8-K/A 1 frop8ka2.txt AMENDMENT 2 - FINANCIAL STATEMENTS 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 8-K/A Amendment No. 2 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 June 30, 2000 ------------------------------------------------- (Date of Report: Date of earliest event reported) INDUSTRIAL ECOSYSTEMS, INC. (Exact name of registrant as specified in its charter) UTAH 0-29838 94-3200034 ---------------------------- ----------------------- -------------------- (State or other jurisdiction (Commission File Number) (IRS Employer ID No.) of incorporation) 2040 West Broadway, Bloomfield, New Mexico 87413 ------------------------------------------------------------- (Address of principal executive office) Registrant's telephone number, including area code: (505) 632-1786 -------------- 2 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, AND EXHIBITS (a)(1) Financial Statements of Business Acquired. The consolidated financial statements for ROP Merger Corp. and Subsidiary for June 30, 2000 and December 31, 1999 and 1998 are attached hereto. (b)(1) Pro Forma Financial Statements. The consolidated pro forma financial statements for Industrial Ecosystems, Inc. and Subsidiaries for June 30, 2000 and December 31, 1999 and 1998 are attached hereto. (c) Exhibits. The following exhibits are included as part of this report: None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunder duly authorized. INDUSTRIAL ECOSYSTEMS, INC. Date: October 9, 2000 /S/Tom Jarnagin, President 3 ROP MERGER CORP. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 and December 31, 1999 and 1998 4 INDEPENDENT AUDITORS' REPORT The Board of Directors ROP Merger Corp. and Subsidiary Kansas City, Missouri We have audited the accompanying consolidated balance sheets of ROP Merger Corp. and Subsidiary as of December 31, 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended December 31, 1999 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ROP Merger Corp. and Subsidiary as of December 31, 1999 and the consolidated results of their operations and their cash flows for the years ended December 31, 1999 and 1998, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 to the consolidated financial statements, the Company has suffered recurring losses to date, which raises substantial doubt about its ability to continue as a going concern. Management's plans with regard to these matters are also described in Note 5. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. HJ & Associates, LLC Salt Lake City, Utah September 15, 2000 5 ROP MERGER CORP. AND SUBSIDIARY Consolidated Balance Sheets ASSETS ------ June 30, December 31, 2000 1999 ----------- -------------- (Unaudited) CURRENT ASSETS Cash and cash equivalents (Note 1) $ - $ - Accounts receivable (Note 1) 21,792 26,259 Other assets 814 819 ---------- ------------- Total Current Assets 22,606 27,078 ---------- ------------ PROPERTY AND EQUIPMENT (Net)(Notes 1 and 2) 871,167 925,172 ---------- ------------ TOTAL ASSETS $ 893,773 $ 952,250 ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES Accounts payable $ 12,427 $ 35,596 Bank overdraft 26,108 1,414 Accrued expenses (Note 4) 33,882 21,317 Notes payable, related parties (Note 3) 295,000 255,000 ---------- ------------ Total Current Liabilities 367,417 313,327 ---------- ------------ STOCKHOLDERS' EQUITY Common stock; 30,000 shares authorized of $1.00 par value, 2,000 shares issued and outstanding 2,000 2,000 Additional paid-in capital 1,613,191 1,613,191 Other comprehensive loss (59,340) (49,891) Accumulated deficit (1,029,495) (926,377) ---------- ------------ Total Stockholders' Equity 526,356 638,923 ---------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 893,773 $ 952,250 ========== =========== The accompanying notes are an integral part of these financial statements. 6 ROP MERGER CORP. AND SUBSIDIARY Consolidated Statements of Operations For the Six Months Ended For the Years Ended June 30, December 31, 2000 1999 1998 ----------- ----------- ----------- (Unaudited) REVENUES Net sales $ 123,579 $ 196,924 $ 110,554 Direct costs 104,588 182,267 76,851 ----------- ----------- ----------- Gross Profits 18,991 14,657 33,703 ----------- ----------- ----------- EXPENSES General and administrative 45,372 226,182 590,201 Depreciation and amortization 58,295 115,697 51,732 ----------- ----------- ----------- Total Expenses 103,667 341,879 641,933 ----------- ----------- ----------- Loss from Operations (84,676) (327,222) (608,230) ----------- ----------- ----------- OTHER INCOME (EXPENSE) Other income 328 630 539 Interest income - 1,346 41,274 Interest expense (18,770) (31,105) (3,609) ----------- ----------- ----------- Total Other Income (Expense) (18,442) (29,129) 38,204 ----------- ----------- ----------- NET LOSS (103,118) (356,351) (570,026) ----------- ----------- ----------- OTHER COMPREHENSIVE INCOME Gain (loss) on foreign currency adjustments (9,449) (37,023) (12,868) ----------- ----------- ----------- NET COMPREHENSIVE LOSS $ (112,567) $ (393,374) $ (582,894) =========== =========== =========== BASIC LOSS PER SHARE $ (51.56) $ (178.18) $ (285.01) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,000 2,000 2,000 =========== =========== =========== The accompanying notes are an integral part of these financial statements. 7 ROP MERGER CORP. AND SUBSIDIARY Consolidated Statements of Stockholders' Equity

