U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2001
Commission File No. 000-30069
ENVIRO-ENERGY CORPORATION
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(Exact name of small business issuer as specified in its charter)
DELAWARE 95-452-0761
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
4430 HASKELL AVENUE, ENCINO, CA 91436
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(Address of principal executive office)(City, State Zip Code)
Issuer's telephone number, including area code: (818) 784-2445
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Check whether the issuer (1) filed reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months or such shorter period
that the registrant was required to file such reports and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
There were 234,730,919 shares of the Issuer's Common Stock outstanding and no
Preferred Stock outstanding as of June 30, 2001.
Transitional Small Business disclosure Format. Yes [ ] No [X]
<PAGE 1>
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30,2001
And December 31, 2000 Page 3
Consolidated Statements of Operations for the Three
Months Period Ended June 30, 2001 and 2000 Page 5
Consolidated Statements of Operations for the Six
Months Period Ended June 30, 2001 and 2000 Page 6
Consolidated Statements of Cash Flow for the Six Months
Ended June 30, 2001 and 2000 Page 7
Notes to Consolidated Financial Statements Page 8
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS Page 15
OF PLANS OF OPERATION
PART II. OTHER INFORMATION Page 19
ITEM 1. LEGAL PROCEEDINGS Page 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Page 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Page 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE Page 19
ITEM 5. OTHER INFORMATION Page 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page 19
Exhibit A. Certificate of Amendment of Incorporation Page 20
(Company Name Change)
PART III. SIGNATURES Page 21
<PAGE 2>
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ENVIRO-ENERGY CORPORATION
Consolidated Balance Sheets (Unaudited)
June 30, 2001 and December 31, 2000
June 30, December 31
2001 2000
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 305,702 $ 26
Accounts receivable, net of $52,172 allowance 1,088,435 1,425
Unbilled revenue, net of $2,145,339 allowance 679,408
Receivables from related parties,
Net of $245,000 allowance 260,774
Inventories 200,248
Equipment held for sale 78,524
Stock Option Funds Receivable 1,250,000
Notes and other receivables 54,664
Income Taxes Recoverable 24,085
Prepaid Expense 155,863
Deferred Income Taxes 64,930
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Total Current Assets $4,162,633 $ 1,451
Property, Plant, and Equipment - at cost
Net of accumulated depreciation of $1,978,841 1,937,740
Goodwill - at cost
Net of accumulated amortization of $77,897 2,257,930
Investment - at cost 338,142
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Total Assets $8,696,445 $ 1,451
=========== ===========
LIABILITIES
Current Liabilities:
Accounts Payable $3,484,491 $ 312,905
Payroll and accrued liabilities 592,168
Accounts payable to related parties 94,822
Notes Payable to related parties 772,640 1,167,583
Current Portion of long-term debt 1,438,608
Current Portion of Obligation under capital leases 30,625
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Total Current Liabilities 6,413,354 1,480,488
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<PAGE 3>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Long Term Debt 783,986
Obligations under Capital Leases 25,032
Minority Interest in Subsidiaries (1,318,512)
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Total Liabilities $5,903,860 $ 1,480,488
Shareholders'Equity
Common Stock, $0.001 Par Value $ 234,730 $ 26,674
Authorized: 300,000,000 shares - 06/31/01
40,000,000 shares - 12/31/00
Issued: 234,730,919 - 06/31/01
26,674,135 - 12/31/00
Preferred Stock, $0.001 Par Value, 0 5,000
Authorized: 10,000,000 shares 06/30/01
10,000,000 shares 12/31/00
Issued: No Issuance 06/30/01
5,000,000 12/31/00
Cumulative foreign currency translation adjustment (12,747)
Additional Paid-in Capital 6,646,950 2,104,188
Accumulated Deficit (4,076,347) (3,614,899)
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Total Shareholders' Equity 2,792,586 (1,479,037)
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Total Liabilities and Stockholders' Equity $8,696,445 $ 1,451
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The accompanying notes are an integral part of these financial statements.
