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 September 30, 1995
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 Drive, 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: None
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 November 9, 1995 - 13,950,200 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
September 30, 1995 and December 31, 1994
Condensed Consolidated Statement of Operations for the three
and nine months ended September 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows for
nine months ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
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
Ex-27 Financial Data Schedule
Item 6(b) Reports on Form 8-K
Signatures
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
PART I - ITEM 1
FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
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 September 30, 1995, have been made. The
results of operations for the interim period is not necessarily indicative
of the results to be expected for the entire year.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
Sept 30, Dec 31,
1995 1994
(unaudited)
Assets
Current assets:
Cash and cash equivalents $2,273,519 $2,200,035
Accounts receivable - trade $2,660,773 1,818,789
Income taxes receivable $80,000 80,000
Inventories $172,225 98,414
Note receivable - current portion $24,700 24,700
Restricted cash $70,000 70,000
Other current assets $244,342 76,940
Total current assets 5,525,559 4,368,878
Property, plant and equipment $11,301,743 9,028,014
Accumulated depreciation and depletion ($2,022,344) (1,520,401)
Net property, plant & equipment 9,279,399 7,507,613
Note receivable $210,868 228,928
Technology and marketing rights $1,625,936 1,617,610
Other assets $95,869 208,189
Total assets $16,737,631 $13,931,218
The accompanying notes are an integral part of these consolidated condensed
financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet
Sept 30, Dec 31,
1995 1994
(unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit $145,090 $135,536
Accounts payable $2,824,606 2,255,745
Accrued liabilities $434,181 283,728
Current portion of long-term debt $869,335 1,053,262
Other current liabilities 1,001,942 51,322
Total current liabilities 5,275,154 3,779,593
Long-term debt less current maturities 2,438,269 2,413,592
Deferred income taxes 66,000 -
Deferred income 354,556 622,293
Total liabilities 8,133,979 6,815,478
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;
13,950,200 shares and 13,661,313
shares issued and outstanding at
Sept 30, 1995 and December 31, 1994,
respectively 69,751 68,307
Additional paid-in capital 8,572,187 7,274,851
Retained earnings (38,286) (227,418)
Total stockholders' equity 8,603,652 7,115,740
Total liabilities & SE $16,737,631 $13,931,218
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 Nine months ended
Sept 30, Sept 30,
1995 1994 1995 1994
Revenue $5,562,928 $3,103,848 $12,310,304 $7,908,421
Direct costs 3,772,856 2,189,534 8,883,516 5,632,292
Gross margin 1,790,072 914,314 3,426,788 2,276,129
Selling, general and
administrative expenses 690,560 435,099 1,995,918 1,450,667
Research and development 52,065 189,343 269,287 481,352
Depr., depletion and amort. 221,131 149,205 521,789 432,982
Income (loss) from operations 826,316 140,667 639,794 (88,872)
Other income (expense) net
Interest income (expense) (69,981) (67,166) (204,662) (184,524)
Loss on asset sale - - - (22,869)
Litigation settlement (180,000) - (180,000) -
Income (loss) before income
tax benefit 576,335 73,501 255,132 (296,265)
Income tax (benefit) provision
Current - 23,000 - (97,000)
Deferred 66,000 - 66,000 -
Total tax (benefit) 66,000 23,000 66,000 (97,000)
Net income (loss) $510,335 $50,501 $189,132 ($199,265)
Income (loss) per common share $0.04 $0.00 $0.01 ($0.02)
Weighted average shares o/s 13,950,200 12,994,641 13,851,435 12,960,767
The accompanying notes are an integral part of these consolidated condensed
financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended
Sept 30,
1995 1994
Cash flows from operating activities:
Net income (loss) $189,132 ($199,265)
Adjustment to reconcile net income to net
cash provided by operating activities:
Dep., depletion and amort. 521,789 432,982
(Gain) loss on disposal of asset 0 22,869
Common stock issued for services 0 74,113
(Increase) decrease in:
Accounts receivable (841,984) (836,412)
Other assets (167,402) (102,455)
Prepaid expenses 0 (35,728)
Inventories (73,811) 0
Increase (decrease) in:
Accounts payable 568,861 541,923
Accrued liabilities 150,453 69,429
Deferred income taxes 66,000 (120,196)
Deferred income (267,737) 0
Other current liabilities 950,620 101,287
Net cash provided (used) by
operating activities 1,095,921 (51,453)
Cash flows from investing activities:
Proceeds from sale of building 0 251,666
(Increase) in notes receivable
from shareholders 18,060 (17,200)
(Increase) dec. in general partnership 112,320 (5,660)
Purch. of technology and marketing rights (8,326) 0
Purchase of property, plant and equip. (2,293,575) (1,286,303)
Net cash (used in)
investing activities (2,171,521) (1,057,497)
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows - Continued
(Unaudited)
Cash flows from financing activities:
Proceeds from line of credit 9,554 95,000
Proceeds from debt obligations 422,265 1,018,026
Proceeds from issuance of common stock 1,298,780 63,500
Payment on long-term debt (581,515) (638,370)
Net cash provided by
financing activities 1,149,084 538,156
Net (decrease) in cash 73,484 (570,794)
Cash, beginning of year 2,200,035 695,555
Cash, ending of quarter $2,273,519 $124,761
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 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.