The accompanying notes are an integral part of these financial statements. 8 ROP MERGER CORP. AND SUBSIDIARY Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these financial statements. 9 ROP MERGER CORP. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2000 and December 31, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Organization The consolidated financial statements presented are those of ROP Merger Corp. (ROP) and its wholly-owned subsidiary, ROP North America, Inc, (ROP, Inc.). Collectively, they are referred to herein as the "Company". During March 1998, a joint venture agreement was entered into by IEI Canada, Inc. and JFJ Ecosystems, Inc. to form ROP North America, LLC (ROP, LLC). ROP, LLC created a wholly-owned subsidiary called ROP North America, Inc. (an Ontario corporation) which became the operating entity. On June 2, 2000, through a Dissolution and Contribution Agreement, ROP Merger Corp. was formed to change ROP, LLC to a corporation. The joint venture partners both contributed their ownership interests in ROP, LLC to the newly-formed ROP Merger Corp. for 1,000 shares of common stock each. At the same time, ROP, LLC was dissolved. The transaction was accounted for as a recapitalization of ROP, LLC with no adjustment to the basis of ROP, LLC's assets or liabilities. For legal purposes, ROP Merger Corp. is the surviving entity, with a wholly-owned subsidiary, ROP North America, Inc. The Company was established to transform organic by-product from commercial waste streams into livestock feed. This process is accomplished, in part, through a liquid feed system. The Company also raises approximately 15,000 hogs under contract. In addition, the hog farm is a beta-site for the liquid feed products. b. Accounting Methods The Company's consolidated financial statements are prepared using the accrual method of accounting. The Company has elected a December 31 year end. c. Cash and Cash Equivalents Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition. d. Basic Loss Per Share June 30, December 31, 2000 1999 1998 ----------- ----------- ------------ (Unaudited) Loss (numerator) $ (103,118) $ (356,351) $ (570,026) Shares (denominator) 2,000 2,000 2,000 ----------- ----------- ----------- Per share amount $ (51.56) $ (178.18) $ (285.01) =========== =========== =========== The computations of basic loss per share of common stock are based on the weighted average number of common shares outstanding during the period of the consolidated financial statements. 10 ROP MERGER CORP. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2000 and December 31, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) e. Change in Accounting Principle The Financial Accounting Standards Board has issued certain new standards, including standards on earnings per share (SFAS 128), capital structure (SFAS 129), comprehensive income (SFAS 130), operating segments (SFAS 131) and postretirement benefits (SFAS 132). The adoption of these standards did not have a material impact on the Company's consolidated financial statements. f. Property and Equipment Property and equipment is recorded at cost. Major additions and improvement are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the estimated useful life of the assets as follows: Description Estimated Useful Life ----------- --------------------- Office equipment 5 years Machinery and equipment 7 to 10 years Leasehold improvements and building 10 to 15 years g. Accounts Receivable Accounts receivable are considered to be fully collectible and no allowance for doubtful accounts has been recorded. h. Provisions for Taxes At December 31, 1999, the Company has an accumulated deficit of $926,377 which includes net operating loss carryforwards that may be offset against future taxable income through 2019. No tax benefit has been reported in the consolidated financial statements because the Company believes there is a 50% or greater chance the net operating loss carryforwards will expire unused. Accordingly, the potential tax benefits of the net operating loss carryforwards are offset by a valuation allowance of the same amounts. i. Principles of Consolidation The consolidated financial statements include those of ROP Merger Corp. and its wholly-owned subsidiary, ROP North America, Inc. All material intercompany accounts and transactions have been eliminated. 