United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number : 0-30738
Environmental Oil Processing Technology Corporation
---------------------------------------------------
(Exact name of business issuer in its charter)
Utah 82-0520055
- ------------------------------ ---------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2801 Brandt Avenue, Nampa, Idaho 83687
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (208)-463-0063 Fax: (208) 463-7601
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Former Address)
The number of shares of common stock
outstanding as of June 30, 2002, is 81,792,380
Transitional Small Business Disclosure Format. Yes [ ], No [ X ].
1
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
The following financial statements are filed as part of this report:
The Consolidated Financial Statements of the Company for the three and
six months ended June 30, 2002 and 2001.
The accompanying consolidated financial statements have been prepared
by the Company without audit. In the opinion of management, all adjustments
which include only normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows at June 30, 2002 and
2001 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
2001, audited consolidated financial statements. The results of operations for
the periods ended June 30, 2002 and 2001 are not necessarily indicative of the
operating results for the full years.
2
Item 2. Management's Discussion and Plan of Operation:
Results of Operations:
During the first six months of 2002 the Company focused its activities
on developing its used oil refineries. The Company presently has two refinery
projects i.e. the pilot plant in Nampa, Idaho, and the Reno Project presently in
development which will be operated by a wholly owned subsidiary EOPT Refining of
Nevada, Inc.
The Nampa plant became operational in the second quarter of 2001 with
the production of diesel, naphtha and asphalt residuum, all of which were sold
to local wholesalers. During the last few months the plant has been under
improvement modification which includes a newly engineered and fabricated
refining column and support equipment. The modifications are now expected to be
completed and the plant operating early in the fourth quarter of 2002. The
modifications are engineered to improve the quality and quantity of production
of petroleum products. When the modified plant is operating Management
anticipates having a positive cash flow from the Nampa operations.
The Reno Project consists of completing land development on 20 acres of
land which was originally purchased for used oil refining plants to be located
on 15 acres and a co-generation plant for electricity on the remaining 5 acres.
The site preparation is essentially completed and the engineering and design
work for two refining plants is in advanced stages and presently on hold.
Engineering for the Reno project is being completed by PC&E of St. Louis, a
subsidiary of Emerson (formerly Emerson Electric) and Redd Engineering of Salt
Lake City, Utah. Approximately $30,000,000 is needed to construct, locate and
start up the two plants
3
which could be operating by the second quarter of 2003 if financing is soon
obtained. The remaining 5 acres of the development is "fully permitted" for the
production of electricity and is currently for sale for in excess of $20,000,000
with several interested parties.
During the second quarter of 2001 the Company acquired the assets of
Artesian Oil Recovery, Inc. in Oakland California for the sum of $485,000, to
provide oil for the Reno Project. Pending completion of the Reno refineries, the
oil is being trucked to the Nampa refinery.
The settlement of the litigation involving the separation of the
subsidiary PDI was completed in March of 2002. Among other matters, the Company
recovered and canceled 4,000,000 shares of its common stock from the owners of
PDI. The canceled shares were valued based on the net assets in excess of
liabilities of PDI. The gain on the disposal of PDI of $294,746 recoups the loss
on the net assets in excess of liabilities previously recognized in the period
ending September 30, 2001. Accordingly, the financial statements have been
restated to reflect the discontinued PDI operations.
Operations in the first six months of 2002 resulted in consolidated
revenues of $728,884 compared to $449,581 in the first six months of 2001.
Consolidated revenues increased by 62% over the six months of 2001. The Company
had costs of sales of $177,895 during the six months ended June 30, 2002,
compared to $116,667 for the same period of 2001. These costs are for the used
oil purchased, processed and sold at the Nampa, Idaho and Artesian facilities.
EOPT's gross margin was 76% of sales in 2002 compared to 74% in 2001. The
increase in the margin was due to the decrease in the cost of shipping the used
oil to Idaho in 2002 which occurred when the Company began leasing trucks from a
company owned by two of its directors.
