UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[X] Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the quarterly period ending March 31, 2006
[_] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
For the transition period from ______________ to _____________
ECOLOCLEAN INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0420750
------------------------ ------------------------
(State of incorporation) (IRS Employer ID Number)
2242 South Hwy #83, Crystal City, TX 78839
(Address of principal executive offices)
(830) 374-9100
(Issuer's telephone number)
Securities registered under Section 12 (b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - $0.001 par value
Check whether the issuer has (1) filed all reports required to be files by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2of the Exchange Act. Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 31, 2006, there were 55,430,085 shares of Common Stock issued and
outstanding.
Transitional Small Business Disclosure Format : Yes No X
--- ---
ECOLOCLEAN INDUSTRIES, INC.
FORM 10-QSB
INDEX
Page
PART I - Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2006, and December 31, 2005.......................... 3-4
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2006 and 2005............. 5
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2006 and 2005............. 6-7
Notes to Condensed Consolidated Financial Statements........... 8-11
Item 2 - Management's Discussion and Analysis or Plan of Operation...... 12-15
Item 3 - Controls and Procedures........................................ 16-17
PART II - Other Information
Item 1 - Legal Proceedings ............................................. 17
Item 2 - Changes in Securities and Use of Proceeds...................... 18
Item 3 - Defaults Upon Senior Securities................................ 18
Item 4 - Submission of Matters to a Vote of Security Holdings........... 18
Item 5 - Other Information.............................................. 18-19
Item 6 - Exhibits and Reports on Form 8K ............................... 19
Signature............................................................... 19
-2-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2006 December 31, 2005
----------------- -----------------
(Unaudited) (Restated)
Current Assets:
Cash $ 3,921 $ 8,649
Accounts Receivable 103,283 100,839
Inventory 175,004 76,091
Prepaid Expenses 65,102 44,594
Current Portion of Assets
Of Discontinued Operations 56,605 58,520
----------------- -----------------
Total Current Assets 403,915 288,693
----------------- -----------------
Property Plant and Equipment, Net 359,073 364,130
----------------- -----------------
Other Assets:
Deposits 6,450 6,450
License & Trademark Costs (Net) 11,436 12,836
Patent 480,000 0
Goodwill 310,696 310,696
----------------- -----------------
Total Other Assets 808,582 329,982
----------------- -----------------
Total Assets $ 1,571,570 $ 982,805
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-3-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
March 31, 2006 December 31, 2005
----------------- -----------------
(Unaudited) (Restated)
Current Liabilities:
Current Maturities-Notes and
Loans Payable $ 489,023 $ 198,161
Accounts Payable and Accrued Expenses 1,397,693 1,225,212
Current Portion of Liabilities
Of Discontinued Operations 114,990 117,220
----------------- -----------------
Total Current Liabilities 2,001,706 1,540,593
Long-Term Debt 12,665 15,494
Due to Related Parties 1,396,720 1,302,085
----------------- -----------------
Total Liabilities 3,411,091 2,858,172
----------------- -----------------
Commitments and Contingencies -- --
Stockholders' (Deficit):
Preferred Stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common Stock, $.001 par value per share,
100,000,000 shares authorized; 51,600,085
shares issued and outstanding December
31, 2005; 55,430,085 shares issued and
outstanding March 31, 2006 5,543 5,160
Additional Paid-in Capital 5,788,531 5,358,581
Accumulated (Deficit) (7,633,595) (7,239,108)
----------------- -----------------
Total Stockholders' (Deficit) (1,839,521) (1,875,367)
----------------- -----------------
Total Liabilities and
Stockholders' (Deficit) $ 1,571,570 $ 982,805
================= =================
See Accompanying Notes to Condensed Consolidated Financial Statements
-4-
ECOLOCLEAN INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
-------------- --------------
(Restated)
Revenues: $ 65,600 $ 0
-------------- --------------
Expenses:
Cost of Sales 79,245 0
Operating Expenses 20,736 54,254
Depreciation & Amortization 11,932 23,256
Interest 24,788 30,335
