UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 2004
Commission File Number 000-33481
ECOLOCLEAN INDUSTRIES, INC.
(Name of small business issuer in its charter)
Nevada 65-1060612
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2242 South Hwy #83, Crystal City, TX 78839
(Address of principal executive office)
(830) 374-9100
(Issuer's Telephone Number)
Securities Registered Pursuant of Section 12(b) of the Act: None
Securities Registered Pursuant of Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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 of
this Form 10-KSB. [ ]
The issuer had operating revenues of $921,810 for the year ended December 31,
2004.
This report contains a total of _ pages. The Exhibit Index appears on page __.
As of December 31, 2004, there were 37,900,664 shares of the issuer's common
stock outstanding. The aggregate market value of the 20,282,964 shares of the
issuer's voting stock held by non-affiliates was $6,591,963 based on the low bid
price on that date as reported by the NASD OTC Electronic Bulletin Board. The
sum excludes the shares held by officers, directors, and stockholders whose
ownership exceeded 10% of the outstanding shares at December 31, 2004, in that
such persons may be deemed affiliates of the Company. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
Ecoloclean Industries, Inc.
FORM 10-KSB
December 31, 2004
Page
PART I...................................................................
ITEM 1. Description of Business.........................................
ITEM 2. Description of Property.........................................
ITEM 3. Legal Proceedings...............................................
ITEM 4. Submission of Matters to Vote of Security Holders...............
PART II..................................................................
ITEM 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities...............
ITEM 6. Management's Discussion and Analysis or Plan of Operation.......
ITEM 7. Financial Statements............................................
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure............................................
ITEM 8A. Controls and Procedures.........................................
ITEM 8B. Other Information...............................................
PART III.................................................................
ITEM 9. Directors, Executive Officers, Promoters, and Control
Persons: Compliance with Section 16(a) of the Exchange Act....
ITEM 10. Executive Compensation.........................................
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.............................
ITEM 12. Certain Relationships and Related Transactions.................
ITEM 13. Exhibits ......................................................
ITEM 14. Principal Accountant Fees and Services.........................
SIGNATURES...............................................................
1
PART I
ITEM 1. Description of Business.
(a) Overview
Ecoloclean Industries, Inc. formerly known as SailTech International, Inc. (the
"Company") was incorporated on September 16, 1998 under the laws of the State of
Nevada as Argonaut Resources Ltd. On December 15, 2000, the Company changed its
name to Sailtech International Inc. to reflect its business objectives of
becoming an aluminum yacht manufacturer. Sailtech was a development stage
enterprise which had just initiated operations as a manufacturer of a line of
aluminum yachts and work vessels using a proprietary software technology which
aided in the design and construction of aluminum boats. We had four yacht
manufacturing contracts, none of which were completed. We conducted our business
through two wholly owned subsidiary corporations, organized in Florida and
British Columbia, Canada.
On December 31, 2002, Sailtech ceased operations of its limited yacht
manufacturing business. We disposed of our subsidiary companies in British
Columbia, Canada and Florida.
On January 10, 2003, we acquired all of the issued and outstanding capital stock
of Ecoloclean, Inc., a Texas corporation. Ecoloclean's principal business
operations are are conducted through its subsidiaries, World Environmental
Technologies, Inc. ("WET"), a Louisiana corporation, Ecoloclean of Texas, Inc.,
a Texas corporation and Reliant Drilling Systems, Inc., a Louisiana corporation.
On December 15, 2003, we filed a certificate of amendment to our articles of
incorporation changing our corporate name to Ecoloclean Industries, Inc. We also
(1) increased our authorized common stock capital from 50,000,000 shares, par
value, $0.001 per share to 100,000,000 shares, par value $0.0001 per share and
(2) increased our authorized preferred shares from 1,000,000 shares, par value
$0.01 per share to 10,000,000, par value $0.001 per share.
We operate five corporations. Ecoloclean Industries, Inc. owns two wholly owned
subsidiaries: (1) Ecoloclean, Inc., a Texas corporation and (2) Reliant Drilling
Systems, Inc., a Louisiana corporation. Ecoloclean, Inc. owns two wholly owned
subsidiaries, (1) World Environmental Technologies, Inc., a Louisiana
corporation and (2) Ecoloclean of Texas, Inc., a Texas corporation.
(b) Historical Background of Waste Water
The United States faces growing need for quality water supplies. Population and
industrial growth demands clean water.
Until recent times, the water supply was considered to be limitless. Major water
users withdrew their water from natural sources such as wells, aquifers, rivers
and lakes. Public utilities and municipal waste water (sewer) authorities
treated their used water and discharged it into rivers and lakes. Mines, paper
mills, refineries, and chemical plants also discharged their waste water, in
many cases, directly into the same rivers and lakes from which water would be
drawn for human use.
Soon after World War II, the effect of this unregulated discharge and limited
treatment of waste water on land and water sources was recognized as
unacceptable by public interest groups and governmental authorities. Efforts
were begun to remediate polluted sites. Laws were enacted to prevent unregulated
discharge of waste waters into the environment. These remediation and prevention
efforts have improved water quality throughout the United States.
We believe that water quality standards will become stricter. Large water users,
at great expense, have installed elaborate treatment systems in order to comply
with governmental water quality laws. However, even after the implementation of
water treatment laws, many treated waters are still being discharged without
meeting all of the governmental standards. In many states, water users who
discharge waters that do not comply with minimum discharge standards are being
assessed large monetary surcharges. Small users, having to pay high monthly
surcharges without the capital or room to install or upgrade existing water
treatment systems, are faced with the possibility of closing operations
facilities.
Processes for treating waste water are extensive. The chemistry and engineering
for treating wastewater is well developed. Many different procedures and
processes are in use for treating different types of contamination and
pollution. Equipment is manufactured by numerous companies to process waste
water streams from as little as a few gallons a day to millions of gallons an
hour. There are technologies and equipment designed to remove impurities and
contaminates ranging form ordinary ground water bacteria and particles to heavy
metal ions. Water treatment plants can be as small as the household water
conditioners to municipal treatment systems covering hundreds of acres.
2
THE ELECTROCOAGULATION SYSTEM
Most waste water contaminants are held in solution by electrical charges.
Bacteria, algae, oils, clays, carbon black, silica, phosphate, nickel, lead,
chromates and other ions are examples charged particle contaminants. Waste water
contaminants must be removed from the water. The neutralization of the
electrical charges and subsequent precipitation of these contaminants can be
achieved by chemical or electrochemical alteration. Most commercial water
treatment systems use chemical additives. Our electro coagulation process is a
non-chemical additive electrochemical system.
In today's environment, adding chemicals to contaminated waste water is becoming
less acceptable due to increasingly stringent regulations. Solid residues
(sludges) are being classified as hazardous materials and the required treatment
levels are more difficult and expensive to achieve. In the future, we believe
that there will be a significant increase in the use of nonchemical dependent
systems such as the EC System. Different chemicals are required for various
contaminants. Contaminant concentrations are critical and must be constantly
monitored and balanced. These additives do not remain with the purified water
(exception: chlorine) but combine with and must be disposed of with the "sludge"
that is removed from the waste water stream. Under current regulations many of
these sludges are considered hazardous and must be handled accordingly. For
every pound of chemical additive an additional pound of sludge must be disposed.
This cost of disposal must be added to the cost of chemicals.
Electrochemical water treatment methods have been used for many years. High
voltages are used to produce an electromagnetic field which disrupts the
electrochemical properties of the charged contaminant particles. This allows the
contaminants to precipitate or fall out of the waste water. Until recent times,
these electrochemical water treatment systems showed good contaminate removal
compared with the chemical additive precipitation methods, however, high capital
and operational costs coupled with lower flow rates have restricted widespread
commercial use.
The electro coagulation "EC" process does not use chemical additives. We believe
that our EC process, with lower operating costs, higher flow rates and a
reduction of sludge disposal costs will move our EC process to the forefront of
water treatment technologies.
The electro coagulation system uses equipment and methods that result from
revisions of old technologies and principles of electrochemistry and physics
made possible by our computerized microprocessor control panel. The "EC" unit is
capable of treating liquid solutions containing a wide variety of contaminants,
including heavy metals, oil and grease, suspended and dissolved solids, most
salts as well as bacteria and algae, without the use of chemicals.
The "EC" unit places an electrical charge in the waste fluid which destabilizes
suspended material electrochemically and causes the coagulation of the dissolved
and suspended contaminants. This coagulation or flocculation is similar to the
precipitation stimulated by chemical additives, but the altered contaminant
particles tend to be larger (100 microns vs. 25 to 50 microns) and more stable.
This flocculated contaminants are removed from the waste Stream by conventional
equipment.
OVERVIEW OF WATER TREATMENT USING ELECTROCOAGULATION
When the term "we" is used, it means Ecoloclean Industries, Inc. by and through
its subsidiaries, Ecoloclean, Inc., World Environmental Technologies, Inc.,
Reliant Drilling Systems, Inc. and Ecoloclean of Texas, Inc.
