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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-18995
INTERLINE RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 87-0461653
-------------------- ---------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
160 West Canyon Crest Road, Alpine, UT 84004 (Address of
principal executive offices)
Registrant's telephone number, including area code: (801) 756-3031
Securities registered pursuant to Section 12(b) of the Exchange Act:
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock $.005 Par Value
Title of Class
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No____.
Common stock outstanding at November 9, 1998 - 14,074,167 shares of $.005
par value Common stock.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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FORM 10-QSB/A
INTERLINE RESOURCES CORPORATION
TABLE OF CONTENTS
PART I. - FINANCIAL INFORMATION
Item 1 Financial Statements Page
Condensed Consolidated Balance Sheet at
September 30, 1998 1
Condensed Consolidated Statement of Operations for the
three and nine months ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for
nine months ended September 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. - OTHER INFORMATION
Item 1 Legal Proceedings 21
Item 2 Changes in the Securities 23
Item 3 Defaults Upon Senior Securities 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 23
Item 6(a) Exhibits 23
Item 6(b) Reports on Form 8-K 23
Signatures 24
FORWARD LOOKING INFORMATION AND RISK FACTORS
Interline Resources Corporation (the "Company") or its representatives may
make forward looking statements, oral or written, including statements in this
report's Management's Discussion and Analysis of Financial Condition and Results
of Operation, press release and filings with the Securities and Exchange
Commission, regarding estimated future net revenues from operations, planned
capital expenditures (including the amount and nature thereof), the effects of
the Company's Bankruptcy proceeding, the Company's projected financial position,
results of operations, business strategy and other plans and objectives for
future operations. These statements are forward-looking statements, within the
meaning of Section 27A of the Securities Act of 1993 and Section 21E of the
Securities Exchange Act, which reflect Management's current views with respect
to future events and financial performance.
Although the Company believes that the expectations reflected in these
forward looking statements are reasonable, there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected effects on its
business or results of operations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include but are not limited to the
outcome of the Company's current Bankruptcy Proceeding, the timing and extent of
changes in commodity prices, unforeseen engineering and mechanical or
technological difficulties in connection with the Company's business operations
and other risks.
These forward-looking statements are subject to certain risks and
uncertainties including, but not limited to, future financial performance and
future events, competitive pricing for services, costs of obtaining capital as
well as national, regional and local economic conditions. Actual results could
differ materially from those addressed in the forward-looking statements. Due to
such uncertainties and risks, readers are cautioned not to place undue reliance
on such forward-looking statements, which speak only as of the date whereof.
All subsequent oral and written forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
PART I - ITEM 1
FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1998
The condensed financial statements included have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The Company presumes that the
user of this interim financial information has read or has access to the audited
financial statements for the preceding fiscal year----and in that context, this
disclosure is adequate for a fair presentation of the Company's financial
position.
In the opinion of the Company, all adjustments consisting of only normal
recurring adjustments as of September 30, 1998, have been made. The results of
operations for the interim period are not necessarily indicative of the results
to be expected for the entire year.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
Assets September 30, 1998
___________________
Current assets:
Cash and cash equivalents $691,235
Accounts receivable - trade 593,911
Income taxes receivable 40,000
Inventories 35,632
Note receivable - current portion 55,700
Net assets of discontinued operations -
Other current assets 49,868
____________
Total current assets 1,466,346
Property, plant and equipment 6,125,128
Accumulated depreciation and depletion (2,175,735)
____________
Net property, plant & equipment 3,949,393
Note receivable 78,756
Technology and marketing rights 899,682
Net assets of discontinued operations -
____________
Total assets $6,394,177
============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
1
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
Liabilities and Stockholders' Equity September 30, 1998
__________________
Current liabilities:
Accounts payable $506,785
Accrued liabilities 237,600
Accrued interest, related party -
Note payable, related party 750,000
Current portion of long-term debt 183,707
Other current liabilities 20,116
_____________
Total current liabilities 1,698,208
_____________
Long-term debt less current maturities 589,788
Note payable, related party 2,850,000
Deferred income 56,340
_____________
Total liabilities 5,194,336
Stockholders' equity:
Preferred stock - $.01 par value. 25,000,000
shares authorized; 1,000,000 series A shares
authorized; 0 series A shares issued and o/s -
Common stock - $.005 par value. 100,000,000
shares authorized; 14,074,167 shares
outstanding at Sept 30, 1998 70,371
Additional paid-in capital 9,209,017
Retained earnings (8,079,547)
_____________
Total stockholders' equity 1,199,841
_____________
Total liabilities & stockholders $6,394,177
=============
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
Three months ended Nine months ended
Sept 30, Sept 30,
______________________ __________________________
1998 1997 1998 1997
Revenue $963,522 $956,156 $2,649,155 $3,697,744
Direct costs 606,960 779,925 1,837,640 2,830,224
_______________________ __________________________
Gross margin 356,562 176,231 811,515 867,520
Selling, general and
administrative expenses 258,137 335,161 771,946 935,472
Research and development 14,001 5,786 63,087 122,942
Depreciation, depletion and amortization 170,028 191,137 510,078 578,541
_______________________ __________________________
(Loss) from operations (85,604) (355,853) (533,596) (769,435)
Other income (expense) net
Interest income (expense) (6,874) (9,394) (27,983) (33,645)
Interest expense, related party 130,795 (66,437) (47,136) (390,020)
Gain (loss) from sale of assets - 16,109 1,334 789,229
_______________________ __________________________
Income (loss) before discontinued operations 38,317 (415,575) (607,381) (403,871)
Discontinued operations
Income (loss) from discontinued operations - 14,732 (53,868) (508,502)
Gain on disposal of discontinued operations - (1,567,459) 18,885 520,258
_______________________ __________________________
Total discontinued operations 0 (1,552,727) (34,983) 11,756
Net Income (loss) $38,317 ($1,968,302) ($642,364) ($392,115)
======================= ==========================
Earning per share
Loss from continuing operations $0.00 ($0.03) ($0.04) ($0.03)
Income from discontinued operations $0.00 ($0.11) ($0.00) $0.00
_______________________ ___________________________
Income (loss) per common share: $0.00 ($0.14) ($0.05) ($0.03)
======================= ===========================
Weighted average shares o/s 14,074,167 14,074,167 14,074,167 14,074,167
========================== ===========================
The accompanying notes are an integral part of these consolidated condensed
financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended
Sept 30,
1998 1997
_________________________
Cash flows from operating activities:
Net income (loss) (642,364) (392,115)
Adjustment to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation, depletion and amortizat 510,078 578,541
Gain on disposal of asset 1,334 (760,258)
Common Stock issued for services 24,000 -
(Increase) decrease in:
Accounts receivable (289,821) (226,886)
Inventories (11,463) (12,529)
Other current assets (28,560) (32,296)
Note receivable (45,677) 38,742
Increase (decrease) in:
Accounts payable 207,657 (343,662)
Accrued liabilities (792,481) 55,269
Accrued interest, related party - 390,020
Other current liabilities 20,116 -
Deferred income (4,753) (111,159)
------------- -----------
Net cash (used) by operating activities (1,051,934) (816,333)
Cash flows from investing activities:
Proceeds from sale of equipment 4,700 531,768
Proceeds from sale of joint venture - 500,000
Purchase of intangible assets - (23,869)
Net assets of discontinued operations 683,853 2,947,316
Purchase of property, plant & equipment (56,036) (361,589)
------------- -----------
Net cash provided (used in) investing actitivi 632,517 3,593,626
The accompanying notes are an integral part of these consolidated condensed
financial statements.