Selling, general and administrative expense for the six months ended
June 30, 2002, was $1,485,312 compared to $1,249,086 for the same period last
year. The Company has stabilized these operating costs. The increase is due to
an expense of $260,157 which was recorded for the value of stock options issued
to non-employees. Excluding this non cash expense these operating expenses
decreased by $23,931. The Company's business is labor intensive and its largest
expense is payroll. Included in consulting expense for the six months ended June
30, 2001, is $9,372,000 which is the value of 1,200,000 shares of common stock
issued for services to a consultant during January 2001. Without the value of
the shares issued to the consultant, consulting expense for the first three
months of 2001 would have been $30,549 compared to $24,500 for the same six
months of 2002. The Company has also stabilized its consulting costs.
The Company's net loss from operations in the six months ended June 30,
2002, was $1,096,056 compared to $10,358,969 in the same period of 2001.
Excluding the value of the shares issued to the consultant in January 2001, the
Company's loss for the first six months of 2001 would have been $986,969. The
increase of $109,087 was primarily due to the amortization of debt issue costs
of $52,500 and depreciation of $51,533. The Company expects its loss to decline
in the fourth quarter of 2002 with the new refining column at its operations in
Nampa and the continued growth of Artesian Oil Recovery in Oakland California.
Operations in the second three months of 2002 resulted in consolidated
revenues of $411,319 compared to $251,545 in the second three months of 2001, an
increase of $159,774 or 64%. The increase was the result of the acquisition of
Artesian Oil Gathering. The Company's gross margin was 82% in 2002 compared to
4
73% in2001. The improved margin was the result of the Company leasing trucks
from two of its officers and directors instead of the previous practice of
hiring outside trucking.
Selling, general and administrative expense for the three months ended
June 30, 2002, was $910,469 compared to $674,100 for the same period of 2001.
Excluding the $260,157 recorded for the value of options issued to non employees
these expenses were $650,312. The decrease of $23,788 was the result of
management's cost containment efforts.
Liquidity and Capital Resources.
The Company entered into a funding agreement with a trust fund to
borrow $10,500,000 for the development and expansion of the Company business.
Some of these funds were used in designing and engineering the refining and
production facility in the Reno Project. Some of the loan funds have been used
to purchase the real property for the Reno Project, and the permitting of some
of the property for electrical production. Through June 30, 2002, the Company
has incurred $6,812,738 for the cost of the Reno Project including $527,713
expended in the first six months of 2002. The Company also incurred $445,775 and
$584,166, in the first six months of 2002 and 2001, respectively on the Nampa,
Idaho facility. The terms of the funding required the Company to repay the full
amount borrowed in one year from the date funds were first received subject to
the lender's option to extend the loan. The lender has agreed to extend the loan
for an additional six months to September 23, 2002.
The Company used cash in its operations of $43,521 during the six
months ended June 30, 2002, compared to using cash in operations of $94,056 for
the corresponding period in the prior year. The difference of $50,535 was
primarily due to the net cash used in the operating losses of the Company offset
by the increase in its accounts payable and accrued expenses to increase by
$761,911 in 2002 compared to an increase of $264,971 of accounts payable and
accrued expenses in 2001.
The Company's accounts receivable decreased by $651 from December 31,
2001, to June 30, 2002, compared to an increase of $165,020 for the same period
of 2001. The increase in 2001 was the result of the Company's expanded oil
gathering business with the purchase of Artesian Oil Recovery. The decrease for
2002 was due to better collection efforts by the Company's sales personnel.
In 2001 the Company accumulated used oil for processing in the Nampa
facility therefore inventory levels increased by $50,115 in 2001 compared to a
decrease of $8,389 in the same period of 2002 because the Company sold some of
its used oil while the refinery is being refitted.
The Company paid $25,892 of debt to banks in 2002 compared to $533,206
in 2001. The Company also repaid related parties cash of $491,500 in 2001. The
Company borrowed $7,500 from an officer and director in the first six months of
2002. The Company borrowed $84,990 from related parties and $6,000,000 from
unrelated parties during the same periods of 2001. The Company repaid $210,000
of related party debt in 2002 through the issuance of 2,333,333 shares of its
common stock. It also issued 535, 714 shares to consultants on exercise of their
options and for conversion of accounts payable of $175,000 and an additional
103,217 shares to collectors for used oil valued at $17,991.