We have designed and manufactured three portable EC Units which are mounted
within or on enclosed trailers. The waste water is pumped into the EC unit,
electrochemically processed and discharged on-site.
The water flows through a series of engineered electrodes within a cell while a
controlled electric current is applied to the waste water. The electrical
current energizes the solution creating a magnetic field within the cell. Our
system is designed to optimize over twenty variables in order to effectively
transfer electrical energy to the continuously flowing contaminated waste water.
Water contaminated mixtures created by the electro coagulation process, separate
into an organic molecule floating layer known as flocculent, a mineral sediment
and clean water. This separation occurs within minutes of treatment and
conventional equipment may be used to extract the clean water. The Electro
coagulation process has successfully treated animal and human waste water
removing chemical and biological contaminants. Tests confirm the destruction of
coli form bacteria, flagellates, helminthes, eggs, infective parasite larvae and
enteric viruses.
3
Our EC process utilizes proprietary and patented technologies applying
electrochemical energies to the waste water stream. Contaminant laden water
moves through an electric field where the treatment is accomplished by:
o Ionization
o Electrolysis
o Free radical formation
o Electromagnetic fields
System Capabilities:
o Removes heavy metals as oxides which will pass Toxicity
Characteristics Leaching Procedures (TCLP)
o Removes suspended and colloidal solids
o Breaks oil emulsions in water
o Removes fats, oils and grease in water
o Removes complex organic materials
o Destroys and removes bacteria, viruses and cysts
o Processes multiple contaminants
Key Applications:
o Ground water cleanup
o Process rinse and wash water
o Potable water
o Sewage treatment
o Cooling towers
o Radioactive isotope removal
o Pretreatment for reverse osmosis, ultra-filtration,
nano-filtration, and photocatlytics
o Water reuse resulting in zero discharge
o Metal recovery
o Influent quality water control
o Industrial waste water
Benefits:
o Capital cost significantly less than alternative technologies
o Operating cost significantly less than alternative
technologies
o Low power requirements
o Generally no chemical additions
o Metal oxide formation passing TCLP
o Low maintenance
o Minimal operator attention
o Handles a wide variation in the waste stream contaminants
o Consistent and reliable results
o Sludge minimization
o Treats multiple contaminants
Operations and Services
Industrial and commercial businesses produce various types of wastewater
(including hydrocarbon contaminated water from oil field operations, that must
be disposed of as required by federal, state and local regulations. Similarly,
oil and gas exploration and production companies produce liquid waste from
drilling and other operations that must be disposed of complying with federal
and state regulations. We propose to process the liquid waste and remove
contaminants and dispose of the treated liquid waste as required by applicable
regulations.
Oilfield Waste
Oilfield waste consists primarily of petroleum-based and water-based drilling
fluids (which contain oil, grease, chlorides and heavy metals), as well as
cuttings, saltwater, work over and completion fluids, production pit sludges and
soil containing these materials. Under Louisiana and Texas state regulations, if
oilfield waste cannot be processed for discharge or disposed of at the well
where it is generated, it must be transported to a licensed oilfield waste
processing or disposal facility.
Competitive Conditions
Competition is intense within oilfield waste water processing industry.
Competition will be based primarily on proximity to collection operations,
collection and processing fees charged and quality of service. With respect to
certain waste streams, such as oilfield waste, we will compete with the
generators of these waste streams, who continually evaluate the decision whether
to use internal disposal methods or to utilize a liquid waste management company
4
such as us. We will compete with numerous companies, both large and small, which
are able to provide one or more of the environmental services offered by us.
Many of these companies will have greater financial, human and other resources.
However, we believe that the type of waste management, treatment, processing and
remediation services which we will provide will give us a competitive advantage
with respect to certain of our more specialized competitors. We believe that our
treatment processes will offer cost saving alternatives to the more traditional
remediation and disposal methods offered by our competitors.
We believe that there are certain barriers to entry in the liquid waste
industry. These barriers include the need for specialty machinery and
facilities; licenses, permits and trained personnel necessary to operate these
facilities.
Our Specialized Equipment
We have manufactured three portable EC Units. These are portable units which are
constructed in 28-foot enclosed trailers.
Employees
Ecoloclean Industries, Inc. has two part-time employee officers, Royis and
Michael Ward. During 2004, Ecoloclean of Texas, Inc. had nine employees, World
Environmental Technologies had eleven employees, and Reliant Drilling Systems,
Inc. had fifteen employees. No employee was subject to a collective bargaining
agreement.
Governmental Permits and Licenses
World Environmental Technologies, Inc. ("WET") has obtained a Louisiana
statewide Water Discharge Permit for its Electro Coagulation ("EC") treatment
system. This permit enables us to treat waste water in Louisiana such as, bilge
water, wash water from oil field equipment, industrial waste water, storm water,
sanitary water and wash down water.
Waste management companies are subject to extensive, evolving and increasingly
stringent federal, state and local environmental laws and regulations. Such
federal, state and local environmental laws and regulations govern will our
activities regarding the treatment, storage, processing, disposal and
transportation of wastes. We will be required to obtain and maintain permits,
licenses and/or approvals in order to conduct our proposed waste treatment
business activities. Failure to obtain and maintain permits or approvals would
have a material adverse effect on us, our operations and financial condition.
The permits and licenses have a term ranging from five (5) to ten (10) years
and, provided that the Company maintains a reasonable level of compliance, renew
with minimal effort and cost. Historically, there have been no compelling
challenges to the permit and license renewals. In the future, if we expand our
operations, we may be required to obtain additional approvals, licenses or
permits, the there can be no assurance that we will be able to do so. Such
permits and licenses, however, represent a potential barrier to entry for
possible competitors.
General License Agreement
Ecoloclean, Inc. acquired a General License Agreement by assignment from World
Environmental Technologies, Inc. on September 12, 2002. The license grants an
industry exclusive perpetual worldwide right and license under a U.S. patent to
manufacture, use, market, sell, lease or otherwise dispose of product units
based on, or relating to the invention contained in U.S. Patent No. 6,238,546,
issued to Louis A. Kneiper, Gary A. Tipton and Daniel G. Noyes on May 29, 2001.
The product units are the Electro coagulation units. The license is industry
specific and applies only to the petroleum exploration, petroleum chemical,
transportation and refining industries. Ecoloclean, the licensee, is excluded
from marketing, selling, leasing or otherwise disposing of product units to the
paper industry, paint pigment industry and to all industries in Mexico and the
5
Orient. Ecoloclean is obligated to pay royalties to the patent owner on an event
basis. For product units of 100 gallons-per-minute (gpm), or less which are
manufactured by the licensee, Ecoloclean is obligated to pay $3,000 each. For
product units of capacities exceeding 100 gpm, Ecoloclean must pay $30
multiplied by the gpm design capacity. Additionally, for the use of the
technology, Ecoloclean must pay a monthly royalty of 2% of gross income
generated by product units. The General License Agreement and Assignment to the
General License Agreement are attached to this Current Report as Exhibits 3.1
and 3.2, respectively.
Insurance
We believe we maintain insurance coverage adequate for our needs and which is
similar to, or greater than, the coverage maintained by other companies of our
size in the industry. There can be no assurances, however, that liabilities
which may be incurred by us will be covered by our insurance or that the dollar
amount of such liabilities which are covered will not exceed our policy limits.
We are required by EPA regulations to carry environmental impairment liability
insurance providing coverage for damages on a claims-made basis in amounts of at
least $1 million per occurrence and $2 million per year in the aggregate.
Regulation
General Our proposed business operations will be affected both directly and
indirectly by governmental regulations, including various federal, state and
local pollution control and health and safety programs that are administered and
enforced by regulatory agencies. These programs are applicable or potentially
applicable to one or more of our existing operations.
Federal Regulation
The primary U.S. federal statutes affecting our business are summarized below:
The Clean Water Act. Our proposed activities will be subject to the requirements
of the Clean Water Act and comparable state statutes and federal and state
enforcement of these regulations. The Clean Water Act regulates the discharge of
pollutants into waters of the United States. The Clean Water Act establishes a
system of standards, permits and enforcement procedures for the discharge of
pollutants from industrial and municipal wastewater sources. The law sets
treatment standards for industries and wastewater treatment plants and provides
federal grants to assist municipalities in complying with the new standards. In
addition to requiring permits for industrial and municipal discharges directly
into the waters of the United States, the Clean Water Act also requires
pretreatment of industrial wastewater before discharge into municipal systems.
The Clean Water Act gives the Environmental Protection Agency (EPA) the
authority to set pretreatment limits for direct and indirect industrial
discharges. In 2001, the EPA adopted new technology-based effluent limitations
guidelines for waste treatment facilities that treat or recover hazardous or
nonhazardous industrial waste or wastewater received from off-site and then
discharge pollutants into U.S. waters or publicly operated treatment works.
Although the guidelines are based on particular technologies, the new guidelines
do not require a facility to use these technologies. Individual facilities may
meet the requirements using whatever types of technologies and process changes
they choose.
