EAGLE ENVIRONMENTAL TECHNOLOGIES, LTD.
FOR THE YEARS ENDED
DECEMBER 31, 2007
AND
DECEMBER 31, 2006
Balance Sheet...................................................................................................................... 3
Statements of Operations.................................................................................................... 4
Statement of Changes in Stockholders’ Equity................................................................... 5
Statements of Cash Flows................................................................................................... 6
Notes to Financial Statements............................................................................................. 7
1.
Organization and Significant Accounting Policies
Business
Eagle Environmental Technologies, Ltd. Was
originally incorporated in the State of
On December 17, 1984, the stockholders approved an amendment to the Articles of Incorporation, which changed the authorized capitalization to 50,000,000 shares with a par value of $0.001 per share. On February 21, 1986, the Company’s Articles of Incorporation were amended to change the name of the corporation to The College of Physicians and Surgeons and to increase the authorized shares to 100,000,000, with a par value of $0.001 per share. On or about February 11, 1988 by Amendment to the Articles of Incorporation the name of the corporation was changed Cholla Precious Metals, Inc.
On
In November of 1997, the Company’s shares of common stock underwent a 10 to1 reverse split. Accordingly, the number of the Company’s issuance and outstanding shares was reduced to 1,776,462.
The Company had
one subsidiary, Lone Eagle Technology Site, Inc. (“LETSI”). LETSI was a
On
On
Use of Estimates in
the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and
Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with maturities of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2005.
Oil and Gas Properties
Investments in oil and gas properties are accounted for using the successful-efforts method of accounting. Under the successful-efforts method, costs such as geological and geophysical, exploratory dry holes and delay rentals are expensed as incurred. The successful-efforts method follows the guidance provided in Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, where the first measurement for impairment is to compare the net book value of the related asset to undiscounted cash flows using commodity prices consistent with management expectations.
All drilling and
completion costs that directly lead to the extraction and production of oil and
gas reserves and all development dry holes are capitalized. Capitalized costs are accumulated by cost
centers. For amortization purposes, the
cost center is the individual property or an aggregation of properties in the
same field or reservoir. The Company has
one cost center, the Siler lease property located in
Under the successful-efforts method, Costs associated with the capitalization of leases are capitalized as incurred. These consist of costs incurred in obtaining a mineral interest in a property, such as the costs of lease bonuses and options to lease, brokers’ fees, recording fees, legal cost, and other similar costs in acquiring property interests.
Oil and gas properties are amortized using the units-of –production method using estimates of proved reserve quantities.
Other Property
and Equipment
Depreciation of other office furniture and equipment and computer hardware and software is provided using the straight-line method based on estimated useful lives ranging from three to seven years.
Rights to
Technology
The Company amortizes intangible assets over the estimated useful period of benefit of the asset or the legal life, whichever is shorter. The Company evaluates the recoverability of intangible assets periodically, taking into account events or circumstances that warrant revised estimates of useful lives or that indicate possible impairment. Impairment losses are recognized in the period when impairment has occurred.
Fair Value of Financial Instruments
The carrying amount of financial instruments held by
the Company, which include cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, approximate fair value due to their
short duration. The carrying amount of
the Company’s notes payable approximate their fair value based on incremental
borrowing rates for similar types of borrowing arrangements.
Income Taxes
The Company provides for income taxes under the provisions of Statements of Financial Accounting Standards (“SFAS”) No. 109 “Accounting for Income Taxes”. SFAS No. 109 requires an asset and liability based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences in future years of temporary differences between revenue and expense items for financial statement and income tax purposes. Valuation allowances are provided against assets that are not likely to be realized. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Loss Per Share
The computation of basic and diluted earnings per common share
is based on the weighted average number of shares outstanding during the year,
plus the common stock equivalents.
Common stock equivalents are not included in the diluted loss per share
calculation when their effect is anti-dilutive.
Revenue Recognition
The Company recognizes oil revenue from its interest in producing wells as oil is produced and sold from those wells. Oil sold is not significantly different from the company’s share of production.
Principles of Consolidation
The Company has adopted the provisions of FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities”. The accompanying Consolidated Financial Statements include the accounts of Hohle Oil Services, Co. (a Nevada Corporation), a Variable Interest Entity, where we are deemed the primary beneficiary, regardless of our ownership percentage. All significant intercompany balances and transactions with the consolidated entity have been eliminated.
