<PAGE> 1
As filed with the Securities and Exchange Commission on October 4, 1999
Registration No. 0-26491
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICAN ENVIRONMENTAL CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Nevada 88-0344622
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705-B Yucca Street, Boulder City, Nevada 89005
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (702) 294-3870
--------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class)
==============================================================================
<PAGE>
<PAGE> 2
AMERICAN ENVIRONMENTAL CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 8
Item 3. Description of Property...................................... 14
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 15
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 16
Item 6. Executive Compensation....................................... 18
Item 7. Certain Relationships and Related Transactions............... 19
Item 8. Description of Securities.................................... 20
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 21
Item 2. Legal Proceedings............................................ 21
Item 3. Changes in and Disagreements with Accountants................ 22
Item 4. Recent Sales of Unregistered Securities...................... 22
Item 5. Indemnification of Directors and Officers.................... 23
PART F/S
Financial Statements......................................... 24
PART III
Item 1. Index to Exhibits............................................ 56
Signatures................................................... 56
<PAGE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
- -----------------
American Environmental Corporation (hereinafter the "Company" or
"Registrant") was formed in July 1995 by Richard Steinke under the laws of the
state of Nevada to manufacture and market industrial pollution control
equipment aimed at reducing airborne pollutants emitted from industrial flues.
The Company has licensed from certain of its existing and former principal
shareholders certain proprietary technologies relating to the removal of toxic
flue gases. The Company markets these technologies through its wholly owned
subsidiary, Fabric Filters Air Systems, Inc. ("Fabric Filters"), a pollution
systems engineering firm located in Portland, Oregon. Currently, all of the
Company's operating activities are conducted through Fabric Filters.
On January 2, 1998, the Company acquired all of the outstanding stock of
Fabric Filters in a transaction intended to qualify as a tax-free exchange
pursuant to section 368(a) of the Internal Revenue code of 1986, as amended.
Incorporated November 15, 1985, Fabric Filters engineers, designs, and
contracts the construction of air pollution control systems. The Company
acquired Fabric Filters because of Fabric Filter's experience in engineering
bag houses and pollution control systems. The acquisition of Fabric Filters
was an arms-length transaction.
Since 1985, Fabric Filters has been active in several areas of air
pollution control, including engineering and installing systems utilizing dust
collectors, process collectors from mills, dryers and kilns, packed tower and
venturi scrubbers, fiber-bed filters for sib macron vapors, air to air heat
exchangers, mobile collectors for the highway construction industry, and
injection reactors for incineration. Fabric Filters' installation expertise
and experience has proved to be especially significant for sales of the
Company's air pollution reduction technology.
Mineral Sale and Purchase Contract
- ----------------------------------
In June 1998, the Company and NatureNu Corporation, a Nevada corporation
("NatureNu") entered into negotiations for a Mineral Sale and Purchase
Contract (the "Purchase Contract"), wherein the Company received the right to
extract up to 5,500 tons of surface minerals (hereinafter "Seasoil") from
certain placer mining claims located in Esmeralda County, Nevada. The Company
anticipated using the Seasoil in connection with a seed pellet planting system
to be marketed to mining companies, among others, as part of a revegetation or
reclamation and restoration program.
The actual seed pellet combination was developed by NatureNu using a
combination of the Seasoil, green waste, a moisture retaining clay, seed and
additional nutrients. NatureNu, however, did not have the resources to
implement a successful marketing program, and the Company hoped to be able to
complement its sales of pollution control systems by expanding its product
base additional types of environmental reclamation.
The Purchase Contract allows the Company a 24 month period beginning
August 21, 1998 in which to extract the Seasoil at the Company's expense. The
actual extraction can be performed by NatureNu at NatureNu's actual cost plus
twenty percent (20%), or by another contractor approved by NatureNu.
<PAGE> 4
As consideration for the extraction rights granted to the Company, the
Company paid $100,000 cash, and a $40,000 consulting fee NatureNu's President,
Steve Vonderheide, for services in connection with the marketing and sales of
the Seasoil. Additionally, the Company agreed to issue 320,332 shares of the
Company's Common Stock in satisfaction of certain indebtedness and financial
obligations of NatureNu.
The Purchase Contract provided for a valuation purchase price of $150 per
ton for the Seasoil, which price incorporated the shares of the Company's
Common Stock issued and the consulting fee. With the addition of legal and
other expenses relating to the above transactions, the total cost to the
Company of acquiring the rights to extract the Seasoil was approximately
$855,154. The net effect of the entire transaction to the Company has been
the acquisition of the rights to extract 5,500 tons of Seasoil for
approximately $855,154 in cash and securities.
At the time of entering into the Purchase Contract, the Company
anticipated negotiating sales agreements for the Seasoil well within the
allowed time frame for the extraction. At this time, however, the Company has
not been able to find any buyers for the Seasoil and is not optimistic about
its future marketing possibilities. Because of the slow development of its
anticipated market, the Company has elected to write down a substantial
portion of the costs of entering into the Purchase Contract by recording an
impairment loss, as explained more fully in Management's Discussion and
Analysis and the financial statements attached to this registration.
Air Pollution Control Systems in General
- ----------------------------------------
The effectiveness and usefulness of any air pollution control system
depends on the system's ability to remove the gases before they are emitted
into the atmosphere. Prior to the development of the Company's technologies,
the most effective way of removing particulates and gases produced by
industrial concerns was a wet scrubber system, a system which use an aqueous
solution to mix the pollutant gases. Although these wet scrubber systems are
effective and widely accepted, wet scrubber systems are very costly to
install, maintain and operate due to the reliance on the injection of an
aqueous solution that has to be treated after it mixes with the gases. The
Company believes that air pollution control systems utilizing the Company's
technologies will prove to be as effective as the wet scrubber systems and
less expensive to install, maintain and operate.
Most air pollution control systems use similar technology for the removal
of the particulate matters in a pollution stream. Existing air pollution
control systems are distinguished by their varying ability to remove gases
such as sulfur oxide, nitrogen oxides, and volatile organic oxides from the
pollution stream.
The Company's Technologies
- --------------------------
The Company is a party to an exclusive technology license agreement with
Richard A. Steinke and Robert W. Hood, to manufacture pollution systems
covered by U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported in Flue
Gas" -- Docket No. 7455 (the "Improved Apparatus"). Messrs. Steinke and Hood
are the inventors of the Improved Apparatus. The Improved Apparatus
technology allows for maximum flow condition and is adjusted automatically
<PAGE> 5
through a programmable logic controller with system sensors to maintain the
optimum stoichiometric ratio of sorbent to contaminates to achieve maximum
results. The flue gas enters the duct work where a dry sorbent injector blows
the sorbent into a turbulent gas stream. Depending on the moisture content of
the gas stream, additional moisture may be added to the stream, but only to
the point of activating the sorbent. The collector finishes the job by
coating the filter and allowing residence time for conversion of the gas into
a solid. The system's computer hardware and related software takes readings
for temperature, moisture and the gas flow, and determines the amount of
sorbent to add into the system.
In addition, the Company is a party to an exclusive license agreement
with Richard A. Steinke and Dennis S. Chrobak, to manufacture pollution
systems covered by U.S. Patent No. 5,795,549 [August 18, 1998] (the
"Apparatus"). Messrs. Steinke and Chrobak are the inventors of the Apparatus.
The Apparatus technology can be utilized for remediation of particulate matter
and gaseous pollutants. The flue gases, having a pre-determined moisture
content, are mixed with sorbent material and forced through an induct venturi
equipped with a mixing impeller. Downstream, the reaction products are
removed from the gas stream and collected for use as construction material.
The vented gas stream is monitored for specific pollutants and the amount of
sorbent material introduced into the system can be automated in response to
the readings obtained. Additionally, the gas stream can pass through a bag
house or cyclone wherein the bags are impregnated with materials specific to
the pollutants carried in the stream.
The Company's technologies incorporate much of the current structural
technology in that they incorporate duct work, bags, and scrubbers. The
technologies differ in that they removes the pollutant gases such as sulfur
oxides, nitrogen oxides, and volatile organic oxides by combining a sorbent (a
chemical which is known to bind with certain other chemicals) with the gases,
thus creating a solid which can then be removed using current scrubbing and
bagging technologies.
The Company's technologies have been developed based on the belief that a
large market exists for a system that is as effective as the wet pollution
control systems but without the associated cost. This belief led the
developers of the technologies to attempt to devise systems that could operate
without having to use an aqueous solution which itself would require treatment
to remove the contaminates.
Both the Improved Apparatus and the Apparatus technologies have been
designed to be able to use existing duct work, bagging and scrubbers and will
only require the modification of a minimum amount of duct work to install the
Company's system of injecting a sorbent into the pollutant stream. Given the
Company's limited financial resources and the nature of the work associated
with installing, the Company subcontracts most, if not all of the
manufacturing and installation process.
Marketing
- ---------
The Company currently does not have the resources to market its
technologies worldwide. Therefore, the Company has concentrated its marketing
efforts in countries that management believes offer the best opportunities for
establishing a presence in the air pollution control industry, primarily the
United States and China.
<PAGE> 6
In the United States, the Company markets to companies with existing
systems in place that desire to reduce their pollution control costs. These
companies can retrofit their current systems and receive future cost savings
as they would no longer have to treat contaminated water or dispose of
byproduct.
In China, the Company has targeted plants under new construction, because
the Chinese government appears to be starting to enforce the need for better
pollution control devices. The low cost of installing systems utilizing the
Company's technologies should make the Company's technologies very attractive
in China. The Company has utilized the efforts of Ping Zhang, an officer and
director of the Company to represent the Company in China. Mr. Zhang is the
principal of MW McWong International, Inc. ("McWong"), a pollution systems
marketing firm located in Shanghai, China. In April 1996, the Company entered
into an representation agreement with McWong appointing McWong as its
exclusive sales representative in China to perform marketing activities,
including developing Chinese product literature, arranging seminars and
conferences in China, and developing marketing and pricing strategies for the
Company's air pollution control systems in China. Although the Company
expects favorable acceptance of its technologies in the Chinese market, no
sales have yet materialized.
Additional Marketing Methods
- ----------------------------
Should the Company desire, the Company may sublicense its technologies to
third parties who will market, manufacture, install and maintain the air
pollution control systems. However, the Company does not have any
sublicensing arrangements in place, nor has it attempted to negotiate any
sublicenses as of this date. The Company anticipates that if such sublicenses
are negotiated, system installations will be performed by the third party
licensees or subcontractors of the licensees.
Competition
- -----------
The Company will be in competition with companies such as Wheelabrator,
Pure Air, General Electric, Westinghouse, and Mitsubishi Corporation that
manufacture pollution control systems. All of these companies have been in
the pollution control industry for several years, have established customers,
and have financial resources substantially greater than those of the Company.
