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, 2005
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. [ ]
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2of the Exchange Act. Yes No X
--- ---
The issuer had operating revenues of $387,651 for the year ended December 31,
2005.
This report contains a total of 53 pages. The Exhibit Index appears on page 20.
As of March 31, 2006, there were 52,430,085 shares of the issuer's common stock
outstanding. The aggregate market value of the 29,107,180 shares of the issuer's
voting stock held by non-affiliates was $32,017,898 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 March 31, 2006, 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, 2005
Page
PART I..................................................................... 3
ITEM 1. Description of Business........................................... 3
ITEM 2. Description of Property........................................... 9
ITEM 3. Legal Proceedings................................................. 9
ITEM 4. Submission of Matters to Vote of Security Holders................. 10
PART II.................................................................... 10
ITEM 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities................. 10
ITEM 6. Management's Discussion and Analysis or Plan of Operation......... 10
ITEM 7. Financial Statements.............................................. 14
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 14
ITEM 8A. Controls and Procedures........................................... 14
ITEM 8B. Other Information................................................. 15
PART III................................................................... 15
ITEM 9. Directors, Executive Officers, Promoters, and Control
Persons: Compliance with Section 16(a) of the Exchange Act...... 15
ITEM 10. Executive Compensation........................................... 18
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters............................... 19
ITEM 12. Certain Relationships and Related Transactions................... 19
ITEM 13. Exhibits ........................................................ 20
ITEM 14. Principal Accountant Fees and Services........................... 20
SIGNATURES................................................................. 20
2
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 conducted through its subsidiaries, World Environmental
Technologies, Inc. ("WET"), a Louisiana corporation, and Ecoloclean of Texas,
Inc., a Texas.
On December 4, 2003, we filed articles of incorporation in Louisiana for Reliant
Drilling Systems, Inc.
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.
On September 14, 2005, we acquired all of the issued and outstanding common
stock of Aquatronics Industries, Inc., a Rhode Island corporation.
We operate six corporations. Ecoloclean Industries, Inc. owns three wholly owned
subsidiaries: (1) Ecoloclean, Inc., a Texas corporation and (2) Reliant Drilling
Systems, Inc., a Louisiana corporation and (3) Aquatronics Industries, Inc., a
Rhode Island 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. Reliant Drilling Systems, Inc.
and Ecoloclean of Texas, Inc. discontinued their operations during the first
four months of 2005.
(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.
3
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, 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., and
Aquatronics Industries, 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.
4
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
5
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
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 one part-time employee officer, Royis Ward and a
part-time accounting employee. World Environmental Technologies, Inc. had one
part-time employee officer, M.C. Richardson and two employees. Aquatronics
Industries, Inc. has one employee officer, Howard Schachter and eight full-time
employees. No employees were subject to any 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.
6
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
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
7
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,
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
8
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.
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.
Aquatronics Industries, Inc. leases its business offices and laboratory
workshop. During 2005, the lease expense was $18,000. Commencing in 2006, its
annual lease expense will be $45,400.
ITEM 3. Legal Proceedings
The Company and its subsidiaries are parties to various legal
proceedings and claims incidental to our normal business operations for which no
material liability is expected beyond that which has been recorded in our
financial statements. While the ultimate resolution of the above matters is not
known, management does not expect that the resolution of these matters will have
a material adverse effect on the Company's financial statements and results of
operation.
We are not aware of any material legal proceedings to which, any
director, officer or affiliate of the Company, any owner of record or beneficial
owner of more than 5% of our Company common stock, is a party to a legal
proceeding adverse to our Company.
9
ITEM 4. Submission of Matters to Vote of Security Holders
During the fourth quarter of 2005, 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.
Table 1.
Bid Information
Fiscal Quarter Ended High Low
December 31, 2005 0.10 0.095
September 30, 2005 0.27 0.23
June 30, 2005 0.165 0.14
March 31, 2005 0.25 0.25
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
According to our records, the Company had approximately 50 record
shareholders of our common stock as of December 31, 2005 holding 51,600,085
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, 2005, 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, 2005. Information is included for equity compensation plans not
approved by our security holders.
Table 1.
Equity Compensation Plan Information
---------------------- ------------------- ------------------- -----------------
Plan Category Number of Weighted-average Number of
Securities to be Exercise price of Securities
issued upon outstanding remaining
exercise of options, warrants, available for
outstanding and rights future issuance
options, warrants under equity
and rights 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 security holders 5,000,000 (1) $0.55 4,800,000
---------------------- ------------------- ------------------- -----------------
Total 5,000,000 $0.55 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
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 did
not issue any shares from this plan during 2005.
Recent Sales of Unregistered Securities
All sales of unregistered securities have been previously reported in
our filed periodic reports filed with the Securities & Exchange Commission on
Forms 8-K and 10-QSB.
ITEM 6. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis or Plan or Operation
Overview and Plan of Operation
Background
During the quarter ended December 31, 2005, Ecoloclean Industries, Inc. (ECCI)
had gross operating revenues of $292,718 from continuing operations and $0 from
discontinued operations which included its Louisiana subsidiary, Reliant
Drilling Systems, Inc. ("RDS") and its Texas subsidiary, Ecoloclean of Texas,
Inc. ("ECOT) whose operations were discontinued during the quarter ending March
31, 2005.
Current Operations
A. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc. is still awaiting the approval for the
amendment to its State-Wide Water Discharge Permit which would allow World
Environmental Technologies, Inc. to again offer its services of cleaning drill
water to the oil and gas industry. The delay in receiving approval of this
10
amendment application maybe due to the over- worked Louisiana Department of
Environmental Quality staff as a result of Hurricane Katrina. Once approval of
the amendment is received, it is anticipated that the services offered by World
Environmental Technologies, Inc. could again be in demand.
B. Agricultural Clean Up
Ecoloclean, Inc. ("ECI"), a wholly owned subsidiary of the Company, has devoted
substantial efforts to the Dairy Industry as it pertains to the animal waste
created by cows, swine and chickens. During the second quarter of 2005, the
Company began additional demonstrations for approximately two hundred (200)
dairy farmer, representatives from Texas A & M University, American Dairy
Association, Texas Farm Bureau, the EPA and other interested parties. These
tests were concluded on August 2, 2005 and the Company was notified that
sufficient samples had been taken by the various agencies and no further
evaluation was necessary. The Company's equipment has been removed and taken
back to its facility for storage. The Company has been informed that Texas A&M
will prepare a technical paper upon approval by the EPA, American Dairy
Association, Texas Farm Bureau and other interested agencies, which will be
published in all of the various agencies for public information. Subject to
these test results, the Company expects to be able to offer the dairy industry
along with the swine and chicken producers a much needed solution to their waste
disposal problems. However, the Company does not expect any revenue producing
activities from the agricultural business until the autumn of 2006 at the
earliest, subject to a positive technical report from Texas A&M University.
C. Coale Separator aka "Diesel Pure"
As outlined previously, ECCI obtained the Worldwide Exclusive Rights for the
patented Coale Separator. This device is capable of removing contaminants from
diesel fuel, such as water, sand and other impurities, thus increasing engine
life, reducing injector replacement and engine wear.
During the third quarter, the Company signed an exclusive marketing agreement
with an experienced organization in the truck and auto after market and to the
industrial market place. In order to sell our "Diesel Pure" product line in
these market places, the Company was required to complete additional product
information and instructions which would have been time consuming and costly. To
date, the Company has been unable to fund such additional development cost as
required.
Presently, our "in-house" personnel are continuing to exert efforts to gain
attention to the attributes of this device from industries that utilize diesel
engines. Sales efforts are being first directed to the companies that expressed
an interest in the device prior to Hurricane Katrina.
