U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-18995
INTERLINE RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0461653
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
160 West Canyon Crest Road, Alpine, UT 84004
(Address of principal executive offices)
Registrant's telephone number, including area code: (801) 756-3031
Securities registered pursuant to Section 12(b) of the Exchange
Act:
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock $.005 Par Value
Title of Class
Securities registered pursuant to Section 12(g) of the Exchange
Act: None
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the 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____.
Common stock outstanding at May 12, 1998 - 14,074,167 shares of
$.005 par value Common stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
FORM 10-QSB
INTERLINE RESOURCES CORPORATION
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet at
March 31, 1998
Condensed Consolidated Statement of Operations for the
three months ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for
three months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operation
PART II. - OTHER INFORMATION
Item 1 Legal Proceedings
Item 2 Changes in the Securities
Item 3 Defaults Upon Senior Securities
Item 4 Submission of Matters to a Vote of Security Holders
Item 5 Other Information
Item 6(a) Exhibits
Item 6(b) Reports on Form 8-K
Signatures
FORWARD LOOKING INFORMATION AND RISK FACTORS
Interline Resources Corporation (the "Company") or its
representatives may make forward looking statements, oral or
written, including statements in this report's Management's
Discussion and Analysis of Financial Condition and Results of
Operation, press release and filings with the Securities and
Exchange Commission, regarding estimated future net revenues from
operations, planned capital expenditures (including the amount
and nature thereof), the effects of the Company's Bankruptcy
proceeding, the Company's projected financial position, results
of operations, business strategy and other plans and objectives
for future operations. These statements are forward-looking
statements, within the meaning of Section 27A of the Securities
Act of 1993 and Section 21E of the Securities Exchange Act, which
reflect Management's current views with respect to future events
and financial performance.
Although the Company believes that the expectations
reflected in these forward looking statements are reasonable,
there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected effects
on its business or results of operations. Such forward-looking
statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied
by such forward-looking statements. Such factors include but are
not limited to the outcome of the Company's current Bankruptcy
Proceeding, the timing and extent of changes in commodity prices,
unforeseen engineering and mechanical or technological
difficulties in connection with the Company's business operations
and other risks.
Theses forward-looking statements are subject to certain
risks and uncertainties including, but not limited to, future
financial performance and future events, competitive pricing for
services, costs of obtaining capital as well as national,
regional and local economic conditions. Actual results could
differ materially from those addressed in the forward-looking
statements. Due to such uncertainties and risks, readers are
cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date whereof.
All subsequent oral and written forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these factors. The
Company assumes no obligation to update any of these statements.
INTERLINE RESOURCES
CORPORATION
AND SUBSIDIARIES
PART I - ITEM 1
FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
The condensed financial statements included have been prepared by
the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented
not misleading. The Company presumes that the user of this
interim financial information has read or has access to the
audited financial statements for the preceding fiscal year----and
in that context, this disclosure is adequate for a fair
presentation of the Company's financial position.
In the opinion of the Company, all adjustments consisting of only
normal recurring adjustments as of March 31, 1998, have been
made. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the
entire year.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
March 31,
1998
[/CAPTION]
Assets
Current assets:
Cash and cash equivalents $345,656
Accounts receivable - trade 309,644
Inventories 25,339
Note receivable - current portion 40,000
Net assets of discontinued operations 609,054
Other current assets 17,412
Total current assets 1,347,105
Property, plant and equipment 6,122,353
Accumulated depreciation and depletion (1,928,328)
Net property, plant & equipment 4,194,025
Note receivable 88,779
Technology and marketing rights 966,561
Total assets $6,596,470
The accompanying notes are an integral part of these consolidated
condensed financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
March 31,
1998
[/CAPTION]
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $349,186
Accrued liabilities 249,109
Accrued interest, related party 974,250
Note payable, related party 2,680,089
Current portion of long-term debt 253,109
Total current liabilities 4,505,743
Long-term debt less current maturities 569,513
Deferred income 61,093
Total liabilities 5,136,349
Stockholders' equity:
Preferred stock - $.01 par value. 25,000,000
shares authorized; 1,000,000 series A shares -
authorized; 0 series A shares issued and o/s
Common stock - $.005 par value. 100,000,000
shares authorized; 14,074,167 shares
issued and outstanding at March 31, 1998 70,371
Additional paid-in capital 9,209,017
Retained earnings (7,819,267)
Total stockholders' equity 1,460,121
Total liabilities & stockholders' equity $6,596,470
The accompanying notes are an integral part of these consolidated
condensed financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
Three months ended
March 31,
1998 1997
[/CAPTION]
Revenue $897,570 $1,928,089
Direct costs 670,878 1,359,533
Gross margin 226,692 568,556
Selling, general and
administrative expenses 292,394 438,315
Research and development 23,446 97,759
Depreciation, depletion and amortization 170,321 199,670
(Loss) from operations (259,469) (167,188)
Other income (expense) net
Interest income (expense), net (10,086) (15,350)
Interest expense, related party (88,475) (121,187)
Gain from sale of assets - 773,818
Income (loss) before discontinued operations (358,030) 470,093
Discontinued operations
Income (loss) from discontinued operations (24,054) (291,058)
Gain (loss) on disposal of
discontinued operations - -
Total (loss) from discontinued operations (24,054) (291,058)
Net Income (loss) ($382,084) $179,035
Earning per share
Income (loss) from continuing operations ($0.03) $0.03
Income (loss) from discontinued operations ($0.00) ($0.02)
Income (loss) per common share: ($0.03) $0.01
Weighted average shares o/s 14,074,167 14,074,167
The accompanying notes are an integral part of these consolidated
condensed financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three months ended
March 31,
1998 1997
[/CAPTION]
Cash flows from operating activities:
Net income (loss) (382,084) 179,035
Adjustment to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation, depletion and amortization 170,321 199,670
Gain on disposal of asset - (773,818)
Common Stock issued for services 24,000 -
(Increase) decrease in:
Accounts receivable (5,554) (917,736)
Inventories (1,170) (14,314)
Other current assets 3,896 (9,077)
Note receivable - 10,785
Increase (decrease) in:
Accounts payable 50,250 170,456
Accrued liabilities (780,972) 63,985
Accrued interest, related party 88,474 31,187
Deferred income - (65,117)
Net cash (used) by operating activities (832,839) (1,124,944)
Cash flows from investing activities:
Proceeds from sale of equipment - 508,611
Proceeds from sale of joint venture - 500,000
Purchase of intangible assets - (9,316)
Net assets of discontinued operations 74,799 (32,628)
Purchase of property, plant & equipment (21,948) (119,664)
Net cash provided (used in) investing activities 52,851 847,003
The accompanying notes are an integral part of these consolidated
condensed financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
Three months ended
March 31,
1998 1997
[/CAPTION]
Cash flows from financing activities:
Proceeds from debt obligations - -
Payment on long-term debt (27,555) (388,358)
Net cash provided (used) by financing activities (27,555) (388,358)
Net increase (decrease) in cash (807,543) (666,299)
Cash, beginning of year 1,153,199 907,668
Cash, end of quarter 345,656 241,369
The accompanying notes are an integral part of these consolidated
condensed financial statements.