Although the Company is new to the pollution control system industry, the
Company believes that it will be able to compete against the established
companies in the pollution control industry because its technologies allow for
installation without down time at the facility and can be installed at what
management believes is a cost lower than competing systems.
Availability of Materials and Suppliers
- ---------------------------------------
In addition to engineering and constructing air pollution control systems
that use the Company's technologies, Fabric Filters engineers systems
utilizing other control systems currently being used in the industry. Because
of the Company's current limited financial and manpower resources, the Company
typically subcontracts the manufacturing of systems. Installation of the
systems is supervised by Fabric Filters. The Company utilizes multiple
subcontractors and suppliers to purchase the materials necessary for
construction of its air pollution control systems. The Company believes that
<PAGE> 7
it will be able subcontract and obtain adequate quantities of supplies and
components without significant problems or delays.
Dependence on Customers
- -----------------------
Fabric Filters does not have and has not had in the past several years
any single customer that accounted for gross sales of more than 15%. The
Registrant does not anticipate any single customer accounted for an
appreciably larger percentage of gross sales in the next 12 months.
Patents
- -------
The Company is licensee to the following technologies for which a patent
application is pending or a patent has been issued by the U.S. Office of
Patents and Trademarks.
1. U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported
in Flue Gas" -- Docket No. 7455
2. U.S. Patent No. 5,795,549 [August 18, 1998] "Method and Apparatus for
Remediation of Toxic Flue Gases"
Although a patent has a statutory presumption of validity in the U.S.,
the issuance of a patent is not conclusive as to its validity, nor as to the
enforcement scope of the claims contained therein. The Company intends to,
but has not as of the date of this report, applied for patent protection in
other countries. The Company intends to vigorously police its patents
underlying its licensed technology and there can be no assurance that such
patents will not be infringed upon or modified by others. The Company has not
retained intellectual property counsel to render an opinion regarding the
Improved Apparatus or the Apparatus as to whether the Company is infringing on
the intellectual property rights of others. However, Messrs. Steinke, Chrobak
and Hood utilized intellectual property counsel in preparing and filing the
patent applications and in that regard, the Company believes its licensed
technologies are not the intellectual property rights of others or are already
in the public domain.
Research and Development
- ------------------------
During its fiscal years ended June 30, 1998 and 1997, the Company did not
spend any significant amounts on research and development activities wherein
the cost of such activities would have been borne directly by its customers.
Further, during its fiscal year ended June 30, 1999, the Company does not
expect to make any significant expenditures for research and development
activities to the extent that the cost of such expenditures would be borne by
its customers.
Government Regulation
- ---------------------
In the United States, the Clean Air Act ("CAA") is the principal federal
law addressing air pollution issues. Each state also has its own
environmental standards which must be met. The states statutes are often
based on what level of pollutants may be emitted into the environment under
<PAGE> 8
the CAA. Since its passage in 1963, the CAA has served as the basis for
federal regulation and the primary driving force for the state regulations
directed toward controlling air pollution. The CAA has gone through five
amendment cycles, the latest in 1990. Each cycle has resulted in expanding
jurisdiction and more stringent and detailed regulations. The current CAA
covers five major topical areas: attainment of national ambient air quality
standards, regulation of mobile sources, control of hazardous air pollutant
emissions, reduction of acid rain, and prevention of global warming/ozone
depletion. Other countries have similar statutes governing the amount of
pollutants which can be emitted.
Based on the CAA, regulations on the state and federal level have been
designed to require that entities that produce pollutants reduce or eliminate
the amount of pollutants released into the environment. Because of these
statutes and regulations, a large industry has been created to produce
pollution control devices. These devices have been extremely costly and the
costs have been increasing as the regulations tighten the amount of pollutants
which may be released. It is the Company's belief that, as government
regulations relating to air pollution control increase or become more
restrictive, such increases or restrictions would generally have a positive
effect on the Company's air pollution control and related business activities.
When required by local regulatory authorities, the Company may need to
obtain applicable construction permits with respect to the installation of air
pollution control systems.
Employees
- ---------
The Company has 3 full time and no part time employees at its executive
office in Boulder City, Nevada.
Fabric Filters currently has 5 full time and no part time employees. All
employees are employees at will.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. Examples of
forward-looking statements include, but are not limited to: (a) projections of
revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of plans and objectives
of the Company or its management or Board of Directors; (c) statements of
future economic performance; (d) statements of assumptions underlying other
statements and statements about the Company and its business relating to the
future; and (e) any statements using the words "anticipate," "expect," "may,"
"project," "intend" or similar expressions.
Year 2000 Disclosure
- --------------------
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company has completed its
<PAGE> 9
assessment, and currently believes that costs of addressing this issue will
not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Fabric Filters, the Company's operating subsidiary, has completely
upgraded its computer systems as of February 1999. In addition, Fabric
Filters has a maintenance agreement with Computer Products, a Portland, Oregon
firm, under which agreement all of Fabric Filters' software is being
maintained with the manufacturer's suggested updates and patches as such
updates and patches become available, after appropriate testing. The Company
believes that at this time it has no other operations or current equipment
which might be affected by the Y2K computer glitch, but intends to continue
Fabric Filters' current testing and maintenance programs through June 2000.
The Company has made inquiries to its outside suppliers to ascertain if
such suppliers are Y2K compliant. At this time, management is satisfied that
such suppliers have made or are making appropriate examinations and necessary
upgrades to insure Y2K readiness. However, the Company does not depend
exclusively on any one supplier, and, therefore, does not anticipate any
significant interruption in materials and supplies in the event that any
particular supplier experiences Y2K problems. Although the Company does not
anticipate any material adverse effects, it cannot guarantee that no
disruption in products or services will occur if multiple suppliers experience
Y2K problems.
The Fabric Filters computer upgrades and the maintenance agreement have
been accomplished in the ordinary course of business. The Company has not
experienced and does not anticipate any extraordinary expenses related to Y2K.
The Company will continue to monitor its internal systems and keep in close
touch with its outside suppliers to insure that its operations are not
materially affected by Y2K.
Currently, the Company does not have any contingency plans in place to
deal with unanticipated Y2K disruptions if they occur and does not intend to
prepare any such plan because the most critical factors in its worst case
scenario are essentially beyond the Company's control, such as a catastrophic
systemic failure of the power grid, for instance. The worst case scenario
would involve a temporary suspension of the Company's activities while
systemic problems are resolved. Any such suspension of operations might have
a significant adverse impact on the Company's overall revenues.
Results of Operations
- ---------------------
General
-------
The Company's revenues for its fiscal years ended June 30, 1998 and 1999
have been generated primarily by its business operations in Fabric Filters.
Prior to the Company's acquisition of Fabric Filters, the Company had no other
sources of revenue.
<PAGE> 10
Nine-month period ended March 31, 1999 compared with March 31, 1998
- -------------------------------------------------------------------
Total revenues for the nine month period ended March 31, 1999 was
$1,550,577 compared to $568,033 for the same period in 1998. Costs of sales
for the nine month period ended March 31, 1999 were $974,205, or 62.8% of
sales as compared to $502,718, or 88.5% of sales for the same period in 1998.
The decrease in the cost of sales as a percent of sales for 1999 compared to
1998 is attributable to engaging in higher margin projects during the period.
During the nine month period ending March 31, 1999, the Company evaluated the
profitability of certain types of projects and elected to forego bidding on
projects with lower potential margins. The increase in the Company's sales
during the nine month period in 1999 compared to 1998 can be attributed to the
fact the Company's 1998 sales revenues reflect only three months of operations
following the acquisition of Fabric Filters. Other than lack of working
capital, the Company knows of no predictable events or uncertainties that may
be reasonably expected to have a material impact on the net sales revenues or
income from operations.
Corporate Expense. For the nine month period ended March 31, 1999, total
operating expenses were $535,657, consisting of general and administrative
expenses of $519,526 and depreciation and amortization of $15,131, resulting
in a profit from operations of $41,715.
Total operating expenses for the same period ended March 31, 1998 were
$958,659, consisting of general and administrative expenses of $950,697, and
depreciation and amortization of $7,962, resulting in a loss from operations
of $(893,344). The material component of the general and administrative
expenses for the period ended March 31, 1998 was $615,000 the Company expensed
in connection with the issuance of 615,000 shares of the Company's restricted
common stock, valued at $1.00 per share (which value represented the cash
purchase price for shares sold in the Company's initial public offering).
These shares were issued to officers, employees, and third party consultants
for wages, and professional, legal, and technical consulting services in lieu
of cash. Management of the Company believes that the amount of this expense
was extraordinary and, although the Company may elect to issue shares in lieu
of cash for certain general and administrative expense at some point in the
future, it does not expect such a large expense to recur in the future. The
Company intends to manage such expenses based on the Company's available cash
flows and expected revenues.
Interest Expense. Interest expense for the nine month period ended March
31, 1999 was $33,849 compared to $11,798 for the same period in 1998. The
increase in interest expense for the period in 1999 is directly attributed to
an increase in corporate borrowing during the period.
Bad Debt Expense. Bad debt expense for the nine month period ended March
31, 1999 was $18,255, a increase from $10,493 expensed as bad debt during the
same period ended March 31, 1998. However, bad debt expense as a percent of
sales during the comparative periods decreased to 1.2% for 1999 as opposed to
1.8% for 1998.
The Company experienced a net loss of $(6,432) for the nine month period
ended March 31, 1999 compared to a loss of $(903,375) for the same period in
1998. The basic loss per share for the nine-month period ending March 31, 1999
was $(0.003) and $(0.466) for the same period ended March 31, 1998, based on
the weighted average number of shares outstanding of 2,259,268 and 1,938,936,
respectively.
<PAGE> 11
Liquidity and Capital Resources
- -------------------------------
During the nine month period ended March 31, 1999, the Company sold
100,000 shares of its common stock for $100,000 cash at a price of $1.00 per
share. The proceeds from the sale of the shares has been utilized by the
Company to fund ongoing business operations.
At March 31, 1999, the Company had current assets of $381,134 and current
liabilities of $1,007,082, for a working capital deficit of $(625,948). At
March 31, 1999, the Company had cash and cash equivalents of $35,492 and net
accounts receivable of $339,848. Net cash used in operations from the nine
months ended March 31, 1999 was $115,399 compared to $291,171 for the same
period in 1998. Cash used in operations for the nine month period ending March
31, 1999 was funded primarily by receivables and cash received from the sale
of common stock.
At March 31, 1999, the Company had net property and equipment of $58,763
after deduction of $170,498 in accumulated depreciation. The Company's
property and equipment consists mainly of computer equipment($131,177),
furniture and fixtures ($46,474), and engineering, office, and demonstration
equipment ($36,701). At March 31, 1999, the Company has an accumulated deficit
during the development stage of $(2,869,190), has a working capital deficit
and limited internal financial resources. The report of the Company's auditor
for its fiscal year ended June 30, 1998, contains a going concern modification
as to the ability of the Company to continue. During the nine month period
ending March 31, 1999, the Company has implemented measures to reduce cash
outflows and increase working capital through the issuance of additional
shares of common stock for cash.
