UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 21, 2004
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
Florida 000-32249 98-0222013
- ---------------------------- ----------- -------------------
(State or other jurisdiction Commission (IRS Employer
of Incorporation) File Number Identification No.)
8513 Rochester Avenue
Rancho Cucamonga, CA 91730
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (909) 477-3200
Cyber Public Relations, Inc.
8260 Ryan Road, Richmond, British Columbia, Canada V7A2E5
---------------------------------------------------------
(Former name or former address, if changed since last report.)
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
- ----------------------------------------------------------------------------
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
CHRISTIE PETERSON DEVELOPMENT CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
WITH AUDIT REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
F-1
CHRISTIE PETERSON DEVELOPMENT CORPORATION
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
----
Report of Independent Certified Public Accountants F-3
Balance Sheets as of September 30, 2003 and 2002 F-4
Statement of Operations for the years ended September 30, 2003 and 2002 F-5
Statement of Deficiency in Stockholders' Equity for the period
from October 1, 2001 through September 30, 2003 F-6
Statement of Cash Flows for the years ended September 30, 2003 and 2002 F-7
Notes to Financial Statements F-8 THROUGH 19
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Christie Peterson Development Corporation
Rancho Cucamonga, California
We have audited the accompanying balance sheets of Christie Peterson
Development Corporation (the "Company") as of September 30, 2003 and 2002 and
the related statement of operations, deficiency in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based upon our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
February 6, 2004
F-3
CHRISTIE PETERSON DEVELOPMENT CORPORATION
BALANCE SHEET
SEPTEMBER 30, 2003 AND 2002
2003 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 316,047 $ 82,034
Contract receivable, net of allowance for doubtful accounts
as of September 30, 2003 and 2002, of $211,987 and
$157,705, respectively (Note A&B) 3,017,843 4,700,184
Accounts receivable - related party (Note J) 442,238 --
Inventories (Note A) 146,992 --
Note receivable-related party (Note G&J) -- 28,750
Costs and estimated earnings in excess of billings (Note C) 1,765,285 545,423
Other current assets 78,709 26,361
------------ ------------
Total Current Assets 5,767,114 5,382,752
Property and Equipment: (Note E) 580,888 245,142
Less: accumulated depreciation 159,879 81,785
------------ ------------
Total Property and Equipment 421,009 163,357
Other Assets - Restricted Cash (Note F): 152,722 150,000
------------ ------------
Total Assets $ 6,340,845 $ 5,696,109
============ ============
LIABILITIES AND (DEFICIENCY) IN STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses (Note H) $ 4,613,455 $ 2,470,847
Notes payable - others -current portion (Note G) 201,442 63,736
Accruals on uncompleted contracts (Note C) 1,562,268 2,913,183
Notes payable- related parties (Note G&J) 205,000 --
------------ ------------
Total Current Liabilities 6,582,165 5,447,766
Long-Term Liabilities:
Notes payable- others - long term portion (Note G) 1,161,497 58,683
------------ ------------
Commitments and Contingencies (Note K) -- --
(Deficiency) in Stockholders' Equity: (Note I) Common
Stock, no par value; 1,000 shares authorized;
500 and 1,000 shares issued and outstanding at
September 30, 2003 and 2002, respectively (Note I) 4,000 4,000
Additional paid-in-capital 93,000 --
Treasury Stock, 500 shares (1,250,000) --
Retained earnings (249,817) 185,660
------------ ------------
Total (Deficiency) in Stockholders' Equity (1,402,817) 189,660
------------ ------------
Total Liabilities and (Deficiency) in Stockholders' Equity $ 6,340,845 $ 5,696,109
============ ============
See accompanying notes to financial statements
F-4
CHRISTIE PETERSON DEVELOPMENT CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
------------- -------------
Net Revenue $ 27,284,453 $ 20,121,453
Cost of Sales: 23,743,515 17,783,959
------------- -------------
Gross Profit 3,540,938 2,337,494
Operating Expenses:
Depreciation (Note E) 139,064 42,006
Selling, General and Administrative 3,060,908 2,613,286
------------- -------------
Total Operating Expenses 3,199,972 2,655,292
Income (Loss) from Operations 340,966 (317,798)
Other Income 77,294 30,000
Interest Income (Expenses) (84,857) 4,557
Income (Taxes) Benefit -- --
------------- -------------
Net Income (Loss) $ 333,403 $ (283,241)
============= =============
See accompanying notes to financial statements
F-5
CHRISTIE PETERSON DEVELOPMENT CORPORATION
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 2001 THROUGH SEPTEMBER 30, 2003
Total
Common Stock Additional Deficiency in
--------------------------- Paid- Treasury Retained Stockholders'
Common Shares Amount In-Capital Stock earnings Equity
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 1, 2001 $ 1,000 $ 4,000 $ -- $ -- $ 909,626 $ 913,626
Dividend distributions (Note I) -- -- -- -- (440,725) (440,725)
Net loss -- -- -- -- (283,241) (283,241)
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 2002 $ 1,000 $ 4,000 $ -- $ -- $ 185,660 $ 189,660
Proceeds from additional
paid-in capital (Note I) -- -- 93,000 -- -- 93,000
Repurchase of shares/treasury
stock (Note I) (500) -- -- (1,250,000) -- (1,250,000)
Dividend distributions (Note I) -- -- -- -- (768,880) (768,880)
Net income -- -- -- -- 333,403 333,403
------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 2003 $ 500 $ 4,000 $ 93,000 $(1,250,000) $ (249,817) $(1,402,817)
============ ============ ============ ============ ============ ============
See accompanying notes to financial statements
F-6
CHRISTIE PETERSON DEVELOPMENT CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
------------ ------------
Cash Flows From Operating Activities:
Net income (loss) from operations $ 333,403 $ (283,241)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 139,064 42,006
Provision against doubtful account receivable 54,282 157,705
(Increase) decrease in:
Contract receivable 1,628,059 (1,629,726)
Accounts receivable - related party (Note J) (442,238) --
Inventories (Note A) (146,992) --
Costs and estimated earnings in excess of billings (1,219,862) (545,423)
Billings in excess of costs and estimated earnings -- (1,256,330)
Current assets, net (52,348) (25,372)
Other assets (2,722) (150,000)
Increase (decrease) in:
Accounts payable and accrued expenses, net 2,142,608 2,028,198
Accruals against uncompleted contracts (1,350,915) (131,983)
------------ ------------
Net Cash Provided by (Used In) Operating Activities 1,082,339 (1,794,166)
------------ ------------
Cash Flows From Investing Activities:
Payments for note receivable - related parties (175,805) (28,750)
Net payment for property, plant and equipments (638,216) (79,554)
------------ ------------
Net Cash (Used In) Investing Activities (814,021) (108,304)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from notes payable - others 1,240,520 22,998
Proceeds from note payable - related party (Note J) 205,000 --
Proceeds from additional paid-in-capital (Note I) 93,000 --
Payments for treasury stock (Note I) (1,250,000) --
Payments for dividend distributions (Note I) (322,825) (440,725)
------------ ------------
Net Cash (Used In) Financing Activities (34,305) (417,727)
------------ ------------
Net Increase (Decrease) in Cash And Cash Equivalents 234,013 (2,320,197)
Cash and cash equivalents at beginning of period $ 82,034 $ 2,402,231
------------ ------------
Cash and cash equivalents at the end of period $ 316,047 $ 82,034
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest $ 89,547 $ 9,770
Cash paid during period for taxes $ -- $ --
Non cash Investing and Financing Transactions:
Purchase of vehicles from related party against note receivable (Note E&J) $ 103,500 $ --
Dividend distributions-note receivable and purchase of vehicles from
stockholder (Note J) $ 446,055 $ --
See accompanying notes to financial statements
F-7
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
- ----------------------------------
The Company, Christie Peterson Development Corporation d/b/a CPI Development
Inc. ("the Company") was formed on September 14, 1995 in the state of
California. The Company is a general building contractor primarily contracting
and constructing gas stations, convenience stores and fast food operations.
Change in Control of Company
- ----------------------------
As shown in the accompanying financial statements, the Company incurred a net
income (loss) of $333,403 and $(283,241) during the years ended September 30,
2003 and 2002, respectively. The Company's current liabilities exceeded its
current assets by $1,045,051 as of September 30, 2003.
On December 30, 2003,Entech Environmental Technologies, Inc., formerly Parr
Development, Inc., ("Entech") a company formed under the laws of the State of
Nevada, acquired through a Share Exchange Agreement, all of the issued and
outstanding stock of the Company. In addition, Entech acquired the following
entities:
o Advanced Fuel Filtration Systems, Inc. ("Advanced Fuel")
o H. B. Covey, Inc. ( H.B. Covey)
From its inception and up to December 30, 2003, Entech had no significant assets
or operations. Subsequent to the acquisition, the Company, Advanced Fuel, and H.
B. Covey became wholly-owned subsidiaries of Entech.
On January 21, 2004, Entech completed Capital Stock Exchange Agreement
("Agreement") with Cyber Public Relations, Inc. ("Cyber" or "Company") an
inactive publicly registered shell corporation with no significant assets or
operations. For accounting purposes, Entech shall be the surviving entity. From
June, 1998 until the date of the merger, Cyber was an inactive corporation with
no significant assets and liabilities. Effective with the Agreement, all of the
previously issued outstanding common stock , preferred stock, options and
warrants owned by the Entech shareholders were exchanged for an aggregate of
9,550,000 shares of Cyber's restricted common stock.
Subsequent to the recapitalization of the Company and its merger with Entech,
Entech issued 2,000,000 shares of its common stock and 7,150,000 warrants to
acquire Entech's common stock in exchange for $2,000,000.
Revenue Recognition
- -------------------
The Company recognizes revenues from fixed-price and modified fixed-price
construction contracts on the percentage-of-completion method, measured by the
percentage of cost incurred to date to estimated total cost for each contract.
That method is used because management considers total cost to be the best
available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term.
F-8
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs, and depreciation. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed. The
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized.
Contract Receivables
- --------------------
Contract receivables are recorded when invoices are issued and are presented in
the balance sheet net of the allowance for doubtful accounts. Contract
receivables are written off when they are determined to be uncollectible. The
allowance for doubtful accounts is estimated based on the Company's historical
losses, the existing economic conditions in the construction industry, and the
financial stability of its customers.
Advertising
- -----------
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred $16,996 and $35,507, of advertising costs for the
years ended September 30, 2003 and 2002, respectively.
Income Taxes
- ------------
The Company has elected to be treated as subchapter "S" corporation for federal
tax purposes. Therefore, no provision has been made for corporate federal income
taxes and the stockholders have consented to include the income or loss in their
individual tax returns. The Company is, however, liable for minimum state taxes.
