of 3,000,000 shares are available
for grant under the Award Plan. The identification of individuals entitled to
receive awards, the terms of the awards, and the number of shares subject to
individual awards, are determined by the Board of Directors or the Committee,
in their sole discretion: provided, however, that in no event may the
aggregate fair market value of shares for which an ISO is first exercisable in
any calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock awards
may be granted under the Award Plan, the number of shares covered by each
outstanding option, and the purchase price per share, shall be adjusted for
any increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares.
The Board of Directors or the Committee may from time to time alter, amend,
suspend, or discontinue the Award Plan with respect to any shares as to which
options or stock awards have not been granted. However, no such alteration or
amendment (unless approved by the stockholders) shall (a) increase (except
adjustment for an event of dilution) the maximum number of shares for which
options or stock awards may be granted under the Award Plan either in the
aggregate or to any eligible employee; (b) reduce (except adjustment for an
event of dilution) the minimum option prices which may be established under
the Award Plan; (c) extend the period or periods during which options may be
granted or exercised; (d) materially modify the requirements as to eligibility
for participation in the Award Plan; (e) change the provisions relating to
events of dilution; or (f) materially increase the benefits accruing to the
eligible participants under the Award Plan.
<PAGE>
<PAGE> 20
Certain Tax Matters
- -------------------
For tax purposes, a participant to whom a non-qualified option is granted will
not realize income at the time of the grant if the exercise price is equal to
the then current market price. Upon exercise of the option, the excess of the
fair market value of the stock on the date of exercise over the exercise price
will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired is the exercise price plus the amount
recognized as income. The Company will be entitled to a deduction equal to the
amount of the ordinary income realized by the optionee in the taxable year
which includes the end of the optionee's taxable year in which he realizes the
ordinary income. When shares acquired pursuant to the exercise of the option
are disposed of, the holder will realize additional capital gain or loss equal
to the difference between the sales proceeds and his or her tax basis in the
stock.
If a participant to whom an option is granted exercises such option by payment
of the exercise price in whole or in part with previously owned shares, the
optionee will not realize income with respect to the number of shares received
on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of non-qualified option
shares received which exceeds the number of shares delivered, the optionee
will realize ordinary income at the time of exercise; the optionee's tax basis
in these additional option shares will equal the amount of ordinary income
realized plus the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time of the
grant of the options or at the time of exercise of the options as long as the
stock received on exercise is held for at least two years from the date of the
grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative
minimum tax purposes). If the stock received upon exercise of an ISO is
disposed of prior to the expiration of either of such time periods, the
optionee will be required to recognize as ordinary income the amount by which
the fair market value of the stock received at the time of exercise exceeds
the exercise price of the ISOs.
Under the Award Plan, stock appreciation rights ("SARs") can be granted at the
time an option is granted with respect to all or a portion of the shares
subject to the related option. SARs can only be exercised to the extent the
related option is exercisable and cannot be exercised for the six-month period
following the date of grant, except in the event of death or disability of the
optionee. The exercise of any portion of either the related option or the
tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the Board of Directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on
the exercise date over the exercise price of the related options.
Under the terms of the Award Plan, the Board of Directors or the Committee may
also grant stock awards which may, at the discretion of the Board of Directors
or Committee, be subject to forfeiture under certain conditions. Recipients of
stock awards will realize ordinary income at the time of the lapse of any
forfeiture provisions equal to the fair market value of the shares less any
<PAGE> 21
amount paid in connection with the issuance (the Board of Directors or the
Committee can require the payment of par value at the time of the grant). The
appropriate corporation will realize a corresponding compensation deduction.
The holder will have a basis in the shares acquired equal to any amount paid
on exercise plus the amount of any ordinary income recognized by the holder.
On sale of the shares, the holder will have a capital gain or loss equal to
the sale proceeds minus his or her basis in the shares.
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
The following tables contain information regarding the Plan Options granted to
the Company's named executive officers as of the date of this Prospectus:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted in Fiscal Year ($/Share) Date
- ------------------- ------------ -------------- ----------- ----------
Tom Jarnagin, CEO 400,000 sh 35.56% $0.16 4/30/04
Walter Kolbe N/A N/A N/A N/A
Gerard Amlin N/A N/A N/A N/A
Aggregate Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End(#) at FY-End($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexerciable
- ------------------- ------------- ------------- ------------ ------------
Tom Jarnagin, CEO -0- -0- 320,000/80,000 N/A
Walter Kolbe N/A N/A N/A N/A
Gerard Amlin N/A N/A N/A N/A
Pension Table
- -------------
Not Applicable.
Other Compensation
- ------------------
None.
- -------------------
None.
<PAGE>
<PAGE> 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 28, 2000 the name and address and
the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 42,966,683
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group. The Company
has reserved 31,822 shares of Common Stock for shares of IEI Canada, Inc.
Class A Special Shares which are convertible into shares of the Company's
Common Stock, 5,325,667 shares of Common Stock for issuance pursuant to
outstanding options, and 6,900,000 shares of Common Stock for issuance
pursuant to outstanding warrants.
Principal Shareholders: % of Class
Assuming the
Beneficial % of Exercise of all
Class Name and Address Ownership Class Warrants
- ------ ---------------- ---------------- ------- -------------
Common JFJ Ecosystems, LLC 18,864,359 (1) 30.51 27.45
1015 West 54th Street
Kansas City, MO 64112
Common John P. Crowe 31,449,581 (2) 47.41 45.76
1015 West 54th Street
Kansas City, MO 64112
Common Tom Jarnagin 3,992,988 (3) 9.21 7.94
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413
Common Everett P. Hailey 4,500,000 (6) 9.95 9.02
3440 Hollow Creek Road
Memphis, TN 38125
Officers and Directors: % of Class
Assuming the
Beneficial % of Exercise of all
Class Name and Address Ownership Class Warrants
- ------ ---------------- ---------------- ------- -------------
Tom Jarnagin -see above-
Common Magaly Bianchini 735,888 (5) 1.69 1.49
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413
Common Steven C. Justus 2,000,000 (4) 4.49 3.89
Industrial Ecosystems, Inc.
