<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarter Ended: March 31, 2000
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period from _____________ to ____________
Commission File Number 0-29838
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INDUSTRIAL ECOSYSTEMS, INC.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Utah 94-3200034
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
2040 West Broadway, Bloomfield, New Mexico 87413
-----------------------------------------------------
(Address of principal executive offices and Zip Code)
505-632-1786
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, Par Value $0.001 45,600,683
- -------------------------------- ----------------------------
Title of Class Number of Shares Outstanding
as of March 31, 2000
<PAGE>
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDUSTRIAL ECOSYSTEMS, INC.
FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements have been prepared by the
Company, without audit, in accordance with the instructions to Form 10-QSB
pursuant to the rules and regulations of the Securities and Exchange
Commission and, therefore may not include all information and footnotes
necessary for a complete presentation of the financial position, results of
operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position and results of operations for the periods presented have
been made. These financial statements should be read in conjunction with the
accompanying notes, and with the historical financial information of the
Company.
<PAGE>
<PAGE> 3
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 227,332 $ 44,277
Restricted cash (Note 1) 43,000 43,306
Accounts receivable (Note 1) 68,174 9,902
Prepaid expenses 7,500 7,500
------------ ------------
Total Current Assets 346,006 104,985
------------ ------------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 179,116 191,884
------------ ------------
OTHER ASSETS
Investment in joint venture (Note 7)
Deposits - -
------------ ------------
Total Other Assets - -
------------ ------------
TOTAL ASSETS $ 525,122 $ 296,869
============ ============
See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 4
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 84,183 $ 85,680
Accrued expenses (Note 4) 327,894 326,346
Investor deposits 15,000 -
Note payable, related party (Noted 6) 750,000 750,000
Notes payable, current portion (Note 5) 24,784 49,458
------------ ------------
Total Current Liabilities 1,201,861 1,211,484
------------ ------------
LONG-TERM DEBT
Notes payable (Note 5) 108,266 108,266
------------ ------------
Total Long-Term Debt 108,266 108,266
------------ ------------
Total Liabilities 1,310,127 1,319,750
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 8) 582,336 582,336
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares authorized
of $0.001 par value, 45,600,683 and
40,241,683 shares issued and outstanding,
respectively 45,601 40,242
Additional paid-in capital 21,651,389 21,136,268
Prepaid services (35,000) -
Other comprehensive income 17,498 26,760
Accumulated deficit (23,046,829) (22,808,487)
------------ ------------
Total Stockholders' Equity (Deficit) (1,367,341) (1,605,217)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 525,122 $ 296,896
============ ============
See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 5
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the Three
Months Ended
March 31, March 31,
2000 1999
---------- ----------
REVENUES
Net sales $ 127,968 $ 130,833
Direct costs 105,967 86,717
---------- ----------
Gross Profit 22,001 44,116
---------- ----------
EXPENSES
General and administrative 241,720 236,006
Depreciation and amortization 12,768 24,663
---------- ----------
Total Expenses 254,488 260,729
---------- ----------
Loss From Operations (232,487) (216,613)
---------- ----------
OTHER INCOME (EXPENSE)
Other income 8,267 26,869
Interest income - 112
Interest expense (14,122) (9,024)
---------- ----------
Total Other Income (Expense) (5,855) 17,957
---------- ----------
NET LOSS BEFORE EXTRAORDINARY ITEMS (238,342) (198,656)
---------- ----------
EXTRAORDINARY ITEMS
Debt forgiveness (Note 8) - 325,957
---------- ----------
Total Extraordinary Items - 325,957
---------- ----------
NET INCOME (LOSS) $ (238,342) $ 127,301
========== ==========
OTHER COMPREHENSIVE INCOME
Foreign currency adjustments (9,262) 3,348
---------- ----------
NET COMPREHENSIVE INCOME (LOSS) $ (247,604) $ 130,649
========== ==========
BASIC EARNINGS (LOSS) PER SHARE
Before extraordinary items $ (0.01) $ (0.01)
Extraordinary items - -
---------- ----------
BASIC EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.00
========== ==========
See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 6
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, 1998 33,018,931 $ 33,019 $ 20,589,741 $ 38,419 $(21,993,889)
Common stock issued for cash
at an average price of $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)
Common stock and warrants
issued for cash at $0.0675
per share 2,400,000 2,400 159,600 - -
Common stock and warrants
issued for cash at $0.10