The Clean Water Act also prohibits certain discharges of oil or hazardous
substances and authorizes the federal government to remove or arrange for
removal of such oil or hazardous substances. In addition, the Clean Water Act
requires the adoption of the National Contingency Plan to cover removal of such
materials. Under the Clean Water Act, the owner or operator of a vessel or
facility may be liable for penalties and costs incurred by the federal
government in responding to a discharge of oil or hazardous substances.
The Clean Water Act also has a significant impact on the operations of the
oilfield waste customers. EPA Region 6, which includes our proposed treatment
market, continues to issue new and amended National Pollution Discharge
Elimination System general permits further limiting or restricting substantially
all discharges of produced water from the Oil and Gas Extraction Point Source
Category into waters of the United States. The combined effect of all of these
permits closely approaches a "zero discharge" standard affecting all waters
except those of the Outer Continental Shelf.
Resource Conservation Recovery Act (RCRA). RCRA is the principal federal statute
governing hazardous and solid waste generation, treatment, storage and disposal.
RCRA and state hazardous waste management programs govern the handling and
disposal of hazardous waste. The EPA has issued regulations pursuant to RCRA,
6
and states have promulgated regulations under comparable state statutes, that
govern hazardous waste generators, transporters and owners and operators of
hazardous waste treatment, storage or disposal facilities. These regulations
impose detailed operating, inspection, training and emergency preparedness and
response standards and requirements for closure, financial responsibility,
manifesting of wastes, record-keeping and reporting, as well as treatment
standards for any hazardous wastes intended for land disposal. Facilities which
treat and dispose of oilfield waste are exempt from classification as a
RCRA-regulated waste. At various times in the past, proposals have been made to
rescind the exemption that excludes oilfield waste from regulation under RCRA.
The repeal or modification of this exemption by administrative, legislative or
judicial process would require us to change our method of doing business and
could have a material adverse effect on our business, results of operations and
financial condition. There is no assurance that we would be able to adapt our
operations or that we would have the capital resources available to do so. RCRA
may indirectly affect our proposed operations by restricting the disposal of
certain liquid wastes and sludges in landfills. This restriction may increase
demand for waste treatment services.
CERCLA. The Comprehensive Environmental Response, Compensation and Liability
Act, as amended in 1986 ("CERCLA"), provides for immediate response and removal
actions coordinated by the EPA for releases of hazardous substances into the
environment and authorizes the government, or private parties, to respond to the
release or threatened release of hazardous substances. The government may also
order persons responsible for the release to perform any necessary cleanup.
Liability extends to the present owners and operators of waste disposal
facilities from which a release occurs, persons who owned or operated such
facilities at the time the hazardous substances were released, persons who
arranged for disposal or treatment of hazardous substances and waste
transporters who selected such facilities for treatment or disposal of hazardous
substances. CERCLA has been interpreted to create strict, joint and several
liability for the cost of removal and remediation, other necessary response
costs and damages for injury to natural resources. If our operations or
facilities become responsible for the release or improper disposal of hazardous
substances, we could incur CERCLA liability. Presently, we have no intention to
treat hazardous wastes.
The Clean Air Act. The Clean Air Act provides for federal, state and local
regulation of emissions of air pollutants into the atmosphere. Any modification
or construction of a facility with regulated air emissions must be a permitted
or authorized activity. The Clean Air Act provides for administrative and
judicial enforcement against owners and operators of regulated facilities,
including substantial penalties. In 1990, the Clean Air Act was reauthorized and
amended, substantially increasing the scope and stringency of the Clean Air
Act's regulations. Compliance with the Clean Air Act is not expected to have a
material adverse effect on our proposed business operations.
State and Local Regulations
Our proposed waste water processing operations will be subject to direct
regulation by a variety of state and local authorities. We will be required to
obtain processing, wastewater discharge and air quality permits from state and
local authorities to operate facilities and to comply with applicable
regulations concerning, among other things, the generation and discharge of
odors and wastewater.
Order 29-B of the Louisiana Department of Natural Resources contains extensive
rules regarding the generation, processing, storage, transportation and disposal
of oilfield waste. Under Order 29-B, on-site disposal of oilfield waste is
limited and subject to stringent guidelines. If these guidelines cannot be met,
oilfield waste must be transported and disposed of off-site in accordance with
the provisions of Order 29-B. Moreover, under Order 29-B, most, if not all,
active waste pits (a typical on-site disposal method used by inland generators
of oilfield waste) must be closed or modified to meet regulatory standards;
however, full enforcement of this portion of Order 29-B has been deferred. A
number of amendments to Order 29-B were adopted effective as of November 20,
2001. Compliance with these amendments is not expected to have a material
adverse effect on our proposed business operations. The Texas Railroad
Commission has also adopted detailed requirements for the management and
disposal of oilfield waste. Permits issued by state regulatory agencies are
required for each oilfield waste treatment facility operating within Louisiana
and Texas. We will have to perform tests before acceptance of any oilfield
waste, as well as during and after treatment to ensure compliance with all
regulatory requirements.
7
In the future, other states in which we may operate, have their own laws and
regulations that may be more strict than comparable federal laws and regulations
governing hazardous and nonhazardous waste disposal, water and air pollution,
releases and cleanup of hazardous substances and liabilities for such matters.
Our future proposed operations are likely to be subject to many, if not all, of
these laws and regulations. In addition, states and localities into which we may
expand, by acquisition or otherwise, may now or in the future have regulations
with positive or negative effects on us.
Factors Influencing Future Results and Accuracy of Forward-Looking Statements
In the normal course of our business, in an effort to help keep our stockholders
and the public informed about our operations, we may from time to time issue or
make certain statements, either in writing or orally, that are or contain
forward-looking statements, as that term is defined in the U.S. federal
securities laws. Generally, these statements relate to business plans or
strategies, projected or anticipated benefits or other consequences of such
plans or strategies, projected or anticipated benefits from acquisitions made by
or to be made by us, or projections involving anticipated revenues, earnings or
other aspects of operating results. The words "may," "will," "expect,"
"anticipate," "believe," "estimate," "continue", "plan" and similar expressions
are intended to identify forward-looking statements. We caution readers that
such statements are not guarantees of future performance or events and are
subject to a number of factors that may tend to influence the accuracy of the
statements and the projections upon which the statements are based, including
but not limited to those discussed below. As noted elsewhere in this report, all
phases of our proposed operations are subject to a number of uncertainties,
risks and other influences, many of which are outside of our control, and any
one of which, or a combination of which, could materially affect the results of
our operations and whether forward-looking statements made by us ultimately
prove to be accurate.
ITEM 2. Description of Property
Royis Ward, President of Ecoloclean Industries, Inc. is providing
executive office space, located in Crystal City, Texas, to our company on a
rent-free basis.
Our wholly owned subsidiary, World Environmental Technologies, Inc.,
owns real property located at 950 Birdsong Rd., LaFayette, Louisiana. This
property supports its operations and those of Reliant Drilling Systems, Inc.
This property consists of 3950 square foot office and shop building and a 5360
square foot open air covered work space.
Ecoloclean of Texas, Inc., another subsidiary, rents office and storage
yard premises located in Beaumont, Texas.
ITEM 3. Legal Proceedings
None.
ITEM 4. Submission of Matters to Vote of Security Holders
During the fourth quarter of 2004, no matters were submitted to a vote
of our security holders.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters
Common Stock:
Our common stock trades Over-the-Counter (OTC) on the Electronic
Bulletin Board under the symbol ECCI. Table 1. sets forth the high and low bid
information for the past two years. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. These data provided by NASDAQ.
8
Table 1.
Bid Information
Fiscal Quarter Ended High Low
December 31, 2004 1.04 0.29
September 30, 2004 1.15 0.28
June 30, 2004 1.30 0.55
March 31, 2004 2.35 1.06
December 31, 2003 1.40 0.40
September 30, 2003 0.50 0.20
June 30, 2003 0.32 0.20
March 31, 2003 0.25 0.20
According to our records, the Company had approximately 50 record
shareholders of our common stock as of December 31, 2004 holding 37,900,664
common shares. This number of shareholders does not include individual
beneficial shareholders whose shares may be held in their brokers' street name.
Dividends and Dividend Policy
There are no restrictions imposed on the Company which limit its
ability to declare or pay dividends on its common stock, except as limited by
state corporation law. During the year ended December 31, 2004, no cash or stock
dividends were declared or paid and none are expected to be paid in the
foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of
December 31, 2004. Information is included for equity compensation plans not
approved by our security holders.
Table 1.
Equity Compensation Plan Information
------------------------ ------------------------ ---------------------- ------------------------
Plan Category Number of Securities to Weighted-average Number of Securities
be issued upon exercise Exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants, and rights equity compensation
plans (excluding
securities reflected in
column (a)
------------------------ ------------------------ ---------------------- ------------------------
(a) (b) (c)
------------------------ ------------------------ ---------------------- ------------------------
Equity Compensation
Plans approved by
security holders None None None
------------------------ ------------------------ ---------------------- ------------------------
Equity Compensation
Plans not approved by 5,000,000 (1) $ 0.55 4,800,000
security holders
------------------------ ------------------------ ---------------------- ------------------------
Total 5,000,000 $ 0.87 4,800,000
------------------------ ------------------------ ---------------------- ------------------------
(1) On July 8, 2004, the Company adopted the 2004 Non-Qualified Stock Grant and
Option Plan. The Plan was registered with the SEC on Form S-8 on July 23, 2004.