The Company is aware of its ongoing cash requirements and has implemented
a cash flow plan, including continued reduction in its general and
administrative expenses. Additionally, the Company has developed an overall
strategy and certain financing options to meet its ongoing needs through June
30, 1999. Due to the need for working capital for Fabric Filters the Company
intends to seek additional debt and/or equity financing from existing
shareholders and other investment capital resources. The Company has no
commitments for any additional debt or equity financing at this time and no
assurance can be given that the Company will be able to obtain any such
commitments. Because of the Company's limited financial resources, the
Company does not anticipate expending any substantial sums for new research
and development during the fiscal year ending June 30, 1999.
Year ended June 30, 1998 compared to June 30, 1997
- --------------------------------------------------
Total revenues for the year ended June 30, 1998 was $1,133,376 compared
to $15,950 for the same period in 1997. Prior to its acquisition of Fabric
Filters in January 1998, the Company had limited operations and no revenue
from sales. Direct costs for the year ended June 30, 1998 were $1,004,326, or
88.6% of sales, for a gross profit of $129,050.
Corporate Expense. For fiscal 1998, total operating expenses were
$1,155,131, consisting of general and administrative expenses of $1,140,789
and depreciation and amortization expenses of $14,342, resulting in a loss
from operations of $1,026,081. Total expenses for fiscal 1997 were $175,505,
consisting of general and administrative expenses of $173,799 and depreciation
and amortization expenses of $1,706, resulting in a loss from operations of
$175,505.
<PAGE> 12
Interest Income. The Company had interest income from accounts
receivables of $4,052 during fiscal 1998 as opposed to $15,950 of interest
income during fiscal 1997. Interest income derived in fiscal 1997 was
attributable to outstanding subscription receivables for the Company's common
stock during the period.
Interest Expense. Interest expense for fiscal 1998 was $34,281 as
compared to none in fiscal 1997. The increase is attributed to increased
corporate borrowing by the Company during the period.
Other Expense. Other expense for fiscal 1998 was a net $1,595,280, of
which, substantially all was represented by loss on the Company's acquisition
of Fabric Filters. In October 1997, the Company began to evaluate avenues to
penetrate the pollution control systems market. One such avenue was to
acquire a pollution control engineering firm that was already designing and
installing such systems. In January 1998, the Company acquired Fabric Filters
and issued 250,000 shares of its common stock valued at $2.00 per share for a
total valuation of $500,000, which was based upon the market value of the
Company's stock on the date of acquisition. The acquisition terms were
negotiated based on management's belief that Fabric Filters was worth
$500,000, regardless of the fact that it had negative equity of $356,350. The
acquisition was accounted for as a purchase. Initially goodwill of $856,350
was recorded which consisted of the excess of the purchase price over the fair
value of the net tangible assets of Fabric Filters. A goodwill impairment
loss was been recorded at June 30, 1998, since the Company has been unable to
determine the present value of the future cash flows of Fabric Filter.
Although the Company has taken the impairment, it intends to continue to
operate Fabric Filters and develop its business.
The Company has recorded an impairment loss of $678,208 at June 30, 1998,
associated with the acquisition of certain mineral deposits that the Company
hopes to use to develop various agricultural products.
The Company experienced a net loss of $(2,621,361) for the year ended
June 30, 1998 compared with a net loss of $(159,555) for the same period in
1997. The basic loss per share for fiscal 1998 was $(1.16) as compared to
$(0.11) for fiscal 1997, based on the weighted average number of shares
outstanding of 2,259,268 and 1,600,200 for the respective periods.
Liquidity and Capital Resources
- -------------------------------
In addition to the acquisition of Fabric Filters and the mineral
deposits, during the fiscal year ended June 30, 1998, the Company issued
615,000 shares to certain of its officers, directors, and employees as
compensation for services rendered to the Company in lieu of cash at a value
of $1.00 per share for a total value of $615,000.
The Company issued common stock for services in lieu of cash during the
period to help preserve limited working capital. The Company had a working
capital deficit of $(732,419) at June 30, 1998. The Company had cash of
$28,027 and net accounts receivable of $244,419 at June 30, 1998. Cash used
in operations for the year ended June 30, 1998 was $424,234 and $178,429 for
the prior year 1997. Cash used in operations for the year ended June 30, 1998
was funded primarily by the issuance of common stock.
Because the Company has an accumulated deficit of $(2,862,758), has a
working capital deficit and limited internal financial resources, the report
of the Company's auditor contains a going concern modification as to the
ability of the Company to continue. During fiscal 1998, the Company began to
effect measures to reduce cash outflows and increase working capital thru the
<PAGE> 13
increasing issuance of additional shares of common stock for services. The
Company is aware of its ongoing cash requirements and has implemented a cash
flow plan, including continued reduction in its general and administrative
expenses. Additionally, the Company has developed an overall strategy and
certain financing options to meet its ongoing need through June 30, 1999.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.
Seasonality
- -----------
The Registrant's market for its pollution control systems is
sufficiently diversified across climatic zones that sales and installations
are not materially impacted by seasonal variations.
UNAUDITED CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
The historical information contained herein has been consolidated on a
proforma basis and is presented for the period from July 1, 1997 (the
beginning of the Company's fiscal year) through January 1, 1998, and is
unaudited. The purchase of assets and liabilities from Fabric Filters on
January 2, 1998 have been described above and the purchase has been presented
in the table below as though it was effective January 2, 1998.
Fabric Proforma
AEC Filters Eliminations Combined
---------- ---------- ---------- ----------
NET SALES $ - $2,503,432 $ - $2,503,432
COST OF SALES - 2,080,297 - 2,080,297
---------- ---------- ---------- ----------
GROSS MARGIN - 432,135 - 432,135
---------- ---------- ---------- ----------
EXPENSES
General & Administrative 475,712 282,201 - 757,913
Depreciation and amortization 2,197 8,020 - 10,217
---------- ---------- ---------- ----------
Total Expenses 477,909 290,221 - 768,130
---------- ---------- ---------- ----------
LOSS BEFORE OTHER INCOME
(EXPENSE) (477,909) 132,914 - (344,995)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income 3,224 41 - 3,265
Miscellaneous income - 2,067 - 2,067
Bad debt expense - (13,121) - (13,121)
Interest expense (443) (8,926) - (9,369)
Gain (loss) asset disposition - 2,981 - 2,981
---------- ---------- ---------- ----------
Total Other Income (Expenses) 2,781 (16,958) - (14,177)
---------- ---------- ---------- ----------
NET LOSS $ (475,128) $ 115,956 $ - $ (359,172)
========== ========== ========== ==========
<PAGE> 14
OTCBB Eligibility Rules
- -----------------------
Effective July 1, 1999, all companies that began quotation on the OTCBB
prior to January 4, 1999 are being reviewed to determine compliance status
with respect to the OTCBB's eligibility rules. The Registrant's phase in date
as published under the NASD's Phase-in schedule was September 1, 1999. To be
compliant with the NASD's eligibility rule, a company must be (1) registered
with the SEC under section 13 or 15(d) of the Exchange Act, and current in its
required filings. To be current, a company must have filed its latest
required annual filing and any subsequent quarterly filings. In the
alternative, a company may be deemed compliant, if it has filed a Form 10 or
Form 10SB and has cleared all comments by the SEC. Prior to September 1, 1999,
the Registrant's common stock was quoted on the NASD's OTC Bulletin Board
under the symbol "AEVC". Although the Registrant has filed a Form 10SB, at
September 1, 1999, the Form 10SB had not cleared all comments by the SEC, and
the Registrant's stock was delisted. Once the Registrant's Form 10SB has
cleared comments the Registrant it will seek to have its common stock
reinstated for quotations on the OTC Bulletin Board. Until such time, the
Company has requested its market maker to listing the Registrant's common
stock in the National Quotation Bureau's "pink sheets."
ITEM 3. DESCRIPTION OF PROPERTY
Executive offices
- -----------------
The Company maintains offices in Boulder City, Nevada, at 705-B Yucca
Street. The Company leases its office space from an unrelated third party for
approximately $950 per month. The term of the lease is 12 months, of which
the Company has approximately 7 months remaining. The Company believes its
current office arrangements will be sufficient to accommodate the Company's
growth for the next two years.
Fabric Filters leases space in Clackamas, Oregon, at 15635 SE 114th
Avenue, Suites 101-104. The current lease is for 12 months ending June 30,
1999, for $3273 per month. Fabric Filters has signed an Amendment to the
Lease, extending the lease period for an additional 12 months and reducing its
total square footage from approximately 3,000 square feet to approximately
2,500 square feet. The lease payment for the 12 months July 1, 1999 to June
30, 2000 will be $2163 per month.
<PAGE>
<PAGE> 15
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 31, 1999 the name and address
and the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 2,885,532
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group.
Principal Shareholders:
(1)
Name and Address Number of Shares Nature of Ownership % of Class
- ---------------- ---------------- ------------------- ----------
Faith Mountain Inc. 200,000 Direct 6.93
12939 SE 246th Street
Kent, WA 98031
Roger Fleming 212,000 Direct 7.35
3865 Silverwood Drive
Stow, OH 44224
Robert W. Hood 178,195 Direct 6.18
15635 SE 114th Street, #102
Portland, OR 97208
Michael Steinke 200,000 Direct 6.93
10011 North 66th Drive
Glendale, AZ 85302
Richard Steinke 400,100 Indirect(2) 13.87
705-B Yucca Street
Boulder City, NV 89005
Officers and Directors:
Name and Position Number of Shares Nature of Ownership % of Class
- ----------------- ---------------- ------------------- ----------
Richard Steinke, President,
C.E.O. and Director ----- See Table Above -----
Ping Zhang, Director 40,000 Direct 1.39
Richard Stone, Director 50,000 Direct 1.73
Hugh Sims-Hilditch, Director 50,000 Indirect(3) 1.73
David K. Griffiths, Secretary/ 17,500 Direct .63
Treasurer
Robert W. Hood, President,
Fabric Filters ----- See Table Above -----
All Officers and Directors
as a Group (6 persons) 107,500 Direct 3.73
588,195 Indirect 20.38
------- -----
695,695 24.11
======= =====
[Footnotes continue on next page]
<PAGE> 16
(1) All shares owned directly are owned beneficially and of record and such
shareholder has sole voting, investment, and dispositive power, unless
otherwise noted.
(2) Represents shares owned beneficially and of record by Gemini Funding
Services Profit Sharing Account (200,050) and S103 Irrevocable Trust
(200,050), of which Richard Steinke is the principal beneficiary and trustee,
respectively.