INTERLINE RESOURCES CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended
Sept 30,
1998 1997
___________________________
Cash flows from financing activities:
Proceeds from debt obligations - -
Conversion of related party interest 34,135
Payment on long-term debt (76,682) (2,428,255)
___________________________
Net cash provided (used) by financing (42,547) (2,428,255)
___________________________
Net increase (decrease) in cash (461,964) 349,038
Cash, beginning of year 1,153,199 907,669
____________________________
Cash, end of quarter 691,235 1,256,707
============================
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Oil and Gas Accounting
The Company uses the "successful efforts" method to account for oil and gas
operations. The use of this method results in the capitalization of costs
related to acquisition, exploration and development of revenue producing oil and
gas properties. The costs of unsuccessful exploration efforts are expensed in
the period in which they are determined unrecoverable by future revenues.
Provision for depreciation and depletion of oil and gas properties is based on
the units of production method, based on proven oil and gas reserves.
Segment information concerning oil and gas reserves and related disclosures are
not presented since they are not significant in relation to the financial
statements taken as a whole.
Construction Accounting
Construction revenues are recognized on the percentage-of-completion method of
accounting. Profits on contracts are recorded on the basis of "cost-to-cost"
determination of percentage of completion on individual contracts, commencing
when progress reaches a point where cost and estimate analysis and other
evidence of trend are sufficient to estimate final results with reasonable
accuracy. That portion of the total contract price which is allocable to
contract expenditure incurred and work performed is accrued as earned income. At
the time a loss on a contract becomes known, the entire amount of the estimated
ultimate loss is accrued. Claims for additional revenue are recognized when
settled. The aggregate of cost incurred and income recognized on uncompleted
contracts in excess of related billings is shown as a current asset, and the
aggregate of billings on uncompleted contracts in excess of related costs
incurred and income recognized is shown as a current liability.
Cash Equivalents
For purposes of the consolidated statement of cash flows, cash includes all cash
and investments with original maturities to the Company of three months or less.
Inventories
Inventories consisting of supplies and miscellaneous material are recorded in
the financial statements at their aggregate lower of cost (first-in, first-out)
or market.
Investments
Investments in less than majority owned entities are accounted for using the
equity method. Investments are included in the financial statements under the
caption of "Other Assets."
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 used oil
refining process over seventeen years. This period approximates the assets'
useful lives.
Contingencies
During 1996, the Company entered into an agreement to sell certain assets of the
Company. As part of this agreement, the Company also agreed to guarantee a note
payable between the purchaser and a third party. At September 30, 1998, the
remaining liability on the note was approximately $89,037.
The Company has executed license agreements with licensees to utilize Interlines
used oil technology which includes technology received from Petroleum System,
Inc. ("PSI") through an assignment agreement of certain patent rights (PSI
technology). Under the assignment agreement the Company is obligated to pay
royalties to PSI for those Interline plants using PSI technology.
The Company has now developed a new technology which does not utilize PSI
technology. As a result, on September 10, 1998 the Company reassigned all of the
intellectual rights it obtained from PSI under the assignment agreement, back to
PSI. The only plants that utilize the PSI technology are the Dubai Plant which
has been shut down and essentially abandoned, the Genesis Plant which has been
shut down and no longer operates, and the England Plant which currently
operates. Under the terms of the assignment agreement, the Company is obligated
to assign all royalties payable from plants utilizing PSI technology back to
PSI. The Company did so on September 10, 1998.
PSI has made other claims against the Company which are described in Part
II, Item 1. Legal Proceeding.
INTERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In April of 1997, the Company sold its 40% interest in the England Plant
joint venture to John Wheland for $500,000. John Wheland has only paid $200,000
of the purchase price and while the Company has demanded payment of the
remaining purchase price the payment remains in dispute. Additionally, in
connection with the sale of the Company" interest in the joint venture, the
joint venture was to pay the Company $100,000 for certain construction charges
and services it performed on the England Plant. The joint venture has not made
this payment, and its payment is in dispute. While the Company believes that a
settlement of the disputed payments is likely, there can be no assurance that an
agreement will be reached. In such an event the Company will seek a legal
remedy. The Company's financial statements reflect a doubtful allowance reserve
to cover this money due.
Profit Sharing Plan
During 1995, the Company commenced a defined contribution retirement plan, which
qualifies under code section 401(k), for all eligible employees. Employees who
work at least 1,000 hours during a year and are over age 21 are eligible to
participate. Employees may contribute up to fifteen percent of their annual
compensation subject to regulatory limitations. The Company also contributes a
discretionary amount on behalf of the participating employees. The Company made
contributions of $987 and $459 for the three months ended September 30, 1998 and
1997, respectively.
Reclassification
Certain amounts in the prior years financial statements have been reclassified
to conform to the September 30, 1998 presentation.