The Plan reserved 5,000,000 shares. The Plan is administered by our Board of
9
Directors. Directors, officers, employees, consultants, attorneys, and others
who provide services to our Company are eligible participants. Participants are
eligible to be granted warrants, options, common stock as compensation. We
issued 200,000 shares for legal services under the Plan during 2004.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
Overview and Plan of Operation
Background
During the quarter ended December 31, 2004, Ecoloclean Industries, Inc.
("ECCI"), had gross operating revenues of $350,072, which were generated by its
Louisiana subsidiary, Reliant Drilling Systems, Inc. ("RDS"), and its Texas
subsidiary, Ecoloclean Of Texas, Inc. ("ECOT").
Current Operations
A. Industrial Field Services
ECOT has been engaged in providing industrial maintenance services including
dredging waste-filled ponds and lagoons and cleaning piping, brew kettles and
frac tanks.
Revenues of $132,668 were billed during ECOT's five months of 2004 operations
with a resultant net loss of $285,651. Lower than expected sales level,
continuing competitive market conditions and insufficient margins combined with
the operating loss indicated above ultimately led to management's decision to
close ECOT's operations during March 2005.
Shortly thereafter, the Company executed a Letter of Intent to sell the ECOT
equipment assets and customer contracts and list. The sale was completed April
18, 2005, with an effective date of April 1, 2005. The sale price was $120,000
payable over a one year period. Book value of the assets sold was approximately
$42,000 resulting in a gain on the transaction of $78,000.
B. Drilling Support for Oil Exploration & Production Companies
RDS has specialized in providing drilling support services including solids
controls programs to oil and gas production and exploration companies.
RDS had 2004 revenues of $718,025 and an operating loss of $280,091. These
operating losses along with continued pricing pressures which caused reduced
margins in addition to high overhead costs led to management's decision to also
close RDS's operations during February although a number of equipment rentals
continued in the first quarter.
Shortly after management's decision, the Company began selling certain of its
equipment assets which were utilized by this subsidiary. Most of these assets
were sold by the end of the first quarter 2005. Total proceeds were
approximately $243,000, which resulted in a loss of $49,000 from these sales.
Sales efforts for the remaining equipment to be sold are continuing.
C. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc. ("WET"), a wholly owned subsidiary of
Ecoloclean, Inc., has utilized its Louisiana statewide Water Discharge Permit
and its patented Electro Coagulation ("EC") treatment systems to aggressively
market it services for oil field and industrial liquid waste remediation. These
efforts have resulted in WET acquiring Master Service Agreements from several
Refinery Groups and Petroleum Operators, which it is waiting to implement.
However, at this time there are no pending contracts or orders.
10
D. Agricultural Clean Up
Ecoloclean, Inc. ("ECI"), a wholly owned subsidiary of the Company, continues to
devote efforts to the Dairy Industries as it pertains to the animal waste
created by cows, swine and chickens. Recently, during the first quarter of 2005,
ECI formed an alliance with another company in this field. By combining our EC
Units technology with that of our new partner, we were successfully able to
demonstrate a ninety-nine percent plus (99% +) phosphate removal from dairy
waste.
During the second quarter of 2005, we will be performing another demonstration
for approximately two hundred (200) dairy farmers, representatives from Texas
A&M University, American Dairy Association, Texas Farm Bureau, the EPA and other
interested parties.
Based on the test results from the initial demonstration, we expect to be able
to offer the dairy industry along with swine and chicken producers a much needed
solution to their waste disposal problems.
E. New Development
ECCI has obtained the Worldwide Exclusive Rights for the patented Coale
Separator through an agreement with Coale's Environmental Systems, Inc.
("Coale"). As previously announced on June 2, 2004, ECCI entered into a General
Revenue Sharing Agreement with Coale. The new license agreement and
international marketing rights will allow ECCI the opportunity to market,
manufacture, install and commercialize the inventions and to operate and use
such process apparatus, machinery and devices to remove contaminants from fuels
used in combustion engines using fewer than five (5) gallons of fuel per minute.
The exclusive rights are inclusive of two patents currently in place and any
future related patents, improved or applications. This acquisition will be
developed and marketed under ECCI's WET subsidiary.
The Coale Separator (a.k.a. "Diesel Pure Unit") decreases and substantially
eliminates contaminants in diesel fuel. It is designed to operate as a mobile
fuel-scrubbing unit that reduces abrasive sediments and corrosive degradation by
removing contaminants such as water, oxidation, dirt, sand and sludge. The Coale
Separator effectively separates these liquid and solid particles from diesel
fuel, thereby allowing only purified fuel to reach combustions engines. This
device is easily installed without any modifications to the existing engine.
This process increases horsepower and engine efficiency by burning a cleaner
fuel. The Coale Separator is effective for use with diesel fuel, gasoline,
kerosene, hydraulic oil transmission fluid and JP8 jet fuel. In addition, it
extends filter life resulting in measurable cost savings. Other benefits include
a reduction of fuel system problems, broken injector tips, excessive engine wear
and power losses, thereby improving overall engine performance. The Company
anticipates the potential customer base will include owner/operators of
combustion engines, including, but not limited to, offshore/onshore drilling
rigs, tugboats and transportation departments of government agencies.
During the first quarter, production, marketing and sales efforts were initiated
for our Diesel Pure Unit. In addition, a website has been established explaining
the capabilities of the Diesel Pure Unit.
We have place several units with potential end-users for testing periods varying
between one week and one month. Initial reports have been favorable. We expect
to be in contact with potential distributors in addition to end-users during the
second quarter of 2005.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $750,000, taking
into consideration management's decision not to offer solids-control and
industrial field services after mid-February and mid-March 2005, respectively.
Until the Company obtains the amount of working capital required to meet its
operating overhead, it will be necessary to continue to call upon the investment
community and/or the Company's officers and directors for financial assistance.
During the fourth quarter, the Company's officers provided $155,251 in loans to
the Company. All of the funds advanced during the fourth quarter were utilized
to offset operating overhead expenses. The officers have not indicated a
willingness to continue providing funds during 2005 in amounts, commensurate to
the $1,166,439 advanced during 2004. Efforts are ongoing to obtain funding from
sources outside of the Company. At this time, the Company has not received any
financing commitments although certain initiatives are ongoing.
11
Going Concern
The Independent auditors' report contains language indicating that the financial
statements have been prepared on a going concern basis, which contemplates
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company has continuously incurred losses from operations and has a
significant accumulated deficit. The appropriateness of using the going concern
basis is dependent upon the Company's ability to obtain additional financing or
equity capital and, ultimately, to achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
It is the Company's belief that it will continue to incur losses for at least
the next six months, and as a result will require additional funds from debt or
equity investments to meet such needs. Without realization of additional
capital, it would be unlikely for the Company to continue as going concern. The
Company anticipates that its officers will contribute a portion of the funds
needed to satisfy the cash needs of the Company for the next six months.
However, there can be no assurances to that effect, as the Company has limited
revenues and the Company's need for capital may change dramatically if it is
successful in acquiring a new business. If the Company cannot obtain needed
funds, it may be forced to curtail or cease its activities. To meet these
objectives, management's plans are to (i) raise capital by obtaining financing
through private placement efforts; (ii) issue common stock for services rendered
in lieu of cash payments and (iii) obtain loans from officers to the extent
possible.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
Conclusion
Although the Company expended substantial financial resources to establish all
three of its field service operations, the expected results were not achieved.
Accordingly, as indicated above, two of our field service operations were
discontinued during the first quarter of 2005 and their assets have been, or are
being, liquidated.
The Company is concentrating its efforts on the marketing and sales of its Coale
Separator and liquid waste remediation services along with the development of
its Agricultural Clean-Up Program. In addition, the Company is investigating new
opportunities related to its area of interest.
As stated herein, all future activities of the Company will be dependent on its
ability to obtain additional funding in the near future.
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $921,810 for the year ended December
31, 2004 as compared with $329,845 revenues for the year ended December 31,
2003. The increased revenue was due to increased revenues from our solids
control subsidiary and our recently activated environmental clean-up subsidiary.
TOTAL COSTS AND EXPENSES: Total costs and expenses increased from $1,124,268 for
the year ended December 31, 2003 to $3,660,892 for the year ended December 31,
2004.
OPERATING EXPENSES: Operating expenses increased from $169,917 for the year
ended December 31, 2003 to $529,870 for the year ended December 31, 2004. The
increase of $378,072 was primarily due to continuation of ramping up our
infra-structure/ support activities in anticipation of increased business
activities.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses increased from $606,610 for the year ended December 31, 2003 to
$2,150,043 for the year ended December 31, 2004. The increase of $1,543,433 was
12
primarily due to increased sales expense including demo and testing costs
incurred in our efforts to obtain long-term contacts, increased consulting fees,
increased legal fees and additional management and administrative salaries as we
seek to expand our customer base. $901,713 of the increase was due to issuances
of common stock for consulting fees - ($443,625), legal fees - ($363,500),
investor public relations - ($44,000), financing costs - ($15,000) and employee
stock bonuses - ($35,588).