<PAGE 4>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Enviro-Energy Corporation
Consolidated Statements of Operations (Unaudited)
For the Three Months Period ended
June 30, 2001 and June 30, 2000
June 30 June 30
STATEMENT OF OPERATIONS 2001 2000
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Sales of services and products $ 1,173,861 $ 101,883
Cost of services and products sold 818,641 83,922
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Gross Profit 355,220 17,961
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Operating expenses:
General and administrative expenses 887,456 68,423
Depreciation, depletion and amortization 192,663 101
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Total Operating Expenses 1,080,119 68,524
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Loss from operations (724,899) (50,563)
Other income (expense):
Interest Income 3,274 0
Interest Expense (75,919) (35,794)
Other 116,737
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Total other expense 44,092 (35,794)
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Loss before Minority interest (680,807) (86,357)
Minority interest in consolidated subsidiary 384,642 0
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Net Loss (296,165) (86,357)
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Basic and fully dilutive loss per share (0.00134) (0.00376)
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Weighted average number of
common shares outstanding 220,311,505 22,961,522
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The accompanying notes are an integral part of these financial statements.
<PAGE 5>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Enviro-Energy Corporation
Consolidated Statements of Operations (Unaudited)
For the Six Months Period ended
June 30, 2001 and June 30, 2000
June 30 June 30
STATEMENT OF OPERATIONS 2001 2000
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Sales of services and products $ 1,579,766 $ 117,784
Cost of services and products sold 1,052,820 139,225
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Gross Profit 526,946 (21,441)
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Operating expenses:
General and administrative expenses 1,147,487 84,849
Depreciation, depletion and amortization 260,431 181
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Total Operating Expenses 1,407,918 85,030
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Loss from operations (880,972) (106,471)
Other income (expense):
Interest Income 4,144 0
Interest Expense (107,817) (69,490)
Other 92,134
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Total other expense (11,539) (69,490)
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Loss before Minority interest (892,511) (175,961)
Minority interest in consolidated subsidiary 430,547 0
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Net Loss (461,964) (175,961)
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Basic and fully dilutive loss per share (0.00353) (0.00766)
============ ===========
Weighted average number of
common shares outstanding 130,702,527 22,961,522
============ ===========
The accompanying notes are an integral part of these financial statements.
<PAGE 6>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
ENVIRO-ENERGY CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
For the Six Months ended June 30, 2001 and 2000
June 30 June 30
STATEMENT OF CASH FLOWS 2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (461,964) $ (175,961)
Adjustment to reconcile net loss to net cash
Used in operating activities:
Depreciation, Depletion, Amortization 260,431 182
Changes in Current Assets & Liabilities:
Contracts receivable and unbilled revenue (2,027,192) (7,725)
Stock Option Fund Receivable (1,250,000)
Inventories (278,772)
Prepaid Expenses (155,863)
Notes and other receivables (143,679)
Accounts Payable 3,171,586 88,171
Payroll and accrued Expenses 686,990
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Net Cash used by operating activities (198,463) (95,333)
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CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property, Plant & Equipment (2,119,760) 0
Acquisition of Goodwill (2,335,827) 0
Acquisition of Minority interest in Subsidiary (1,318,512) 0
Purchase of Investments (338,142)
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Net Cash used from Investing Activities (6,112,241) 0
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CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Preferred Stock (5,000)
Issuance of common shares 208,056
Proceeds from additional Paid-in Capital 4,542,762
Proceeds from long term debt 2,625,498
Proceeds from capital lease obligations 63,410
Proceeds from related party debt 774,020 94,352
Payments of long-term debt (402,903)
Payments of capital lease obligations (7,753)
Payments of related party debt (1,168,963)
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Net Cash provided by financing activities 6,629,127 94,352
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Effect of exchange rate changes in cash (12,747)
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Net Increase (decrease) in Cash 305,676 (981)
Cash and cash equivalents (Beginning of Period) 26 1,503
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Cash and cash equivalents (End of period) $ 305,702 $ 522
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Supplemental disclosures of cash flow information:
Cash paid for interest 111,967 0
The accompanying notes are an integral part of these financial statements.
<PAGE 7>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, June 30, 2001
NOTE 1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. It is suggested that
these financial statements be read in conjunction with the December 31, 2000
audited Financial Statements and the notes thereto for Enviro-Energy
Corporation and Environmental Reclamation, Inc.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company accounts and transactions
have been eliminated on consolidation.