The Company provides for income taxes based on pre-tax earnings reported in the
financial statements. Certain items such as depreciation are recognized for tax
purposes in periods other than the period they are reported in the financial
statements.
Cash Equivalents
- ----------------
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and depreciated over their estimated
useful lives of 3 to 5 years using the straight-line method.
F-9
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
- -----------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should any impairment in value be indicated,
the carrying value of intangible assets will be adjusted, Based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
Inventories
- -----------------
Inventory is stated at the lower of cost, using the average cost method, or
market. Components of inventories as of September 30, 2003 and 2002 are as
follows:
2003 2002
Raw materials and supplies $ 146,992 $ --
----------- -----------
Concentrations of Credit Risk
- -----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. The
allowance for doubtful accounts was $211,987 and $157,705 as of September 30,
2003 and 2002, respectively.
Stock Based Compensation
- ------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the period from January 1, 2003 through
September 30, 2003 and will adopt the interim disclosure provisions for its
financial reports for the subsequent periods. The Company does not have stock
based awards of compensation to employees granted or outstanding during the
period from October 1, 2001 through September 30, 2003.
F-10
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Segment Information
- -------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segments.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of Interpretation No. 46
did not have a material impact on the Company's results of operations or
financial position.
F-11
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
F-12
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE B - CONTRACT RECEIVABLES
Contract receivables at September 30, 2003 and 2002 consist of the followings:
2003 2002
------------- -------------
Completed Contracts $ 2,541,257 $ 2,886,789
Contracts in Progress 688,573 1,971,100
------------- -------------
3,229,830 4,857,889
Less: allowance for doubtful amounts (211,987) (157,705)
------------- -------------
$ 3,017,843 $ 4,700,184
============= =============
NOTE C - UNCOMPLETED CONTRACTS
At September 30, 2003, costs, estimated earnings, and billings on uncompleted
contracts are summarized as follows:
2003
-------------
Costs incurred on uncompleted contracts $ 14,138,254
Estimated earnings 2,143,842
-------------
16,282,096
Less: billings to date (16,079,079)
-------------
$ 203,017
=============
Costs and estimated earnings in excess of billings $ 1,765,285
Less: accruals on uncompleted contracts (1,562,268)
-------------
$ 203,017
=============
NOTE D - BACKLOG
The following schedule summarizes changes in backlog on contracts from October
1, 2001 through September 30, 2003. Backlog represents the amount of revenue the
Company expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on which work has not yet
begun.
Backlog balance at September 30, 2001 $ 6,043,197
New contracts for the year ended September 30, 2002 23,226,414
Add: contract adjustments 329,787
Less: revenue for the year ended September 30, 2002 (20,121,453)
-------------
Backlog balance at September 30, 2002 $ 9,477,945
New contracts for the year ended September 30, 2003 30,384,311
Add: contract adjustments 282,066
Less: revenue for the year ended September 30, 2003 (27,284,453)
-------------
Backlog balance at September 30, 2003 $ 12,859,869
=============
F-13
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE E - PROPERTY AND EQUIPMENT
Major classes of property and equipment at September 30, 2003 and 2002 consist
of the followings:
2003 2002
---- ----
Vehicles $ 354,667 $ 193,240
Leasehold improvements 84,809 -
Office equipments 42,207 33,963
Furniture and fixtures 27,450 10,939
Tools and other equipments 71,755 7,000
----------- -----------
580,888 245,142
Less: Accumulated Depreciation (159,879) (81,785)
----------- -----------
Net Property and Equipment $ 421,009 $ 163,357
=========== ===========
Depreciation expense was $139,064 and $42,006 for the years ended September 30,
2003 and 2002, respectively.
During the year ended September 30, 2003, the Company sold vehicle and
equipments costing $45,214 and with accumulated depreciation of $12,533 to a
stockholder. The stockholder also assumed liability associated with the asset of
$27,267 as on date of transfer. The Company recorded gain of $5,414 in relation
to this transaction which is included in other income for the year ended
September 30, 2003. (Note J)
During the year ended September 30, 2003, the Company purchased vehicles at book
value of $103,500 from a stockholder. (Note J)
During the years ended September 30, 2003 and 2002, the Company purchased
vehicles costing $108,000 and $14,772, respectively, from a related party. (Note
J)
NOTE F- RESTRICTED CASH
The Company has certificate of deposit with a bank with is restricted. At
September 30, 2002 and 2003, the balance of certificate of deposit was $152,722
and $150,000, respectively.
F-14
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE G - NOTES PAYABLE
Notes payable at September 30, 2003 and 2002 are as follows:
2003 2002
---- ----
Note payable to Wachovia SBA lending, Inc. payable in 121 equal
installments of $14,514 includes interest up to February 2013.
Interest on the loan is payable at the rate of bank's prime rate
plus 2.75% $ 1,198,550 $ --
Note payable in equal monthly installment of $828.74 including
interest at 5.90% payable up to February 2007 secured by the Company 30,705 --
vehicle
Note payable in monthly installment of $553.61 including interest at 15,019 21,662
0.90% payable up to October 2005 secured by the Company vehicle
Note payable in monthly installment of $500.50 including interest at 15,594 22,493
0.90% payable up to October 2005 secured by the Company vehicle
Note payable in 60 equal monthly installment of $819.04 including 23,687 32,102
interest at 7.50% is payable by May 2006 and collateralized by the
Company's vehicle and guarantees by the stockholders
Note payable to Desert Community Bank secured by the Company vehicle -- 8,390
Note payable; secured by personal guarantee of the stockholder; due 75,000 --
in April, 2004; interest is payable at the rate of 12% per annum
Note payable to Desert Community Bank payable in 60 equal monthly installments
including interest at 8.5% secured by the Company
vehicle -- 30,760
Note payable - Desert Community Bank in 61 equal monthly installment of $274.22
including interest at 10% is payable by March 2005 and
collateralized by the Company's equipment and guarantees by the 4,384 7,012
stockholders
Note payable to a stockholder; unsecured; interest is payable at the 105,000 --
rate of 9% per annum (Note J)
Note payable to a stockholder; unsecured; interest is payable at the
rate of 9% per annum (Note J) 100,000 --
------------ ------------
1,567,939 122,419
Less: current portion 406,442 63,736
------------ ------------
Notes payable - long term $ 1,161,497 $ 58,683
============ ============
F-15
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE G - NOTES PAYABLE (CONTINUED)
Aggregate maturities of long-term debt as of September 30, 2003 are as follows:
Amount
Year ended ------
September 30, 2004 $ 406,442
2005 132,760
2006 126,474
2007 119,020
2008 123,245
2009 and there after 659,998
-----------
Total $1,567,939
NOTE H - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at September 30, 2003 and 2002:
2003 2002
---- ----
Accounts payable $4,493,455 $2,324,088
Accrued payroll and vacation 120,000 120,000
Reimbursable deposits -- 23,472
Accrued payroll taxes -- 2,118
Employee advances -- 1,169
----------- -----------
Total $4,613,455 $2,470,847
NOTE I - CAPITAL STOCK
The Company is authorized to issue 100,000 shares of common stock with no par
value per share. As of September 30, 2003 and 2002, the Company had 500 and
1,000 shares of common stock issued and outstanding, respectively.
During the years ended September 30, 2003 and 2002, the Company distributed
dividends to the stockholders totaling to $768,880 and $440,725, respectively.
In September 2003, as per an agreement with the Company, a stockholder sold all
his ownership representing 500 shares of common stock to the Company for
$1,250,000. This transaction was recorded as treasury stock and at September 30,
2003, the Company has 500 shares of common stock held as treasury stock.
The Company sold vehicle costing $45,214 and with accumulated depreciation of
$12,533 to the stockholder and the stockholder assumed liability of $27,267 as
on date of transfer. The Company recorded gain of $5,414 in relation to this
transaction which is included in other income for the year ended September 30,
2003. (Note E).
The Company received subscription of $93,000 as additional paid in capital
during the year ended September 30, 2003.
F-16
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE J - RELATED PARTY TRANSACTIONS
The Company's stockholder advanced funds to the company during the years ended
September 30, 2003 and 2002. The Company has not accrued or paid any interest on
the note payable-stockholder for the years ended September 30, 2003 and 2002,
respectively. At September 30, 2003 and 2002, note payable - stockholder
outstanding balance was $205,000 and $0, respectively. (Note G)
The Company sources services to a related party. During the years ended
September 30, 2003 and 2002, sales to related party was $169,503 and $0,
respectively. At September 30, 2003 and 2002, accounts receivable -related party
was $169,503 and $0, respectively.
The Company sells to a related party. During the years ended September 30, 2003
and 2002, sales to related party was $272,735 and $0, respectively. At September
30, 2003 and 2002, accounts receivable -related party was $272,735 and $0,
respectively.
The Company leases its office and warehouse space from a related party. For the
years ended September 30, 2003 and 2002, lease rent expense was $20,826 and $ 0,
respectively. (Note K)
During the year ended September 30, 2003, the Company purchased vehicles with a
book value of $103,500 from a stockholder. During the year ended September 30,
2003, the Company paid expenses totaling to $163,122 for a related party on
behalf of a stockholder. At September 30, 2003, the Company transferred $446,055
note receivable from stockholder to treasury stock.The Company advanced funds to
the stockholders during the years ended September 30, 2003 and 2002. At
September 30, 2003 and 2002, note receivable -stockholders outstanding balance
was $0 and $28,750, respectively. (Note E)
During the year ended September 30, 2003, the Company sold vehicle and
equipments costing $45,214 and with accumulated depreciation of $12,533 to a
stockholder. The stockholder also assumed liability associated with the asset of
$27,267 as on date of transfer. The Company recorded gain of $5,414 in relation
to this transaction which is included in other income for the year ended
September 30, 2003. (Note E)
NOTE K - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
- ---------------------------
The Company leases equipment, office and warehouse spaces under operating leases
in Arizona and California for its corporate use expiring in August 2004 and
December 2013. Total lease rental expenses for the years ended on September 30,
2003 and 2002, was $185,091 and $83,947, respectively. Commitments for minimum
rentals under non-cancelable leases at September 30, 2003 are as follows:
2004 $ 182,000
2005 169,332
2006 176,106
2007 183,153
2008 190,476
2009 and after 1,072,932
------------
$ 1,973,999
The Company leases office and warehouse space from a related party. For the
years ended September 30, 2003 and 2002, lease rent expense-related party
(included in rental expenses above) was $20,826 and $ 0, respectively.
F-17
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE K - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
- ----------
On September 25, 2002, a customer filed complaint against the Company alleging
breach of contract and negligence. The Company has filed a cross-complaint. The
Company's claim is secured by a mechanic's lien. The Company has tendered claim
to its carrier/subcontractors. The court has ordered the case to binding
arbitration. The Company believes that it has meritorious defenses to the
plaintiff's claims and intends to vigorously defend itself against the
plaintiff's claims.