NET LOSS FROM OPERATIONS: The pretax loss increased from $(794,423) for the year
ended December 31, 2003 to $(2,739,082) for the year ended December 31, 2004, an
increased loss of $(1,944,659), an increase of 344.8%. Diluted net loss per
common share increased 266.7% to $(0.08). The net loss per share calculation for
the year ended December 31, 2004 included an increase in actual and equivalent
shares outstanding.
The non-cash component of the increased loss was $901,713 as noted in the above
discussion of selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures during the year ended
December 31, 2004 totaled $571,834 as compared with $331,006 for the year ended
December 31, 2003.
The increase of $240,828 consists of capital asset purchases of $480,785 for
equipment needed by our solids control and enviro clean-up affiliates, $70,840
for E/C Units and related equipment construction, and $20,209 for office
furniture, office equipment, computers and building improvements which total
$571,834 less the increase of $331,006 for the year ended December 31, 2003.
Total debt increased from $1,291,606 at December 31, 2003 to $3,267,650 at
December 31, 2004. Total debt as of December 31, 2004 and December 31, 2003
expressed as a percentage of total debt and shareholder equity is 268.3% and
223.0% respectively. $1,166,439 of the $1,976,044 increase was due to loans from
the officers of the Company.
FORWARD LOOKING STATEMENTS
Under Rule 175, we caution readers regarding forward looking statements found in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by or on our behalf.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, are not subject to material
foreign currency exchange risk. Although the Company has outstanding debt and
related interest expense, market risk of interest rate exposure in the United
States is currently not material.
ITEM 7. Financial Statements
Index to Financial Statements
Independent Accountant's Report..........................................
Financial Statements
Balance Sheets....................................................
Statements of Operations..........................................
Statements of Stockholder's Equity................................
Statements of Cash Flows..........................................
Notes to Financial Statements.....................................
13
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
ITEM 8A. Controls and Procedures.
We maintain disclosure controls and procedures designed to ensure that
material information related to our company is recorded, processed, summarized
and reported within the time periods specified in the SEC rules and forms.
(a) Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an
evaluation under the supervision and with the participation of management,
including our Principal Executive Officer and Principal Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based upon that evaluation, our Principal Executive
Officer and Principal Financial Officer concluded, as of the date of such
evaluation, that the design and operation of such disclosure controls and
procedures were effective.
(b) Changes in Internal Control.
Subsequent to the date of such evaluation as described in
subparagraph(a)above, there were no changes in our internal controls or other
factors that could significantly affect these controls, including any corrective
action with regard to significant deficiencies and material weaknesses.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal
Financial Officer, does not expect that our disclosure controls or internal
controls over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and any design may not
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
ITEM 8B. Other Information.
None.
PART III
14
ITEM 9. Directors, Executive Officers, Promoters, and Control Persons:
Compliance With Section 16(a) of the Exchange Act
The following table lists the names, ages, and positions of the
executive officers and directors of the Company that served during the year
ending December 31, 2004. All officers and directors have been appointed to
serve until their successors are elected and qualified. Additional information
regarding the business experience, length of time served in each capacity, and
other matters relevant to each individual is set forth following the table.
The officers and directors of the Ecoloclean Industries, Inc., Ecoloclean, Inc.
and Ecoloclean of Texas, Inc. are as follows:
Name Age Position
Royis Ward 71 President, CEO, Director
Michael Ward 49 Secretary/Treasurer, Director
Royis Ward has been the President and Director of Ecoloclean since
January 2003. During 2003, until his resignation on October 1, 2003, he served
as Secretary/Treasurer and a Director of Tidelands Oil & Gas Corporation, a
publicly held company. Mr. Ward had served in the Tideland's offices since
October 21, 1998. He has been engaged in the oil and gas industry since
graduation from Tyler Junior College, Tyler, Texas in 1952. Initially, he was
employed as a production superintendent and landman for Coffield & Guthrie,
Inc., a large independent oil and gas operator and thereafter placed in charge
of pipeline and drilling operations from 1952-1955. In 1955, he began to develop
oil and gas properties for his own account as an independent oil and gas
operator throughout the southwest until 1962. At that time, he became President
of Omega Petroleum Corporation, Shreveport, Louisiana. Thereafter, he continued
as an independent oil and gas operator drilling individual in excess of 50 wells
in the South Texas Area. In 1968, he became the President and CEO of Omega
Minerals, Inc. and was instrumental in acquiring vast oil and gas properties by
drilling, development, and re-acquisitions. In 1985, Tidelands Oil Corporation,
a Texas Corporation, was formed for the purpose of drilling and developing oil
and gas properties in South Texas.
Michael Ward has bee the Secretary/Treasurer and a Director of
Ecoloclean since January 2003. He is also the President, Chief Executive Officer
and Director of the Tidelands Oil & Gas Corporation. Michael Ward has served in
the Tideland's offices since October 21, 1998. Mr. Ward has more than 25 years
of diversified experience as an oil and gas professional. He was educated in
business management and administration at Southwest Texas State University and
the University of Texas. He has wide experience in the capacity in which he
successfully served in operating oil and gas companies in the United States.
During the past 20 years, he has been associated with Century Energy Corporation
where his duties and responsibilities were production and drilling
superintendent and supervised 300 re-completions and new drills in Duval County,
Texas. In association with Omega Minerals, Inc., where he was vice president and
part owner, he operated 65 wells in 23 counties in South and West Texas: 17
wells in Seminole and Osage Counties, Oklahoma, 44 wells in Neosho and Wilson
Counties, Kansas and 125 wells in Brown, Pike, Schuyler and Scott Counties.
Illinois. He was president and owner of Major Petroleum Company. He drilled,
completed and produced 42 wells in South and West Texas counties. The company
was sold. With Tidelands Oil Corporation, his duties included supervising and
performing remedial well work, work-overs and economic evaluation of the
corporate properties. The primary area of interest was in Maverick County,
Texas. He has performed project financing analysis and consulting of refinery
acquisitions for the Yemen government.
The officers and directors of the World Environmental Technologies, Inc. and
Reliant Drilling are as follows:
Name Age Position
Michael Richardson 63 President, CEO, Director
Michael Richardson founded World Environmental Technologies, Inc. ("WET") in
2001. He founded the company to capitalize on business opportunities created by
increased environmental governmental regulation in the State of Louisiana. He
sought out new technologies which could address environmental remediation of
contaminated industrial liquids. Prior to founding WET he was an independent
consultant and project manager providing environmental consulting services a
variety of corporations.
15
Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who own more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock of the Company. Officers, directors and greater than 10%
shareholders are required by the Securities and Exchange Commission to furnish
the Company with copies of all section 16(a) reports they file. Based solely on
copies of such forms furnished as provided above, or written representations
that no Forms 5 were required, the Company believes that during the fiscal year
ended December 31, 2004, all Section 16(a) filing requirements applicable to its
executive officers, directors and beneficial owners of more than 10%of its
Common Stock were complied with, except as follows: During 2004, Royis Ward,
Michael Ward and Michael Richardson each failed to file one Form 5 each, Annual
Statement of Beneficial Ownership. During 2004, Michael Richardson failed to
file two Forms 4, Statement of Change in Beneficial Ownership regarding two
private transfers of his common stock, 1,000,000 shares on January 14, 2004, and
200,000 shares on January 4, 2004. Additionally, he filed five Forms 4 late.
CODE OF ETHICAL CONDUCT.
On May 15, 2003, our board of directors adopted our code of ethical conduct that
applies to all of our employees and directors, including our principal executive
officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions.
We believe the adoption of our Code of Ethical Conduct is consistent with the
requirements of the Sarbanes-Oxley Act of 2002.
Our Code of Ethical Conduct is designed to deter wrongdoing and to promote:
Honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
Full, fair, accurate, timely and understandable disclosure in reports
and documents that we file or submit to the Securities & Exchange
omission and in other public communications made by us;
Compliance with applicable governmental laws, rules and regulations,
The prompt internal reporting to an appropriate person or persons
identified in the code of violations of our Code of Ethical Conduct;
and
Accountability for adherence to the Code.
ITEM 10. Executive Compensation
The following sets forth the compensation of the officers of the Company in the
year ended December 31, 2004.
Summary Compensation.
The following table sets forth the compensation paid by the Company during
fiscal year 2004 to its officers. This information includes the dollar value of
base salaries, bonus awards and number of stock options granted, and certain
other compensation, if any.
Table 1.
Securities
Underlying
Name and Position Year Salary Bonus Options/SARs
Royis Ward 2004 $120,000(1) -0- -0-
Director, President
Michael Ward 2004 -0- -0- -0-
Sec/Treas., Director
Notes:
(1) As of December 31, 2004, the cumulative amount of unpaid officer salary was
$280,000 and is included in accounts payable and accrued expenses of our
financial statements.
