<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21753
Service Systems International, Ltd.
----------------------------------------
(Exact name of small business issuer as
specified in its charter)
Nevada 88-0263701
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
12840 16th Avenue, Suite 203, White Rock, B.C. Canada V4A 1N6
- --------------------------------------------------------------------------------
(Address of principal executive offices)
604-541-1700
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
--- ---
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 court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,239,338 as of February
28, 1997.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
INDEX
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS....................................2
Consolidated Balance Sheets as of February 28, 1997 and August 31, 1996
(unaudited)...............................................................3
Consolidated Statements of Operation for the six months ended
February 28, 1997 (unaudited).............................................4
Consolidated Statements of Cash Flows for the six months ended
February 28, 1997 (unaudited).............................................5
Statement of PRO FORMA INFORMATION............................................6
Notes to the FINANCIAL STATEMENTS.......................................7 and 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITIONS...........................9 and 10
Part II Other Information...................................................11
Signatures...................................................................12
1
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Part 1. Financial Information
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
2
<PAGE>
Service Systems International, Ltd.
(A Development Stage Company)
Consolidated Balance Sheet
As of February 28, 1997 and August 31, 1996
(Unaudited)
February 28, August 31,
1997 1996
(see Note 2)
ASSETS
Current assets:
Cash $ 6,620 $ 56,988
Accounts receivable 276,369 -
Inventory 307,670 -
Prepaid expenses 15,933 -
Held to maturity investment 220,417 -
Research credit receivable 224,220 -
Stockholder advance - 192
----------- ----------
1,051,229 57,180
Notes Receivable - Affiliate - 125,000
Capital Assets (Note 4) 196,119 43,600
Intangible Assets (Note 5) 31,762 -
----------- ----------
$ 1,279,110 $ 225,780
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 128,389 $ -
Accrued liabilities 9,985 -
Vacation pay payable 8,646 -
Customer deposits 117,527 -
Loans from related parties 624,513 81,833
----------- ----------
889,060 81,833
----------- ----------
Long Term Debt (Note 6) 1,469,660 -
----------- ----------
2,358,720 81,833
----------- ----------
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares authorized, 5,239,338
and 3,348,000 issued and outstanding
respectively 5,239 3,348
Additional paid-in capital 1,798,956 382,344
Deficit accumulated during development stage (2,879,018) (241,218)
Foreign exchange translation adjustment (4,787) (527)
----------- ----------
(1,079,610) 143,947
----------- ----------
$ 1,279,110 $ 225,780
----------- ----------
----------- ----------
See accompanying notes to financial statements.
3
<PAGE>
Service Systems International, Ltd.
(A Development Stage Company)
Consolidated Statement of Operations
For the six months ended February 28, 1997
(Unaudited)
Non-consolidated
from inception to Consolidated
February 28, 1997 Six months
Project Revenue $ - $ 25,074
Project costs - 47,672
----------- -----------
Gross Profit (Loss) - (22,598)
----------- -----------
Expenses
General and administrative 330,511 156,343
Research and development - 76,650
Selling - 56,556
----------- -----------
330,511 289,549
----------- -----------
Net Loss from Operations Before Other Items (330,511) (312,147)
Other Items
Goodwill expensed - (2,347,351)
Interest Income - 1,435
Miscellaneous Income - 20,263
----------- -----------
Net Loss for the period (330,511) (2,637,800)
Deficit, beginning of period - (241,218)
----------- -----------
Deficit accumulated during development stage $ (330,511) $(2,879,018)
----------- -----------
----------- -----------
Net Loss per share $ (.09) $ (0.61)
----------- -----------
----------- -----------
Weighted average shares outstanding 3,512,445 4,351,669
----------- -----------
----------- -----------
See accompanying notes to financial statements.
4
<PAGE>
Service Systems International, Ltd.
(A Development Stage Company)
Consolidated Statement of Cash Flows
For the period ended February 28, 1997
(Unaudited)
Non-consolidated
from inception to Consolidated
February 28, 1997 Six months
Net Cash (Used By) Operating Activities $ (245,511) $ (321,759)
----------- ----------
Cash flows from investing activities:
Additions to capital assets (46,450) (2,776)
Additions to intangible assets - (2,145)
Increase in notes receivable (319,474) -
Acquisition of subsidiary (Note 3) - 1,537
----------- ----------
Net Cash (Used By) Investing Activities (365,924) (3,384)
----------- ----------
Cash flows from financing activities:
Proceeds from sale of stock 538,947 312,233
Foreign exchange translation adjustment (6,848) (3,547)
Proceeds from (repayment of)
related party borrowings - net 77,916 (33,911)
----------- ----------
Net Cash Provided from Financing Activities 610,015 274,775
----------- ----------
Net Increase (Decrease) in Cash (1,420) (50,368)
Cash - Beginning of Period - 56,988
----------- ----------
Cash - End of Period $ 1,420 $ 6,620
----------- ----------
----------- ----------
Income Tax Expense $ - $ -
----------- ----------
----------- ----------
Non-cash Financing Activity
A total of 1,474,918 shares were issued to
acquire 50.689% of a subsidiary (see Note 3)
See accompanying notes to financial statements.
5
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Service Systems International, Ltd.
Statement of Pro Forma Information
February 28, 1997
<TABLE>
<CAPTION>
UV Systems Service Systems Adjustments & Eliminations Consolidated
Debit Credit Balance
<S> <C> <C> <C> <C> <C>
Cash 8,040 (1,420) 6,620
Held to maturity investment 220,417 220,417
Accounts Receivable 276,369 276,369
Inventory 307,670 307,670
Prepaid Expenses 15,933 15,933
Research tax credit receivable 224,220 224,220
Notes Receivable - Affiliate 319,474 319,474 0
Investment in UV Systems 1,180,248 1,180,248 0
Capital Assets 149,669 46,450 196,119
Intangible Assets 31,762 2,347,351 2,347,351 31,762
Accounts Payable (128,389) (128,389)
Accrued Liabilities (9,985) (9,985)
Vacation Pay Payable (8,646) (8,646)
Customer Deposits (117,527) (117,527)
Deferred Liabilities (282,474) 282,474 0
Loans from Related Parties (660,158) 113,561 (546,597)
Officers' Loans (77,916) (77,916)
Long Term Debt (Preferred Stock) (1,469,660) (1,469,660)
Common Stock - SSI (5,239) (5,239)
Common Stock - UVST (4,820) 4,820 0
Paid-In Capital (1,798,956) (1,798,956)
Retained Earnings (Deficit) 241,218 241,218
Current Earnings 1,449,941 89,293 2,347,351 1,248,785 2,637,800
Currency Translation Adjustment (2,362) 6,848 300 4,787
Total 0 0 5,095,858 5,095,858 0
</TABLE>
6
<PAGE>
Note 1 Summary of Significant Accounting Policies
The accompanying condensed unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included.
The results of operations for the period presented are not necessarily
indicative of the results to be expected for the full year. Information
for the comparable periods of the fiscal year ended August 31, 1996,
is not provided as the information is not readily available.
Note 2 Consolidated Financial Statements
These interim financial statements include the accounts of the
Company, and its newly acquired 50.689% owned subsidiary UV Systems
Technology Inc. ("UV"). As UV was acquired on December 1, 1996,
results of operations include only the period from December 1, 1996 to
February 28, 1997. Comparative figures only include the accounts of
the Company.
Note 3 Business Acquisition
On December 1, 1996, the Company acquired 50.689% of UV, a Company in
the business to further develop a patented ultraviolet disinfection
system called the Ultra Guard-TM- System. The acquisition was
accounted for using the purchase method of accounting for business
combinations. The Company issued 1,474,918 common shares at a deemed
value of $0.75 per share for total share consideration of $1,106,189.