Officer's Salary 52,500 30,000
Selling, General and Administrative 265,351 272,194
-------------- --------------
Total Expenses 454,552 410,039
-------------- --------------
Net (Loss) From Continuing Operations (388,952) (410,039)
Net (Loss) From Discontinued Operations (5,535) (129,061)
-------------- --------------
Net (Loss) $ (394,487) $ (539,100)
============== ==============
Net (Loss) Per Common Share
Basic and Diluted
Net (Loss) From Continuing Operations $ (0.01) $ (0.01)
Net (Loss) From Discontinued Operations (0.00) (0.00)
-------------- --------------
Total $ (0.01) $ (0.01)
============== ==============
Weighted Average Number of Common
Shares Outstanding 53,515,085 38,025,664
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
-5-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
-------------- --------------
(Restated)
Cash Flows Provided (Required) By
Operating Activities:
Net (Loss)
From Continuing Operations $ (388,952) $ (410,039)
From Discontinued Operations (5,535) (129,061)
Adjustments to Reconcile Net (Loss)
To Net Cash Provided (Required)
By Operating Activities:
Depreciation and Amortization
From Continuing Operations 11,932 23,256
from Discontinued Operations 0 21,078
Issuance of Common Stock
For Services Provided 73,650 66,000
Loss on Sale of Equipment 0 15,090
Officer's Salary 52,500 30,000
Changes In:
Accounts Receivable (3,131) 75,002
Inventory (98,913) 0
Prepaid Expenses (20,508) 43,672
Deposits 0 11,800
Accounts Payable and Accrued Expenses 144,434 26,389
Deposit - Sale of Assets 0 4,891
-------------- --------------
Net Cash (Required)
By Operating Activities (234,523) (221,922)
-------------- --------------
Cash Flows Provided (Required)
By Investing Activities:
Deposits and Advances For
Pending Acquisitions 0 (100,126)
Proceeds - Sale of Equipment 0 211,928
Acquisitions of Property, Plant & Equipment (5,475) (6,264)
-------------- --------------
Net Cash Provided (Required)
By Investing Activities (5,475) 105,538
-------------- --------------
See Accompanying Notes to Condensed Consolidated Financial Statements
-6-
ECOLOCLEAN INDUSTRIES, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(UNAUDITED)
(CONTINUED)
Three Months Three Months
Ended Ended
March 31, 2006 March 31, 2005
-------------- --------------
(Restated)
Cash Flows Provided (Required) By
Financing Activities:
Proceeds of Short-Term Loans 141,500 0
Payment of Short-Term Loans (904) (38,027)
Payments of Long-Term Loans (2,563) (1,525)
Proceeds of Loans from Related Parties 94,635 197,159
-------------- --------------
Net Cash Provided By Financing Activities 232,668 157,607
-------------- --------------
Net Increase (Decrease) In Cash (7,330) 41,223
Cash at Beginning of Period 11,290 5,929
-------------- --------------
Cash at End of Period $ 3,960 $ 47,152
============== ==============
Supplemental Disclosures Of
Cash Flow Information
Cash Payments for Interest $ 3,640 $ 13,335
============== ==============
Cash Payments For Income Taxes $ 0 $ 0
============== ==============
Non-Cash Investing and Financing Activities:
Issuance of Common Stock:
Acquisition of Patent $ 330,000 $ 0
Payment of Accounts Payable 26,683 12,000
-------------- --------------
Total Non-Cash Financing Activities $ 356,683 $ 12,000
============== ==============
See Accompanying Notes to Condensed Consolidated Financial Statements
-7-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
NOTE 1 - BASIS OF PRESENTATION
------ ---------------------
The accompanying unaudited condensed consolidated financial statements
for the three month periods ended March 31, 2006 and 2005 have been
prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Regulation S-B. The financial information as of December 31,
2005, is derived from the registrant's Form 10-KSB for the year ended
December 31, 2005. Certain information or footnote disclosures normally
included in condensed consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission.
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. In the opinion of
management, the accompanying consolidated financial statements include
all adjustments necessary (which are of a normal and recurring nature)
for the fair presentation of the results of the interim periods
presented. While the registrant believes that the disclosures presented
are adequate to keep the information from being misleading, it is
suggested that these accompanying financial statements be read in
conjunction with the registrant's audited consolidated financial
statements and notes for the year ended December 31, 2005, included in
the registrant's Form 10-KSB for the year ended December 31, 2005.