The Company's financial statements present the Company as a going concern,
which contemplates the realization of asset and liquidation of liabilities in
the normal course of business. Without realization of additional capital, it
would be unlikely for the Company to continue as a going concern.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term deposits with
maturity at acquisition of less than 90 days. It also includes restricted
cash deposits expected to be available for use within the next twelve months.
Inventories
Inventories maintained by ERI's Canadian operations consist of humidification
equipment and are stated at the lower of cost or market, determined on a
first-in, first-out basis, and net realizable value. Inventories maintained
by ERI US operations consist of industrial rock and soil and are stated at
the lower of average cost or net realizable value.
Allowance for Losses on Advances and Notes Receivable
Specific allowances are established, as necessary, for impaired advances and
notes receivable.
Investments
Investments in companies over which the Company exercises significant
influence are accounted for by the equity method whereby the Company includes
its proportionate share of earnings and losses of such companies in earnings.
Other long-term investments are recorded at cost and are written down to
their estimated recoverable amount if there is evidence of a decline in
value, which is other than temporary.
<PAGE 8>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Property, Plant and Equipment
Property, plant and equipment are stated at the lower of cost or estimated
net recoverable amount. The cost of property, plant and equipment is
depreciated using the straight-line method based on the lesser of the
estimated useful lives of the assets or the lease term. Buildings have an
estimated life of 20 years and equipment and furniture and fixtures have
depreciable lives ranging from 3 to 10 years. Repairs and maintenance
expenditures are charged to operations as incurred. Major improvements and
replacements, which extend the useful life of an asset, are capitalized and
depreciated over the remaining estimated useful life of that asset. When
assets are retired or sold, the costs and related accumulated depreciation
and amortization are eliminated and any resulting gain or loss is reflected
in operations.
Goodwill
Goodwill represents the excess of the cost of subsidiaries and businesses
over the assigned value of net assets acquired. Goodwill is amortized on a
straight-line basis over its estimated life of 5 to 10 years. The Company
reviews the recoverability of goodwill whenever events or changes in
circumstance indicate that the carrying value may not be recoverable. The
measurement of possible impairment is based primarily on the ability to
recover the balance of the goodwill from expected future operating cash flows
on an undiscounted basis. The amount of any impairment is recorded in
operations.
Foreign Currency Translation
The Company's Canadian and British operations are of a self-sustaining
nature. Assets and liabilities are translated to U.S. dollars at the exchange
rate in effect at the balance sheet date and revenue and expenses at weighted
average exchange rates for the year. Unrealized gains and losses on
translation are reflected in shareholder's equity.
Revenue Recognition
i) Enviro-Energy Corporation
Revenue of this operation is recognized upon the sale and shipment of the
product or the providing of a service to a customer.
ii) ERI Group
Income from long-term contracts is recognized on the percentage-of-completion
basis. The estimated percentage of completion for fixed- price contracts is
based upon the percentage that units or costs incurred bear to total
estimated units or contract costs. If the estimated total cost on any
contract indicates a loss, the total loss on the contract is recognized in
income. Revenues from time and material contracts are recognized as the work
is performed and materials are used. Due to uncertainties inherent in the
estimation process, it is at least reasonably possible that completion costs
and related revenue recognition for long-term contracts could be revised in
the near term. Revenues from other sales are recognized upon shipment.
<PAGE 9>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Income Taxes
The Company accounts for income taxes under the asset and liability method of
accounting for income taxes whereby future tax assets are recognized for
deductible temporary differences and operating loss carry-forwards, and
future income tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the amounts
of assets and liabilities recorded for income tax and financial reporting
purposes. Future income tax assets are recognized only to the extent that
management determines that it is more likely than not that the future income
tax assets will be realized. Future income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment or substantive enactment. The income tax expense or benefit is the
income tax payable or refundable for the period plus or minus the change in
future income tax assets and liabilities during the period.
Net Income (Loss) Per Share
Basic earnings per share is computed by dividing net income or loss (the
numerator) by the weighted-average number of shares during the period (the
denominator). The computation of fully diluted earnings per share is the
same as for basic earnings per share except the denominator is increased to
include the weighted-average additional number of shares that would have been
outstanding if previously granted stock options had been exercised.