The Company also assumed a shareholders deficit of $1,241,162. The
excess of the purchase price over the fair market value of net
tangible assets acquired, totalling $2,347,351, was allocated to
goodwill and expensed. Details of the liabilities assumed and assets
acquired are as follows:
$ $
I) Share consideration
Capital stock (1,474,918 @ $.001) 1,475
Paid in capital 1,104,714 1,106,189
--------- ---------
ii) Liabilities assumed
Current Liabilities
Accounts payable 144,036
Accrued liabilities 25,296
Vacation pay payable 6,213
Customer deposits 118,027
Loans from related parties 677,798
Long Term Debt
Preferred Stock of Subsidiary 1,469,660 2,441,030
---------
iii) Assets acquired
Short term investment (221,357)
Accounts receivable (284,033)
Inventory (282,225)
Prepaid expense (11,830)
Research tax credit receivable (210,570)
Capital assets - net (158,699)
Intangible assets (29,617) (1,198,331)
--------
iv) Cash Received in Combination (1,537)
---------
Net tangible book value of
liabilities assumed 1,241,162
---------
Excess of cost over book value 2,347,351
---------
---------
The Company has recognized no minority interest on acquisition as
UV has negative tangible book value and thus has no interest in
underlying net assets.
7
<PAGE>
Note 4 Capital Assets
Capital assets are stated at cost less accumulated depreciation.
<TABLE>
<CAPTION>
February 28, August 31,
1997 1996
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 28,868 4,771 24,097 -
Computer software 3,379 610 2,769 -
Display equipment 32,332 6,466 25,866 -
Office furniture and equipment 25,858 5,172 20,686 -
Plant jigs, dies, moulds,
tools and equipment 116,627 13,377 103,250 43,600
Leasehold improvements 27,141 7,690 19,451 -
------- ------ ------- ------
234,205 38,086 196,119 43,600
------- ------ ------- ------
------- ------ ------- ------
Depreciation per class of asset: $1,293
$ $
Computer equipment 1,193 -
Computer software 153 -
Display equipment 1,617 -
Office furniture and equipment
Plant jigs, dies, moulds,
tools and equipment 3,343 -
Leasehold improvements 1,357 -
------- ------
8,956 -
------- ------
------- ------
</TABLE>
Note 5 Intangible Assets
Intangible assets represent legal costs associated with registering
and protecting certain patents and trademarks associated with the
System. These assets will be amortized when the Company completes its
pilot plant testing. Components of the System were patented in the
United States on April 12, 1996. Applications have been made for
patent protection under the International Patent Protection Treaty
covering up to 40 countries.
Note 6 Long Term Debt $1,469,660.
Long Term Debt occurs as a result of the consolidation of UV Systems
Technology Inc. (UVST), and the Company. The preferred shares were
issued by UVST to the remaining two minority stockholders; Working
Opportunity Fund (EVCC) Ltd., and MDS Ventures Pacific Inc.; holding
49.31 % of UVST. By agreement signed December 6, 1996 with Working
Opportunity Fund (EVCC) Ltd., and MDS Ventures Pacific Inc., the
Company will acquire the remaining common and preferred shares. A copy
of this Agreement including details of the purchase transaction is
attached to this filing.
Note 7 Pro forma Supplemental Information
Presentation of consolidated Earnings (Loss) per Share as at August
31, 1996
Sales $ 397,100
Net Income (Loss) $ (960,761)
Earnings (Loss) per share $ (0.30)
Weighted average share 3,215,743
8
<PAGE>
Service Systems International, Ltd.
(A Development Stage Company)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS AND FINANCIAL
CONDITION.
The following discussion and analysis should be read in conjunction with the
Company's Financial Statements and Notes thereto. Information discussed
herein may include forward-looking statements regarding future events or the
financial performance of the Company, and is subject to a number of risks
and other factors which could cause the actual results to differ materially
from those contained in any forward looking statements. Among such factors
are: general business and economic conditions; customer acceptance and demand
for the Company's products; the Company's overall ability to design, test and
introduce new products on a timely basis; the nature of the markets addressed
by the Company's products; and other risk factors listed from time to time in
documents filed by the Company with the SEC.
BASIS OF PRESENTATION
Information for the comparable periods of the fiscal year ended August 31,
1996, is not provided as the information is not readily available.
MANAGEMENT'S DISCUSSION
The Company is a development stage company which was incorporated in the
State of Nevada in August 1990, and remained inactive until September 1995.
The initiation of the Company's current business was accompanied by a change
of ownership. Deficits accumulated prior thereto were reclassified as a
reduction of paid-in capital.
In September 1995 the Company initiated a marketing distribution agreement
with UV Systems Technology Inc., a manufacturer of equipment using
proprietary ultraviolet light technology for the microbiological
disinfection of industrial and municipal wastewater. In July 1996 the
Company entered into a funding agreement with UV Systems Technology Inc.,
(UVST) whereby the Company provided 50% of UVST's operating cash needs for a
six-month period, during which time the companies planned to complete an
acquisition. On December 1, 1996, the Company acquired 50.69% of the common
stock of UVST from two principals and certain minority stockholders. On
December 6, 1996, the Company entered into an agreement with the remaining
two minority stockholders, Working Opportunity Fund (EVCC) Ltd. and MDS
Ventures Pacific Inc., to acquire the remaining 49.31% common stock and their
preferred stock, contingent on receipt by the Company of additional funding.
A copy of this Agreement is filed with this Form. These transactions when and
if completed will give the Company 100% ownership of UVST.
UVST, also a development stage company, was incorporated as 479393 B.C. Ltd.
pursuant to the Company Act of British Columbia, Canada. On August 14, 1995,
479393 B.C. Ltd.'s name was changed to UV Systems Technology Inc. UVST has
developed and patented an ultraviolet disinfection system called the Ultra
Guard-TM- System ("the System"). UVST holds various patents on System
components and ultraviolet lamps. One full scale pilot plant System had been
sold in New Zealand and a promotion full scale demonstration System had been
sold into Western Canada.
During the three months ended February 28, 1997, the Company continued with
its System development and testing programs. These programs included the
development of a mechanical and electronic automatic cleaning system to
remove the fouling build-up due to suspended solids prevalent in wastewater,
and temperature control within the System reactor to extend lamp life and
efficiency. These programs are expected to be completed within the next
quarter.
In March 1997 the Company received an order for a full scale System for a
major Eastern Canadian City. This order, valued at $320,000, is the first of
five channels requiring a UV system at this city plant, where another
supplier's UV system is being retrofitted. The order is contingent upon
satisfactory testing of the System.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
REVENUES. During the six-month period ended February 28, 1997,the Company
revenues consisted of minor parts sold at a discounted price, resulting in a
net project loss of $22,598. No other operational revenues were received
during the period. As this report is the first report for the Company, no
meaningful comparison to prior periods is practicable at this time.
NET LOSSES. The acquisition of UVST during this period ended February 28,
1997, caused net losses to increase to $2,637,800, causing the deficit to
increase from $241,218 to $2,879,018. The increased net loss, net of
interest income and Scientific Research and Economic Development tax refunds,
was due primarily to writing off the acquired Goodwill Asset of UVST in the
amount of $2,347,351.
9
<PAGE>
and other items in the amount of $290,449 of (net of interest and
miscellaneous income of $21,698), made up of operational losses of $22,598,
Administrative expenses of $156,343, Research & Development expense of
$76,650, and Selling expense of $56,556.
CURRENT ASSETS. Current Assets grew from $57,180, pre-acquisition to
$1,051,229, post acquisition; the increase of $994,049 was made up of Short
Term Investments of $220,417, Accounts Receivable of $276,369, Inventory of
$307,670, Investment Tax Credits Receivable of $224,220 and Prepaid Expenses
of $15,933. Fixed Assets grew from $43,600 pre-acquisition to $227,881, post
acquisition. The Fixed Assets at book value consisted of Intangible Assets
(patents and trademarks) of $31,762 and Capital Assets of $196,119 detailed
as Furniture and Equipment of $47,552, Plant Equipment of $36,281, and
Display and Production Demonstration Units of $92,834. Current Liabilities
increased from $81,833 pre-acquisition to $889,060 post acquisition
consisting of notes payable to two UVST shareholders in the amount of
$624,513. Long Term Liabilities stood at $1,469,660 post acquisition due
solely to the assumption of debt due to the preferred shareholders of UVST.