2040 W. Broadway
Bloomfield, NM 87413
Common Officers and Directors
as a group (3 persons) 6,728,876 14.74 12.78
- --------------------------------
Notes to this table appear on the following page
<PAGE>
<PAGE> 23
In the preceding table:
For JFJ Ecosystems:
- - shares and options listed for JFJ Ecosystems, LLC, are unissued;
- - beneficial ownership share numbers assume the issuance of the shares and
exercise of options;
- - % of Class assumes the issuance of shares and exercise of options and is
calculated based on the concomitant increase in the number of issued and
outstanding shares.
For the remaining listed parties:
- - beneficial ownership share numbers assume the exercise of options;
- - % of Class assumes the exercise of options and is calculated based on the
concomitant increase in the number of issued and outstanding shares.
In addition, the following numbered notes referenced in the table apply:
(1) Represents 16,798,452 shares and 2,065,906 options to purchase shares at
an exercise price of $0.225 per share exercisable through 1/4/04. None of the
shares and options have been issued, but may be issued pursuant to the JV
Agreement, as amended, as described more fully in CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
(2) Represents 7,251,889 shares and 4,500,000 warrants for shares held by John
P. Crowe, 833,333 shares held by Four C's Development, LLC, an entity
controlled by John P. Crowe, plus shares and options which may be issued to
JFJ Ecosystems, LLC, pursuant to the JV Agreement, as amended (see Footnote
(1) above). Should JFJ exercise its right to sell, or the Company exercise
its right to acquire JFJ's membership interest in the JV, JFJ will receive
16,798,453 shares and 2,065,906 options to purchase additional shares of the
Company's Common Stock, and John Crowe may be deemed to have indirect
beneficial ownership of such shares because he is a principal Member and
Manager of JFJ.
(3) Represents 2,536,083 shares held by Tom Jarnagin, 1,056,905 shares held by
Francine Jarnagin, Tom Jarnagin's spouse, of which Mr. Jarnagin may be deemed
to have beneficial ownership, and 400,000 options granted to Mr. Jarnagin
pursuant to the Company's ISO plan at an exercise price of $0.16 per share
exercisable 4/30/99 to 4/30/04.
(4) Represents 450,000 shares held by Steven Justus, 1,500,000 options granted
to Mr. Justus for consulting services prior to his election to the Company's
board, at an exercise price of $.225 per share exercisable 3/13/98 to 3/13/05,
and 50,000 options granted to Mr. Justus pursuant to the Company's ISO plan at
an exercise price of $0.16 per share exercisable 4/30/99 to 4/30/04.
(5) Represents 685,888 shares held by Magaly Bianchini and 50,000 options
granted to Ms. Bianchini pursuant to the Company's ISO plan at an exercise
price of $0.16 per share exercisable 4/30/99 to 4/30/04.
(6) Represents 2,250,000 shares and 2,250,000 warrants for shares held by
Everett P. Hailey.
<PAGE>
<PAGE> 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- ---------------------------------------
The information set forth below is provided by the Company based on what the
Company believes may be material to the shareholders in light of all the
circumstances of the particular case. The significance of the transactions
disclosed may be evaluated by each shareholder after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions.
The Company made periodic cash disbursements and issued shares of its Common
Stock to certain former officers and directors of the Company, relatives of
these former officers and directors, and other companies controlled by these
former officers and directors. Most of these disbursements have been made for
services rendered or for payments related to construction of the Company's
facilities and equipment. Any payments made that could not be substantiated
have been recorded by the Company as additional compensation to those former
officers and directors.
The Company has reserved and recorded possible contingent liabilities to
individuals, some of whom are related to or associated with certain former
officers and directors, who have made loans or advances to the Company and
still claim they are owed, although the Company believes it issued shares of
Common Stock in full and complete payment of these amounts. The Company has
recorded a total of contingent liabilities at December 31, 1999 of $582,336,
reduced from $747,819 recorded at December 31, 1998 through a combination of
direct payments to Bernard Amlin, and settlement and release agreements
obtained from Christine Amlin and Ron Burns. Bernard Amlin, Christine Amlin
and Ron Burns are all relatives of Gerard Amlin, a former officer and director
of the Company. It is currently uncertain as to whether or not the remaining
amounts will be paid in the future and management of the Company intends on
vigorously contesting any claim that is made. It is reasonably possible,
however, that the Company will have to pay the amounts and to be conservative,
management has recorded these possible debts as contingent liabilities.
In December 1999, the Company issued to John P. Crowe, a major shareholder of
the Company and a principal of the Company's joint venture partner, 4,500,000
Units at a purchase price of $0.0675 per Unit, each Unit consisting of one
share of common stock and one warrant to purchase common stock at exercise
prices and for the periods according to the following schedule:
Amount Price Exercisable
---------- -------- ---------------------
850,000 $ 0.07 11/14/99 - 11/14/00, or 120 days after registration
850,000 $ 0.11 11/14/99 - 11/14/00, or 180 days after registration
2,000,000 $ 0.15 11/14/99 - 11/14/00, or 240 days after registration
800,000 $ 0.19 11/14/99 - 11/14/00, or one year after registration
The Unit Shares carry registration rights committing the Company, on a best
efforts basis, to file a registration statement on Form S-1 for the purpose of
registering the Units for resale by the holder as a selling shareholder, with
a concomitant reduction in the exercise period upon the effectiveness of the
registration. Mr. Crowe will pay 50% of the expenses for the registration.
<PAGE> 25
The Warrants are subject to a call provision which permits the Company to
require the exercise or forfeit of the warrants, within 10 days of the call
notice, if the ten day average closing price of the Company's common stock
exceeds the respective exercise prices of the warrants by 250%, 200%, 175% and
150%, respectively. The call provision is only effective if the Warrant
Shares subject to the call provision have been registered by the Company under
an effective Securities Act registration.
