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 quarterly period ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-24877
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
-----------------------
DELAWARE 77-0096608
------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5380 NORTH STERLING CENTER DRIVE
WESTLAKE VILLAGE, CA 91361
(Address of principal executive offices including zip code)
(818) 865-2205
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Issuer's common stock, par value $0.01
per share, as of December 31, 1998, was 8,567,148.
51601:031
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
Table of Contents
PAGE
----
Item 1 Financial Statements
Balance Sheet at December 31, 1998 (unaudited) 1
Statements of Operations for the three months ended December 31, 1998 2
and 1997 (unaudited)
Statements of Cash Flows for the three months ended December 31, 1998 3-4
and 1997 (unaudited)
Statement of Stockholders' Equity 5
Notes to Consolidated Financial Statements (unaudited) 6-8
Item 2 Management's Discussion and Analysis or Plan of Operations 9
General 9
Results of Operations 10
Liquidity and Capital Resources 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signature 13
Exhibit Index 13
51601:031
ITEM 1. Financial Statements
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1998
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31, September 30,
1998 1998
(Unaudited)
-------------- --------------
CURRENT ASSETS
Cash $ 602,032 $1,447,444
Marketable securities 222,258 385,012
Notes receivable 485,000 -
Notes receivable, related parties 147,116 135,000
Interest receivable 12,017 1,446
Other 8,400 -
---------- ----------
Total current assets 1,476,823 1,968,902
---------- ----------
EQUIPMENT 93,936 77,581
---------- ----------
OTHER ASSETS
Notes receivable, related parties 19,515 31,631
Deposits 3,220 13,220
Mining rights 5,000 5,000
---------- ----------
Total other assets 27,735 49,851
---------- ----------
TOTAL ASSETS $1,598,494 $2,096,334
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ 11,450
Accrued salaries 68,000 44,000
---------- ----------
Total current liabilities 68,000 55,450
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
8,567,148 shares 42,735 42,735
Preferred stock, $.01 par value, authorized
20,000,000 shares; issued and outstanding
3,000 shares 30 30
Additional paid-in capital 8,335,647 8,335,647
Deficit accumulated during development stage (6,003,582) (5,627,088)
Retained (deficit) prior to development stage (695,452) (695,452)
Accumulated other comprehensive loss (148,884) (14,988)
---------- ----------
1,530,494 2,040,884
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,598,494 $2,096,334
========== ==========
See notes to financial statements.
1
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
Three Months Ended
December 31,
1998 1997
-------- --------
SALES $ - $ -
-------- --------
EXPENSES
Consulting 26,016 7,386
Depreciation 8,694 -
Legal and professional 96,925 12,366
Liability insurance - 92
Miscellaneous 13,180 756
Office supplies and expenses 8,424 8,942
Other expenses - -
Rent 8,328 2,520
Repairs and maintenance 454 -
Research and development 88,400 213,904
Salaries and payroll taxes 78,156 19,308
Telephone and utilities 4,470 116
Travel 37,257 6,324
Write down of mining rights - -
-------- --------
Total expenses 370,304 271,714
-------- --------
LOSS FROM OPERATIONS (370,304) (271,714)
-------- --------
OTHER INCOME (EXPENSE)
Interest income 22,668 1,799
Interest expense - (3,090)
Loss on sale of marketable securities (28,858) -
--------- --------
(6,190) (1,291)
-------- --------
LOSS BEFORE EXTRAORDINARY ITEM (376,494) (273,005)
EXTRAORDINARY ITEM
Gain on extinguishment of debt - -
-------- --------
NET LOSS (376,494) (273,005)
PREFERRED STOCK DIVIDEND - -
-------- --------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS ($376,494) ($273,005)
======== ========
NET LOSS PER COMMON SHARE ($.04) ($.03)
======== ========
See notes to financial statements.
2
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
Three Months Ended
December 31,
---------------------------
1998 1997
-------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($376,494) ($273,005)
-------- --------
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 8,694 -
Loss on sale of marketable securities 28,858 -
Loss on abandoned equipment - -
Write down of mining rights - -
Gain on extinguishment of debt - -
Noncash research and development - 131,250
Noncash consulting fees - -
Noncash executive compensation - 2,308
(Increase) decrease in operating assets:
Prepaid expenses - -
Interest receivable (10,571) (784)
Deposits 10,000 (2,520)
Other (8,400) -
Increase (decrease) in operating liabilities:
Accounts payable (11,450) (6,078)
Accrued salaries 24,000 17,000
Accrued interest - (1,910)
Settlement payable - (17,005)
-------- --------
Total adjustments 41,131 122,261
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (335,363) (150,744)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related parties (485,000) (12,116)
Purchase of equipment (25,049) -
Purchase of mining rights - (25,000)
Purchase of marketable securities (204,785) -
Proceeds from sale of marketable
securities 204,785 -
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ($510,049) ($37,116)
-------- --------
See notes to financial statements.