Changes in Control of Registrant
On March 1, 2001, the Registrant entered into an agreement and plan of
Business Expansion with Galen Dean Loven, Ph. D. and his associates, Thermal
Products, Inc., a principal shareholder of Registrant's common stock,
shareholders of 5,000,000 outstanding shares of convertible preferred stock
and holders of a series of past due demand notes from Registrant in the total
amount of $1,480,487 representing loans and deferral of rental payments due
on equipment, leaseholds and trade payables, and other shareholders of the
Registrant's common stock. Simultaneously with the execution of this
agreement, the Registrant and Thermal Products and certain of its other
lenders and shareholders, agreed to a plan whereby the Registrant settled all
of its outstanding financial obligations to Thermal Products and other
lenders by the issuance of additional common shares in full satisfaction of
any and all notes and other outstanding obligations. In addition,
shareholders notified the Registrant of their intention to convert all of
their 5,000,000 convertible preferred shares into 75,000,000 shares of common
stock. After the satisfaction of all its present and past due liabilities,
there were a total of 205,345,184 shares of Registrant's common shares then
outstanding, including the shares issued upon the conversion of its preferred
stock.
Upon the acquisition of the 189,294,980 shares of the Registrant's common
stock, Dr. Loven and his associates own a total of 94% of the Registrant's
then issued and outstanding shares. All of the Registrant's directors remain
as directors and it is the intention of Dr. Loven and his associates to
appoint additional directors to the Board in the future.
<PAGE 10>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
NOTE 2. ACQUISITION OF A BUSINESS
On February 28, 2001, Enviro-Energy Corporation concluded an agreement with
Environmental Reclamation, Inc., (ERI), an Ontario, Canada corporation and
several of its shareholders whereby Enviro-Energy Corporation acquired a
total of 6,257,894 shares of ERI's common stock from seven selling
shareholders, representing 51.76% of ERI's total outstanding shares, in
exchange for the issuance of a total of 3,153,743 shares of its authorized
but unissued common stock.
The consolidated statements include the operations of Enviro-Energy
Corporation and 100% of the operations of ERI from March 1, 2001. The
proportion of the operating results, assets and liabilities not owned by
Enviro-Energy Corporation, being 48.24%, are reported as attributable to
minority interest in subsidiary.
ERI management elected a series of one-time charges for the fiscal year 2000
which effectively produced negative shareholder equity. These charges were
related to disputed invoices and contracts and going concern matters. While
these write offs were appropriate for that period, improved operations,
significant advances towards positive settlements of claims, and improved
working capital may have a major, positive effect on the Company and its
financial performance.
The acquisition of ERI has been accounted for using the purchase method, and
accordingly, the consolidated financial statements include the results of
operations of the acquired business from the date of acquisition of the
controlling interest. The purchase price has been allocated to the assets
acquired and the liabilities assumed based upon management's best estimate of
fair values. Given the complexity of the acquired operations, as well as the
short time that has elapsed since acquisition, the cost and the allocation
thereof, of the acquisition is subject to change based upon the final
determination of those estimates. However, management is of the opinion that
the final determination of the estimates will not have a material impact on
the financial position or results of operations of the Company.
Therefore, the Company anticipates that it may reassess how the acquisition
is posted to the books of the Company during the second half of this fiscal
year. Such revisions may, in addition to increasing working capital, reduce
good will and increase the net worth of the Company.
NOTE 3. RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30,2001 TO THE THREE MONTHS ENDED JUNE
30, 2000:
Revenues for the second quarter of 2001 increased to $1,173,861 from $101,883
for the second quarter of 2000.
The Company recorded a net loss of $296,165 or a loss of $.00134 per share
in the second quarter of 2001. This is in comparison to the second quarter
of 2000 in which there was a loss of $86,357 or a loss of $.0038 per share.
<PAGE 11>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Cost of sales increased to $818,641 for the second quarter of 2001 compared
to $83,922 for the second quarter of 2000. All of the costs of sales in the
second quarter of 2001 were attributable to ERI.
The Company's consolidated gross margin was 30% in the second quarter of
2001. There is no comparison to 2000 when Enviro-Energy Corporation was still
a Development Stage Company.
Administration expenditures increased in the second quarter of 2001 to
$887,456 compared to $68,423 for quarter ended June 30, 2000. In the second
quarter of 2001 ERI's administrative cost were $585,275; Enviro-Energy's
operations accounted for $302,181 of the administration costs.