On February 11, 2003, a subcontractor filed a claim for $17,442 due under
subcontract agreement. The Company filed cross-complaint against the customer
for failure to pay. The Company believes that it has meritorious defenses to the
plaintiff's claims and intends to vigorously defend itself against the
plaintiff's claims.
On January 24, 2003, a subcontractor filed a claim for $51,248 due under
subcontract agreement. The Company filed cross-complaint against the customer
for failure to pay. The Company believes that it has meritorious defenses to the
plaintiff's claims and intends to vigorously defend itself against the
plaintiff's claims.
On December 19, 2003, a supplier filed a claim for $6,326 due for material
supplied. The Company's responsive pleading is not yet due and analysis of the
merits of the claim has not yet been conducted.
On November 20, 2003, a supplier filed a claim for $39,230 due for material
sold. The claim is in the process of being settled. The Company has accrued a
liability of $39,230 in the books in relation to the claim.
On November 20, 2003, a supplier filed a claim for $16,060 due for material
sold. The claim is in the process of being settled. The Company has accrued a
liability of $16,060 in the books in relation to the claim.
The Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.
NOTE L - MAJOR SUPPLIERS AND CUSTOMERS
Revenue from the Company's two major customers approximated $14,176,661 or 52.0%
of sales for the year ended September 30, 2003. Revenue from the Company's two
major customers approximated $13,806,081 or 68.6% of sales for the year ended
September 30, 2002.
Purchases from the Company's one major vendor approximated $3,072,175 or 12.9%
of purchases for the year ended September 30, 2003.
F-18
CHRISTIE PETERSON DEVELOPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE M - EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering substantially
all full-time employees, which provides for the Company matching of the
participant's elective deferral. The Company's expense for the plan was $1,600
and $0, for the years ended September 30, 2003 and 2002, respectively.
F-19
ADVANCED FUEL FILTRATION SYSTEMS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
WITH AUDIT REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
F-20
ADVANCED FUEL FILTRATION SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
----
Report of Independent Certified Public Accountants F-22
Balance Sheets as of September 30, 2003 and 2002 F-23
Statement of Operations for the years ended September 30, 2003 and 2002 F-24
Statement of Deficiency in Stockholders' Equity for the period from
October 1, 2001 through September 30, 2003 F-25
Statement of Cash Flows for the years ended September 30, 2003 and 2002 F-26
Notes to Financial Statements F-27 THROUGH 40
F-21
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Advanced Fuel Filtration Systems, Inc.
Corona, California
We have audited the accompanying balance sheets of Advanced Fuel Filtration
Systems, Inc. (the "Company") as of September 30, 2003 and 2002 and the related
statements of operations, deficiency in stockholders' equity, and cash flows for
the two years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
September 30, 2003 and 2002, and the results of its operations and its cash
flows for the two years then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
February 6, 2004,
F-22
ADVANCED FUEL FILTRATION SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002
2003 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 1,122 $ 3,729
Accounts receivable, net of allowance for doubtful accounts
as of September 30, 2003 and 2002, of $20,692 and $ 0,
respectively 1,200,931 711,470
Inventories (Note A) 169,991 86,968
Note receivable-related parties (Note G) 44,645 --
Prepaid expenses and other assets 228,727 131,824
------------ ------------
Total Current Assets 1,645,416 933,991
Property, Plant and Equipment: (Note B) 2,611,068 1,941,480
Less: accumulated depreciation 970,935 505,391
Total Property, Plant and Equipment 1,640,133 1,436,089
Other Assets:
Deposits and miscellaneous asset 12,700 536
Restricted cash (Note C) 30,000 --
------------ ------------
Total Other Assets 42,700 536
Total Assets $ 3,328,249 $ 2,370,616
============ ============
LIABILITIES AND (DEFICIENCY) IN STOCKHOLDERS' EQUITY
Current Liabilities:
Cash disbursed in excess of available balances $ 51,795 $ 92,365
Line of credit (Note D) 608,681 500,000
Notes payable- related parties (Notes D & G) 749,328 296,046
Capital leases - current portion (Note H) 21,265 27,326
Notes payable - current portion (Note D) 625,580 370,524
Accounts payable - related parties (Note G) 111,843 --
Accounts payable and accrued liabilities (Note E) 1,645,461 744,964
------------ ------------
Total Current Liabilities 3,813,953 2,031,225
Long-Term Liabilities:
Capital leases - long-term portion (Note H) 26,826 48,091
Notes payable - long-term portion(Note D) 909,199 858,544
------------ ------------
Total Long - Term Liabilities 936,025 906,635
Commitments and Contingencies (Note H) -- --
(Deficiency) in Stockholders' Equity:
Common Stock, no par value; 1,000 shares authorized;
288.980 and 298.334 shares issued and outstanding
at September 30, 2003 and 2002, respectively (Note F) 250 250
Additional paid-in-capital 413,470 388,370
Accumulated deficit (1,835,449) (955,864)
------------ ------------
Total Deficiency in Stockholders' Equity (1,421,729) (567,244)
Total Liabilities and (Deficiency) in Stockholders' Equity $ 3,328,249 $ 2,370,616
============ ============
See accompanying notes to financial statements
F-23
ADVANCED FUEL FILTRATION SYSTEMS, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
---- ----
Revenues $ 9,035,292 $ 5,532,546
Cost of sales 5,739,720 3,761,080
Cost of sales-depreciation 427,761 316,655
------------ ------------
Total Cost of Sales 6,167,481 4,077,735
Gross Profit 2,867,811 1,454,811
Operating Expenses:
Research and development (Note A) 742,624 223,395
Depreciation 69,142 11,734
Selling, general and administrative 2,695,138 1,308,466
------------ ------------
Total Operating Expenses 3,506,904 1,543,595
(Loss) from Operations (639,093) (88,784)
Other Income (Expenses) (Notes J) (22,289) 297,012
Interest Income (Expenses) (218,203) (270,987)
Income (Taxes) Benefit -- --
------------ ------------
Net (Loss) $ (879,585) $ (62,759)
------------ ------------
See accompanying notes to financial statements
F-24
ADVANCED FUEL FILTRATION SYSTEMS, INC.
STATEMENT OF DEFICIENCY IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 2001 THROUGH SEPTEMBER 30, 2003
Common Stock Total
----------------------------- Additional Deficiency in
Common Paid- Accumulated Stockholders'
Shares Amount In-Capital Deficit Equity
------------ ------------ ------------ ------------ ------------
Balance at October 1, 2001 267.000 $ 250 $ 13,370 $ (893,105) $ (879,485)
Proceeds from issuance of common
stock 31.334 -- 125,000 -- 125,000
Additional capital in exchange
of notes payable - stockholders
(Note F&G) -- -- 250,000 -- 250,000
Net loss -- -- -- (62,759) (62,759)
Balance at September 30, 2002 298.334 $ 250 $ 388,370 $ (955,864) $ (567,244)
============ ============ ============ ============ ============
Issuance of common stock in
exchange for services 21.980 -- 100 -- 100
Cancellation of shares (Note F&G) (31.334) -- -- -- --
Proceeds from contributions to
additional paid in capital -
stockholder -- -- 25,000 -- 25,000
Net loss -- -- -- (879,585) (879,585)
Balance at September 30, 2003 288.980 $ 250 $ 413,470 $(1,835,449) $(1,421,729)
------------ ------------ ------------ ------------ ------------
See accompanying notes to financial statements
F-25
ADVANCED FUEL FILTRATION SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
---- ----
Cash Flows From Operating Activities:
Net (loss) from operations $(879,585) $ (62,759)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Depreciation 496,903 328,389
Debt forgiveness by an unrelated party (Note I) -- (264,458)
(Increase) decrease in:
Accounts receivable, net (489,461) (4,752)
Inventories (83,023) (36,861)
Prepaid expenses (96,903) 139,170
Other assets, net (42,700) (975)
Increase (decrease) in:
Cash disbursed in excess of available balances (40,570) 52,636
Accounts payable and accrued expenses, net 900,496 (292,088)
---------- ----------
Net Cash (Used In) Operating Activities (234,843) (141,698)
---------- ----------
Cash Flows From Investing Activities:
Payments for note receivable - related party (6,173) --
Net payment for property, plant and equipments (700,411) (395,396)
---------- ----------
Net Cash (Used In) Investing Activities (706,584) (395,396)
---------- ----------
Cash Flows From Financing Activities:
Payments for capital leases (27,326) (23,673)
Proceeds from advances from shareholders, net (Note G) 565,125 296,046
Proceeds from line of credit, net 108,681 53,820
Proceeds from notes payable 267,240 89,030
Proceeds from common stock 25,100 125,000
---------- ----------
Net Cash Provided By Financing Activities 938,820 540,223
---------- ----------
Net Increase (Decrease) in Cash And Cash Equivalents (2,607) 3,129
Cash and cash equivalents at beginning of period $ 3,729 $ 600
Cash and cash equivalents at the end of period $ 1,122 $ 3,729
Supplemental Disclosures of Cash Flow Information:
Cash paid during period for interest $ 218,203 $ 270,987
Cash paid during period for taxes $ -- $ --
Non cash Investing and Financing Transactions:
Conversion of note payable-stockholder to additional paid in capital $ -- $ 250,000
Debt forgiveness by an unrelated party (Note I) $ -- $ 264,458
Sale of assets to the stockholder in exchange for stock owned (Note F&G) $ 38,472 $ --
See accompanying notes to financial statements
F-26
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
Business and Basis of Presentation
- ----------------------------------
The Company, Advanced Fuel Filtration Systems, Inc. ("the Company") was formed
on September 18, 1995 in the state of California under the name YLD/Clean Fuels
Inc and changed its name to Advanced Fuel Filtration Systems, Inc. in September
1997. The Company provides transportation and waste disposal services to the
petroleum industry , as well as maintenance of underground storage fuel tanks.
Change in Control of Company
- ----------------------------
As shown in the accompanying financial statements, the Company incurred a net
loss of $ 879,585 and $ 62,759 during the year ended September 30, 2003 and
2002, respectively. The Company's current liabilities exceeded its current
assets by $2,168,537 as of September 30, 2003.
On December 30, 2003, Entech Environmental Technologies, Inc., formerly Parr
Development, Inc., ("Entech") a company formed under the laws of the State of
Nevada, acquired through a Share Exchange Agreement, all of the issued and
outstanding stock of the Company In addition, Entech acquired the following
entities:
o CPI Development, Inc. , formerlly Christie Peterson
Development Corporation, Inc. (" CPI")
o H. B. Covey, Inc. ( H.B. Covey)
From its inception and up to December 30, 2003, Entech had no significant
assets or operations. Subsequent to the acquisition, the Company, CPI , and H.