In April 2003 the Financial Accounting Standards Board (“FASB”) issued Statements of Financial Accounting Standards (“SFAS”) 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement, which amends and clarifies existing accounting pronouncements, addresses financial accounting and reporting for derivative or other hybrid instruments. This Statement requires that contracts with comparable characteristics be accounted for similarly. It is effective for contracts entered into or modified after September 30, 2003. The Company does not expect the adoption of SFAS 149 to have any impact on the financial statements.
In May 2003 the FASB
issued SFAS 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity,” which is effective at the
beginning of the first interim period beginning after
In December 2003 the FASB issued SFAS 132R, “Employers’ Disclosures about Pensions and Other Postretirement Benefits—an amendment of SFAS 87, 88, and 106”. This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS 87, “Employers’ Accounting for Pensions”, SFAS 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, and SFAS 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. This Statement retains the disclosure requirements contained in SFAS 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information is required to be provided separately for pension plans and for other postretirement benefit plans. The Company has no Pension or Other Postretirement Benefits.
In November 2004, the FASB issued SFAS No.
151, “Inventory Costs, an amendment to Accounting Research Bulletin (“ARB”) No.
43, Chapter 4”. The amendments made by
SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as
current-period charges. In addition,
SFAS No. 151 requires that allocation of fixed production overhead to inventory
be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs
incurred during fiscal years beginning after
In December 2004, the FASB issued SFAS No. 123 (revised 2004,
or “R”), “Share-Based Payment — a revision of FASB Statement No. 123
Accounting for Stock-Based Compensation”.
SFAS No. 123 supersedes APB Opinion No. 25, “Accounting
for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of
Cash Flows”. SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no
longer an alternative. The Company recognized stock option compensation expense
in the amount of $240,000 during the year ended December 31, 2005. The Company
recognized stock option compensation expense in the amount of $10,000 during
the year 2006. No further options have been issued for 2007.
2.
Acquisition of Oil & Gas Rights
Siler Lease Property
In December 2004, The Company entered into an agreement with B&B
Oil, Inc., a
|
Allocation
of Siler Purchase |
|
|
|
|
|
Oil & gas rights |
$ 419,950 |
|
Drilling and production equipment |
37,079 |
|
Wells |
12,471 |
|
|
|
|
Total Acquisition Cost |
$ 469,500 |
The transaction closed in January of 2005. At December 31, 2004, the Company had
recorded a deposit in the amount of $244,500 for the value of a note payable
and shares issued as of December 31, 2004.
Oilton & Hirsch Properties
In February 2005, the Company signed a Letter of Agreement with Omni Minerals, LLC, a Texas Limited Liability Company, for the purchase of oil and gas leases and equipment. In March 2005, the Company issued 2,500,000 shares of treasury 144 stock to Omni Minerals Inc. In July of 2005, the Company rescinded the agreement. At Which time Omni Minerals returned the 2,500,000 shares issued, to Buzzard Bait Transfer Co.
Energy 2000
In July of 2004, ZawTech International Inc. (“ZawTech”), a related
Company, entered into an exchange agreement with Energy 2000 (“E2000”) to
obtain oil producing land and equipment located in
Gordon Brothers Oil
In November 2004, the Company made a purchase offer in the amount of
$5,500,000 to Gordon Brothers Oil, Inc. for the purchase of oil producing land
and equipment in
Rights to Technology
The Company had previously capitalized amounts related to the
acquisition of a license for the Zawcad technology. During the year ended December 31, 2004,
management determined the Company no longer rights under the licensing
agreement. The Company recognized an
impairment loss of $220,000 during the year ended December 31, 2004, to write-off
the value of the asset.
3.
Variable Interest Entity
In February 2005, Hohle Oil Services Co. (“Hohle”), a related party
(See note 8), was formed to become the future field operator at the Company’s
Siler well site. Also in February of
2005, the Company entered into an operating agreement with Hohle, whereby the
Company agrees to provide cash deposits as required to maintain operations at
the Siler well site. As the Company is
the sole source of capital for Hohle, management determined the Company is
primary beneficiary, under FIN 46, which requires the Company to consolidate
the Variable Interest Entity, under such circumstances.
4.
Property and Equipment
The following is a summary of property and equipment at December 31, 2007, and 2006.:
|
|
2007 |
2006 |
|
Drilling and field equipment |
$ 448,104 |
$ 448,104 -0- |
|
|
|
|
|
Oil & Gas rights |
419,950 |
419,950 |
|
|
|
|
|
Wells |
211,016 |
211,016 |
|
|
|
|
|
Less: Accumulated depreciation / depletion |
(41,574) |
(27,716) |
|
|
|
|
|
Net oil & gas property & equipment |
1,037,496 |
1,051,354 |
|
|
|
|
|
Office Equipment |
38,675 |
37,475 |
|
|
|
|
|
Furniture |
1,547 |
1,547 |
|
|
|
|
|
Less: Accumulated depreciation |
(40,222) |
(39,022) |
|
|
|
|
|
Net Book Value |
$ 1,037,496 |
$1,051,354 |
5.
