SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
COMMISSION FILE NUMBER: 000-24877
Registrant: Environmental Products & Technologies Corporation
State or other Jurisdiction of Incorporation: Delaware
I.R.S. Employer Identification No. 77-0096608
Address: 5380 North Sterling Center Drive
Westlake Village, CA 91361
REGISTRANT'S TELEPHONE NUMBER: (818) 865-2205
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACCT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10- KSB. [ ]
The issuer's revenues for the fiscal year ending September 30, 1998
were approximately $ 0
As of December 17, 1998, the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $ 13,790,000 based upon
the average closing bid and asked price of such stock on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
FORM 10-KSB
For the Fiscal Year Ended September 30, 1998
TABLE OF CONTENTS
Page No.
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PART I.
Item 1. Description of Business....................................... 3
Item 2. Description of Property....................................... 18
Item 3. Legal Proceedings............................................. 19
Item 4. Submission of Matters to a Vote of Security Holders........... 19
PART II.
Item 5. Market for Common Stock and Related Stockholder Matters....... 19
Item 6. Management's Discussion and Analysis or Plan of Operation..... 19
Item 7. Financial Statements.........................................23-40
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 41
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons; 42
Compliance with Section 16(a) of the Exchange Act....
Item 10. Executive Compensation............................... 43
Item 11. Security Ownership of Certain Beneficial Owners and
Management........................................... 44
Item 12. Certain Relationships and Related Transactions....... 44
Item 13. Exhibits and Reports on Form 8-K....................46-47
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PART I.
Item 1. DESCIPTION OF BUSINESS
GENERAL
Environmental Products and Technologies Corporation ("EPTC" or the
"Company") is a development-stage company that was established to solve
environmental problems regarding the safe disposal of waste created by large
livestock, hog, poultry and other similar operations. The Company has developed
a system that converts animal wastes into commercial quantities of a
pathogen-free, nutrient- rich, soil-building medium.
Over the past few years, there has been an increasing concern regarding
the potential for animal waste pollution from intensive livestock and poultry
operations. The concentration of animal waste from larger and larger operations
have lead to more complaints about odor, greater challenges for animal waste
management and a growing public opinion that more environmental protections are
needed.
Nationwide, 130 times more animal waste is produced than human waste -
5 tons for every United States citizen -- with some livestock and poultry
operations producing as much waste as a town or even a city! As animals become
increasingly concentrated in certain regions of the country and on larger
operations, there is not always enough fallow land to use all of the manure as
fertilizer. These increasing concentrations of manure mean that the risk of
water pollution from waste spills, runoff from fields and leakage from storage
facilities is also increasing.
To address these problems the Company has developed its Closed-Loop
Waste Management System. This system is comprised of four basic components: a
waste separator, an anaerobic digester, a bio-reactor and a co-generation
system.
EPTC markets, sells, installs and services a proprietary line of
custom-configured Closed-Loop Waste Management Systems for the processing of wet
organic waste products. Rather than reduce the amount of material destined for
disposal, EPTC's bio-conversion process is designed to recapture and redeploy
the value contained in the waste. This completely changes the approach to waste
management, and defines a goal of conversion of agricultural hazardous waste to
a valuable agricultural resource in as short a time as possible through the
production of a safe and stable end product having significant market value.
EPTC's business is focused on three complementary areas; namely,
agricultural hazardous waste management, the production of soil amendments as a
by-product of the waste management process, and power cogeneration.
EPTC has identified large dairies (1,000 or more head) as a primary
target for its products and services based upon the potential for immediate
environmental impact and marketing economies of scale. EPTC intends to market
Biolite(TM), an extent-pathogen-free, weed seed free, pasteurized, nutrient-rich
by- product of the waste management process. Biolite(TM) is to be sold in bulk
as an organic soil amendment, potting soil or agricultural soil where the grower
desires to restore organic matter to cropland. Additionally, EPTC's Closed-loop
Waste Management System is designed to utilize methane from the wastestream to
power an engine in a cogeneration system. Power produced from the cogeneration
will be supplied to the producer of the wastestream, with excess power sold back
to the power company.
BACKGROUND
In November 1994, the Company became involved in odor control from
animal factories producing food for human consumption. In the hog industry in
North Carolina, certain farmers were involved in court proceedings over odor
control threatening closure of their farms. The Company succeeded in
demonstrating to the court, the plaintiffs, and the defendants in the court
actions, that an odor solution existed. The Company came to conclude, however,
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that farmers that were not engaged in legal proceedings, would not spend money
to solve their odor problems.