Depreciation of equipment and amortization of goodwill increased to $192,663
in the second quarter of 2001 due to the acquisition of ERI and its fixed
asset base, and due to the amortization of the goodwill arising on the
acquisition of ERI.
Interest on short and long-term borrowing increased to $75,919 in the second
quarter of 2001 from $35,794 in the second quarter of 2000 due principally to
increased borrowings resulting from the ERI acquisition.
Other income increased to $116,737 in the second quarter of 2001 compared to
$0 in the second quarter of 2000, due to recognition of income from an
investment of ERI's reported using the equity method.
COMPARISON OF SIX MONTHS ENDED JUNE 30,2001 TO THE SIX MONTHS ENDED JUNE 30,
2000:
Revenues for the six months ended June 30, 2001 increased to $1,579,766 from
$117,784 for the six months ended June 30, 2000.
The Company recorded a net loss of $461,964 or a loss of $.00353 per share
for the six months ended June 30, 2001. This is in comparison to the six
months ended June 30, 2000 in which there was a loss of $175,961 or a loss of
$.0077 per share.
Cost of sales increased to $1,052,820 for the six months ended June 30, 2001
compared to $139,225 for the six months ended June 30, 2000. Cost of sales
for 2001 in the amount of $2,019 were attributable to Enviro-Energy, with the
remainder attributable to ERI.
The Company's consolidated gross margin was 33% for the six months ended June
30, 2001. There is no comparison to 2000 when Enviro-Energy Corporation was
still a Development Stage Company.
Administration expenditures increased for the six months ended June 30, 2001
to $1,147,487 compared to $84,849 for the six months ended June 30, 2000.
Administration costs for 2001 in the amount of $758,543 were attributable to
ERI; whereas, Enviro-Energy's operations accounted for $388,944 of the
administration costs.
<PAGE 12>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Depreciation of equipment and amortization of goodwill increased to $260,430
for the six months ended June 30, 2001 due to the acquisition of ERI and its
fixed asset base, and due to the amortization of the goodwill arising on the
acquisition of ERI.
Interest on short and long-term borrowing increased to $107,817 for the six
months ended June 30, 2001 from $69,490 for the six months ended June 30,
2000 due principally to increased borrowings resulting from the ERI
acquisition.
Other income increased to $92,134 for the six months ended June 30, 2001
compared to $0 for the six months ended June 30, 2000, due to recognition of
income from an investment of ERI's reported using the equity method.
NOTE 4. LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent balances increased to $305,702 at June 30, 2001 from
$26 at December 31, 2000. The increase is primarily due to the consolidation
of ERI's cash balances at June 30, 2001.
Accounts receivable increased to $2,028,617 due to the acquisition of ERI.
Enviro-Energy has no outstanding receivables at June 30, 2001.
Inventories increased to $278,772 at June 30, 2001 due to ERI's acquisition.
Enviro-Energy does not carry inventories at this time.
Stock Option Funds Receivable increased to $1,250,000 at June 30, 2001 due to
the Non-Qualified Stock Option Agreement effective May 30, 2001.
Notes Receivable increased to $143,679 due to ERI's acquisition.
Prepaid Expenses increased to $155,863 due to ERI's acquisition.
Property, plant, and equipment increased to $1,937,740 due to the ERI's
acquisition.
The company had no formal capital commitments at June 30, 2001.
Goodwill increased to $2,257,930 at June 30, 2001 due to ERI's acquisition.
Investments increased to $338,142 due to ERI's investment of $165,642 and
Enviro-Energy's investment of $172,500 in unconsolidated entities.
Accounts payable and accrued liabilities increased to $4,171,481 at June 30,
2001 from $312,905 at December 31, 2000; $3,978,361 attributable to ERI and
$193,120 attributable to Enviro-Energy.
Notes payable to related parties decreased to $772,640 at June 30, 2001 from
$1,167,583 at December 31, 2000 primarily due to the issuance of common stock
in March 2001 in satisfaction of the balances owed at December 31, 2000.
Current portion of Long-term debt increased to $1,438,608 due to ERI's
acquisition.
<PAGE 13>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Current portion of capital lease obligations increased to $30,625 due to
ERI's acquisition.