LIQUIDITY
During the six months ended February 28, 1997, the Company financed its
operation in part from proceeds of sales of restricted common stock. During
the period 416,420 shares were sold for cash at $ 0.75 per share, totalling
$312,315. In addition, during the last quarter, $108,204 was received through
a rights offering in the common stock of UVST. This rights offer was
purchased prorata by the minority shareholders; Working Opportunity Fund
(EVCC) Ltd., and MDS Ventures Pacific Inc.; and the Company. In the short
term the Company will continue to fund its operation through internal sources
and through alternative forms of financing. For the longer term needs, the
Company is seeking additional financing, which could be in debt or equity
form, in the amount of $8.5 million. These funds, if and when received, will
be used to increase Engineering and Sales staff as necessary, purchase fixed
plant and demonstration equipment, finance operations, and launch an
aggressive advertising, sales and marketing program to increase revenue
through exploitation of the rapidly expanding UV market. Receipt of these
funds will be essential for the development of the Company and for completion
of the UVST acquisition. Failure to receive these funds may be expected to
have a material adverse effect on the Company.
10
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On February 18, 1997, the Registrant sold 75,000 units,
each unit consisting of one share of common stock and
one A warrant, pursuant to the exemption from
registration provided by Regulation S under the
Securities Act of 1933.
In March 1997 the Company received an order for a
full scale System for a major Eastern Canadian City.
This order, valued at $320,000, is the first of five
channels requiring a UV system at this city plant,
where another supplier's UV system is being
retrofitted.
ITEM 6. EXHIBITS AND REPORTS on Form 8-K
(a) Exhibits (exhibit reference numbers refer to Item 601
of Regulation S-B)
Exhibit Number Description
- -------------- -----------
(3)(i)1 Articles of
Incorporation
(3)(ii)1 Bylaws
(10)(i) Agreement Between
Communaute Urbaine
de Quebec and UV Systems
Technology, Inc., dated
March 7, 1997
(10)(ii) Agreement, as
amended among
UV Systems Technology,
Inc., John Gaetz,
Douglas Sommerville,
Working Opportunity
Fund, MDS Ventures Pacific
Inc. and the Company dated
December 6, 1996
(10)(iii) Agreement between
Douglas Sommerville
and the Company dated
December 7, 1996
(10)(iv) Agreement between
John Gaetz and
the Company dated
December 6, 1996
(10)(v) Sample Agreement
among minority
shareholders of UV
Systems Technology, Inc.
and the Company, each
dated February 28, 1997
(11) Statement re:
computation of per
share earnings
(23) Consent of experts
and counsel
(27) Financial Date
Schedule
(99) Audited financial
Statements for UV
System Technology, Inc.,
as of August 31, 1996
1 Incorporated by reference to the Registrant's Form 10SB effective January
17, 1997.
(b) Reports on Form 8-K
None
11
<PAGE>
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.
Dated: April 16, 1997 Service Systems International, Ltd.
By:
------------------------------
Ken Fielding, President and
Chief Financial Officer
12
<PAGE>
SERVICE SYSTEMS INTERNATIONAL, LTD.
EXHIBIT INDEX
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
(3)(i)1 Articles of
Incorporation --
(3)(ii)1 Bylaws --
(10)(i) Agreement Between
Communaute Urbaine
de Quebec and UV Systems
Technology, Inc, dated
March 7, 1997 Filed herewith
electronically
(10)(ii) Agreement, as
amended among Filed herewith
UV Systems Technology, electronically
Inc., John Gaetz,
Douglas Sommerville,
Working Opportunity
Fund, MDS Ventures Pacific
Inc. and the Company dated
December 6, 1996
(10)(iii) Agreement between
Douglas Sommerville Filed herewith
and the Company dated electronically
December 7, 1996
(10)(iv) Agreement between Filed herewith
John Gaetz and electronically
the Company dated
December 6, 1996
(10)(v) Sample Agreement
among minority
shareholders of UV Filed herewith
Systems Technology, Inc. electronically
and the Company, each
dated February 28, 1997
(11) Statement re:
computation of per Filed herewith
share earnings electronically
(23) Consent of experts
and counsel Filed herewith
electronically
<PAGE>
(27) Financial Date
Schedule Filed herewith
electronically
(99) Audited financial
Statements for UV Filed herewith
System Technology, Inc. electronically
as of August 31, 1996
1 Incorporated by reference to the Registrant's Form 10SB effective January
17, 1997.
<PAGE>
This Agreement for reference dated this 7th day of March 1997
Between:
Communaute Urbaine de Quebec UV Systems Technology Inc.,
100 Boulevard Henri-Bourassn 2800 Ingleton Ave.
C.P. 202 Burnaby B.C. V5C 6G7
Quebec, Quebec G1L 4T8
Communaute Urbaine de Quebec (CUQ) has a requirement to provide disinfection
of the sewage at its Stations de traitement des eaux usees (the Plant). CUQ
requests UV Systems Technology Inc. and UV Systems Technology Inc. (UVST)
agrees to provide its High efficiency, High Intensity, Ultra Violet
Disinfection System (the Ultra Guard -TM- UV System) to CUQ.
CUQ and UVST agree as follows:
The peak sewage flow totals 15,600(m3)/hr and the average sewage flow
totals 6000 (m3)/hr is delivered to six (6) channels having dimensions of
183 cm X 205 cm X 660 em. Five (5) channel are in operation, each of which is
designed to treat a peak flow of 3120 (m3)/hr.
UVST will supply the Ultra Guard -TM- UV System to be installed into the
inactive channel (the sixth channel) to determine performance and capability
to disinfect sewage flows up to 3120 (m3)/hr. A total of five channel
ultimately will be retrofitted with UV disinfection equipment.
The Ultra Guard -TM- UV System will disinfect effluents delivered to the UV
system so that at peak flow, effluents having a transmission of 20 percent
+/-, which prior to treatment contain 500,000 to 2,000,000 CFU/100ml, will
after treatment contain no more than 20,000 CFU/100ml (the Performance
Requirement). Effluent delivered to the UV system with improved transmission
(higher than 20%) or at lower flows, could be treated to a lower number of
CPU/100ml or the Ultra Violet lamps UV output could be reduced to effect
power savings.
CUQ will provide electrical service at the correct voltage, all installation,
electrical and assembly labour, and installation tools, lifting equipment and
concrete anchor bolts required for a complete and functioning UV system in
accordance with written and oral instruction, and drawing provided by UVST.
UVST shall be permitted access to view the site for final arrangement of the
Ultra Guard -TM- UV System prior to commencement of any work on the project.
CUQ will provide to UVST a full analysis of the effluent for review and
acceptance by UVST prior to the commencement of any work on the project.
UVST will provide installation, start-up and training supervision totalling 2
weeks.
UVST will supply a fully operational and ready for testing Ultra Guard -TM-
UV System, to the requirements detailed above for a performance and testing
period commencing June 30, 1997, or earlier if possible and ending October
31, 1997 (the Test Period).
<PAGE>
During the Test Period, CUQ shall perform testing as deemed necessary by CUQ
to prove the Performance Requirement and during the final month of the Test
Period, CUQ will conduct microbiological testing over a 30 day period as
various flow rates with the results calculated on a 30 day geometric mean.
Subject to meeting the Performance Requirement and CUQ acceptance within 90
days from completion of the Test Period, 60 days thereafter CUQ shall pay for
the Ultra Guard -TM- UV System.
Should the Ultra Guard-TM- UV System not perform to the Performance
Requirement and CUQ acceptance, CUQ will remove the Ultra Guard -TM- UV System
under UVST supervision, clean, pack and deliver the Ultra Guard -TM- UV
System, FOB, Burnaby, B.C. All costs of removal, cleaning, packing,
supervision and delivery shall be paid for by CUQ.
The Ultra Guard -TM- UV System will comprise the following equipment;
24 AC4- 100 Ultra Guard -TM- ultraviolet lamps
4 Flow balanced weirs
4 diffusor plates with manual gates
24 infinitely variable lamp controllers
1 system for energy use pacing on flow and transmission
1 monorail with powered chain hoist
1 automatic quartz cleaning system
Total price, Ultra Guard -TM- UV System, FOB, Burnaby, B.C. . . . . $393,600.00
Total price of installation structural materials/grating. . . . . . $11,544.00
Total price UV lamp usage costs . . . . . . . . . . . . . . . . . . $17,200.00
Total price 2 weeks supervision/training including expenses . . . . $6,000.00
The cost of UV lamp usage will be deducted from the System price when UV
Systems is purchased.