The Company then realized that the real problem was bigger than just
odor control. It was the animal waste. The Company set its sights on the bigger
problem. The resulting focus led to the development of the Company's current
products and methods of waste management.
Currently, the Company has developed a Closed-Loop Waste Management
System that addresses all areas of waste management in a wide variety of animal
and vegetable food production waste problems, including odor control. This
system is comprised of four parts, starting with a Separator that separates
solids from liquids. Solids are processed in an Aerobic Bioreactor tank that
eliminates extent pathogens and converts the waste to a non-toxic, nutrient-rich
soil amendment. Liquids are processed in an Anaerobic Digester, a series of
tanks where methane is drawn off and the liquids filtered of heavy metals and
further processed for reuse as wash water. In the fourth part, the Cogeneration
System, methane combines with diesel fuel in a dual-fuel engine that drives a
generator to provide electrical power to the facilities.
The first full system installation is at the Utah State University in
Logan, to provide quantitative and qualitative data to support sales and further
research.
TYPICAL ANIMAL WASTE MANAGEMENT PRACTICES
Animal waste mainly consists of manure and urine from cows, hogs,
chickens, turkeys, mink and other animals that are raised for food or other
purposes. These waste materials are potential sources of crop nutrients, but
also can pose environmental threats.
The composition of animal waste depends on both the kind of animal and
the way the waste is handled. For example, poultry operations typically produce
dry litter with about 15% to 25% moisture content, that may be mixed with straw
or another dry material for easier handling. The removed litter is stacked or
stored in metal or wooden structures or on the ground on a temporary basis.
Hogs and cattle generate a manure that is more liquid and typically
water is used to flush the manure out of the barns and into storage facilities.
The resulting "slurry" is up to 97% liquid, and most commonly stored in earthen
lagoons. An alternative storage method now being adopted more widely is the
"slurry tank," which offers a greater level of structural stability and
environmental protection.
In the lagoons or tanks, many of the solids settle into a sludge at the
bottom. A farmer who utilizes the animal waste for nutrients pumps the liquid
out for nutrients or irrigation and may agitate the sludge at pumping time to
capture the nutrients that otherwise would remain behind.
The problem with these methods is that as the number of animals raised
has increased and the amount of land utilized has decreased, there is an
insufficient amount of fallow land available for the farmer to utilize the waste
produced by the animals. Accordingly, the animal waste is building up on the
farm causing various health hazards such as run-off and leaching. Further,
manure cannot be spread on land when a crop is growing.
THE ENVIRONMENTAL PRODUCTS & TECHNOLOGIES SOLUTION
The Company has developed a Closed-Loop Waste Management System to
provide for the safe disposal of waste created by large livestock, poultry, hog
and other similar operations. In addition, the Company's waste management system
converts animal wastes into commercial quantities of a pathogen- free,
nutrient-rich, soil-building medium. Further, if the Company's co-generation
product is utilized, the Company is able to take the methane that is produced by
the Company's system and use it for producing energy for the farmer's property.
The Company's Closed-Loop Waste Management System consists of the following:
The Waste Separator. The purpose of the waste separator is to separate
the liquids from the solids which then takes them up through a set of rollers
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and basically squeezes the moisture out of the solids. The moisture then goes
through a belt and goes into a large tank at the bottom where the moisture is
then pumped into the anaerobic digester. The solids go into the bio-reactor.
The Anaerobic Digester and Cogeneration. The anaerobic digester is made
out of fiberglass and, in its typical configuration, is about eight feet in
diameter and 42 feet long for a tank that can hold up to 30,000 gallons of
effluent. In that tank, the Company has isolated a set of proprietary enzymes
which excite off the methane. The methane is then captured and pulled off the
tank and used to run an engine which is able to produce electricity which the
farmer can use in his or her operations.
The anaerobic digester handles all of the fluids. From that methane is
excited off which runs the co-generation system. It goes through a series of
three tanks and in the last tank the liquid is processed. Finally, the liquid is
put through a filter system from which non-potable, re-useable, re-cyclable
water is available for use for irrigation and/or for washing and flushing and
using again to clean out the barns and wash the animals and basically used
without having to repump or use fresh water.
In the first tank, any solids that are not consumed by the enzymes
basically settle to the bottom of the tank. On a regular interval, the solids
that have settled at the bottom of the tank are pumped into the bio-reactor.
In the second set of tanks, all of the solids are settled out. In the
third tank, the clarifier, the water is filtered and then reused.