11 ROP MERGER CORP. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2000 and December 31, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) j. Statement of Cash Flows The Company's foreign subsidiary, ROP North America, Inc., uses the local currency as its functional currency. Accordingly, assets and liabilities are translated at year-end exchange rates, and operating statement items are translated at average exchange rates prevailing during the year. The resultant cumulative translation adjustments to the assets and liabilities are recorded as a separate component of stockholders' equity. Exchange rate adjustments resulting from foreign currency transactions are included in the determination of net loss. In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows", cash flows from the Company's foreign subsidiary are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets. k. Estimates 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 disclosure 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. l. Advertising The Company follows the policy of charging the costs of advertising to expense as incurred. m. Revenue Recognition Revenue is recognized as billings are submitted to the customer. Billings are submitted once the jobs are substantially completed. n. Unaudited Consolidated Financial Statements The accompanying unaudited consolidated financial statements include all of the adjustments which, in the opinion of management, are necessary for a fair presentation. Such adjustments are of a normal recurring nature. 12 ROP MERGER CORP. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2000 and December 31, 1999 and 1998 NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment consists of the following at June 30, 2000 and December 31, 1999: June 30, December 31, 2000 1999 --------- ---------- (Unaudited) Office equipment $ 4,990 $ 4,990 Machinery and equipment 943,031 940,546 Leasehold improvements and building 164,648 164,648 --------- --------- 1,112,669 1,110,184 Accumulated depreciation (241,502) (185,012) --------- --------- Net property and equipment $ 871,167 $ 925,172 ========= ========= Depreciation expense for the six months ended June 30, 2000 and the years ended December 31, 1999 and 1998 was $58,295, $115,697 and $51,732, respectively. NOTE 3 - NOTES PAYABLE - RELATED PARTIES Notes payable - related parties consisted of the following at June 30, 2000 and December 31, 1999: June 30, December 31, 2000 1999 --------- ---------- (Unaudited) Note payable to JFJ Ecosystems, Inc., interest at 8.0% per annum, principal and interest due on demand. $ 50,000 $ 50,000 Note payable to IEI Canada, Inc., interest at 8.0% per annum, principal and interest due on demand. 70,000 50,000 Notes payable to an individual, interest at 9.0% per annum, principal and interest due on demand. 175,000 155,000 --------- ---------- Total Notes Payable 295,000 255,000 Less: Current Portion (295,000) (255,000) --------- ---------- Long-Term Notes Payable $ - $ - ========= ========== 13 ROP MERGER CORP. AND SUBSIDIARY Notes to the Consolidated Financial Statements June 30, 2000 and December 31, 1999 and 1998 NOTE 3 - NOTES PAYABLE - RELATED PARTIES (Continued) The aggregate principle maturities of notes payable are as follows: Year Ended December 31, Amount ------------ ------------ 2000 $ 255,000 2001 - 2002 - 2003 - 2004 - 2005 and thereafter - ------------ Total $ 255,000 ============ NOTE 4 - COMMITMENTS AND CONTINGENCIES On March 20, 1998, the Company entered into an equipment lease agreement whereby the Company has agreed to lease one of the joint venture partners a certain liquid feed distribution system for $4,414 per month for a term of seven years. NOTE 5 - GOING CONCERN The Company's consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant losses which have resulted in an accumulated deficit of $926,377 at December 31, 1999, a working capital deficit and limited internal financial resources. These factors combined, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty. 14 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED PROFORMA FINANCIAL STATEMENTS December 31, 1999 15 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Balance Sheet December 31, 1999 (Unaudited) ASSETS Industrial Proforma Ecosystems, ROP Merger Adjustments Inc. and Corp. and Increase Proforma Subsidiaries Subsidiary (Decrease) Consolidated ------------ ------------- ----------- ------------ CURRENT ASSETS Cash and cash equivalents $ 44,277 $ - $ - $ 44,277 Restricted cash 43,306 - - 43,306 Accounts receivable 9,902 26,259 - 36,161 Other assets 7,500 816 - 8,319 ------------ ------------- ----------- ------------ Total