Terms of payment;
Supervision and
Training costs. . . . .30 days after completion of installation and training
UV lamp usage and
installation structural costs. . . . . . . . .60 days after delivery to site
System cost. . . . . . . . . within 150 days of completion of the Test Period
UV Systems Technology Inc. Communaute Urbaine de Quebec
/s/ John R. Gaetz /s/ Girard Loyer
- -------------------------- ----------------------------
Authorized Signature Authorized Signature
<PAGE>
This Agreement dated for reference the 6th of December 1996.
Among:
UV Systems Technology Inc. Douglas F. Sommerville
2800 Ingleton Avenue c/o 2800 Ingleton Avenue
Burnaby, B.C. Burnaby, B.C.
V5G 6G7 V5G 6G7
(the "Company") ("Sommerville")
John R. Gaetz Service Systems International, Ltd.
c/o 2800 Ingleton Avenue c/o 12840 - 16th Avenue
Burnaby, B.C. Suite 203
V5G 6G7 White Rock, B.C.
("Gaetz") V4A 1N6
("SSI")
Working Opportunity Fund (EVCC) Ltd. MDS Ventures Pacific Inc.,
2901 - 1055 West Georgia Street 305 - 555 West 8th Avenue
P.O. Box 11170, Royal Centre Vancouver, B.C.
Vancouver, B.C. V5Z 1C6
V6E 3R5 ("MDS")
("WOF")
Witness that in consideration of the mutual promises contained herein (the
receipt and sufficiency of which is hereby acknowledged), MDS, WOF, SSI,
Gaetz, Sommerville and the Company agree as follows:
1. The parties hereto agree and subscribe on a pro rata basis to a rights
offering by the Company in the amount of Three Hundred Thousand
($300,000) Dollars, notice of which was sent to the Common shareholders
on November 28, 1996 (the "Rights Offering").
2. The Company, WOF and MDS agree to a waiver of the rights of first refusal
contained in Article 4 of the Shareholders' Agreement among the Company,
WOF, MDS, Gaetz and Sommerville dated as of August 17, 1995 (the
"Shareholders' Agreement") with respect to any transfer of shares in the
capital of the Company contemplated by this Agreement.
3. SSI will raise new equity financing of not less than $2,000,000 for the
Company by March 1997, or such later date as each of MDS, WOF, the Company
and SSI may agree (the "Financing") in addition to any funds advanced by
SSI to the Company up to March 31, 1997.
<PAGE>
-2-
4. Within 30 days of the Financing by SSI, WOF and MDS:
a) will each convert up to one-half of their Class A Preferred shares
in the capital of the Company (the "Class A Preferred shares") to
secured debentures of the Company (the "Secured Debentures")
secured by a general security agreement given by the Company and
guaranteed by SSI or otherwise secured in a manner acceptable to MDS
and WOF, as the case may be;
b) WOF and MDS may each, at their option, convert up to one-half of
the aggregate amount of promissory notes made in favour of such
party by the Company for funds advanced by WOF and MDS in excess of
the approximately $1,000,000 heretofore invested by each of WOF and
MDS in the Company, into common shares of SSI at the rate of $2.00
per common share in the capital of SSI.
5. The Company will repay to each of MDS and WOF from the Financing the
funds heretofore invested in the Company by each of MDS and WOF in excess
of $1,000,000, except to the extent converted pursuant to subparagraph 4(b)
above.
6. The Company will redeem the Secured Debentures at the rate of $25,000.00
per month as to MDS and $25,000.00 per month as to WOF so that the
Secured Debentures in the amount of $500,000 as to MDS and $500,000 as
to WOF are fully redeemed upon the expiry of 20 months therefrom.
7. Notwithstanding subparagraph 6 above, all but not less than all, of the
Secured Debentures outstanding under subparagraph 6 above may be fully
redeemable at the option of the Company upon 60 days' notice to the
holder thereof at their outstanding and unpaid principal amount. Any
holder of Secured Debentures, as the case may be, may within the 60 day
notice period, send a direction to the Company and SSI requiring that all
or a part of the unpaid redemption price be paid by exchanging same for
common shares in the capital of SSI at the rate of one common share for
each $2.00 principal amount of the Secured Debentures.
8. Secured Debentures of each of MDS and WOF will be exchangeable at the
option of the holder at any time into common shares in the capital of SSI
at the rate of one common share for each $2.00 principal amount of the
Secured Debentures.
9. Each of MDS and WOF will within 30 days of the Financing by SSI,
exchange its remaining 500 Class A Preferred Shares for 250,000 common
shares in the capital of SSI.
10. All common shares in the capital of SSI issued in subparagraph 4(b),
paragraphs 7, 8 and 9 will include a detachable warrant certificate which
will entitle the holder to purchase one common share in SSI for each
common share in SSI issued in subparagraph 4(b), paragraphs 7, 8 and 9 at
$2.00 per common share (the "Warrants") at any time within four years from
the date of issuance of the common shares.
11. SSI will qualify 100,000 common shares in the capital of SSI as free
trading in the United States on issuance and use its best efforts to
qualify as free trading in the United States the
<PAGE>
-3-
remaining common shares in the capital of SSI issued in paragraphs 7, 8
and 9 so that all common shares issued as contemplated by this Agreement
are fully free trading within 24 months of issuance or as otherwise agreed
by MDS, WOF and SSI.
12. From the date hereof until completion of the Financing, SSI will permit
MDS and WOF full access to its financing plans and activities.
13. At the completion of the Financing or so long as MDS and WOF, as the
case may be, hold Secured Debentures, each will be entitled to appoint one
board member to the Board of Directors of SSI.
14. If SSI is unable to complete the Financing by March 31, 1997, or such
other date as may be agreed by each of the Company, WOF, MDS and SSI,
any funds advanced by SSI to the Company up to such date shall not be
repaid by the Company and SSI will be deemed to forfeit all right to any
repayment thereof, including interest, notwithstanding the existence of
any promissory note or other evidence of debt.
15. From the date hereof until released in accordance with the terms of this
paragraph 15, the stock powers of attorney or share certificates, as the
case may be, representing the Common shares in the capital of the
Company which MDS and WOF agree to transfer to SSI, duly executed or
endorsed in blank for transfer, together with a copy of this Agreement
for reference purposes to this paragraph 15 only, will be held in escrow
by Owen, Bird upon the following terms:
a) if SSI has completed the Financing by March 31, 1997 or such other
date as may be agreed by each of the Company, WOF, MDS and SSI, and
the Company has repaid MDS and WOF in accordance with paragraph 5,
as confirmed in writing to Owen, Bird by a certificate of SSI's
banker confirming the deposit of no less than $2,000,000 and a
certificate from each of MDS and WOF that each has repaid any
amounts owing to it in accordance with paragraph 5, Owen, Bird will
release the said stock powers of attorney or share certificates, as
the case may be, representing the Common shares to SSI to complete
the transfer;
b) if SSI has not completed by the Financing by March 31, 1997 or the
Company has not repaid MDS and WOF in accordance with paragraph 5, as
confirmed in writing to Owen, Bird by a certificate of SSI's banker
confirming the deposit of no less than $2,000,000 or by a certificate
from MDS or WOF that it has not been paid any amounts owing to it in
accordance with paragraph 5, Owen, Bird will release the stock powers
of attorney or share certificates, as the case may be, representing
the Common shares to MDS and WOF, respectively, and the transfer will
be deemed to be void AB INITIO.
16. The Company shall bear all legal costs of the parties in connection with
the transactions contemplated herein which legal costs may be offset
against the proceeds of the Rights Offering.
<PAGE>
-4-
17. The Shareholders' Agreement will remain in full force and effect so long
as MDS and WOF hold any Class A Preferred shares or Common shares of the
Company.
18. Sommerville hereby agrees to release the Company, SSI and their
respective directors, officers and employees from any and all claims,
losses, damages or compensation he may have against such persons in his
capacity as a director, officer or employee of the Company.
19. All dollar amounts used herein refer to Canadian dollars.
20. This Agreement may be executed by facsimile and by counterpart.
UV SYSTEMS TECHNOLOGY INC.