3
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Unaudited)
Three Months Ended
December 31,
-----------------------------
1998 1997
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock $ - $ 90,625
Sale of preferred stock - -
Costs to raise capital - -
Loan payments - -
Common stock redeemed - -
---------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES - 90,625
---------- --------
NET INCREASE/DECREASE IN CASH (845,412) (97,235)
CASH, OCTOBER 1 1,447,444 271,360
---------- --------
CASH, DECEMBER 31 $ 602,032 $174,125
========== ========
See notes to financial statements.
4
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
Common stock Preferred stock
------------ ---------------
# of # of
shares Amount shares Amount
------ ------ -------- ------
Balance at
September 30,
1998 8,567,148 $ 42,735 3,000 $ 30
Common stockholder
loss for the
period -- -- -- --
Unrealized loss on
marketable
securities -- -- -- --
----------- ----------- ----------- -----------
Balance at
December 31,
1998 8,567,148 $ 42,735 3,000 $ 30
=========== =========== =========== ===========
Deficit Retained
accumulated deficit Accumulated
Additional during the prior to the other Total
paid-in development development comprehensive stockholders'
capital stage stage loss equity
---------- ----------- ------------ ---------- -------------
Balance at
September 30,
1998 8,567,148 ($5,627,088) (695,452) ($14,988) $2,040,884
Common stockholder
loss for the
period -- (376,494) -- -- (376,494)
Unrealized loss on
marketable
securities -- -- -- (133,896) (133,896)
----------- ----------- ----------- ----------- -----------
Balance at
December 31,
1998 $ 8,335,647 ($6,003,582) ($695,452) ($148,884) $ 1,530,494
=========== ============ =========== =========== ============
See notes to financial statements.
5
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
1. Summary of significant accounting policies
Financial statements
The balance sheet as of December 31, 1998, and the related statements of
stockholders' equity, operations and cash flows for the three months ended
December 31, 1998 and 1997, are unaudited. Such unaudited financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and with the
instructions to Form 10-QSB. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included. Results for the three
months ended December 31, 1998 are not necessarily indicative of the results
that may be achieved for any other interim period or for the fiscal year
ending September 30, 1999. These statements should be read in conjunction
with the financial statements and related notes included in the Company's
Annual Report on Form 10-KSB for the year ended September 30, 1998.
Fair market value of financial instruments
The fair market value of the notes receivable approximates cost based on
current borrowing rates. Equity securities held by the Company include
available for sale securities, which are reported at fair value. Unrealized
holding gains and losses for available for sale securities are excluded from
earnings and reported net of any income tax affect as a component of
stockholders' equity. See Note 4 for further discussion.
Loss per share
The computations of loss per share of common stock are based on the weighted
average number of shares outstanding of 8,567,148 (1998), 7,813,398 (1997)
and 7,536,197 (cumulative period).
6
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
1. Summary of significant accounting policies (continued)
Comprehensive net loss
On October 1, 1998, the Company adopted FASB No. 130, Reporting Comprehensive
Income. Statement No. 130 requires the reporting of comprehensive income/(loss)
in addition to net income/(loss) from operations. Comprehensive income/(loss)
requires the inclusion of certain financial information not recognized in the
calculation of net income/(loss), including unrealized holding gains and losses
on available for sale securities.