(3) Represents shares owned beneficially and of record by Coronel Investments
Limited, of which Hugh Sims-Hilditch is the principal owner.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names of the Registrant's executive officers and directors and the
positions held by each of them are set forth below:
Name Age Position Held Position Since
- ---- --- -------- -------------------
Richard A. Steinke 57 President, CEO and Director July 1995
Ping Zhang 34 Director for China operations December 1996
Richard Stone 46 Director for US operations February 1997
Hugh Sims-Hilditch 60 Director for European operations February 1997
David K. Griffiths 62 Secretary and Treasurer February 1997
Robert W. Hood 59 President, Fabric Filters Air
Systems, Inc. November 1985
The term of office of each director is one year and until his or her
successor is elected at the Registrant's annual shareholders' meeting and is
qualified, subject to removal by the shareholders. The term of office for
each officer is for one year and until a successor is elected at the annual
meeting of the board of directors and is qualified, subject to removal by the
board of directors.
Biographical Information
- ------------------------
Set forth below is certain biographical information with respect to each
of the Registrant's officers and directors.
Richard A. Steinke currently serves as Chairman and C. E. O. and is the
founder of the Company. From January 1995 to March 1999, Mr. Steinke was the
CEO of American Tire Corporation [OTCBB: ATYR], a manufacturer of polyurethane
"flat-free" bicycle and lawn and garden tires. Mr. Steinke was been Chairman
of the Board of American Tire Corporation since its inception in January 1995.
From January 1992 to December 1994, Mr. Steinke served as Chairman and C. E.
O. of Alanco Environmental Resources Inc. [NASDAQ: ALAN], a manufacturer of
environmental/pollution control equipment, Salt Lake City, Utah. Mr. Steinke
received a B. A. in Political Science and Economics from the University of
Arizona, Tucson, Arizona in 1967.
Ping Zhang has since 1995 been employed by McWong International, Inc., an
international trading and environmental consulting company, Sacramento,
California, and Shanghai, China, as the director of environmental and energy
division. Mr. Zhang has participated in environmental and trade missions to
China sponsored by various Chinese and state of California governmental
agencies. Mr. Zhang has actively promoted US-China business and trade
relationships and serves as the President of the US-China Business and Trade
Coalition, a California registered non-profit organization. Mr. Zhang holds
<PAGE> 17
degrees in Manufacturing and Industry Technology from Arizona State University
and Mechanical Engineering from Shangi Jiatong University, China. From 1993
to 1995, Mr. Zhang was responsible for China operations, including market
research, strategy formulation, and business development for Alanco
Environmental Resources, Inc., a manufacturer of environmental/pollution
control equipment. He presently resides on Shanghai, China
Richard Stone is a Senior Consultant at ABB CE Services, Technical Services
Group. His duties include trouble shooting, repair and maintenance of coal
pulverizers and coal combustion systems for coal fired boilers,
liaison work with engineering groups for parts modifications and new product
design and sales assistance of coal pulverizer parts. He holds patent number
5,265,774 on a Coal Feeder With Quick Release Clean Out Door. He is a member
of the American Society of Mechanical Engineers and an Associate member of
Boiler & Pressure Vessel Division. He is also on the National Board of
Pressure Vessel Inspectors and a member of the Fire Tube Boiler Task Force.
He has a B.S. degree in Mechanical Engineering from Fairleigh Dickinson
University in 1975.
Hugh Sims-Hilditch has been in excess of the past five years the managing
director Coronel Investments, Ltd., a Jersey corporation ("Coronel"), located
in the United Kingdom. Coronel currently is the manager of Urathon Limited, a
marketing subsidiary of American Tire Corporation, Ravenna, Ohio (OTCBB:
ATYR). After a career in the British Army, Hugh founded a company providing
specialized-engineered parts and technology to the Middle East, Africa, India,
Pakistan and the Far East. After selling this business in 1963 he founded a
company making electrical appliances worldwide with a UK workforce of 1500.
Customers included Westinghouse, Sunbeam, Hoover, Hamilton Beach and Philips.
David K. Griffiths currently serves as Secretary/Treasurer and principal
accounting officer. Since 1960 Mr. Griffiths has been self-employed as an
accountant/consultant for various companies in the legal and medical
professions and construction, agricultural and general business sectors. Mr.
Griffiths brings the Company 36 years experience in accounting, personnel
management and consulting in mergers, acquisitions and accounting systems. Mr.
Griffiths received a B.S. in Accounting from Arizona State University, Tempe,
Arizona in 1959.
Robert W. Hood serves as President of Fabric Filters Air Systems, Inc., the
Company's wholly owned subsidiary. Mr. Hood served in production, maintenance
planning, purchases and quality control for 8 years for Kaiser Aluminum,
Spokane, WA. Mr. Hood served as Sales Manager and Branch Manager in Portland
for Burhans Sharpe, Portland, Oregon for 5 year. Mr. Hood served as Primary
Salesman, President for CP Inc./AKA Fabric Filters Northwest from 1978 to
1998. Mr. Hood graduated from Eastern Washington University in 1965 with a
bachelor degree in Economics. In 1966 and 1967 he did additional graduate
studies.
<PAGE>
<PAGE> 18
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1998 the
end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Steinke 1998 $ -0- -0- -0- -0- -0- -0- -0-
President 1997 $ -0- -0- -0- -0- -0- -0- -0-
1996 $ -0- -0- -0- -0- -0- -0- -0-
Robert Hood 1998 $ 86,248 -0- -0- -0- -0- -0- -0-
President, Fabric 1997 $ 65,400 -0- -0- -0- -0- -0- -0-
Filters 1996 $ 54,400 -0- -0- -0- -0- -0- -0-
</TABLE>
Board Compensation
As of March 31, 1999, the Company's directors receive no compensation for
attendance at board meetings. However, board members are reimbursed for all
reasonable out-of-pocket expenses incurred by them in connection with their
attendance at the board meetings.
Options/SAR Grants in Last Fiscal Year
No individual grants of stock options (whether or not in tandem with
SARs), or freestanding SARs were made during the last completed fiscal year to
any of the named executive officers.
Bonuses and Deferred Compensation
There are no other compensation plans or arrangements, including payments
to be received from the Company, with respect to any person named as a
director, executive officer, promoter or control person above which would in
any way result in payments to any such person because of his resignation,
retirement, or other termination of such person's employment with the Company
or its subsidiaries, or any change in control of the Company, or a change in
the person's responsibilities.
Compensation Pursuant to Plans
None.
Pension Table
Not Applicable.
<PAGE> 19
Other Compensation
Richard Steinke has been accruing salary payments of $10,000 per month
since July 1, 1998, for a total outstanding to date of $92,904.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- ---------------------------------------
The information set forth below is provided by the Company based on what
the Company believes may be material to the shareholders in light of all the
circumstances of the particular case. The significance of the transactions
disclosed may be evaluated by each shareholder after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions.
Technology License Agreement
- ----------------------------
On August 19, 1997, the Company entered into a Technology License
Agreement with Richard A. Steinke and Dennis S. Chrobak. The Technology
License Agreement grants the Company an exclusive license to use, sell,
license, or otherwise exploit pollution systems covered by U.S. Patent No.
5,795,549 [August 18, 1998] (the "Apparatus") worldwide in exchange for a
royalty. During the term of this Agreement, the Company shall pay a Royalty
(the "Royalty") of (a) one and one-half percent (1.5%) of the gross sales
price of any equipment manufactured directly or indirectly by the Company and
sold for use with or as a part of the Technology; and (b) one-half percent
(.5%) of the gross sales price on any replacement equipment manufactured
directly or indirectly by the Company. All royalties payable under the
Technology License Agreement will be paid to Mr. Chrobak. Mr. Steinke will
not receive a royalty under the agreement so long as he is affiliated with the
Company. However, due to the relationship of Mr. Steinke and Mr. Chrobak with
the Company at the time the Technology License Agreement was made, the DSS
License Agreement cannot be considered to have been negotiated at arm's
length. At September 1, 1999, no royalties have been earned and no sales have
been made which are subject to royalty payments.
Exclusive License Agreement
- ---------------------------
On May 5, 1999, the Company entered into an Exclusive License Agreement
with Richard A. Steinke and Robert W. Hood, to manufacture pollution systems
covered by U.S. Patent Application "Improved Apparatus and Method for the
Remediation of Particulate Material and Toxic Pollutants Transported in Flue
Gas" -- Docket No. 7455 (the "Improved Apparatus"). Messrs. Steinke and Hood
are the inventors of the Improved Apparatus. The agreement grants the Company
an exclusive license to use, sell, license, or otherwise exploit the
technology worldwide in exchange for a royalty. The royalty consists of three
per cent (3.0%) of the net selling price for all wholesale or retail sales of
"units" of Messrs. Steinke's and Hood's inventions, that include the
improvements engineered thereto, and products as are later developed as a
result of the inventors' efforts, and as are sold by the Company or any
sublicensee, in the United States and throughout the world. The agreement is
subject to minimum sales provisions of 30 units in the first year, increasing
to 120 units by year five and for the remainder of the term. Due to the
relationship of Mr. Steinke and Mr. Hood with the Company at the time the
agreement was made, the Exclusive License Agreement cannot be considered to
have been negotiated at arm's length. At September 1, 1999, no royalties have
been earned and no sales have been made which are subject to royalty payments.
<PAGE> 20
Representation Agreement
- ------------------------
On April 21, 1996, the Company entered into a Representation Agreement
with M.W. McWong International, Inc.("McWong"), appointing McWong as its
exclusive representative for the sale of AEC Pollution Control Systems and
related spare parts and supplies/consumables in China. Ping Zhang, a director
of the Company, is the principal of McWong, a pollution systems marketing firm
located in Shanghai, China. The agreement calls for the payment of a
commission on sales based on an agreed-upon fixed price for the Company's
products to McWong, with an equal division of profits, if any, beyond the
commission. The term of the agreement is ongoing, terminable by either party
on 120 day notice. Because of the relationship of Mr. Zhang with the Company
at the time the agreement was made, the Representation Agreement cannot be
considered to have been negotiated at arms length. At September 1, 1999, no
commissions have been paid and no sales have been made which are subject to
commission payments.
Loans from officers and shareholders
- ------------------------------------
At March 31, 1999, the Company had a loan outstanding to an officer of
the Company, in the amount of $116,324, represented by a Note payable with
interest at 8.5% per annum, principal plus accrued interest due June 30,1999
unsecured.
At March 31, 1999, the Company has a loan outstanding to a shareholder of
the Company, in the amount of $20,000, represented by a Note payable,
non-interest bearing, due on demand, unsecured.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
- ------------
The Company's Articles of Incorporation authorize 24,000,000 shares of
Common Stock, $0.001 par value per share. At March 31, 1999, the Company had
issued and outstanding 2,885,532 shares of Common Stock. The shares of Common
Stock have no preemptive or other subscription rights, have no conversion
rights, and are not subject to redemption. No personal liability attaches to
the ownership of the Common Stock and the holders of Common Stock are not
entitled to cumulative voting rights.