5
The Company issued 9,600,000 shares to an officer and director upon the
exercise of his options at $0.17 per share for 3,600,000 shares and $0.085 per
share for 6,000,000 shares. The officer and director gave the Company his note
for the exercise of the options. The notes total $1,122,000, are unsecured and
bear interest at 6% per annum.
The Company has recorded a gain from discontinued operations in 2002,
in the amount of $294,746 related to the PDI separation which is the value of
the Company's 4,000,000 shares of common stock recovered. The Company had income
of $467,370 for the same period of 2001 from the operations of PDI.
The Company is seeking funding for the completion of the Reno Project
and to meet its operating costs. The Company is also investigating, reviewing
and considering additional used oil gathering facilities as well as seeking
financing to acquire the same. No financing agreements have been formalized as
of this time and there is no assurance that such funds will be available when
needed or if available will be under terms acceptable to the Company.
Forward Looking Statements.
The foregoing paragraphs in this MD&A concerning the activity,
operations and plans of the Company, and particularly the planned development of
the Reno Project and the future of the "permitted property" are forward-looking
statements as well as any other statements that are not historical in context.
The statements provided are based on information available to management as of
the date hereof, and the Company assumes no obligation to revise or update such
forward- looking statements. Readers are cautioned that such forward-looking
statements involve risk and uncertainties that may cause the Company's actual
results to differ materially from such forward- looking statements.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings.
On September 24, 2001, EOPT filed a complaint against LM Alternative,
Inc. ("LMA") in the United States District Curt, Central District of California,
Eastern Division, Case No. EDCV 01-0699 VAP (SGLx). EOPT seeks a money judgement
against LMA. EOPT anticipates that in addition to filing an Answer denying
EOPT's claims, LMA will file a Counterclaim seeking money damages against EOPT
for breach of contract. The case arises as a result of orders placed by EOPT for
electrical generators, and the alleged default by LMA. The parties have agreed
on a dismissal without prejudice and a moratorium on refiling for six months.
American Moistening Company, Inc. filed a Complaint in North Carolina
in the Superior court Division of Mecklenburg County on February 25, 2002 and
seeks a money judgment against EOPT for $165,840 for services and goods
performed or manufactured. EOPT timely filed an answer asserting that EOPT
canceled its purchase order and that there is no liability. Opposing counsel is
requesting a settlement proposal. Both EOPT and AMCO are seeking attorneys' fees
and costs of litigation against the other.
6
Item 2. Changes in Securities.
(a) None
(b) None
(c) The following common stock was sold by the registrant during
the second quarter of 2002:
(i) On May 1, 2002, registrant issued 3,600,000 shares of
its common stock to N. Tod Tripple at $0.17 per share
(the option price). Payment for the option was a
promissory note in the amount of $612,000 bearing
interest at 6 % per annum, all due and payable on or
before October 1, 2006.
(ii) On May 1, 2002, registrant issued 6,000,000 shares of
its common stock to N. Tod Tripple at $0.085 per
share (the option price). Payment for the option was
a promissory note in the amount of $510,000 bearing
interest at 6 % per annum, all due and payable on or
before May 1, 2007.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information.
In 2001 EOPT received the last of the required Federal and State
permits and approvals for construction and operation of an electrical production
facility on 5 acres of the Reno Project. These permits are the Federal Energy
Regulatory Commission's ("FERC") authorization to sell energy at market based
rates, the Nevada Public Utility Commission Utility Environmental Planning Act
Permit, the State of Nevada Department of Conservation and Natural Resources Air
Quality operating Permit, and the Storey County Special Use Permit. EVOP has
decided to not pursue the production of electricity at this time on the Reno
Project, and is presently negotiating for the sale of the applicable 5 acres.
The EOPT property is near the entrance to the Tahoe-Reno Industrial Center, one
of the largest industrial zoned developments in the United States.
Statements in this report that are not strictly historical are
forward-looking statements. The Company makes these statements based on
information available to it as of the date of this report and it assumes no
responsibility to update or revise such forward-looking statements. Editors and
investors are cautioned that such forward-looking statements involve risk and
uncertainties that may cause the Company's actual results to differ materially
from such forward- looking statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits.
(b) No Form 8-K filed during the second quarter of 2002.