Current Assets 104,985 27,078 - 132,063 ------------ ------------- ----------- ------------ FIXED ASSETS, NET 191,884 925,172 - 1,117,056 ------------ ------------- ----------- ------------ TOTAL ASSETS $ 296,869 $ 952,250 $ - $ 1,249,119 ============ ============= =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 85,680 $ 35,596 $ - $ 121,276 Accrued expenses 326,346 21,317 (19,306) 328,357 Bank overdraft - 1,414 - 1,414 Notes payable - related parties 750,000 255,000 (1,005,000) - Notes payable - current portion 49,458 - - 49,458 ------------ ------------- ----------- ------------ Total Current Liabilities 1,211,484 313,327 (1,024,306) 500,505 ------------ ------------- ----------- ------------ LONG-TERM DEBT Notes payable 108,266 - - 108,266 ------------ ------------- ----------- ------------ Total Long-Term Debt 108,266 - - 108,266 ------------ ------------- ----------- ------------ TOTAL LIABILITIES 1,319,750 313,327 (1,024,306) 608,771 ------------ ------------- ----------- ------------ COMMITMENTS AND CONTINGENCIES 582,336 - - 582,336 ------------ ------------- ----------- ------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock: 100,000,000 shares authorized of $0.001 par value, 58,941,613 shares issued and outstanding 40,242 2,000 16,700 58,942 Additional paid-in capital 21,136,268 1,613,191 957,606 23,707,065 Other comprehensive income 26,760 (49,891) - (23,131) Accumulated deficit (22,808,487) (926,377) 50,000 (23,684,864) ------------ ------------- ----------- ------------ Total Stockholders' Equity (Deficit) (1,605,217) 638,923 1,024,306 (58,012) ------------ ------------- ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 296,869 $ 952,250 $ - $ 1,249,119 ============ ============= =========== ============ See Summary of Assumptions and Disclosures 16 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Statement of Operations For the Year Ended December 31, 1999 (Unaudited) Industrial Proforma Ecosystems, ROP Merger Adjustments Inc. and Corp. and Increase Proforma Subsidiaries Subsidiary (Decrease) Consolidated ------------ ------------- ----------- ------------ REVENUES Net sales $ 472,865 $ 196,924 $ - $ 669,789 Direct sales 405,100 182,267 - 587,367 ------------ ------------- ----------- ------------ Gross Profits 67,765 14,657 - 82,422 ------------ ------------- ----------- ------------ EXPENSES Depreciation and amortization 97,563 115,697 - 213,260 General and administrative 1,089,270 226,182 (55,155) 1,260,297 ------------ ------------- ----------- ------------ Total Expenses 1,186,833 341,879 (55,155) 1,473,557 ------------ ------------- ----------- ------------ LOSS FROM OPERATIONS (1,119,068) (327,222) 55,155 (1,391,135) ------------ ------------- ----------- ------------ OTHER INCOME (EXPENSE) Interest income - 1,346 - 1,346 Other income 55,155 630 (55,155) 630 Loss on disposition of assets (7,577) - - (7,577) Interest expense (94,065) (31,105) - (125,170) ------------ ------------- ----------- ------------ Total Other Income (Expense) (46,487) (29,129) (55,155) (130,771) ------------ ------------- ----------- ------------ NET LOSS BEFORE EXTRAORDINARY ITEMS (1,165,555) (356,351) - (1,521,906) ------------ ------------- ----------- ------------ EXTRAORDINARY ITEMS Debt forgiveness 350,957 - - 350,957 ------------ ------------- ----------- ------------ Total Extraordinary Items 350,957 - - 350,957 ------------ ------------- ----------- ------------ NET LOSS $ (814,598) $ (356,351) $ - $ (1,170,949) ============ ============= =========== ============ See Summary of Assumptions and Disclosures 17 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Summary of Assumptions and Disclosures NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Business Organization The accompanying proforma financial statements are prepared to present the acquisition of ROP Merger Corp. and Subsidiary by Industrial Ecosystems, Inc. to aid the user in understanding the acquisition. The proforma balance sheet is presented as though the acquisition took place on December 31, 1999 and the statement of operations as though the acquisition took place January 1, 1999. The financial statements presented are those of Industrial Ecosystems, Inc. and Subsidiaries (the "Company"). The Company was incorporated in January 1994. The Company is engaged in the bioremediation business and operates principally in New Mexico. ROP Merger Corp. and Subsidiary (ROP) was incorporated during March 1998. The Company was organized to transform organic by-product from commercial waste streams into livestock feed. This process is accomplished in part, through a liquid feed system. ROP also raises approximately 15,000 hogs under contract. In addition, the hog farm is a beta-site for the liquid feed products. b. Proforma Adjustments The proforma financial statements have been prepared as though the acquisition of ROP Merger by Industrial Ecosystems, Inc. occurred on January 1, 1999. 