Prepaid
Expenses
During the year ended December 31, 2005, the
Company issued 1,000,000 shares of treasury 144 stock to B&B Oil, Inc. as
consideration to B&B Oil for renewing its’ $250,000 Texas operating bond.
The Company recorded a prepaid expense in the amount of $25,000. As of December 31, 2005, the Company had
amortized $12,500 of the prepaid and the remaining prepaid balance was $12,500. During the year ended December 31, 2004, the
Company issued 1,000,000 shares to B&B Oil to be held as collateral for
payment of B&B’s $250,000
SOFIE Contingent Shares
During the year ended December 31, 2005, the
Company recorded a prepaid expense and contingent liability (see Note ) in the amount of $150,000, for 1,000,000 shares
payable to SOFIE, Inc., under a contract agreement (See note 8). The shares are contingent upon the employees
placed by SOFIE performing one year of service with the Eagle. In June 2006, the employee completed the one
year of service and the shares became payable.
During the year ended December
31, 2005, the Company amortized $87,500 in prepaid expense, related to the
shares. The balance of the prepaid was
$62,500 at December 31, 2005.
6.
Notes Payable
The Company’s notes payable consist of the following at December 31, 2007 and 2006:
|
|
|
|
|
Notes Payable |
2007 |
2006 |
|
Note payable to a financial institution: non-interest bearing note; monthly principal payments of $1,958; note matures July 2008 |
$ 39,158 |
$62,653 |
|
|
|
|
|
Note payable to an individuals, non interest bearing; principal due January 2008 |
2,000 |
-0- |
|
|
|
|
|
Notes Payable to corporations 12% interest bearing; principal due December 31, 2008 |
$1,114,784 |
456,698 |
|
|
|
|
|
Total Notes Payable |
$1,155,942 |
$519,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All notes payable are classified as current, as amounts are due within a year.
7.
Settlement
Liability
In September 2002, the Company entered into a “Settlement
Agreement” with Carl Dunn, a shareholder.
The agreement settled prior litigation involving the Company and Carl
Dunn, regarding the original Zawcad license agreement. Per terms of the agreement, the Company was
to issue 12 convertible preferred shares (convertible to 600,000 common shares)
to Carl Dunn, and a $650,000 promissory note, payable to Carl Dunn. The Company issued the convertible shares to
Carl Dunn on
The Company recorded interest expense, on the note, in the amount $47,125 for the year ended December 31, 2005, and $47,125 for the year ended December 31, 2004. No amounts were paid on the note during 2005, or 2004. Principal and interest due on the note was $803,899 at December 31, 2005, and $756,774 at December 31, 2004.
In January of 2006, a shareholder paid the obligation owing under the settlement agreement. At which time the Company issued 8,000,000 shares to the shareholder as reimbursement plus compensation for making the payment. (See note)
8.
Related Party Transactions
Since its inception, the Company
has done a number of significant transactions with Buzzard Transfer Co., JAB
Enterprises, Plasma Energy Processes, Inc. (“PEPI”), Zawtech International, and
Company CEO
The following table summarizes amounts owed to the respective related parties at December 31, 2007, and 2006.
|
Due To Related Parties |
2007 |
2006 |
|
|
|
|
|
Buzzard Bait Transfer Company, Inc |
$917,779 |
$ 407,398 |
|
JAB Enterprises, Inc. |
4,005 |
6,300 |
|
Plasma Energy Processes, Inc. |
46,009 |
43,000 |
|
Company Officer |
31,000 |
25,000 |
|
|
|
|
|
Due To / (From) related parties |
$ 998,793 |
$ 481,698 |
Buzzard Bait Transfer Company, Inc.
Company CEO
|
Due To / (From) Buzzard Bait |
2007 |
2006 |
|
|
|
|
|
Eagle expenses paid |
103,880 |
$ 165948 |
|
Contract expenses |
813,899 |
241450 |
|
Total Due to Buzzard Bait |
$917,779 |
407,398 |
|
|
|
|
Buzzard Bait Share
Transfers
In March 2005, the Company issued to Buzzard Bait Transfer Co. Company shares as reimbursement for previous contract expenses owed to Buzzard Bait, and for Company expenses paid by Buzzard Bait. The transaction was valued at $304,936, based on the share price at the date of issuance, and the value of the liability was $259,317 the date the shares were issued. The value of the shares issued exceeded the liabilities owed to Buzzard Bait on the date the shares were issued by $45,619. The Company recorded the excess amount as a receivable from Buzzard Bait..