per share 1,800,000 1,800 178,200 - -
Common stock issued through
exercise of options at $0.22
per share 484,000 484 105,996 - -
Common stock and warrants
issued for cash at $0.10
per share 600,000 600 59,400 - -
Common Stock issued through
exercise of options at $0.16
per share 75,000 75 11,925 - -
Currency translation adjustment - - - (9,262) -
Net loss for the three
months ended March 31, 1999
(Unaudited) - - - - (238,342)
----------- -------- ------------ ----------- ------------
Balance, March 31, 2000
(Unaudited) 45,600,683 $ 45,601 $ 21,651,389 $ 17,498 $(23,046,829)
=========== ======== ============ =========== ============
</TABLE>
See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 7
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three
Months Ended
March 31,
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (238,342) $ 127,301
Adjustments to reconcile net income to net
cash (used) by operating activities:
Depreciation and amortization 12,768 24,663
Debt forgiveness - (325,957)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (67,534) (63,024)
(Increase) decrease in deposits and prepaid
expenses - (43,729)
(Increase) decrease in restricted cash 306 -
(Increase) decrease in prepaid services (35,000) -
Increase (decrease) in accounts payable (1,497) (199,777)
Increase (decrease) in unearned revenue - (21,666)
Increase (decrease) in accrued expenses 1,548 50,754
Increase (decrease) in investor deposits 15,000 -
Increase (decrease) in contingent liabilities - (25,962)
---------- ----------
Net Cash (Used) by Operating Activities (312,751) (477,397)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (18,831)
---------- ----------
Net Cash (Used) by Investing Activities - (18,831)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 520,480 -
Additional capital contributed - -
Principle payments on notes payable (24,674) (34,157)
Cash received from notes payable - 557,537
---------- ----------
Net Cash Provided by Financing Activities 495,806 523,380
========== ==========
NET INCREASE (DECREASE) IN CASH 183,055 27,152
CASH AT BEGINNING OF PERIOD 44,277 12,552
---------- ----------
CASH AT END OF PERIOD $ 227,332 $ 39,704
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 14,122 $ 9,024
Income taxes - $ -
See the accompanying notes to the consolidated financial statements.
<PAGE>
<PAGE> 8
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and 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. and 1303873 Ontario, Ltd. 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. Certain
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>
<PAGE> 9
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and 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 and Fully Diluted Earnings (Loss) Per Share
The computations of basic earnings (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 earnings 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.
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 $43,000 and $43,306 as of March 31, 2000 and December 31, 1999,
respectively, 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.
<PAGE>
<PAGE> 10
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 not be used.
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.
k. Statement of Cash Flows
For the Company's foreign subsidiary, (IEI Canada and its subsidiaries), the
functional currency has been determined to be the local 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 adjustments resulting from foreign currency transactions are
included in the determination of net income (loss). Such amounts are
immaterial for all years presented.
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 statement 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.
<PAGE>
<PAGE> 11
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1998 and December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 completed.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Furniture and fixtures $ 26,853 $ 26,853
Machinery and equipment 435,005 429,005
Computers 14,875 14,875
Vehicles 76,000 76,000
Leasehold improvements 11,671 11,671
Building 14,905 14,905
Land 31,561 31,561
------------ ------------
610,870 610,870
Accumulated depreciation (431,754) (418,986)
------------ ------------
Net property and equipment $ 179,116 $ 191,884
============ ============
Depreciation expense for the three months ended March 31, 2000 and 1999 was
$12,768 and $24,663, respectively.
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 officers and directors of the Company, relatives of these officers and
directors and companies owned by these officers and directors, although those
individuals are no longer officers or directors of the Company. Most of these
funds have been paid for services rendered or for payments related to
construction of the Company's facilities and equipment. Any disbursements made
to the related parties for which there was no supporting documentation were
recorded by the Company as compensation to the related party.
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 former
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.