Per: /s/ John R. Gaetz
----------------------------
Authorized Signatory
MDS VENTURES PACIFIC INC. SERVICE SYSTEMS INTERNATIONAL,
LTD.
Per: /s/ F.D.D. Scott Per: /s/ Ken Fielding
----------------------------- ------------------------
/s/ Charles Nield
WORKING OPPORTUNITY FUND OWEN BIRD
(EVCC) LTD.
Per: /s/ James Barker Per: /s/ Douglas R. Johnson
----------------------------- -----------------------
/s/ John R. Gaetz /s/ Douglas F. Sommerville
- ----------------------------------- -----------------------------
JOHN R. GAETZ DOUGLAS F. SOMMERVILLE
<PAGE>
This Agreement dated for reference the 11th day of April 1997.
Among:
UV Systems Technology Inc. Douglas F. Sommerville
2800 Ingleton Avenue c/o 2800 Ingleton Avenue
Burnaby, B.C. Burnaby, B.C.
V5G 6G7 V5G 6G7
(the "Company") ("Sommerville")
John R. Gaetz Service Systems International, Ltd.
c/o 2800 Ingleton Avenue c/o 12840 - 16th Avenue
Burnaby, B.C. Suite 203
V5G 6G7 White Rock, B.C.
("Gaetz") V4A IN6
("SSI")
Working Opportunity Fund (EVCC) Ltd. MDS Ventures Pacific Inc.
2901 - 1055 West Georgia Street 305 - 555 West 8th Avenue
P.O. Box 11170, Royal Centre Vancouver, B.C.
Vancouver, B.C. V5Z IC6
V6E 3R5 ("MDS")
("WOF")
This will confirm the agreement of the signatories hereto to amend their
agreement dated December 6, 1996 by changing the dates referred to in
paragraphs 3, 14, 15a), and 15b) of that agreement from March 31, 1997 to May
31, 1997 on the condition that all other terms and conditions of that
agreement remain in force, MUTATIS MUTANDIS.
<PAGE>
UV SYSTEMS TECHNOLOGY INC.
Per: /s/ John R. Gaetz
-----------------------------
(AUTHORIZED SIGNATORY)
MDS VENTURES PACIFIC INC. SERVICE SYSTEMS INTERNATIONAL
LTD.
Per: /s/ F.D.D. Scott Per: /s/ Ken Fielding
----------------------------- --------------------------
/s/Charles Nield
WORKING OPPORTUNITY FUND OWEN BIRD
(EVCC) LTD.
Per: /s/ James Barker Per: /s/ Douglas R. Johnson
----------------------------- --------------------------
/s/John E. Gaetz /s/Douglas H. Sommerville
- ---------------------------------- ------------------------------
JOHN E. GAETZ DOUGLAS H. SOMMERVILLE
ACCEPTED AND AGREED TO THIS 11th day of April, 1997
<PAGE>
This agreement dated for reference the 7th day of December 1996
AGREEMENT
Between: SERVICE SYSTEMS INTERNATIONAL INC.
Suite 203
12840 - 16th Avenue
White Rock, B.C., V4A 1N6
(hereinafter "Buyer")
and: Douglas F Sommerville
1199 Duchess Avenue
West Vancouver, B.C., V7T 1H1
(hereinafter "Seller")
Whereas the Seller is the beneficial owner of 2,645,039 common shares,
representing 20.62% of the outstanding common shares of UV Systems Technology
Inc, a private British Columbia registered Corporation having it's registered
offices at 1100 - 1055 West Hastings Street, Vancouver B.C. V6E 2E9,
and;
Whereas the Buyer wishes to purchase and Seller wishes to sell the
aforementioned shares of UV Systems Technology Inc.;
now therefore, Seller and Buyer covenant and agree;
a) Seller will issue to Buyer, full and clear title in 2,645,039 shares
of common stock in UV Systems Technology Inc., in exchange for 600,000
shares of Buyer common voting stock.
b) All common shares in the capital of Buyer issued in paragraph (a), will
include a warrant certificate which will entitle the holder to purchase
one common shares in the capital of Buyer for each common share in the
capital of Buyer issued in paragraph (a) at a purchase price of two
Canadian Dollars (C$2.00) per common share, at any time within four
years from the date of issuance of the common shares.
c) Buyer will qualify on issuance 100,000 common shares in the capital of
Buyer issued in paragraph (a) as free trading in the United States and
use its best efforts to qualify as free trading in the United States the
remaining common shares in the capital of Buyer I issued in paragraph
(a) so that all common shares issued as contemplated by this Agreement
are fully free trading within 24 months of issuance or as otherwise
agreed between Buyer and Seller.
../2
<PAGE>
...2...
d) Seller covenants and agrees to assign to Buyer all rights and ownership
as and if they exist in the Incentive Stock Option Agreement between
Seller and UV Systems Technology Inc., dated August 17, 1995 and
attached as Schedule "A", for the sum of One Canadian Dollars (C$1.00),
receipt of which is hereby acknowledged.
e) Seller covenants and agrees to assign to Buyer all rights and ownership
as and if they exist in 2,520,000 shares of common voting stock in UV
Waterguard Systems Inc., for the sum of One Canadian Dollars (C$1.00),
receipt of which is hereby acknowledged.
f) Delivery of shares to and from Buyer and Seller and Option Agreement to
Seller shall occur within thirty (30) days of date of signing of this
Agreement.
Witness, Name and Address Service Systems International Ltd.
/s/ O. Swinton /s/Ken Fielding
------------------------- ---------------------------------
Ken Fielding
-------------------------
/s/ John R. Gaetz /s/Charles P Nield
------------------------- ---------------------------------
Charles P Nield
Witness, Name and Address
/s/ John R. Gaetz /s/ Douglas F Sommerville
------------------------- ---------------------------------
Douglas F Sommerville
-------------------------
-------------------------
<PAGE>
This agreement dated for reference the 7th day of December 1996
AGREEMENT
Between: SERVICE SYSTEMS INTERNATIONAL INC.
Suite 203, 12840 - 16th Avenue
White Rock, B.C., V4A 1N6
(hereinafter "Buyer")
and: John R. Gaetz
404 - 1240 Quayside Drive
New Westminster, B.C., V3M 6H1
(hereinafter "Seller")
Whereas the Seller is the beneficial owner of 2,643,039 common shares,
representing 20.62% of the outstanding common shares of UV Systems Technology
Inc., a private British Columbia registered Corporation having it's
registered offices at 1100 - 1055 West Hastings Street, Vancouver B.C. V6E
2E9,
and;
Whereas the Buyer wisher to purchase and Seller wishes to sell the
aforementioned shares of UV Systems Technology Inc.;
now therefore, Seller and Buyer covenant and agree;
a) Seller will issue to Buyer, full and clear title in 2,645,039 shares
of common stock in UV Systems Technology Inc., in exchange for 600,000
shares of Buyer common voting stock.
b) All common shares in the capital of Buyer issued in paragraph (a),
will include a warrant certificate which will entitle the holder to
purchase one common shares in the capital of Buyer for each common
share in the capital of Buyer issued in paragraph (a) at a purchase
price of two Canadian Dollars (C$2.00) per common share, at any time
within four years from the date of issuance of the common shares.
c) Buyer will qualify on issuance 100,000 common shares in the capital of
Buyer issued in paragraph (a) as free trading in the United States and
use its best efforts to qualify as free trading in the United States
the remaining common shares in the capital of BuyerI issued in
paragraph (a) so that all common shares issued as contemplated by this
Agreement are fully free trading within 24 months of issuance or as
otherwise agreed between Buyer and Seller.
../2
<PAGE>
...2...
d) Seller covenants and agrees to assign to Buyer all rights and
ownership as and if they exist in the Incentive Stock Option Agreement
between Seller and UV Systems Technology Inc., dated August 17, 1995
and attached as Schedule "A", for the sum of One Canadian Dollars
(C$1.00), receipt of which is hereby acknowledged.
e) Seller covenants and agrees to assign to Buyer all rights and
ownership as and if they exist in 2,520,000 shares of common voting
stock in UV Waterguard Systems Inc., for the sum of One Canadian
Dollars (C$1.00), receipt of which is hereby acknowledged.
f) Delivery of shares to and from Buyer and Seller and Option Agreement
to Seller shall occur within thirty (30) days of date of signing of this
Agreement.