Inventories
Inventories consisting of supplies and miscellaneous material are
recorded in the financial statements at their aggregate lower or cost
(first-in, first-out) or market.
Income per Common Share
Income per share of common stock is calculated based on the weighted
average number of common shares outstanding during the period. The
weighted average shares for the nine months ended September 30, 1995 and
1994 is 13,851,435 and 12,960,767, respectively. The weighted average
shares for the three months ended September 30, 1995 and 1994 is 13,950,200
and 12,994,641, respectively. Fully diluted income per share information is
not presented as the per share amounts are not different from presented per
share amounts.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
re-refining process over seventeen years. This period approximates the
assets' useful lives.
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.
Convertible Debt
During 1994, the Company issued a $250,000 senior convertible note
payable to an individual. The note bears interest at 10% and is due in lump
sum on June 30, 1996. After December 31, 1994, the note is convertible in
full to 67,750 shares of the Company's restricted common stock at any time
before the due date, at the option of the note holder.
Common Stock
During 1995, the Company signed a stock option agreement with Gadgil
Western Corporation (formerly called Western India Group) to grant Gadgil
Western $4 million of common stock at $4.50 per share. Gadgil Western can
exercise the options immediately for a total of 888,889 shares of common
stock. The options expire in groups of 55,555 shares every month for four
months and 66,666 shares every month thereafter until March 31, 1996. All
options expire by March 31, 1996. Any shares issued under the agreement
will be restricted securities and are subject to Rule 144 regulations. As
of September 30, 1995, 288,888 shares have been exercised totaling
$1,300,000. Western elected not to exercise groups of 66,666 options for
months July through October 1995. Remaining options granted under the
stock option agreement is 333,335 The options expire in groups of 66,666
every month hereafter until March 31, 1996.
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in several operations which are organized into the
following three segments for accounting purposes:
Oil and Gas. The Company has been in the oil and gas industry since
1990. Its oil and gas operations primarily involve natural gas gathering,
natural gas processing, a crude pipeline operation, propane retail sales
and oil well production. The Company's main oil and gas operations are
located in east-central Wyoming and eastern Utah. Wyoming operations,
located near Douglas, Wyoming, include the Well Draw Gas Plant, Interline
Crude Gathering Company, NRG Fuels, Inc., a 20.4% interest in the Hatcreek
Partnership and various producing oil and gas wells. The Company's Utah
operations are located near Roosevelt, Utah, and include the Monument Butte
Gathering System and the Roseland Wells.
Construction. Effective December 31, 1993, the Company acquired
Gagon Brothers Mechanical Contractors Inc. ("Gagon"). While the purpose of
acquiring Gagon was to provide a manufacturing division to construct the
Company's re-refining plants, it is the intent of management for Gagon to
continue its general construction activities in the strong commercial and
industrial construction market that currently exists in Utah. As orders for
the Company's re-refineries increase and manpower requirements expand,
management will consider options, including whether to increase Gagon's
work force to enable both expansion of its core mechanical business and
meet the manufacturing demand for more new re-refineries, or whether to
decrease the outside contracts and focus most of its resources to refinery
manufacture. As of September 30, 1995, the Company has signed agreements to
manufacture refineries for Quaker State Resources of United States, for
Whelan Environmental Services of England and for Dukeun Industrial Company
of South Korea.