Preferred Stock
- ---------------
The Company's Articles of Incorporation authorize 1,000,000 shares of
Preferred Stock, $0.001 par value per share (the "Preferred Stock"). The
authority to issue the Preferred Stock is vested in the Board of Directors,
which has authority to fix and determine the powers, qualifications,
limitations, restrictions, designations, rights, preferences, or other
variations of each class or series within each class which the Company is
authorized to issue. The above described authority of the Board of Directors
to fix and determine may be exercised by corporate resolution from time to
time as the Board of Directors sees fit. No shares of Preferred Stock have
been issued to date.
<PAGE>
<PAGE> 21
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The Company began trading in September 1997. Prior to September 1, 1999,
the Company's common stock was quoted on the NASD's OTC Bulletin Board under
the symbol "AEVC". (See Item 1. DESCRIPTION OF BUSINESS: OTCBB Eligibility
Rules). The table below sets forth, for the respective periods indicated, the
prices of the Company's common stock in the over-the-counter market as
reported by the NASD's OTC Bulletin Board. The bid prices represent inter-
dealer quotations, without adjustments for retail markups, markdowns or
commissions and may not necessarily represent actual transactions.
Fiscal Year Ended June 30, 1999 High Bid Low Bid
- ------------------------------- -------- --------
First Quarter $1.40 $0.63
Second Quarter $1.40 $0.63
Third Quarter $1.50 $0.63
Fourth Quarter $0.88 $0.56
Fiscal Year Ended June 30, 1998 High Bid Low Bid
- ------------------------------- -------- --------
First Quarter $2.13 $1.00
Second Quarter $2.50 $1.50
Third Quarter $2.50 $1.25
Fourth Quarter $2.38 $1.13
There are approximately 100 shareholders of record of the Company's
common stock.
Dividend Policy
- ---------------
The Company has not declared or paid cash dividends or made distributions
in the past, and the Company does not anticipate that it will pay cash
dividends or make distributions in the foreseeable future. The Company
currently intends to retain and reinvest future earnings, if any, to finance
its operations.
Transfer Agent
- --------------
The transfer agent for the Company's common stock is Interwest Transfer
Co., Inc., P. O. Box 17136, Salt Lake City, UT 84117.
ITEM 2. LEGAL PROCEEDINGS
The Company and Fabric Filters are named defendants in a lawsuit titled
"The Lynch Company, Inc. v. Fabric Filters Air Systems, Inc. and American
Environmental Corporation, CV98-07-223", filed in Clackamas County Circuit
Court, State of Oregon, in August 1998. The Plaintiff is seeking $98,805,
with interest, for goods and materials fabricated, sold and delivered to
Fabric Filters for baghouses and supports in connection with the
<PAGE>
<PAGE> 22
Hollinger/Port of Longview project. The amount in question represents the
invoiced amounts not paid by Fabric Filters in connection with that project.
In January 1999, the Company paid the Plaintiff $50,000 towards the amount in
question and still owes the Plaintiff approximately $56,000, including
interest.
Fabric Filters is named as a defendant and is subject to a Writ of
Garnishment filed April 13, 1999, in connection with a unsatisfied judgment
entered April 21, 1998, by Austin-Mac, Inc., a co-defendant in an action filed
by Yanke Machine Shop in the Superior Court of Washington for Cowlitz County,
Case Number 992004109. The total amount outstanding at April 21, 1999,
including interest and attorney fees was $108,619.41. An Amended Judgment
filed May 19, 1999 added $319.78 in legal fees incurred by Austin-Mac, Inc. to
the previous total in connection with a judgment against Hollinger
Construction, Inc., a garnishee defendant, for $26,358.74. This amount, when
received by Austin-Mac, Inc. from Hollinger Construction, Inc., should reduce
Fabric Filters' outstanding balance to approximately $82,580.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In January 1999, the Company sold 100,000 shares of its common stock at a
purchase price of $1.00 per share for aggregate offering proceeds of $100,000.
The offering was made under the securities laws of the state of New York and
is believed by the Company to be exempt from registration under federal law
pursuant to Section 3(b) of the Securities Act of 1933, as amended (the
"Act"), and Rule 504 of Regulation D, promulgated under the Act. The shares
of common stock were offered by the Company's officers and directors
exclusively to residents of the state of New York. No commissions were paid
in connection with the offer and sale of the shares. All purchasers were
provided with an offering prospectus containing the type of information
regarding the Company specified under Rule 502(b)(2) of Regulation D.
In June 1998, the Company and NatureNu entered into negotiations for a
Purchase Contract wherein the Company received the right to extract up to
5,500 tons of surface minerals from certain placer mining claims located in
Esmeralda County, Nevada. As part of the consideration for the extraction
rights the Company issued 320,332 shares of the Company's restricted common
stock valued at $2.12 per share in satisfaction of certain indebtedness and
financial obligations of NatureNu. The securities issued in the foregoing
transaction were issued in reliance on the exemption from registration and
prospectus delivery requirements of the Act set forth in Section 3(b) and/or
Section 4(2) of the Securities Act and the regulations promulgated thereunder.
In January 1998, the Company issued 250,000 shares of its common stock to
the shareholders of Fabric Filters in connection with the acquisition of
Fabric Filters. The shares issued to the shareholders of Fabric Filters were
not registered under the Act and are "restricted securities" as that term is
defined in the Act. The shares were issued in reliance on the exemption from
such registration requirements provided by Section 4(2) of the Act. Each
shareholder of Fabric Filters provided the Company with such information
necessary to establish that such shareholders were financially sophisticated
so as to be deemed "accredited investors" as that term is defined under
Section 2(a)(15)of the Act.
<PAGE> 23
In November 1997, the Company issued 615,000 shares of its common stock
to certain of its officers, directors, employees, existing shareholders, and
creditors as compensation for consulting, design, legal and/or contracted
labor services such persons had provided the Company during the previous
year. The issuance of the shares was valued at $1.00 per share for a total
value of $615,000.
In March 1997, the Company issued 5,000 shares of its common stock to an
officer, director, and employee of the Company as compensation for bookkeeping
services the individual had provided to the Company prior to the issuance.
The issuance of the shares was valued at $1.00 per share for a total value of
$5,000.
In March 1997, the Company sold 272,500 shares of its restricted common
stock at a purchase price of $1.00 per share to certain of its existing
shareholders in a private placement for aggregate offering proceeds of
$272,500.
The securities issued in the foregoing transactions were issued in
reliance on the exemption from registration and prospectus delivery
requirements of the Act set forth in Section 3(b) and/or Section 4(2) of the
Securities Act and the regulations promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada Revised Statutes confers on a director or
officer an absolute right to indemnification for expenses, including
attorneys' fees, actually and reasonably incurred by him to the extent he is
successful on the merits or otherwise in defense of any action, suit, or
proceeding. This section also entitles a director or officer to partial
indemnification against expenses to the extent that he has been successful in
defending any claim, issue, or matter asserted in such proceeding. The Nevada
indemnification section further permits the corporation to indemnify officers
and directors in circumstances where indemnification is not mandated by the
statute and certain statutory standards are satisfied. The Nevada statute
expressly makes indemnification contingent upon a determination that
indemnification is proper in the circumstances. Such determination must be
made by the board of directors, the shareholders, or independent legal
counsel. Nevada law also permits a corporation, in its articles of
incorporation, bylaws, or an agreement, to pay attorneys' fees and other
litigation expenses on behalf of a corporate official in advance of the final
disposition of the action upon receipt of an undertaking by or on behalf of
the corporate official to repay such expenses to the corporation if it is
ultimately determined that he is not entitled to be indemnified by the
corporation. The corporation may also purchase and maintain insurance to
provide indemnification. The Nevada statute also provides that
indemnification authorized by the statute is not exclusive of, but is in
addition to, indemnification rights granted under a corporation's articles of
incorporation, an agreement, or pursuant to a vote of shareholders or
disinterested directors.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to Section
78.751 of the Nevada Revised Statues.
The Company's articles of incorporation and bylaws do not contain
specific provisions relating to indemnification of directors, officers,
employees, and/or agents of the Company. However, it is anticipated that the
Company will indemnify its officers and directors to the full extent permitted
<PAGE> 24
by the above referenced statute. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of expenses
incurred or paid by a director, officer or controlling person in connection
with the securities being registered), the small business issuer will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by the Company is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets of American Environmental
Corporation and Subsidiaries as of June 30, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the years ended June 30, 1998 and 1997, have been examined to the extent
indicated in their reports by Jones, Jensen & Company, independent certified
accountants, and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein.
The unaudited consolidated balance sheet of the Company as of March 31,
1999, the related unaudited consolidated statements of operations and cash
flows for the nine month periods ended March 31,1999 and 1998; and the
unaudited consolidated statement of stockholders' equity for the period from
June 30, 1996 through March 31, 1999 are attached here to and incorporated
herein by this reference. The unaudited financial statements have been
prepared in accordance with provisions relating to interim financial
statements under Regulation S-B and, therefore, do not include all information
and footnotes necessary for a complete presentation of the financial position,
results of operations, stockholders' equity and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature.