Long-term debt of $783,986 were owed as of June 30, 2001, which are
attributable to ERI's acquisition.
Capital lease obligations at June 30, 2001 are attributed to ERI's
acquisition is $25,032.
Minority interest of $(1,318,512) is attributable to the acquisition of ERI.
Common stock increased $234,730 at June 30, 2001 compared to $26,674 at
December 31, 2000 due to the issuance of 208,056,784 shares since December
31, 2000; 28,838,827 of which were issued during the second quarter of 2001.
Preferred stock at June 30, 2001 is zero value. The $5,000 balance at
December 31, 2000 was converted to common stock in January 2001.
Paid in capital increased $2,143,622 during the second quarter of 2001 to a
total of $6,646,950. This is in comparison to $2,104,188 at December 31,
2000.
The currency adjustment increased to $(12,747) at June 30, 2001 due to the
foreign currency fluctuations of one of ERI's consolidated subsidiaries.
Cash flow used by Operational Activities totaled $198,463 for the six months
ended June 30, 2001.
Investment Activities during the six months ended June 30, 2001 used
$6,112,241.
Cash flow from Financing Activities resulted in a total source of $6,629,127
for the six months ended June 30, 2001.
Total net sources of cash for the six months ended June 30, 2001 was
$305,676.
There was a total ending cash and cash equivalents balance of $305,702 at
June 30, 2001.
<PAGE 14>
ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS OF PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and notes thereto included elsewhere in this
Form 10-Q. Except for historical information contained herein, the
discussion in this Form 10-Q contains certain forward looking statements that
involve the risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions. The cautionary statements
made in this Form 10-Q should be read as being applicable to all related
forward-looking statements wherever they appear in this Form 10-Q. These
statements include, without limitation, statements concerning potential
operations and results of the company and information relating to Year 2001
matters, described below. The company's actual results could differ
materially from those discussed herein. Factors that could cause or
contribute to such differences include, without limitation, to those factors
discussed herein and in the Company's Form 10-SB for the year ending December
31, 2000.
In February of this year the Company announced that it was reviewing ways to
expand its scope of operations, taking advantage of its history and base in
environmentally sensitive technologies. Within six weeks, by the end of the
first quarter, the Company had developed a strategy to acquire companies
within the environmental sector, recruited senior management, and booked
record sales for the quarter. Fulfilling a management commitment to ensure
that the name of the company accurately reflected its new business focus, a
name change to Enviro-Energy Corporation (OTCBB: ENGY) was effected on July
3, 2001.
The pattern of fast growth and rapid execution of plans continued in the
second quarter. Once again the Company has booked record sales. Sales
should increase by at least 200% again in the third quarter. Expected losses
were within budgeted parameters and considerably lower than losses typically
incurred by companies in the early stages of an aggressive merger and
acquisition program. Operations are strengthening and the Company enters the
third quarter ready to capture more business in remediation and reclamation
work for the extractive industries - mining, oil and chemicals.
While organizing the launch of the new Company initiative, several major
benchmarks were achieved during the four months from February such as:
- - purchase of IESCRETE(r), a proprietary process for encapsulating and
stabilizing hazardous materials in soils
- - purchase of control of Environmental Reclamation Inc., a company
specializing in design-to-build environmental remediation and reclamation
services
- - launching of a proprietary bio-remediation technology to treat Chromium VI
in-situ and the award of a significant pilot remediation contract with the
City of Glasgow, Scotland
- - award of a major engineering and design contract for a large harbor clean
up in Scotland
<PAGE 15>
(PART I. ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS . . . CONTINUED)
- - award of a one year DOE, EPA sponsored full field test for the use of
IESCRETE(r) for mining tailings capping
- - agreement to purchase Energy Flow Management Inc., a developer of patented
technology for treating organic wastes
- - agreement to acquire Western Construction and Equipment, an operator of a
specialized landfill
- - launching of the patented Hydrafreezer, with its manufacturing prototype
significantly completed
- - expansion of United Kingdom operations with the award of a complex
hydrocarbon/chromium VI mixed waste remediation project in Scotland
- - establishment of remediation baseline revenue with the award of a $12mm, 3
year contract to remediate lead contamination in a northern Idaho
community.
