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 September 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 240,830,919 shares of the Issuer's Common Stock outstanding and no
Preferred Stock outstanding as of September 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 September 30,2001
And December 31, 2000 Page 3
Consolidated Statements of Operations for the Three
Months Period Ended September 30, 2001 and 2000 Page 5
Consolidated Statements of Operations for the Nine
Months Period Ended September 30, 2001 and 2000 Page 6
Consolidated Statements of Cash Flow for the Nine Months
Ended September 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 17
ITEM 1. LEGAL PROCEEDINGS Page 17
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Page 17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES Page 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE Page 17
ITEM 5. OTHER INFORMATION Page 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page 17
PART III. SIGNATURES Page 18
<PAGE 2>
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
ENVIRO-ENERGY CORPORATION
Consolidated Balance Sheets (Unaudited)
September 30, 2001 and December 31, 2000
September 30, December 31
2001 2000
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ASSETS
Current Assets:
Cash and Cash Equivalents $ 77,213 $ 26
Accounts receivable, net of $52,172 allowance 2,059,866 1,425
Unbilled revenue, net of $2,145,339 allowance 692,086
Receivables from related parties,
Net of $245,000 allowance 260,774
Inventories 219,029
Equipment held for sale 78,524
Stock Option Funds Receivable 650,000
Notes and other receivables 55,151
Income Taxes Recoverable 24,085
Prepaid Expense 96,017
Deferred Income Taxes 64,930
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Total Current Assets $4,277,675 $ 1,451
Property, Plant, and Equipment - at cost
Net of accumulated depreciation of $1,978,841 1,826,107
Goodwill - at cost
Net of accumulated amortization of $77,897 2,198,685
Investment - at cost 418,800
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Total Assets $8,721,267 $ 1,451
=========== ===========
LIABILITIES
Current Liabilities:
Accounts Payable $3,432,139 $ 312,905
Payroll and accrued liabilities 375,816
Accounts payable to related parties 94,822
Factoring payable 606,929
Notes Payable to related parties 1,006,010 1,167,583
Current Portion of long-term debt 1,077,595
Current Portion of Obligation under capital leases 29,597
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Total Current Liabilities 6,622,908 1,480,488
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<PAGE 3>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Long Term Debt 633,983
Obligations under Capital Leases 19,428
Minority Interest in Subsidiaries (1,339,420)
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Total Liabilities $5,936,900 $ 1,480,488
Shareholders'Equity
Common Stock, $0.001 Par Value $ 240,830 $ 26,674
Authorized: 300,000,000 shares - 09/30/01
40,000,000 shares - 12/31/00
Issued: 240,830,919 - 09/30/01
26,674,135 - 12/31/00
Preferred Stock, $0.001 Par Value, 0 5,000
Authorized: 10,000,000 shares 09/30/01
10,000,000 shares 12/31/00
Issued: No Issuance 09/30/01
5,000,000 12/31/00
Cumulative foreign currency translation adjustment (30,245)
Additional Paid-in Capital 6,691,850 2,104,188
Accumulated Deficit (4,118,068) (3,614,899)
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Total Shareholders' Equity 2,784,367 (1,479,037)
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Total Liabilities and Stockholders' Equity $8,721,267 $ 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
September 30, 2001 and September 30, 2000
Sept. 30 Sept. 30
STATEMENT OF OPERATIONS 2001 2000
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Sales of services and products $ 2,993,442 $ 25,514
Cost of services and products sold 1,982,720 0
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Gross Profit 1,010,722 25,514
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Operating expenses:
General and administrative expenses 780,276 64,749
Research & Development 60,795 71,592
Depreciation, depletion and amortization 193,634 0
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Total Operating Expenses 1,034,705 136,341
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Profit/(Loss) from operations (23,983) (110,827)
Other income (expense):
Interest Income 1,826 0
Interest Expense (130,125) (36,109)
Other 57,942
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Total other expense (70,357) (36,109)
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Loss before Minority interest (94,340) (146,936)
Minority interest in consolidated subsidiary 20,908 0
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Net Loss (73,432) (146,936)
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Basic and fully dilutive loss per share (0.00031) (0.00613)
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Weighted average number of
common shares outstanding 238,797,586 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 Nine Months Period ended