16
Compensation of Directors
-------------------------
The members of the Board of Directors are not compensated by the Company for
acting as such.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the Common Stock ownership information as of
December 31, 2004, with respect to(i) each person known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock; (ii) each
director of the Company; and (iii) all directors, executive officers and
designated stockholders of the Company as a group. This information as to
beneficial ownership was furnished to the Company by or on behalf of the persons
named. Unless otherwise indicated, each has sole voting and investment power
with respect to the shares beneficially owned. The percentages are based on
37,900,664 shares issued and outstanding as of December 31, 2004.
(a) Beneficial Ownership of more than 5% based on 37,900,664 common shares.
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class
Common Stock
Royis Ward(1)(2) 1862 Bitters Rd. 6,000,000 15.83%
San Antonio, TX
Michael Ward(1)(2) 5902 Fenway St. 6,000,000 15.83%
Corpus Christi, TX
Michael Richardson(2) 950 Birdsong St. 2,685,500 7.08%
Lafayette, LA
Gregory M. Wilson 18610 East 32nd Ave. 3,200,000 8.44%
Greenacres, WA 99016
Total 17,617,700 46.48%
(b)Security Ownership of Management. Based on 37,900,664 shares as of December
31, 2004.
Table 2.
Title of Class Name and Address Amount and Nature Percent of Class
Michael Ward(1) 1862 W. Bitters Rd. 6,000,000 15.83%
San Antonio, TX
Royis Ward(1) 5902 Fenway St. 6,000,000 15.83%
Corpus Christi, TX
78413
Michael Richardson(2) 950 Birdsong St. 2,685,500 7.08%
Lafayette, LA
Total 14,685,500 %
Directors as a group owned 31.66% of the Company's issued and outstanding stock.
Notes:
------
(1) Directors and Officers
(2) Mike Richardson is an officer and director of World Environmental
Technologies, Inc.
17
ITEM 12. Certain Relationships and Related Transactions
As of December 31, 2004, Royis Ward and Michael Ward have loaned $1,718,609 and
$233,199 respectively, to the Company. These amounts represent cumulative
advances and the debt bears interest at the rate of 5% per annum. The debt is
due on, or before July 10, 2006.
ITEM 13. Exhibits
*3.1 Articles of Incorporation of Sailtech International, Inc., a
Nevada corporation, formerly Argonaut Resources, Ltd
*3.2 Articles of Amendment Sailtech International, Inc., formerly
Argonaut Resources, Ltd.
*3.3 Articles of Amendment of Sailtech International, Inc. changing
name to Ecoloclean Industries, Inc. filed Form 8-K on 12-18-03.
*3.4 Bylaws of Sailtech International, Inc.
21 List of Subsidiaries
31.1 Chief Executive Officer-Section 302 Certification pursuant to
Sarbanes- Oxley Act.
31.2 Chief Financial Officer- Section 302 Certification pursuant to
Sarbanes- Oxley Act.
32.1 Chief Executive Officer-Section 906 Certification pursuant to
Sarbanes- Oxley Act.
32.2 Chief Financial Officer- Section 906 Certification pursuant to
Sarbanes- Oxley Act.
* Previously filed.
ITEM 14. Principal Accountant Fees and Services.
The Company paid or accrued the following fees in each of the prior two
fiscal years to its principal accountant, Baum & Co., P.A. of Coral Springs,
Florida.
Year End Year End
12-31-04 12-31-03
(1) Audit Fees $39,530 $31,970
(2) Audit-related Fees -0- -0-
(3) Tax Fees -0- -0-
(4) All other fees -0- -0-
Total Fees $39,530 $31,970
The Company has no formal audit committee. However, as defined in Sarbanes-Oxley
Act of 2002, the entire Board of Directors is the Company's defacto audit
committee.
The Company's principal accountant, Baum & Co., P.A. did not engage any other
persons or firms other than the principal accountant's full-time, permanent
employees.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) to the Securities Exchange
Act of 1934, the Company has duly caused this Form 10-KSB Report for the period
ending December 31, 2004 to be signed on its behalf by the undersigned,
thereunto duly authorized on this 20th day of April, 2005.
ECOLOCLEAN INDUSTRIES, INC.
BY: /s/ Royis Ward
----------------------------------
Royis Ward, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: April 20, 2005 /s/ Royis Ward
----------------------------------
Royis Ward, President, Director
/s/ Michael Ward
----------------------------------
Michael Ward, Secretary/Treasurer,
Director
19
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004 AND 2003
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT......................................... F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets...................................... F-4
Statements of Consolidated Stockholders' (Deficit).............. F-5
Statements of Consolidated Operations ........................... F-6
Statements of Consolidated Cash Flows............................ F-7 - F-8
Notes to Consolidated Financial Statements ...................... F-9 - F-18
F-2
BAUM & COMPANY, P.A.
1515 UNIVERSITY DRIVE, SUITE 209
CORAL SPRINGS, FLORIDA 33071
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Ecoloclean Industries, Inc.
2242 S. Highway 83
Crystal City, TX 78839
We have audited the accompanying consolidated balance sheets of Ecoloclean
Industries, Inc. as of December 31, 2004 and 2003 and the related consolidated
statements of stockholders' (deficit), operations, and cash flows for the years
ended December 31, 2004 and 2003. 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 audit.
Except as discussed in the following paragraph, we conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). 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 audit
provides a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ecoloclean Industries, Inc. as of December 31, 2004 and 2003 and the results of
their consolidated operations and their consolidated cash flows for the years
ended December 31, 2004 and 2003 in conformity with accounting principles
generally accepted in the United States of America.
Baum & Company, P.A.
Coral Springs, Florida
April 14, 2005
F-3
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2004 2003
------------ ------------
Current Assets:
Cash $ 5,929 $ 2,532
Accounts Receivable 153,987 77,037
Prepaid Expenses 72,294 19,616
------------ ------------
Total Current Assets 232,210 99,185
------------ ------------
Property, Plant and Equipment, (Net) (Notes 1,3) 858,692 425,718
------------ ------------
Other Assets:
Deposits 12,970 200
License and Trademark Costs (Net) (Notes 1,2) 80,434 20,528
Intangible Assets 33,585 33,585
------------ ------------
Total Other Assets 126,989 54,313
------------ ------------
Total Assets $ 1,217,891 $ 579,216
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts Payable and Accrued Expenses $ 1,055,720 $ 488,823
Notes and Loans Payable - Current Portion 260,461 27,414
------------ ------------
Total Current Liabilities 1,316,181 516,237
Long-Term Debt (Note 4) 9,661 --
Due to Related Parties (Note 5) 1,941,808 775,369
------------ ------------
Total Liabilities 3,267,650 1,291,606
------------ ------------
Commitments and Contingencies -- --
Stockholders' (Deficit)
Preferred Stock, $0.001 par value per share,
10,000,000 shares, authorized 0 shares
issued and outstanding -- --
Common Stock, $0.0001 par value per share,
100,000,000 shares authorized, 37,900,664
and 32,500,664 shares issued and outstanding
at 2004 and 2003 respectively 3,790 3,250
Additional Paid-in Capital 1,591,731 190,558
Accumulated (Deficit) (3,645,280) (906,198)
------------ ------------
Total Stockholders' (Deficit) (2,049,759) (712,390)
------------ ------------
Total Liabilities and Stockholders' (Deficit) $ 1,217,891 $ 579,216
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-4
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Common
Stock Additional Stock Total
Shares Paid-In Subscription Accumulated Stockholders'
Issued Amount Capital Receivable (Deficit) (Deficit)
------------- ------------- ------------- ------------- ------------- -------------
Balance -
December 31, 2002 500,000 $ 500 $ 49,500 $ (10,000) $ (111,775) $ (71,775)
Reverse Merger
Transaction:
Shares Outstanding 10,092,435 10,092 -- -- -- 10,092
Exchange
Existing Shares (500,000) (500) (49,500) -- -- (50,000)
New Issuances 20,000,000 20,000 -- -- -- 20,000
Net Deficit at Time
of Reverse Merger -- -- (103,558) -- -- (103,558)
Collection of Stock
Subscription -- -- -- 10,000 -- 10,000
Stock Issuances:
Sale of Common Stock 357,140 357 24,643 -- -- 25,000
For Payment of
Accounts Payable 326,089 327 81,947 -- -- 82,274
For Services And
Compensation 1,725,000 1,725 152,275 -- -- 154,000
Shareholder Assumption
Of Liability -- -- 6,000 -- -- 6,000
Recapitalization of Par
Value -- (29,251) 29,251 -- -- --
Net (Loss) For
The Period -- -- -- -- (794,423) (794,423)
------------- ------------- ------------- ------------- ------------- -------------
Balance
December 31, 2003 32,500,664 $ 3,250 $ 190,558 $ 0 $ (906,198) $ (712,390)
Stock Issuances
Sale of Common Stock 1,000,000 100 499,900 -- -- 500,000
For Services and
Compensation 4,400,000 440 901,273 -- -- 901,713
Net Loss For The Period -- -- -- -- (2,739,082) (2,739,082)
------------- ------------- ------------- ------------- ------------- -------------
Balance
December 31, 2004 37,900,664 $ 3,790 $ 1,591,731 $ 0 $ (3,645,280) $ (2,049,759)
============= ============= ============= ============= ============= =============
See Accompanying Notes to Consolidated Financial Statements
F-5
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
For Year Ended For Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Revenues $ 921,810 $ 329,845
----------------- -----------------
Expenses:
Cost of Sales 617,112 169,917
Operating Expenses 529,870 151,798
Depreciation & Amortization 144,549 41,692
Interest 99,318 34,251
Officer's Salary 120,000 120,000
Selling, General and Administrative 2,150,043 606,610
----------------- -----------------
Total Expenses 3,660,892 1,124,268
----------------- -----------------
Net (Loss) $ (2,739,082) $ (794,423)
================= =================
Net (Loss) Per Common Share
Basic and Diluted $ (0.08) $ (0.03)
================= =================