Discontinued Operations
The financial statements for all periods presented reflect the revenues and
expenses generated from the assets of the Utah oil and gas operations, Gagon
Mechanical construction and manufacturing operations and the Salt Lake City
refinery operations under the caption "Income (loss) from discontinued
operations." The related assets and liabilities of Gagon Mechanical have been
presented on the balance sheet under caption "net assets of discontinued
operations."
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company is a Utah corporation with its principal and executive offices
located at 160 West Canyon Crest Road, Utah 84004 (801) 756-3031. Interline
Resources Corporation (the "Company"), a Utah corporation, is engaged in two
areas of business, each operating as separate subsidiaries: Interline
Hydrocarbon Inc., a Wyoming corporation, which commercializes the Company's used
oil refining technology; and Interline Energy Services, Inc., a Wyoming
corporation, which manages the Company's oil and gas operations located in
Wyoming.
The Company has invested substantial resources commercializing a used oil
refining technology and has signed license agreements with companies in England,
South Korea, Dubia, Australia and Spain. The Company's first used oil refinery
was constructed in Salt Lake City, Utah in 1996. The Company's oil and gas
operations consist of natural gas gathering, natural gas processing,
transportation and oil well production all located in Wyoming.
On September 26, 1997, the Company filed a Petition for Reorganization
under Chapter 11 (the "Petition") of the United States Bankruptcy Code. The
Company continued its operations as a debtor-in-possession under the Bankruptcy
Code. The Company's subsidiaries did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceeding.
On June 18, 1998, the Company filed a Plan of Reorganization and
Disclosure Statement to the Plan of Reorganization with the United States
Bankruptcy Court for the District of Utah, Central Division. On July 14, 1998,
the Company's Plan of Reorganization and Disclosure Statement to the Plan of
Reorganization was approved and circulation thereof authorized by the United
States Bankruptcy Court for the District of Utah, Central Division.
On September 10, 1998, the plan of reorganization under Chapter 11 of
Interline Resources Corporation was confirmed by the United States Bankruptcy
Court for the District of Utah. As a result, restraints on the activities of
Interline imposed by the Bankruptcy code have been removed. The Company's motion
for final decree is scheduled for November 12, 1998. Interline reached agreement
with its major creditor during the Chapter 11 case and the terms of the
agreement (See Part 1 - Item 2 - Liquidity and Capital Resources) were
incorporated in the plan. All other creditors will be paid in full under the
plan.
The Company's current operating subsidiaries are (1) Interline Energy
Services, Inc.("Interline Energy") a Wyoming corporation which manages the
Company's oil and gas operations located in Wyoming and (2) Interline
Hydrocarbons, Inc. ("Interline Hydrocarbons") a Wyoming corporation which owns
and operates the Company's used oil refining technology.
Interline Energy Services - Oil and Gas Operations.
The Company has been engaged in the oil and gas industry since 1990. These
operations primarily involve natural gas gathering and processing, crude oil
gathering, fractionation and marketing of natural gas liquids, and oil and gas
production. In May, 1997, the Company sold its Utah gathering and production
operations to subsidiaries of the Questar Corporation of Salt Lake City, Utah,
and is now concentrating on its operations in east-central Wyoming.
At the Well Draw Gas Plant ("Well Draw") the Company buys mixed liquids
from several different plants, transports them to Well Draw, fractionates the
liquids into commercial propane, butane, and natural gasoline, and re-markets
these products for its own account. Additionally, from time to time the Company
enters into agreements for fractionation of liquids from others on a fee basis,
including the Amoco contract and others. The plant processed and fractionated a
total of 86,901 gallons a day of natural gas liquids for the three months ended
September 30, 1998 compared to 59,400 gallons a day for the three months ended
September 30, 1997. Of the total gallons fractionated and processed, 8,790
gallons per day was for the Company and 78,111 gallons per day for others, as
compared to 10,260 and 49,140 gallons per day respectively in 1997. In October
of 1997, KN Gas Gathering ("KN") began fractionating and processing
approximately 20,000 gallons per day at Well Draw under an agreement which
extended to March 31, 1998. During April and May of 1998, KN elected not to
fractionate their liquids at the Well Draw Gas Plant. Since June of 1998, KN has
resumed the fractionating agreement with the Company on a month to month basis.
Since June of 1998, the Company has been fractionating for KN approximately
30,000 gallons a day of natural gas liquids.
The Company's natural gas liquids transportation operation transported
approximately 17 million gallons of raw and finished products during the nine
months ended September 30, 1998. The Company operates four tractor-trailer-pup
combination units to move unprocessed natural gas liquids to Well Draw for
fractionation, and then to take propane, butane, and natural gasoline from Well
Draw to various refiners, chemical plants, and end-users. When time permits,
these trucks also move liquids on a common carrier basis for third parties. The
Company intends to continue to emphasize this profitable business segment, and
believes that our reputation for flexibility and customer service will allow us
to maximize opportunities.
Oil and natural gas production from the Company's wells in Wyoming
continue to be a small but profitable segment of operations. Although oil and
gas prices have declined significantly from historical prices, the Company
intends to continue producing these wells.
Management is unaware of any significant future capital expenditures for
the future in its oil and gas operations. However, the very nature of equipment
operation, ware and tear and replacement in this type of operation can be
significant. Further, it is noted that most of the revenues earned by the Well
Draw Plant are derived from the Amoco contract which will expire in June 1,
2000. If this contract is not renewed, it will have a substantial impact on the
ability of the Well Draw plant to continue operations. Management continues to
seek other liquids and gas connections to expand and diversify its operations in
Wyoming, however, its operations are in a limited and well defined area and
expansion is difficult.
Interline Hydrocarbon - Used Oil Refining.
Revenues to the Company, from its used oil refining technology can come
from five sources: 1) profits made from constructing a used oil plant, 2)
granting exclusive territories to licensee, 3) receiving royalties based on
either production or a flat yearly licensing fee, 4) taking partnership
interests in operating Plants by either contributing the technology and/or
making cash contributions for partnership interests and, 5) rather than build
plants, sell the construction plans and provide consultation and expertise so
that the customer can build the Plant.