In May 1999, the Company issued 2,500,000 shares of restricted Common Stock in
a private placement for cash at $0.10 per share to John Crowe,a major
shareholder of the Company and a principal of the Company's joint venture
partner, and five of his relatives and/or affiliates.
In 1998, the Company issued 2,865,701 shares of Common Stock in a private
placement for cash at an average price of $0.35 per share to certain
investors. A total of 2,015,701 shares were issued to John Crowe, a major
shareholder of the Company and a principal of the Company's joint venture
partner, and certain of his relatives and/or affiliates.
In 1998, the Company issued 5,341,330 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.16 per share. A total of 581,192 shares were issued to
relatives of Gerard Amlin, who was an officer and director at the time of the
issuances. A total of 2,981,500 shares were issued to Tom Jarnagin and his
spouse, and an additional 685,888 shares were issued to Magaly Bianchini. Mr.
Jarnagin and Ms. Bianchini were unaffiliated at the time of the share
issuances, but have been serving as officers and directors since April 1999.
In 1997, the Company issued 2,163,917 shares of Common Stock in exchange for
the conversion of 2,163,917 shares of Class-A Special Shares of IEI Canada
which were issued in connection with: a Global Share Purchase Agreement
executed by and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc., and
ITE Ecosystems, Inc. shareholders; and a Share Exchange Agreement executed by
and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc. shareholders and
IEI, Canada, Inc., both dated June 28, 1994. Of these shares, a total of
1,686,560 shares were issued to Gerard Amlin, an officer and director.
In 1997, the Company issued 2,188,143 shares of Common Stock to various
individuals for professional and consulting services. 200,000 of the shares
were issued to Robert Moore, a former officer, for services as an employee and
in settlement of his termination by the Company. 166,667 of the shares were
issued to Leonard Amlin, a relative of Gerard Amlin, an officer and director.
Restructure of Interest in ROP
- ------------------------------
The Company, through its subsidiary, IEI Canada, owns a 50% membership
interest in ROP. The other 50% membership interest is owned by JFJ Ecosystems
L.L.C., a Missouri limited liability company, ("JFJ"), controlled by John
Crowe, a 5% shareholder of the Company. The JV has been governed by a three
person Board of Managers, two of whom were appointed by JFJ and one of whom
was appointed by IEI Canada. Fred Rice and John Crowe serve as the two JFJ
Managers, with John Crowe serving as the Chairman of the Board of Managers.
Walter Kolbe, the Company's former President, was appointed by IEI Canada to
serve as the Company's representative on the Board of Managers. That position
is now occupied by Tom Jarnagin, the Company's current President.
<PAGE>
<PAGE> 26
Due to the need for working capital for both the JV and the Company, JFJ, the
Company, and IEI Canada restructured the JV to (a) provide for a quicker
release of part of the funds escrowed pursuant to the Original JV
Agreement;(b) establish a line of credit to the Company; (c) grant certain
rights to the Company to acquire JFJ's membership interest in the JV; (d)
grant certain rights to JFJ to sell its membership interest in the JV to the
Company; (e) obtain releases from JFJ and its members of any and all claims
against the Company, IEI Canada, the Company's subsidiaries, their affiliates
and officers and directors and shareholders for any misrepresentations made to
induce JFJ to enter into the Original JV Agreement; and (f) grant to the
Company of a right to first refusal on JV borrowing.
On January 4, 1999, IEI Canada and JFJ restructured the Original JV Agreement
to provide for the release of $250,000 of the $1,000,000 escrow to meet
immediate cash flow needs of the JV. The remaining $750,000 was then loaned by
JFJ to the Company through the establishment of a line of credit. Following
the restructuring, JFJ became an equal 50% member of the JV with IEI Canada
and IEI Canada's option to reduce JFJ's membership interest to 19%, was
terminated.
The Line of Credit
- ------------------
JFJ has extended a $750,000 line of credit to the Company. The line of credit
bears interest at 6% per annum until December 31, 2000, at which time all
principal advanced under the line of credit, and any interest accrued thereon,
will be due and payable in full. As security for the line of credit, the
Company caused IEI Canada to pledge as security IEI Canada's 50% membership
interest in the JV. If the line of credit is not timely repaid in full, IEI
Canada's membership interest in the JV shall be conveyed to JFJ in
satisfaction of the line of credit, thus making JFJ the 100% owner of the JV.
The Company's Right to Acquire JFJ's Membership Interest in the JV
- ------------------------------------------------------------------
The Company has the right on or prior to December 31, 2000 (the line of credit
due date) to acquire JFJ's 50% membership interest in the JV by issuing to JFJ
shares of the Company's restricted Common Stock in exchange for JFJ's
membership interest in the JV (the "Acquisition Rights"). The following are
conditions that must be fulfilled prior to the Company's exercise of its
Acquisition Rights:
(a) Repayment to JFJ of the outstanding principal and accrued interest
on the line of credit;
(b) Issuance to JFJ of that number of shares of the Company's
restricted Common Stock that represents one-half (1/2) of the issued and
outstanding shares (all classes) in the Company as of December 31, 1998. The
issuance of the shares to JFJ would give JFJ ownership of approximately one-
third (1/3) of the Company's issued and outstanding shares of Common Stock,
not including other shares independently owned by JFJ, if any. The percentage
ownership ultimately held by JFJ could be subject to dilution by the issuance
of any additional shares of Common Stock after the date of the restructuring;
(c) Issuance of JFJ of options to purchase 2,065,500 shares of the
Company's Common Stock at $0.225 per share for a term of five (5) years. These
options preserve JFJ from dilution by way of the exercise of 4,131,000
outstanding options at an exercise price of $.225. Upon exercise of the
Company's Acquisition Rights, the Company will grant JFJ options equal to one-
<PAGE> 27
half (1/2) of all options granted by the Company after December 31, 1998 and
to the date of exercise of the Acquisition Rights. Such options will be
granted to JFJ on substantially similar terms as are extended to other option
holders. These options are intended to preserve JFJ from subsequent dilution
through the granting of options and will be construed accordingly.