Weighted Average Number of Common
Shares Outstanding 35,200,664 31,296,350
================= =================
See Accompanying Notes to Consolidated Financial Statements
F-6
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
For Year Ended For Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss) $ (2,739,082) $ (794,423)
Adjustments to Reconcile Net (Loss)
to Net Cash Provided (Required) By
Operating Activities:
Depreciation and Amortization 144,549 41,692
Issuance of Common Stock
For Services Provided 901,713 154,000
Officer's Salary Accrual 120,000 120,000
Cash Effects of Changes, Net of Effects
From Acquired Company:
Accounts Receivable (76,950) (48,367)
Prepaid Expenses (52,678) (4,843)
Deposits (12,770) (200)
Accounts Payable and Accrued Expenses 446,897 238,634
Customer Deposits 0 (65,000)
----------------- -----------------
Net Cash (Required) by Operating Activities (1,268,321) (358,507)
----------------- -----------------
Cash Flows (Required) By
Investing Activities:
Acquisition of Licenses and Trademark Costs (65,505) 0
Purchases of Property, Plant and
Equipment Net of Effects From
Acquired Company --
Purchases of Property, Plant and Equipment (571,924) (331,006)
----------------- -----------------
Net Cash (Required) By Investing Activities (637,429) (331,006)
----------------- -----------------
Cash Flows Provided (Required) By
Financing Activities:
Proceeds From Collection of
Stockholder Subscriptions 0 10,000
Note Payable Paid by Stockholder 0 6,000
Proceeds From Issuance of Common Stock 500,000 25,000
Proceeds (Payments) of Notes and Loans Payable 242,708 (6,433)
Repayment of Loans From Related Parties 0 (30,891)
Proceeds of Loans From Related Parties 1,166,439 687,665
----------------- -----------------
Net Cash Provided by Financing Activities 1,909,147 691,341
----------------- -----------------
Net Increase in Cash 3,397 1,828
Cash at Beginning of Period 2,532 704
----------------- -----------------
Cash at End of Period $ 5,929 $ 2,532
================= =================
See Accompanying Notes to Consolidated Financial Statements
F-7
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(CONTINUED)
For Year Ended For Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Supplemental Disclosures of Cash
Flow Information
Cash Payments for Interest $ 18,826 $ 9,459
================= =================
Cash Payments for Income Taxes $ 0 $ 0
================= =================
Non-Cash Financing Activities:
Issuance of Common Stock:
Operating Activities $ 901,713 $ 154,000
Payment of Accounts Payable 0 82,274
----------------- -----------------
Total Non-Cash Financing Activities $ 901,713 $ 236,274
================= =================
See Accompanying Notes to Consolidated Financial Statements
F-8
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------ ------------------------------------------
This summary of significant accounting policies is presented to assist
in understanding these consolidated financial statements. The
consolidated financial statements and notes are representations of
management who are responsible for their integrity and objectivity. The
accounting policies used conform to accounting principles generally
accepted in the United States of America and have been consistently
applied in the preparation of these consolidated financial statements.
Organization
------------
On June 11, 2002, Ecoloclean, Inc., the Company, incorporated in the
state of Texas. On September 1, 2002 the Company acquired all of the
outstanding shares of World Environmental Technologies, Inc. (WET). On
January 14, 2003 the Company completed a reverse acquisition with
Sailtech International, Inc. and the Company changed its name to
Ecoloclean Industries, Inc. In addition to owning all of the
outstanding shares of WET, the company also owns all of the outstanding
shares of Reliant Drilling Systems, Inc. and Ecoloclean of Texas, Inc.
(See Note 9 - Subsequent Events).
Business
--------
The Company and its subsidiaries operate under a worldwide, industry
exclusive and perpetual license to manufacture machines, pursuant to a
patent, for the treatment of contaminated water through a process known
as electrocoagulation. The industry exclusivity applies to the
petroleum exploration, petroleum, chemical, transportation and refining
industries.
The Company also provides environmental clean-up services to industrial
customers and solids handling services to oil and gas drilling
contractors.
In addition, the Company expects to offer various models of the "Coale
Separator", described in Note 2 below, beginning in the first quarter
of 2005.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material
inter-company items and transactions have been eliminated.
F-9
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
107 "Disclosures About Fair Value of Financial Instruments", which
requires the disclosures of the fair value of off-and-on balance sheet
financial instruments. Unless otherwise indicated, the fair values of
all reported assets and liabilities, which represent financial
instruments (none of which are held for trading purposes), approximate
the carrying values of such amounts.
Use of Estimates
----------------
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of
America requires management to use estimates and make judgments. While
management has considered all available information, actual amounts
could differ from those reported as assets, liabilities, related
revenues, costs and expenses and the disclosed amounts of
contingencies.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are recorded at historical cost.
Depreciation of property, plant and equipment is provided on the
straight-line method over the estimated useful lives of the related
assets. Maintenance and repairs are charged to operations. Additions
and betterments, which extend the useful lives of the assets are
capitalized. Upon retirement or disposal of the property, plant and
equipment, the cost and accumulated depreciation are eliminated from
the accounts, and the resulting gain or loss is reflected in
operations.
Goodwill and Purchased Intangible Assets
----------------------------------------
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142") requires goodwill to be tested for
impairment, on an annual basis and between annual tests in certain
circumstances, and written down when impaired, rather than being
amortized as previous accounting standards required. Furthermore, SFAS
142 requires purchased intangible assets other than goodwill to be
amortized over their useful lives unless these lives are determined to
be indefinite.
F-10
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Goodwill and Purchased Intangible Assets (Continued)
----------------------------------------------------
Based upon the impairment tests performed, there was no impairment of
goodwill for the year ended December 31, 2004. There can be no
assurance that future goodwill impairment tests will not result in a
charge to earnings.
Purchased intangible asset (The "License Agreement") is carried at cost
less accumulated amortization. Amortization is computed over the
estimated economic useful life of the underlying patent of five years.
Long-Lived Assets
-----------------
Statement of Financial Accounting Standards 144 (SFAS 144) "Accounting
for the Impairment or Disposal of Long-Lived Assets" requires that
long-lived assets to be held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that
the related carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used are recognized based on
the fair value of the asset, and long-lived assets to be disposed of
are reported at the lower of carrying amount or fair value less cost to
sell.
The requirements of SFAS 144 and the evaluation by the Company did not
have a significant effect on the consolidated financial position or
results of consolidated operations.
Revenue Recognition
-------------------
The Company recognizes revenue on service contracts ratably over
applicable contract periods or as services are performed. Amounts
billed and collected before the services are performed are included in
deferred revenues. Amounts collected but not billed, before the
services are performed, are included in customer deposits.
F-11
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Going Concern
-------------
The accompanying audited consolidated financial statements have been
prepared on a going concern basis, which anticipates the realization of
assets and the liquidation of liabilities during the normal course of
operations. However, as shown in these consolidated financial
statements, the Company during the year ended December 31, 2004,
incurred a net loss of $2,739,082, and as of that date, the Company's
total liabilities exceeded its total assets by $2,049,759. In addition,
the Company in its short history (incorporated in 2002) has an
accumulated deficit of $3,645,280. These factors raise doubt about the
Company's ability to continue as a going concern if changes in
operations are not forthcoming. Management, in the first quarter of
2005 (see Note 9 - Subsequent Events), has taken a position that by
discontinuing operations in certain of its wholly-owned subsidiaries,
and concentrating its efforts on more productive resources, the Company
will achieve more favorable operating results. The Company's ability to
continue as a going concern will depend on management's ability to
successfully implement a business plan which will increase revenues,
control costs, and obtain additional forms of debt and/or equity
financing. These financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards 109 ("SFAS 109"), "Accounting for Income
Taxes," which requires the establishment of a deferred tax asset or
liability for the recognition of future deductions or taxable amounts
and operating loss carryforwards. Deferred tax expense or benefit is
recognized as a result of the change in the deferred asset or liability
during the year. If necessary, the Company will establish a valuation
allowance to reduce any deferred tax asset to an amount which will,
more likely than not, be realized.