D. Aquatronics Industries, Inc.
On September 13, 2005, the Company completed the acquisition of 100% of the
outstand stock of Aquatronics Industries, Inc. located in Riverside, Rhode
Island by the issuance of 2,500,000 shares of its restricted common stock and
providing working capital of $300,000. Aquatronics Industries, Inc., a wholly
owned subsidiary of Ecoloclean Industries, Inc. (ECCI) has provided creative and
cost effective solutions to a wide range of industrial, commercial residential
pure water, wastewater and solid waste management problems for in excess of 20
years. The Company intends to build on the 20 years of experience of Aquatronics
management and employees which includes a customer base and are established
reputations of technical expertise.
In addition to providing capital over the $300,000 initial requirement and an
amount in excess of $150,000, Ecoloclean Industries, Inc. has assisted
"Aquatronics" in acquiring the "Bio-Catalylitica" water purification patent (See
New Developments"). This patent both extends the activities in which
"Aquatronics" is already engaged and expands its capabilities beyond the levels
of its previous experience in a cost-effective manner.
11
E. New Developments
On March 23, 2006, the Company's wholly owned subsidiary, Aquatronics
Industries, Inc., acquired the "Bio-Catalytic" water purification patent rights,
which acts as an adjunct to the active disciplines engaged in the production and
installation of water remediation systems and also provides the Company with
exclusive manufacturing rights.
Consideration includes $150,000 was due at closing with the remaining $135,000
due at $15,000 per month beginning May l, 2006, and a 5% royalty in addition to
3,000,000 shares of Ecoloclean Industries, Inc. restricted common stock of which
1,000,000 share were due at closing with the remaining 2,000,000 shares due
within one year.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $500,000. Until
the Company obtains the amount of working capital required to meet its
continuing operating overhead, it will be necessary to call upon the investment
community and/or the Company's officers and others associated with the Company
for financial assistance.
During the third quarter, the Company completed a $400,000 private placement of
its restricted common stock. In addition, the Company completed a $150,000 debt
financing and a $50,000 debt equity during the first four months of 2006.
In addition to capital needs for operating overhead, the Company's need for
capital has increased substantially as a result of it acquiring Aquatronics
Industries, Inc. To meet these continuing and increasing needs, management's
plans are to (i) to raise capital by obtaining financing through private
placement efforts (ii) issue common stock for services rendered in lieu of cash
payment and (iii) obtain loans from the President and other employees of the
Company.
The Company's future ability to achieve these objective cannot be determined at
this time. The accompanying financial statement 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.
The Company believes that it will continue to incur losses for at least the next
six months and, as a result, will require additional funds to meet such needs.
Without realization of additional capital, it would be unlikely for the Company
to continue as a going concern.
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 period.
Conclusion
Although the Company expended substantial financial resources to establish its
field services operations, the expected results were not achieved. Accordingly,
as indicated above, two of the Company's subsidiaries discontinued operations
during the first quarter of 2005 and their assets have been substantially
liquidated during the year ended December 31, 2005.
As stated here, future activities of the Company will be partially dependent on
its ability to obtain additional funding in the near future and the success of
its newly acquired subsidiary, Aquatronics Industries, Inc.
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $387,651 from continuing operations
for the year ended December 31, 2005, as compared to $71,117 in revenues for the
year ended December 31, 2004. The increased revenues of $316,534 were due to
$375,706 of revenues from our newly acquired subsidiary, Aquatronics Industries,
Inc., (Aquatronics) less a reduction of revenues of $59,172 to $11,945 from our
World Environmental Technologies, Inc., subsidiary.
12
TOTAL COSTS AND EXPENSES: Total costs and expenses decreased from $3,665,482
(restated) for the year ended December 31, 2004, to $2,160,490 (exclusive of
impairment losses and gains on sales of equipment) for the year ended December
31, 2005, of which $480,236 was incurred at "Aquatronics." The decrease of
$1,985,228 (exclusive of "Aquatronics") was primarily due to the Company's cost
reduction program. Non-cash stock-based costs and expenses totaled $471,194 of
the $2,160,480 of expenses.
OPERATING EXPENSES: Operating expenses decreased from $288,798 for the year
ended December 31, 2004, to $153,139 from continuing operations for the year
ended December 31, 2005. The decrease of $134,859 was primarily due to the
Company's cost reduction program.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses decreased from $3,188,726 (restated) for the year ended December 31,
2004, to $1,483,643 for the year ended December 31, 2005, of which $158,507 was
incurred at "Aquatronics." The decrease of $1,863,590 (exclusive of
"Aquatronics") was primarily due the Company's cost reduction program.
INCOME TAX: The pretax loss decreased from $4,160,107 (restated) for the year
ended December 31, 2004, to $2,172,804 for the year ended December 31, 2005, a
decrease of $2,129,246 (exclusive of the $141,943 loss at "Aquatronics").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures
during the year ended December 31, 2005, totaled $153,584 as compared with
$571,924 for the year ended December 31, 2004. The expenditures of $53,584
primarily consisted of equipment purchased for the "Coale Separator"
manufacturing efforts and $16,312 of computer equipment and a vehicle purchased
by `Aquatronics"; whereas, the $571,924 of capital expenditures for the year
ended December 31, 2004, primarily consisted of equipment purchased for the
Company's solid control subsidiary, which has now been discontinued.
Sales of assets, including equipment, customer lists and contracts for the year
ended December 31, 2005, were $440,762 including a $6,685 cost adjustment as
compared to $0 for the year ended December 31, 2004. The increase of $440,762
was primarily due to sales of assets of $421,562 by the Company's Reliant
Drilling Systems, Inc., and Ecoloclean of Texas, Inc., subsidiaries after
discontinuance of their operations.
Total debt decreased from $3,267,650 at December 31, 2004 to $2,858,172 at
December 31, 2005, a decrease of $409,478 inclusive of $246,540 of "Aquatronics"
debt. The decrease of debt was substantially attributable to a conversion of
$1,250,000 debt due the President to 7,352,941 shares of restricted common stock
offset by $610,277 in additional loans from the President and a former officer
of the Company. These additional funds advanced allowed the Company to continue
operations. Total debt as of December 31, 2005 and December 31, 2004 expressed
as a percentage of the sum of total debt and shareholders' deficit was 249.3%
and 268.3% respectively.
Net loss for the year ended December 31, 2005 was $2,172,804, a decrease of
47.8% from the restated net loss of $4,160,107 for the year ended December 31,
2004. Diluted net loss per common share decreased 50% to $0.05. The net loss per
share calculation for the year ended December 31, 2005, included an increase in
actual and equivalent shares outstanding.
DISCONTINUED OPERATIONS: The loss from discontinued operations for the year
ended December 31, 2005, includes losses of $90,210 incurred by Reliant Drilling
Systems, Inc., and $15,289 incurred by Ecoloclean of Texas, Inc. These losses of
each subsidiary, which total $105,499, are primarily attributable to their
inability to obtain gross revenue levels and margins in sufficient enough
amounts to cover operating support costs and other overhead of each company.
Losses of these two subsidiaries were $565,472 for the year ended December 31,
2004, which was the first year of operations for Reliant Drilling Systems, Inc.,
the pre-operating period, and the first six months of operations of Ecoloclean
of Texas, Inc.
13
GOING CONCERN: While the Company's unaudited condensed consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and liquidation of liabilities during the normal course of
operations, certain adverse conditions and events cast substantial doubt upon
the validity of this assumption. Factors contributing to this substantial doubt
include recurring losses from operations and net working capital deficiencies.
As mentioned in the Financial Condition, Liquidity and Capital Resources section
above, we are currently dependent on funding from the President to continue the
Company's operations. The discontinuance of such funding and the unavailability
of outside financing to replace such funding could result in the Company ceasing
operations.
FORWARD-LOOKING STATEMENTS:
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
estimate", "plan" or "continue" or the negative or other variations thereof are
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, impact and other
uncertainties of our future acquisitions plans.