Re-refining. In January 1993, the Company acquired the exclusive
license to a patented reprocessing technology with the right to exclusively
manufacture, market, use, license, sub-license and fully commercialize the
patented technology as it relates to all areas and facets of the field of
hydrocarbons. The Company subsequently acquired the patent rights relating
to the technology. On May 27, 1995, after two years of planning, the Company
and Gadgil Western Corporation (formerly called Western India Group) officially
inaugurated the first oil refinery in the world to use Interline's technology in
Dubai, United Arab Emirates. The Dubai plant is in production trail stage and
production results are expected once the plant is at full capacity.
Management continues to evaluate the best marketing strategy for the re-
refining process. The current approach is to form joint venture companies
throughout the world and manufacture the re-refineries through Gagon
Mechanical. If the re-refinery process is deemed to be commercially viable
by its licensees and joint venture partners, then the Company anticipates
revenues to come from ongoing royalties and distributions from joint
venture ownership in the re-refineries.
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.
Comparison of nine months ending September 30, 1995 and 1994
Total Revenues
Revenues increased $4,401,880, or 55.66%, to $12,310,304 for the nine
months ended September 30, 1995 as compared to $7,908,421 for the nine
months ended September 30, 1994. This revenue increase included a $516,127,
or 13.05%, increase in oil and gas revenues, a $3,484,509, or 112.22%,
increase in construction revenues and a $401,246, or 47.27%, increase in re-
refining revenues. The Company's total revenues, on a segment basis, for
nine months ended September 30, 1995 and 1994 were as follows:
Nine Month Revenues Ended September 30, 1995
1995 % 1994 %
Oil and Gas $4,470,695 36.32% $3,954,567 50.00%
Construction 6,589,609 53.53% 3,105,100 39.26%
Re-refining 1,250,000 10.15% 848,754 10.74%
Total Revenue $12,310,304 100.00% $7,908,421 100.00%
Comparison of three months ended September 30, 1995 and 1994
Total Revenues
Revenues increased $2,459,080 or 79.23%, to $5,562,928 for the three
months ended September 30, 1995 as compared to $3,103,848 for the three
months ended September 30, 1994. This revenue increase included a $194,074
or 13.89%, increase in oil and gas revenues, a $1,513,760 or 103.86%,
increase in construction revenues and a $751,246, or 302%, increase in re-
refining revenues. The Company's total revenues, on a segment basis, for
three months ended September 30, 1995 and September 30, 1994 were as
follows:
Three Months Revenues Ended September 30, 1995
1995 % 1994 %
Oil and Gas $1,591,701 28.61% $1,397,627 45.03%
Construction 2,971,227 53.41% 1,457,467 46.96%
Re-refining 1,000,000 17.98% 248,754 8.01%
Total Revenue 5,562,928 100.00% $3,103,848 100.00%
Oil and Gas Revenues:
Oil and gas revenues, contributed approximately 28.61% of total
revenues for the three months ended September 30, 1995, as compared to
approximately 45.03% for the three months ended September 30, 1994. Revenues
increased $194,074, or 13.89%, to $1,591,701 in revenues for the three months
ended September 30, 1995 as compared to $1,397,627 for three months ended
September 30, 1994.
Wyoming operations revenue increased $287,357, or 30.33%, to
$1,234,895 for the three months ended September 30, 1995 as compared
$947,538 for the three months ended September 30, 1994. The increase in
revenues was mainly attributed to the Company's agreement with Amoco to
process 25 million gallons of NGLs per year, two oil wells drilled in
November 1994 and completed in January 1995, and the purchase of the crude
oil pipeline system from Conoco.