Upon completion of the acquisition of control of Environmental Reclamation
Inc. (ERI) the Company sought acquisitions in all sectors of the industry.
From this broad based approach we expected a defined and concentrated pattern
would develop and that the Company would become more focused in its
endeavors. We had not anticipated this sharpened vision crystallizing
before 2002. However, consistent with our pattern of fast developments, a
planned acquisition coupled with sudden developments in both environmental
and energy sectors (such as a deregulated electrical industry in California
and aggressive moves by federal and state environmental agencies to curtail
or eliminate farm animal pollution), placed the Company squarely in the
middle of a major opportunity to bring innovative and compelling cost
effective solutions to the serious agricultural waste problem while
generating "green" electricity.
The months of May, June and July were intense as management invested its
scarce resources on completing a comprehensive and intensified plan designed
to take the Company well into the next decade. The results of these efforts
were the completion of the acquisition of Energy Flow Management Inc (EFMI)
with its patent granted Advanced Anaerobic Digestion System, the design of
the proprietary Enviro-Energy(c) Bio-Waste-to-Energy System, and the change
of the name of the Company to Enviro-Energy Corporation.
Enviro-Energy Corporation is clearly centered on resolving and economically
satisfying the most essential needs of our society - treating environmental
wastes streams caused by our need to eat, and providing energy to meet the
demands of our growing population without increasing harm to our environment.
The Company is organized to maximize synergies, internal growth, and use of
assets. In particular the Company seeks to balance growth of sales in
remediation and reclamation sectors with strong long-term assets and cash
flows derived from waste-to-energy and other environmental sector facilities.
<PAGE 16>
(PART I. ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS . . . CONTINUED)
Enviro-Energy Corporation is now organized with three major initiatives
(operating units):
A. ENVIRO-ENERGY(c) Systems
------------------------
This is a potentially high cash flow, net operating profit business focused
on converting biomasses into electrical energy and saleable by-products. The
Company is employing its own patented Advanced Anaerobic Processing
Technology, to develop, own and operate distributed waste-to-energy systems
placed throughout the agricultural community.
Producers of animal based agricultural products such as beef, hogs, dairy and
poultry are struggling to meet increasingly stringent environmental controls.
Pressure on water supplies and control of used water, in addition to
increases in energy and heat costs, further intensifies problems in these
industries. For example, the majority of the dairy industry in California
is currently out of compliance with existing environmental regulations,
facing water shortages and staggering increases in utility rates.
There are a number of factors currently affecting rapid exploitation of this
resource:
- - many farm sizes are usually too small to justify conversion systems
- - transportation, permitting and community impacts restrict large-scale
collection and processing centers
- - farmers are not willing to invest in, manage or maintain waste processing
systems
- - utilities are generally unwilling to encourage or allow small electrical
producers to sell into their systems due to irregular output and cost of
maintenance.
The ENVIRO-ENERGY(c) skid-mounted animal waste to electrical energy system
provides an immediate remedy to these issues without additional investment by
the farmer nor extensive and complex permitting. The Company will build, own
and maintain systems designed specifically to transform animal waste into
electrical energy while recycling water and producing saleable by-products
such as fertilizer and potting soils. Enviro-Energy Corporation will derive
its revenues from the sale of power, by-products and water reclamation.
B. Brownfield Development
----------------------
Using in house technology and engineering expertise the Company will acquire,
remediate/treat and develop contaminated properties. Proceeds (either
through equity based financing or resale) of developed/permitted properties
will be used to expand holdings and operations in this sector.
<PAGE 17>
(PART I. ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS . . . CONTINUED)
Brownfields are properties that have been taken out of use due to
environmental contamination. Until recently EPA rules concerning financial
responsibilities made treating and remediating these properties virtually
impossible. During the last two years regulations have been altered to
delineate owner responsibilities and encourage clean up and reuse of
brownfield properties. However, brownfield remediation requires a
comprehensive approach to the clean up process. Still highly fragmented, the
environmental industry as a whole is not prepared to address this
opportunity. Enviro-Energy Corporation, through its unique industry
consolidation model, has, and continues to build a full service, design-to-
build capability.
C. Operating Environmental Remediation and Reclamation
---------------------------------------------------
and Related Technologies
------------------------
Rapid growth of sales and operating profits, acquisitions of advanced
technologies and engineering skills, are managed within this operating unit.