September 30, 2001 and September 30, 2000
Sept. 30 Sept 30
STATEMENT OF OPERATIONS 2001 2000
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Sales of services and products $ 4,573,208 $ 143,298
Cost of services and products sold 3,035,540 0
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Gross Profit 1,537,668 143,298
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Operating expenses:
General and administrative expenses 1,927,763 203,974
Research & Development 60,795 156,441
Depreciation, depletion and amortization 454,065 181
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Total Operating Expenses 2,442,623 360,596
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Loss from operations (904,955) (217,298)
Other income (expense):
Interest Income 5,970 0
Interest Expense (237,942) (105,599)
Other 150,076
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Total other expense (81,896) (105,599)
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Loss before Minority interest (986,852) (322,897)
Minority interest in consolidated subsidiary 451,455 0
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Net Loss (535,397) (322,897)
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Basic and fully dilutive loss per share (0.0029) (0.01348)
============ ===========
Weighted average number of
common shares outstanding 184,750,056 23,960,888
============ ===========
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 Nine Months ended September 30, 2001 and 2000
Sept 30 Sept 30
STATEMENT OF CASH FLOWS 2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (535,397) $ (322,897)
Adjustment to reconcile net loss to net cash
Used in operating activities:
Depreciation, Depletion, Amortization 454,065 181
Changes in Current Assets & Liabilities:
Contracts receivable and unbilled revenue (3,043,529) (4,872)
Stock Option Fund Receivable (650,000)
Inventories (297,553)
Prepaid Expenses (96,017)
Notes and other receivables (144,166)
Accounts Payable 3,214,055 152,847
Payroll and accrued Expenses 375,816
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Net Cash used by operating activities (722,726) (174,741)
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CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Property, Plant & Equipment (2,143,851) 0
Acquisition of Goodwill (2,335,827) 0
Acquisition of Minority interest in Subsidiary (1,339,420) 0
Purchase of Investments (214,590)
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Net Cash used from Investing Activities (6,033,688) 0
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CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of Preferred Stock (5,000)
Issuance of common shares 214,156 31,800
Proceeds from additional Paid-in Capital 4,587,662
Proceeds from long term debt 2,400,468
Proceeds from capital lease obligations 63,410
Proceeds from related party debt 866,265 154,652
Proceeds from Factoring 1,828,370
Payments of long-term debt (688,076)
Payments of capital lease obligations (14,385)
Payments of related party debt (1,167,583)
Payments on factoring payable (1,221,441)
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Net Cash provided by financing activities 6,863,846 186,452
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Effect of exchange rate changes in cash (30,245)
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Net Increase (decrease) in Cash 77,187 11,711
Cash and cash equivalents (Beginning of Period) 26 1,503
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Cash and cash equivalents (End of period) $ 77,213 $ 13,214
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Supplemental disclosures of cash flow information:
Cash paid for interest 215,939 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, September 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.
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.
<PAGE 10>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
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 SEPTEMBER 30,2001 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000:
Revenues for the third quarter of 2001 increased to $2,993,442 from $25,514
for the third quarter of 2000.
The Company recorded a net loss of $73,432 or a loss of $.00031 per share in
the third quarter of 2001. This is in comparison to the third quarter of
2000 in which there was a loss of $146,936 or a loss of $.00613 per share.
Cost of sales increased to $1,982,720 for the third quarter of 2001 compared
to $0 for the third quarter of 2000. All of the costs of sales in the third
quarter of 2001 were attributable to ERI.
The Company's consolidated gross margin was 34% in the third quarter of 2001.
There is no comparison to 2000 when Enviro-Energy Corporation was still a
Development Stage Company.
Administration expenditures increased in the third quarter of 2001 to
$780,276 compared to $64,749 for the quarter ended September 30, 2000. In
the third quarter of 2001 ERI's administrative cost were $503,632; Enviro-
Energy's operations accounted for $276,644 of the administration costs.