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..................................... F-2
Independent Accountant's Report................................... F-3
Financial Statements
Balance Sheets............................................. F-4
Statements of Operations................................... F-5
Statements of Stockholder's (Deficit)...................... F-6
Statements of Cash Flows................................... F-7 - F-8
Notes to Financial Statements.............................. F-9 - F-26
ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
ITEM 8A. Controls and Procedures.
(a) Evaluation Of Disclosure Controls And Procedures.
Item 308(a)(3) of Regulation S-B states that "Management is not
permitted to conclude that the small business issuer's internal control over
financial reporting is effective if there are one or more material weaknesses in
the small business issuer's internal control over financial reporting." As a
result of (1) our inability to timely report the historical financial statements
of Aquatronics Industries, Inc. and (2) the restatements to our December 31,
2004 financial statements and our quarterly reports for the periods ending March
14
31, June 30 and September 30, 2005, as disclosed in Footnote 3 to our December
31, 2005 financial statements contained herein, our Chief Executive Officer and
Principal Accounting Officer, can no longer conclude that after evaluating the
effectiveness of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of
the period covered by this Report on Form 10-KSB, that our disclosure controls
and procedures were effective to provide reasonable assurance that information
we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
At the time we acquired Aquatronics Industries, Inc. we had believed
that we would be able to report its historical financial statements on Form
8-K/A. However, due to a limited financial resources, we have been unable to
present Aquatronics' historical financial statements. We believe that we will be
able to report them in the near future.
Additionally, the Company believes that its restatement to its December 31, 2004
financial statements and restatements to quarterly reports for March 31, June 30
and September 30, 2005 financial statements, will be a one time occurrence and
that moving forward our Controls and Procedures will once again be effective as
the accounting corrections contained in the restated December 31, 2004, March
30, June 30 and September 30, 2005 financial statements. The Company is
utilizing the guidelines communicated to it by the SEC after various
communications regarding accounting for stock based compensation and
discontinued operations.
(b) Changes In Internal Control Over Financial Reporting.
There were no significant changes in our internal control over
financial reporting during the last fiscal year and/or up to and including the
date of this filing (except as disclosed in (a) above) that we believe
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
(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
ITEM 9. Directors, Executive Officers, Promoters, and Control Persons:
Compliance With Section 16(a) of the Exchange Act
15
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, 2005. 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 Term
Royis Ward 72 President, CEO, Director Jan 03-Present
CFO
Michael Ward 50 Secretary/Treasurer, Director Jan 03-Sept 05
ROYIS WARD:
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:
On September 7, 2005, our corporate Secretary and member of the board
of directors, Michael Ward, tendered his resignation from these positions. Mr.
Ward's decision to resign was the result of increased demands on his
professional responsibilities to other business enterprises.
Mr. Ward had been 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.
Family Relationships: Michael Ward is the son of Royis Ward.
The officers and directors of the World Environmental Technologies, Inc. and
Reliant Drilling are as follows:
16
Name Age Position
Michael Richardson 64 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.
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, 2005, 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 2005, Royis Ward,
Michael Ward and Michael Richardson each failed to file one Form 5 each, Annual
Statement of Beneficial Ownership. During 2005, Royis Ward failed to file one
Forms 4, Statement of Change in Beneficial Ownership regarding a private
transfer of 500,000 shares of common stock on October 26, 2005. Additionally,
M.C. Richardson filed two Forms 4 late.
The officers and directors of Aquatronics Industries, Inc. is as follows:
Name Age Position
Howard Schachter 73 President, CEO, Director
Mr. Schachter has been employed by Aquatronics Industries for the last five
years. He is the founder and chief executive officer. His spouse, Ruth
Schachter, is an Ecoloclean Industries shareholder. She owns 2,500,000 common
shares which she acquired in connection with the company's purchase of
Aquatronics Industries, Inc., a Rhode Island corporation.
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.
17
ITEM 10. Executive Compensation
The following sets forth the compensation of the officers of the Company in the
year ended December 31, 2005.
Summary Compensation.
The following table sets forth the compensation paid by the Company during
fiscal year 2005 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 2005 $120,000(1) -0- 1,000,000
Director, President
Michael Ward 2005 -0- -0- 1,000,000
Sec/Treas., Director
Notes:
(1) As of December 31, 2005, the cumulative amount of unpaid officer
salary was $437,500 and is included in accounts payable and accrued
expenses of our financial statements.
The following table sets forth the compensation paid by our Aquatronics
Industries subsidiary during fiscal year 2005 to it 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 2.
Securities
Underlying
Name and Position Year Salary Bonus Options/SARs
Howard Schachter 2005 $37,500(1) -0- -0-
Director, President
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, 2005, 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
51,600,085 shares issued and outstanding as of December 31, 2005.
(a) Beneficial Ownership of more than 5% based on 51,600,085 common shares.
18
Table 1.
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class
Common Stock
Royis Ward(1) 2242 S. Hwy 83 13,352,941(3) 25.80%
Crystal City, TX
Michael Ward(1)(2) 1862 W. Bitters Rd. 7,000,000(3) 13.56%
San Antonio, TX
Total 20,352,941 39.36%
Notes:
(1) Directors and Officers of Ecoloclean Industries, Inc. during 2005.
(2) Michael Ward resigned his positions effective September 7, 2005.
(3)This figure includes 1,000,000 common shares underlying outstanding common
stock options which are immediately exercisable. These options have not yet been
exercised.
(b) Security Ownership of Management. Based on 51,600,085 shares as of December
31, 2005.
Table 2.
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature Percent of Class
Common Stock
Royis Ward(1)(2) 2242 S. Hwy 83. 13,352,941(5) 25.80%
Crystal City, TX
Michael Ward(1)(2)(4) 1862 W. Bitters Rd. 7,000,000(5) 13.56%
San Antonio, TX
Michael Richardson(2) 950 Birdsong St. 1,969,964 3.81%
Lafayette, LA
Howard Schachter(3) 501 Bullocks Point Rd. 2,500,000 4.84%
Riverside, RI 02915
Total 24,822,905 48.01%
Notes:
(1) Directors and Officers of Ecoloclean Industries, Inc.
(2) Mike Richardson is an officer and director of World Environmental
Technologies, Inc., an Ecoloclean subsidiary.
(3) Howard Schachter is an officer and director of Aquatronics Industries, Inc.,
an Ecoloclean subsidiary. The shares are owned by his spouse, Ruth Schachter and
beneficial ownership is attributed to him for the purposes of this Table.
(4) Michael Ward resigned as an officer and director September 7, 2005.
(5) This figure includes 1,000,000 common shares underlying outstanding common
stock options which are immediately exercisable. These options have not yet been
exercised.
ITEM 12. Certain Relationships and Related Transactions
As of December 31, 2005, the cumulative amount of unpaid officer's salary was
$437,500 and is included in the accounts payable and accrued expenses. The
board of directors had approved a salary for officer services.
At December 31, 2005, cumulative advances bearing interest at the rate of 5%
annually were due to company officers in the amount of $1,302,085, plus $181,490
accrued interest. The accrued interest is included in accounts payable and
accrued expenses. The advances are due July 10, 2007.
On September 5, 2005, the company granted Royis Ward and Michael Ward options to
purchase up to 1,000,000 Ecoloclean shares of common stock at Twenty ($0.20)
Cents per share. The options are immediately exercisable and terminate on
September 5, 2010.
19
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 Chief Executive/Financial Officer-Section 302 Certification pursuant to
Sarbanes-Oxley Act.
32 Chief Executive/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 12-31-05
(1) Audit Fees $39,530 $43,285
(2) Audit-related Fees -0- 3,750
(3) Tax Fees -0- -0-
(4) All other fees -0- -0-
Total Fees $39,530 $47,035
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.
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, 2005 to be signed on its behalf by the undersigned,
thereunto duly authorized on this 11th day of May 2006.