<PAGE>
<PAGE> 12
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 4 - ACCRUED EXPENSES
Accrued expenses as of March 31, 2000 and 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. A settlement has been reached
with the state of New Mexico for the sales tax owed and the Company is current
with the settlement arrangements as of March 31, 2000. Reasonable interest
and penalties have also been accrued as of March 31, 2000 and December 31,
1999.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following:
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Note payable to a bank, interest at prime + 3%
per annum, requires monthly payments of $1,860
plus interest, matures in December, 2005,
secured by machinery, equipment and certificate
of deposit. $ 123,625 $ 129,919
Note payable to a company, interest at 11.5% per
annum, principle and interest of $ 5,002 due
monthly, matures in June, 2000, secured by
equipment. 9,425 27,805
------------ ------------
Total Notes Payable 133,050 157,724
Less: Current Portion (24,784) (49,458)
------------ ------------
Long-Term Notes Payable $ 108,266 $ 108,266
============ ============
The aggregate principal 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 18,796
=======
Total $ 157,724
=======
<PAGE>
<PAGE> 13
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - NOTES PAYABLE - RELATED PARTY
During the three months ended March 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 are to be authorized by an independent
credit committee on a case-by-case basis. Total advances from the line-of-
credit through March 31, 2000 and December 31, 1999 was $750,000 and $750,000,
respectively. The line-of-credit is secured by the Company's membership
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, 1998, pursuant to a subsequent transaction, 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 a significant first year loss of the JV, the
investment is being recorded at $-0- as of December 31, 1998. 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 by
the JV.
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 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 from 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 the time of exercise.
<PAGE>
<PAGE> 14
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and 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 a total of contingent
liabilities at March 31, 2000 and December 31, 1999 of $582,336 and $582,336,
respectively. During the year ended December 31, 1999, $350,957 of the
contingent liabilities were settled through a full release by the respective
creditors. Corresponding income from the debt forgiveness was recorded by the
Company 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 possible 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 complaint 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 amount has been included in accounts
payable as of at March 31, 2000 and December 31, 1999. The Company has been
making the required payments pursuant to the judgment and is current as of
March 31, 2000.
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 March 31, 2000 and 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> 15
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 1999 and December 31, 1998
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 of IEI
Canada, Inc., a wholly owned subsidiary of the Company (by virtue of voting
rights and 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 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 March 31, 2000 and 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
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> 16
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
As of March 31, 2000 and December 31, 1999, an aggregate of 5,263,667 and
5,822,667 options to purchase common shares were outstanding, respectively,
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.
Pursuant to a certain stock issuance for cash during the three months ended
March 31, 2000, the Company issued a total of 5,550,000 warrants to purchase
shares of common stock. The warrants are exercisable at in blocks at prices
ranging from $0.07 to $1.00 per share.
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.
<PAGE>
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such 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
- --------------------
The Company has worked to resolve any 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. The Company utilizes a
minimum number of computer programs in its operations. The Company has
completed its assessment and found all computer programs to be compliant. The
cost of compliance did not have a material adverse impact on the Company's
financial position during the period ending March 31, 2000.
issues in a timely manner.
Results of Operations
- ---------------------
General
- -------
The Company's revenues are generated primarily by its business operations in
the United States through its wholly owned subsidiary Environmental Protection
Company ("EPC"). Since March, 1998, the Company has pursued the development
of ROP North America, LLC ("ROP"), through the Company's wholly owned Canadian
subsidiary, IEI Canada, which at March 31, 2000, was still in the development
stage. The Company's results of operations include the costs of its
investment in ROP.
For the quarter ended March 31, 2000, the functional currency for the
Company's foreign subsidiary (IEI Canada and its subsidiaries) has been
determined to be the Canadian Dollar. Any applicable assets and liabilities
have been translated at period end exchange rates and operating statement
items are translated at average exchange rates prevailing during the period.
For the period ended March 31, 2000, the Company had a loss of $(9,262) as a
result of foreign currency translation adjustment.
Quarter ended March 31, 2000 compared to March 31, 1999
- -------------------------------------------------------
Substantially all revenue during the quarter ended March 31, 2000 was derived
from EPC's operations, with total revenues being $127,968 and direct costs
associated therewith being $105,967 or approximately 82.8% of revenues. Total
revenues for the quarter ended March 31, 1999 were $130,833 and direct costs
associated therewith were $86,717, or approximately 66.3% of revenue. The
direct costs for the quarter ended March 31, 2000 as a percent of sales was
16.5% higher than the direct costs as a percentage of sales realized by the
Company for the quarter ended March 31, 1999. The increase in direct costs as
<PAGE>
<PAGE> 18
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 Amoco is
allocated between routine site maintenance and emergency clean-up. In the
past, substantially all of the Company's revenues have been derived from
bioremediation work performed for BP-Amoco. During the fiscal year 1999
revenues from BP-Amoco began to decrease. Amoco merged with British Petroleum
(now "BP-Amoco") during 1999, 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 quarter ended March 31, 2000 total operating
expenses were $254,488, consisting of general and administrative expenses of
$241,720 and depreciation and amortization expenses of $12,768, resulting in a
loss from operations of $(232,487). For the quarter ended March 31, 1999 total
operating expenses were $260,729, consisting of general and administrative
expenses of $236,066 and depreciation and amortization expenses of $24,663,
resulting in a loss from operations of $(216,613). The operating expenses for
the quarter ended March 31, 2000 are substantially consistent with the
Company's operating expenses incurred for the quarter ended March 31, 1999.