Cash flows from operations will be allocated for growth and development of
longer-term assets such as waste-to-energy plants. Specialized skills and
resources from this unit are used in the build-outs and management of waste-
to-energy plants and brown field development. The unit continues to develop
and earn income of a recurring nature from its existing blue chip client
base. The effect of this strategy is to increase the range and depth of
company resources while increasing profit and cash flow through
vertical/horizontal integration of critical services, skills and technology.
Planned mergers and acquisitions are being restructured and re-evaluated in
the light of our enhanced vision and plan. We are shaping these activities
to strengthen our immediate "roll out" capabilities with the Enviro-Energy(c)
Waste-to-Energy System, and broaden our brownfield remediation resources.
The Company remains committed to strong growth through a combination of
acquisitions and internal growth. As many of our growth opportunities are
now asset based, strong cash flow situations, we are actively pursuing more
conventional lines of asset-based lending to fund our growth with a minimum
of impact on our issued equity base. Our Enviro-Energy(c) Waste-to-Energy
System, with estimated pay-backs on investment of less than five years, is
ideally suited for this type of financing. Brownfields are well suited to
joint ventures with real estate developers in which the developer provides
capital and redevelopment expertise and Enviro-Energy provides remediation
and treatment resources. The Company anticipates positive developments in
both of these sectors during the third quarter of this year.
The third quarter is expected to reflect a continuation of our fast pace of
growth and maturation. Revenues will continue to grow, estimated at
$3,200,000. We anticipate adding management resources and capital.
Management is focused on solidifying opportunities in its Enviro-Energy(c)
Waste-to-Energy Systems and retooling its merger and acquisition strategy to
strengthen the Company's major business opportunity. We anticipate that the
third quarter will prove pivotal in establishing the foundation the Company
needs as it seeks to become a leader in providing creative, profitable and
environment friendly solutions to the pressures of our growing population.
<PAGE 18>
(PART I. ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS . . . CONTINUED)
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ERI is in dispute with a major mining company over the construction and
operation of a mine waste water project in the western United States. This
dispute is the subject of ongoing legal action in the appropriate District
Court. While management is highly confident of recovering a considerable sum
at the conclusion of the legal action, ERI has, in a previous period's
financial statements, made substantial provisions against the sums owed.
Further, management is of the opinion that there are no material additional
provisions required for costs or claims associated with this case. In the
event that ERI is successful in its legal claim, there would be a substantial
benefit to the Company's current assets, a reduction in the amount of
goodwill carried, and potentially, a benefit to net income should the
settlement be in excess of what has been reserved.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
During June 2001, there were 27,838,828 shares of common stock issued to
Coldwater Capital LLC under the terms of the Consulting and Marketing License
Agreement and the Non-Qualified Stock Option Agreement, both dated and
effective May 30, 2001.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed for the three months ended June 30, 2001. A
Company Name Change was approved in the 2nd quarter of the year 2001 and was
processed by the State of Delaware on July 3, 2001. Following is a copy of
the Certificate of Amendment.
<PAGE 19>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
ThermaFreeze, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of ThermaFreeze, Inc., resolutions
were duly adopted setting forth a proposed amendment of the Certificate of
Incorporation of said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the Article thereof numbered "ONE (1)" so that, as
amended, said Article shall be and read as follows:
The corporation name of ThermaFreeze Inc. shall change to Enviro-Energy
Corporation.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and
held upon notice in accordance with Section 222 of the General Corporation
Law of the State of Delaware at which meeting the necessary number of shares
as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or
by reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed
by Thomas Pryor, an Authorized Officer, this 3rd day of July, 2001.
By: /s/ Thos Pryor
---------------
Authorized Officer
THOMAS PRYOR
Chief Financial Officer
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:08 PM 07/03/2001
010322232-2503280
<PAGE 20>
PART III. SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON BEHALF OF THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
ENVIRO-ENERGY CORPORATION
- -------------------------
Date: August 10, 2001
By:/s/ Galen D. Loven
- ----------------------
GALEN DEAN LOVEN, Chairman
By: /s/ Thomas Pryor
- -----------------------
THOMAS PRYOR, CFO
<PAGE 21>