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: May 11, 2006 /s/ Royis Ward
-------------------------------
Royis Ward, President, Director
20
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT....................................... F-3
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets................................. F-4
Statements of Consolidated Operations ...................... F-5
Statements of Consolidated Stockholders' (Deficit).......... F-6
Statements of Consolidated Cash Flows ...................... F-7 - F-8
Notes to Consolidated Financial Statements ................. F-9 - F-29
BAUM & COMPANY, P.A.
1515 UNIVERSITY DRIVE, SUITE 209
CORAL SPRINGS, FLORIDA 33071
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005 and 2004, and the related consolidated
statements of operations, stockholders' (deficit), and cash flows for the years
ended December 31, 2005 and 2004. 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.
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.
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, 2005 and 2004, and the results
of their consolidated operations and their consolidated cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
As more fully described in Note 3 to the financial statements, the accompanying
consolidated balance sheets and related statements of consolidated operations,
shareholders'(deficit) and cash flows have been restated to reflect the proper
accounting for certain transactions which occurred during the year ended
December 31, 2004. In our original report dated April 14, 2005, we expressed an
unqualified opinion on the consolidated financial statements and our opinion in
the revised statements remains unqualified.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 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.
Baum & Company, P.A.
Coral Springs, Florida
May 4, 2006
F-3
ECOLOCLEAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2005 2004
------------ ------------
(Restated)
Current Assets:
Cash $ 8,649 $ 5,345
Accounts Receivable 100,839 1,785
Inventory 76,091 0
Prepaid Expenses 44,594 28,801
Current Portion of Assets of Discontinued Operations 58,520 196,279
------------ ------------
Total Current Assets 288,693 232,210
------------ ------------
Property, Plant and Equipment (Net) 364,130 427,952
------------ ------------
Other Assets:
Deposits 6,450 400
License and Trademark Costs (Net) 12,836 80,434
Intangible Assets 310,696 33,585
Non-Current Portion of Assets of Discontinued
Operations 0 443,310
------------ ------------
Total Other Assets 329,982 557,729
------------ ------------
Total Assets $ 982,805 $ 1,217,891
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Notes and Loans Payable - Current Portion $ 198,161 $ 171,209
Accounts Payable and Accrued Expenses 1,225,212 686,064
Current Portion of Liabilities of
Discontinued Operations 117,220 458,908
------------ ------------
Total Current Liabilities 1,540,593 1,316,181
Long-Term Debt 15,494 9,661
Due to Related Parties 1,302,085 1,941,808
------------ ------------
Total Liabilities 2,858,172 3,267,650
------------ ------------
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, 51,600,085
and 37,900,664 shares issued and outstanding
at 2005 and 2004 respectively 5,160 3,790
Additional Paid-in Capital 5,358,581 3,012,756
Accumulated (Deficit) (7,239,108) (5,066,305)
------------ ------------
Total Stockholders' (Deficit) (1,875,367) (2,049,759)
------------ ------------
Total Liabilities and Stockholders' (Deficit) $ 982,805 $ 1,217,891
============ ============
See Accompanying Notes to Consolidated Financial Statements
F-4
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
For Year Ended For Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
(Restated)
Revenues $ 387,651 $ 71,117
----------------- -----------------
Expenses
Cost of Sales 317,812 34,056
Operating Expenses 153,939 288,798
Depreciation & Amortization 100,393 72,211
Interest 104,703 81,691
Officer's Salary 157,500 120,000
Selling, General and Administrative 1,326,143 3,068,726
Impairment Loss 313,386 0
Gain on Sale of Assets (18,920) 0
----------------- -----------------
Total Expenses 2,454,956 3,665,482
----------------- -----------------
Net (Loss) from Continuing Operations (2,067,305) (3,594,365)
Net (Loss) from Discontinued Operations (105,499) (565,742)
----------------- -----------------
Net (Loss) $ (2,172,804) $ (4,160,107)
================= =================
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) from Continuing Operations $ (0.05) $ (0.10)
Net (Loss) from Discontinued Operations (0.00) (0.02)
----------------- -----------------
Total $ (0.05) $ (0.12)
================= =================
Weighted Average Number of Common
Shares Outstanding
Basic and Diluted 44,026,230 35,200,664
================= =================
See Accompanying Notes to Consolidated Financial Statements
F-5
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004 (RESTATED)
Common
Stock Additional Total
Shares Paid-In Accumulated Stockholders'
Issued Amount Capital (Deficit) (Deficit)
----------- ----------- ----------- ----------- -----------
Balance
December 31, 2003 32,500,664 $ 3,250 $ 190,558 $ (906,198) $ (712,390)
Stock Issuances
Sale of Common Stock 1,000,000 100 499,900 0 500,000
For Services and
Compensation 4,400,000 440 2,647,298 0 2,647,738
Fee for Services re-
Sale of Common Stock 0 0 (325,000) 0 (325,000)
Net Loss for the Period 0 0 0 (4,160,107) (4,160,107)
----------- ----------- ----------- ----------- -----------
Balance
December 31, 2004 37,900,664 $ 3,790 $ 3,012,756 $(5,066,305) $(2,049,759)
Stock Issuances
Sale of Common Stock 2,020,000 202 403,798 0 404,000
For Services and
Compensation 1,776,480 178 471,016 0 471,194
For Acquisition 2,500,000 250 249,750 0 250,000
In Payment of Loans 7,352,941 735 1,249,265 0 1,250,000
In Payment of Accrued
Expense 50,000 5 11,995 0 12,000
Fee for Services re:
Sale of Common Stock 0 0 (40,000) 0 (40,000)
Rounding 0 0 1 1 2
Net Loss for the Period 0 0 0 (2,172,804) (2,172,804)
----------- ----------- ----------- ----------- -----------
51,600,085 $ 5,160 $ 5,358,581 $(7,239,108) $(1,875,367)
=========== =========== =========== =========== ===========
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, 2005 December 31, 2004
----------------- -----------------
(Restated)
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss)
From Continuing Operations $ (2,067,305) $ (3,594,365)
From Discontinued Operations (105,499) (565,742)
Adjustments to Reconcile Net (Loss) to Net Cash
Provided (Required) by Operating Activities:
Depreciation and Amortization
From Continuing Operations 100,393 72,211
From Discontinued Operations 39,973 72,338
Impairment Losses 313,386 0
Issuance of Common Stock for Services
Provided 471,194 2,647,738
(Gain) Loss on Sale of Assets
From Continuing Operations (18,920) 0
From Discontinued Operations (55,168) 0
Officer's Salary Accrual 157,500 120,000
Changes in
Accounts Receivable 141,278 (76,950)
Inventory 28,989 0
Prepaid Expenses 28,912 (52,678)
Accounts Payable and Accrued Expenses (81,280) 446,897
----------------- -----------------
Net Cash (Required) By Operating Activities (1,046,547) (930,551)
----------------- -----------------
Cash Flows Provided (Required) By Investing Activities:
Note Receivable - Sale of Assets (55,420) 0
Proceeds - Sale of Assets 440,752 0
Acquisitions of Machinery and Equipment (53,584) (571,924)
Deposits and Other Non-Current Assets 6,520 (12,770)
Licenses and Trademark Costs 0 (65,505)
----------------- -----------------
Net Cash Provided (Required) By Investing Activities 338,268 (650,199)
----------------- -----------------
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, 2005 December 31, 2004
----------------- ------------------
(Restated)
Cash Flows Provided (Required)
By Financing Activities
Cash Acquired in Acquisition $ 14,753 $ 0
Payments of Short-Term Loans (280,166) 0
Proceeds of Long-Term Loan 4,775 0
Proceeds of Notes and Loans Payable 0 242,708
Proceeds from Issuance of Common Stock 404,000 500,000
Proceeds of Loans from Related Parties 610,278 1,166,439
Fees for Services - Sale of Common Stock (40,000) (325,000)
----------------- ------------------
Net Cash Provided by Financing Activities 713,640 1,584,147
----------------- ------------------
Net Increase in Cash 5,361 3,397
Cash at Beginning of Period 5,929 2,532
----------------- ------------------
Cash at End of Period $ 11,290 $ 5,929
----------------- ------------------
Supplemental Disclosures of Cash
Flow Information
Cash Payments for Interest $ 31,040 $ 18,826
================= ==================
Cash Payments for Income Taxes $ 0 $ 0
================= ==================
Non-Cash Investing Activities and Financing Activities:
Issuance of Common Stock:
For Repayment of Loan from Related Party $ 1,250,000 $ 0
For Payment of Account Payable 12,000 0
For Acquisition of Aquatronics Industries, Inc.