Utah operations revenue decreased $93,284 or 20.73%, to $356,805 for
the three months ended September 30, 1995 as compared to $450,089 for the
three months ended September 30, 1994. This decrease was attributed to a
39.40% decrease in residue sales price and a 9.5% increase in sales volume.
In 1995, the Company has connected approximately 30 new wells to its gathering
system, compared to two new wells for 1994.
Construction Revenues
Construction revenues contributed 53.41% of total revenues for the
three months ended September 30, 1995 compared to 46.96% for the three
months ended September 30, 1994. This was a result of an increase in
revenues of $1,513,760, or 103.86%, to $2,971,227 for the three months
ended September 30, 1995 compared to $1,457,467 for the three months ended
September 30, 1994.
The $1,513,760 increase was mainly attributed to additional work
related to its re-refining process and larger commercial contracts.
Revenues for the three months ended September 30, 1995 were $2,971,227
which included $1,990,375 from commercial and industrial work and $980,853
from work related to the Company's new re-refining technology.
Revenues from commercial and industrial work for the three months
ended September 30, 1995 were $1,990,375, compared to $1,457,467 for the
three months ended September 30, 1994. The $532,908 increase from
commercial and industrial work was attributed to the Company's focus on
larger commercial contracts. As of September 30, 1995, uncompleted
commercial and industrial work under contract was $5,568,614 compared to
$3,747,922 as of September 30, 1994.
Revenues from re-refining work for the three months ended September
30, 1995 were $980,853, compared to $0 for the three months ended September
30, 1994. The increase from re-refining work was attributed to the
Company's contracts to build re-refineries for Quaker State Resources, a
Quaker State company, Dukeun Industrial Company of South Korea and the
Company's joint venture partner Whelan Environmental Services of England.
As of September 30, 1995, uncompleted work under contract related to re-
refining was $2,512,808 compared to $0 for September 30, 1994.
Re-refining Revenues
Re-refining revenues, contributed 17.98% of total revenues for the
three month quarter ended September 30, 1995 compared to 8.01% for the
three months ended September 30, 1994. This was a result of an increase of
$751,246, or 302%, to $1,000,000 for the three months ended September 30,
1995 compared to $248,754 for the three months ended September 30, 1994.
The increase was attributed to the Company signing an exclusive licensing
agreement for its contaminated oil reprocessing technology with Gadgil
Western Corporation (formerly called Western India Group) for Bahrain and
Singapore. For the rights to these countries, Interline received a one-time
payment of $1 million and will receive a gross royalty of two cents per
gallon on all fuel products produced.
In 1994, the Company received licensing fees from Quaker State
Resources in the amount of $250,000 which is classified on the balance
sheet under caption "Deferred income." This revenue will be recognized if
the contracts proceed as agreed.
If the Company's re-refinery operations proceed pursuant to current
agreements, the Company anticipates that future revenues will come from the sale
of re-refineries, ongoing royalties from sublicense agreements on a per gallon
processed basis and profits from joint venture ownership in re-refineries.
Direct Costs. Direct costs increased $1,583,322, or 72.31%, to
$3,772,856 for the three months ended September 30, 1995 compared to
$2,189,534 for the three months ended September 30, 1994. The increase of
$1,583,322 for the three months ended September 30, 1995 was mainly
attributed to an increase in the Company's total revenues. As a percent of
revenues, direct costs decreased to 67.82% for the three months ended
September 30, 1995 compared to 70.54% for the three months ended September
30, 1994. This percent of revenue decrease is mainly attributed to the
Company receiving $1,000,000 from Gadgil Western for the exclusive rights
to Bahrain and Singapore offset by the Company agreement to build Quaker
State Resources first re-refinery at cost.
Selling, General and Administrative. Selling, general and
administrative expenses increased $255,461, or 58.71%, to $690,560 for
three months ended September 30, 1995 compared to $435,099 for three months
ended September 30, 1994. As a percent of revenues, selling, general and
administrative expenses were 12.41% for the three months ended September
30, 1995 compared to 14.02% for the three months ended September 30, 1994.
These expenses consisted principally of salaries and benefits, travel
expenses, legal, information technical services and administrative
personnel of the Company. Also included are outside legal and accounting
fees, and expenses associated with computer equipment and software used in
the administration of the business.