7
SIGNATURES
----------
In accordance with requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Environmental Oil Processing Technology Corporation
(Registrant)
Date: August 12, 2002 By/s/ N. Tod Tripple
---------------------------------
N. Tod Tripple, President and CEO
CERTIFICATION
BY
CHIEF EXECUTIVE OFFICER
AND
CHIEF FINANCIAL OFFICER
In compliance with Section 906 of the Sarbanes-Oxley Act of 2002, the
undersigned Chief Executive Officer and Chief Financial Officer of Environmental
Oil Processing Technology Corporation hereby certify that the report on Form
10QSB for the period ending June 30, 2002, as filed with the Securities and
Exchange Commission
(i) fully complies with the requirements of Section 13(a) or 15(D)oF
the Securities Exchange Act of 1934, and
(ii) the information contained in the report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ N. Tod Tripple
August 9, 2002 ----------------------------------------
N. Tod Tripple, President and CEO
/s/ Leo (Tony)Tripple
---------------------------------------
Leo (Tony)Tripple, CFO
8
ENVIRONMENTAL OIL PROCESSING
TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and December 31, 2001
F-1
ENVIRONMENTAL OIL PROCESSING
TECHNOLOGY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and December 31, 2001
Item Page
---- ----
Consolidated Balance Sheets at June 30, 2002
and December 31, 2001 F-3
Consolidated Statement of Operations for three months
ended June 30, 2002 and 2001 and for the
six months ended June 30, 2002 and 2001 F-5
Consolidated Statement of Stockholders' Equity (Deficit) F-6
Consolidated Statement of Cash Flows for the three months
ended June 30, 2002 and 2001 F-7
Notes to Consolidated Financial Statements F-9
F-2
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
------
June 30, December 31,
2002 2001
------------ -------------
(Unaudited)
CURRENT ASSETS
Cash $ 41,398 $ 1,076,799
Trade accounts receivable, less allowance for
doubtful accounts of $10,000 and $10,000, respectively 128,634 129,285
Inventories 200,545 190,943
Other current assets 164,054 48,358
------------ ------------
Total Current Assets 534,631 1,445,385
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 4,277,970 3,878,670
Less accumulated depreciation (288,726) (237,193)
------------ ------------
Property, Plant and Equipment, Net 3,989,244 3,641,477
------------ ------------
OTHER ASSETS
Construction in progress 6,812,738 6,238,550
Deposits 40 40
Intangible assets, net 361,600 394,800
Unamortized debt issue costs -- 52,500
------------ ------------
Total Other Assets 7,174,378 6,685,890
------------ ------------
TOTAL ASSETS $ 11,698,253 $ 11,772,752
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, December 31,
2002 2001
------------ --------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 747,696 $ 694,176
Accrued expenses 1,756,972 1,236,081
Notes payable - related parties 7,500 210,000
Notes payable 10,500,000 10,525,892
------------ ------------
Total Current Liabilities 13,012,168 12,666,149
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value; 200,000,000
shares authorized; 81,792,380 and 73,220,116
shares issued and outstanding, respectively 24,763,956 23,249,988
Note and interest receivable - related party (Note 3) (1,133,066) --
Accumulated deficit (24,944,805) (24,143,385)
------------ ------------
Total Stockholders' Equity (Deficit) (1,313,915) (893,397)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 11,698,253 $ 11,772,752
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------- ------------
NET SALES $ 411,319 $ 251,545 $ 728,884 $ 449,581
COST OF GOODS SOLD 75,100 67,567 177,895 116,667
------------ ------------ ------------ ------------
GROSS MARGIN 336,219 183,978 550,989 332,914
------------ ------------ ------------ ------------
OPERATING EXPENSES
Amortization of debt issue cost -- -- 52,500 --
Consulting 14,000 15,336 24,500 9,402,549
Depreciation and amortization 42,366 20,124 84,733 40,248
Selling, general and administrative 910,469 674,100 1,485,312 1,249,086
------------ ------------ ------------ ------------
Total Operating Expenses 966,835 709,560 1,647,045 10,691,883
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (630,616) (525,582) (1,096,056) (10,358,969)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (667) (8,524) (1,856) (34,042)
Interest income 242 6,008 1,746 8,544
------------ ------------ ------------ ------------
Total Other Income (Expense) (425) (2,516) (110) (25,498)
------------ ------------ ------------ ------------