(d) Execution by the Company and JFJ of a Registration Rights Agreement
by which the Company agrees to register the restricted stock issued to JFJ in
the Acquisition upon JFJ's request;
(e) The Company file with the Securities and Exchange Commission a Form
10-SB, General Form for Registration of Securities under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and file any
other periodic reports required to be filed under Section 13 or 15(d) of the
Exchange Act (the "Periodic Reports").
(f) The Company's Board of Directors will be duly authorized and
elected pursuant to a vote of the Company's shareholders at a Special or
Annual Meeting of the Company's shareholders; and
(g) Following the exercise of the Acquisition Rights, the surviving
company will affirm and agree to assume any JV obligations to either JFJ or
the Company or third parties, including but not limited to, the $50,000 notes
to the Company and JFJ, and the $100,000 note to John P. Crowe & Co. These
notes or other obligations are to be paid in accordance with their terms.
JFJ's Right to Sell its Membership Interest in the JV to the Company
- --------------------------------------------------------------------
JFJ has the right on or prior to December 31, 2000 to sell its 50% membership
interest in the JV to the Company through a share exchange, wherein the
Company would issue to JFJ shares of the Company's restricted Common Stock in
exchange for JFJ's membership interest in the JV (the "Sale Rights"). On
January 26, 2000, JFJ gave the Company written notice of its intent to
exercise its Sale Rights. In consideration for JFJ exercising its Sale
Rights, JFJ shall receive that number of shares of the Company's restricted
Common Stock that represents one half (1/2) of the issued and outstanding
shares of the Company at December 31, 1998. The method of exact determination
of the number of shares and options issued hereunder is the same as described
in the preceding paragraph. The shares to be issued in connection with the
Sale Rights are subject to the same Registration Rights Agreement discussed
above.
The following are conditions that must be fulfilled prior to JFJ's exercise of
its Sale Rights:
(a) JFJ will forgive the outstanding principal and accrued interest
borrowed by the Company under the line of credit or assign its interest as the
Creditor in the line of credit to the JV prior to exercising its Sale Rights,
whichever it may so elect;
(b) If not previously paid in full, JFJ and John P. Crowe & Co. will
not be required to forgive any outstanding loan balances to the JV which loan
balances shall be repaid by the JV or surviving company in accordance with
their terms; provided, however, that JFJ will release its security interest in
the JV assets.
<PAGE>
<PAGE> 28
JFJ's Right of First Refusal to Participate in Future Debt or Equity
- --------------------------------------------------------------------
Financing
- ---------
The Company has granted JFJ a right of first refusal on any public offering or
private placement of any debt or equity securities or other capital sourcing
which could result in the issuance of The Company's securities. JFJ's right of
first refusal shall be a ten (10) day right of first refusal on the same terms
and conditions as are offered to the third party interested in investing in or
lending to The Company. The right of first refusal shall extend until December
31, 2000. JFJ can assign its right of first refusal to John P. Crowe & Co. or
another related entity or person in its sole discretion.
The Company's Right of First Refusal on JV Borrowing
- ----------------------------------------------------
The Company has the right of first refusal to provide financing to the JV
through December 31, 2000. Before borrowing any money from a third party or a
related entity, the JV shall provide notice of a bona fide financing proposal
specifying the terms and security that will govern the borrowing, including
the proposed lender. The Company has the right to lend the money to the JV on
the terms proposed by providing the JV notice of acceptance within ten (10)
days of receipt of the proposal. The JV shall be free to borrow on the
proposed terms from the proposed lender absent timely receipt of the notice of
acceptance from The Company.
Consent and Approval by the Company's Shareholders
- --------------------------------------------------
At the request of JFJ, prior to the signing of the definitive agreements
members of management and disinterested principal shareholders who,
collectively, hold in excess of 51% of the Company's issued and outstanding
shares provided the Company with their written consent to the terms of the
agreements. The Agreements were ratified by a majority of all the
Shareholders at a Special Meeting of the Shareholders on April 19, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS. The following financial statements are included
in this report:
Title of Document Page
- ----------------- ----
Independent Auditors' Report of Jones, Jensen & Company,
Certified Public Accountant
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998
Notes to the Consolidated Financial Statements
(a)(2)FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules are included as part of this report:
None.
<PAGE> 29
(a)(3)EXHIBITS. The following exhibits are included as part of this report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------- --------- ----------------- ------------
27 27 Financial Data Schedule This Filing
(b) Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
INDUSTRIAL ECOSYSTEMS, INC.