B. Covey became wholly-owned subsidiaries of Entech.
On January 21, 2004, Entech completed Capital Stock Exchange Agreement
("Agreement") with Cyber Public Relations, Inc. ("Cyber" or " Company") an
inactive publicly registered shell corporation with no significant assets or
operations. For accounting purposes, Entech shall be the surviving entity. From
June, 1998 until the date of the merger, Cyber was an inactive corporation with
no significant assets and liabilities. Effective with the Agreement, all of the
previously issued outstanding common stock , preferred stock, options and
warrants owned by the Entech shareholders were exchanged for an aggregate of
9,550,000 shares of Cyber's restricted common stock.
Subsequent to the recapitalization of the Company and its merger with Entech,
Entech issued 2,000,000 shares of its common stock and 7,150,000 warrants to
acquire Entech's common stock in exchange for $2,000,000.
F-27
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
- -------------------
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the selling price is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those amounts. Provisions for
discounts and rebates to customers, estimated returns and allowances, and other
adjustments are provided for in the same period the related sales are recorded.
The Company defers any revenue for which the product has not been delivered or
is subject to refund until such time that the Company and the customer jointly
determine that the product has been delivered or no refund will be required.
Environmental services and transportation revenues
- --------------------------------------------------
The Company recognizes revenues from service contracts as the services are
performed and as products are shipped. The Company recognizes revenue and direct
costs relating to transportation of material, when shipments are completed. The
contractual terms of the agreements dictate the recognition of revenue by the
Company for services. Payments received in advance are deferred until the
service is provided or products are shipped.
Repairs and construction contracts revenues
- -------------------------------------------
The Company recognizes revenues and costs from minor repair and construction
projects using the percentage of completion accounting method. Under this
method, revenues are recognized based upon either the ratio of the costs
incurred to date to the total estimated costs to complete the project or the
ratio of labor hours incurred to date to the total estimated labor hours,
commencing when work begins. Repair and construction contracts with customers
generally provide that billings are to be made periodically as per terms of
contracts in amounts which are commensurate with the extent of performance under
the contracts. Costs and recognized earnings in excess of billings on
uncompleted contracts primarily represent revenues earned under the percentage
of completion method which have not been billed. Billings in excess of costs and
recognized earnings on uncompleted contracts represent amounts billed on
contracts in excess of the revenues allowed to be recognized under the
percentage of completion method on those contracts. The Company entered in to
minor repair and construction business in the beginning of 2003. All of the
repairs and construction projects undertaken during the year ended September 30,
2003 were for a period of less than one year. At September 30, 2003, there was
no repairs and construction project in process.
Claims Liability and Insurance
- ------------------------------
With respect to physical damage for its transportation equipment, which is
comprised primarily of trucks, trailers, tractors, cargo loss and auto
liability, the Company maintains insurance coverage for protection from certain
business risks. These policies are with various carriers and have per occurrence
deductibles of $2,000, $1,000 and $2,000, respectively. The Company has accrued
insurance expenses based on coverage period in the insurance policy. The
management considers insurance policy to cover and meet all future contingencies
and no additional accruals are made for the years ended September 30, 2003 and
2002.
F-28
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Advertising
- -----------
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company incurred $17,747 and $23,850, of advertising costs for the
years ended September 30, 2003 and 2002, respectively.
Research and Development
- ------------------------
The Company account for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. The Company incurred
$742,624 and $223,395, as research and product development costs for the years
ended September 30, 2003 and 2002, respectively.
Income Taxes
- ------------
The Company has elected to be treated as subchapter "S" corporation for federal
tax purposes. Therefore, no provision has been made for corporate federal income
taxes and the stockholders have consented to include the income or loss in their
individual tax returns. The Company is, however, liable for state taxes. The
Company provides for income taxes based on pre-tax earnings reported in the
financial statements. Certain items such as depreciation are recognized for tax
purposes in periods other than the period they are reported in the financial
statements.
Cash Equivalents
- ----------------
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and depreciated over their estimated
useful lives of 3 to 5 years using the straight-line method.
F-29
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
- -----------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
Inventories
- -----------
The Company maintains an inventory of purchased products including supplies for
the handling and treatment of fuel and hazardous materials. Inventory is stated
at the lower of cost, using the average cost method, or market. The Company
maintains no inventory of work-in-process. Components of inventories as of
September 30, 2003 and 2002 are as follows:
2003 2002
Raw material and supplies $ 169,991 $ 86,968
---------- ---------
Inventories are collateralized to City National Bank. (see Note D)
Concentrations of Credit Risk
- -----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. The
allowance for doubtful accounts was $20,692 and $0 as of September 30, 2003 and
2002, respectively.
F-30
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation
- ------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the period from January 1, 2003 through
September 30, 2003 and will adopt the interim disclosure provisions for its
financial reports for the subsequent periods. The Company does not have stock
based awards of compensation to employees granted or outstanding during the
period from October 1, 2001 through September 30, 2003.
Comprehensive Income
- --------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Segment Information
- -------------------
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
131"). SFAS establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS 131 also establishes standards for related disclosures about
products and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate discrete financial information
is available for evaluation by the chief operating decision maker, or decision
making group, in making decisions how to allocate resources and assess
performance. The information disclosed herein, materially represents all of the
financial information related to the Company's principal operating segments.
F-31
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of Interpretation No. 46
will not have a material impact on the Company's results of operations or
financial position.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 will not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 will not have a material impact on the Company's
results of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87,88 AND 106. This statement retains the disclosure requirements
contained in FASB statement no. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits, which it replaces. It requires additional
disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
F-32
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE B - PROPERTY AND EQUIPMENT
Major classes of property and equipment at September 30, 2003 and 2002 consist
of the followings:
2003 2002
---- ----
Vehicles $ 1,971,903 $ 1,598,015
Production equipment 483,080 239,831
Office equipments 156,085 103,634
------------ ------------
2,611,068 1,941,480
Less: Accumulated Depreciation (970,935) (505,391)
------------ ------------
Net Property and Equipment $ 1,640,133 $ 1,436,089
============ ============
Depreciation expense was $496,903 and $328,389 for the years ended September 30,
2003 and 2002, respectively.
During the year ended September 30, 2003, the Company sold vehicle and
equipments costing $60,367 and with accumulated depreciation of $14,191 to a
stockholder. (Note F&G)
NOTE C- RESTRICTED CASH
As a condition of providing engineering services, the Company may be
contractually required to provide performance bonding insuring the satisfactory
completion of the agreed upon services. In addition, the issuers of the
performance bonds may require the Company to deposit collateral sufficient to
secure the bonds.
The Company has a letters of credit facility with City National Bank to secure
performance bonds. The credit facility is collateralized with cash in the amount
of $30,000, which is included in the accompanying financial statements in other
assets as restricted cash at September 30, 2003. (Note D)
NOTE D - NOTES PAYABLE
Notes payable at September 30, 2003 and 2002 are as follows:
2003 2002
---- ----
The Company has a line of credit with City National Bank with a
maximum borrowing limit of $1,740,336 and with a sub limit of $700,000
for revolving credit loans and letters of credit and a sub limit of
$825,000 on equipment acquisition loans expiring on March 1, 2004.
Line of credit is primarily collateralized by the Company's gross
eligible accounts receivable, net of potential offsets and eligible
inventory and is limited to borrowing base amount calculations. The
line is also collateralized by all of the Company's assets, including
intellectual property and personal guarantees of the stockholders.
Letters of credit are collateralized by certificate of deposit. The
line of credit carries interest on revolving credit loan at the rate
of 1% above bank's prime rate. The equipment acquisition note carries
interest at fixed rate ranging from 7% to 10%. The Company is in
violation of loan covenant relating to financial tests as on September
30, 2002. (Note C)
Line of credit $ 608,681 $ 500,000
Term loans 257,761 317,265
Equipment acquisition notes 757,313 701,137
Note payable- City National Bank sub-total 1,623,755 1,518,402
F-33
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE D - NOTES PAYABLE (CONTINUED)
2003 2002
---- ----
Note payable to Bank in monthly installments of $1,889.59, including
interest at 9.85% per annum; secured by transportation equipment and
due in April, 2004 $ 17,006 $ 37,792
Note payable to Bank in monthly installments of $1,278.14,
including interest at 7% per annum; secured by transportation
equipment and due in December 2004 18,292 31,806
Note payable in monthly installments of $25,175 including interest
at 4.70% per annum; secured by transportation equipment and due in
2004 96,321 --
Note payable in monthly installments of $1,226.63 including interest
at 5% per annum; secured by the equipment and due in May 2008 61,153 --
Note payable in monthly installments of $6,000, including interest
at 0% per annum ; unsecured and final payment of $48,454 due in
November 2003 67,844 --
Note payable in monthly installments of $7,485.69 including
interest at 7.36% per annum; due in 2003 -- 37,822
Note payable in monthly installments of $565.24 including interest
at 7.75% per annum; secured by transportation equipment and due in
April 2008 26,005 --
Note payable in monthly installments of $447.74 including interest
at 4.99% per annum; secured by transportation equipment and due in
March 2008 21,616 --
Note payable in monthly installments of $447.74 including interest
at 4.99% per annum; secured by transportation equipment and due in
March 2008 21,616 --
Note payable in monthly installments of $269.11 including interest
at 7.75% per annum; secured by transportation equipment and due in
March 2008 12,381 --
Note payable in monthly installments of $277.60 including interest
at 7.75% per annum ; secured by transportation equipment and due
in April 2008 12,772 --
Note payable in monthly installments of $2,255.06 including interest
at 13.94% per annum; secured by transportation equipment and due
in December 2006 70,399 --
Note payable in monthly installments of $1,034.18 including
interest at 0% per annum, secured by transportation equipment and
due in September 2005 24,820 35,913
Note payable in monthly installments of $1,026.10 including
interest at 0% per annum; secured by transportation equipment
and due in August 2005 23,600 --
Note payable in monthly installments of $1,094.09 including
interest at 13.90% per annum; secured by transportation equipment
and due in August 2005 21,980 30,963
Note payable in monthly installments of $1,039.15, including
interest at 0% per annum ; secured by transportation equipment
and due in August 2005 23,900 36,370
Note payable to stockholder, interest is payable at the rate of 7%;
unsecured (Note G) 429,345 264,173
Note payable to stockholder, interest is payable at the rate of 7%;
unsecured (Note G) 90,912 --
Note payable; non-interest bearing, unsecured, payable to a related
party (Note G) 169,503 --
Note payable; non-interest bearing, unsecured, payable to a
stockholder (Note G) 46,334 16,813
Note payable to a stockholder; unsecured; non-interest bearing (Note G) 13,234 15,060
------------ ------------
2,892,788 2,025,114
Less: current portion (1,983,589) (1,166,570)
------------ ------------
Notes payable - long term $ 909,199 $ 858,544
------------ ------------
F-34
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE D - NOTES PAYABLE (CONTINUED)
Amounts becoming due over the next five years are:
Year Amount
---- -------------
2004 $ 1,983,589
2005 478,234
2006 285,827
2007 108,738
2008 36,400
-------------
$ 2,892,788
NOTE E - ACCOUNTS PAYABLE AND ACCURED LAIBILITIES
Accounts payable and accrued liabilities at September 30, 2003 and 2002:
2003 2002
---- ----
Accounts payable $ 815,126 $ 335,477
Accrued payroll and vacation 175,000 175,000
Accrued payroll taxes 321,237 37,473
Advance from customers 199,640 --
Other accrued expenses 122,791 175,347
Deferred revenue 11,667 21,667
----------- -----------
Total $1,645,461 $ 744,964
=========== ===========
NOTE F - CAPITAL STOCK
The Company is authorized to issue 1,000 shares of common stock with no par
value per share. As of September 30, 2003 and 2002, the Company has 288.980 and
298.334 shares of common stock issued and outstanding, respectively.