INCOME TAX EXPENSE -- -- -- --
------------ ------------ ------------ ------------
LOSS FROM CONTINUING
OPERATIONS (631,041) (528,098) (1,096,166) (10,384,467)
INCOME FROM DISCONTINUED
OPERATIONS (Note 4) -- 492,207 294,746 467,370
------------ ------------ ------------ ------------
NET LOSS $ (631,041) $ (35,891) $ (801,420) $ (9,917,097)
============ ============ ============ ============
BASIC INCOME (LOSS) PER
COMMON SHARE
Loss from continuing operations $ (0.01) $ (0.01) $ (0.01) $ (0.14)
Income from discontinued operations 0.00 0.01 0.00 0.01
------------ ------------ ------------ ------------
Basic income (loss) per share $ (0.01) $ (0.00) $ (0.01) $ (0.13)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 78,522,050 73,520,116 76,055,662 73,387,039
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Note and
Common Stock Interest Total
---------------------------- Receivable- Accumulated Stockholders'
Shares Amount Related Party Deficit Equity (Deficit)
--------------- ------------ ------------- ------------ ---------------
Balance, December 31, 2000 72,020,116 $ 12,943,211 $ -- $ (9,255,116) $ 3,688,095
Common stock issued for services 1,200,000 9,372,000 -- -- 9,372,000
Stock options granted to employees
below market value -- 561,400 -- -- 561,400
Stock options granted to nonemployees
below market value -- 373,377 -- -- 373,377
Net loss for the year ended
December 31, 2001 -- -- -- (14,888,269) (14,888,269)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 73,220,116 23,249,988 -- (24,143,385) (893,397)
Common stock issued for inventory
(unaudited) 103,217 17,991 -- -- 17,991
Common stock issued for options
exercised (unaudited) 500,000 175,000 -- -- 175,000
Conversion of accounts payable to
common stock (unaudited) 35,714 12,500 -- -- 12,500
Common stock issued for conversion
of debt (unaudited) 2,333,333 210,000 -- -- 210,000
Cancellation of shares returned in
settlement agreement by Project
Development Industries (unaudited) (4,000,000) (294,746) -- -- (294,746)
Stock options granted to nonemployees
at market value (unaudited) -- 260,157 -- -- 260,157
Common stock issued for options
exercised at $0.17 per share
(unaudited) 3,600,000 612,000 (612,000) -- --
Common stock issued for options
exercised at $0.085 per share
(unaudited) 6,000,000 510,000 (510,000) -- --
Interest accrued on related party note -- 11,066 (11,066) -- --
Net loss for the six months ended
June 30, 2002 (unaudited) -- -- -- (801,420) (801,420)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2002 (unaudited) $ 81,792,380 $ 24,763,956 $(1,133,066) $(24,944,805) $ (1,313,915)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
----------------------------
2002 2001
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (801,420) $(9,917,097)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of debt issue costs 52,500 --
Depreciation and amortization 84,733 224,136
Common stock issued for services -- 9,477,000
Gain on disposal of subsidiary (294,746) --
Stock options granted below market value 260,157 --
Changes in operating assets and liabilities:
Accounts receivable 651 (165,020)
Inventories 8,389 (50,115)
Other assets (115,696) 72,069
Accounts payable and accrued expenses 761,911 264,971
----------- -----------
Net Cash Used by Operating Activities (43,521) (94,056)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Construction in progress (527,713) (4,464,069)
Capital expenditures (445,775) (584,166)
----------- -----------
Net Cash Used by Investing Activities (973,488) (5,048,235)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from notes payable - related parties 7,500 84,990
Payments on notes payable - related parties -- (491,500)
Proceeds from notes payable -- 6,000,000
Payments on notes payable (25,892) (533,206)
----------- -----------
Net Cash Provided (Used) by Financing Activities (18,392) 5,060,284
----------- -----------
NET DECREASE IN CASH (1,035,401) (82,007)
CASH, BEGINNING OF PERIOD 1,076,799 273,215
----------- -----------
CASH, END OF PERIOD $ 41,398 $ 191,208
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Six Months Ended
June 30,
----------------------------------
2002 2001
------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 1,189 $ 60,329
Cash paid for taxes $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Year ended December 31, 2001:
- -----------------------------
The Company entered into a $210,000 promissory note for debt issue costs paid
on behalf of the Company by the President of the Company.