Research and Development expenditures decreased in the third quarter of 2001
to $60,795 compared to $71,592 for the quarter ended September 30, 2000. All
of the research and development expenditures are attributable to Enviro-
Energy.
Depreciation of equipment and amortization of goodwill increased to $193,634
in the third 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.
<PAGE 11>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Interest on short and long-term borrowing increased to $130,125 in the third
quarter of 2001 from $36,109 in the third quarter of 2000 due principally to
increased borrowings resulting from the ERI acquisition.
Other income increased to $57,942 in the third quarter of 2001 compared to $0
in the third quarter of 2000, due to recognition of income from an investment
of ERI's reported using the equity method.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30,2001 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
Revenues for the nine months ended September 30, 2001 increased to $4,573,208
from $143,298 for the nine months ended September 30, 2000.
The Company recorded a net loss of $535,397 or a loss of $.0024 per share
for the nine months ended September 30, 2001. This is in comparison to the
nine months ended September 30, 2000 in which there was a loss of $322,897 or
a loss of $.01348 per share.
Cost of sales increased to $3,035,540 for the nine months ended September 30,
2001 compared to $0 for the nine months ended September 30, 2000. All of the
costs of sales in the third quarter of 2001 were attributable to ERI.
The Company's consolidated gross margin was 34% for the nine months ended
September 30, 2001. There is no comparison to 2000 when Enviro-Energy
Corporation was still a Development Stage Company.
Administration expenditures increased for the nine months ended September 30,
2001 to $1,927,763 compared to $203,974 for the nine months ended September
30, 2000. Administration costs for 2001 in the amount of $1,262,174 were
attributable to ERI; whereas, Enviro-Energy's operations accounted for
$665,589 of the administration costs.
Research and Development expenditures decreased for the nine months ended
September 30, 2001 to $60,795 compared to $156,441 for the nine months ended
September 30, 2000. All of the research and development expenditures are
attributable to Enviro-Energy.
Depreciation of equipment and amortization of goodwill increased to $454,065
for the nine months ended September 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 $237,942 for the nine
months ended September 30, 2001 from $105,599 for the nine months ended
September 30, 2000 due principally to increased borrowings resulting from the
ERI acquisition.
Other income increased to $150,076 for the nine months ended September 30,
2001 compared to $0 for the nine months ended September 30, 2000, due to
recognition of income from an investment of ERI's reported using the equity
method.
<PAGE 12>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
NOTE 4. LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalent balances increased to $77,213 at September 30, 2001
from $26 at December 31, 2000. The increase is primarily due to the
consolidation of ERI's cash balances at September 30, 2001.
Accounts receivable and unbilled revenue increased to $3,012,726 due to the
acquisition of ERI. Enviro-Energy has no outstanding receivables at
September 30, 2001.
Inventories increased to $297,553 at September 30, 2001 due to ERI's
acquisition. Enviro-Energy does not carry inventories at this time.
Stock Option Funds Receivable increased to $650,000 at September 30, 2001 due
to the Non-Qualified Stock Option Agreement effective May 30, 2001.
Notes Receivable increased to $55,151 due to ERI's acquisition.
Prepaid Expenses increased to $96,017 due to ERI's acquisition.
Property, plant, and equipment increased to $2,198,685 due to the ERI's
acquisition.
The company had no formal capital commitments at September 30, 2001.
Goodwill increased to $2,198,685 at September 30, 2001 due to ERI's
acquisition.
Investments increased to $418,800 due to ERI's investment of $246,300 and
Enviro-Energy's investment of $172,500 in unconsolidated entities.
Accounts payable and accrued liabilities increased to $3,902,777 at September
30, 2001 from $312,905 at December 31, 2000; $3,870,326 attributable to ERI
and $32,451 attributable to Enviro-Energy.
Factoring payable increased to $606,929 at September 30, 2001 from $0 at
December 31, 2000 due to ERI's necessity to obtain financing of its accounts
receivable.
Notes payable to related parties decreased to $1,006,010 at September 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, partially offset by additional current year financing proceeds.
Current portion of Long-term debt increased to $1,077,595 due to ERI's
acquisition.