In December 2001, two (2) Company shareholders agreed to contribute to
additional paid in capital $250,000 of funds previously advanced to the Company
in the form of notes payable (see Note G).
In January 2003, the Company issued 21.980 shares of common stock valued at $100
in exchange for services provided the Company, which represents the fair value
of the services received which did not differ materially from the value of the
stock issued.
During the year ended September 30, 2003, the Company received $25,000 towards
subscription to additional paid in capital.
In September 2003, the Company and a shareholder entered into an agreement
whereby the stockholder exchanged 31.334 common shares in the Company for
certain Company equipment, having a book value of approximately $ 46,000 and the
assumption of $38,472 of debt securing the equipment. At September 30, 2003, the
note receivable balance due from related party was $38,472. The Company recorded
a loss of $7,704 relating to the transaction.
F-35
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE G - RELATED PARTY TRANSACTIONS
The Company's shareholders, and entities controlled by the Company shareholders
and officers, from time to time, advance funds to the Company for working
capital purposes. At September 30, 2003 and 2002, the amount of those aggregate
advances were $ 749,328 and $ 296,046, respectively. The Company classifies
these advances and notes as current liabilities.
At September 30, 2003, the balance payable to Company officers in connection
with accrued and unpaid compensation is $111,843.
The Company leases vehicles and equipment from an entity controlled by a
shareholder of the Company. During the years ended September 30, 2003 and 2002,
the Company paid the entity $83,375 and $72,936, respectively in connection with
leasing the vehicles and equipment. (Note H)
The Company uses services from an entities controlled by a shareholder of the
Company. For the years ended September 30, 2003 and 2002, the Company paid
consulting fees of $48,000 and $17,000, respectively.
NOTE H - COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
- ---------------------------
The Company leases office spaces and equipment under operating leases in Corona,
California for its corporate use expiring in December 2003 through August 2006.
Total lease rental expenses for the years ended September 30, 2003 and 2002,
were $214,824 and $102,170, respectively. Commitments for minimum rentals under
non-cancelable leases at September 30, 2003 are as follows:
2004 $ 204,362
2005 68,431
2006 57,037
-----------
$ 329,830
===========
The Company leases vehicles and equipment from an entity controlled by a Company
shareholder. For the years ended September 30, 2003 and 2002, the Company paid
the entity $83,375 and $72,936, respectively in connection with this lease (Note
G)
F-36
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Capital Lease Obligations
- -------------------------
The Company leases equipments and vehicles financed by capital leases.
Equipments and vehicles include the following amounts for capitalized leases at
September 30, 2003 and 2002:
2003 2002
---- ----
Equipments and vehicles $105,002 $105,002
Less accumulated depreciation 69,924 45,946
--------- ---------
Total $ 35,078 $ 59,056
========= =========
As of September 30, 2003 future minimum lease payments required under the
capital leases are as follows:
2004 $ 24,601
2005 24,395
2006 3,875
---------
52,871
Less: amount representing interest (4,780)
---------
48,091
Less: current portion (21,265)
---------
Long-term portion $ 26,826
=========
The Company has recorded equipment purchased under non-cancelable leases with an
original cost of $105,002 as of September 30, 2003 and 2002. Depreciation
expense of $23,978 has been charged to operations for the years ended September
30, 2003 and 2002.
Litigation
- ----------
The California State Compensation Insurance Fund has filed a complaint alleging
nonpayment of insurance premiums by the Company aggregating $132,000 for
worker's compensation policies during the period 1999 through 2000. The Company
believes that it has meritorious defenses to the plaintiff's claims and intends
to vigorously defend itself against the plaintiff's claims.
F-37
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (continued)
- ----------------------
In 2003, United Rentals Northwest Inc., filed a complaint against the Company
claiming an amount of $38,790 for rental equipment that United Rentals claims
was stolen from a Company job site. The Company believes that it has meritorious
defenses to the plaintiff's claims and intends to vigorously defend itself
against the plaintiff's claims.
The Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.
Letters of credit and performance bonds
- ---------------------------------------
The Company has letters of credit facility with City National Bank to secure
performance bonds. At September 30, 2003 and 2002, the Company has contingent
liability relating to outstanding bonds totaling to $117,299 and $0,
respectively.
NOTE J - EXTINGUISHMENT OF DEBT
The Company was legally released from its notes payable including interest
obligation to an unrelated party in December 2001, in the amount of $264,458.
The Company has accounted for the extinguishment of debt as other income for the
year ended September 30, 2002.
NOTE K - MAJOR CUSTOMERS
Revenue from the Company's three major customers approximated $3,436,308 or 38%
of sales for the year ended September 30, 2003. Revenue from the Company's two
major customers approximated $2,122,590 or 38% of sales for the year ended
September 30, 2002.
F-38
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE L - SEGMENT INFORMATION
The Company's three reportable segments are managed separately based on
fundamental differences in their operations. During the years ended September
30, 2003 and 2002, the Company operated in the following three reportable
segments:
o Transportation of Bulk fuels consists of the delivery of jet
fuel, diesel and gas to retail establishments, tank farms and
the US government.
o Repairs/construction division is involved in the minor repairs
to facilities that contain underground storage sites. These
repairs/construction jobs are short term in nature and
relatively minor in scope.
o The testing/environmental operations consist of compliance
testing, Vapor recovery testing of underground storage tanks
and the subsequent environmental cleanup as mandated by local
governmental agencies
Segment operating income is total segment revenue reduced by operating expenses
identifiable with the business segment. Corporate includes general corporate
administrative costs.
The Company evaluates performance and allocates resources based upon operating
income. The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies. There are no inter-segment
sales. The following table summarizes segment asset and operating balances by
reportable segment:
2003 2002
---- ----
Net Sales to External Customers:
Bulk Transportation $2,596,275 $1,416,235
Repairs/Construction 890,650 --
Testing/Environmental 5,548,367 4,116,311
----------- -----------
Total Sales to External Customers $9,035,292 $5,532,546
=========== ===========
Depreciation and Amortization:
Bulk Transportation $ 174,740 $ 133,999
Repairs/Construction 41,669 --
Testing/Environmental 211,352 182,656
Corporate 69,142 11,734
----------- -----------
Total Depreciation and Amortization $ 496,903 $ 328,389
=========== ===========
General and Administrative Expense:
Bulk Transportation $ 175,204 $ 124,278
Repairs/Construction 96,766 --
Testing/Environmental 619,731 275,656
Corporate 1,872,579 920,266
----------- -----------
Total General and Administrative Expense $2,764,280 $1,320,200
=========== ===========
F-39
ADVANCED FUEL FILTRATION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003 AND 2002
NOTE L - SEGMENT INFORMATION (CONTINUED)
2003 2002
---- ----
Capital Expenditures:
Bulk Transportation $ 221,479 $ 104,034
Repairs/Construction 72,211 --
Testing/Environmental 339,363 276,331
Corporate 67,358 15,031
------------ ------------
Total Capital Expenditures $ 700,411 $ 395,396
============ ============
Operating (Loss):
Bulk Transportation $ 289,514 $ 64,461
Repairs/Construction 143,884 --
Testing/Environmental 1,577,292 1,300,326
Corporate (2,649,783) (1,453,571)
------------ ------------
Total segment Operating Loss $ (639,093) $ (88,784)
============ ============
Segment Assets:
Bulk Transportation $ 923,400 $ 705,675
Repairs/Construction 72,211 --
Testing/Environmental 1,247,276 1,028,044
Corporate 1,085,362 636,897
------------ ------------
Total Segment Assets $ 3,328,249 $ 2,370,616
============ ============
NOTE M - EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering substantially
all full-time employees, which provides for the Company matching of the
participant's elective deferral. The Company's expense for the plan was $0 for
the years ended September 30, 2003 and 2002, respectively.
F-40
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
SEPTEMBER 30, 2003
H. B. COVEY, INC.
F-41
H. B. COVEY, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page No.
--------
Report of Independent Certified Public Accountants F-42
Balance Sheet at September 30, 2003 F-43
Statement of Losses For the Period June 14, 2003 Through
September 30, 2003 F-44
Statement of Deficiency in Stockholders' Equity For the
Period June 14, 2003 Through September 30, 2003 F-45
Statement of Cash Flows For the Period June 14, 2003
Through September 30, 2003 F-46
Notes to Financial Statements F-47 to F-53
F-42
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
H. B. Covey, Inc.
Ranch Cucamonga, California
We have audited the accompanying balance sheet of H. B. Covey, Inc.