Six Months ended June 30, 2002:
- -------------------------------
The Company issued 2,333,333 shares of its common stock for conversion of the
$210,000 promissory note to the President of the Company.
The Company issued 35,714 shares of its common stock for conversion of
accounts payable and 500,000 shares of its common stock for accounts payable
applied to exercise of stock options to its consultants on the Reno Project.
The Company issued 103,217 shares of its common stock for used oil collected
from various companies.
The Company issued 3,600,000 shares of its common stock to the President of
the Company for options exercised at $0.17 per share and the President of the
Company gave a $612,000 promissory note as payment of the exercise price (See
Note 3).
The Company issued 6,000,000 shares of its common stock to the President of
the Company for options exercised at $0.085 per share and the President of
the Company gave a $510,000 promissory note as payment of the exercise price
(See Note 3).
The Company has accrued interest of $11,066 for the two related party notes
and has recorded the amount as a reduction of stockholder's equity with an
offset to contributed capital.
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted in accordance with such
rules and regulations. The information furnished in the interim
condensed consolidated financial statements include normal
recurring adjustments and reflects all adjustments, which, in the
opinion of management, are necessary for a fair presentation of
such consolidated financial statements. Although management
believes the disclosures and information presented are adequate to
make the information not misleading, it is suggested that these
interim condensed consolidated financial statements be read in
conjunction with the Company's most recent audited consolidated
financial statements and notes thereto included in its December 31,
2001 Annual Report on Form 10-KSB. Operating results for the three
and six months ended June 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending December
31, 2002.
NOTE 2 - GOING CONCERN
The Company presently has in the bank approximately $41,000. The
Company's negative cash flow from operations averages $15,000 per
month. Therefore the Company is currently able to pay its bills
from its reserves for the next quarter. As waste oil collection by
Artesian continues to grow the Company expects this will increase
refined oil sales. The Company is modifying its refining plant in
Nampa, Idaho and adding a new column that is expected to be
completed by the end of the fourth quarter 2002. The Company
expects this to produce positive cash flows from operations by 2002
year-end. The Company's loan in the amount of $10,500,000 was due
on March 23, 2002. However, the Company has negotiated a six month
extension with the note holder and the new due date is September
23, 2002. The Company is building two plants in Reno, Nevada. The
Company is seeking financing for the plant. If the financing does
not become available soon enough then construction will be slowed
so that the Company does not become over extended. However, there
can be no assurance that the Company will be successful in its
plans. Because the Company has experienced substantial losses from
operations and has a working capital deficit of $12,477,537, there
is substantial doubt about the Company's ability to continue as a
going concern.
F-9
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 3 - MATERIAL EVENTS
Litigation
On March 4, 2002, the Company entered into a Separation Agreement,
Settlement Agreement and Mutual Release with Project Development
Industries, L.L.C. (PDI) and several individuals. During March
2002, the Company has paid a $155,000 invoice previously tendered
by PDI and PDI has returned 4 million shares of common stock and
cancelled the $6 million contingent promissory note. The promissory
note was to be paid based upon earnings by PDI. PDI recorded a loss
for the period from April 1, 1999 to December 31, 1999 and EOPT
agreed to defer the implementation of the contingency but the
criteria for payment of the note were never met and the Company
never recorded the note as a liability.
Truck Lease
During March 2002, the Company entered into a one-year operating
lease for two trucks and related equipment with Oil Transportation
Company, Inc. (OTC), a company owned by the President of the
Company and an unrelated individual. The monthly lease payments are
based on $0.50 per actual running mileage in a month. The Company
has prepaid OTC the amount of $20,000 that is included in other
current assets as of June 30, 2002.
Notes Payable
The Company has negotiated an extension on its note payable in the
amount of $10,500,000 which was due on March 23, 2002. The due date
on the note has been extended six months to September 23, 2002.
Notes and Interest Receivable - Related Party
On May 1, 2002, the President of the Company gave a $612,000
promissory note to the Company as payment of the exercise of
3,600,000 options to purchase the Company's common stock at $0.17
per share. The promissory note bears interest at 6% per annum, is
unsecured, and is payable on October 1, 2006.