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Oil and Gas Accounting
The Company uses the "successful efforts" method to account for
oil and gas operations. The use of this method results in the
capitalization of costs related to acquisition, exploration and
development of revenue producing oil and gas properties. The
costs of unsuccessful exploration efforts are expensed in the
period in which they are determined unrecoverable by future
revenues. Provision for depreciation and depletion of oil and gas
properties is based on the units of production method, based on
proven oil and gas reserves.
Segment information concerning oil and gas reserves and related
disclosures are not presented since they are not significant in
relation to the financial statements taken as a whole.
Construction Accounting
Construction revenues are recognized on the percentage-of-
completion method of accounting. Profits on contracts are
recorded on the basis of "cost-to-cost" determination of
percentage of completion on individual contracts, commencing when
progress reaches a point where cost and estimate analysis and
other evidence of trend are sufficient to estimate final results
with reasonable accuracy. That portion of the total contract
price which is allocable to contract expenditure incurred and
work performed is accrued as earned income. At the time a loss on
a contract becomes known, the entire amount of the estimated
ultimate loss is accrued. Claims for additional revenue are
recognized when settled. The aggregate of cost incurred and
income recognized on uncompleted contracts in excess of related
billings is shown as a current asset, and the aggregate of
billings on uncompleted contracts in excess of related costs
incurred and income recognized is shown as a current liability.
Cash Equivalents
For purposes of the consolidated statement of cash flows, cash
includes all cash and investments with original maturities to the
Company of three months or less.
Inventories
Inventories consisting of supplies and miscellaneous material are
recorded in the financial statements at their aggregate lower of
cost (first-in, first-out) or market.
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investments
Investments in less than majority owned entities are accounted
for using the equity method. Investments are included in the
financial statements under the caption of "Other Assets."
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation
is computed using straight-line and accelerated methods. When
assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is
recognized as income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals
and betterments are capitalized. Deductions are made for
retirements resulting from renewals or betterments. The estimated
useful lives are as follows:
Building and equipment 15-25 years
Equipment and vehicles 3-10 years
Amortization
The Company has amortized its marketing and technology rights for
the used oil refining process over seventeen years. This period
approximates the assets' useful lives.
Contingencies
During 1996, the Company entered into an agreement to sell
certain assets of the Company. As part of this agreement, the
Company also agreed to guarantee a note payable between the
purchaser and a third party. At March 31, 1998, the remaining
liability on the note was approximately $97,144.
The Company's used oil refinery technology was acquired by it
under the terms of an agreement between the Company as purchaser
and Petroleum Systems, Inc. ("PSI") as seller. The agreement
provided for the payment of royalties to PSI pursuant to the
terms of the Agreement. The Company and PSI became involved in a
dispute as to the certain royalty matters, and in connection
therewith, the Company and PSI were involved in an arbitration
proceeding. PSI claim against the Company is for $450,000. On
July 29, 1997, PSI filed a lawsuit against the Company in the
Third Judicial District Court of the State of Utah seeking to
reacquire all of the technology rights it had previously assigned
to the Company. The Company intends to vigorously defend this
litigation. The financial statements present an amount that
management believes would be payable should the litigation rule
in favor of the plaintiff. There is no assurance that the amount
will be the final outcome.
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company was a partner in several joint ventures. The joint
ventures have incurred debt related to the development of the
project. The Company is continently liable for the
debt. The debt totals approximately $1,400,000 at March 31, 1998.
Common Stock
During the year ended December 31, 1994, as a condition for a
private placement of the Company's restricted common stock, the
Company entered into an agreement which contains
certain restrictive covenants. The Company may not sell its
restricted common stock for a price less than $4.50 or issue
options or warrants of equal effect. The Company also may
not repay any related party debt during this period. These
covenants may be waived upon obtaining written consent of the
other party in the agreement.
Profit Sharing Plan
During 1995, the Company commenced a defined contribution
retirement plan, which qualifies under code section 401(k), for
all eligible employees. Employees who work at least 1,000 hours
during a year and are over age 21 are eligible to participate.
Employees may contribute up to fifteen percent of their annual
compensation subject to regulatory limitations. The Company also
contributes a discretionary amount on behalf of the participating
employees. The Company made contributions of $316 and $1,101 for
the three months ended March 31, 1998 and 1997, respectively.
Reclassification
Certain amounts in the prior years financial statements have been
reclassified to conform to the March 31, 1998 presentation.
Discontinued Operations
The financial statements for all periods presented reflect the
revenues and expenses generated from the assets of the Utah oil
and gas operations, Gagon Mechanical construction and
manufacturing operations and the Salt Lake City refinery
operations under the caption "Income (loss) from discontinued
operations." The related assets and liabilities of Gagon
Mechanical have been presented on the balance sheet under caption
"net assets of discontinued operations."
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is engaged through its wholly-owned
subsidiaries, in commercializing used oil refining technology,
and in operating oil and gas properties and businesses. On
September 26, 1997, the Company filed a Petition for
Reorganization under Chapter 11 (the "Petition") of the United
States Bankruptcy Code. The Company is continuing with its
operations as a debtor-in-possession under the Bankruptcy Code.