1) Additional paid-in capital (IEI) $ 1,604,799 Common stock (IEI) 10,392 Additional paid-in capital (ROP) (1,613,191) Common stock (ROP) (2,000) --------------- $ - =============== To record the acquisition of ROP Merger Corp. and Subsidiary through issuance of 10,392,337 shares of common stock. 2) Notes payable - related parties $ (1,005,000) Accrued expenses (19,306) Common stock 8,308 Additional paid-in capital 965,998 Accumulated deficit 50,000 --------------- $ - =============== To record issuance of 8,307,593 common shares in lieu of outstanding debt and to eliminate intercompany accounts. 3) Other income $ 55,155 General and administrative (55,155) --------------- $ - =============== To eliminate intercompany transactions for the year ended December 31, 1999. 18 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED PROFORMA FINANCIAL STATEMENTS December 31, 1998 19 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Balance Sheet December 31, 1998 (Unaudited) ASSETS Industrial Proforma Ecosystems, ROP Merger Adjustments Inc. and Corp. and Increase Proforma Subsidiaries Subsidiary (Decrease) Consolidated ------------ ------------- ----------- ------------ CURRENT ASSETS Cash and cash equivalents $ 12,552 $ 250,248 $ - $ 262,800 Restricted cash 40,669 - - 40,669 Accounts receivable 35,079 16,820 - 51,899 Other assets 10,740 7,816 - 18,556 ------------ ------------- ----------- ------------ Total Current Assets 99,040 274,884 - 373,924 ------------ ------------- ----------- ------------ FIXED ASSETS, NET 275,973 1,010,583 - 1,286,556 ------------ ------------- ----------- ------------ TOTAL ASSETS $ 375,013 $ 1,285,467 $ - $ 1,660,480 ============ ============= =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 356,890 $ 43,649 $ - $ 400,539 Accrued expenses 323,755 9,521 (3,609) 329,667 Unearned revenue 21,666 - - 21,666 Notes payable - related parties 14,286 200,000 (214,286) - Notes payable - current portion 85,902 - - 85,902 ------------ ------------- ----------- ------------ Total Current Liabilities 802,499 253,170 (217,895) 837,774 ------------ ------------- ----------- ------------ LONG-TERM DEBT Notes payable 157,405 - - 157,405 ------------ ------------- ----------- ------------ Total Long-Term Debt 157,405 - - 157,405 ------------ ------------- ----------- ------------ TOTAL LIABILITIES 959,904 253,170 (217,895) 995,179 ------------ ------------- ----------- ------------ COMMITMENTS AND CONTINGENCIES 747,819 - - 747,819 ------------ ------------- ----------- ------------ STOCKHOLDERS' EQUITY (DEFICIT) Common stock: 100,000,000 shares authorized of $0.001 par value, 51,700,835 shares issued and outstanding 33,001 2,000 16,700 51,701 Additional paid-in capital 20,589,759 1,613,191 151,195 22,354,145 Other comprehensive income 38,419 (12,868) - 25,551 Accumulated deficit (21,993,889) (570,026) 50,000 (22,513,915) ------------ ------------- ----------- ------------ Total Stockholders' Equity (Deficit) (1,332,710) 1,032,297 217,895 (82,518) ------------ ------------- ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 375,013 $ 1,285,467 $ - $ 1,660,480 ============ ============= =========== ============ See Summary of Assumptions and Disclosures 20 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Statement of Operations For the Year Ended December 31, 1998 (Unaudited) Industrial Proforma Ecosystems, ROP Merger Adjustments Inc. and Corp. and Increase Proforma Subsidiaries Subsidiary (Decrease) Consolidated ------------ ------------- ----------- ------------ REVENUES Net sales $ 626,545 $ 110,554 $ - $ 737,099 Direct sales 405,787 76,851 - 482,638 ------------ ------------- ----------- ------------ Gross Profits 220,758 33,703 - 254,461 ------------ ------------- ----------- ------------ EXPENSES Bad debt expense 19,802 - - 19,802 Depreciation and amortization 108,677 51,732 - 160,409 General and administrative 1,586,049 590,201 (95,118) 2,081,132 ------------ ------------- ----------- ------------ Total Expenses 1,714,528 641,933 (95,118) 2,261,343 ------------ ------------- ----------- ------------ LOSS FROM OPERATIONS (1,493,770) (608,230) 95,118 (2,006,882) ------------ ------------- ----------- ------------ OTHER INCOME (EXPENSE) Interest income 1,362 41,274 - 42,636 Other income 95,118 539 (95,118) 539 Loss on disposition of assets (104,106) - - (104,106) Loss on investment in joint venture (353,117) - - (353,117) Interest expense (40,236) (3,609) - 43,845 ------------ ------------- ----------- ------------ Total Other Income (Expense) (400,979) 38,204 (95,118) (457,893) ------------ ------------- ----------- ------------ NET LOSS $ (1,894,749) $ (570,026) $ - $ (2,464,775) ============ ============= =========== ============ See Summary of Assumptions and Disclosures 21 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Summary of Assumptions and Disclosures NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Business Organization The accompanying proforma financial statements are prepared to present the acquisition of ROP Merger Corp. and Subsidiary by Industrial Ecosystems, Inc. to aid the user in understanding the acquisition. The proforma balance sheet is presented as though the acquisition took place on December 31, 1998 and the statement of operations as though the acquisition took place January 1, 1998. The financial statements presented are those of Industrial Ecosystems, Inc. and Subsidiaries (the "Company"). The Company was incorporated in January 1994. The Company is engaged in the bioremediation business and operates principally in New Mexico. ROP Merger Corp. and Subsidiary (ROP) was incorporated during March 1998. The Company was organized to transform organic by-product from commercial waste streams into livestock feed. This process is accomplished in part, through a liquid feed system. ROP also raises approximately 15,000 hogs under contract. In addition, the hog farm is a beta-site for the liquid feed products. b. Proforma Adjustments The proforma financial statements have been prepared as though the acquisition of ROP Merger by Industrial Ecosystems, Inc. occurred on January 1, 1998. 1) Additional paid-in capital (IEI) $ 1,604,799 Common stock (IEI) 10,392 Additional paid-in capital (ROP) (1,613,191) Common stock (ROP) (2,000) --------------- $ - =============== To record the acquisition of ROP Merger Corp. and Subsidiary through issuance of 10,392,337 shares of common stock. 2) Notes payable - related parties $ (214,286) Accrued expenses (3,609) Common stock 8,308 Additional paid-in capital 159,587 Accumulated deficit 50,000 --------------- $ - =============== To record issuance of 8,307,593 common shares in lieu of outstanding debt and to eliminate intercompany accounts. 3) Other income $ 95,118 General and administrative (95,118) --------------- $ - =============== To eliminate intercompany transactions for the year ended December 31, 1998. 22 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED PROFORMA FINANCIAL STATEMENTS June 30, 2000 23 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Balance Sheet June 30, 2000 (Unaudited)

See Summary of Assumptions and Disclosures 24 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Consolidated Proforma Statement of Operations For the Six Months Ended June 30, 2000 (Unaudited)

See Summary of Assumptions and Disclosures 25 INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES Summary of Assumptions and Disclosures NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Business Organization The accompanying proforma financial statements are prepared to present the acquisition of ROP Merger Corp. and Subsidiary by Industrial Ecosystems, Inc. to aid the user in understanding the acquisition. The proforma balance sheet is presented as though the acquisition took place on June 30, 2000 and the statement of operations as though the acquisition took place January 1, 2000. The financial statements presented are those of Industrial Ecosystems, Inc. and Subsidiaries (the "Company"). The Company was incorporated in January 1994. The Company is engaged in the bioremediation business and operates principally in New Mexico. ROP Merger Corp. and Subsidiary (ROP) was incorporated during March 1998. The Company was organized to transform organic by-product from commercial waste streams into livestock feed. This process is accomplished in part, through a liquid feed system. ROP also raises approximately 15,000 hogs under contract. In addition, the hog farm is a beta-site for the liquid feed products. b. Proforma Adjustments The proforma financial statements have been prepared as though the acquisition of ROP Merger by Industrial Ecosystems, Inc. occurred on January 1, 2000. 1) Additional paid-in capital (IEI) $ 1,604,799 Common stock (IEI) 10,392 Additional paid-in capital (ROP) (1,613,191) Common stock (ROP) (2,000) ------------ $ - ============ To record the acquisition of ROP Merger Corp. and Subsidiary through issuance of 10,392,337 shares of common stock. 2) Notes payable - related parties $ (295,000) Accrued expenses (31,887) Common stock 8,308 Additional paid-in capital 268,579 Accumulated deficit 50,000 ------------ $ - ============ To record issuance of 8,307,593 common shares in lieu of outstanding debt and to eliminate intercompany accounts. 3) Other income $ 22,205 General and administrative (22,205) ------------ $ - ============ To eliminate intercompany transactions for the six months ended June 30, 2000.

INDUSTRIAL ECOSYSTEMS INC 8-K/A