Witness, Name and Address Service Systems International Ltd.
/s/ O. Swinton /s/ Ken Fielding
---------------------- --------------------------------
Ken Fielding
----------------------
/s/ Ken Fielding /s/ Charles P Nield
---------------------- --------------------------------
Charles P Nield
Witness, Name and Address
/s/ O. Swinton /s/ John R Gaetz
---------------------- --------------------------------
John R Gaetz
----------------------
----------------------
<PAGE>
INVESTMENT LETTER AGREEMENT
---------------------------
THIS INVESTMENT LETTER AGREEMENT dated as of the 28th day of February,
1997, by and between, SERVICE SYSTEMS INTERNATIONAL, LTD., a Nevada corporation
(CORPORATION), and L. L. ALENTEJANO, the stockholder whose name, address and
number of shares acquired appears at the signature line of this Agreement
("STOCKHOLDER").
WITNESSETH:
WHEREAS, STOCKHOLDER wishes to acquire capital stock of the CORPORATION
(THE "SECURITIES") in a transaction not involving a public offering as that term
is used in Section 4(2) of the Securities Act of 1933, as amended, ("THE ACT").
WHEREAS, CORPORATION desires to prevent any further transfer of the
SECURITIES in violation of the ACT and to inform STOCKHOLDER as to the
circumstances under which STOCKHOLDER is required to take and hold the
SECURITIES and the limitations upon their resale.
NOW, THEREFORE, in consideration of the mutual promises and representations
contained herein, it is agreed as follows:
1. [REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER]
STOCKHOLDER hereby represents and warrants to CORPORATION that now and at
all times after the SECURITIES are issued and delivered to STOCKHOLDER, that
STOCKHOLDER is acquiring the Securities for investment only and does not intend
to sell, hypothecate, give or otherwise dispose of the SECURITIES or any
interest therein, and acknowledges that this representation and induced to enter
into and perform its obligations under this Investment Letter Agreement.
2. [OBLIGATIONS OF STOCKHOLDER]
STOCKHOLDER agrees not to sell, hypothecate, give or otherwise dispose of
the SECURITIES or any interest therein, unless:
2.1 There is then in effect a registration statement under the ACT
with respect to the SECURITIES and the distribution; or
2.2 The disposition is made in compliance with Rule 144 of the ACT;
or
2.3 Counsel for the CORPORATION is of the opinion that registration
under the ACT or compliance with Rule 144 is not required in
connection with the proposed disposition.
<PAGE>
3. [CONDITIONS PRECEDENT TO DISPOSITION UNDER RULE 144]
3.1 The conditions and warranties of STOCKHOLDER in 1 above shall
have been accurate.
3.2 CORPORATION shall have received notice of STOCKHOLDER'S intention
to dispose of the SECURITIES thirty (30) days before the proposed
disposition.
3.3 CORPORATION shall have received an opinion of counsel for
STOCKHOLDER addressed to CORPORATION and dated the day of the
disposition of the SECURITIES to the effect that such disposition is
in compliance with Rule 144. In giving this opinion, counsel may
assume that the requirements in paragraph "c" of Rule 144 regarding
the availability of public information have been met.
3.4 CORPORATION shall have received an affidavit from STOCKHOLDER
dated the day of the disposition of the SECURITIES to the effect:
3.4.1 STOCKHOLDER has been sole beneficial and legal owner of
the SECURITIES for a period of at least two (2) years from the
date STOCKHOLDER received the SECURITIES.
3.4.2 That the total amount of the SECURITIES STOCKHOLDER
intends to dispose of the CORPORATION does not exceed one percent
(1%) of the then outstanding securities of the CORPORATION.
3.4.3 That the sale will be a broker's transaction as defined by
Rule 144 (f) and (g).
3.4.4 That notice of the requirements of Rule 144 (h) have been
met.
3.4.5 That he has a bona fide intention to sell the SECURITIES
immediately upon the Issuer's permission being granted.
4. [CONDITIONS PRECEDENT TO OTHER DISPOSITION THAN PROVIDED BY RULE 144]
4.1 It is understood that STOCKHOLDER may be permitted a disposition
of the SECURITIES in a privately negotiated transaction not involving
an underwriter, broker, or a public offering.
4.2 It is agreed that in such a transaction, the transferee shall be
required to execute an Investment Letter Agreement restricting the
further disposition of the Securities.
5. [CERTAIN UNDERSTANDINGS, ETC.]
5.1 OTHER AGREEMENTS SUPERSEDED;
WAIVER OF MODIFICATION, ETC.
This Investment Letter Agreement supersedes all prior agreements or
understandings written or oral relating to the resale of the
SECURITIES herein. This Agreement shall inure to the benefit of and
be binding upon the assigns and successors of the STOCKHOLDER.
2
<PAGE>
5.2 RESTRICTIVE LEGEND
STOCKHOLDER understands a legend giving notice of the restrictions of
the disposition of the SECURITIES imposed by this Investment Letter
Agreement shall appear on the stock certificate.
5.3 REPURCHASE OF SECURITIES
STOCKHOLDER agrees to wait at least thirty (30) days before
repurchasing any SECURITIES which have been sold pursuant to Rule 144.
5.4 CHANGES IN RULE 144
Any amendments to or interpretations of Rule 144 which are adopted
after the execution of this Investment Letter Agreement which are more
liberal or more restrictive shall be given effect as modifications
hereof.
IN WITNESS WHEREOF, the CORPORATION and the STOCKHOLDER have executed this
Investment Letter Agreement as of the day and year first above written.
SERVICE SYSTEMS INTERNATIONAL, LTD.
By /s/ Ken Fielding
-------------------------------------
(Hereunto Duly Authorized)
STOCKHOLDER
By L. L. ALENTEJANO
ADDRESS: 14285 Grosvenor Rd
-------------------------------
Surrey BC V3R 5H3
-------------------------------
SIGNATURE: /s/ L. L. Alentejano
-----------------------------
SHARES: 5,629
CONSIDERATION: 25,000 SHARES UV SYSTEMS TECHNOLOGY, INC.
---------------
<PAGE>
- ------------------------------------------------------------------------------
Page 1
- ------------------------------------------------------------------------------
Service Systems International, Ltd.
Computation of Per-Share Income
Treasury Stock Method
As Modified for 20% Test
Period Ended Feb. 28, 1997
--------------------------
Six Months
----------
Weighted average number of shares outstanding 4,351,669
---------------
Total common and common equivalent shares 4,351,669
---------------
Net income (loss) for the period $ (2,637,800)
---------------
Total common and common equivalent shares 4,351,669
---------------
Loss per common and common equivalent shares $ (0.61)
---------------
Earnings per share:
The earnings per share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares outstanding for the
period. Common stock equivalents are excluded from the computation if their
effect would be anti-dilutive.
<PAGE>
CONSENT OF CHARTERED ACCOUNTANTS
Board of Directors
Service Systems International Ltd.
We consent to the use of our report dated November 22, 1996 on the financial
statements of UV Systems Technology Inc. as of August 31, 1996 that are
included in the Form 10-QSB for Service Systems International Ltd.
/s/ ELLIOT TULK PRYCE ANDERSON
Vancouver, BC, Canada
April 17, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 6,620
<SECURITIES> 0
<RECEIVABLES> 276,369
<ALLOWANCES> 0
<INVENTORY> 307,670
<CURRENT-ASSETS> 1,051,229
<PP&E> 234,205
<DEPRECIATION> 38,086
<TOTAL-ASSETS> 1,279,110
<CURRENT-LIABILITIES> 889,060
<BONDS> 0
0
0
<COMMON> 5,239,338
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,279,110
<SALES> 25,074
<TOTAL-REVENUES> 46,772
<CGS> 0
<TOTAL-COSTS> 47,672
<OTHER-EXPENSES> 289,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (290,449)
<INCOME-TAX> 0
<INCOME-CONTINUING> (290,449)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,347,351
<CHANGES> 0
<NET-INCOME> (2,637,800)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>
<PAGE>
- ------------------------------------------------------------------------------
Page 1
- ------------------------------------------------------------------------------
UV Systems Technology Inc.