The Company's subsidiaries did not join the Company in the
Petition and are not directly involved in the Bankruptcy
Reorganization Proceeding, however, because the Company operates
through its subsidiaries, the bankruptcy reorganization will
substantially impact the subsidiaries.
On January 23, 1998, the Company filed a Proposed Plan of
Reorganization and Proposed Disclosure Statement to the Plan of
Reorganization with the U.S. Bankruptcy Court that management
believes will permit it to reorganize and provide for payment to
creditors and preserve the interest of its shareholders. A
hearing is scheduled with the United States Bankruptcy Court for
the District of Utah, Central Division, for the approval of the
Disclosure Statement on May 14, 1998 at 2:30 p.m.
Some of the information provided in the Proposed Plan of
Reorganization and the Proposed Disclosure Statement to the Plan
of Reorganization are considered forward looking statements
within the meaning of Section 27A of the Securities Act of 1993
and Section 21E of the Securities Exchange Act. Although the
Company's management believes that the expectations reflected in
the plan are reasonable, there can be no assurance that the
actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have
the expected effects on its business or results of operations.
Such expectations involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from
any future results, performance or achievements expressed or
implied by forward looking statements.
Based on the following, there can be no assurance that the
Company will be able to develop a reorganization plan which will
be acceptable to its creditors and which will leave the Company
with sufficient assets to continue its operations. There can be
no assurance that the Company will not be required to liquidate
and discontinue its operations.
The Company's current operating subsidiaries are (1)
Interline Energy Services, Inc.("Interline Energy") a Wyoming
corporation which manages the Company's oil and gas operations
located in Wyoming and (2) Interline Hydrocarbons, Inc.
("Interline Hydrocarbons") a Wyoming corporation which owns and
operates the Company's used oil refining technology.
Interline Energy Services - Oil and Gas Operations.
The Company has been engaged in the oil and gas industry
since 1990. These operations primarily involve natural gas
gathering and processing, crude oil gathering, fractionation and
marketing of natural gas liquids, and oil and gas production. In
May, 1997, the Company sold its Utah gathering and production
operations to subsidiaries of the Questar Corporation of Salt
Lake City, Utah, and is now concentrating on its operations in
east-central Wyoming.
During 1997, the Company's gas gathering operations in
Wyoming have gone through a transition period. As gathered
natural gas volumes have continued to decline, substantial
changes were needed to optimize the pipeline system for a lower
throughput level. Two large owned compressors were sold in
February and replaced with a single leased compressor more suited
for the gas volumes in the field. Additional measurement check
points and liquid cleanout facilities were installed in order to
optimize system performance.
At the Well Draw Gas Plant/Fractionator, self-generation of
electric power was replaced in February with commercial power
supplied by Pacific Power and the two gas engine generator sets
were sold. This change reduced the Plant's reliance on field gas
for fuel, and also is a reflection of the declining availability
of field gas for fuel. Operations at Well Draw during 1997
continued to be geared primarily towards fractionation and
marketing of natural gas liquids trucked into the plant from
various gas plants located in the eastern half of Wyoming.
The Company buys mixed liquids from several different
plants, transports them to Well Draw, fractionates the liquids
into commercial propane, butane, and natural gasoline, and re-
markets these products for its own account. Additionally, from
time to time the Company enters into agreements for fractionation
of liquids from others on a fee basis, including the Amoco
contract and others. The plant processed a total of 78,100
gallons a day of natural gas liquids for the three months ended
March 31, 1998 compared to 74,114 gallons a day for the three
months ended March 31, 1997. Of the total gallons processed
9,039 gallons per day was for the Company and 69,061 gallons per
day for others, as compared to 23,663 and 50,451gallons per day
respectively in 1997. In October KN Gas Gathering began
processing approximately 20,000 gallons per day at Well Draw
under an agreement which extends to March 31, 1998. Because of
the pricing in the local market, in April of 1998, the Company
was informed by KN Gas Gathering of its intentions not to process
their liquids during the summer months. KN Gas Gathering informed
the Company that they anticipate they would resume processing
starting September 1998.
The Company's natural gas liquids transportation operation
transported approximately 18 million gallons of raw and finished
products during 1997. The Company operates four tractor-trailer-
pup combination units to move unprocessed natural gas liquids to
Well Draw for fractionation, and then to take propane, butane,
and natural gasoline from Well Draw to various refiners, chemical
plants, and end-users. When time permits, these trucks also move
liquids on a
common carrier basis for third parties. The Company intends to
continue to emphasize this profitable business segment, and
believes that our reputation for flexibility and customer service
will allow us to maximize opportunities.
One of the greatest factors impacting trucking operations is
the increasing level of regulation from the U.S. Department of
Transportation governing transportation of hazardous materials.
This has required significant increases in man-hours devoted to
maintaining safe and legal operation of the Company's equipment.
A safety review and audit of the Company's operations was
performed by the D.O.T. in November, and although several minor
record-keeping discrepancies were found, no serious violations or
citations were issued and no fines were assessed. It has been
and is management's expressed policy to operate all of its
businesses in a safe and legal manner.
Oil and natural gas production from the Company's wells in
Wyoming continue to be a small but profitable segment of
operations. Although oil and gas prices held up during the first
three quarters of 1997, significant price declines occurred in
November and December and have continued in early 1998. Despite
these decreases, the Company intends to continue producing these
wells.
Management is unaware of any significant future capital
expenditures for the future in its oil and gas operations.
However, the very nature of equipment operation, ware and tear
and replacement in this type of operation can be significant.
Further, it is noted that most of the revenues earned by the Well
Draw Plant are derived from the Amoco contract which will expire
in June 1, 2000. If this contract is not renewed, it will have a
substantial impact on the ability of the Well Draw plant to
continue operations. Management continues to seek other liquids
and gas connections to expand and diversify its operations in
Wyoming, however, its operations are in a limited and well
defined area and expansion is difficult.
Interline Hydrocarbon - Used Oil Refining.