In December 2005, the Company issued to Buzzard Bait Transfer 173 convertible preferred shares (convertible to 8,650,000 common shares) as reimbursement for shares exchanged and for satisfaction of other related party liabilities.. The transaction was valued at $1,168,793, based on the share price of the common shares at the date of issuance. The value of the liabilities at the date of issuance was $987,522. The value of the shares issued exceeded the net liabilities owed to the related parties by $181,271. The Company recorded the excess amount as a receivable from Buzzard Bait.
During the year ended December 31, 2005, The Company issued 353 convertible preferred shares to Buzzard Bait as reimbursement for various common stock transactions. Buzzard Bait converted 159 of those shares into 7,950,000 shares of common stock and returned the common shares to Eagle. Eagle then issued the shares to investors. During 2004, Buzzard Bait converted 328 shares of Eagle Environmental convertible preferred stock into 16,400,000 shares of Eagle Environmental common stock.
During 2006 and 2007, no additional shares have been issued to Buzzard Bait in exchange for payment of contracts or expenses.
Eagle Expenses paid by
Buzzard Bait
Buzzard Bait Transfer Co. paid $6,573 on behalf of the Company for expenses incurred during 2005, and $55,394 for expenses incurred during 2004. During 2005, the Company paid cash reimbursements in the amount of $15,000 to Buzzard Bait. In addition, $109,769 of the various Buzzard Bait share reimbursement were offset against current and previous Company expenses by Buzzard Bait, which reduced the liability to $0 at December 31, 2005. No amounts were repaid to Buzzard Bait for expenses incurred during the year ended December 31, 2004. The balance due for Company expenses paid by Buzzard Bait was $118,195 at December 31, 2004.
Buzzard Bait Management
Contract
The Company maintains an
agreement with Buzzard Bait Transfer Co., for the services of Company CEO
Buzzard Bait Note and
Interest Payable
On November 10, 2003 the Company issued a note payable to Buzzard Bait Transfer Co., in the amount of $300,000 as reimbursement for 60 Eagle Convertible Preferred shares (convertible into 3,000,000 common shares) Buzzard Bait transferred to a third party. The Company did not make cash payments on the note during 2005 or 2004. The note was satisfied at December 31, 2005 with a preferred share issuance. The balance of the note was $300,000 at December 31, 2004. (See note 5)
The Company accrued interest in the amount $36,000 for the year ended December 31, 2005, and $36,000 for the year ended December 31, 2004. At December 31, 2005, the Company satisfied the balance of interest payable with the preferred share issuance, valued at $77,129. The balance of the interest payable was $41,129 at December 31, 2004.
The Company has made no payments in cash or stock for 2006 or 2007.
Other Buzzard Bait
Transactions
In October 2005, the Company issued to Buzzard Bait Transfer Co. 1,000,000 shares as a signing bonus on the new management contract. The Company recorded a contract expense in the amount of $175,000.
In March 2005, the Company issued 600,000 treasury 144 shares to Buzzard Bait Transfer Co as reimbursement for the 500,000 Eagle trading shares Buzzard Bait issued to B&B Oil for acquisition of the Siler Lease properties. (See Note 3)
JAB Enterprises, Inc.
Company CEO
The Company paid expenses on behalf of JAB Enterprises Inc, in the amount of $3,595 for the year ended December 31, 2005, and $2,255 for the year ended December 31, 2004, which the Company recorded as a receivable. At December 31, 2005 the Company satisfied the receivable from JAB, in the amount of $9,975 with the preferred share issuance. The balance receivable from JAB was $6,380 at December 31, 2004.
No payment activities were conducted in 2006 or 2007.
Plasma Energy Processes, Inc.
Company CEO
The Company made no payments on the balance due in 2006 or 2007.
Company Officer
Until August 31, 2004 when the
contract expired, the Company had maintained an employment contract with
Company CEO
The Company paid expenses on
behalf of Company CEO
The contract was terminated at the end of 2007.
Zawtech International, Inc.