Also, on May 1, 2002, the President of the Company gave a $510,000
promissory note to the Company as payment of the exercise of
6,000,000 options to purchase the Company's common stock at $0.085
per share. The promissory note bears interest at 6% per annum, is
unsecured, and is payable on May 1, 2007.
At June 30, 2002, total interest receivable from these notes was
$11,066. Both notes receivable and related interest from the
related party have been shown as a reduction of stockholders'
equity and the related interest income for the period has been
recorded as contributed capital.
F-10
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 4 - DISCONTINUED OPERATIONS
On September 14, 2001, Project Development Industries, LLC (PDI),
the Company's wholly-owned subsidiary, and several individuals
filed a complaint in a federal district court against the Company.
In March 2002, the Company and PDI reached an agreement of
separation, settlement and mutual release. Both PDI and the Company
agreed and consented to separate PDI from the Company completely
and to rescind the original share purchase agreement subject to the
terms and conditions of the settlement. The Company has accounted
for the operations of PDI as discontinued and has used PDI's
financial statements as of June 30, 2001. At June 30, 2001, PDI had
net assets in excess of liabilities of $294,746. An allowance has
been established for the net assets in excess of liabilities of
PDI, thus, the value of the net assets of PDI at December 31, 2001
was $-0-. During March 2002, PDI returned 4,000,000 shares of the
Company's common stock which was then cancelled by the Company. The
cancelled shares were valued based on the net assets in excess of
liabilities of PDI. The gain on the disposal of PDI recoups the
loss on the net assets in excess of liabilities previously
recognized in the period ended September 30, 2001. The following is
a summary of loss from discontinued operations resulting from the
litigation between PDI and the Company for the three and six months
ended June 30, 2002 and 2001. The consolidated financial statements
have been retroactively restated to reflect this event.
F-11
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 4 - DISCONTINUED OPERATIONS (Continued)
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2002 2001 2002 2001
------------- ------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET SALES $ -- $ 766,949 $ -- $ 1,377,808
COST OF SALES -- -- -- --
-------------- ----------- ----------- -----------
GROSS MARGIN -- 766,949 -- 1,377,808
OPERATING EXPENSES
Consulting -- 59,963 -- 74,016
Depreciation and amortization -- 91,944 -- 183,888
Selling, general and administrative -- 115,831 -- 626,250
-------------- ----------- ----------- -----------
Total Operating Expenses -- 267,738 -- 884,154
-------------- ----------- ----------- -----------
INCOME FROM OPERATIONS -- 499,211 -- 493,654
-------------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense -- (7,006) -- (26,287)
Interest income -- 2 -- 3
Gain on disposal of subsidiary -- -- 294,746 --
Loss on impairment of goodwill -- -- -- --
Loss on impairment of net assets
in excess of liabilities of Project
Development Industries -- -- -- --
-------------- ----------- ----------- -----------
Total Other Income (Expense) -- (7,004) 294,746 (26,284)
-------------- ----------- ----------- -----------
INCOME TAX EXPENSE -- -- -- --
-------------- ----------- ----------- -----------
INCOME FROM DISCONTINUED
OPERATIONS $ -- $ 492,207 $ 294,746 $ 467,370
============== =========== =========== ===========
F-12
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees," and related
Interpretations in accounting for all stock option plans. Under APB
Opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
As a result of applying APB Opinion 25 to stock options granted to
employees, the Company did not incur an additional expense for the
six months ended June 30, 2002.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), requires the Company to provide proforma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and other
stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates the
fair value of each stock award at the grant date by using the
Black-Scholes option pricing model with the following weighted
average assumptions used for grants, respectively; dividend yield
of zero percent for all years; expected volatility of 155.95%;
risk-free interest rates of 4.475% and expected lives of 5.0 years.
As a result of applying SFAS No. 123 to stock options granted on
May 1, 2002 to nonemployees, the Company recorded an expense of
$260,157 for the six months ended June 30, 2002. The expense is
included in the selling, general and administrative amount in the
statement of operations.