Financial Statements
For the Period from August 31, 1994
(Inception)
to August 31, 1996
<PAGE>
- -------------------------------------------------------------------------------
Page 2
- -------------------------------------------------------------------------------
Independent Auditors' Report
----------------------------
To the Directors
UV Systems Technology Inc.
We have audited the accompanying balance sheets of UV Systems Technology Inc.
(A Development Stage Company) as of August 31, 1996 and 1995 and the related
statements of operations and cash flows accumulated from August 31, 1994
(Inception) to August 31, 1996 and the years ended August 31, 1996 and 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of UV Systems Technology Inc. (A Development
Stage Company) as of August 31, 1996 and 1995 and the results of its
operations and its cash flows accumulated from August 31, 1994 (Inception) to
August 31, 1996 and the years ended August 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has not generated profitable operations since
inception. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plan in regard to these matters
are also discussed in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
CHARTERED ACCOUNTANTS
Vancouver, B.C.
November 22, 1996
<PAGE>
- ------------------------------------------------------------------------------
Page 3
- ------------------------------------------------------------------------------
UV Systems Technology Inc.
(A Development Stage Company)
Balance Sheets
As of August 31, 1996 and 1995
(Expressed in U.S. Dollars)
1996 1995
$ $
Assets
Current Assets
Cash 6,469 725,125
Short-term investment (Note 6) 219,854 -
Accounts receivable 286,455 71,004
Inventory 205,299 11,250
Prepaid expenses 13,054 16,042
Investment tax credit receivable 196,000 33,643
927,131 857,064
Capital Assets (Note 5) 158,544 54,285
Intangible Assets (Note 5) 28,976 10,792
1,114,651 922,141
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 127,850 171,970
Accrued liabilities 12,117 -
Vacation pay payable 6,171 -
Customer deposits 117,226 113,576
Loans payable (Note 7) 126,166 -
Loans from related parties (Note 8) 297,079 -
686,609 285,546
Stockholders' Equity
Preferred Stock (Note 9), 5,000,000 Class "A" non-voting
preferred shares authorized, par value Cnd$1,000
per share, 2,000 and 1,300 shares issued and
outstanding respectively 1,459,854 948,905
Common Stock (Note 9), 100,000,000 voting common
shares authorized, no par value, 12,845,308 and
10,592,824 shares issued and outstanding respectively 4,768 4,727
1,464,622 953,632
Deficit Accumulated During the Development Stage (1,036,580) (317,037)
428,042 636,595
1,114,651 922,141
<PAGE>
- ------------------------------------------------------------------------------
Page 4
- ------------------------------------------------------------------------------
Commitments (Note 10)
Contingency (Note 2)
<PAGE>
- ------------------------------------------------------------------------------
Page 5
- ------------------------------------------------------------------------------
UV Systems Technology Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from August 31, 1994 (Inception) to August 31, 1996
and the years ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated 1996 1995
$ $ $
<S> <C> <C> <C>
Project Revenue 397,100 397,100 -
Project Costs (Schedule) 292,311 286,408 5,903
Gross Profit 104,789 110,692 (5,903)
Expenses (Schedule)
General and administrative 262,403 184,764 77,639
Research and development 317,190 317,190 -
Selling 356,667 346,349 10,318
936,260 848,303 87,957
Net Loss From Operations Before Other Items (831,471) (737,611) (93,860)
Other Items
Goodwill expensed (Note 4) (223,460) - (223,460)
Interest income 18,351 18,068 283
Net Loss (1,036,580) (719,543) (317,037)
Net Loss Per Share (.06) (.03)
Weighted Average Shares Outstanding 11,970,849 10,592,824
</TABLE>
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UV Systems Technology Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from August 31, 1994 (Inception) to August 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated 1996 1995
$ $ $
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net loss (1,036,580) (719,543) (317,037)
Adjustments to reconcile net loss to
operating cash flows:
Depreciation 20,123 20,123 -
Goodwill expensed 223,460 - 223,460
Net (increase) decrease in accounts receivable (211,582) (215,451) 3,869
Net (increase) decrease in inventory (196,908) (194,049) (2,859)
Net (increase) decrease in prepaid expenses (660) 2,988 (3,648)
Net (increase) decrease in investment tax credits (162,357) (162,357)
Net (decrease) in accounts payable, accruals and
vacation pay (37,516) (25,832) (11,684)
Net increase in customer deposits 113,576 3,650 109,926
Net Cash Provided From (Used By) Operating Activities (1,288,444) 2,027 (1,290,471)
Cash Flow From Investing Activities:
Additions to capital assets (129,676) (124,382) (5,294)
Additions to intangible assets (18,184) (18,184) -
Cash received in UVWS acquisition 30,234 - 30,234
Acquisition of short-term investment (219,854) (219,854) -
Net Cash Provided From (Used By) Investing Activities (337,480) (362,420) 24,940
Cash Flow From Financing Activities:
Issuance of common stock 4,768 41 4,727
Issuance of preferred stock 1,459,854 510,949 948,905
Proceeds from (reduction of) borrowings (129,308) 126,166 (255,474)
Proceeds from related party borrowings 297,079 297,079 -
Net Cash Provided From Financing Activities 1,632,393 934,235 698,158
Net Increase (Decrease) in Cash 6,469 (718,656) 725,125
Cash - Beginning of Year - 725,125 -
Cash - End of Year 6,469 6,469 725,125
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Interest - 11,795 -
Income taxes - - -
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The Company purchased all of the assets of UVWS (See Note 4)
during fiscal 1995. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of non-cash assets acquired 189,084
Goodwill expensed 223,460
Cash received 30,234
Liabilities assumed 442,778
</TABLE>
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UV Systems Technology Inc.
(A Development Stage Company)
Statement of Stockholders' Equity
Accumulated from August 31, 1994 (Inception) to August 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Preferred During the
Shares Common Shares Preferred Development
Issued Stock Issued Stock Stage
<S> <C> <C> <C> <C> <C>
# $ # $ $
Issued at inception 1 - - - -
Balance, August 31, 1994 1 - - - -
Issuance of common shares
on August 17, 1995 10,592,823 4,727 - - -
Issuance of preferred shares
on August 17, 1995 - - 1,300 948,905 -
Loss for the year - - - - (317,037)
Balance, August 31, 1995 10,592,824 4,727 1,300 948,905 (317,037)
Issuance of common shares on:
December 11, 1995 1,258,562 3 - - -
February 21, 1995 943,922 2 - - -
May 16, 1996 50,000 36 - - -
Issuance of preferred shares on:
December 11, 1995 - - 400 291,971 -
February 21, 1995 - - 300 218,978 -
Loss for the year - - - - (719,543)
Balance, August 31, 1996 12,845,308 4,768 2,000 1,459,854 (1,036,580)
</TABLE>
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UV Systems Technology Inc.
(A Development Stage Company)
Notes to the Financial Statements
For the Years Ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
1. Date of Incorporation
The Company is a development stage company which was incorporated as 479393
B.C. Ltd. pursuant to the laws of the Company Act of British Columbia,
Canada. On August 14, 1995 the Company's name was changed to UV Systems
Technology Inc.
2. Nature and Continuance of Business
Until August 17, 1995 the Company was inactive. On August 17, 1995 the
Company acquired the business assets of UV-Waterguard Systems Inc. (UVWS)
(See Note 4). UVWS developed and patented an ultraviolet disinfection system
called the Ultra Guard System ("the System"). The Company has further
developed the System and has manufactured, marketed and sold the System to
two pilot projects in Canada and New Zealand.
These financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has suffered
start-up losses and has not generated profitable operations since inception.
The Company's activities are in the development stage and additional costs
for the development of the System must be incurred. There is substantial
doubt as to the Company's ability to continue as a going concern, as the
continuation of the Company as a going concern is dependent on its ability
to obtain financing for the further development of the System and/or the
attainment of profitable operations. Management plans to raise capital
through a merger with a U.S. public company that will raise capital through
private and public offerings of its shares.