Date: April 12, 2000 By /S/ Tom Jarnagin, President and
Director
Date: April 12, 2000 By /S/ Magaly Bianchini, Director
Date: April 12, 2000 By /S/ Steven C. Justus, Director
<PAGE>
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Industrial Ecosystems, Inc. and Subsidiaries
Bloomfield, New Mexico
We have audited the accompanying consolidated balance sheet of Industrial
Ecosystems, Inc. and Subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Industrial Ecosystems, Inc. and Subsidiaries as of December 31, 1999, and
the consolidated results of their operations and their cash flows for the
years ended December 31, 1999 and 1998, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
consolidated financial statements, the Company has suffered recurring losses
to date, which raises substantial doubt about its ability to continue as a
going concern. Management's plans with regard to these matters are also
described in Note 11. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
March 14, 2000
<PAGE>
<PAGE> 31
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
December 31,
1999
------------
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 44,277
Restricted cash (Note 1) 43,306
Accounts receivable (Note 1) 9,902
Prepaid expenses 7,500
-------
Total Current Assets 104,985
-------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 191,884
-------
OTHER ASSETS
Investment in joint venture (Note 7) -
-------
Total Other Assets -
------
TOTAL ASSETS $ 296,869
=======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 32
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
1999
------------
CURRENT LIABILITIES
Accounts payable $ 85,680
Accrued expenses (Note 4) 326,346
Note payable, related party (Note 6) 750,000
Notes payable, current portion(Note 5) 49,458
------------
Total Current Liabilities 1,211,484
------------
LONG-TERM DEBT
Notes payable (Note 5) 108,266
------------
Total Long-Term Debt 108,266
------------
Total Liabilities 1,319,750
------------
COMMITMENTS AND CONTINGENCIES (Note 8) 582,336
------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock; 100,000,000 shares authorized of $0.001
par value 40,241,683 shares issued and outstanding 40,242
Additional paid-in capital 21,136,268
Other comprehensive income 26,760
Accumulated deficit (22,808,487)
-----------
Total Stockholders' Equity (Deficit) (1,605,217)
-----------
TOTAL LIABILITIES AND STOCK HOLDERS' EQUITY (DEFICIT) $ 296,869
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 33
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
----------------------
1999 1998
--------- ---------
REVENUES
Net sales $ 472,865 626,545
Direct costs 405,100 405,787
---------- -------
Gross Profit 67,765 220,758
---------- -------
EXPENSES
General and administrative 1,089,270 1,586,049
Bad debt expense - 19,802
Depreciation and amortization 97,563 108,677
--------- ---------
Total Expenses 1,186,833 1,714,528
--------- ---------
Loss From Operations (1,119,068) (1,473,770)
--------- ---------
OTHER INCOME (EXPENSE)
Other income 55,155 95,118
Interest income - 1,362
Interest expense (94,065) (40,236)
Loss on investment in joint venture - (353,117)
Loss on disposition of assets (7,577) (104,106)
--------- ---------
Total Other Income (Expense) (46,487) (400,979)
--------- ---------
NET LOSS BEFORE EXTRAORDINARY ITEMS (1,165,555) (1,894,749)
--------- ---------
EXTRAORDINARY ITEMS
Debt forgiveness (Note 8) 350,957 -
--------- ---------
Total Extraordinary items 350,957 -
========= ==========
NET LOSS $ (814,598) $(1,894,749)
========= ==========
OTHER COMPREHENSIVE INCOME
Gain (loss) on foreign currency adjustments (11,659) 14,664
--------- -----------
NET COMPREHENSIVE LOSS $(826,257) $(1,880,085)
========= ===========
BASIC LOSS PER SHARE $ (0.02) $ (0.06)
========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 35,136,383 30,111,107
========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 34
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Other
Common Stock Paid-In Comprehensive Accumulated
Shares Amount Capital Income Deficit
---------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 24,693,875 24,694 18,353,541 23,755 (20,099,140)
Common stock issued for cash
at an average price of $0.35
per share 2,883,727 2,884 998,038 - -
Common stock issued in lieu
of debt at an average price
of $0.16 per share 5,341,330 5,341 830,726 - -
Common stock issued for
services rendered at an
average of $0.21 per share 99,999 100 21,325 - -
Additional capital contributed - - 386,111 - -
Currency translation adjustment - - - 14,664 -
Net loss for the year ended
December 31, 1998 - - - - (1,894,749)
---------- ------ ---------- ------ ----------
Balance, December 31, 1998 33,018,931 $33,019 $ 20,589,741 $38,419 $(21,993,889)
Common stock issued for cash
at $0.10 per share 2,500,000 2,500 247,500 - -
Common stock issued for cash
at $0.0675 per share 4,500,000 4,500 299,250 - -
Common stock issued in
conversion of Class A - special
shares of subsidiary (Note 9) 222,752 223 (223) - -
Currency translation adjustment - - - (11,659) -
Net loss for the year ended
December 31, 1999 - - - - (814,598)
---------- ------ ---------- ------ ----------
Balance December 31, 1999 40,241,683 $40,242 $21,136,268 $26,760 $(22,808,487)
========== ====== ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 35
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
------------------------
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (814,598) $(1,894,749)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 97,563 108,677
Stock issued for services - 21,425
Loss on investment in joint venture - 305,117
Loss on disposition of assets 7,577 104,106
Debt forgiveness (350,957) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 25,177 6,318
(Increase) decrease in deposits and
prepaid expenses 3,240 (10,740)
(Increase) decrease in restricted cash (2,637) (40,669)
Increase (decrease) in accounts payable (219,431) (82,952)
Increase (decrease) in unearned revenue (21,666) 21,666
Increase (decrease) in accrued expenses 28,991 208,001
Increase (decrease) in contingent
liabilities 32,650 -
--------- ---------
Net Cash (Used) by Operating Activities (1,214,091) (1,253,800)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets 2,500 -
Purchase of fixed assets (23,551) (41,283)
------ -------
Net Cash (Used) by Investing Activities (21,051) (41,283)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable (36,883) (93,857)
Cash received from notes payable 750,000 -
Additional capital contributed - 386,111
Issuance of common stock for cash 553,750 1,000,922
--------- ---------
Net Cash Provided by Financing Activities 1,266,867 1,293,176
--------- ---------
NET INCREASE (DECREASE) IN CASH 31,725 (1,907)
CASH AT BEGINNING OF PERIOD 12,552 14,459
------ ------
CASH AT END OF PERIOD $ 44,277 $ 12,552
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 36
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Continued)
For the Years Ended
December 31,
------------------------
1999 1998
----------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 63,138 $ 67,223
Income taxes - -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ - $ 21,425
Stock issued in conversion of debt to
common stock $ - $836,067
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 37
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of Industrial
Ecosystems, Inc.(IEI) and its wholly-owned subsidiaries, Environmental
Protection Company (EPC), I.E.I. Canada, Inc. (IEI Canada) and 1297833
Ontario, Ltd. (Ontario). Collectively, they are referred to herein as the
"Company". IEI was incorporated in January, 1994 through the acquisition of
Agri World Development Corp., a dormant public company. Agri World
Development Corp. later changed its name to Industrial Ecosystems, Inc. IEI
is principally a holding company but pays operating expenses for the
bioremediation business.