Based on the experiences with the four Plants that have been built by the
Company, management's current feelings are to not be in the construction
business. Further, until the Company gets in better financial condition, it is
not in a position to take interests in operating Plants. Management believes
that the best way for it to capitalize on the technology is to sell the
construction plans for a Plant and provide consultation services to the
purchaser.
On June 10, 1998 the Company signed an engineering and marketing agreement
with Ecolube, S.A., a subsidiary of Sener Engineering of Madrid, Spain. Under
the agreement, the Company provided Ecolube with engineering specifications and
construction drawings for the building of a 24,000 gallon per day waste oil
re-refinery. The plant will be located in Madrid, Spain. Under the agreement,
Ecolube will construct and operate the plant and produce lubricant base oil.
Interline will receive a $534,000 engineering and licensing payment and receive
a running royalty of $0.0175 on each gallon produced and sold for 10 years.
Ecolube has the right to build additional plants in the Iberian Peninsula (Spain
and Portugal) for a four year period commencing from the date of plant start up.
It has also become evident to management that demanding royalties based on
production in many situations and countries is difficult. Unless and until the
rerefined oil produced in a Plant can be sold at higher values based on pricing
similar to base lubricating oils, on-going royalties based on production is
difficult to obtain. The most viable opportunities management has discovered are
in countries that have governmental concessions resulting in economic incentives
for collecting and processing used oil. This reality has been seen in both
Korea, where the royalty was terminated for the first plant, and England where,
as described previous filings, the royalties were reduced and not payable until
profitable.
Management still believes that there exists economic justification and
interest in the technology. The Company continues to improve the technology, and
on May 28, 1998 filed a patent application in the United States Patent Office
for a new and alternative method from the PSI technology for processing used
oil. This new technology has been implemented in the Korean, Austrialian and
Spanish Plants. While management continues to receive inquiries about the
technology, the Company is selective as to potential purchasers. From
experience, management is aware of the complicated nature between the balance of
supply and demand. Management has become much more selective in its
consideration of selling the technology to prospective purchasers and unless
favorable conditions exist the Company discourages the purchaser. Management has
become much more active in helping potential customers evaluate their end
product sales markets.
Results of Operations
The following analysis of the financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto, included elsewhere in this report.
During 1997, the following three events occurred, and have been classified
and presented in the financial statement as discontinued operations. Readers of
the condensed financial statements should keep in mind that prior comparative
information in this report have been changed to reflect these events.
Salt Lake Refinery - Genesis Petroleum Inc.: As disclosed in previous SEC
filings, the Company recorded a liability for the repurchase of a used oil
refinery located in Salt Lake City, Utah from Genesis Petroleum, the original
purchaser. This liability is a result of Genesis exercising the option, provided
in the sales agreement, to require the Company to repurchase the refinery. Prior
to the option being exercised, the Company was a 26% owner of the joint venture
which operated the used oil refinery and accounted for its investment on the
equity method through June 19, 1996. The original purchaser owned the remaining
74% of the joint venture and operated the plant. The Company had consolidated
the operations of the refinery and joint venture since June 19, 1996 the date
the option was executed.
Effective September 30, 1997, the Company reclassified the operations of
the Genesis Refinery and joint venture into "discontinued operations". The
change in accounting treatment was due to the belief of Company's management
that it will not retain the refinery and ownership in the joint venture.
Subsequently, on December 23, 1997 the Company and Genesis Petroleum entered
into an agreement to settle all claims. (See Legal Proceeding) The consolidated
statement of operations presented for the three and nine months ended September
30, 1998 and 1997 reflect the revenue and expense relating to Genesis Refinery
under caption "Income (loss) from discontinued operations".
Utah Oil and Gas Operations: As disclosed in previous SEC filings, on May
1, 1997, the Company sold all assets of its Utah oil and gas operations. The
consolidated statement of operations presented for the three and nine months
ended September 30, 1998 and 1997, reflect the revenue and expense relating to
these assets under caption "Income (loss) from discontinued operations." The
consolidated statement of operations presented for the three and nine months
ended September 30, 1998 and 1997, reflect the gain or loss on sale of these
assets under caption "Gain (loss) on disposal of discontinued operations."
Gagon Mechanical Operations: In May 1997, the Company discontinued the
operations of Gagon Mechanical. The consolidated statement of operations
presented for the three and nine months ended September 30, 1998 and 1997,
reflect the revenue and expense relating to these assets under caption "Income
(loss) from discontinued operations." The consolidated balance sheet for quarter
ended September 30, 1998 reflect all assets and liabilities relating to the
operations under caption "Net assets of discontinued operations". The
consolidated statement of operations presented for the three and nine months
ended September 30, 1998 and 1997, reflect the gain or loss on sale of these
assets under caption "Gain (loss) on disposal of discontinued operations."
Total Revenues for Nine Months Ended September 30, 1998
Revenues decreased $1,048,589 or 28.36%, to $2,649,155 for the nine months
ended September 30, 1998 as compared to $3,697,744 for the nine months ended
September 30, 1997. The revenue decrease included a $843,481 or 26.64%, decrease
in oil and gas revenues; and a $227,883, or 42.86% decrease in used oil refining
revenues and an $22,775 increase in other revenues. The Company's total
revenues, on a segment basis, for nine months ended September 30, 1998 and 1997
were as follows:
The following table excludes any revenues generated from the assets of the Utah
oil and gas operations, Gagon Mechanical construction and manufacturing
operations, and any revenues attributed to the Salt Lake City refinery
operation. The assets of the Utah oil and gas operations were sold May 1, 1997.
Gagon Mechanical operations were discontinued in May 1997, although the Company
is subcontracting to G-EPIC, Inc. the construction of the Australia plant. The
assets of the Salt Lake Refinery were discontinued due to the Company's
agreement with Genesis Petroleum to settle all claims. The results of these
operations are reflected in the consolidated statement of operations under
caption "Income (loss) from discontinued operations".