<PAGE>
<PAGE> 25
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
(Unaudited)
March 31,
1999
-----------
CURRENT ASSETS
Cash $ 35,492
Accounts receivable, net (Note 1) 339,848
Accounts receivable, related party (Note 5) 3,825
Prepaid expenses 1,969
-----------
Total Current Assets 381,134
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 58,763
-----------
OTHER ASSETS
Cash surrender value of life insurance 26,142
Mineral deposits (Notes 1 and 10) 177,788
Patents (Note 3) 26,226
Deposits 1,225
-----------
Total Other Assets 231,381
-----------
TOTAL ASSETS $ 671,278
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 26
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
March 31,
1999
-----------
CURRENT LIABILITIES
Accounts payable $ 370,624
Accounts payable, related party (Note 5) 107,384
Accrued expenses 25,751
Billings in excess of costs (Notes 1 and 9) 102,838
Notes payable, related party (Note 8) 136,324
Notes payable, current portion (Note 6) 264,161
-----------
Total Current Liabilities 1,007,082
-----------
LONG-TERM DEBT (Note 6) 65,305
-----------
Total Liabilities 1,072,387
-----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock: 1,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding
Common stock: 24,000,000 shares authorized of
$0.001 par value, 2,885,532 shares issued and outstanding 2,886
Additional paid-in capital 2,465,195
Accumulated deficit (2,869,190)
-----------
Total Stockholders' Equity (Deficit) (401,109)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 671,278
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 27
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Unaudited
For the Nine Months Ended
March 31,
1999 1998
----------- -----------
REVENUES
Net sales $ 1,550,577 $ 568,033
Cost of goods sold 974,205 502,718
----------- -----------
Gross Profit 576,372 65,315
----------- -----------
EXPENSES
General and administrative 519,526 950,697
Depreciation and amortization 15,131 7,962
----------- -----------
Total Expenses 535,657 958,659
----------- -----------
Profit From Operations 41,715 (893,344)
----------- -----------
OTHER INCOME (EXPENSE)
Rental income 3,825 -
Interest income 132 3,334
Miscellaneous income - -
Interest expense (33,849) (2,872)
Gain on asset disposition - -
Bad debt expense (18,255) (10,493)
----------- -----------
Total Other Income (Expense) (48,147) (10,031)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (6,432) (903,375)
----------- -----------
Provision for income taxes - -
----------- -----------
NET LOSS $ (6,432) $ (903,375)
=========== ===========
BASIC LOSS PER SHARE $ (0.003) $ (0.466)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 2,259,268 1,938,936
=========== ===========
FULLY DILUTED LOSS PER SHARE $ (0.003) $ (0.466)
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,259,268 1,938,936
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 28
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 1,322,700 $ 1,323 $ 322,177 $ (178,500) $ (81,842)
Issuance of common stock for cash at
$1.00 per share 272,500 272 272,228 - -
Issuance of common stock for services
rendered at $1.00 per share 5,000 5 4,995 - -
Stock offering costs - - (26,128) - -
Net loss for the year ended
June 30, 1997 - - - - (159,555)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 1,600,200 1,600 573,272 (178,500) (241,397)
Issuance of common stock to acquire
Fabric Filters Air Systems, Inc. at
$2.00 per share 250,000 250 499,750 - -
Issuance of common stock for services
rendered at $1.00 per share 615,000 615 614,385 - -
Issuance of common stock to acquire
mineral deposits at $2.12 per share 320,332 321 677,888 - -
Subscription receivable collected - - - 178,500 -
Net loss for the year ended
June 30, 1998 - - - - (2,621,361)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 2,785,532 2,786 2,365,285 - (2,862,758)
Issuance of common stock for cash
at $1.00 per share (Unaudited) 100,000 100 99,900 - -
Net loss for the nine months ended
March 31, 1999 (Unaudited) - - - - (6,432)
------------ ------------ ------------ ------------ ------------
Balance March 31, 1999 (Unaudited) 2,885,532 $ 2,886 $ 2,465,185 $ - $ (2,869,190)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 29
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Unaudited
For the nine months
Ended March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES ------------ ------------
Net loss $ (6,432) $ (903,375)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 15,131 7,962
Stock issued for services - 615,000
Bad debt expense 18,255 23,614
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (95,429) 436,334
(Increase) decrease in accounts receivable -
related party 1,275 (64,910)
(Increase) decrease in inventory - 22,888
(Increase) decrease in prepaid expenses
and deposits 118 15,497
Increase (decrease) in accounts payable (101,864) (92,824)
Increase (decrease) in accounts payable -
related party 81,700 (7,500)
Increase (decrease) in billings in excess
of costs 9,133 (329,113)
Increase (decrease) in line of credit - (5,741)
Increase (decrease) in accrued expenses (37,286) (17,003)
------------- ------------
Net Cash Used by Operating Activities (115,399) (291,171)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary - 97,262
Purchase of fixed assets (10,422) (29,924)
Purchase of mineral deposits (1,738) (100,000)
Patent costs 316 (18,680)
------------- ------------
Net Cash Used by Investing Activities (11,844) (51,342)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received from notes payable 24,000 20,000
Cash received from notes payable - related party 15,349 88,904
Collection of subscription receivable - 178,500
Payments on notes payable (4,641) (6,032)
Payments on notes payable - related party - (12,007)
Issuance of common stock for cash 100,000 -
------------- ------------
Net Cash Provided by Financing Activities $ 134,708 $ 269,365
------------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 30
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
Unaudited
For the nine months
Ended March 31,
1999 1998
------------- ------------
NET INCREASE (DECREASE) IN CASH $ 7,465) $ (81,148)
CASH AT BEGINNING OF PERIOD 28,027 92,608
------------- ------------
CASH AT END OF PERIOD $ 35,492 $ 11,460
============= ============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ - $ 3,374
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ - $ 615,000
Stock issued for acquisition of subsidiary $ - $ 500,000
Stock issued for mineral deposits $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 31
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Environmental Corporation (the "Company") was organized under the
laws of the State of Nevada on July 28, 1995 to take advantage of existing
proprietary and non-proprietary technology available for removal of sulphur
dioxide. The Company had limited operations since its organization and was
classified as a "development stage" company until the acquisition of Fabric
Filters Air Systems, Inc. (FFI) on January 2, 1998.
FFI was incorporated in January 1978 under the laws of the State of Oregon.
FFI was organized to operate as a manufacturer of pollution control equipment.
FFI is currently in the business of the design and installation of "bag
houses" (air filter systems).
The Company acquired FFI on January 2, 1998 by issuing 250,000 shares of its
common stock valued at $500,000 in exchange for all the issued and outstanding
common stock of FFI. The acquisition was accounted for as a purchase.
Initially, goodwill of $856,350 was recorded which consisted of the excess of
the purchase price over the fair value of the net tangible assets of FFI. An
impairment loss of $856,350 was recorded, however, for the year ended June
30, 1998, since the Company was unable to determine the present value of the
future cash flows of the purchased subsidiary. Activity from the date of
acquisition to June 30, 1998 was included in the consolidated statement of
operations for the year ended June 30, 1998.
For comparative purposes, the Company's unaudited statements of operations and
cash flows for the nine month period ending March 31, 1998 have been presented
to show the financial results that may have occurred had FFI been acquired as
of July 1, 1997.
b. Accounting Methods
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a June 30 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
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.
e. Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amounts 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 a period of five to ten years.
<PAGE>
<PAGE> 32
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$54,000.
g. Provision for Taxes
At March 31, 1999, the Company has net operating loss carryforwards of
approximately $2,800,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the consolidated financial
statements because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
h. Principles of Consolidation
The consolidated financial statements include those of American Environmental
Corporation and its wholly-owned subsidiary, Fabric Filters Air Systems, Inc.
All material intercompany accounts and transactions have been eliminated.
i. 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 consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
k. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" during the year ended June 30, 1998. In accordance with
SFAS No. 128, diluted earnings per share must be calculated when an entity has
convertible securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted earnings (loss)
per share is to show (on a pro forma basis) per share earnings or losses
assuming the exercise or conversion of all securities that are exercisable or
convertible into common stock and that would either dilute or not affect basic
EPS. SFAS No. 128 is effective for fiscal years ending after December 15,
1997. As permitted by SFAS No. 128, the Company has retroactively applied the
provisions of this new standard by showing the fully diluted loss per common
share for all years presented.
<PAGE>
<PAGE> 33
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Concentrations of Risk
Credit losses, if any, have been provided for in the consolidated financial
statements and are based on managements expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The Company
does not believe that it is subject to any unusual, or significant risks in
the normal course of its business.
m. Mineral Deposits
Costs of acquiring the mineral deposits have been capitalized. Costs to
maintain the mineral deposits and leases are expensed as incurred. As the
mineral deposits are extracted and sold, the related capitalized costs will be
amortized, using the units of production method or the basis of periodic
estimates of the mineral deposits. Mineral deposits are assessed at least
annually to determine if they have been impaired or should be abandoned based
on other economic factors. The assessment is based on the Company's evaluation
of the deposits future expectation of profitability. Should the deposits be
impaired or abandoned, its capitalized costs will be charged to operations.
n. Accounting Basis for Recording Income
The Company records profits or losses on its installation contracts on the
completed contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no profits are recorded
before the completion of the work. Provisions for estimated losses on
uncompleted contracts are made at the time such losses are determined.
Operating expenses, including indirect costs and administrative expenses, are
charged as incurred to periodic income and not allocated to contract costs.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31,
1999
------------
Computer equipment $ 131,177
Furniture and fixtures 46,474
Vehicles 11,409
Leasehold improvements 3,500
Engineering equipment 17,610
Office equipment 8,821
Demonstration equipment 10,270
------------
Subtotal 229,261
Accumulated depreciation (170,498)
------------
Net property and equipment $ 58,763
============
Depreciation expense for the nine months ended March 31, 1999 was $15,131.
<PAGE>
<PAGE> 34
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 3 - PATENTS
The patent costs that have been capitalized relate to legal fees incurred to
develop and secure the Company's patents. The patents are recorded at cost and
are being amortized using the straight-line method over a period of seven
years once the patents have been issued.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Company has two separate operating leases for office
space that expire June 1999. The combined monthly rental payment is $2,900.
Minimum future lease payments on the leases as of March 31, 1999 are as
follows:
Year Ended
June 30, Amount
------------- -------------
1999 $ 8,700
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
-------------
Total $ 8,700
=============
NOTE 5 - RELATED PARTY TRANSACTIONS
As of March 31, 1999, the Company owed $107,384 to certain of its officers and
shareholders. The amounts are unsecured and are payable on demand.
As of March 31, 1999, the Company was owed $3,825 from a related party. The
amount is unsecured and non-interest bearing.
<PAGE> 35
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following:
March 31,
1999
----------
Note payable to a corporation, principal (effective rate
of 73% per annum) due August 12,1998, secured by 200,000
shares of common stock. At the option of the lender, the
debt is convertible into common stock at a rate of one
share for every $0.50 of principal. $ 250,000
Loan payable to Great-West Insurance Company, interest at
8.0% due from July 1, 1998 until paid. Cash value in insurance
policy is held as collateral 24,000
Note payable to a bank, interest at 10.5% per annum, principal
and interest payments of $1,745 due monthly, secured by
assets of the Company, matures in August 2002. 55,466
----------
Total Notes Payable 329,466
Less: Current Portion (264,161)
----------
Long-Term Notes Payable $ 65,305
==========
The aggregate principal maturities of notes payable are as follows:
Year Ended
June 30, Amount
---------- ----------
1999 $ 273,776
2000 15,722
2001 17,455
2002 19,378
2003 3,135
2004 and thereafter -
----------
Total $ 329,466
==========
<PAGE>
<PAGE> 36
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 7 - GOING CONCERN
The Company's 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. However, the Company does not have an established source of revenues
sufficient to cover its operating costs and to allow it to continue as a going
concern. It is the intent of the Company to generate revenue through the sales
of its air pollution systems to remove toxic flue gases. In the opinion of
management, sales of the Company's products will be sufficient to fund the
Company's operating expenses and capital requirements for at least the next
twelve months. However, the outcome of these events is currently uncertain.