The Company anticipates that it will continue to incur operating expenses at
approximately the same level for the balance of its fiscal year.
Interest Expense. Interest expense for the quarter ended March 31, 2000 was
$14,122, compared to $9,024 for the same period in 1999, which is attributed
to the line-of-credit obtained from a related party (See Note 6 to the
Financial Statements).
<PAGE>
<PAGE> 19
Other Income (expense). Other income for the quarter ended March 31, 2000 was
$8,267. Other income for the quarter ended March 31, 1999 was $26,869, of
which, substantially all was represented by the balance of the income derived
from a one-year consulting agreement with ROP. Total other expense for the
quarter ended March 31, 2000 was $5,855 compared to other income of $17,957
for the same period in 1999.
Extraordinary Items. During the quarter ended March 31, 1999 the Company
recognized income from the forgiveness of $325,957 in debt by certain
creditors of the Company. See Note 8 to the Consolidated Financial
Statements. The Company had no extraordinary items of income or expense
during the quarter ended March 31, 2000.
Including the extraordinary items and the foreign currency adjustments, the
Company had a net comprehensive loss of $(247,604) for the quarter ended March
31, 2000 compared to net comprehensive income of $130,649 for the quarter
ended March 31, 1999. The basic loss per share for the quarter ended March
31, 2000 was $(0.01), while the basic loss per share for the same quarter in
1999 was $(0.00).
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 $855,855 and cash and cash
equivalents of $227,332, and restricted cash of $43,000 at March 31, 2000.
Cash used in operations for the quarter ended March 31, 2000, was $312,751 and
was derived primarily from cash received from the sale of shares. During the
quarter ended March 31, 2000, the Company received proceeds from the sale of
common stock and warrants totaling $379,200, and additional proceeds from the
exercise of outstanding options totaling $117,921.
The Company's accounts receivable increased to $68,174 during the period from
$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,
and billings had not been submitted to the customer. See Note 1h and Note 1n
to the Consolidated Financial Statements.
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> 20
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.
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 under the JV agreement. It is expected that, when
the share exchange is completed, 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. See ITEM 5, OTHER
INFORMATION. The Company anticipates that this transaction will be effected
in the second quarter of fiscal 2000.
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. A settlement has been reached with the state of New
Mexico for the sales tax owed and the Company is current with the settlement
arrangements as of March 31, 2000. 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 March 31, 2000, the Company had
recorded total contingent liabilities of $582,336, the same as recognized at
December 31, 1999.
<PAGE>
<PAGE> 21
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material impact on
its current or proposed operations.
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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 complaint 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 amount has been included in accounts
payable as of at March 31, 2000 and December 31, 1999. The Company has been
making the required payments pursuant to the judgment and is current as of
March 31, 2000.
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 March 31, 2000 and 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> 22
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2000, the Company issued 2,400,000 Units
for cash at $0.0675 per Unit, each Unit consisting of one share of common
stock and one warrant to purchase one share of common stock at prices ranging
from $0.07 per share to $0.19 per share.
During the quarter ended March 31, 2000, the Company issued an additional
2,400,000 Units for cash at $0.10 per Unit, each Unit consisting of one share
of common stock and two warrants to purchase one share of common stock at
prices ranging from $0.25 to $1.00 per share.
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 holders as a selling shareholders,
with a concomitant reduction in the exercise period upon the effectiveness of
the registration. 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 according
to the terms of the respective warrants. The call provision is only effective
if the shares subject to the call provision have been registered by the
Company under an effective Securities Act registration.
The sale of the above Units was made to accredited investors, pursuant to an
exemption from registration and the prospectus delivery requirements of the
Securities Act set forth in Regulation D, Rule 506.
During the quarter ended March 31, 2000, the Company issued a total of 484,000
shares through the exercise of previously issued options at a price of $0.22
per share, and 75,000 shares through the exercise of previously issued options
at a price of $0.16 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
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 described in the
Company's 1999 annual report on Form 10KSB as previously filed with the SEC.
<PAGE>
<PAGE> 23
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL ECOSYSTEMS, INC.
[Registrant]
Dated: May 20, 2000 By/S/Tom Jarnagin, President and
Director
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