The Company has learned much during 1997 concerning the most
commercial way to continue in the used oil refining business.
Revenues to the Company can come from five sources: 1) profits
made from constructing the Plant, 2) granting exclusive
territories to licensee, 3) receiving royalties based on either
production or a flat yearly licensing fee, 4) taking partnership
interests in operating Plants by either contributing the
technology and/or making cash contributions for partnership
interests and, 5) rather than build the Plant, sell the
construction plans and provide consultation and expertise so that
the customer can build the Plant.
Based on the experiences with the four Plants that have been
built by the Company, management's current feelings are to not be
in the construction business. Further, until the Company gets in
better financial condition, it is not in a position to take
interests in operating Plants. Management believes that the best
way for it to capitalize on the technology is to sell the
construction plans of a Plant and provide consultation services
to the purchaser.
It has also become evident to management that demanding
royalties based on production in many situations and countries is
difficult. Unless and until the rerefined oil produced in a
Plant can be sold at higher values based on pricing similar to
base lubricating oils, on-going royalties based on production is
difficult to obtain. The most viable opportunities management
has discovered are in countries that have governmental
concessions resulting in economic incentives for collecting and
processing used oil. This reality has been seen in both Korea,
where the royalty was terminated for the first plant, and England
where, as described previously, the royalties were reduced and
not payable until profitable.
Management still believes that there exists economic
justification and interest in the technology. While management
continues to receive inquiries about the technology, the Company
is selective as to potential purchasers. From experience,
management is aware of the complicated nature between the balance
of supply and demand. Management has become much more selective
in its consideration of selling the technology to prospective
purchasers and unless favorable conditions exist the Company
discourages the purchaser. Management has become much more
active in helping potential customers evaluate their end product
sales markets.
Results of Operations
The following analysis of the financial condition and
results of operations should be read in conjunction with the
Financial Statements and Notes thereto, included elsewhere in
this report.
During 1997, the following three events occurred, and have
been classified and presented in the financial statement as
discontinued operations. Readers of the condensed financial
statements should keep in mind that prior comparative information
in this report have been changed to reflect these events.
Salt Lake Refinery - Genesis Petroleum Inc.: As disclosed
in previous SEC filings, the Company recorded a liability for the
repurchase of a used oil refinery located in Salt Lake City, Utah
from Genesis Petroleum, the original purchaser. This liability is
a result of Genesis exercising the option, provided in the sales
agreement, to require the Company to repurchase the refinery.
Prior to the option being exercised, the Company was a 26% owner
of the joint venture which operated the used oil refinery and
accounted for its investment on the equity method through June 19,
1996. The original purchaser owned the remaining 74% of the joint
venture and operated the plant. The Company had consolidated the
operations of the refinery and joint venture since June 19, 1996
the date the option was executed.
Effective September 30, 1997, the Company reclassified the
operations of the Genesis Refinery and joint venture into
"discontinued operations". The change in accounting treatment
was due to the belief of Company's management that it will not
retain the refinery and ownership in the joint venture.
Subsequently, on December 23, 1997 the Company and Genesis
Petroleum entered into an agreement to settle all claims. (See
Legal Proceeding) The consolidated statement of operations
presented for the three months ended March 31, 1998 and 1997
reflect the revenue and expense relating to Genesis Refinery
under caption "Income (loss) from discontinued operations".
Utah Oil and Gas Operations: As disclosed in previous SEC
filings, on May 1, 1997, the Company sold all assets of its Utah
oil and gas operations. The consolidated statement of operations
presented for the three months ended March 31, 1998 and 1997,
reflect the revenue and expense relating to these assets under
caption "Income (loss) from discontinued operations.".
Gagon Mechanical Operations: In May 1997, the Company
discontinued the operations of Gagon Mechanical. The
consolidated statement of operations presented for the three
months ended March 31, 1998 and 1997, reflect the revenue and
expense relating to these assets under caption "Income (loss)
from discontinued operations." The consolidated balance sheet
for quarter ended March 31, 1998 reflect all assets and
liabilities relating to the operations under caption "Net assets
of discontinued operations".
Total Revenues
Revenues decreased $1,030,519 or 53.45%, to $897,570 for the
three months ended March 31, 1998 as compared to $1,928,089 for
the three months ended March 31, 1997. The revenue decrease
included a $681,361 or 46.47%, decrease in oil and gas revenues;
and an $357,858, or 77.50%, decrease in used oil refining
revenues and an $8,700 increase in other revenues. The oil and
gas revenue decrease was attributed to several liquid purchase
contracts that expired. The Company tried to negotiate new terms
for these liquids, but after considering the very low margins and
the risk on the structure of the pricing, the Company did not
except the new terms. The Company's total revenues, on a segment
basis, for three months ended March 31, 1998 and 1997 were as
follows:
The following table excludes any revenues generated from the
assets of the Utah oil and gas operations, Gagon Mechanical
construction and manufacturing operations, and any revenues
attributed to the Salt Lake City refinery operation. The assets
of the Utah oil and gas operations were sold May 1, 1997. Gagon
Mechanical operations were discontinued in May 1997, although the
Company is subcontracting to G-EPIC, Inc. the construction of the
Australia plant. The assets of the Salt Lake Refinery were
discontinued due to the Company's agreement with Genesis
Petroleum to settle all claims. The results of these operations
are reflected in the consolidated statement of operations under
caption "Income (loss) from discontinued operations".
Revenues For Three Months Ended March 31, 1998 and 1997
% %
1998 1997
Oil and Gas $784,985 87.46% $1,466,346 76.05%
Used Oil 103,885 11.57% 461,743 23.95%
refining
Other 8,700 .97% 0 .00%
Total $897,570 100% $1,928,089 100%
Revenue
Oil and Gas Revenues
Oil and gas revenues contributed approximately 87.46% of
total revenues for the three months ended March 31, 1998, as
compared to approximately 76.05% for the three months ended March
31, 1997. Revenues decreased $681,361 or 46.47% to $784,985 for
the three months ended March 31, 1998 as compared to
$1,466,346,for the three months ended March 31, 1997.