Operating results for the three-month period ended March 31, 2006, are
not necessarily indicative of the results that may be expected for the
remainder of the fiscal year ending December 31, 2006. The accompanying
unaudited condensed consolidated financial statements include the
accounts of the registrant and its wholly-owned subsidiaries,
Ecoloclean, Inc., World Environmental Technologies, Inc., and
Aquatronics Industries, Inc. The operations of two wholly-owned
subsidiaries, Ecoloclean of Texas, Inc., and Reliant Drilling Systems,
Inc., were discontinued during 2005. These financial statements reflect
the net assets and net liabilities of the discontinued operations as
well as the operating results of the discontinued units. All
significant inter-company accounts and transactions have been
eliminated in consolidation.
-8-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
NOTE 2 - GOING CONCERN
------ -------------
The accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis, which anticipates the
realization of assets and the liquidation of liabilities during the
normal course of operations. However, as shown in these condensed
consolidated financial statements, the Company during the three-month
period ended March 31, 2006, incurred a net loss from continuing
operations of $388,952 and a net loss from discontinued operations of
$5,535. In addition, as at March 31, 2006, the Company's total
liabilities exceeded its total assets by $1,839,521. The Company has
experienced significant recurring operational losses and negative cash
flows from operations and at March 31, 2006, has an accumulated deficit
of $7,633,595. These factors raise doubt about the Company's ability to
continue as a going concern if changes in operations are not
forthcoming.
During the third quarter of 2005, the Company acquired 100% of the
issued and outstanding stock of Aquatronics Industries, Inc.,
(Aquatronics), a company which specializes in the removal of impurities
and waste by-products. Aquatronics has been in the waste water
treatment field for over 20 years. Management believes that this
acquisition will provide new avenues of opportunity in the development
of its water remediation and purification services. In addition to the
acquisition of Aquatronics, the Company, on March 23, 2006, acquired a
certain patent relating to the disinfection and purification of water
and related technology (See Note 3). Management, in its continuing
efforts to obtain debt/equity financing, closed in February 2006, on a
debt financing arrangement which netted the Company approximately
$120,000. During April 2006, the Company completed the sale of
1,000,000 shares of its restricted common stock for $50,000 plus
options. These financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
-9-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
NOTE 3 - ACQUISITION OF PATENT
------ ---------------------
On March 23, 2006, the Company acquired all rights, title and interest
to a certain "patent" relating to the disinfection and purification of
water and related technology. This "patent" had been recorded in the
United States Patent and Trademark office on March 12, 2001. The cost
of this "patent" is $15,000 on the execution of the agreement (March
23, 2006) and nine monthly payments of $15,000 per month commencing on
May 1, 2006 and ending on January 1, 2007. In addition, the Company
shall transfer 3,000,000 shares of restricted common stock of
Ecoloclean Industries, Inc., to the holder of the patent. As of March
31, 2006, 1,000,000 shares had been issued to the original patent owner
and another 2,000,000 shares had been issued and were being held for
later release (March 23, 2007) pursuant to the terms and conditions of
the "Agreement for Assignment of Patent" dated March 23, 2006. A
further condition of this "patent" acquisition requires the Company to
pay a royalty to the original patent owner based on the gross sales of
products utilizing the patented technology or any component thereof.
NOTE 4 - SUMMARY OF RESTATED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------------------------------------
As a result of management re-evaluating its accounting treatment for
certain restricted stock issued for services and fees, the March 31,
2005, interim condensed consolidated financial statements have been
restated. In addition, management reclassified and netted all revenue
and expenses related to discontinued operations and disclosed the net
(loss) from discontinued operations as a separate line item and also
segregated all assets and liabilities relating to the discontinued
operations.
NOTE 5- RELATED PARTY TRANSACTIONS
------ --------------------------
The Board of Directors has approved a salary for services provided. At
March 31, 2006, the cumulative amount of unpaid officer's salary was
$490,000 and is included in Accounts Payable and Accrued Expenses.
At March 31, 2006, cumulative advances bearing interest at 5% per annum
due to officers of the Company amounted to $1,396,720 plus $212,917 of
accrued interest. The accrued interest is included in Accounts Payable
and Accrued Expenses. The advances are due July 10, 2007, with the
right of prepayment.
NOTE 6 - COMMON STOCK TRANSACTIONS
------ -------------------------
On January 23, 2006, the Company issued 350,000 shares of its
restricted common stock valued at $33,250 for consulting services.
-10-
ECOLOCLEAN INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2006
NOTE 6 - COMMON STOCK TRANSACTIONS (CONTINUED)
------ -------------------------------------
On January 26, 2006, the Company issued 200,000 shares of its common
stock valued at $30,000 for consulting services.