("Company") as of September 30, 2003 and the related statements of operations,
deficiency in stockholders' equity, and cash flows for the period June 14, 2003
through September 30, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of H. B. Covey, Inc. as
of September 30, 2003, and the results of its operations and its cash flows for
the period June 14, 2003 through September 30, 2003, in conformity with
accounting principles generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
February 6, 2004
F-43
H. B. COVEY, INC.
BALANCE SHEET
SEPTEMBER 30, 2003
ASSETS
Current Assets:
Cash $ 150,928
Accounts receivable, less allowance fro doubtful accounts of $0 787,977
Inventory, at cost (Note A) 512,215
Other current assets 20,764
-----------
Total current assets 1,471,884
Property and Equipment, less accumulated depreciation of $413,817 (Note A) 182,789
$1,654,673
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 223,665
Accounts payable - related party (Note F) 272,735
Notes payable - shareholders (Note F) 817,238
Accrued expenses (Note E) 117,418
-----------
Total current liabilities 1,431,056
Commitments and contingencies (Note C) --
Stockholders' equity: (Note G)
Common stock, par value $1 per share; 200,000 authorized,
67,035 issued and outstanding at September 30, 2003 67,035
Less: stock subscription receivable (8,910)
Additional paid-in-capital 141,500
Retained earnings 23,992
-----------
Total Stockholders' Equity 223,617
-----------
$1,654,673
===========
See accompanying notes to financial statements
F-44
H. B. COVEY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 14, 2003 THROUGH SEPTEMBER 30, 2003
Revenues $ 1,310,652
Cost of sales 849,352
------------
Gross Margin 461,300
Operating expenses:
Selling, general and administrative 342,993
Depreciation 24,991
------------
Total Operating Expenses 367,984
------------
Income from operations 93,316
Other income (expenses) 353
Interest (expenses) (4,166)
Provision for income taxes --
------------
Net Income $ 89,503
============
See accompanying notes to financial statements
F-45
H. B. COVEY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 14, 2003 THROUGH SEPTEMBER 30, 2003
Common Additional
Common Shares Paid in Subscription Accumulated
shares Amount Capital Receivable Deficit Total
--------- --------- --------- --------- --------- ---------
Balance at June 14, 2003 62,035 $ 62,035 $ -- $ (8,910) $(65,511) $(12,386)
Additions during the period 5,000 5,000 141,500 -- -- 146,500
Net income -- -- -- -- 89,503 89,503
--------- --------- --------- --------- --------- ---------
Balance at September 30, 2003 67,035 $ 67,035 $141,500 $ (8,910) $ 23,992 $223,617
========= ========= ========= ========= ========= =========
See accompanying notes to financial statements
F-46
H. B. COVEY, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD JUNE 14, 2003 THROUGH SEPTEMBER 30, 2003
Cash flows from operating activities:
Net income from operations $ 89,503
Adjustments to reconcile net income to net cash:
Depreciation 24,991
Change in:
(Increase)decrease
Accounts receivables (787,977)
Inventory 316,698
Other current assets (20,764)
Increase(decrease)
Accounts payable 223,665
Accounts payable-related party 272,735
Other current liabilities 15,188
----------
Net cash provided by from operating activities 134,039
Cash flows provided by financing activities:
Proceeds from issuance of common stock 5,000
Proceeds from note payable -others 11,889
----------
Net cash provided by financing activities 16,889
Net increase in cash and cash equivalents 150,928
Cash and cash equivalents at beginning of period --
----------
Cash and cash equivalents at end of period $ 150,928
----------
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest $ 4,166
Cash paid during the period for taxes --
Non-cash Investing and Financing Transactions:
Sale of vehicles to the stockholder 345,000
Accumulated depreciation on sale of vehicles to a related
party/additional paid in capital (241,500)
Note receivable - stockholder on sale of vehicles/additional
paid in capital 100,000
Carve out transactions from AESE:
Inventory 649,789
Note payable - AESE 69,059
Net balance - adjustment to retained earnings (718,848)
See accompanying notes to financial statements
F-47
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
BUSINESS AND BASIS OF PRESENTATION
H. B. Covey, Inc. (the "Company") was formed on March 19, 1971 under the laws of
the State of California. The Company provides diagnostic and maintenance
services to petroleum service stations in the southwestern part of the United
States of America.
On October 1, 2001, the Company's previous owners conveyed the Company's
principal revenue producing assets and business activities to A.E. Schmidt
Environmental ,a privately-held company organized under the laws of the state of
California ("AESE", or "Parent"). In exchange for the assets , AESE assumed
certain Company liabilities. The Company retained title to certain property and
equipment, which was made available to AESE for their use in connection with the
operations of their various business segments.
As a result of the conveyance of substantially all of the Company's assets and
business activities to AESE, effective October 1, 2001, the Company became a
dormant entity. In June, 2003, as a result of non-compliance on the part of AESE
with the terms of the acquisition , the Company's previous owners took
possession of assets being held by AESE, including but not limited to,
inventory, customer lists and the assumption of certain trade payables, and
operating leases (see Note B).
Change in Control of Company
- ----------------------------
On December 30, 2003, Entech Environmental Technologies, Inc., formerly Parr
Development, Inc., ("Entech") a company formed under the laws of the State of
Nevada, acquired through a Share Exchange Agreement, all of the issued and
outstanding stock of the Company In addition, Entech acquired the following
entities:
o Christie Peterson Development Corporation (" CPI")
o Advanced Fuel Filtration Systems, Inc. ("Advanced Fuel")
From its inception and up to December 30, 2003, Entech had no significant
assets or operations. Subsequent to the acquisition, the Company, CPI , and
Advanced Fuel became wholly-owned subsidiaries of Entech.
On January 21, 2004, Entech completed Capital Stock Exchange Agreement
("Agreement") with Cyber Public Relations, Inc. ("Cyber" or "Company") an
inactive publicly registered shell corporation with no significant assets or
operations. For accounting purposes, Entech shall be the surviving entity. From
June, 1998 until the date of the merger, Cyber was an inactive corporation with
no significant assets and liabilities. Effective with the Agreement, all of the
previously issued outstanding common stock , preferred stock, options and
warrants owned by the Entech shareholders were exchanged for an aggregate of
9,550,000 shares of Cyber's restricted common stock.
Subsequent to the recapitalization of the Company and its merger with Entech,
Entech issued 2,000,000 shares of its common stock and 7,150,000 warrants to
acquire Entech's common stock in exchange for $2,000,000.
F-48
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
- -------------------
For revenue from product sales, the Company recognizes revenue in accordance
with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
ADVERTISING
- -----------
The Company recognizes advertising expenses in accordance with SOP 93-7
"Reporting on Advertising Costs." The Company did not incur any material
advertising costs during the period June 14, 2003 through September 30, 2003.
INCOME TAXES
- ------------
Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
CASH EQUIVALENTS
- ----------------
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT
- ----------------------
For financial statement purposes, property and equipment will be depreciated
using straight-line method over their estimated useful lives (five years for
furniture, fixtures and equipment). The straight-line method of depreciation is
also used for tax purposes.
CONCENTRATIONS OF CREDIT RISK
- -----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company places its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.
F-49
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
LONG-LIVED ASSETS
- -----------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
STOCK BASED COMPENSATION
- ------------------------
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of SFAS 123." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary charge to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
and related interpretations. Accordingly, compensation expense for stock options
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of the grant over the exercise price of the related option.
The Company has adopted the annual disclosure provisions of SFAS No. 148 in its
financial reports for the year ended September 30, 2003 and will adopt the
interim disclosure provisions for its financial reports for the quarter ended
December 31, 2003.
SEGMENT INFORMATION
- -------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess
F-50
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
performance. The information disclosed herein materially represents all of the
financial information related to the Company's principal operating segment.
COMPREHENSIVE INCOME
- --------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
INVENTORIES
- -----------
Inventories are stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method. Inventories consist of mechanical and
electrically component products available for sale to distributors and customers
Components of inventories as of September 30, 2003 are as follows:
Finished goods $ 512,215
Property and Equipment
- ----------------------
For financial statement purposes, property and equipment are depreciated using
the straight-line method over their estimated useful lives (five years for
furniture, fixtures, improvements and equipment). An accelerated method of
depreciation is used for tax purposes. Depreciation expense for the period June
14, 2003 through September 30, 2003 was $24,991.
Major classes of property and equipment at September 30, 2003 consist of the
followings:
Equipment $ 20,771
Tools and equipment 124,739
Vehicles 235,569
Office equipment 190,320
Office furniture 25,207
----------
596,606
Less: Accumulated Depreciation (413,817)
----------
Net Property and Equipment $ 182,789
==========
F-51
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of Interpretation No. 46
did not have a material impact on the Company's results of operations or
financial position.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on the Company's results of operations or financial
position.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
F-52
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE B - DUE TO FORMER PARENT
In connection with the recession of the Company's sales agreement with AESE in
June 2003, the Company retained certain assets. While the Company may have an
obligation to reimburse AESE, or its assigns for a portion of the retained
assets, the Company believes it has claims for unreimbursed costs incurred that
would substantially mitigate any claims by AESE.
NOTE C - COMMITMENTS AND CONTINGENCIES
Lease Commitment
- ----------------
The Company leases its premises on a year to year basis. The lease agreements
provide for minimum rent, taxes, insurance and maintenance. Rental expense
charged to operations during the period June 14, 2003 through September 30, 2003
was $ 36,595.
Litigation
- ----------
The Company is subject to legal proceedings and claims which arise from the
ordinary course of its business. The Company's management believes that the
final disposition of such matters will not have material adverse effect on its
financial position, results of operations or liquidity.
NOTE D - INCOME TAXES
Statement of Financial Accounting Standards No. 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statement or tax returns. Under
this method, deferred tax liabilities and assets are determined based on the
difference between financial statements and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Temporary differences between income reported for financial
reporting purposes and income tax purposes are insignificant. As a result, a
provison for current income taxes is not material and has not been provided in
the accompanying financial statements.
NOTE E - OTHER CURRENT LIABILITIES
Other current liabilities at September
30, 2003 are comprised of the following:
Accrued payroll and vacation $ 55,000
Sales taxes payable $ 24,263
Payroll taxes payable 21,956
Miscellaneous accrued expenses 16,199
$117,418
F-53
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
NOTE F - RELATED PARTY TRANSACTIONS
The Company's inception, the Company's shareholders have advanced funds to the
Company for working capital purposes. No formal repayment terms or arrangements
exist. The amount of the advances due the officers at September 30, 2003 were $
817,238.
The Company sources services from a related party. Total purchases from related
party for the period June 14, 2003 to September 30, 2003 was $272,735. At
September 30, 2003 accounts payable-related party balance was $272,735.
NOTE G - CAPITAL STOCK
The Company has authorized 200,000 shares of common stock , with a par value of
$1 per share. Out of this 67,035 shares of common stock were issued and
outstanding as of September 30, 2003.
F-54
H. B. COVEY, INC.
FINANCIAL STATEMENTS
OCTOBER 1, 2001 THROUGH SEPTEMBER 30, 2002
OCTOBER 1, 2002 THROUGH JUNE 14, 2003
F-55
H. B. COVEY, INC.
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page No.