Revenues For Nine Months Ended September 30, 1998 and 1997
1998 % 1997 %
______________________________________________________________________________
Oil and Gas $2,322,520 87.67% $3,166,001 85.62%
Used Oil refining 303,860 11.47% 531,743 14.38%
Other 22,775 .86% 0 .00%
______________________________________________________________________________
Total Revenue $2,649,155 100% $3,697,744 100%
==============================================================================
Total Revenues for Three Months Ended September 30, 1998
Revenues increased $7,366 or .77%, to $963,522 for the three months ended
September 30, 1998 as compared to $956,156 for the three months ended September
30, 1997. The revenue increase included a $143,365 or 15.07%, decrease in oil
and gas revenues; and a $145,056, or 2948.89%, increase in used oil refining
revenues and an $5,675 increase in other revenues. The Company's total revenues,
on a segment basis, for three months ended September 30, 1998 and 1997 were as
follows:
The following table excludes any revenues generated from the assets of the Utah
oil and gas operations, Gagon Mechanical construction and manufacturing
operations, and any revenues attributed to the Salt Lake City refinery
operation. The assets of the Utah oil and gas operations were sold May 1, 1997.
Gagon Mechanical operations were discontinued in May 1997, although the Company
is subcontracting to G-EPIC, Inc. the construction of the Australia plant. The
assets of the Salt Lake Refinery were discontinued due to the Company's
agreement with Genesis Petroleum to settle all claims. The results of these
operations are reflected in the consolidated statement of operations under
caption "Income (loss) from discontinued operations".
Revenues For Nine Months Ended September 30, 1998 and 1997
1998 % 1997 %
______________________________________________________________________________
Oil and Gas $807,872 83.85% $951,237 99.49%
Used Oil refining 149,975 15.57% 4,919 .51%
Other 5,675 .58% 0 .00%
______________________________________________________________________________
Total Revenue $963,522 100% $956,156 100%
==============================================================================
Oil and Gas Revenues
Oil and gas revenues contributed approximately 83.85% of total revenues
for the three months ended September 30, 1998, as compared to approximately
99.49% for the three months ended September 30, 1997. Revenues decreased
$143,365 or 15.07% to $807,872 for the three months ended September 30, 1998 as
compared to $951,237 for the three months ended September 30, 1997.
The revenues presented in the above table are solely from the Company's
Wyoming operations. This revenue decrease of $143,365 or 15.07% is mainly
attributed to several liquid
purchase contracts that expired. The Company tried to negotiate new terms for
these liquids, but after considering the very low margins and the risk on the
structure of the pricing, the Company did not except the new terms. During 1998,
the Company's focus has been on increasing cash flows by increasing the margins
as it relates to its liquid purchase contracts.
Used Oil Refining Revenues
Since it commenced operations in the used oil refining business, the
Company has primarily derived revenues attributed to fees for engineering, plant
design, license, exclusively or other services associated with the Company's
used oil refining technology. The revenue attributed to the used oil refining
business varies significantly from quarter to quarter reflecting the status of
the Company's fees and plant design services.
Used oil refining revenues contributed 15.57% of total revenues for the
three months ended September 30, 1998 compared to .51% for the three months
ended September 30, 1997. The revenues increased $145,056, or 2948.89%, to
$149,975 for the three months ended September 30, 1998 compared to $4,919 for
the three months ended September 30, 1997. This revenue increase of $145,056 was
mainly derived from the engineering and licensing agreement with Ecolube, S.A.,
a subsidiary of Sener Engineering of Madrid, Spain. Under the agreement, the
Company will receive an engineering and licensing payment of $534,000. As of
September 30, 1998, the Company received $200,000 from Ecolube. During the three
and nine months ended September 30, 1998 and 1997, the Company received no
revenues for royalties for it used oil technology.
The results of the Salt Lake City refinery operations during the three and
nine months ended September 30, 1997, are reflected in the consolidated
statement of operations under the caption "Income (loss) from discontinued
operations".
Direct Costs
Direct costs decreased $172,965, or 22.18%, to $606,960 for the three
months ended September 30, 1998 compared to $779,925 for the three months ended
September 30, 1997. As a percent of revenues, direct costs decreased to 62.99%
for the three months ended September 30, 1998 compared to 81.57% for the three
months ended September 30, 1997. The decrease of $172,965 for the three months
ended September 30, 1998 was mainly attributed to the Company's focus to
increase cash flow and reduce expenses. During 1997, the Company reduced
personnel in the Wyoming oil and gas operations.
Selling, General and Administrative
Selling, general and administrative expenses decreased $77,024, or 22.98%,
to $258,137 for the three months ended September 30, 1998 compared to $335,161
for the three months September 30, 1997. As a percent of revenues, selling,
general and administrative expenses were 26.79% for the three months ended
September 30, 1998 compared to 35.05% for the three months ended September 30,
1997. During 1997, the Company's management developed a plan to increase cash
flow and reduce expenses. Part of the plan included a reduction of personnel,
including both management and operations personnel. During 1997, the Company
reduced 3 management positions and 25 operational positions. During 1998, the
Company reduced an additional 4 management
positions and 2 operational positions. The Company did incur outside legal fees
of $108,825 for the nine months ended September 30, 1998 compared to $111,605
for the nine months ended September 30, 1997. These legal costs were mainly
attributed to the Company's legal proceedings and bankruptcy filing.
Depreciation and Amortization
Depreciation and amortization expenses decreased $21,109, or 11.04% to
$170,028 for the three months ended September 30, 1998 compared to $191,137 for
the three months ended September 30, 1997. As a percent of revenues,
depreciation and amortization expenses decreased to 17.65% for the three months
ended September 30, 1998 compared to 19.99% for the three months ended September
30, 1997.
Research and Development
Research and development expenses increased $8,215, or 141.98%, to $14,001
for the three months ended September 30, 1998 compared to $5,786 for the year
ended September 30, 1997. As a percent of revenues, research and development
expenses increased to 1.45% for the three months ended September 30, 1998
compared to .61% for the three months ended September 30, 1997.
Research and development expenses were mainly attributable to the
development and enhancement of the Company's used oil refining technology. The
Company will continue to incur research and development expenses as it continues
to develop its used oil refining technology.