NOTE 8 - NOTES PAYABLE - RELATED PARTY
Notes payable - related parties consists of the following:
March 31,
1999
------------
Notes payable to an officer of the Company, interest at 8.5%
per annum, principal plus accrued interest due June 30,1999
unsecured. $ 116,324
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 20,000
------------
Total Notes Payable - Related 136,324
Less: Current Portion (136,324)
------------
Long-Term Notes Payable - Related Party $ -
============
The aggregate principle maturities of notes payable - related party are as
follows:
Year Ended
June 30, Amount
------------ ------------
1999 $ 136,324
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
------------
Total $ 136,324
============
<PAGE>
<PAGE> 37
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
March 31, 1999
NOTE 9 - CONTRACTS IN PROCESS
Contracts in process consists of the following:
March 31,
1999
----------
Billings on uncompleted contracts $ 400,721
Less: costs on uncompleted contracts (297,883)
----------
Billings in excess of costs on uncompleted contracts $ 102,838
==========
NOTE 10 - MINERAL DEPOSITS
In June 1998, the Company purchased mineral deposits (seasoil) for $140,000
cash and issued 320,332 shares of common stock valued at $2.12 per share. The
Company expended an additional $36,050 related to acquiring the asset which
has been included in the total capitalized costs. These mineral deposits are
to be used to develop various cosmetic and agricultural products. An
impairment loss of $678,208 was recorded in the consolidated statement of
operations for the year ended June 30, 1998.
<PAGE>
<PAGE> 38
Jones, Jensen & Company, LLC
Certified Public Accountants and Consultants
50 South Main Street, Suite 1450
Salt Lake City, Utah 84144
Telephone (801) 328-4408
Facsimile (801) 328-4461
INDEPENDENT AUDITORS' REPORT
The Board of Directors
American Environmental Corporation and Subsidiary
Boulder City, Nevada
We have audited the accompanying consolidated balance sheet of American
Environmental Corporation and Subsidiary as of June 30, 1998, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the years ended June 30, 1998 and 1997. 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 audits 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 provides 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 American Environmental Corporation and Subsidiary as of June 30, 1998, and
the consolidated results of their operations and their cash flows and for the
years ended June 30, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 7 to the
consolidated financial statements, the Company has incurred significant losses
which have resulted in an accumulated deficit and a deficit in stockholders'
equity, raising substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 7. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
April 8, 1999
<PAGE>
<PAGE> 39
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
ASSETS
June 30,
1998
----------
CURRENT ASSETS
Cash $ 28,027
Accounts receivable, net (Note 1) 244,419
Accounts receivable, related party (Note 5) 5,100
Prepaid expenses 2,087
----------
Total Current Assets (Net) (Notes 1 and 2) 279,633
----------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 63,473
----------
OTHER ASSETS
Cash surrender value of life insurance 26,142
Mineral deposits (Notes 1 and 10) 176,050
Patents (Note 3) 26,542
Deposits 1,225
----------
Total Other Assets 229,959
----------
TOTAL ASSETS $ 573,065
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 40
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30,
1998
----------
CURRENT LIABILITIES
Accounts payable $ 472,488
Accounts payable, related party (Note 5) 25,684
Accrued expenses 63,037
Billings in excess of costs (Notes 1 and 10) 93,705
Notes payable, related party (Note 9) 120,975
Notes payable, current portion (Note 6) 236,163
----------
Total Current Liabilities 1,012,052
----------
LONG-TERM DEBT (Note 6) 55,690
----------
Total Liabilities 1,067,742
----------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 1,000,000 shares authorized of
$0.001 par value, -0- shares issued and outstanding -
Common stock; 24,000,000 shares authorized of
$0.001 par value, 2,785,532 shares issued and outstanding 2,786
Additional paid-in capital 2,365,295
Accumulated deficit (2,862,758)
----------
Total Stockholders' Equity (Deficit) (494,677)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 573,065
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 41
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended
June 30,
1998 1997
----------- -----------
REVENUES
Net Sales $ 1,133,376 $ -
Cost of goods sold 1,004,326 -
----------- -----------
Gross Profit 129,050 -
----------- -----------
EXPENSES
General and administrative 1,140,789 173,799
Depreciation and amortization 14,342 1,706
----------- -----------
Total Expenses 1,155,131 175,505
----------- -----------
Loss From Operations (1,026,081) (175,505)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 4,052 15,950
Interest expense (34,281) -
Bad debt expense (30,493) -
Goodwill impairment loss (Note 1) (856,350) -
Impairment loss (Note 11) (678,208) -
----------- -----------
Total Other Income (Expense) (1,595,280) 15,950
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,621,361) (159,555)
----------- -----------
Provision for income taxes - -
----------- -----------
NET LOSS $(2,621,361) (159,555)
=========== ===========
BASIC LOSS PER SHARE $ (1.16) $ (0.11)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,259,268 1,600,200
=========== ===========
FULLY DILUTED LOSS PER SHARE $ (1.16) $ (0.11)
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,259,268 1,600,200
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 42
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 1,322,700 $ 1,323 $ 322,177 $ (178,500) $ (81,842)
Issuance of common stock for cash at
$1.00 per share 272,500 272 272,228 - -
Issuance of common stock for services
rendered at $1.00 per share 5,000 5 4,995 - -
Stock offering costs - - (26,128) - -
Net loss for the year ended
June 30, 1997 - - - - (159,555)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1997 1,600,200 1,600 573,272 (178,500) (241,397)
Issuance of common stock to acquire
Fabric Filters Air Systems, Inc. at
$2.00 per share 250,000 250 499,750 - -
Issuance of common stock for services
rendered at $1.00 per share 615,000 615 614,385 - -
Issuance of common stock to acquire
mineral deposits at $2.12 per share 320,332 321 677,888 - -
Subscription receivable collected
(Note 8) - - - 178,500 -
Net loss for the year ended
June 30, 1998 - - - - (2,621,361)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 1998 2,785,532 $ 2,786 $ 2,365,295 $ - $ (2,862,758)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 43
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES ------------- --------------
Net loss $ (2,621,361) $ (159,555)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 14,342 1,706
Stock issued for services 615,000 5,000
Bad debt expense 30,493 -
Impairment loss 678,208 -
Goodwill impairment loss 856,350 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 266,363 -
(Increase) decrease in accounts receivable -
related party (5,100) -
(Increase) decrease in inventory 22,013 -
(Increase) decrease in interest receivable 15,493 (14,280)
(Increase) decrease in prepaid expenses
and deposits 22,060 570
Increase (decrease) in accounts payable (116,403) (11,870)
Increase (decrease) in accounts payable -
related party 18,184 -
Increase (decrease) in billings in excess
of costs (234,374) -
Increase (decrease) in accrued expenses 14,498 -
------------- --------------
Net Cash Used by Operating Activities (424,234) (178,429)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in purchase of subsidiary 97,262 -
Purchase of fixed assets (37,943) (18,571)
Purchase of mineral deposits (176,050) -
Patent costs (13,297) (13,245)
------------- --------------
Net Cash Used by Investing Activities (130,028) (31,816)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable - related party (20,000) -
Collection of subscriptions receivable 178,500 -
Cash received from notes payable 222,000 -
Cash received from notes payable -
related party 112,904 -
Payments on notes payable (17,132) -
Payments on shareholder advances - (23,000)
Issuance of common stock for cash - 272,500
------------- --------------
Net Cash Provided by Financing Activities $ 476,272 $ 249,500
------------- --------------
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 44
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
June 30,
1998 1997
------------- --------------
NET INCREASE (DECREASE) IN CASH $ (77,990) $ 39,255
CASH AT BEGINNING OF YEAR 106,017 66,762
------------- --------------
CASH AT END OF YEAR $ 28,027 $ 106,017
============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 3,593 $ -
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ 615,000 $ 5,000
Stock issued for acquisition of subsidiary $ 500,000 $ -
Stock issued for mineral deposits $ 678,209 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 45
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTES 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
American Environmental Corporation (the "Company") was organized under the
laws of the State of Nevada on July 28, 1995 to take advantage of existing
proprietary and non-proprietary technology available for removal of sulphur
dioxide. The Company has had limited operations since its organization and was
classified as a "development stage" company until the acquisition of Fabric
Filters Air Systems, Inc. (FFI) on January 2, 1998.
FFI was incorporated in January 1978 under the laws of the State of Oregon.
FFI was organized to operate as a manufacturer of pollution control equipment.
FFI is currently in the business of the design and installation of "bag
houses" (air filter systems).
The Company acquired FFI on January 2, 1998 by issuing 250,000 shares of its
common stock valued at $500,000 in exchange for all the issued and outstanding
common stock of FFI. The acquisition was accounted for as a purchase.
Initially, goodwill of $856,350 was recorded which consisted of the excess of
the purchase price over the fair value of the net tangible assets of FFI. An
impairment loss of $856,350 has been recorded, however, for the year ended
June 30, 1998, since the Company was unable to determine the present value of
the future cash flows of the purchased subsidiary. Activity from the date of
acquisition to June 30, 1998 has been included in the consolidated statement
of operations for the year ended June 30, 1998.
b. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting. The Company has selected a June 30 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
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.
e. Property and Equipment
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. The cost and related accumulated depreciation of equipment
retired or sold are removed from the accounts and any differences between the
undepreciated amounts and proceeds from the sale are recorded as gain or loss
on sale of equipment. Depreciation is computed using the straight-line method
over a period of five to ten years.
f. Accounts Receivable
Accounts receivable are shown net of the allowance for doubtful accounts of
$54,000.
<PAGE>
<PAGE> 46
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTES 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Provision for Taxes
At June 30, 1998, the Company has net operating loss carryforwards of
approximately $2,800,000 that may be offset against future taxable income
through 2013. No tax benefit has been reported in the consolidated financial
statements because the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
h. Principles of Consolidation
The consolidated financial statements include those American Environmental
Corporation and its wholly-owned subsidiary, Fabric Filters Air Systems, Inc.
All material intercompany accounts and transactions have been eliminated.
i. 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.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
k. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" during the year ended June 30, 1998. In accordance with
SFAS No. 128, diluted earnings per share must be calculated when an entity has
convertible securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted earnings (loss)
per share is to show (on a pro forma basis) per share earnings or losses
assuming the exercise or conversion of all securities that are exercisable or
convertible into common stock and that would either dilute or not affect basic
EPS. SFAS No. 128 is effective for fiscal years ending after December 15,
1997. As permitted by SFAS No. 128, the Company has retroactively applied the
provisions of this new standard by showing the fully diluted loss per common
share for all years presented.
l. Concentrations of Risk
Credit losses if any have been provided for in the consolidated financial
statements and are based on managements expectations. The Company's accounts
receivable are subject to potential concentrations of credit risk. The Company
does not believe that it is subject to any unusual, or significant risks in
the normal course of business.