In March 1994, IEI acquired 100% of EPC in exchange for 7,017,300 shares of
its outstanding common stock. At the time of this acquisition, IEI was
essentially inactive. Also, the exchange of IEI's common stock for the common
stock of EPC resulted in the former stockholders of EPC obtaining control of
IEI. Accordingly, EPC became the continuing entity for accounting purposes,
and the transaction was accounted for as a recapitalization of EPC with no
adjustment to the basis of EPC's assets acquired or liabilities assumed. For
legal purposes, IEI was the surviving entity. EPC is in the bioremediation
business and operates principally in New Mexico.
Effective June 30, 1994, IEI, through its wholly-owned subsidiary, IEI Canada,
Inc. (a Canadian Corporation) acquired 100% of I.T.E. Ecosystems, Inc., Amlin
Grain Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc.
The operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994. In September 1994, IEI incorporated three wholly-
owned subsidiaries called RFP Management & Development Corp., ROP Management &
Development Corp. and IEI Canada, Inc. In December of 1996, IEI incorporated
a separate wholly-owned subsidiary called ROP Liquid Feed Corp. In March
1998, IEI created an entity (merger company) for the purpose of merging IEI
Canada, Inc., ROP Liquid Feed Corp., ROP Management & Development Corp. and
RFP Management & Development Corp. into that entity. At the same time, the
merger company was merged into a new entity named IEI Canada, Inc. The assets
and certain liabilities of all of these companies were assumed by ROP North
America, LLC, a joint venture company formed in March, 1998 (see Note 7), and
the companies operations were discontinued. The assets and liabilities were
transferred to the joint venture at the related companies' book value.
During 1998, IEI Canada, Inc. incorporated two separate wholly-owned`
subsidiaries called 1297833 Ontario, Ltd. and 1303873 Ontario, Ltd. 1297833
Ontario, Ltd. was organized to be in the bioremediation business. Neither
1297833 Ontario, Ltd. or 1303873 Ontario, Ltd. have had operations.
b. Accounting Methods
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31, year end.
<PAGE> 38
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Basic Loss Per Share
1999 1998
------------ ------------
Loss (numerator) $ (814,598) $ (1,894,749)
Shares (denominator) 35,136,383 30,111,107
Per share amount $ (0.02) $ (0.06)
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements. Common stock equivalents, consisting of
stock options and the IEI Canada Inc. class A-special shares, have not been
included in the calculation as their effect is antidilutive for the periods
presented.
e. Change in Accounting Principle
The Financial Accounting Standards Board has issued certain new standards,
including standards on earning per share (SFAS 128), capital structure (SFAS
129), comprehensive income (SFAS 130), operating segments (SFAS 131) and
postretirement benefits (SFAS 132). The adoption of these standards did not
have a material impact on the Company's consolidated financial statements.
<PAGE>
<PAGE> 39
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Property and Equipment
Property and equipment is recorded at cost. Major additions and improvement
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as gain or
loss on sale of equipment. Depreciation is computed using the straight-line
method over the estimated useful life of the assets as follows:
Description Estimated Useful Life
------------------------ ---------------------
Furniture and fixtures 3 to 7 years
Machinery and equipment 5 to 7 years
Computers 5 years
Vehicles 5 years
Leasehold improvements 15 years
Buildings 15 years
g. Restricted Cash
The Company holds a certificate of deposit with a Canadian bank in the amount
of $43,306 as of December 31, 1999 which is being used as security and
collateral on a demand note with the same bank. The cash cannot be withdrawn
from the CD until after the demand note is paid in full.
h. Accounts Receivable
Accounts receivable consists almost entirely of amounts due from a major oil
company. Those outstanding invoices are considered to be fully collectible
and no allowance for doubtful accounts has been recorded.
i. Provision For Taxes
At December 31, 1999, the Company has an accumulated deficit of $22,808,487
which includes net operating loss carryforwards that may be offset against
future taxable income through 2019. No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50%
or greater chance the net operating loss carryforwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
j. Principles of Consolidation
The consolidated financial statements include those of Industrial Ecosystems,
Inc. and its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated.
<PAGE>
<PAGE> 40
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Statement of Cash Flows
The Company's foreign subsidiary, (IEI Canada and its subsidiaries), uses the
local currency as its functional currency. Accordingly, assets and
liabilities are translated at year-end exchange rates, and operating statement
items are translated at average exchange rates prevailing during the year.
The resultant cumulative translation adjustments to the assets and liabilities
are recorded as a separate component of stockholders' equity. Exchange rate
adjustments resulting from foreign currency transactions are included in the
determination of net loss.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows, " cash flows from the Company's foreign subsidiaries
are calculated based upon the local currencies. As a result, amounts related
to assets and liabilities reported on the consolidated statements of cash
flows will not necessarily agree with changes in the corresponding balances on
the balance sheets.
l. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
m. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
n. Revenue Recognition
Revenue is recognized as billings are submitted to the customer for the
bioremediation process. Billings are submitted once the jobs are
substantially complete.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999:
Furniture and fixtures $ 26,853
Machinery and equipment 435,005
Computers 14,875
Vehicles 76,000
Leasehold improvements 11,671
Building 14,905
Land 31,561
-------
610,870
Accumulated depreciation (418,986)
-------
Net property and equipment $ 191,884
=======
Depreciation expense for the years ended December 31, 1999 and 1998 was
$97,563,and $108,677, respectively.
<PAGE>
<PAGE> 41
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company has been involved in a number of related party transactions. The
most significant of those transactions are summarized as follows:
The Company has made disbursements and issued shares of its common stock to
certain former officers and directors of the Company, relatives of these
former officers and directors and companies owned by these former officers and
directors. The majority of these stock issuances have been for services
rendered or for payments related to construction of the Company's facilities
and equipment. Any disbursements made to related parties for which there was
no supporting documentation have been recorded by the Company as compensation
to the related parties.