--------
Report of Independent Certified Public Accountants F-57
Statement of Assets Acquired and Liabilities Assumed at
September 30, 2002 F-58
Statement of Revenues and Direct Expenses for the Period
October 1, 2002 through June 14, 2003 and the Year Ended
September 30, 2002 F-59
Notes to Financial Statements F-60 to F-65
F-56
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
H. B. Covey, Inc.
Ranch Cucamonga, California
We have audited the accompanying statement of assets acquired and liabilities
assumed of H. B. Covey, Inc. as of September 30, 2003 and the statement of
revenues and direct expenses for the year ended September 30, 2002 and the
period October 1, 2002 through June 14, 2003. These statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall schedule presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above presents fairly, in all
material respects, the statement of assets acquired and liabilities assumed of
H. B. Covey, Inc. as of September 30, 2002 and the statements of revenues and
direct expenses for the year ended September 30, 2002 and the period October 1,
2002 through June 14, 2003 , in conformity with accounting principles generally
accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
Certified Public Accountants
New York, New York
February 6, 2004
F-57
H. B. COVEY, INC.
STATEMENT OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
SEPTEMBER 30, 2002
ASSETS
LIABILITIES
Current liabilities:
Due to Parent (Note B) $ 89,917
Total current liabilities
Commitments and contingencies (Note E)
Net assets (liabilities) $(89,917)
See accompanying notes to financial statements
F-58
H. B. COVEY, INC.
STATEMENTS OF REVENUES AND DIRECT EXPENSES
For the Period For the Year
October 1, Ended
2002 through September
June 14, 2003 30, 2002
------------- -------------
Sales $ 1,455,433 $ 1,948,406
Cost of sales 747,146 85,945
Gross Margin 708,287 762,461
Operating expenses:
Selling, general and administrative 38,707 51,209
Total Operating Expenses 38,007 51,209
Net income (loss) from operations 669,580 711,252
Provision for income taxes
Net Income (Loss) $ 669,580 $ 711,252
See accompanying notes to financial statements
F-59
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
BUSINESS AND BASIS OF PRESENTATION
- ----------------------------------
H. B. Covey, Inc. (the "Company") was formed on March 19, 1971 under the laws of
the State of California. The Company provides diagnostic and maintenance
services to petroleum service stations in the southwestern part of the United
States of America.
On October 1, 2001, the Company's previous owners conveyed the Company's
principal revenue producing assets and business activities to A.E. Schmidt
Environmental ,a privately-held company organized under the laws of the state of
California ("AESE", or "Parent"). In exchange for the assets , AESE assumed
certain Company liabilities. The Company retained title to certain property and
equipment, which was made available to AESE for their use in connection with the
operations of their various business segments.
As a result of the conveyance of substantially all of the Company's assets and
business activities to AESE, effective October 1, 2001, the Company became a
dormant entity. In June, 2003, as a result of non-compliance on the part of AESE
with the terms of the acquisition , the Company's previous owners took
possession of assets being held by AESE, including but not limited to,
inventory, customer lists and the assumption of certain trade payables, and
operating leases. The assets acquired represented approximately 5% of the AESE
total assets at the time of the acquisition by the Company. Since AESE retained
substantially all of the remaining significant operating assets, the Company's
management believes the financial statements of AESE would be misleading and
uninformative. Accordingly, the Company has presented financial statements of
the acquired component business, excluding the continuing operations retained by
AESE.
The Company is unable to present and full financial statements of the acquired
component business because AESE is currently not operating and the information
necessary to prepare the component's financial statements is not readily
available.
As a result of the Company believes it is impracticable to present a complete
set of financial statements as required by Rule 3-05 of SEC Regulation S -X .
Accordingly, the accompanying statement of Assets Acquired and Liabilities
Assumed as of September 30, 2002 and the Statements of Revenue and Direct
Expenses for the period October 1, 2002 through June 14, 2003 and the year ended
October 31, 2002 are presented on a carved-out basis, and are not indicative of
the results of operations that would have existed had the Company been a
separate stand-alone entity during the periods presented or of future results.
Summarized results of the allocation of expenses are further described in Note
B.
Change in Control of Company
- ----------------------------
On December 30, 2003, Entech Environmental Technologies, Inc., formerly Parr
Development, Inc., ("Entech") a company formed under the laws of the State of
Nevada, acquired through a Share Exchange Agreement, all of the issued and
outstanding stock of the Company In addition, Entech acquired the following
entities:
o CPI Development, Inc. , formally Christie Peterson Development
Corporation, Inc. (" CPI")
o Advanced Fuel Filtration Systems, Inc. ("Advanced Fuel")
F-60
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
From its inception and up to December 30, 2003, Entech had no significant assets
or operations. Subsequent to the acquisition, the Company, CPI , and Advanced
Fuel became wholly-owned subsidiaries of Entech.
On January 21, 2004, Entech completed Capital Stock Exchange Agreement
("Agreement") with Cyber Public Relations, Inc. ("Cyber" or " Company") an
inactive publicly registered shell corporation with no significant assets or
operations. For accounting purposes, Entech shall be the surviving entity. From
June, 1998 until the date of the merger, Cyber was an inactive corporation with
no significant assets and liabilities. Effective with the Agreement, all of the
previously issued outstanding common stock , preferred stock, options and
warrants owned by the Entech shareholders were exchanged for an aggregate of
9,550,000 shares of Cyber's restricted common stock.
Subsequent to the recapitalization of the Company and its merger with Entech,
Entech issued 2,000,000 shares of its common stock and 7,150,000 warrants to
acquire Entech's common stock in exchange for $2,000,000.
REVENUE RECOGNITION
- -------------------
For revenue from product sales, the Company recognizes revenue in accordance
with SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectibility is reasonably assured. Determination of
criteria (3) and (4) are based on management's judgments regarding the fixed
nature of the selling prices of the products delivered and the collectibility of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
ADVERTISING
- -----------
The Company will recognize advertising expenses in accordance with SOP 93-7
"Reporting on Advertising Costs." The Company did not incur any material
advertising costs during the years ended September 30, 2003 and 2002.
INCOME TAXES
- ------------
Income taxes are provided based on the liability method for financial reporting
purposes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Under this method deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be removed or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
F-61
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
- ----------------------
For financial statement purposes, property and equipment will be depreciated
using straight-line method over their estimated useful lives (five years for
furniture, fixtures and equipment). The straight-line method of depreciation is
also used for tax purposes.
CONCENTRATIONS OF CREDIT RISK
- -----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and trade receivables. The Company will place its cash and temporary cash
investments with high credit quality institutions. At times, such investments
may be in excess of the FDIC insurance limit.
USE OF ESTIMATES
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly actual results
could differ from those estimates.
LONG-LIVED ASSETS
- -----------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
STOCK BASED COMPENSATION
- ------------------------
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS No. 148"), "Accounting for Stock-Based Compensation-Transition
and Disclosure-an amendment of SFAS 123." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary charge to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
and related interpretations. Accordingly, compensation expense for stock options
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of the grant over the
F-62
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
exercise price of the related option. The Company has adopted the annual
disclosure provisions of SFAS No. 148 in its financial reports for the year
ended September 30, 2003 and will adopt the interim disclosure provisions for
its financial reports for the quarter ended December 31, 2003.
SEGMENT INFORMATION
- -------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
COMPREHENSIVE INCOME
- --------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to older entities in the first fiscal year or interim period beginning
after June 15, 2003. Certain of the disclosure requirements apply in all
financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. The adoption of Interpretation No. 46
did not have a material impact on the Company's results of operations or
financial position.
In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. SFAS 149 amends SFAS No. 133 to provide clarification on the
financial accounting and reporting of derivative instruments and hedging
activities and requires that contracts with similar characteristics be accounted
for on a comparable basis. The provisions of SFAS 149 are effective for
contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on the Company's results of operations or financial
position.
F-63
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS 150
establishes standards on the classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. The provisions
of SFAS 150 are effective for financial instruments entered into or modified
after May 31, 2003 and to all other instruments that exist as of the beginning
of the first interim financial reporting period beginning after June 15, 2003.
The adoption of SFAS 150 did not have a material impact on the Company's results
of operations or financial position.
In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB
STATEMENTS NO. 87, 88 AND 106. This statement retains the disclosure
requirements contained in FASB statement no. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which it replaces. It requires
additional disclosures to those in the original statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The revision applies for the first fiscal or
annual interim period ending after December 15, 2003 for domestic pension plans
and June 15, 2004 for foreign pension plans and requires certain new disclosures
related to such plans. The adoption of this statement will not have a material
impact on the Company's results of operations or financial position.
NOTE B - CARVE-OUT TRANSACTIONS
On June 14, 2003, as a result of non-compliance on the part of AESE with the
terms of its acquisition of the Company's assets and assumption of
liabilities, the Company's previous owners took possession of assets being held
by AESE, including but not limited to, inventory, customer lists and the
assumption of certain trade payables, and operating leases. There was no
consideration exchanged in the transaction.
Certain information in the Company's financial statements relating to the
results of operations and financial condition was derived from the historical
financial information of the Parent. Various allocation methodologies were
employed to allocate the expenses incurred by the Parent on the Company's
behalf. Allocations of these expenses include advertising, officer salaries,
accounting and legal fees, rent, and other general office expenses. Management
believes that these allocation methodologies are reasonable. The expenses
allocated are not necessarily indicative of the expenses that would have been
incurred if the Company had been a separate, independent entity and had managed
these functions. The Company may incur additional general administrative
expenses, and other costs as a result of operating independently of the Parent.
F-64
H. B. COVEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE B - CARVE-OUT TRANSACTIONS (CONTINUED)
The accompany financial statements, including expenses incurred by AESE on
behalf of the Company, and the summarized results of the allocation of expenses
are as follows:
For the Period
Year Ended October 1, 2002
September 30, through June 14,
2002 2003
---- ----
Net transfer from Parent - beginning of
the period
$ 38,708 $ --
Net transactions with Parent:
Advertising 2,787 2,107
Accounting and legal fees 13,354 10,094
Rent 5,574 4,213
Officer salaries 21,134 15,974
Office expenses 8,360 6,320
Net transfer from Parent - $ 89,917 $ 38,708
end of the period
NOTE C - COMMITMENTS AND CONTINGENCIES
Litigation
- ----------
The Company is subject to legal proceedings and claims which arise from the
ordinary course of its business. The Company's management believes that the
final disposition of such matters will not have material adverse effect on its
financial position, results of operations or liquidity.
Due to former Parent
- --------------------
In connection with the recession of the Company's sales agreement with AESE in
June 2003, the Company retained certain assets. While the Company may have an
obligation to reimburse AESE, or its assigns for a portion of the retained
assets, the Company believes it has claims for unreimbursed costs incurred that
would substantially mitigate any claims by AESE.
F-65
(b) PRO FORMA FINANCIAL INFORMATION.
Condensed Consolidated Pro Forma Unaudited Balance Sheet as of
September 30, 2003 F-68
Condensed Consolidated Pro Forma Unaudited Statement of
Operations for the Year Ended September 30, 2003 F-69
Notes to Condensed Consolidated Pro Forma Unaudited Financial
Statements F-70 to F-71
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
On December 30, 2003, Entech Environmental Technologies, Inc., formerly Parr
Development, Inc., ("Entech") a company formed under the laws of the State of
Nevada, acquired through a Share Exchange Agreement, all of the issued and
outstanding stock of the following entities:
o CPI Development, Inc. , formally Christie Peterson Development
Corporation, Inc. (" CPI")
o Advanced Fuel Filtration Systems Inc. (" Advanced Fuel")
o H. B. Covey, Inc. ( H.B. Covey)
From its inception and up to December 30, 2003, Entech had no significant assets
or operations. Subsequent to the acquisition, CPI, Advanced Fuel, and H. B.