The revenues presented in the above table are solely from
the Company's Wyoming operations. This revenue decrease of
$681,361 or 46.47% is mainly attributed to several liquid
purchase contracts that expired. The Company tried to negotiate
new terms for these liquids, but after considering the very low
margins and the risk on the structure of the pricing, the Company
did not except the new terms.
Used Oil Refining Revenues
Since it commenced operations in the used oil refining
business, the Company has primarily derived revenues attributed
to fees for engineering, plant design, license, exclusively or
other services associated with the Company's used oil refining
technology. The revenue attributed to the used oil refining
business varies significantly from quarter to quarter reflecting
the status of the Company's fees and plant design services.
Used oil refining revenues contributed 11.57% of total
revenues for the three months ended March 31, 1998 compared to
23.95% for the three months ended March 31, 1997. The revenues
decreased $357,858, or 77.5%, to $103,885 for the three months
ended March 31, 1998 compared to $461,743 for the three months
ended March 31, 1997. Revenues for the three months ended March
31, 1997 were mainly derived from the marketing agreement with
Dukeun Industrial Company, Ltd. of Seoul, South Korea for
$400,000, and engineering revenues of $60,000 attributed to the
Australia refinery. During the three months ended March 31, 1998
and 1997, the Company received no revenues for royalties for it
used oil technology.
The results of the Salt Lake City refinery operations during
the three months ended March 31, 1998 and 1997, are reflected in
the consolidated statement of operations under the caption
"Income (loss) from discontinued operations".
Direct Costs
Direct costs decreased $688,655, or 50.65%, to $670,878 for
the three months ended March 31, 1998 compared to $1,359,533 for
the three months ended March 31, 1997. The decrease of $688,655
for the three months ended March 31, 1998 was mainly attributed
to a decrease in the Company's oil and gas revenues. As a
percent of revenues, direct costs increased to 74.74% for the
three months ended March 31, 1998 compared to 70.51% for the
three months ended March 31, 1997. This 4.23% of revenue
increase is mainly attributed the marketing agreement with Dukeun
Industrial Company, Ltd. of Seoul, South Korea for $400,000
during the three months ended March 31, 1997. Without the
revenues associated from this marketing agreement during 1997,
direct cost as a percent of revenues would have been 88.97% for
the three months ended March 31, 1997 compared to 74.74% for the
three months ended March 31, 1998.
Selling, General and Administrative
Selling, general and administrative expenses decreased
$145,921, or 33.29%, to $292,394 for the three months ended
March 31, 1998 compared to $438,315 for the three months March
31, 1997. As a percent of revenues, selling, general and
administrative expenses were 32.58% for the three months ended
March 31, 1998 compared to 22.73% for the three months ended
March 31, 1997. During 1997, the Company's management developed
a plan to increase cash flow and reduce expenses. Part of the
plan included a reduction of personnel, including both management
and operations personnel. During 1997, the Company reduce 3
management positions and 25 operational positions. During 1998,
the Company reduced an additional 4 management positions and 2
operational positions. The Company did incur outside legal fees
of $30,617 for the three months ended March 31, 1998 compared to
$27,162 for the three months ended March 31, 1997. This $3,455
increase was attributed to the Company's legal proceedings and
bankruptcy filing.
Depreciation and Amortization
Depreciation and amortization expenses decreased $29,349, or
14.70%, to $170,321 for the three months ended March 31, 1998
compared to $199,670 for the three months ended March 31, 1997.
As a percent of revenues, depreciation and amortization expenses
increased to 18.98% for the three months ended March 31, 1998
compared to 10.36% for the three months ended March 31, 1997.
Research and Development
Research and development expenses decreased $74,313, or
76.02%, to $23,446 for the three months ended March 31, 1998
compared to $97,759 for the year ended March 31, 1997. As a
percent of revenues, research and development expenses decreased
to 2.61% for the three months ended March 31, 1998 compared to
5.07% for the three months ended March 31, 1997.
Research and development expenses were mainly attributable
to the development and enhancement of the Company's used oil
refining technology. The Company will continue to incur research
and development expenses as it continues to develop its used oil
refining technology.
(Loss) from operations
Loss from operations increased $92,281, or 55.20%, to
$259,469 for the three months ended March 31, 1998 compared to a
$167,188 loss for the three months ended March 31, 1997. The
$92,281 increase was mainly attributed to a marketing agreement
with Dukeun Industrial Compay, Ltd. of Seoul, South Korea for
$400,000 during the three months ended March 31,1997. Without the
revenues associated with the marketing agreement, the Company's
loss from operations would of been $567,188 for the three months
ended March 31, 1997 compared to $259,469 for the three months
ended March 31, 1998. Without the revenues associated with the
marketing agreement, loss from operations would have decreased by
$307,719. This decrease was attributed to a decrease in selling,
general and administrative expense of $145,921, or 33.29%, to
$292,394 for the three months ended March 31, 1998 compared to
$438,315 for the three months ended March 31, 1997. The Company
also decrease research and development expenses by $74,313, or
76.02%, to $23,446 for three months ended March 31, 1998 compared
to $97,759 for the three months ended March 31, 1997.
Other income (expenses)
Interest expenses decrease $5,264, or 34.29%, to $10,086 for
the three months ended March 31, 1998 compared to $15,350 for the
three months end March 31, 1997. The decrease was mainly
attributed to a decrease in the Company's debt obligations during
1997.
Interest expense to a related party decreased $32,712 or
26.99%, to $88,475 for the three months ended March 31, 1998
compared to $121,187 for the three months ended March 31, 1997.
The decrease in interest to a related party was attributed to the
note balance being $5,030,089 during the three months ended
March 31, 1997, and the note balance being $2,680,089 during the
three months ended March 31, 1998. During 1997, the Company paid
the related party $2,350,000. The $2,350,000 was all applied to
principle.
For the three months ended March 31, 1998 the Company had no
gain or loss on sale of assets compared to $773,818 for the three
months ended March 31, 1997. This gain on sale of assets of
$773,818 for the three months ended March 31,1997 was attributed
to a gain of $500,000 on the sale of its 40% interest in the U.K.