Current portion of capital lease obligations increased to $29,597 due to
ERI's acquisition.
<PAGE 13>
(PART I. FINANCIAL INFORMATION, ITEM 1 - CONSOLIDATED FIN'L STMTS. CONT.)
Long-term debt of $633,983 were owed as of September 30, 2001, which are
attributable to ERI's acquisition.
Capital lease obligations at September 30, 2001 are attributed to ERI's
acquisition is $19,428.
Minority interest of $(1,339,420) is attributable to the acquisition of ERI.
Common stock increased to $240,830 at September 30, 2001 compared to $26,674
at December 31, 2000 due to the issuance of 213,156,784 shares since December
31, 2000; 5,100,000 of which were issued during the third quarter of 2001.
Preferred stock at September 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 $44,900 during the third quarter of 2001 to a total
of $6,691,850. This is in comparison to $2,104,188 at December 31, 2000.
The currency adjustment increased to $(30,245) at September 30, 2001 due to
the foreign currency fluctuations of one of ERI's consolidated subsidiaries.
Cash flow used by Operational Activities totaled $722,726 for the nine months
ended September 30, 2001.
Investment Activities during the nine months ended September 30, 2001 used
$6,033,688.
Cash flow from Financing Activities resulted in a total source of $6,863,846
for the nine months ended September 30, 2001.
Total net sources of cash for the nine months ended September 30, 2001 was
$77,187.
There was a total ending cash and cash equivalents balance of $77,213 at
September 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.
The third quarter was an extraordinary period for all public companies,
especially those like Enviro-Energy with strong relationships in New York.
We believe that the effects of September 11th will be felt for many months to
come, creating the need to reassess development strategies and planned
capital activities.
Revenues for the quarter were within 5% of forecast, a strong achievement in
a year which has seen even more sudden changes in environmental remediation
and reclamation work than normal. We directed a substantial amount of
corporate resources to developing opportunities in our recently acquired
business, Energy Flow Management, Inc. (EFMI) and its newly patented
technologies for converting bio masses to energy. In particular we have been
able to develop a process which will transform farm animal waste such as that
generated by dairies and hog farms, at the farm location in an odor free
process, creating useful products such as electricity and green fertilizer.
The need to resolve farm animal pollution has become critical as traditional
methods are failing and urbanization presses against once removed farmlands.
The demand for farm produce (meat, eggs, dairy) grows with our population.
Yet the space for producing farms becomes more limited and tolerance for
animal pollution has reached zero.
The market for technology capable of resolving this problem must be measured
in hundreds of millions of dollars. Recent advances in small system gas-to-
energy systems have made it possible for EFMI to tailor its patented
anaerobic digester systems to individual farms. Proprietary systems, plus an
unique owner/operator approach is expected to give the Company a quick launch
into this industry. As proof of the compelling solutions the Company
provides, three system orders were received within 4 weeks of product
announcement. More will follow as we get these systems operating and
establish consistent lines of capital.
<PAGE 15>
(PART I. ITEM 2 - MANAGEMENT DISCUSSION & ANALYSIS . . . CONTINUED)
As owner/operators we must seek ways to pay for these systems. Payback
periods are very short (less than five years), with long expected life
cycles. Therefore we expect to finance these systems through a combination
of conventional debt, joint ventures and municipal bonds. The Company
believes that concentrating on this very strong market will provide
sustainable cash flows and substantial internal growth without heavy reliance
on prevailing stock market conditions. We continue to evaluate acquisition
opportunities with a view to being ready to advance the Company quickly once
market conditions support these activities.
Fourth quarter revenues will be affected by factors like weather. We are
nearing the slow period for remediation services and will continue as long as
weather permits. In the meantime we continue to drive the Company forward in
a flexible and realistic manner, working with the tools we have available to
build a strong and enduring company.
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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
There were 5,100,000 Shares issued in the 3rd Quarter 0f 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 nine months ended September 30,
2001.
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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: November 14, 2001
By:/s/ Galen D. Loven
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GALEN DEAN LOVEN, Chairman
By: /s/ Thomas Pryor
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THOMAS PRYOR, CFO
<PAGE 18>