Net of $14,753 Cash Acquired 235,247 0
----------------- ------------------
Total Non-Cash Investing Activities
and Financing Activities $ 1,497,247 $ 0
================= ==================
See Accompanying Notes to Consolidated Financial Statements
F-8
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
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., which then changed its name to Ecoloclean
Industries, Inc. In addition to owning all of the outstanding shares of
WET and Ecoloclean, Inc., the Company also owns all of the outstanding
shares of Reliant Drilling Systems, Inc. and Ecoloclean of Texas, Inc,
whose operations were discontinued during 2005 (See Note 13 -
Discontinued Operations). On September 14, 2005, the Company completed
the acquisition of 100% of capital stock of Aquatronics Industries,
Inc., with an effective date of August 1, 2005.
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.
As a result of the acquisition of Aquatronics Industries, Inc., the
Company is now concentrating its business activities in providing water
remediation and purification services and products to a wide variety of
industrial, commercial and residential customers.
In addition, the Company has substantially delayed its marketing
efforts of the "Coale Separator". (See Note 5 - Licenses and
Trademarks).
F-9
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
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.
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.
F-10
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Goodwill and Purchased Intangible Assets
----------------------------------------
Goodwill of $460,696 represents the excess of cost over fair value of
net assets acquired through acquisitions. 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. The Company
assessed goodwill for impairment by comparing the fair value of a
reporting unit with its carrying value, including goodwill. During
2005, the Company determined that the carrying amount of the goodwill
assigned to the acquisition of Aquatronics Industries, Inc., exceeded
its fair value, which was estimated based on the present value of
expected future cash inflows. Accordingly, a goodwill impairment loss
of $150,000 was recognized. In addition, during the year 2005,
management determined that certain license costs, which were subject to
amortization, were also impaired based on estimated future cash flows,
and accordingly, an impairment loss of $49,600 (See Note 5 - Licenses
and Trademark Costs) was likewise recognized.
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.
During 2005, the Company recorded an impairment loss of $76,383 on
certain electro coagulation units recorded on the books of Ecoloclean,
Inc. and World Environmental Technologies, Inc. In addition, The
Company wrote down equipment of its recently acquired subsidiary,
Aquatronics Industries, Inc. by $37,413.
F-11
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
Revenue Recognition
-------------------
The Company recognizes revenue on service contracts and systems sales
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.
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 carry forwards. 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.
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
reflect 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.
F-12
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------ ------------------------------------------------------
New Accounting Standards
------------------------
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" (SFAS 149). SFAS
149 amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities under SFAS No. 133. SFAS 149 is generally
effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. In May
2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (SFAS
150). SFAS 150 improves the accounting for certain financial
instruments that previously might have been accounted for as equity.
SFAS 150 required that those instruments be classified as liabilities
in statements of financial position. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003. The
Company adopted both SFAS 149 and SFAS 150 in 2003. The adoption of
these standards did not have a material effect on the Company's
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment,
which establishes standards for transactions in which an entity
exchanges its equity instruments for goods or services. This standard
requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award. This eliminates the exception to
account for such awards using the intrinsic method previously allowable
under APB Opinion No. 25. SFAS No. 123(R) will be effective for interim
or annual reporting periods beginning on or after June 15, 2005. The
adoption did not have a material effect on the Company's consolidated
financials statements.
NOTE 2 - 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, 2005,
incurred a net loss of $2,172,804, and as of that date, the Company's
total liabilities exceeded its total assets by $1,875,367. In addition,
the Company in its short history (incorporated in 2002) has an
accumulated deficit of $7,239,108. These factors raise doubt about the
Company's ability to continue as a going concern if changes in
operations are not forthcoming.
F-13
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 2 - GOING CONCERN (CONTINUED)
------ -------------------------
Management, in the first quarter of 2005, discontinued operations in
certain of its wholly-owned subsidiaries, (See Note 13 - Discontinued
Operations), and is concentrating its efforts on other resources,
particularly its recently acquired subsidiary, Aquatronics Industries,
Inc. 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. In furtherance of these objectives, the
Company, on February 6, 2006, entered into a debt financing arrangement
for $150,000, and on April 5, 2006, the Company completed the sale of
1,000,000 shares of its restricted common stock for $50,000 plus
options. These financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS
------ ------------------------------------------------------
During the fourth quarter of 2005, management re-evaluated its
accounting treatment for certain restricted stock issued for services
and fees which occurred during 2004 and 2005. As a result of this
review, management determined that the initial recordings of the
transactions were incorrect and accordingly has chosen to restate the
consolidated financial statements for the year ended December 31, 2004,
as well as the interim reports for the quarter ended March 31, June 30,
and September 30, 2005. In addition, management reclassified and netted
all revenue and expenses related to discontinued operations and
disclosed the net (loss) from discontinued operations as a separate
line item and also segregated all assets and current liabilities
relating to the discontinued operations for 2004 and 2005 and adjusted
the balance sheets accordingly for the respective periods. Following is
a summary of the restated financial statements:
F-14
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
Previously Restatement Restated
Reported Adjustment Total
------------ ------------ ------------
Consolidated Balance Sheets:
Total Assets $ 1,217,891 $ 0 $ 1,217,891
Total Liabilities (3,267,650) 0 (3,267,650)
------------ ------------ ------------
Stockholders' (Deficit) $ (2,049,759) $ 0 $ (2,049,759)
============ ============ ============
Consolidated Results of Operations:
Revenues 921,810 (2) (850,693) 71,117
Expenses 3,660,892 (1) 1,421,025 3,665,482
(2) (1,416,435)
------------ ------------ ------------
Net (Loss) from Continuing Operations (2,739,082) (855,283) (3,594,365)
Net (Loss) from Discontinued Operations 0 (565,742) (565,742)
------------ ------------ ------------
Net (Loss) $ (2,739,082) $ (1,421,025) $ (4,160,107)
============ ============ ============
Net (Loss) per Common Share
Basic and Diluted:
Net (Loss) from Continuing Operations $ (0.08) $ (0.10)