F-12
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Net (Loss) Per Common Share
---------------------------
The Company accounts for earnings (losses) per share in accordance with
Statement of Financial Accounting Standard 128 ("SFAS 128") "Earnings
per Share". Basic earnings (losses) per share is based upon the net
earnings (losses) applicable to common shares after preferred dividend
requirements and upon the weighted average number of common shares
outstanding during the period. Diluted earnings (losses) per share
reflects the effect of the assumed conversions of convertible
securities and exercise of stock options only in the periods in which
such affect would have been dilutive. Basic and diluted net loss per
common share are the same since (a) the Company has reflected net
losses from continuing operations for all periods presented and (b) the
potential common shares of the Company would be anti-dilutive.
Concentrations
--------------
The Company receives certain of its components from sole suppliers.
Additionally, the Company relies on a limited number of contract
manufacturers and suppliers to provide manufacturing services for its
products. The inability of any contract manufacturer or supplier to
fulfill supply requirements of the Company could materially impact
future operating results.
NOTE 2 - LICENSE AND TRADE MARK COSTS
------ -----------------------------
The Company acquired an industry exclusive, perpetual worldwide license
to commercialize the inventions on patents and market, manufacture,
sell, lease and, or utilize, for processing electrocoagulation units
for the treatment of effluent water. Royalties are $3,000 per unit
manufactured and 2% of gross processing revenues. License costs are
being amortized over 5 years.
During 2005, the Company obtained the worldwide exclusive rights for
the patented Coale Separator which supercedes a previously announced
general revenue sharing agreement with the licensors.
F-13
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 2 - LICENSE AND TRADE MARK COSTS (CONTINUED)
------ ----------------------------------------
The new license agreement and international marketing rights will allow
Ecoloclean the opportunity to market, manufacture, install and
commercialize the inventions and to operate and use such process
apparatus, machinery and devices to remove contaminants from fuels used
in combustion engines, using fewer than five (5) gallons of fuel per
minute. The exclusive rights granted under this superceding agreement
will apply to industries that use combustion engines and are inclusive
of two patents currently in place and any future related patents,
improvements or applications. This acquisition will be developed and
marketed under Ecoloclean's World Environmental Technologies, Inc.
subsidiary.
The license agreement and a related consulting agreement require a
$50,000 one-time license fee and the issuance of 50,000 shares of
restricted common stock of Ecoloclean Industries, Inc. which was valued
at $12,000 and issued in 2005 after approval in 2004.
The Company incurred trademark application costs of $3,505 regarding
various product names for the Coale Separator.
A summary of license and trademark costs at December 31, 2004 and 2003
is as follows:
December 31, December 31,
2004 2003
------------ ------------
License Costs Electro Coagulation
Technology (Net) $ 14,929 $ 20,528
License Costs - Coale Separator 62,000 0
Trademark Costs - Coale 3,505 0
------------ ------------
$ 80,434 $ 20,528
============ ============
F-14
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
------ -----------------------------
A summary of property, plant and equipment at December 31, 2004 and
December 31, 2003 is as follows:
December 31, December 31, Estimted
2004 2003 Economic Life
------------ ------------ -------------
Land $ 80,000 $ 80,000 N/A
Warehouse 34,120 29,726 40 Years
Electro Coagulation Units 239,237 184,358 5 Years
Machinery & Equipment 619,630 137,996 5 Years
Office Equipment 8,789 2,911 5 Years
Computers & Related Equipment 15,640 7,236 5 Years
Transportation Equipment 42,448 25,713 5 Years
------------ ------------
Total 1,039,864 467,940
Less Accumulated Depreciation 181,172 42,222
------------ ------------
Net Property, Plant & Equipment $ 858,692 $ 425,718
============ ============
Depreciation expense for the years ended December 31, 2004 and December
31, 2003 amounted to $138,950 and $36,093 respectively.
NOTE 4 - LONG-TERM DEBT
------ --------------
A summary of notes and loans payable at December 31, 2004 and 2003 are
as follows:
December 31, December 31,
2004 2003
------------ ------------
Note Payable, unsecured, 10% Interest Bearing,
Maturing April 6, 2005 (Note extended to $ 150,000 $ 0
October 6, 2005)
Loan Payable, Unsecured, Non Interest Bearing
Payable on Demand 15,108 0
Notes Payable, Secured Interest Bearing Factoring
Line of Credit (See Note Below) 89,252 27,414
Note Payable, Secured by a Truck, 14% Interest
Bearing, Maturing July 22, 2007 15,762 0
------------ ------------
270,122 27,414
Less Current Maturities 260,461 27,414
------------ ------------
Total Long-Term Debt $ 9,661 $ 0
============ ============
F-15
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 4 - LONG-TERM DEBT (CONTINUED)
------ --------------------------
Note: The Company has entered into an agreement to factor certain
accounts receivable. Under this agreement, the Company may receive up
to seventy percent of the account balance at an interest rate of 2% the
first month and 1% per month on the outstanding factored invoice
thereafter until payment is received.
NOTE 5 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. At
December 31, 2004 the cumulative amount of unpaid officer's salary was
$280,000 and is included in accounts payable and accrued expenses.
At December 31, 2004 cumulative advances bearing interest at 5% per
annum Due to officers of the Company amounted to $1,941,808 plus
$97,130 accrued interest. The accrued interest is included in accounts
payable and accrued expenses. The advances are due July 10, 2006 with
the right of prepayment.
NOTE 6 - INCOME TAXES
The Company files a consolidated federal income tax return. At December
31, 2004, the Company had a net operating loss carryforward of
approximately $3,345,187 available to offset future federal taxable
income through 2024. The components of the deferred tax assets and
liabilities accounts at December 31, 2004 are as follows:
Total Deferred Tax Assets $ 1,137,364
Less: Valuation Allowance 1,137,364
--------------
Deferred Tax Asset (Liability) $ 0
==============
NOTE 7 - COMMON STOCK TRANSACTIONS
------ -------------------------
On January 2, 2004, the Company approved the issuance of 100,000 shares
of restricted common stock for consulting services valued at $50,000.
These shares were issued March 15, 2004.
On April 14, 2004, the Company issued 100,000 shares of its restricted
common stock for investor and public relations services valued at
$44,000.
F-16
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 7 - COMMON STOCK TRANSACTIONS (CONTINUED)
------ -------------------------------------
On April 15, 2004, the Company issued 500,000 shares of its restricted
common stock for consulting services valued at $212,000.
On June 15, 2004, The Company issued 350,000 shares of its restricted
common stock for consulting services valued at $108,500.
On June 22, 2004, the Company approved the issuance of 800,000 shares
of its restricted common stock valued at $176,000 and 200,000 shares
under its 2004 Stock Grant and Option Plan valued at $110,000 for legal
services.
On June 30, 2004, the Company issued 1,000,000 shares of its restricted
common stock for $500,000.
On June 30, 2004, the Company issued 500,000 shares of its restricted
common stock valued at $130,000 for services regarding the private
placement of the Company's common stock.
On August 1, 2004, the Company issued 25,000 shares of its restricted
common stock for an employee stock bonus valued at $4,214.
On September 7, 2004, the Company issued 500,000 shares of its
restricted common stock for consulting services valued at $73,125.
On September 22, 2004, the Company issued 1,000,000 shares of its
restricted common stock for legal services valued at $77,500.
On October 18, 2004, the Company issued 150,000 shares of its
restricted common stock valued at $15,000 regarding a $150,000
six-month loan.
On October 27, 2004, the Company issued 25,000 shares of its restricted
common stock valued at $5,625 to each of four employees as stock
bonuses.
On November 3, 2004, the Company issued 25,000 shares of its restricted
common stock valued at $4,375 to an employee as a stock bonus.
On December 29, 2004, the Company issued 25,000 shares of its
restricted common stock valued at $2,250 to each of two employees as a
stock bonus.
F-17
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
NOTE 8 - STOCK PLAN
------ -------------
On July 8, 2004, the Company adopted the 2004 Non-Qualified Stock Grant
and Option Plan. The Plan was registered with the Securities and
Exchange Commission on Form S-8 on July 23, 2004. The Plan is
administered by the Company's Board of Directors. The Plan provides for
the issuance of common stock, warrants and options in payment for
services. Eligible participants are as follows: Directors, Officers,
Employees, Consultants, Attorneys and Others. There are 5,000,000
shares reserved under the Plan and as at December 31, 2004, there
remains 4,800,000 shares available for future issuance.
NOTE 9 - SUBSEQUENT EVENTS
------ -----------------
During the first quarter of 2005, Reliant Drilling Systems, Inc., a
wholly-owned subsidiary of the Company, which had been engaged in
providing solids control services for oil and gas drillers and
producers, began to sell certain of its equipment assets in order to
implement its decision to no longer offer these services. For the year
ended December 31, 2004, this wholly-owned subsidiary had revenues of
$718,025 with a reported loss of $280,091.
Also, during the first quarter of 2005, Ecoloclean of Texas, Inc.
another wholly-owned subsidiary of the Company, which had been engaged
in providing enviro cleanup services to industrial customers, executed
a letter of intent to sell its equipment assets and customer contracts
in accordance with its decision to no longer offer its services. For
the year ended December 31, 2004, this wholly-owned subsidiary had
revenues of $132,668 with a reported loss of $285,651.
F-18