Research and Development. Research and development expenses decreased
$137,278 or 72.50%, to $52,065 for three months ended September 30, 1995
compared to $189,343 for the three months ended September 30, 1994. As a
percent of revenues, research and development expenses decreased to .94%
for the three months ended September 30, 1995 compared to 6.10% for the
three months ended September 30, 1994.
Research and development expenses as of September 30, 1995 were
primarily attributable to development and enhancement of the Company's new
hydrocarbon re-refining technology. These expenses both in absolute dollars
and as a percentage of revenue, reflect additions to the Company's
engineering staff and related costs required to support its continued
emphasis on developing and testing its new hydrocarbon re-refining
technology. The Company believes that continued investment in research and
development is critical to its future growth and profitability. The Company
therefore expects that research and development expenses will continue in
future periods.
Depreciation and Amortization. Depreciation and amortization expenses
increased $71,926 or 48.21%, to $221,131 for the three months ended
September 30, 1995 compared to $149,205 for the three months ended
September 30, 1994. As a percent of revenues, depreciation and amortization
expenses decreased to 3.98% for the three months ended September 30, 1995
compared to 4.81% for the three months ended September 30, 1994.
Liquidity and Capital Resources
The Company had $2,273,519 in cash and cash equivalents as of
September 30, 1995, compared to $2,200,035 as of December 31, 1994. Cash
provided by operations amounted to $1,095,921 for nine months ended
September 30, 1995 compared to cash used by operations of $51,453 for the
nine months ended September 30, 1994. The $1,147,374 increase in cash was
attributed to the Company's current year loss and the expansion in their
oil and gas operations during the first nine months of 1995. Capital
expenditures include the purchase of the crude oil pipeline from Conoco,
expansion to the Well Draw Gas Plant and Gagon Mechanical constructed an
amine unit required under the Amoco agreement.
Sources of liquidity for the Company include revenues from oil and gas
operations, construction operations and revenues from the sale of
hydrocarbon re-refining technology and rights. In July 1995, the Company
signed an exclusive licensing agreement for its contaminated oil
reprocessing technology with Gadgil Western Corporation for Bahrain and
Singapore. For the rights to these countries, Gadgil Western paid
Interline $1 million. Additionally, if Quaker State Resources elects to
purchase additional re-refining plants, the Company is entitled to receive
the payments and licensing fees referred to in the Quaker State Resources
agreement as well as construction revenues from building re-refining
facilities. In March 1995, the Company signed a stock option agreement with
Western India Group to grant Western $4,000,000 of common stock at $4.50
per share. As of November 9, 1995, Western has exercised 288,887 shares
totaling $1,300,000. Western elected not to exercise groups of 66,666
options for months July through October 1995. Remaining options granted
under the stock option agreement dated March 13, 1995 is 333,335. The
options expire in groups of 66,666 every month thereafter until March 31,
1996.
These funds and existing working capital are expected to be sufficient
to fund current operations during fiscal year 1995. In the event
management elects to participate in a joint venture in owning and operating
re-refining plants, or if the settlement with Phillips Petroleum Company
(refer to Part II- Item 1: Legal Proceedings) requires cash payment, the
Company would need to raise additional sums through borrowing or equity
financing. Additionally, it is management's intent that when potential
purchasers of a re-refining plant place an order, the payment terms will be
tailored to provide construction funds to build the plants. If the Company
were to make any other major acquisitions during the coming year, issuance
of additional stock, bank borrowing or other form of debt financing might
be considered.
Material Changes to the Balance Sheet
The following represents material changes affecting the balance sheet
as of September 30, 1995 as compared to the balance sheet as of December
31, 1994.
Current Assets. Current assets increased to $5,525,559 as of
September 30, 1995 from $4,368,878 as of December 31, 1994. The $1,156,681
increase in current assets was attributed to the following: an increase in
cash and cash equivalents of $73,484 primarily from the Company's current
year income, an increase of $841,984 in accounts receivable attributed to
an increase in the Company's revenues, an increase of $73,811 in
inventories attributed to the crude pipeline purchase and an increase of
$167,402 in other assets attributed to cost plus earning in excess of
billings on construction contracts.