The Company's former president, from time to time, received payments in the
form of loans that have been repaid without interest. The Company's president
also advanced funds to the Company from time to time in order for the Company
to meet its ongoing needs. These advances were also repaid without interest.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses as of December 31, 1999 consist primarily of accrued interest
and unpaid payroll taxes, unemployment taxes, sales taxes and gross receipts
taxes due both the federal and state taxing authorities. The Company has been
delinquent on filing these tax forms and has unfiled taxes for both the 1997
and 1998 tax years. Reasonable interest and penalties have also been accrued
as of December 31, 1999. The following summarizes accrued expenses as of
December 31, 1999:
Accrued payroll taxes, penalties and interest $213,388
Accrued interest 45,000
Gross receipts taxes payable 64,958
Other 3,000
--------
Total $326,346
========
NOTE 5 - NOTE PAYABLE
Notes payable consisted of the following at December 31, 1999:
SBA note payable to a bank, interest at prime +3% per annum, $ 129,919
requires monthly payments of $1,860 plus interest, matures in
December 2005, secured by machinery, equipment and certificate
of deposit.
Note payable to a company, interest at 11.5% per annum, pricipal 27,805
and interest of $5,002 due monthly, matures in June 2000, secured
by equipment. ---------
Total Notes Payable 157,724
Less: Current Portion (49,458)
--------
Long-Term Notes Payable $ 108,266
==========
<PAGE> 42
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 5 - NOTE PAYABLE (Continued)
The aggregate principle maturities of notes payable are as follows:
Year Ended December 31, Amount
----------------------- --------
2000 $ 49,458
2001 22,320
2002 22,320
2003 22,320
2004 22,320
2005 and thereafter 18,986
-------
Total $ 157,724
========
NOTE 6 - NOTE PAYABLE - RELATED PARTY
During the year ended December 31, 1999, the Company obtained a line-of-credit
with a related party for up to $750,000 at 6% interest per annum. Withdrawals
from the line-of-credit were authorized by an independent credit committee on
a case-by-case basis. Amounts due on the line-of-credit at December 31, 1999
was $750,000. The line-of-credit is secured by the Company's interest in the
JV and is due and payable in full by December 31, 2000.
NOTE 7 - INVESTMENT IN JOINT VENTURE
During March, 1998, IEI Canada, Inc., a wholly-owned subsidiary of IEI,
entered into a joint venture agreement with JFJ Ecosystems, Inc. to form ROP
North America, LLC (the JV). The JV created a wholly-owned subsidiary called
ROP North America, Inc. (an Ontario Corporation) which became the operating
entity. AS of December 31, 1999, IEI Canada, Inc. has a 50% equity interest
in the JV but does not have management control. The investment is being
recorded under the equity method of accounting. Because of significant losses
of the JV, the investment is recorded at $-0- as of December 31, 1999. The
company has the right to acquire the remaining 50% interest in the JV on or
prior to December 31, 2000 conditional on meeting certain requirements
established in the agreement between the Company and JFJ Ecosystems, Inc.
The joint venture was established to transform organic by-product from
commercial waste streams into livestock feed. This process is accomplished in
part, through the joint venture's liquid feed system. The joint venture also
raises approximately 3,000 hogs under contract. In addition, the hog farm is
a beta-site for the joint venture's liquid feed products.
On March 20, 1998, the Company entered into an equipment lease agreement with
the JV whereby the JV has agreed to lease form the Company a certain liquid
feed distribution system for $4,414 per month for a term of seven years.
The Company also entered into an agreement with the JV on January 4, 1999,
whereby the joint venture partner received an immediate vesting of its 50%
membership interest in the JV and the termination of the Company's option to
reduce the joint venture partners membership interest to 19%. The joint
venture partner was also granted certain rights, subject to certain
conditions, to exercise an option to exchange their membership interest in the
JV for that number of shares of the Company's common stock which would make
the joint venture partner a 33.3% owner of the total outstanding common shares
of the Company's stock issued and outstanding at January 4, 1999.
<PAGE> 43
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has reserved and recorded contingent liabilities to individuals
who claim they are still owed although the Company issued shares of common
stock in payment of the debts. The Company has recorded contingent
liabilities at December 31, 1999 of $582,336. During the year ended December
31, 1999, a total of $350,957 of contingent liabilities were settled through a
full release by the respective creditors. Corresponding income from the debt
of forgiveness has been recorded by the Company in the accompanying
consolidated financial statements for the year ended December 31, 1999. It is
currently uncertain as to whether or not the remaining amounts will be paid in
the future and management of the Company intends on vigorously contesting any
claim that is made. It is reasonably possible, however, that the Company will
have to pay the amounts and to be conservative, management has recorded these
debts as contingent liabilities.
The Company was involved in certain litigation during 1998 and 1999 with a New
Mexico limited liability company regarding an open account and a distribution
agreement. A complain against the Company was filed in July 1997. The
Company contended that they had never ordered the product delivered and that
the distribution agreement was breached. On January 3, 2000, a judgment was
entered into ordering the Company to pay a total of $31,991 plus attorney fees
of approximately $12,000. This total amounts has been included in accounts
payable as of December 31, 1999.
The Company is also involved in litigation with Middlemarch Farms, Ltd.
(Middlemarch), a Canadian company, whereby Middlemarch is claiming a security
interest in certain property transferred to the joint venture during March
1998. Middlemarch is claiming that there is an outstanding balance due of
$230,300 plus interest. The property subject to the security interest is
comprised of the assets and liabilities which were transferred to the joint
venture in March 1998.
The Company claims that the amount has been paid but has recorded a contingent
liability for the claimed amount (included in contingent liabilities of
$582,336 at December 31, 1999). If Middlemarch proceeds with its claim, the
Company may be involved in litigation with regard to the circumstances
surrounding the creation of the claimed interest and the payment of the debt.
On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc. a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994. The Company claims that negotiations were never
consummated, and no contract was every signed. On August 6, 1999, the
Company's Canadian counsel was served with a statement of Claim filed in the
Superior Court of Justice in Windsor Ontario on August 4, 1999, By Diamond
Measure, Inc. and Ronald McGuire, against the Company. The claim is for a
total of $1.5 million dollars Canadian for breach of contract and detrimental
reliance, $1 million to Diamond Measure, Inc., and $500,000 to Ronald McGuire.