On March 1, 2006, the Company issued 80,000 shares of its common stock
valued at $10,400 for accounting services.
On March 23, 2006, the Company authorized the issuance of 3,000,000
shares of its restricted common stock valued at $330,000 in accordance
with the terms of the Bio-Catalytica, Inc., patent acquisition
agreement.
On March 31, 2006, the Company issued 200,000 shares of its restricted
common stock in payment of a $26,683 account payable.
NOTE 7 - DISCONTINUED OPERATIONS
------ -----------------------
During the first and second quarters of 2005, the Company implemented
its decision to discontinue operations of two wholly-owned
subsidiaries, Reliant Drilling Systems, Inc., (RDS) and Ecoloclean of
Texas, Inc. (ECOT).
As a result of the Company discontinuing the operations of RDS and
ECOT, the condensed consolidated financial statements and the related
notes contained herein have been restated to reflect the financial
position, results of operations and cash flows of RDS and ECOT as
discontinued operations.
The following table sets forth, for the periods indicated, selected
financial data of the Company's discontinued operations.
SELECTED FINANCIAL DATA FOR DISCONTINUED OPERATIONS
---------------------------------------------------
Three Months Ended
March 31, March 31,
2006 2005
--------- ---------
Revenue $ 0 $ 76,007
Cost of Sales 0 48,628
--------- ---------
Gross Profit 0 27,379
Expenses (Net of Gains/Losses on Sales of Assets) 5,535 156,440
--------- ---------
(Loss) From Discontinued Operation $ (5,535) $(129,061)
========= =========
NOTE 8 - SUBSEQUENT EVENTS
------ -----------------
On April 5, 2006, the Company completed the sale of 1,000,000 shares of
its restricted common stock for $50,000 and granted a three-year stock
option at fifteen ($0.15) cents per share to acquire 750,000 additional
shares of the Company's restricted common stock to the investor.
-11-
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion and Analysis or Plan or Operation
Overview and Plan of Operation
Background
During the quarter ended March 31, 2006, Ecoloclean Industries, Inc., (ECCI) had
gross operating revenues of $65,600 from continuing operations and $0 from
discontinued operations, which included its Louisiana subsidiary, Reliant
Drilling Systems, Inc.,(RDS) and its Texas subsidiary, Ecoloclean of Texas,
Inc., (ECOT) whose operations were discontinued during the first six months of
2005.
Current Operations
A. Industrial and Exploration Liquid Waste Remediation Services
World Environmental Technologies, Inc., is still awaiting the approval for the
amendment to its State-Wide Water Discharge Permit which would allow World
Environmental Technologies, Inc., to again offer its services of cleaning drill
water to the oil and gas industry. Once approval of the amendment is received,
it is anticipated that the services offered by World Environmental Technologies,
Inc., could again be in demand.
B. Agricultural Clean Up
Ecoloclean, Inc. (ECI), a wholly owned subsidiary of the Company, has devoted
substantial efforts to the Dairy Industry as it pertains to the animal waste
created by cows, swine and chickens. During the first quarter of 2006, we have
been informed that Texas A&M University has finished their report, although we
have not received a copy at this time, we assume that the EPA, American Dairy
Association, Texas Farm Bureau and other interested agencies, have not received
their copy. The Company does not expect any revenue producing activities from
the agricultural business until the third quarter of 2006 at the earliest,
subject to the receipt of a positive report form Texas A&M University.
C. Coale Separator aka "Diesel Pure"
As outlined previously, ECCI obtained the Worldwide Exclusive Rights for the
patented Coale Separator. This device is capable of removing contaminants from
diesel fuel, such as water, sand and other impurities, thus increasing engine
life, reducing injector replacement and engine wear.
During the third quarter of 2005, the Company signed an exclusive marketing
agreement with an experienced organization in the truck and auto after market
and to the industrial market place. In order to sell our "Diesel Pure" product
line in these market places, the Company is required to complete additional
product information and instructions when adequate funding becomes available in
order to gain further acceptance in the market place.