Concentration of credit risk
The Company primarily transacts its business with two financial institutions
and may maintain deposits in excess of federally insured limits. At December
31, 1998, the Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
2. Notes receivable
At December 31, 1998, notes receivable consist of the following:
Note receivable, interest at
10% per year, collateralized
by interest in a mining company,
due by June 15, 1999. $185,000
Note receivable, collateralized
by equipment and common stock,
interest at 12% per year, due
by February 26, 1999. 100,000
Note receivable, uncollateralized,
interest at 10% per year, due by
February 6, 1999. 200,000
---------
$485,000
=========
7
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED DECEMBER 31, 1998
(Unaudited)
3. Stock options and warrants outstanding
Options Exercise
Warrants price Exercise date
-------- ----- -------------
Options granted 280,000 $.1875 July 16, 1999 to
September 30, 2006
Options granted 50,000 .1875 Up to September 30, 2006
Warrants issued 300,000 2.0000 Up to January 21, 2001
Warrants issued 300,000 3.8750 Up to April 2003
-------
Options/warrants
outstanding at
December 31, 1998 930,000
=======
Options/warrants
exercisable at
December 31, 1998 850,000
=======
4. Accumulated other comprehensive loss balances
At December 31, 1998, the accumulated other comprehensive loss balance
consists of the following:
Unrealized
loss on
securities
----------
Balance at September 30, 1998 $ 14,988
Net unrealized loss for the
quarter ended December 31, 1998 133,896
--------
Balance at December 31, 1998 $148,884
========
8
Item 2. Management's Discussion and Analysis or Plan of Operations
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this quarterly report on
Form 10-QSB for the quarter ended December 31, 1998 (the "Form 10-QSB"). In
addition to historical information, this Form 10-QSB contains forward- looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward- looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in the section entitled "Management's Discussion and Analysis or Plan of
Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. Environmental Products & Technologies Corporation (the "Company")
undertakes no obligation to publicly revise these forward-looking statements, or
to reflect events or circumstances that arise after the date hereof. Readers
should carefully review the risk factors described in other documents that the
Company has filed and will continue to file from time to time with the
Securities and Exchange Commission.
GENERAL
The Company was incorporated in 1983 as CCRS, III, Inc. In 1989, the
Company changed its name to Central Corporate Reports Services, Inc., merged
with Information Bureau Inc. and operated in the financial public relations
business until March 1990 when the Company became inactive. In 1990 the Company
changed its name to Combined Assets, Inc. and in 1991 changed its name to ACP
International, Inc., and in 1994 changed its name back to Combined Assets, Inc.
In January 1995, the Company's name was changed to Environmental Products &
Technologies Corporation.
At the end of 1995, the Company commenced development of a waste
management system to control odors and solid stream waste in the farming
industry. In addition, the Company is developing organic based insecticides for
agricultural, commercial and residential use.
The Company is currently in the development stage of operations and, to
this time, has devoted its time to raising capital, product and supplier
development, and marketing future products. No products have been assembled,
manufactured or marketed at this time, except that the Company has assembled one
prototype Closed-Loop Waste Management System for demonstration purposes and
three prototype systems for operation by various universities.
The Company has projected expenses of $750,000 through June 1999. As of
December 31, 1998, the Company had approximately $825,000 of cash and cash
equivalents and, accordingly, even if the Company were to generate no revenues
through June 1999, the Company would not need to seek additional financing to
satisfy its cash requirements. The Company intends to continue its research and
development activities during the next twelve months.
The Company intends to continue product development with the test of
three full-scale systems to be operated at Utah State University, Cal
Poly-Pomona and the University of Wisconsin. These units will be employed for
continued demonstrations and sales activity. While the development of an
input/feed conveyor system has been completed, a variable discharge mechanism to
load and unload the bioreactor needs to be completed. In addition, a liquids
waste process has been developed but needs to have its testing completed.
51601:031
9
RESULT OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997.
The Company recognized no revenue for the three months ended December
31, 1998, and for the three months ended December 31, 1997. During each such
quarter, the Company's efforts were directed at researching, designing,
developing and testing its Closed-Loop Waste Management System and, in addition,
during the quarter ended December 31, 1998, the Company commenced marketing
efforts for the Closed-Loop Waste Management System.
Research and development expenses primarily consist of the cost of
personnel and equipment needed to conduct the Company's research and development
efforts. Research and development expenses for the three months ended December
31, 1998, decreased by $125,504, or approximately 59%, to $88,400 from $213,904
for the three months ended December 31, 1997. This decrease in research and
development expenses reflects finalization of the Company's research and
development efforts and the commencement of testing its Closed-Loop Waste
Management System.
General and administrative expenses primarily consist of general and
administrative costs related to the salaries of the Company's administrative
personnel and associated costs, including legal and consulting fees. General and
administrative expenses for the three months ended December 31, 1998, increased
by $224,094, or approximately 388%, to $281,904 from $57,810 for the three
months ended December 31, 1997. This increase in general and administrative
expenses is mainly attributed to increased spending for the following:
legal and professional fees, salaries and payroll taxes, and travel.