Refinery and a gain of $273,818 on the sale of two compressors
and two generators.
(Loss) from discontinued operations.
Loss from discontinued operations decreased $267,004, or
91.74%, to $24,054 for the three months ended March 31, 1998
compared to a loss of $291,058 for the three months ended March
31, 1997. Income from the Utah oil and gas operation (sold May
1, 1997) decreased $82,331, or 100%, to -0- for the three months
ended March 31, 1998 compared to income of $82,331 for the three
months ended March 31, 1997. Losses attributed to the Genesis
refinery (discontinued September 30, 1997) decreased $122,743, or
100%, to $-0- for the three months ended March 31, 1998 compared
to $122,743 for the three months ended March 31, 1997. Losses
from the Gagon Mechanical (discontinued May 1, 1997) decreased
$226,592, or 90.40%, to $24,054 for the three months ended March
31, 1998 compared to $250,646 for the three months ended March
31, 1997. The Company's total income or loss from discontinued
operations, on a segment basis, for the three months ended March
31, 1998 and 1997 were as follows:
Income (Loss) From Discontinued Operations
For The Three Months Ended March 31, 1998 and 1997
1998 1997 Change %
Utah Oil and $0 $82,331 - $82,331 100.00%
Gas
Gagon - 24,054 - 250,646 226,592 90.40%
Mechanical
Genesis 0 - 122,743 122,743 100.00%
Refinery
Total -$24,054 -$291,058 $267.004 91.74%
Liquidity and Capital Resources
Sources of liquidity for the Company are revenues from oil
and gas operations and revenues from the sale of its hydrocarbon
refining technology. Currently, the only consistent ongoing
revenue sources to the Company are from its oil and gas
operations in Wyoming. The Company only receives revenues from
its used oil refining technology when a sale or license is
executed. While the Company continues to work with potential
purchasers of its technology, such sales and expected revenues
are uncertain and unpredictable. If an acceptable reorganization
plan is accepted in the Company's Chapter 11 bankruptcy
proceeding, management believes that the Company's cash from its
operating activities and cash retained under the reorganization
plan would be adequate to meet its operating needs in the near
term and would provide a plan to meet debt obligations.
Management has put strict restraints on all capital expenditures
with the exception of necessary expenditures to maintain current
operations. The Company will continue to incur research and
development costs as it continues to develop its refining
technology. At present these activities are being performed by
current Company employees and part time contract consultants
If the Company is unable to obtain approval of a
reorganization plan under its Chapter 11 bankruptcy proceeding,
the Company may be compelled to file for liquidation under
Chapter 7. The Company can seek to raise additional financing
through the sale of equity, debt and assets but there can be no
assurance that the Company will be able to continue its current
operations.
The Company's operations used $832,839 of cash for the three
months ended March 31, 1998 compared to $1,124,944 cash used in
operations for the three ended March 31, 1997. Of the $832,839
cash used in operations for the three months ended March 31,
1998, $750,000 was attributed to an one time payment to Genesis
Petroleum, Inc. to settle all claims (See Item 1 - Legal
Proceeding). Without the one time payment to Genesis Petroleum,
Inc., cash used in operations for the three months ended March
31, 1998 was $82,839. The decrease in cash used in operations was
mainly attributed to changes implemented by management. During
1997, the Company's management developed a plan to increase cash
flow and reduce expenses. The plan included the following:
In May of 1997, the Company discontinued the Gagon
Mechanical operations and has been subcontracting any work
formerly done by Gagon. In the year ended December 31, 1997
Gagon's loss from discontinued operations was $4,609 compared to
a loss of $2,022,857 for the year ended December 31, 1996. In the
three months ended March 31, 1998 Gagon's loss from discontinued
operations was $24,054 compared to a loss of $250,646 for the
three months ended March 31, 1997.
During 1997, the Company reduced its workforce by 28 jobs.
Included in the reduction was 3 management positions and 25
operational positions. This reduction in workforce reduced the
Company's salaries and wages by approximately $550,000.
During the first five months of 1998, the Company reduced
an additional 4 management positions, 1 operational
position and 1 clerical position.
3. During 1997, the Company received proceeds in the amount
of $5,014,024 on the sale of assets and reduced debt by
$2,461,077. Included in assets sold, was the Company's
Utah oil and gas operations (Monument Butte) for
$4,000,000, the 40% interest in Interline (UK) Joint
Venture for $500,000 in which the Company has received
200,000, the sale of two compressors for $502,111 located
in Wyoming and other equipment and vehicles for $11,913.
Subsequent to March 31, 1998, the Company sold the Gagon
Mechanical construction equipment, parts and salvage
material for the sum of $65,000. The Company has also
accepted an offer on the Gagon Mechanical building,
located in Sandy, Utah for $885,106. Net proceeds to the
Company after commissions and closing costs will be
approximately $550,000. The closing is scheduled for May
27, 1998.
On September 30, 1997, the Company deemed its Salt Lake
Refinery operation to be a discontinued operation. Subsequently,
on December 23, 1997, the Company entered into a agreement with
Genesis Petroleum, Inc. to settle all claims between both
parties.
The agreement resulted in the Company transferring all its rights
to the Salt Lake Refinery, the payment of $750,000 (made on
January 29, 1997) and granting of a license of the Company's
technology for three additional sites with no license
fees to be paid to the Company. In the year ended
December 31, 1997 loss from the Salt Lake Refinery was
$191,044 compared to $281,832 for the year ended December
31, 1996. For the three months ended March 31, 1998 there
where no losses compared to $122,743 for the three months
ended March 31, 1997.
During 1997, the Company reduced capital expenditures from
continuing operations by $78,023, to $153,378 for the year ended
December 31, 1997 compared to $231,401 for the year ended
December 31, 1996. For 1998, the Company has put strict
restraints on all capital expenditures with the exception of
necessary expenditures to maintain current operations. Capital
expenditures from continuing operations for the three months
ended March 31, 1998 were $21,948 compared to $119,664 for the
three months ended March 31, 1997.