Covey became wholly-owned subsidiaries of Entech.
On January 21, 2004, Entech completed Capital Stock Exchange Agreement
("Agreement") with Cyber Public Relations, Inc. ("Cyber" or "Company") an
inactive publicly registered shell corporation with no significant assets or
operations. For accounting purposes, Entech shall be the surviving entity. The
transaction is accounted for using the purchase method of accounting. The total
purchase price and carrying value of net assets acquired of Cyber was $297,578.
From June, 1998 until the date of the merger, Cyber was an inactive corporation
with no significant assets and liabilities. Effective with the Agreement, all of
the previously issued outstanding common stock, preferred stock, options and
warrants owned by the Entech shareholders were exchanged for an aggregate of
9,550,000 shares of Cyber's restricted common stock. As a result of the
Agreement, there was a change in control of the Company.
The value of the Company's common stock issued was the historical cost of the
Company's net tangible assets, which did not differ materially from their fair
value. In accordance with Statement of Financial Accounting Standards No. 141,
Business Combinations, Entech is the acquiring entity.
The Proforma Unaudited Financial Statements have been prepared by management of
Cyber in order to present consolidated financial position and results of
operations of Cyber and Entech as if the acquisition had occurred as of
September 30, 2003 for the pro forma condensed balance sheet and to give effect
to the acquisition of Cyber , as if the transaction had taken place at October
1, 2002 for the pro forma condensed consolidated statement of operations for the
year ended September 30, 2003.
The pro forma information is based on historical financial statements giving
effect to the proposed transactions using the purchase method of accounting and
the assumptions and adjustments in the accompanying notes to the pro forma
financial statements. The unaudited pro forma financial information is not
necessarily indicative of the actual results of operations or the financial
position which would have been attained had the acquisitions been consummated at
either of the foregoing dates or which may be attained in the future. The pro
forma financial information should be read in conjunction with the historical
consolidated financial statements of Cyber (including notes thereto) included in
this Form.
F-66
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by Entech stockholders were exchanged for an
aggregate of 9,550,000 shares of Cyber common stock. The value of the stock that
was issued was the historical cost of Entech's net tangible assets, which did
not differ materially from their fair value. In accordance with Financial
Accounting Standards No. 141, , Entech is the acquiring entity.
In connection with the Agreement, certain Cyber shareholders agreed to and
canceled 1,884,000 of previously issued shares. In addition, all debts owing by
Cyber were cancelled by an affiliate of its former controlling stockholder,
Thomas Braun, to facilitate the transaction described herein in exchange for a
total additional consideration of $275,000 paid by Entech to the stockholders of
Cyber.
F-67
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED BALANCE SHEET
SEPTEMBER 30, 2003
Pro Forma Pro Forma
Cyber CPI Advanced Fuel H B Covey Adjustments Consolidated
------------- ------------- ------------- ------------- ------------- -------------
ASSETS
Current Assets $ 12,477 $ 5,767,114 $ 1,645,416 $ 1,471,884 $ (12,477) (5) $ 8,165,794
(275,000) (1)
(443,620) (9)
Property and
Equipment, net -- 421,009 1,640,133 182,789 2,243,931
Other Assets -- 152,722 42,700 -- 195,422
------------- ------------- ------------- ------------- ------------- -------------
$ 12,477 $ 6,340,845 $ 3,328,249 $ 1,654,673 $ (731,097) $ 10,605,147
============= ============= ============= ============= ============= =============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current
Liabilities $ 22,263 $ 6,582,165 $ 3,813,953 $ 1,431,056 $ (443,620) (1) $ 11,405,817
Other liabilities 35,000 1,161,497 936,025 -- (35,000) (5) 2,097,522
Stockholders'
Equity:
Common -- -- -- -- 9,550 (2) --
Stock 2,199 4,000 250 58,125 (1,884) (4) --
-- -- -- -- (62,375) (3) 9,865
Treasury Stock -- (1,250,000) -- -- -- (1,250,000)
1,884 (4) --
Additional -- -- -- -- 62,375 (3) 1,535,408
Paid In Capital 19,791 93,000 413,470 141,500 22,523 (5) --
66,776 (6)
714,089 (10)
Retained
Earnings -- -- -- -- (275,000) (1) --
(deficit) (66,776) (249,817) (1,835,449) 23,992 (9,550) (2) (3,193,465)
(66,776) (6)
(714,089) (10)
------------- ------------- ------------- ------------- ------------- -------------
(44,786) (1,402,817) (1,421,729) 223,617 (252,477) (2,898,192)
$ 12,477 $ 6,340,845 $ 3,328,249 $ 1,654,673 (731,097) $ 10,605,147
============= ============= ============= ============= ============= =============
See accompanying notes to the proforma unaudited consolidated financial statements
F-68
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
H B Covey H.B. Covey
6-14-2003 to 101-2002 to Pro Forma Pro Forma
Cyber CPI Advanced Fuel 9-30-2003 6-14-2003 Adjustments Consolidated
------------- ------------- ------------- ------------- ------------- ------------- -------------
Sales $ -- $ 27,284,453 $ 9,035,292 $ 1,310,652 $ 1,455,433 (443,620)(9) 38,642,210
Cost of Sales -- 23,743,515 6,167,481 849,352 747,146 (443,620)(9) 31,063,874
------------- ------------- ------------- ------------- ------------- ------------- -------------
Gross Margin -- 3,540,938 2,867,811 461,300 708,287 -- 7,578,336
Operating costs 22,263 (1)
22,497 3,199,972 3,506,904 367,984 38,708 275,000 (1) 7,766,743
9,550 (2)
66,776 (6)
(207,000) (7)
(250,000) (8)
714,089 (10)
Net income (loss) from
operations (22,497) 340,966 (639,093) 93,316 669,579 (630,678) (188,407)
Interest expense (5,952) (84,857) (218,203) (4,166) -- (313,178)
Other income (expense) -- 77,294 (22,289) 353 -- 55,358
Net income (loss) before
taxes (28,449) 333,403 (879,585) 89,503 669,579 (630,678) (446,227)
Income tax provision
(benefit) -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- ------------- -------------
Net income (loss) $ (28,449) $ 333,403 $ (879,585) $ 89,503 $ 669,579 $ (630,678) $ (446,227)
============= ============= ============= ============= ============= ============= =============
Earnings (loss) per common
share (basic and assuming
dilution) $ (.05)
=============
Weighted average shares
outstanding (basic and
dilution) 9,865,000
=============
See accompanying notes to the proforma unaudited consolidated financial statements
F-69
ENTECH ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO CONDENSED PRO FORMA UNAUDITED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The Proforma Unaudited Condensed Financial Statements have been prepared in
order to present consolidated financial position and results of operations of
Cyber, Entech, CPI, Advanced Fuel and H B Covey as if the acquisition had
occurred as of September 30, 2003 for the pro forma condensed balance sheet and
to give effect to the acquisition of Cyber , as if the transaction had taken
place at October 1, 2002 for the pro forma condensed consolidated statement of
operations for the year ended September 30, 2003.
The following pro forma adjustments are incorporated into the pro forma
condensed consolidated balance sheet as of September 30, 2003 and the pro forma
condensed consolidated statement of operations for the year ended September 30,
2003.
(1)
Debit Organization Costs (Operating Costs) $275,000
Debit Operating Costs $22,263
Credit Cash $275,000
Credit Additional Paid in Capital $22,263
To record the acquisition of Cyber for cash and stock. The significant
components of this transaction are:
Assets acquired --
Liabilities assumed 22,263
Cash paid 275,000
Total consideration paid $297,263
In accordance with SOP 98-5, the Company will expense as organization costs the
$297,263
(2)
Debit Organization Costs (Operating Costs) $ 9,550
Credit Common Stock $ 9,550
To record the issuance of 9,550,000 shares of Cyber common stock in exchange for
shares of issued and outstanding shares of CPI, Advanced Fuel and HB Covey and
related cancellation of sellers' shares.
(3)
Debit Common Stock $ 62,375
Credit Additional Paid In Capital $ 62,375
To record retirement of CPI, Advance Fuel HB Covey Stock
(4)
Debit Shareholder Equity: Common Stock $ 1,884
Credit Additional Paid In Capital $ 1,884
To record cancellation of 1,884,000 of previously issued shares to Cyber
shareholder at $.001 par value
(5)
Debit Liabilities $ 35,000
Credit Cash $ 12,477
Credit Additional Paid In Capital $ 22,523
To record extinguishment of net debt owed to former Cyber shareholder ($ 35,000
note payable, net of cash disbursed of $12,477)
(6)
Debit Retained Earnings $ 66,776
Credit additional paid in capital $ 66,776
To eliminate Cyber retained earnings
Had the Company combined operations beginning October 1, 2002, redundant rent
and accounting staff costs would have been eliminated as follows:
(7)
Debit Additional Paid In Capital $207,000
Credit Operating Expense $207,000
To reflect the anticipated reduction of rent and related occupancy costs of
$207,000 for three redundant facilities at Corona, Chino and Pomona, net of
closure costs. The Corona facility has 7,000 square feet while the Chino and
Pomona locations have 8,000 and 4,000 square feet,respectively. Annual rental
costs are $57,600 for Corona, $54,000 for Chino and $14,400 for Pomona or
$126,000 in total base rent. Historical related occupancy costs are an
additional 65% on base rents and include repairs, maintenance, licenses,
permits, utilities, property taxes, rubbish collection and security. Combined
with the base rent costs of $126,000, related occupancy adds another $81,000 in
expense or total $207,000 in rent and related occupancy costs
F-70
(8)
Debit Additional Paid In Capital $250,000
Credit Operating Expense $250,000
To reflect the anticipated and actual reduction of redundant corporate
accounting staff costs aggregating $250,000, net of severance. Wages and
salaries for six personnel total $207,200. Related payroll fringe costs
for payroll taxes, workers compensation and medical benefits are an additional
20.6% of base compensation. Total base compensation of $207,200 and
related fringe benefits of 20.6% equal $250,000 in combined staff cost savings.
(9)
Debit Revenue $443,620
Credit Cost of Sales $443,620
To eliminate intercompany revenues and costs.
(10)
Debit Operating Costs $714,089
Credit Additional Paid In Capital $714,089
To book October 2002 through June 14, 2003 HB Covey overhead expense. Following
this entry, HB Covey overhead expenses fully reflect the complete fiscal 2003
period.
F-71
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CYBER PUBLIC RELATIONS, INC.
/s/ Steven D. Rosenthal
---------------------------------
Steven D. Rosenthal
President and Chief Executive Officer
S-1