Had compensation cost for the Company's stock options granted to
employees been determined based on the fair value at the grant date
under the accounting provisions of SFAS No. 123, the Company would
have recorded an additional expense of $59,127. Also under these
same provisions, the Company's net loss would have been changed by
the pro forma amounts indicated below:
F-13
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - OUTSTANDING STOCK OPTIONS (Continued)
For the Six Months Ended
June 30,
---------------------------------------
2002 2001
------------------ -------------------
(Unaudited) (Unaudited)
Net loss:
As reported $ (801,420) $ (9,917,097)
Pro forma $ (860,547) $ (9,917,097)
For the Six Months Ended
June 30,
---------------------------------------
2002 2001
------------------ -------------------
(Unaudited) (Unaudited)
Basic loss per share:
As reported $ (0.01) $ (0.13)
Pro forma $ (0.01) $ (0.13)
A summary of the status of the Company's stock option plans as of
June 30, 2002 and changes during the period is presented below:
Weighted
Average
Shares Exercise Price
----------- --------------
Outstanding, December 31, 2001 6,950,000 $ 0.190
Granted 10,050,000 0.085
Canceled -- --
Exercised 10,100,000 0.130
----------- ----------
Outstanding, June 30, 2002 (unaudited) 6,900,000 $ 0.120
----------- ----------
Exercisable, June 30, 2002 (unaudited) 6,500,000 $ 0.120
----------- ----------
Outstanding Exercisable
-------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 06/30/02 Life Price at 06/30/02 Price
--------------- ----------------------------- ------------ ----------- ------------
$ 0.085 4,050,000 5.00 $ 0.085 4,050,000 $ 0.085
0.170 2,670,000 3.00 0.170 2,360,000 0.170
0.350 180,000 3.00 0.350 90,000 0.350
--------- -------- ---------- --------- ---------
$ 0.085 - 0.350 6,900,000 3.77 $ 0.120 6,500,000 $ 0.120
========= ======== ========== ========= =========
F-14
ENVIRONMENTAL OIL PROCESSING TECHNOLOGY CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2002 and December 31, 2001
NOTE 5 - OUTSTANDING STOCK OPTIONS (Continued)
On May 1, 2002, the Company granted 10,050,000 stock options to
officers, employees, consultants and other individuals. These
options were issued with an exercise price of $0.085 per share. All
of these options vest immediately and have a maturity of five years
from the grant date.
Also on May 1, 2002, the President of the Company exercised
3,600,000 of the options at the exercise price of $0.17 per share.
As payment to exercise these options, the President of the Company
gave a $612,000 promissory note to the Company. (See Note 3).
And on May 1, 2002, the President of the Company exercised
6,000,000 of the options at the exercise price of $0.085 per share.
As payment to exercise these options, the President of the Company
gave a $510,000 promissory note to the Company. (See Note 3).
NOTE 6 - OPERATING SEGMENT INFORMATION
For the six months ended June 30, 2002, the Company operated in
two geographic segments, (1) waste oil collection and refining at
the Company's headquarters in Nampa, Idaho, and (2) waste oil
collection at the Company's offices in Oakland, California.
For the Six
Months Ended
June 30, ARTESIAN EOPTI Totals
---------------- --------------- ---------- -----------
Net Sales 2001 55,485 394,096 449,581
2002 177,466 551,418 728,884
Operating income (loss) 2001 (724,843) (9,634,126) (10,358,969)
2002 49,120 (1,145,176) (1,096,056)
General corporate 2001 -- -- --
2002 -- -- --
Other Income (Expense) 2001 -- (25,498) (25,498)
2002 -- (110) (110)
Operating Assets 2001 -- 12,116,965 12,116,965
2002 408,514 11,289,739 11,698,253
F-15
NOTE 7 - SUBSEQUENT EVENTS
Subsequent to June 30, 2002, the Company issued 74,973 shares of
its common stock at $0.075 per share for inventory purchased during
the three months ended June 30, 2002. The total value of the shares
of $5,623 was included in accounts payable at June 30, 2002.
Also subsequent to June 30, 2002, the Company issued 100,000 shares
of its common stock for accounts payable applied to the exercise of
stock options at an exercise price of $0.085 per share to one of
its consultants. The total value of the shares of $8,500 was
included in accounts payable at June 30, 2002.
F-16