Property, Plant and Equipment. Net property, plant and equipment
increased to $9,279,399 as of September 30, 1995 from $7,507,613 as of
December 31, 1994. The $1,771,786 increase was attributed to capital
expenditures of $2,293,575 and a decrease due to current year depreciation
of $521,789. The Company's capital expenditures were $583,143 for the crude
gathering pipeline, $69,814 for three service vehicles, $49,736 to complete
two new wells, $120,459 to complete the Well Draw Gas Plant expansion,
$727,727 to construct an amine plant and $220,907 for other equipment.
Other Assets: Other assets decreased to $1,932,673 as of September
30, 1995 from $2,054,727 as of December 31, 1994. The $122,054 decrease
was attributed to a decrease in note receivable of $18,060, an increase of
8,326 in technology and marketing rights and a decrease of $112,320 in
other assets which represents distribution received from one of the
Company's partnership interests.
Current Liabilities. Current liabilities increased to $5,275,154 as
of September 30, 1995 from $3,779,593 as of December 31, 1994. The
$1,495,561 increase in current liabilities was attributed to an increase in
the Company's line of credit of $9,554, an increase of $568,861 in accounts
payable due to an increase in the Company's revenues, an increase of
$150,453 in accrued liabilities, a decrease of $183,927 due to the
reclassification of current portion of long-term debt, an increase of
$950,620 in other current liabilities attributed to billing in excess of
cost, and earned profit on construction contracts.
Non-Current Liabilities. Non-current liabilities decreased to
$2,858,825 as of September 30, 1995 from $3,035,885 as of December 31,
1994. The $177,060 decrease was attributed to a decrease in deferred
income of $267,737 which represents payments by Gadgil Western India Group;
an increase of $ 422,265 in debt and capital lease obligations, a principle
reduction of debt and capital lease obligations of $581,515, which represent
payments to lenders; an increase of $183,927 from reclassification of current
portion of debt and capital lease obligations.
Total Stockholders' Equity. Total stockholders' equity increased to
$8,603,652 as of September 30,1995 from $7,115,740 as of December 31, 1994.
The $1,487,912 increase in equity was attributed to 288,888 shares of
common stock exercised for $1,298,780 and an increase of $189,132 from
current year net income.
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:
As previously discussed in the Company's 1994 10-KSB, the Company was
served June 29, 1994 with a complaint seeking unspecified damages against
it in the Third Judicial District Court, State of Wyoming, County of
Sweetwater. The plaintiff in the action is Phillips Petroleum Company;
defendants are the Company, Tulsa Operating Group, Inc., and Roger Williams
(unrelated to any of the directors or officers of the Company). The
Complaint arises out of three wells purchased by the Company from Phillips
in September 1988, which the Company had in turn sold to the codefendants
four months later on February 1, 1989. The Company's purchasers
(codefendants) failed to put the wells into production, and as a result,
were ordered to plug and abandon them by federal and state regulatory
agencies. The codefendants failed to carry out the plugging and abandoning
of the wells, and Phillips was ordered to, and completed the plugging and
abandoning of the wells, spending, as of the date of the Complaint,
$466,300.
On October 30, 1995 Phillips Petroleum Company was granted a
motion for summary judgment on its claims against the Company. The Company
is in the process of final settlement with Phillips Petroleum Company. The
Company's quarter end September 30, 1995 10-Q reflects reserves for
anticipated settlement expenses the Company may incur. Although the
Company has contractual indemnity rights against codefendants, it is
unknown that should a judgment be entered against codefendants that they
would have assets to pay such a judgment. While management believes that
some recovery could be made, it is unlikely that full recovery from
codefendants would occur.
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6(a). Exhibits
EX-27 Financial Data Schedule
Item 6(b). Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: November 10, 1995
INTERLINE RESOURCES CORPORATION
(Registrant)
By:/s/ Michael R. Williams
------------------------------
Michael R. Williams, President
and Chief Executive Officer
Principal Executive Officer
Director
By:/s/ Mark W. Holland
------------------------------
Mark W. Holland, Chief Financial Officer
Director