Net (Loss) from Discontinued Operations (0.00) (0.02)
------------ ------------
Total $ (0.08) $ (0.12)
============ ============
Weighted Average Number of Common
Shares Outstanding:
Basic and Diluted 35,200,664 35,200,664
----------------- ============ ============
F-15
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005
MARCH 31, 2005 JUNE 30, 2005
------------------------------------------ ------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
ASSETS
Current Assets:
Cash and Cash
Equivalents $ 47,152 (4) (9,730) $ 37,422 $ 7,598 (4) (1,791) $ 5,807
Accounts and
Loans
Receivable 78,985 (4) (76,801) 2,184 20,653 (4) (9,255) 11,398
Note Receivable 0 0 0 85,000 (4) (85,000) 0
Inventory 0 0 0 0 0 214,247
Prepaid
Expenses 28,622 (4) (13,153) 15,469 17,983 (4) (5,087) 12,896
Current
Portion of
Assets of
Discontinued
Operations 0 (4) 99,684 99,684 0 (4) 101,133 101,133
----------- ----------- ----------- ----------- ----------- -----------
Total
Current
Assets 154,759 -- 154,759 131,234 -- 131,234
----------- ----------- ----------- ----------- ----------- -----------
Property, Plant
and Equipment,
Net 497,845 (4) (82,386) 415,459 485,380 (4) (69,826) 415,554
----------- ----------- ----------- ----------- ----------- -----------
Other Assets:
Assets Held
for Sale 100,258 0 100,258 0 0 0
Deposits 101,296 (4) (570) 100,726 199,439 0 199,439
License, Net 75,935 0 75,935 71,435 0 71,435
Goodwill 33,585 0 33,585 33,585 0 33,585
Non-Current
Portion of
Assets of
Discontinued
Operations 0 (4) 82,956 82,956 0 (4) 69,826 69,826
----------- ----------- ----------- ----------- ----------- -----------
Total Other
Assets 311,074 82,386 393,460 304,459 69,826 374,285
----------- ----------- ----------- ----------- ----------- -----------
Total Assets $ 963,678 $ 0 $ 963,678 $ 921,073 $ 0 $ 921,073
=========== =========== =========== =========== =========== ===========
F-16
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005 (CONTINUED)
SEPTEMBER 30, 2005
------------------------------------------
Previously Restatement Restated
Reported Adjustment Total
ASSETS
Current Assets:
Cash and Cash
Equivalents $ 61,147 (4) (1,559) $ 59,588
Accounts and
Loans
Receivable 87,675 (4) (4,337) 83,338
Note Receivable 75,000 (4) (75,000) 0
Inventory 214,247 0 214,247
Prepaid
Expenses 28,290 (4) (5,087) 23,203
Current
Portion of
Assets of
Discontinued
Operations 0 (4) 85,983 85,983
----------- ----------- -----------
Total
Current
Assets 466,359 -- 466,359
----------- ----------- -----------
Property, Plant
and Equipment,
Net 507,732 (4) (53,799) 453,933
----------- ----------- -----------
Other Assets:
Assets Held
for Sale 0 0 0
Deposits 80,889 0 80,889
License, Net 70,036 0 70,036
Goodwill 387,035 0 387,035
Non-Current
Portion of
Assets of
Discontinued
Operations 0 (4) 53,799 53,799
----------- ----------- -----------
Total Other
Assets 537,960 53,799 591,739
----------- ----------- -----------
Total Assets $ 1,512,051 $ 0 $ 1,512,051
=========== =========== ===========
F-17
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005 (CONTINUED)
MARCH 31, 2005 JUNE 30, 2005
------------------------------------------- -------------------------------------------
Previously Restatement Restated Previously Restatement Restated
Reported Adjustment Total Reported Adjustment Total
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES AND
STOCKHOLDERS'
(DEFICIT)
Current Liabilities:
Current Maturities
of Notes and
Loans Payable $ 222,434 (4) (50,693) $ 171,741 $ 171,741 $ 0 $ 171,741
Deposit - Sale
of Assets 4,891 (4) (4,891) 0 0 0 0
Accounts
Payable and
Accrued Expenses 1,100,109 (4) (257,330) 842,779 1,140,278 (4) (188,791) 951,487
Current
Portion of
Liabilities of
Discontinued
Operations 0 (4) 312,914 312,914 0 (4) 188,791 188,791
----------- ----------- ----------- ----------- ----------- -----------
Total Current
Liabilities 1,327,434 -- 1,327,434 1,312,019 -- 1,312,019
----------- ----------- ----------- ----------- ----------- -----------
Long-Term Debt:
Due to Related
Parties 2,138,967 0 2,138,967 1,124,151 0 1,124,157
Notes & Loans
Payable, less
Current Maturities 8,136 -- 8,136 6,610 -- 6,610
----------- ----------- ----------- ----------- ----------- -----------
Total
Liabilities 3,474,537 -- 3,474,537 2,442,780 -- 2,442,780
----------- ----------- ----------- ----------- ----------- -----------
Stockholders'
(Deficit):
Common Stock 3,815 0 3,815 4,600 0 4,600
Additional
Paid-in
Capital 1,619,706 (1) 1,421,025 3,090,731 2,900,172 (1) 1,421,025 4,464,947
(3) 50,000 (3) 143,750
Accumulated
Deficit (4,134,380) (1) (1,421,025) (5,605,405) (4,426,479) (1) (1,421,025) (5,991,254)
(3) (50,000) (3) (143,750)
----------- ----------- ----------- ----------- ----------- -----------
Total
Stockholders'
(Deficit) (2,510,859) -- (2,510,859) (1,521,707) -- (1,521,707)
----------- ----------- ----------- ----------- ----------- -----------
Total
Liabilities and
Stockholders'
(Deficit) $ 963,678 $ 0 $ 963,678 $ 921,073 $ 0 $ 921,073
=========== =========== =========== =========== =========== ===========
F-18
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005 (CONTINUED)
SEPTEMBER 30, 2005
-------------------------------------------
Previously Restatement Restated
Reported Adjustment Total
----------- ----------- -----------
LIABILITIES AND
STOCKHOLDERS'
(DEFICIT)
Current Liabilities
Current Maturities
of Notes and
Loans Payable $ 194,523 $ 0 $ 194,523
Deposit - Sale
of Assets 0 0 0
Accounts
Payable and
Accrued Expenses 1,308,057 (4) (131,786) 1,176,271
Current
Portion of
Liabilities of
Discontinued
Operations 0 (4) 131,786 131,786
----------- ----------- -----------
Total Current
Liabilities 1,502,580 -- 1,502,580
----------- ----------- -----------
Long-Term Debt:
Due to Related
Parties 1,246,808 0 1,246,808
Notes & Loans
Payable, less
Current Maturities 4,640 -- 4,640
----------- ----------- -----------
Total
Liabilities 2,754,028 -- 2,754,028
----------- ----------- -----------
Stockholders'
(Deficit):
Common Stock 5,160 0 5,160
Additional
Paid-in
Capital 3,728,908 (1) 1,421,025 5,358,581
(3) 208,648
Accumulated
Deficit (4,976,045) (1) (1,421,025) (6,605,718)
(3) (208,648)
----------- ----------- -----------
Total
Stockholders'
(Deficit) (1,241,977) -- (1,241,977)
----------- ----------- -----------
Total
Liabilities and
Stockholders'
(Deficit) $ 1,512,051 $ 0 $ 1,512,051
=========== =========== ===========
F-19
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005 (CONTINUED)
Three Months Ended March 31, 2005 Six Months Ended June 30, 2005
---------------------------------------------- ----------------------------------------------
Previously Restated Previously Restated
Reported Restatement Total Reported Restatement Total
------------ ------------ ------------ ------------ ------------ ------------
Revenues: $ 0 $ 0 $ 8,889 $ 8,889
Expenses:
Cost of Sales 0 0 2,504 2,504
Operating
Expenses 54,254 54,254 76,182 76,182
Depreciation
and
Amortization 23,256 23,256 47,595 47,595
Interest 30,335 30,335 62,815 62,815
Officer's Salary 30,000 30,000 60,000 60,000
Selling,
General and
Administration 222,194 (3) 50,000 272,194 454,784 (3) 143,750 598,534
------------ ------------ ------------ ------------ ------------ ------------
Total Expenses 360,039 50,000 410,039 703,880 143,750 (847,630)
------------ ------------ ------------ ------------ ------------ ------------
Net (Loss) from
Continuing
Operations (360,039) (50,000) (410,039) (694,991) (143,750) (838,741)
Net (Loss) from
Discontinued
Operations (129,061) -- (129,061) (86,208) (86,208)
------------ ------------ ------------ ------------ ------------ ------------
Net (Loss) $ (489,100) $ (50,000) $ (539,100) $ (781,199) $ (143,750) $ (924,949)
============ ============ ============ ============ ============ ============
Net (Loss) Per
Common Share,
Basic and Diluted:
Net (Loss) from
Continuing
Operations $ (0.01) $ -- $ (0.01) $ (0.0) $ -- $ (0.02)
Net (Loss) from
Discontinued
Operations (0.00) -- (0.00) (0.00) -- (0.00)