D. Aquatronics Industries, Inc.
On September 13, 2005, the Company completed the acquisition of 100% of the
outstanding stock of Aquatronics Industries, Inc., located in Riverside, Rhode
Island by the issuance of 2,500,000 shares of its restricted common stock and
providing working capital of $300,000. Aquatronics Industries, Inc., a wholly
owned subsidiary of Ecoloclean Industries, Inc., (ECCI) has provided creative
and cost effective solutions to a wide range of industrial, commercial
residential pure water, wastewater and solid waste management problems for in
excess of 20 years. The Company intends to build on the 20 years of experience
of Aquatronics' management and employees which includes a customer base and
established reputations of technical expertise.
-12-
In addition to providing capital over the $300,000 initial requirement and an
amount in excess of $150,000, Ecoloclean Industries, Inc., has assisted
"Aquatronics" in acquiring the "BioCatalytica" water purification patent (See
New Developments). This patent both extends the activities in which
"Aquatronics" is already engaged and expands its capabilities beyond the levels
of its previous experience in a cost-effective manner.
E. New Developments
On March 23, 2006, the Company's wholly owned subsidiary, Aquatronics
Industries, Inc., acquired the "BioCatalytica" water purification patent rights,
which acts as an adjunct to the active disciplines engaged in the production and
installation of water remediation systems and also provides the Company with
exclusive manufacturing rights.
Consideration includes $150,000 was due at closing with the remaining $135,000
due at $15,000 per month beginning May l, 2006, and a 5% royalty in addition to
3,000,000 shares of Ecoloclean Industries, Inc. restricted common stock of which
1,000,000 shares were due at closing with the remaining 2,000,000 shares due
within one year or earlier, subject to orders utilizing the patented compound.
These shares have been issued and are being held for such releases.
Although "Aquatronics" revenues for the three months ended March 31, 2006, were
$62,560, which resulted in an operating loss of $135,447, their management has
indicated an increased level of revenues for the remaining months of 2006, based
on their current back log and ongoing marketing and sales efforts.
Financial Considerations
Currently, there are insufficient revenues and resources to offset annual
operating overhead, which is now projected to be approximately $500,000. Until
the Company obtains the amount of working capital required to meet its
continuing operating overhead, it will be necessary to call upon the investment
community and/or the Company's officers and others associated with the Company
for financial assistance.
In addition to capital needs for operating overhead, the Company's need for
capital has increased substantially as a result of it acquiring Aquatronics
Industries, Inc. To meet these continuing and increasing needs, management's
plans are to (i) to raise capital by obtaining financing through private
placement efforts (ii) issue common stock for services rendered in lieu of cash
payment and (iii) obtain loans from the President and other employees of the
Company.
The Company's future ability to achieve these objective cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
The Company believes that it will continue to incur losses for at least the next
six months and, as a result, will require additional funds to meet such needs.
Without realization of additional capital, it would be unlikely for the Company
to continue as a going concern.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating period.
Conclusion
As stated here, future activities of the Company will be partially dependent on
its ability to obtain additional funding in the near future and the success of
its newly acquired subsidiary, Aquatronics Industries, Inc.
-13-
RESULTS OF OPERATIONS
REVENUES: The Company reported revenues of $65,600 from continuing operations
for the three months ended March 31, 2006, as compared to $0 in revenues for the
three months ended March 31, 2005. The increased revenues of $65,600 were due to
$62,560 revenues from our newly acquired subsididary, Aquatronics Industries,
Inc. (Aquatronics) and revenues of $3,040 from our World Environmental
Technologies, Inc., subsidiary.
TOTAL COSTS AND EXPENSES: Total costs and expenses increased (restated) from
$410,039 (restated) for the three months ended March 31, 2005, to $454,552 for
the three months ended March 31, 2006, of which $198,007 was incurred at
"Aquatronics." The decrease of $153,494 (exclusive of "Aquatronics") was
primarily due to the Company's cost reduction program. Non-cash stock-based
costs and expenses totaled $73,650 of the $459,552 of expenses.
OPERATING EXPENSES: Operating expenses decreased from $54,254 for the three
months ended March 31, 2005, to $20,786 from continuing operations for the three
months ended March 31, 2006. The decrease of $33,468 was primarily due to the
Company's cost reduction program.
SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expenses decreased from $272,294 (restated) for the three months ended March 31,
2005, to $265,351 for the three months ended March 31, 2006, of which $158,507
was incurred at "Aquatronics." The decrease of $82,808 (exclusive of
"Aquatronics") was primarily due the Company's cost reduction program.