The Company's loss from operations for the three months ended December
31, 1998, increased by $98,590, or approximately 36%, to $370,304 from $271,714
for the three months ended December 31, 1997. This increase in loss from
operations is mainly attributed to increased general and administrative expenses
that were partially offset by reduced research and development expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the design and
development of its prototype Closed-Loop Waste Management System. The Company's
primary sources of liquidity have been private placements of equity and debt
securities and loans from officers/stockholders on an as needed basis.
Between October and December 1995, the Company sold 100,000 shares of
Common Stock for an aggregate of $10,000, or $.10 per share. Between January and
March 1996, the Company sold 400,000 shares of Common Stock for an aggregate of
$189,650, or approximately $.47 per share. Between April and June 1996, the
Company sold 40,000 shares of Common Stock for an aggregate of $35,000, or $.87
per share. Between July and September 1996, the Company sold 480,000 shares of
Common Stock for an aggregate of $149,200, or approximately $.31 per share.
Between June and September 1997, the Company sold 550,000 shares of Common Stock
for an aggregate of $337,925, or approximately $.614 per share. The figures in
this paragraph do not give effect to the two-for-one forward stock split that
was effected by the Company in May 1998.
In April 1998, the Company sold 3,000 shares of Series A Preferred
Stock together with warrants (the "Private Placement Warrants") to purchase
300,000 shares of Common Stock (the "1998 Private Placement") for gross proceeds
of $3,000,000. The net proceeds to the Company of approximately $2,675,000 will
be used for continued research and development, working capital and general
corporate purposes. The Private Placement Warrants have an initial exercise
price of $3.875 per share. The Private Placement Warrants expire on March 31,
2003. The Private Placement Warrants contain provisions for the adjustment of
the exercise price and the aggregate number of shares issuable upon exercise
under certain circumstances, including without limitation, stock dividends,
stock splits, reorganizations, reclassifications, consolidations, certain
dilutive sales of securities for which the Private Placement Warrants are
51601:031
10
exercisable below the then existing Market Price (as defined) and failure to
maintain a sufficient number of authorized shares of Common Stock for issuance
and delivery upon exercise of the Private Placement Warrants.
The Company also has commitments under (i) an employment agreement with
Marvin Mears, the Company's President and Chief Executive Officer; (ii) a
consulting agreement with Strategic Planning Consultants, Inc., a consultant to
the Company; and (iii) an office lease that expires December 31, 1999.
Based on its current operating plan, the Company anticipates that
additional financing will be required to finance its operations and capital
expenditures. The Company's currently anticipated levels of revenues and cash
flow are subject to many uncertainties and cannot be assured. Further, the
Company's business plan may change, or unforseen events may occur, requiring the
Company to raise additional funds. The amount of funds required by the Company
will depend upon many factors, including without limitation, the extent and
timing of sales of the Company's waste management system, future product costs,
the timing and costs associated with the establishment and/or expansion, as
appropriate, of the Company's manufacturing, development, engineering and
customer support capabilities, the timing and cost of the Company's product
development and enhancement activities and the Company's operating results.
Until the Company generates cash flow from operations which will be sufficient
to satisfy its cash requirements, the Company will need to seek alternative
means for financing its operations and capital expenditures and/or postpone or
eliminate certain investments or expenditures. Potential alternative means for
financing may include leasing capital equipment, obtaining a line of credit, or
obtaining additional debt or equity financing. There can be no assurance that,
if and when needed, additional financing will be available, or available on
acceptable terms. The inability to obtain additional financing or generate
sufficient cash from operations could require the Company to reduce or eliminate
expenditures for capital equipment, research and development, production or
marketing of its products, or otherwise curtail or discontinue its operations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, if the Company raises funds
through the sale of additional equity securities, the Common Stock currently
outstanding may be further diluted.
INFLATION
Although certain of the Company's expenses increase with general
inflation in the economy, inflation has not had a material impact on the
Company's financial results to date.
51601:031
11
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
None.
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 Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
51601:031
12
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunder duly
authorized.
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
Dated: February 12, 1999 By: /s/Marvin Mears
--------------------------------
Marvin Mears
Chief Executive Officer
51601:031
13