During 1997, the Company paid a related party $2,350,000 of
which $2,200,000 was proceeds from the sale of the Utah oil and
gas operations and $150,000 was proceeds from the sale of two
compressor located in the Wyoming operations. The $2,350,000 was
all applied to principal. As of December 31, 1997 the balance
owed to the related party is $2,680,089 in principal and $974,250
in interest.
Note Payable and Accrued Interest Due to Related Party
Inter Current Accrued
Initial est
Balance Rate
Balance Interest
Note 1 $250,000 12% $250,000 $97,411
Note 2 1,500,000 12% 1,500,00 329,425
Note 3 780,089 16% 0 463,350
Note 4 2,500,000 16% 930,089 84,064
Total $5,030,089 $2,680.089 $974,250
As disclosed in previous SEC filings, three of the following
Senior Secured notes to a shareholder totaled $2,530,089. This
amount and the associated interest was due September 1, 1996. As
a result of non payment by the Company, the notes are currently
in default. (An event of default under another $2.5 million note
(see # IV) has occurred, which permits acceleration of the
Company's obligation to repay the principal and interest.)
I. During 1994, the Company issued a $250,000 senior
convertible note payable to a related party. The note bears
interest at 10% and was due on September 1, 1996. After
December 31, 1994, the note is convertible in full to 67,750
shares of the Company's restricted common stock at the
option of the note holder. As a result of the default, the
interest rate has changed to 12%.
II. On February 29, 1996 the Company obtained $1,500,000 in a 6%
senior secured note from the same related party. The
obligation was due September 1, 1996. In the event of a
default on the note the principal can be converted to shares
of the Company's common stock at the price of the lesser of
$3.20 per share or 80 percent of the average closing price
for the Company's shares for the five consecutive trading
days preceding the date of conversion. The note was secured
by all of the issued and outstanding stock of two
subsidiaries, Interline Energy Services and Gagon Mechanical
Contractors. As a result of the default, the interest rate
has changed to 12%.
III. On July 19, 1996, the Company obtained $780,089 in a 9.5%
senior secured note from the same related party. The
obligation was due September 1, 1996. The note is secured by
the outstanding shares of Interline Energy Services, Gagon
Mechanical and Interline Hydrocarbon. As a result of the
default, the interest rate has changed to 16%.
IV. On May 15, 1996, the Company obtained $2,500,000 in a 9.25%
senior secured note from the same related party as above.
The note is due January 15, 1998 and is secured by the
outstanding shares of Interline Energy Services and Gagon
Mechanical. Upon default, the loan may be converted into
shares of the Company's common stock at the lesser of $3.12
per share or 80 percent of the average closing price for
shares of the Company's common stock for five consecutive
trading days preceding the date of conversion. As additional
consideration for the shareholder making the Loan to the
Company, the Company has issued a Warrant to purchase up to
250,000 shares of common stock at $3.90 per share. As a
result of the default, the interest rate has changed to 16%.
Bankruptcy Proceeding
On July 29, 1997, Genesis Petroleum, Inc. ("GPI") and
Petroleum Systems, Inc. ("PSI") filed a Petition for an
involuntary Bankruptcy against the Company. The Company filed a
Motion to Dismiss claiming that the Petition was improperly
filed. The Bankruptcy Court ruled that the court did not have
jurisdiction because only two creditors had joined in the
Petition. Another hearing was scheduled to consider the joiner
of additional creditors. On September 26, 1997, the Company
filed its own Petition for Reorganization (Bankruptcy #97C-26571)
under Chapter 11 of the United States Bankruptcy Act.
Since September 26, 1997, the Company has been continuing
with its operations as a debtor-in-possession. On January 23,
1998, the Company filed a Proposed Plan of Reorganization and
Proposed Disclosure Statement to the Plan of Reorganization with
the U.S. Bankruptcy
Court that management believes will permit it to reorganize and
provide for payments of creditors and preserve the interest of
its shareholders. A hearing is scheduled with the United States
Bankruptcy Court for the District of Utah, Central Division, for
the approval of the Disclosure Statement on May 14, 1998 at 2:30
p.m.
Some of the information provided in the Proposed Plan of
Reorganization and the Proposed Disclosure Statement to the Plan
of Reorganization are considered forward looking statements
within the meaning of Section 27A of the Securities Act of 1993
and Section 21E of the Securities Exchange Act. Although the
Company's management believes that the expectations reflected in
the plan are reasonable, there can be no assurance that the
actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have
the expected effects on its business or results of operations.
Such expectations involve know and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from
any future results, performance or achievements expressed or
implied by forward looking statements.
Based on the following, there can be no assurance that the
Company will be able to develop a reorganization plan which will
be acceptable to its creditors and which will leave the Company
with sufficient assets to continue in operations. There can be
no assurance that the Company will not be required to liquidate
and discontinue its operations.
Inflation
The Company's business and operations have not been
materially affected by inflation during the past three years and
the current calendar quarter. The Company believes that
inflation will not materially nor adversely impact its business
plans for the future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Genesis Petroleum Inc.
The Company has previously reported a lawsuit that had been
filed against it in the Third Judicial District Court of Salt
Lake County, State of Utah, by Genesis Petroleum Inc. ("GPI") for
breach of a Sale and Purchase Agreement. Under the Agreement, the
Company agreed to purchase GPI's interest in the Salt Lake City
used oil refinery that had been operated by a joint venture owned
by GPI and a subsidiary of the Company. In July 1997, the Court
granted GPI a judgment in the litigation and awarded GPI damages for
breach of contract. The Court awarded GPI damages in the amount
of $2,320,836, less an offset of the value of the assets which
the Company had agreed to purchase from GPI under the Agreement,
but as a result of the Company's default, these assets had been
retained by GPI. The Company was to present evidence to the Court
as to the value of the Plant and the amount of the offset (See
Liquidity and Capital Resources). Prior to the Company presenting
the Court with such evidence, GPI and another creditor filed a
Petition for Involuntary Bankruptcy against the Company
(described further below).