INCOME TAX: The pretax loss decreased from $394,487 (restated) for the three
months ended March 31, 2005, to $394,787 for the three months ended March 31,
2006, a decrease of $280,060 (exclusive of the $135,447 loss at "Aquatronics").
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures
during the three months ended March 31, 2006, totaled $5,475 as compared with
$6,364 for the three months ended March 31, 2005.
Sales of capital assets were $0 for the three months ended March 31, 2006, as
compared to $211,928 for the three months ended March 31, 2005. The 2005 sales
of capital assets were the initial sales of equipment of the Company's
subsidiary, Reliant Drilling Systems, Inc., after discontinuing its operations.
Total debt increased from $2,858,172 at March 31, 2005, to $3,411,091 at March
31, 2006, an increase of $552,919 inclusive of $548,322 of "Aquatronics" debt.
During the three months ended March 31, 2006, the Company received loans of
$94,635 from the President, $20,000 from an employee and a loan of $150,000 from
outside financing source of which $120,000 was used as of March 31, 2006. Total
debt as of March 31, 2006, and March 31, 2005, expressed as a percentage of the
sum of total debt and shareholders' deficit was 217.0% and 290.8% respectively.
Net loss for the three months ended March 31, 2006, was $394,487 a decrease of
26.8% from the restated net loss of $539,100 for the three months ended March
31, 2005. Diluted net loss per common share remained unchanged. The net loss per
share calculation for the three months ended March 31, 2006 included an increase
in actual and equivalent shares outstanding.
DISCONTINUED OPERATIONS: The loss from discontinued operations for the three
months ended March 31, 2006, includes losses of $4,667 incurred by Reliant
Drilling Systems, Inc., and $868 incurred by Ecoloclean of Texas, Inc. These
losses of each subsidiary, which total $5,535 represent a reduction of $123,526
from the losses of $129.061 from discontinued operations for the three months
ended March 31, 2005, as the operations of each subsidiary wind down.
GOING CONCERN: While the Company's unaudited condensed consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and liquidation of liabilities during the normal course of
operations, certain adverse conditions and events cast substantial doubt upon
the validity of this assumption. Factors contributing to this substantial doubt
include recurring losses from operations and net working capital deficiencies.
As mentioned in the Financial Condition, Liquidity and Capital Resources section
above, we are currently dependent on funding from the President and an employee
of the Company to continue the Company's operations. The discontinuance of such
funding and the unavailability of outside financing to replace such funding
could result in the Company ceasing operations.
-14-
FORWARD-LOOKING STATEMENTS:
We have included forward-looking statements in this report. For this purpose,
any statements contained in this report that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
estimate", "plan" or "continue" or the negative or other variations thereof are
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors.
Factors that might cause forward-looking statements to differ materially from
actual results include, among other things, overall economic and business
conditions, demand for the Company's products, competitive factors in the
industries in which we compete or intend to compete, impact and other
uncertainties of our future acquisitions plans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the Company
are conducted primarily in the United States, and, are not subject to material
foreign currency exchange risk. Although the Company has outstanding debt and
related interest expense, market risk of interest rate exposure in the United
States is currently not material.
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Item 3. Controls and Procedures
(a) Evaluation Of Disclosure Controls And Procedures.
Item 308(a)(3) of Regulation S-B states that "Management is not permitted to
conclude that the small business issuer's internal control over financial
reporting is effective if there are one or more material weaknesses in the small
business issuer's internal control over financial reporting." As a result of (1)
our inability to timely report the historical financial statements of
Aquatronics Industries, Inc. and the Bio-Catalytica patent acquisition and (2)
the restatements to our December 31, 2004 financial statements and our quarterly
reports for the periods ending March 31, June 30 and September 30, 2005, as
disclosed in Footnote 3 to our December 31, 2005 financial statements as filed
on Form 10-KSB on May 15, 2006, our Chief Executive Officer and Principal
Accounting Officer can no longer conclude that after evaluating the
effectiveness of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of
the period covered by this Report on Form 10-QSB, that our disclosure controls
and procedures were effective to provide reasonable assurance that information
we are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
At the time we acquired Aquatronics Industries, Inc. we had believed that we
would be able to report its historical financial statements on Form 8-K/A.
However, due to a limited financial resources, we have been unable to present
Aquatronics' historical financial statements. We believe that we will be able to
report them in the near future.