------------ ------------ ------------ ------------ ------------ ------------
Total $ (0.01) $ -- $ (0.01) $ (0.02) $ -- $ (0.02)
============ ============ ============ ============ ============ ============
Net (Loss)
Weighted Average
Number of Common
Shares Outstanding:
Basic and
Diluted 38,025,664 -- 38,025,664 41,592,135 -- 41,592,135
============ ============ ============ ============ ============ ============
F-20
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 3 - SUMMARY OF RESTATED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------ -----------------------------------------------------------------
SUMMARY OF RESTATED INTERIM REPORTS - 2005 (CONTINUED)
Nine Months Ended September 30, 2005
----------------------------------------------
Previously Restated
Reported Restatement Total
------------ ------------ ------------
Revenues: $ 94,933 $ 94,933
Expenses:
Cost of Sales 54,006 54,006
Operating
Expenses 130,526 130,526
Depreciation
and
Amortization 72,385 72,385
Interest 83,373 83,373
Officer's Salary 90,000 90,000
Selling,
General and
Administration 904,772 (3) 208,648 1,113,420
------------ ------------ ------------
Total Expenses 1,335,062 208,648 1,543,710
------------ ------------ ------------
Net (Loss) from
Continuing
Operations (1,240,129) (208,648) (1,448,777)
Net (Loss) from
Discontinued
Operations (90,636) (90,636)
------------ ------------ ------------
Net (Loss) $ (1,330,765) $ (208,648) $ (1,539,413)
============ ============ ============
Net (Loss) Per
Common Share,
Basic and Diluted:
Net (Loss) from
Continuing
Operations $ (0.03) $ -- $ (0.03)
Net (Loss) from
Discontinued
Operations (0.00) -- (0.00)
------------ ------------ ------------
Total $ (0.03) $ -- $ (0.03)
============ ============ ============
Net (Loss)
Weighted Average
Number of Common
Shares Outstanding:
Basic and
Diluted 44,750,375 -- 44,750,375
============ ============ ============
(1) Adjustments to reflect revaluation of 2004 restricted stock issuances
to market value instead of a discounted value in accordance with 2004
restated financial statements.
(2) Adjustments to reflect 2004 allocations to discontinued operations.
(3) Adjustments to reflect revaluation of 2005 restricted stock issuances
to market value instead of a discounted value.
(4) Adjustments to reflect 2005 allocations of assets and liabilities of
discontinued operations.
F-21
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
------ -------------------------------
A summary of property, plant and equipment at December 31, 2005 and December 31,
2004 is as follows:
December 31, December 31, Estimated
2005 2004 Economic Life
------------ ------------ --------------
Land $ 80,000 $ 80,000 N/A
Warehouse 34,120 34,120 40 Years
Electro Coagulation Units 66,594 239,237 5 Years
Machinery & Equipment 218,290 619,630 5 Years
Office Equipment 17,698 8,789 5 Years
Computers & Related Equipment 28,737 15,640 5 Years
Transportation Equipment 67,124 42,448 5 Years
------------ ------------
Total 512,563 1,039,864
Less Accumulated Depreciation 148,433 181,172
------------ ------------
Net Property, Plant & Equipment $ 364,130 $ 858,692
============ ============
Depreciation expense for the years ended December 31, 2005 and December 31, 2004
amounted to $122,367 and $138,950 respectively.
NOTE 5 - LICENSE AND TRADEMARK 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 supersedes a previously announced
general revenue sharing agreement with the licensors.
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.
Due to difficulties in establishing a viable marketing program for the
Coale Separator during 2005, the Company's management in consultation
with its professional advisors decided to treat the License costs as
impaired and wrote off the unamortized costs of $49,600.
F-22
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 5 - LICENSE AND TRADEMARK COSTS (CONTINUED)
------ ---------------------------------------
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, 2005 and 2004
is as follows:
December 31, December 31,
2005 2004
------------ ------------
License Costs Electro Coagulation
Technology (Net) $ 9,331 $ 14,929
License Costs - Coale Separator 0 62,000
Trademark Costs - Coale 3,505 3,505
------------ ------------
$ 12,836 $ 80,434
============ ============
NOTE 6 - LONG-TERM DEBT
------ --------------
A summary of notes and loans payable at December 31, 2005 and 2004 are
as follows:
December 31, December 31,
2005 2004
------------ ------------
Note Payable, unsecured, 10% Interest Bearing,
Maturing April 6, 2006 (Note Extended to
October 6, 2006) $ 150,000 $ 150,000
Loan Payable, Unsecured, Non-Interest Bearing
Payable on Demand 15,195 15,108
Loan Payable, Unsecured, 7% Interest Bearing
Payable on Demand 20,000 0
Notes Payable, Secured Interest Bearing Factoring
Line of Credit (See Note Below) 0 89,252
Note Payable, Secured by a Truck, 14% Interest
Bearing, Maturing July 22, 2007 9,661 15,762
Notes Payable, Secured by Autos and Equipment,
Maturing between April 23, 2006, and
November 9, 2011 18,799 0
------------ ------------
213,655 270,122
Less Current Maturities 198,161 260,461
------------ ------------
Total Long-Term Debt $ 15,494 $ 9,661
============ ============
F-23
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 7 - RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. At
December 31, 2005, the cumulative amount of unpaid officer's salary was
$437,500 and is included in accounts payable and accrued expenses.
At December 31, 2005, cumulative advances bearing interest at 5% per
annum due to officers of the Company amounted to $1,302,085 plus
$181,490 accrued interest. The accrued interest is included in accounts
payable and accrued expenses. The advances are due July 10, 2007, with
the right of prepayment.
On September 5, 2005, the Company granted Royis Ward and Michael Ward
options to purchase one million ($1,000,000) shares of the Company's
restricted common stock at twenty ($.20) per share. The options are
immediately exercisable and terminate on September 5, 2010.
NOTE 8 - INCOME TAXES
------ ------------
The Company files a consolidated federal income tax return. At December
31, 2005, the Company had a net operating loss carry forward of
approximately $6,350,000 available to offset future federal taxable
income through 2025. The components of the deferred tax assets and
liabilities accounts at December 31, 2005, are as follows:
Total Deferred Tax Assets $2,159,000
Less: Valuation Allowance 2,159,000
----------
Deferred Tax Asset (Liability) $ 0
==========
NOTE 9 - LEASES
------ -------
The Company's wholly-owned subsidiary, Aquatronics Industries, Inc.,
entered into a ten-year operating lease beginning October 1, 2004, for
its business offices and laboratory workshop at an initial rent of
$33,600 increasing to $45,400 after the first year.
Minimum future commitments under the operating leases are as follows:
Year Ending Total
----------- ---------
2006 $ 45,400
2007 45,400
2008 45,400
2009 45,400
2010 45,400
2011 - 2014 170,400
---------
Total Minimum Lease Payments $ 397,400
=========
Rent expense for the years ended December 31, 2005 and 2004, was
$18,000 and $0 respectively.
F-24
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 10 - COMMITMENTS AND CONTINGENCIES
------- -----------------------------
The Company is subject to the laws and regulations relating to the
protection of the environment. The Company's policy is to accrue
environmental and related cleanup costs of a non-capital nature when it
is both probable that a liability has been incurred and when the amount
can be reasonably estimated. Although it is not possible to quantify
with any degree of certainty the financial impact of the Company's
continuing compliance efforts, management believes any future
remediation or other compliance related costs will not have material
adverse effect on the consolidated financial condition or reported
results of consolidated operations of the Company.