(Loss) from operations
Loss from operations decreased $270,249, or 75.94%, to $85,604 for the
three months ended September 30, 1998 compared to a $355,853 loss for the three
months ended September 30, 1997. The $270,249 decrease in loss from operations
was mainly attributed to a decrease in direct cost of $172,965, or 22.18% to
$606,960 for the three months ended September 30, 1998 compared to $779,925 for
the three months ended September 30, 1997. Also the Company's selling, general
and administrative expenses decreased by $77,024, or 22.98%, to $258,137 for the
three months ended September 30 1998 compared to $335,161 for the three months
ended September 30, 1997.
Other income (expenses)
Net interest income (expense) decreased $2,520, or 26.83%, to $6,874 for
the three months ended September 30, 1998 compared to $9,394 for the three
months end September 30, 1997. The net decrease was mainly attributed to an
increase in interest earned on the Company's money market and interest bearing
accounts.
Interest expense to a related party decreased $197,232 or 296.87%, to
- -$130,795 for the three months ended September 30, 1998 compared to $66,437 for
the three months ended September 30, 1997. This $197,232 decrease in interest
expense to a related party was attributed to the Company new note agreement. As
part of the plan of reorganization under Chapter 11 the Company executed a new
note agreement for $3,600,000. Subsequently to the new note, the Company owed
this related party $3,743,795, which included $2,680,089 in principle and
$1,063,706 in interest.
Income (Loss) from discontinued operations.
Income (Loss) From Discontinued Operations
For The Three Months Ended September 30, 1998 and 1997
1998 1997 Change
______________________________________________________________________________
Utah Oil and Gas $0 -$1,134 -$1,134
Gagon Mechanical 0 63,002 63,002
Genesis Refinery 0 -47,134 -47,134
______________________________________________________________________________
Total -$0 $14,734 $14,734
==============================================================================
Income (loss) from discontinued operations was $0 for the three months
ended September 30, 1998 compared to income of $14,734 for the three months
ended September 30, 1997. Income (loss) from the Utah oil and gas operation
(sold May 1, 1997) was $0 for the three month ended September 30, 1998 and 1997.
Losses attributed to the Genesis refinery (discontinued September 30, 1997) was
$-0- for the three months ended September 30, 1998 compared to a loss of $47,134
for the three months ended September 30, 1997. Losses from the Gagon Mechanical
(discontinued May 1, 1997) was $-0- for the three months ended September 30,
1998 compared to income of $63,002 for the three months ended September 30, 1997
The Company's total income (loss) from discontinued operations, on a segment
basis, for the three months ended September 30, 1998 and 1997 were as follows:
Income (Loss) From Discontinued Operations
For The Three Months Ended September 30, 1998 and 1997
1998 1997 Change
______________________________________________________________________________
Utah Oil and Gas $0 $82,613 $82,613
Gagon Mechanical -53,868 -215,326 -161,458
Genesis Refinery 0 -375,789 -375,789
______________________________________________________________________________
Total -$53,868 -$508,502 -$454,634
==============================================================================
Loss from discontinued operations is $53,868 for the nine months ended
September 30, 1998 compared to a loss of $508,502 for the nine months ended
September 30, 1997. Income (loss) from the Utah oil and gas operation (sold May
1, 1997) is $0 for the nine month ended September 30, 1998 compared to income of
$82,613 for the nine months ended September 30, 1998. Losses attributed to the
Genesis refinery (discontinued September 30, 1997) is $-0- for the nine months
ended September 30, 1998 compared to a loss of $375,789 for the nine months
ended September 30, 1997. Loss from the Gagon Mechanical (discontinued May 1,
1997) is $53,868 for the nine months ended September 30, 1998 compared to a loss
of $215,326 for the nine months ended September 30, 1997 The Company's total
income (loss) from discontinued operations, on a segment basis, for the nine
months ended September 30, 1998 and 1997 were as follows:
Liquidity and Capital Resources
Sources of liquidity for the Company are revenues from oil and gas
operations and revenues from the sale of its hydrocarbon refining technology.
Currently, the only consistent ongoing revenue sources to the Company are from
its oil and gas operations in Wyoming. The Company receives revenues from its
used oil refining technology when a sale or license is executed. On going
royalty fees will be received only from the Austrilian Plant, and the Spanish
Plant, when constructed and operational. While the Company continues to work
with potential purchasers of its technology, such sales and expected revenues
are uncertain and unpredictable.
On September 10, 1998, the Company's plan of reorganization under Chapter
11 was confirmed by the United States Bankruptcy Court for the District of Utah.
Management believes that the Company's cash from the oil and gas operating
activities, cash received from the sale of its hydrocarbon refining technology
and cash retained under the reorganization plan would be adequate to meet its
operating needs in the near term and would provide a plan to meet debt
obligations. Because of certain assumptions made in the plan of reorganization,
if the Company is unable to receive cash from the marketing of its hydrocarbon
refining technology there can be no assurance that the Company will be able to
continue its current operations.
Management has put strict restraints on all capital expenditures with the
exception of necessary expenditures to maintain current operations. The Company
will continue to incur research and development costs as it continues to develop
its refining technology. At present these activities are being performed by
current Company employees and part time contract consultants
The Company's operations used $1,051,934 of cash for the nine months ended
September 30, 1998 compared to cash used by operations of $816,333 for the nine
months ended September 30, 1997. Of the $1,051,934 cash used in operations for
the nine months ended September 30, 1998, $750,000 was attributed to an one time
payment to Genesis Petroleum, Inc. to settle all claims (See Item 1 - Legal
Proceeding). Without the one time payment to Genesis Petroleum, Inc., cash used
in operations for the nine months ended September 30, 1998 was $301,934.
The decrease in cash used by operations (exclusive of the $750,000 payment to
Genesis Petroleum, Inc.) was mainly attributed to changes implemented by
management. During 1997 and 1998, the Company's management implemented a plan to
increase cash flow and reduce expenses. The plan included the following:
1. In May of 1997, the Company discontinued the Gagon Mechanical operations
and has been subcontracting any work formerly done by Gagon. In the year
ended December 31, 1997, Gagon's loss from discontinued operations was
$4,609 compared to a loss of $2,022,857 for the year ended December 31,
1996. In the nine months ended September 30, 1998, Gagon's loss from
discontinued operations was $53,868 compared to a loss of $215,326 for the
nine months ended September 30, 1997.