The Company claims no agreement was ever reached and no written contract
signed, the Company believes that the action is without merit.
<PAGE>
<PAGE> 44
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 9 - CLASS A-SPECIAL SHARES
During 1997, the Company issued 2,163,917 shares of common stock in exchange
for the conversion of 2,163,917 shares of class A-special shares IEI Canada,
Inc., a wholly-owned subsidiary of the Company (by virtue of voting rights anc
common stock shares). The class A-special shares were originally issued in
connection with a Global Share Purchase Agreement during 1994. Each of the
original shareholders of the class A-special shares received a warrant
permitting the exchange of the shares for an equal number of shares of the
Company at any time until 2015. A total of 4,000,000 class A-special shares
were originally issued.
During the year ended December 31, 1999, the Company issued 222,752 shares of
its outstanding common stock to convert a total of 283,841 of the class A-
special shares. At December 31, 1999, 40,549 class A-special shares remain
outstanding that are convertible at the holders option into 31,822 shares of
the Company's common stock. These shares have been included in additional
paid-in capital of the Company until they are converted in IEI shares.
NOTE 10 - STOCK OPTIONS AND WARRANTS
On July 23, 1997, the Board of Directors agreed to issue an option to purchase
166,667 (post-split) shares of common stock at an exercise price of $0.15 per
share to an entity that provided a loan to the Company. These options expire
on July 23, 2002. At the time the options were granted, the exercise price
was equal to, or greater than, the prior 10-day average trading price of the
Company's shares.
On March 13, 1998, the Board of Directors agreed to issue options to various
individuals who have provided and may continue to provide consulting and other
services to the Company. Stock options for a total of 4,131,000 (post-split)
shares of common stock were granted at an exercise price of $0.225 per share.
At the time the options were granted, the exercise price was equal to, or
greater than, the prior 10-day average trading price of the Company's shares.
591,000 of these options will expire if not exercised by March 13, 2002. The
remaining 3,540,000 options are "cashless" options and will expire if not
exercised by March 13, 2005.
In May 1999, the Board of Directors of the Company agreed to issue 225,000
options, exercisable at $1.00 per share and expiring on May 31, 2003, to an
unaffiliated third party in settlement of an outstanding lease obligation for
one of its Canadian subsidiaries. The exercise price for the options was
determined by negotiations between the parties.
In April 1999, the Company issued 720,000 options exercisable at $0.16 per
share and expiring on April 30, 2004. In June 1999, the Company issued an
additional 400,000 options exercisable at $0.20 per share and expiring on June
3, 2004. In July 1999, the Company issued an additional 100,000 options
exercisable at $0.21 per share and expiring on July 28, 2004. In December
1999, the Company issued an additional 80,000 options exercisable at $0.06 per
share and expiring on December 1, 2004. The 720,000 options, the 400,000
options, the 100,000 options and the 80,000 options were issued pursuant to
the Company's 1999 Stock Option and Award Plan and the exercise price of the
respective options is equal to or greater than the prior 10-day average
trading price of the Company's shares.
<PAGE>
<PAGE> 45
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1999
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
As of December 31, 1999, an aggregate of 5,822,667 options to purchase common
shares were outstanding with exercise prices ranging from $0.06 to $1.00 per
share. At the time the options were granted, the exercise price was equal to
or greater than the prior 10-day average trading price of the Company's
shares.
Pursuant to a certain stock issuance for cash during the year ended December
31, 1999, the Company issued a total of 4,500,000 warrants to purchase shares
of common stock. The warrants are exercisable at in blocks at prices ranging
from $0.07 to $0.19 per share and expire on November 3, 2000.
NOTE 11 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. The Company has historically incurred significant
losses which have resulted in an accumulated deficit of $22,808,487 at
December 31, 1999, a working capital deficit and limited internal financial
resources. These factors combined, raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments relating to
the recover ability and classification of asset carrying amounts or the amount
and classification of liabilities that might result from the outcome of this
uncertainty. During 1999 and 1998,the Company began to effect measures to
reduce cash outflows and increase working capital through the issuance of
additional shares of common stock for cash, services and conversion of debt.
The Company has implemented a cash flow plan and has developed an overall
strategy and certain financing options to meet its ongoing needs. It is the
intent of management to rely upon additional equity financing if required to
sustain operations until revenue are adequate to cover the costs.
NOTE 12 - SUBSEQUENT EVENT
On January 10, 2000, the Company completed a private offering that included
the issuance of 2,400,000 shares of its outstanding common stock and the
granting of 2,400,000 warrants for a total of $162,000 cash. The warrants are
exercisable at prices ranging from $0.07 to $0.19 per share and expire on
January 10, 2000.
On January 10, 2000, the Company completed a second private offering that
included the issuance of 3,000,000 shares of its outstanding common stock and
the granting of 6,000,000 warrants for a total of $300,000 cash. The warrants
are exercisable at prices ranging from $0.25 to $1.00 per share and expire on
January 24, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 87,583
<SECURITIES> 0
<RECEIVABLES> 9,902
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,985
<PP&E> 610,870
<DEPRECIATION> 418,986
<TOTAL-ASSETS> 296,869
<CURRENT-LIABILITIES> 1,211,484
<BONDS> 0
0
0
<COMMON> 21,203,270
<OTHER-SE> (22,808,487)
<TOTAL-LIABILITY-AND-EQUITY> 296,869
<SALES> 472,865
<TOTAL-REVENUES> 472,865
<CGS> 405,100
<TOTAL-COSTS> 1,186,833
<OTHER-EXPENSES> (46,487)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,065
<INCOME-PRETAX> (1,165,555)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,165,555)
<DISCONTINUED> 0
<EXTRAORDINARY> 350,957
<CHANGES> (11,659)
<NET-INCOME> (826,257)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
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