One of the Company's wholly-owned subsidiaries currently has a federal
tax lien filed against it for unpaid federal withholding and social
security taxes. The Company and the Internal Revenue Service have
entered into an installment agreement which provides for a monthly
payment by the Company of $5,000 until the debt is liquidated. As of
this report date, the Company owed approximately $35,000 and was
current under the provisions of the Installment Agreement.
NOTE 11 - COMMON STOCK TRANSACTIONS
------- -------------------------
On January 24, 2005, the Company issued 200,000 shares of its
restricted common stock for 2005 investor public relations services
valued at $66,000.
On January 24, 2005, the Company issued 50,000 shares of its restricted
common stock valued at $12,000 in partial payment of obligations
regarding the acquisition of the Coale Separator license.
On June 3, 2005, the Company issued 250,000 shares of its restricted
common stock for consulting services valued at $75,000.
On June 22, 2005, the Company issued 250,000 shares of its restricted
common stock for consulting services valued at $50,000.
On June 22, 2005, the Company issued 7,352,941 shares of its restricted
common stock as payment for $1,250,000 of loans from the Company's
President, Royis Ward.
On September 6, 2005, through September 9, 2005, the Company issued
2,020,000 shares of its restricted common stock for $404,000 less costs
of $40,000.
On September 14, 2005, the Company issued 2,500,000 shares of its
restricted common stock valued at $250,000 for 100% of the outstanding
stock of Aquatronics Industries, Inc.
F-25
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 11 - COMMON STOCK TRANSACTIONS (CONTINUED)
------- -------------------------------------
On September 16, 2005, the Company issued 425,000 shares of its
restricted common stock valued at $108,375 to two recipients for
consulting services.
On September 18, 2005, the Company issued 500,000 shares of its
restricted common stock valued at $127,500 for consulting services.
On September 18, 2005, the Company issued 25,000 shares of its
restricted common stock valued at $6,375 to an employee of a subsidiary
as compensation.
As of September 30, 2005, the Company issued 126,480 shares of its
restricted common stock valued at $37,944 for consulting services.
NOTE 12 - STOCK OPTIONS
------- -------------
The following table presents the activity for stock options for years
ending December 31, 2005 and 2004.
Stock Weighted Average
Options Exercise Price
--------- ----------------
Outstanding - December 31, 2003 0 --
Granted / Issued 0 --
Exercised 0 --
--------- ----------------
Outstanding - December 31, 2004 0 --
--------- ----------------
Granted / Issued 5,500,000 $ 0.20
Exercised / Converted 0 --
--------- ----------------
Outstanding - December 31, 2005 5,500,000 $ 0.20
========= ================
All currently outstanding stock options have an expiration date of
September 5, 2010.
The 2004 Non-Qualified Stock Grant and Option Plan has 4,800,000 shares
remaining available for future issuance. The Plan was registered with
the Securities and Exchange Commission on Form S-8 on July 23, 2004.
F-26
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 13 - DISCONTINUED OPERATIONS
------- -----------------------
During the first and second quarters of 2005, Reliant Drilling Systems,
Inc. (RDS), 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, RDS had revenues of $781,025, with a
reported lost of $280,091.
Sales of equipment recorded by RDS during 2005 were $301,562 with a
resulting loss of $19,792.
Also, during the first quarter of 2005, Ecoloclean of Texas, Inc.
(ECOT), a wholly-owned subsidiary of the Company which had been engaged
in providing enviro cleanup services to industrial customers, sold
certain of its equipment with a book value of $41,574, job materials
and supplies and its customer contracts for $120,000 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
$132,668 with a reported of loss of $285,651.
On April 18, 2005, ECOT completed the transaction to sell its equipment
assets and customer contract for $120,000, payable over a one-year
period. The effective date of the transaction was April 1, 2005, and
resulted in a gain of approximately $74,960.
As a result of the Company discontinuing the operations of RDS and
ECOT, the consolidated financial statements and the related notes
contained herein for the years ended December 31, 2005 and 2004, have
been restated to reflect the financial position, results of operations
and cash flows of RDS and ECOT as discontinued operations.
The following table sets forth, for the periods indicated, selected
financial data of the Company's discontinued operations:
SELECTED FINANCIAL DATA FOR DISCONTINUED OPERATIONS
For the Years Ended
December 31, December 31,
2005 2004
------------ ------------
Revenue $ 75,863 $ 850,693
Cost of Sales 49,065 583,056
------------ ------------
Gross Profit 26,798 267,637
Expenses (Net of Gains and Losses
on Sales of Assets) 132,297 833,379
------------ ------------
(Loss) from Discontinued Operations $ (105,499) $ (565,742)
============ ============
F-27
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 14 - ACQUISTION
------- -----------
On September 14, 2005, the Company completed the acquisition of 100% of
the issued and outstanding stock of Aquatronics Industries, Inc.
(Aquatronics), for 2.5 million shares of restricted common stock valued
at $250,000. The closing agreement provided for an effective date of
August 1, 2005. Aquatronics is located in Riverside, Rhode Island, and
has eight employees. Aquatronics has provided effective solutions to a
diverse base of commercial and industrial customers with remediation
equipment and services for the removal of impurities and waste
by-products for the past 20 years. Aquatronics' waste water treatment
system equipment can be custom designed to remediate most liquid or
solids waste management problem necessary to comply with state and
federal mandates.
The Company's unaudited proforma statements of operations for the year
ended December 31, 2005, gives effect to the acquisition of Aquatronics
as if it had occurred on January 1, 2005. The columns headed
Aquatronics Industries, Inc., in the table below give effect to the
revenues and expenses related to the acquired company for the periods
indicated and were not included in our historical financial statements.
The purchase was accounted for by using the purchase method of
accounting.
PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Ecoloclean Industries, Inc. Aquatronics Industries, Inc.
Year Ended Period From
December 31, 2005 01/01/05 to 07/31/05
----------------- --------------------
Revenues $ 11,945 $ 257,354
Cost of Goods Sold 4,000 178,720
------------- -------------
Gross Profit 7,945 78,634
Operating Expenses 1,933,307 168,172
------------- -------------
Net (Loss) from Continuing Operations (1,925,362) (89,538)
Net (Loss) from Discontinued Operations (105,499) --
------------- -------------
Net (Loss) Total $ (2,030,861) $ (89,538)
============= =============
Aquatronics Industries, Inc. Consolidated Proforma
Period From Income (Loss)
08/01/05 to 12/31/05 December 31, 2005
-------------------- -----------------
Revenues $ 375,706 $ 645,005
Cost of Goods Sold 313,812 496,532
------------- -------------
Gross Profit 61,894 148,473
Operating Expenses 203,837 2,305,316
------------- -------------
Net (Loss) from Continuing Operations (141,943) (2,156,843)
Net (Loss) from Discontinued Operations -- (105,499)
------------- -------------
Net (Loss) Total $ (141,943) $ (2,262,342)
============= =============
The total amount paid for "Aquatronics was $250,000 in restricted common stock.
The goodwill recognized from the acquisition was $427,311, which is the
difference between the purchase price and the net deficit of "Aquatronics" of
$177,311 as of August 1, 2005.
F-28
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTE 15 - SUBSEQUENT EVENTS
------- -----------------
On March 23, 2006, the Company's wholly-owned subsidiary, Aquatronics
Industries, Inc., acquired the "Bio-Catalytic" water purification
patent rights, which acts as an adjunct to the active disciplines
engaged in the production and installation of water remediation systems
and also provides the Company with exclusive manufacturing rights.
Consideration includes $150,000 of which $15,000 was due at closing
with the remaining $135,000 due at $15,000 per month beginning May 1,
2006, and a 5% royalty in addition to 3,000,000 shares of Ecoloclean
Industries, Inc., restricted common stock of which 1,000,000 shares
were due at closing with the remaining 2,000,000 shares due within one
year.
F-29