Additionally, the Company believes that its restatement to its December 31, 2004
financial statements and restatements to quarterly reports for March 31, June 30
and September 30, 2005 financial statements, will be a one time occurrence and
that moving forward our Controls and Procedures will once again be effective as
the accounting corrections contained in the restated December 31, 2004, March
30, June 30 and September 30, 2005 financial statements. The Company is
utilizing the guidelines communicated to it by the SEC after various
communications regarding accounting for stock based compensation and
discontinued operations.
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(b) Changes In Internal Control Over Financial Reporting.
There were no significant changes in our internal control over financial
reporting during the last fiscal year, up to and including the date of this
filing (except as disclosed in (a) above), that we believe materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
(c) Limitations.
Our management, including our Principal Executive Officer and Principal
Financial Officer, does not expect that our disclosure controls or internal
controls over financial reporting will prevent all errors or all instances of
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. In addition, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within our company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and any design may not
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures. Because
of the inherent limitation of a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various legal
proceedings and claims incidental to our normal business operations for which no
material liability is expected beyond that which has been recorded in our
financial statements. While the ultimate resolution of the above matters is not
known, management does not expect that the resolution of these matters will have
a material adverse effect on the Company's financial statements and results of
operation.
We are not aware of any material legal proceedings to which, any
director, officer or affiliate of the Company, any owner of record or beneficial
owner of more than 5% of our Company common stock, is a party to a legal
proceeding adverse to our Company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During our first quarter we issued the following common stock:
On January, 23, 2006, we issued 350,000 shares to Ahmed Karim for services
valued at $33,205.
On January 26, 2006, we issued 200,000 shares to Joe Mule for services valued at
$30,000.
On March 31, 2006, we issued 200,000 shares to Joe Mule for reimbursed expenses
totaling at $26,683.
On March 23, 2006, Ecoloclean Industries, Inc. agreed to issue a total of Three
Million (3,000,000) common shares, to BioCatalytica, Inc. in connection with the
purchase of a U.S. Patent by our subsidiary, Aquatronics Industries, Inc. We
issued and delivered One Million (1,000,000) shares on, or about April 1, 2006.
We issued the balance of Two Million (2,000,000) shares which we are holding in
escrow for delivery on, or before March 23, 2007, as outlined in the purchase
agreement. We valued the transaction at Eleven ($0.11) Cents per share or
$330,000.
We believe the offer and sale of these securities qualifies for the securities
transaction exemption permitted by Section 4(2) of the Securities Act of 1933,
as amended, (the "Act"). These are restricted securities and may not be publicly
resold without registration under the Act or an exemption from registration.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the quarter of the fiscal year
covered by this report.
Item 5. Other Information
On March 23, 2006, our subsidiary, Aquatronics Industries, Inc., acquired a U.S.
patent by assignment from BioCatalytica, Inc., a Rhode Island corporation. It is
Patent No. US6-524-540-B1 which relates to the disinfection and purification of
water and related technology dated February 25, 2003 as originally assigned by
Charles F. Heinig, Jr. to BioCatalytica, Inc.
Aquatronics agreed to pay BioCatalytica, Inc. $150,000 payable $15,000 down and
$15,000 monthly until paid in full. Additionally, Ecoloclean Industries, Inc.,
Aquatronics' parent, agreed to issue BioCatalytica, Inc. Three Million
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(3,000,000) Ecoloclean Industries, Inc. common shares in connection with the
purchase of this patent. We issued and delivered One Million (1,000,000) shares
on, or about April 1, 2006. We issued the balance of Two Million (2,000,000)
shares which we are holding in escrow for delivery on, or before March 23, 2007
as outlined in the purchase agreement. (See Exhibit 10)
Additionally, Aquatronics agreed to pay a Five (5%) percent royalty to
BioCatalytica, Inc. on all gross sales from products utilizing the patented
technology or related component of the technology.
Item 6. Exhibits
Exhibit No. Exhibit Name
10 Agreement for Assignment of Patent dated March 23,
2006
31 Chief Executive/Financial Officer-Section 302
Certification pursuant to Sarbanes-Oxley Act.
32 Chief Executive and Financial Officer-Section 906
Certification pursuant to Sarbanes-Oxley Act.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ECOLOCLEAN INDUSTRIES, INC.
Dated: May 19, 2006 /s/ Royis Ward
---------------------------
By: Royis Ward
Title: President, CEO, CFO
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