Company CEO
During 2004, Buzzard Bait Transfer Co. transferred 20,000,000 shares of Eagle Environmental stock to E2000 for the Zawtech purchase of oil assets related to the E2000 agreement. As reimbursement for the shares transferred, the Company issued 440 shares of convertible preferred stock (convertible into 22,000,000 shares of common stock) to Buzzard Bait Transfer Co. The E2000 agreement never materialized. The 20,000,000 shares transferred from Buzzard Bait to E2000 were returned to Eagle Environmental, and were cancelled. (See Note 3)
SOFIE
In June of 2005, the Company entered into a management contract with SOFIE Inc., a Nevada Corporation to perform the functions of president and vice-president of Eagle. One of the employees provided by SOFIE is also a member of Eagle’s board of directors. The monthly contract expense is $17,500 per month. During the year ended December 31, 2005, the Company accrued contract expense in the amount of $122,500, under this agreement. In December 2005, the Company issued 18 preferred shares and 40,000 common shares as satisfaction of 2005 contract liabilities. There were no cash payments made to SOFIE during the year ended December 31, 2005. The balance payable to SOFIE was $0 at December 31, 2005.
The SOFIE contract also has a 1,000,000 common share bonus contingent upon the employee performing one year of service. In June 2005, the Company recorded a liability and a prepaid asset in the amount of $150,000. The Company is amortizing the prepaid asset ratably until the service period has been completed. At December 31, 2005, the Company had amortized $87,500 of the prepaid, and the balance of the prepaid asset was $62,500 (See note 5). In June of 2006, the employee had completed the year of service, at which time the shares became payable. (See note 9 and note12)
Hohle Oil Services Co.
Company CEO
9.
Commitments
and Contingencies
In June 2005, the Company entered a consulting contract with SOFIE for the positions of president and vice-president of the Company. One of the contract’s provisions included a 1,000,000 share bonus for each position, contingent upon the person placed by SOFIE remains in the position for a year. In June 2006, one of the original employees completed the required year of service, and 1,000,000 share bonus became payable at that time. In June of 2005, when the contract was signed, the Company recorded a prepaid asset (See note 5) and an accrued expense in the amount of 150,000, which was based on the market value of the stock on the contract signing date. The balance of the accrued expense was 150,000 at December 31, 2005. (See note 8 and note 12)
The Stock Exchange agreement between the Company and Carl Dunn (See note 3), dated November 16, 2003, included a provision where upon obtaining financing for the Gordon Bros. purchase, the Company would pay Carl Dunn $100,000 to pay down principal and interest on the $650,000 Settlement Note (See Note 6). Per the agreement, if the Company was unable to make the payment, the Company would issue Carl Dunn 1,500,000 shares of stock. At December 31, 2004, Company management determined that it was probable that the Company would be unable to obtain the financing. A contingent loss in the amount $100,000 was recorded at December 31, 2004. In January of 2005, the Gordon Bros. purchase offer was voided, and Buzzard Bait issued the 1,500,000 shares to Carl Dunn.
10.
Income Taxes
The significant components of the Company’s
deferred tax assets are as follows:
|
|
2007
|
2006
|
|
Deferred tax assets: Net
operating loss carryforwards |
$ 11,199,638 |
$9,289,695 |
|
Valuation allowance |
|
|
|
Net deferred tax assets |
$ 11,199,638 |
$9,289,695 |
11.
Stock-Based Compensation
The Company has adopted the disclosure provision for stock-based compensation
of SFAS No. 123R, “Accounting for Stock-Based Compensation” as revised in
December of 2004. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company’s
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate.
The Company grants stock options to its directors, officers, and
consultants. All options vest immediately upon granting.
12.
Subsequent Events
In January 2006, Dunn Industrial assigned the rights to receive principal and interest from the Settlement Note to Global Cash Flow Inc, a Nevada Corporation wholly owned by a Company shareholder, in exchange for $150,000 in cash and issuance of a note payable in the amount of $250,000. In March 2006, the Company issued 8,000,000 treasury shares to Global Cash Flow Inc, as total satisfaction of principal and accrued interest payable on the Settlement Note.
In June 2006, the employee under the SOFIE contract agreement completed the required year of service for 1,000,000 share signing bonus. The shares became payable at that time, and were subsequently issued in July of 2006.
In June of 2007, Brian Wilmot announced his retirement as President at the end of 2007 or as soon as a replacement officer could be located and hired. The new officer was not hired until early 2008. Wilmot will be staying with the Company as a director on the board.
13.
Going
Concern
The financial statements of the Company have been prepared assuming the Company will continue as a going concern. The Company’s continued existence is dependant upon its ability to resolve its liquidity problems, principally by obtaining an infusion of capital from other sources outside the entity or the management that currently funds its operations. This situation raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.