2. During 1997, the Company reduced its workforce by 28 personnel. Included in
the reduction was 3 management positions and 25 operational positions. This
reduction in workforce reduced the Company's salaries and wages by
approximately $550,000.
During 1998, the Company reduced an additional 4 management positions, 1
operational position and 1 clerical position.
3. During 1997, the Company received proceeds in the amount of $5,014,024 on
the sale of assets and reduced debt by $2,461,077. Included in assets sold,
were the Company's Utah oil and gas operations (Monument Butte) for
$4,000,000, the 40% interest in Interline (UK) Joint Venture for $500,000
in which the Company has received 200,000, the sale of two compressors for
$502,111 located in Wyoming and other equipment and vehicles for $11,913.
On March 1, 1998, the Company sold the Gagon Mechanical construction
equipment, parts and salvage material for the sum of $65,000. Also, on May
28, 1998, the Company sold the Gagon Mechanical building, located in Sandy,
Utah for $885,106. Net proceeds to the Company after commissions, closing
costs and payoff of secured debt was $568,743.
4. On September 30, 1997, the Company deemed its Salt Lake Refinery operation
to be a discontinued operation. Subsequently, on December 23, 1997, the
Company entered into a agreement with Genesis Petroleum, Inc. to settle all
claims between both parties. The agreement resulted in the Company
transferring all its rights to the Salt Lake Refinery, the payment of
$750,000 (made on January 29, 1998), and granting of a license of the
Company's technology for three additional sites with no license fees to be
paid to the Company. In the year ended December 31, 1997 loss from the Salt
Lake Refinery was $191,044 compared to $281,832 for the year ended December
31, 1996. For the nine months ended September 30, 1998 there where no
losses compared to $375,789 for the nine months ended September 30, 1997.
5. During 1997, the Company reduced capital expenditures from continuing
operations by $78,023, to $153,378 for the year ended December 31, 1997
compared to $231,401 for the year ended December 31, 1996. For 1998, the
Company has put strict restraints on all capital expenditures with the
exception of necessary expenditures to maintain current operations. Capital
expenditures from continuing operations for the nine months ended September
30, 1998 were $56,036 compared to $361,589 for the nine months ended
September 30, 1997.
On September 9, 1998, the plan of reorganization under Chapter 11 was
confirmed by the United States Bankruptcy Court for the District of Utah. The
Company reached agreement with its major creditor during the Chapter 11 case and
the terms of the agreement were incorporated in the plan.
The terms of the agreement included a new trust deed note dated September
22, 1998 for $3,600,000, together with interest at the rate of 7% per annum on
the unpaid principal. The Company will make quarterly payments of all accrued
interest beginning on December 22, 1998 and continuing until September 22, 2002.
The Company will also make principal payment of $750,000 on September 22, 1999;
$1,000,000 on September 22, 2000; $1,000,000 on September 22, 2001 and $850,000
on September 22, 2002.
Subsequently to the new note agreement, the Company owed this major
creditor $3,743,795, which included $2,680,089 in principle and $1,063,706 in
interest. The Company current financial statements reflect a $143,795 adjustment
in interest to a related party due to the new note agreement. The following
table summarizes each note prior to the new note agreement being executed. A
description of the terms and conditions of the prior notes have been previously
disclosed in the Company's filings.
Note Payable and Accrued Interest Due to Related Party
Initial Interest Current Accrued
Balance Rate Balance Interest
______________________________________________________________________________
Note 1 $250,000 12% $250,000 $104,890
Note 2 1,500,000 12% 1,500,000 374,301
Note 3 780,089 16% 0 500,451
Note 4 2,500,000 16% 930,089 84,064
______________________________________________________________________________
Total 5,030,089 2,680,089 $1,063,706
==============================================================================
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.
Year 2000 Compliance
The Year 2000 (Y2K) issue is the result of computer programs being written
using two digits rather than four to define the applicable year. This could
result in a system failure or miscalculations causing disruptions of operations,
including, but not limited to, a temporary inability to process transactions,
including invoices or other similar normal business activities.
The Company is in the process of assessing its computer equipment,
accounting software, telephone systems, scanning equipment and other
miscellaneous systems. The Company's compliance plan provides for the conversion
of noncompliant systems in the second and third quarter of 1999. The Company
estimates that the cost to complete these efforts will not exceed $30,000.
The Company has begun discussion with its significant vendors and
customers on the need to be 2000 complaint. The Company plans to mail
questionnaires to its significant vendors, customers and service providers to
assist in an assessment of whether they will be Year 2000 complaint. If they are
not, such failure could affect the Company's ability to sell its oil and gas
products and receive payments, to receive natural gas liquid products from its
customers to generate revenues and the ability to get vendors and service
providers to provide products and service in support of the Company's
operations. The Company expects to complete this assessment by June 30, 1999.
Although the Company has no reason to believe that its vendors and customers
will not be compliant by the year 2000, the Company is unable to determine the
extent to which Year 2000 issues will effect its vendors and customers.
The Company has not yet begun a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from failure by the
Company and significant third parties to complete efforts necessary to achieve
Year 2000 compliance on a timely basis. A contingency plan has not been
developed for dealing with most reasonably likely worst case scenario, and such
scenario has not been clearly identified. The Company plans to complete such
analysis and contingency planning by June 30, 1999.
The Company presently does not plan to incur significant problems due to
the Year 2000 issue. However, if all Year 2000 issues are not properly and
timely identified, assessed, remediated and tested, there can be no assurance
that the Year 2000 issue will not materially impact the Company's results of
operations or adversely affect its relationship with customers, vendor, or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material impact on the Company's results of
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Bankruptcy Proceedings
On September 26, 1997, the Company filed a Petition for Reorganization
under Chapter 11 (the "Petition") of the United States Bankruptcy Code. The
Company continued its operations as a debtor-in-possession under the Bankruptcy
Code. The Company's subsidiaries did not join the Company in the Petition and
were not directly involved in the Bankruptcy Reorganization Proceeding.
On June 18, 1998, the Company filed a Plan of Reorganization and Disclosure
Statement to the Plan of Reorganization with the United States Bankruptcy Court
for the District of Utah, Central Division. On July 14, 1998, the Company's Plan
of Reorganization and Disclosure Statement to the Plan of Reorganization was
approved and circulation thereof authorized by the United States Bankruptcy
Court for the District of Utah, Central Division.