<PAGE>
<PAGE> 47
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m. Mineral Deposits
Costs of acquiring the mineral deposits have been capitalized. Costs to
maintain the mineral deposits and leases are expensed as incurred. As the
mineral deposits are extracted and sold, the related capitalized costs will be
amortized, using the units of production method or the basis of periodic
estimates of the mineral deposits. Mineral deposits are assessed at least
annually to determine if they have been impaired or should be abandoned based
on other economic factors. The assessment is based on the Company's evaluation
of the deposits future expectation of profitability. Should the deposits be
impaired or abandoned, its capitalized costs will be charged to operations.
n. Accounting Basis for Recording Income
The Company records profits or losses on its installation contracts on the
completed-contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no profits are recorded
before the completion of the work. Provisions for estimated losses on
uncompleted contracts are made at the time such losses are determined.
Operating expenses, including indirect costs and administrative expenses, are
charged as incurred to periodic income and not allocated to contract costs.
NOTES 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30,
1998
------------
Computer equipment $ 120,755
Furniture and fixtures 46,474
Vehicles 11,409
Leasehold improvements 3,500
Engineering equipment 17,610
Office equipment 8,821
Demonstration equipment 10,270
------------
Subtotal 218,839
Accumulated depreciation (155,366)
------------
Net property and equipment $ 63,473
============
Depreciation expense for the years ended June 30, 1998 and 1997 was $14,342
and $1,527, respectively.
NOTE 3 - PATENTS
The patent costs that have been capitalized relate to legal fees incurred to
develop and secure the Company's patents. The patents are recorded at cost
and will be amortized using the straight-line method over a period of seven
years once the patents have been issued.
<PAGE>
<PAGE> 48
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
NOTE 4 - COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Company has two separate operating leases for office
space that expire June 1999. The combined monthly rental payment is $2,900.
Minimum future lease payments on the leases as of June 30, 1998 are as
follows:
Year Ended
June 30, Amount
------------- -------------
1999 $ 34,800
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
Total $ 34,800
=============
NOTE 5 - RELATED PARTY TRANSACTIONS
As of June 30, 1998, the Company owed $25,684 to certain of its officers and
shareholders. The amounts are unsecured and are payable on demand.
As of June 30, 1998, the Company was owed $5,100 from a related party. The
amount is unsecured and non-interest bearing.
<PAGE>
<PAGE> 49
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following:
June 30,
1998
------------
Note payable to a corporation, principal plus interest of
$28,000 (effective rate of 73% per annum) due August 12,
1998, secured by 200,000 shares of common stock. At
the option of the lender, the debt is convertible into common
stock at a rate of one share for every $0.50 of principal. $ 222,000
Note payable to a bank, interest at 10.5% per annum, principal
and interest payments of $1,745 due monthly, secured by
assets of the Company, matures in August 2002. 69,853
------------
Total Notes Payable 291,853
Less: Current Portion (236,163)
------------
Long-Term Notes Payable $ 55,690
============
The aggregate principal maturities of notes payable are as follows:
Year Ended
June 30, Amount
---------- ----------
1999 $ 236,163
2000 15,722
2001 17,455
2002 19,378
2003 3,135
2004 and thereafter -
----------
Total $ 291,853
==========
<PAGE>
<PAGE> 50
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 7 - GOING CONCERN
The Company's 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. However, the Company does not have an established source of
revenues sufficient to cover its operating costs and to allow it to continue
as a going concern. It is the intent of the Company to generate revenue
through the sales of its air pollution systems to remove toxic flue gases. In
the opinion of management, sales of the Company's products will be sufficient
to fund the Company's operating expenses and capital requirements for at least
the next twelve months. However, the outcome of these events is currently
uncertain.
NOTE 8 - STOCK SUBSCRIPTION RECEIVABLE
During the year ended June 30, 1996, 178,500 shares of common stock were
issued in return for notes receivable in the amount of $178,500. The notes
matured and were collected on May 30, 1998.
NOTE 9 - NOTES PAYABLE - RELATED PARTY
Notes payable - related parties consists of the following:
June 30,
1998
-------------
Notes payable to an officer of the Company, interest at 8.5%
per annum, principal plus accrued interest due December 31,
1998, unsecured. $ 92,904
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 20,000
Note payable to a shareholder, non-interest bearing,
due on demand, unsecured. 8,071
-------------
Total Notes Payable - Related Party 120,975
Less: Current Portion (120,975)
-------------
Long-Term Notes Payable - Related Party $ -
=============
The aggregate principle maturities of notes payable - related party are as
follows:
Year Ended
June 30, Amount
------------ ------------
1999 $ 120,975
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
------------
Total $ 120,975
============
<PAGE>
<PAGE> 51
AMERICAN ENVIRONMENTAL CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
June 30, 1998
NOTE 10 - CONTRACTS IN PROCESS
Contracts in process consists of the following:
June 30,
1998
------------
Billings on uncompleted contracts $ 287,889
Less: costs on uncompleted contracts (194,184)
------------
Billings in excess of costs on uncompleted contracts $ 93,705
============
NOTE 11 - MINERAL DEPOSITS
In June 1998, the Company purchased mineral deposits (seasoil) for $140,000
cash and issued 320,332 shares of common stock valued at $2.12 per share. The
Company expended an additional $36,050 related to acquiring the asset which
has been included in the total capitalized costs. These mineral deposits are
to be used to develop various cosmetic and agricultural products. An
impairment loss of $678,208 has been recorded in the accompanying consolidated
statement of operations for the year ended June 30, 1998.
<PAGE>
<PAGE> 52
FABRIC FILTERS AIR SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 97,262 $ -0-
ACCOUNTS RECEIVABLE 541,275 674,214
INVENTORY 22,013 23,044
PREPAID EXPENSES 12,265 10,892
EMPLOYEE ADVANCES -0- 163
------------ ------------
TOTAL CURRENT ASSETS 672,815 708,313
------------ ------------
PROPERTY & EQUIPMENT
AUTOMOBILES 11,409 32,891
ENGINEERING DRAWINGS & TOOLING 17,610 17,610
FURNITURE & FIXTURES 41,562 41,562
COMPUTER EQUIPMENT 83,761 83,761
LEASEHOLD IMPROVEMENTS 3,500 3,500
LESS: ACCUMULATED DEPRECIATION (139,223) (134,666)
------------ ------------
NET PROPERTY & EQUIPMENT 18,619 44,658
------------ ------------
OTHER ASSETS
DEPOSITS 6,640 201
CASH VALUE OF LIFE INSURANCE 26,142 24,490
------------ ------------
TOTAL OTHER ASSETS 32,782 24,691
------------ ------------
TOTAL ASSETS $ 724,216 $ 777,662
============ ============
<PAGE>
<PAGE> 53
FABRIC FILTERS AIR SYSTEMS, INC.
BALANCE SHEETS (Continued)
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 666,378 $ 792,702
ACCRUED LIABILITIES 48,539 146,406
BILLINGS IN EXCESS OF RELATED COSTS 328,079 456,254
NOTES PAYABLE - SHAREHOLDER 28,071 23,277
NOTES PAYABLE - SHORT TERM 9,499 -0-
CURRENT PORTION OF LONG TERM DEBT -0- 2,103
------------ ------------
TOTAL CURRENT LIABILITIES 1,080,566 1,420,742
------------ ------------
LONG TERM LIABILITIES
LEASE OBLIGATIONS -0- 2,103
LESS: CURRENT PORTION -0- (2,103)
------------ ------------
TOTAL LONG TERM LIABILITIES -0- -0-
------------ ------------
TOTAL LIABILITIES 1,080,566 1,420,742
------------ ------------
STOCKHOLDER'S EQUITY
COMMON STOCK, NO PAR VALUE
500 SHARES AUTHORIZED,
100 SHARES ISSUED AND OUTSTANDING 90,832 90,832
RETAINED DEFICIT (447,182) (733,912)
------------ ------------
TOTAL STOCKHOLDER'S EQUITY (DEFICIT) (356,350) (643,080)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 724,216 $ 777,662
============ ============
<PAGE>
<PAGE> 54
FABRIC FILTERS AIR SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
INCOME
NET SALES $ 5,588,951 $ 2,838,210
COST OF GOODS SOLD 4,664,342 2,458,985
------------ ------------
GROSS PROFIT 924,609 379,225
------------ ------------
EXPENSES
GENERAL & ADMINISTRATIVE 597,326 586,089
DEPRECIATION & AMORTIZATION 18,520 20,817
------------ ------------
TOTAL EXPENSES 615,846 606,906
------------ ------------
OPERATING INCOME(LOSS) 308,763 (227,681)
------------ ------------
OTHER INCOME (EXPENSES)
INTEREST INCOME 151 503
GAIN ON ASSET DISPOSITION 2,981 -0-
MISCELLANEOUS INCOME 2,068 4,479
BAD DEBT EXPENSE (13,121) (12,254)
INTEREST EXPENSE (13,311) (7,939)
------------ ------------
TOTAL OTHER INCOME (EXPENSES) (21,232) (15,211)
------------ ------------
INCOME (LOSS) BEFORE TAXES 287,531 (242,892)
INCOME TAX EXPENSE 800 810
------------ ------------
NET INCOME (LOSS) $ 286,731 $ (243,702)
============ ============
<PAGE>
<PAGE> 55
SELECTED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
OF FABRIC FILTERS AIR SYSTEMS, INC.
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 1 NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated in January, 1978 and operates as a manufacturer
of pollution control equipment. The Company also uses the completed contract
method of accounting for its contracts. Under this method of accounting,
revenue and direct expenses are recognized when contracts are substantially
complete. The Company uses the accrual method of accounting to account for
other sources of income and operating expenses. Under this basis of
accounting, revenues are recognized when earned and expenses are recognized
when incurred.
A. Cash and Cash Equivalents
Cash equivalents, which are investments in highly liquid money market
funds, are reported at cost, which equals fair market value.
B. Accounts receivable and Allowance for Doubtful Accounts
The Company bills on credit with net 30 day terms. Specific reserves for
the collection of receivables are made when management feels there is a reason
for non collection of a specific account. In addition to the specific
reserve, an additional amount of 2.0% of the accounts receivable balance is
established for future non collectible accounts. Account balances as of
December 31, 1997 and 1996 are as follows:
12/31 12/31
----------- -----------
Accounts Receivable - Trade $ 575,275 $ 704,214
Allowance for Doubtful Accounts (34,000) (30,000)
----------- -----------
Net Accounts Receivable $ 541,275 $ 674,214
=========== ===========
C. Inventories
Inventories are stated at lower of cost or market under the first-in,
first-out method.
D. Depreciation
Depreciable assets are stated at historical cost and are depreciated using
straight-line and accelerated methods over the estimated useful life of the
asset.
<PAGE>
<PAGE> 56
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10SB pursuant to Item 601 of Regulation SB.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
None.
ITEM 2. SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
AMERICAN ENVIRONMENTAL CORPORATION
DATED: October 4, 1999 /S/ Richard A. Steinke, President
and Chief Executive Officer