On January 20, 1998 the United States Bankruptcy Court for
the District of Utah approved a settlement agreement between the
Company and Genesis Petroleum. The Company and Genesis were
joint ventureres in an used oil refinery located in Salt Lake
City, Utah. The settlement agreement provided for, among other
things, the following: 1) the litigation between them was
terminated; 2) Interline paid Genesis the sum of $750,000; 3) the
Company granted Genesis a license to build and operate three
additional used oil refineries using the technology assigned to
it by PSI without the payment of any royalties or other payments
to the Company; 4) the Company transferred all of its right in
the joint venture and in the Salt Lake Refinery to Genesis; and,
5) all previous agreements between the Company and Genesis were
terminated.
Petroleum Systems Inc.
The Company has executed license agreements with licensees
to utilize Interlines used oil technology received from Petroleum
System, Inc. ("PSI") through an assignment agreement of certain
patent rights. Under the assignment agreement the Company is
obligated to pay royalties to PSI for those Interline plants
using PSI technology. The Company and PSI have been involved in a
dispute as to what payments the Company owes PSI under the
assignment agreement. The Company and PSI were first involved in
an arbitration proceeding to determine the issues between them,
but PSI discontinued resolution through arbitration. PSI claim
against the Company is for $450,000. The Company intends to
vigorously defend this litigation. The financial statements
present an amount that management believes would be payable
should the litigation rule in favor of the plaintiff. There is no
assurance that the amount will be the final outcome.
On July 29, 1997, PSI filed a lawsuit against the Company in
the third Judicial District
Court of the State of Utah alleging that the Company was in
breach of the assignment agreement and that is should be allowed
to re-acquire all of the technology rights assigned to the
Company through the assignment agreement. PSI filed its complaint
and the Company has answered, but no other pleading have been
filed.
As discussed below, on September 26, 1997, the Company filed
a Petition for Reorganization under Chapter 11 of the United
States Bankruptcy Code and is now continuing its operations as a
debtor-in-possession. PSI's claims for royalties under the
assignment agreement, as well as its allegations that the Company
is in breach of the assignment agreement is before the Bankruptcy
Court and those issues will be resolved in the Bankruptcy
proceeding. A hearing is scheduled with the United States
Bankruptcy Court for the District of Utah, Central Division, for
June 5, 1998 at 10:00 a.m. and June 8, 1998 at 10:00 a.m.
Involuntary Bankruptcy Petition
On July 29, 1997, PSI and GPI (described above) jointly
executed a Petition for Involuntary Bankruptcy ("Petition")
against the Company. As described above, both of such companies
were involved in commercial disputes and litigation against the
Company at the time the Petition was filed. Prior to the time the
Petition was filed, GPI informed the Company that if it did not
execute various documents relating to the purchase of the Salt
Lake City refinery prior to 4 p.m. on July 29, 1997, it would
file the Petition. The Company did not execute such documents by
4 p.m. on such date and GPI and PSI filed the Petition.
After the Petition was filed, GPI and PSI filed a Motion to
have a Trustee appointed to manage the Company for the duration
of the Bankruptcy Petition. On August 8, 1997, a hearing on the
Motion was held in U.S. Bankruptcy Court. The Judge dismissed
the Motion on the basis that the bankruptcy law required three
creditors to sign the Petition for Involuntary Bankruptcy, but
only GPI and PSI had signed the Petition against the Company.
The Company filed a motion to dismiss the petition as being
improperly filed. The court did not enter an order for relief
under Chapter 7 of the Bankruptcy Code based upon the motion to
dismiss.
On September 26, 1997, the Company filed a Petition for
Reorganization under Chapter 11 (the "Petition") of the United
States Bankruptcy Code. The Company is continuing with its
operations as a debtor-in-possession under the Bankruptcy Code.
The Company's subsidiaries did not join the Company in the
Petition and are not directly involved in the Bankruptcy
Reorganization Proceeding, however, because the Company operates
through its subsidiaries, the bankruptcy reorganization will
substantially impact the subsidiaries. During the time the
Company is in the Bankruptcy Proceeding, it will be subject to
the jurisdiction of the U.S. Bankruptcy Court.
On January 23, 1998, the Company filed a Proposed Plan of
Reorganization and Proposed Disclosure Statement to the Plan of
Reorganization with the U.S. Bankruptcy Court that
management believes will permit it to reorganize and provide for
payments of creditors and preserve the interest of its shareholders.
A hearing is scheduled with the United States Bankruptcy Court for
the District of Utah, Central Division, for the approval of the
Disclosure Statement on May 14, 1998 at 2:30 p.m.
Some of the information provided in the Proposed Plan of
Reorganization and the Proposed Disclosure Statement to the Plan
of Reorganization are considered forward looking statements
within the meaning of Section 27A of the Securities Act of 1993
and Section 21E of the Securities Exchange Act. Although the
Company's management believes that the expectations reflected in
the plan are reasonable, there can be no assurance that the
actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have
the expected effects on its business or results of operations.
Such expectations involve know and unknown risks, uncertainties
and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from
any future results, performance or achievements expressed or
implied by forward looking statements.
Based on the following, there can be no assurance that the
Company will be able to develop a reorganization plan which will
be acceptable to its creditors and which will leave the Company
with sufficient assets to continue in operations. There can be
no assurance that the Company will not be required to liquidate
and discontinue its operations.
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
The Company is currently in default on notes due to a
shareholder (See Liquidity and Capital Resources).
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
The Company announced on August 13, 1997 that the American
Stock Exchange (AMEX) made a final determination to delist the
Company from the AMEX's Emerging Company marketplace.
As of May 12, 1998, a market is being made of the Company's
common stock on the NASD Bulletin Board under symbol "IRCE".
Item 6(a). Exhibits:
None
Item 6(b) Form 8-K:
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 12, 1998 INTERLINE RESOURCES CORPORATION
By/s/ Michael R. Williams
Michael R. Williams
CEO/President
Principal Executive Officer
Director
By/s/ Mark W. Holland
Mark W. Holland
Chief Financial Officer
In accordance with the Exchange Act, 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 Title Signature
May 12, 1998 CEO/President /s/ Michael R. Williams
and Director Michael R. Williams
May 12, 1998 Director/ /s/ Michael A. Megee
Secretary Michael A. Megee