On September 10, 1998, the plan of reorganization under Chapter 11 of
Interline Resources Corporation was confirmed by the United States Bankruptcy
Court for the District of Utah. As a result, restraints on the activities of
Interline imposed by the Bankruptcy code have been removed. Interline reached
agreement with its major creditor during the Chapter 11 case and the terms of
the agreement were incorporated in the plan. All other creditors will be paid in
full under the plan.
Genesis Petroleum Inc.
The Company has previously reported a lawsuit that had been filed against it in
the Third Judicial District Court of Salt Lake County, State of Utah, by Genesis
Petroleum Inc. ("GPI") for breach of a Sale and Purchase Agreement. Under the
Agreement, the Company agreed to purchase GPI's interest in the Salt Lake City
used oil refinery that had been operated by a joint venture owned by GPI and a
subsidiary of the Company. In July 1997, the Court granted GPI a judgment in the
litigation and awarded GPI damages for breach of contract. The Court awarded GPI
damages in the amount of $2,320,836, less an offset of the value of the assets
which the Company had agreed to purchase from GPI under the Agreement, but as a
result of the Company's default, these assets had been retained by GPI. The
Company was to present evidence to the Court as to the value of the Plant and
the amount of the offset (See Liquidity and Capital Resources). Prior to the
Company presenting the Court with such evidence, GPI and another creditor filed
a Petition for Involuntary Bankruptcy against the Company.
On January 20, 1998 the United States Bankruptcy Court for the District of
Utah approved a settlement agreement between the Company and Genesis Petroleum.
The Company and Genesis were joint ventureres in an used oil refinery located in
Salt Lake City, Utah. The settlement agreement provided for, among other things,
the following: 1) the litigation between them was terminated; 2) Interline paid
Genesis the sum of $750,000; 3) the Company granted Genesis a license to build
and operate three additional used oil refineries using the technology assigned
to it by PSI without the payment of any royalties or other payments to the
Company; 4) the Company transferred all of its right in the joint venture and in
the Salt Lake Refinery to Genesis; and, 5) all previous agreements between the
Company and Genesis were terminated.
Petroleum Systems Inc.
The Company has executed license agreements with
licensees to utilize Interlines used oil technology which includes technology
received from Petroleum System, Inc. ("PSI") through an assignment agreement of
certain patent rights (PSI technology). Under the assignment agreement the
Company is obligated to pay royalties to PSI for those Interline plants using
PSI technology.
The Company and PSI have been involved in a dispute as to what payments the
Company owes PSI under the assignment agreement. The Company and PSI were first
involved in an arbitration proceeding to determine the issues between them, but
PSI discontinued resolution through arbitration and on July 29, 1997 filed a
lawsuit against the Company and its wholly owned subsidiary Interline
Hydrocarbons in the Third Judicial District Court of the State of Utah ("State
Court Action") alleging that the Company was in breach of the Assignment
agreement and that PSI should be allowed to re-acquire all of the technology
rights assigned to the Company through the assignment agreement. PSI filed its
complaint and the Company answered, but as a result of the bankruptcy
proceeding, and its procedural rules the State Court Action was stayed until the
bankruptcy proceedings were resolved.
On March 26, 1998, PSI filed claim against the Company in the bankruptcy
proceeding seeking royalties of $420,000, asserting breaches of the assignment
agreement and requesting the return of a prototype production device ("Baby M")
held by the Company. The Company filed an objection to the claim, and a trial of
the claims was held on June 5 and 8, 1998. After hearing testimony of witnesses,
receiving exhibits and hearing arguments of counsel, the court entered an order
denying PSI's claim for $420,000, ordering that the Company return Baby M to PSI
and denying all other claims brought by PSI. The Company has returned Baby M to
PSI.
On May 29, 1998, PSI filed a motion for relief from the automatic stay in the
bankruptcy court seeking the right to proceed with its State Court Action
against the Company and the Company's subsidiary Interline Hydrocarbons. After
argument and hearing, the bankruptcy court requested counsel for PSI to prepare
an order granting relief from the automatic stay. The Company objected to the
proposed order granting relief from the automatic stay and a hearing was set
before the court on August 13, 1998. After argument, the Court entered its order
granting relief from the automatic stay, but limited PSI cause of action against
the Company by prohibiting any money damage to be assessed against the Company.
On September 10, 1998, on its own initiative, the Third District Court scheduled
an Order to Show Cause for on October 15, 1998. Its purpose was to advise the
court as to the progress of the action. The hearing was held on October 15, 1998
and the court entered an order that the case be certified ready for trail within
90 days - January 13, 1999. PSI was to amend or otherwise file a new complaint
against the Company. As of November 9, 1998 PSI has taken no further action to
proceed with this action. The Company does not know if PSI will continue with
its action.
_______________________________________________________________________________
Item 2. Changes in Securities:
None
_______________________________________________________________________________
Item 3. Defaults Upon Senior Securities:
The Company is currently in default on notes due to a shareholder (See
Liquidity and Capital Resources).
_______________________________________________________________________________
Item 4. Submission of Matters to a Vote of Security Holders:
None
_______________________________________________________________________________
Item 5. Other Information:
The Company announced on August 13, 1997 that the American Stock Exchange
(AMEX) made a final determination to delist the Company from the AMEX's Emerging
Company marketplace.
As of November 5, 1998, a market is being made of the Company's common
stock on the NASD Bulletin Board under symbol "IRCE".
_______________________________________________________________________________
Item 6(a). Exhibits:
None
_______________________________________________________________________________
Item 6(b) Form 8-K:
None
_______________________________________________________________________________
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 9, 1998 INTERLINE RESOURCES CORPORATION
By: /s/ Michael R. Williams
Michael R. Williams
CEO/President
Principal Executive Officer
Director
By: /s/ Mark W. Holland
Mark W. Holland
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
Date Title Signature
------------------------------------------------------------------
November 9, 1998 CEO/President /s/ Michael R. Williams
and Director Michael R. Williams
November 9, 1998 Secretary/ /s/ Laurie Evans
Director Laurie Evans