3. Summary of Significant Accounting Policies
(a) Inventory
Inventory is made up of work in progress and parts supplies and is
carried at the lower of cost and net realizable value on the first-
in-first-out basis.
(b) Depreciation
Depreciation, on all capital asset categories, is recorded
utilizing the straight-line method over their estimated useful
lives which have been determined as five years for all asset
categories.
(c) Foreign currency translation
Gains or losses arising from transactions denominated in a
currency other than the U.S. are recognized in the statement of
operations. The functional currency used by the Company is the
Canadian dollar.
Balance sheet items denominated in Canadian dollars are translated
using the
<PAGE>
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rate of exchange on the balance sheet date, statement of
operation items are translated using the average yearly rate of
exchange. A rate of Cnd$1.37 to US$1.00 has been used for both 1995 and
1996 for balance sheet items and statement of operations items.
<PAGE>
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3. Summary of Significant Accounting Policies (continued)
(d) Revenue Recognition
Revenue is recognized on the percentage of completion basis.
(e) Cash and cash equivalents
The Company considers all highly liquid investments with a
maturity of three months or less at the time of issuance to be cash
equivalents.
(f) Tax accounting
The Company has adopted SFAS 109 as of its inception. The Company
has incurred Canadian non-capital losses as scheduled below:
Year of Loss Amount Expiration Date
$
1995 94,000 2002
1996 2003
390,000
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for non-capital loss carryforwards. Potential benefit of
losses have not been recognized in the financial statements because the
Company cannot be assured that it is more likely than not that it will
utilize the non-capital loss carryforwards in future years.
The components of the net deferred tax asset at the end of August
31, 1996 and 1995 the statutory tax rate, the effective tax rate and
the elected amount of the valuation allowance are scheduled below:
1996 1995
$ $
Non-capital Loss in Canada 390,000 94,000
Statutory Tax Rate 48.5% 48.5%
Effective Tax Rate - -
Deferred Tax Asset 189,150 45,590
Valuation Allowance (189,150) (45,590)
Net Deferred Tax Asset
--------- --------
- -
--------- --------
--------- --------
4. Business Acquisition (See Note 2 for business description)
The Company acquired, effective August 17, 1995, the business assets of UV-
Waterguard Systems Inc. ("UVWS") for $442,778 (Cnd$606,606). Consideration
was the assumption of liabilities. UVWS is majority owned by two
shareholders each owning 45% of the Company at the time.
<PAGE>
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4. Business Acquisition (See Note 2 for business description) (continued)
The acquisition was accounted for using the purchase method of accounting
for business combinations. The purchase price of $442,778 was allocated as
follows:
$
Current assets 159,535
Capital assets 48,991
Patents and trademarks 10,792
Goodwill 223,460
Liabilities assumed 442,778
The goodwill was expensed to operations.
5. Capital Assets
Capital assets are stated at cost less accumulated depreciation.
<TABLE>
<CAPTION>
1996 1995
Accumulated Net Book Net Book
Cost Depreciation Value Value
<S> <C> <C> <C> <C>
$ $ $ $
Computer equipment 23,796 2,380 21,416 -
Computer software 3,042 304 2,738 -
Display equipment 32,249 3,225 29,024 17,558
Office furniture and equipment 25,792 2,579 23,213 10,082
Plant jigs, dies, moulds and tools 66,716 6,672 60,044 26,645
Leasehold improvements 27,072 4,963 22,109 -
178,667 20,123 158,544 54,285
Depreciation per class of asset:
1996 1995
$ $
Computer equipment 2,380 -
Computer software 304 -
Display equipment 3,225 -
Office furniture and equipment 2,579 -
Plant jigs, dies, moulds and tools 6,672 -
Leasehold improvements 4,963 -
20,123 -
</TABLE>
Intangible assets represent legal costs associated with registering and
protecting certain patents and trademarks associated with the System. These
assets will be amortized when the Company completes its pilot plant testing.
Components of the System were patented in the United States on April 12,
1996. Applications have been made for patent protection under the
International Patent Protection Treaty covering up to 40 countries.
6. Short-Term Investment
The short-term investment has been pledged as security in favour of the
District of Chilliwack, B.C., Canada until final approval is received on its
pilot plant facility.
<PAGE>
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7. Loans Payable
A total of Cnd$170,000 was loaned by Service Systems International Ltd.
("SSI") by way of promissory notes with interest accruing daily at 20% per
annum. Accrued interest to August 31, 1996 was Cnd$2,847. All funds will be
waived if SSI fails to complete financing and acquisition of shares held by
all shareholders of the Company.
8. Loans from Related Parties
$
(i) Due to an officer and director (Cnd$49,497) - unsecured,
non-interest bearing and due on demand 36,130
(ii) MDS Discovery Venture Management Inc. ("MDS") (Cnd$171,000)
- interest accrues at 20% per annum and is due on demand
and is secured by a general security agreement 129,332
(iii) Working Opportunity Fund (EVCC) Ltd. ("WOF") (Cnd$174,000)
- interest accrues at 20% per annum and is due on demand
and is secured by a general security agreement 131,617
297,079
9. (a) Preferred Stock
MDS and WOF each own 1,000 (650 as at August 31, 1995) Class "A"
preferred shares. These shares are retractable once sales reach
Cnd$10,000,000 and net income reaches Cnd$1,000,000. All preferred
shares are to be redeemed by June 30, 1999.
(b) Common Stock
Two directors were granted stock options to acquire 500,000 shares
at $0.23 per share expiring August 17, 2000.
(c) Rights Offering (See Subsequent Events - Note 12).
<PAGE>
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10. Commitments
The Company has long term premises lease commitments as follows:
$
1997 61,500
1998 63,500
1999 65,500
2,000 68,000
The lease expires August 31, 2000.
11. Related Party Transaction
On August 17, 1995 the Company acquired the business assets of UVWS; which
is majority owned by two shareholders each owning 45% of the Company at the
time. (See Note 4)
12. Subsequent Events
Subsequent to August 31, 1996 the Company has:
(i) continued to receive funding from its shareholders pursuant to the
same terms as previous loans, as follows:
$
SSI 158,000
MDS 21,000
WOF 80,000
259,000
(ii) offered all common shareholders the right to participate in the
issue of 300,000 units of the Company at Cnd$1.00 per unit. Each
unit consists of Cnd$1.00 of debt and 287 common shares. If all
units are subscribed for a total of 86,100,000 common shares will
be issued along with debt of Cnd$300,000 represented by notes
secured by a second charge on the Company's assets and undertaking
subject to prior registered charges, bearing interest at 20% per
annum and due on demand.
<PAGE>
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UV Systems Technology Inc.
(A Development Stage Company)
Expense Schedules
Accumulated from August 31, 1994 (Inception) to August 31, 1996
and the years ended August 31, 1996 and 1995
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Accumulated 1996 1995
<S> <C> <C> <C>
$ $ $
Project Costs
Materials 257,127 252,391 4,736
Manufacturing overhead 27,694 26,527 1,167
Depreciation 7,490 7,490 -
292,311 286,408 5,903
General and Administrative Expenses
Accounting and legal 82,961 16,079 66,882
Bank charges and interest 15,041 14,904 137
Consulting 20,633 20,025 608
Depreciation 2,282 2,282 -
Office 18,674 14,468 4,206
Rent and utilities 5,041 5,041 -
Salaries and benefits 107,888 102,082 5,806
Travel and promotion 9,883 9,883 -
262,403 184,764 77,639
Research and Development Expenses
Depreciation 1,000 1,000 -
Overhead 8,461 8,461 -
Materials 417,112 417,112 -
Salaries and benefits 86,602 86,602 -
Less investment tax credit recoverable (195,985) (195,985) -
317,190 317,190 -
Sales and Marketing Expenses
Advertising 27,701 27,293 408
Brochures and videos 52,313 52,196 117
Consulting 82,737 79,762 2,975
Depreciation 9,351 9,351 -
Demonstrations 23,111 23,111 -
Office and telephone 32,863 32,816 47
Rent and utilities 8,278 8,278 -
Salaries and benefits 99,078 92,619 6,459
Travel and promotion 21,235 20,923 312
</TABLE>
<PAGE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
356,667 346,349 10,318
</TABLE>