The Enzymes. The Company employs enzymes for the purpose of exciting
the methane from the animal waste in the anaerobic digester. The Company has
tested this methane producing technology with its enzymes. According to the
Company, the enzymes work best in temperatures ranging from 90 degrees to 105
degrees F.
The Technology. The Company relies, among other things, on technology
that was designed by Lifeline Enterprises L.L.C., a Utah limited liability
company ("Lifeline"). Pursuant to a restated letter of understanding dated May
18, 1998, Lifeline agreed to transfer to the Company all rights, title and
interest in and to the anaerobic digester, the bio-reactor and the biologicals
used therewith. Patents are currently pending on the co-generation technology
and the bio-reactor. There can be no assurance that a patent will be issued on
either the co-generation technology or the bio-reactor, that such products do
not or will not infringe on the intellectual property rights of others or that
if a patent is issued that it will not be invalidated later. In consideration
for this transfer, the Company issued 100,000 shares of Common Stock to Lifeline
and has agreed to issue an additional 50,000 shares of Common Stock upon
assignment to the Company of all patents to the bio-reactor. In addition, the
Company has agreed to issue to Lifeline an aggregate of 320,000 shares of Common
Stock, payable 80,000 shares on each of October 15, 1999, 2000, 2001 and 2002.
Gary Roberts, Linda Roberts and Bob Crouch are principals of Lifeline and Gary
Roberts and Bob Crouch are employees of the Company.
The Bio-reactor. Finally, the bio-reactor takes all of the solids. The
bio-reactor is basically a steel vessel that will be sized to the requirements
of the particular application. The tank is rotated and the Company's
biologicals, including enzymes, are introduced into the tank through a computer
controlled process. The purpose of this process is to compost the solid
materials and at the end of the process, the Company is left with useable soil,
which it intends to use for compost. The Company then intends to add biologicals
and fungi based upon established formulae for various groups of vegetable,
fruits, and vines and sell the compost to end users. By way of comparison, the
process that the Company is using is, basically, an acceleration of the process
utilized by nature. For example, windrow composting generally takes between 90
to 100 days, whereas the Company produces a stable product in less than one
week.
THE COMPANY'S STRATEGY
EPTC began marketing its Closed-Loop Waste Management Systems in
October 1998. These efforts are currently focused on large dairies milking
approximately one thousand cows. These large dairies are concentrated in the
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western states of Arizona, California, Idaho, New Mexico, Oregon, and
Washington. Wisconsin, based on the large number of dairies located there,
represents an additional area of focus. EPTC will sell directly to the largest
customers with its own trained and managed sales engineers. Sales engineers
and/or regional managers have been selected for Central and Southern California,
Idaho, Oregon, Washington and Wisconsin. Additionally, a regional manager has
been selected to address the waste management needs for swine farmers in North
Carolina and Utah.
EPTC is committed to "Turning Around Impacted Areas of Our
Environment." The focus is on addressing the industrial processing of wet
organic wastes. The largest non-compliant market, as previously described, is
comprised of Animal Feeding Operations (AFOs). The Company has designed and
developed its Closed-Loop Waste Management System to specifically address the
problems created by raising livestock and poultry in an industrialized manner.
EPTC has selected the following states because of the concentration of large
dairies: Arizona, California, Idaho, Illinois, Iowa, Missouri, New Mexico, New
York, North Carolina, Oregon, Pennsylvania, Texas, Utah, Washington, and
Wisconsin. These 15 states have more than 66% of all dairy cows and provide 69%
of the milk produced. Wisconsin has the largest number of dairies and California
produces the most milk. Iowa, North Carolina and Utah are major producers of
pork.
EPTC will continue to open offices in areas with a high concentration
of dairies and sell and service each of the installations. EPTC currently has
offices in California, Utah, Wisconsin, Pennsylvania, and North Carolina, and
will open offices in Arizona and New Mexico in the second quarter of 1999.
The United States Environmental Protection Agency (EPA) administers a
fund called the Clean Water State Revolving Fund (SRF), a program used to
provide low-interest loans for important water quality projects. Managed by the
individual states, the SRF program in each state can fund nonpoint-
source-eligible implementation projects such as animal waste storage facilities.
According to "The Unified Strategy for Animal Feeding Operations" (September 11,
1998; page 27), the SRF program is funding approximately $3 billion in projects
each year, and since inception has funded over $650 million in the specific area
of nonpoint-source-eligible projects to clean up pollution related to
contaminated runoff.
Animal Feeding Operations (AFOs) and Concentrated Animal Feeding
Operations (CAFOs) are required to undergo and incur the expense of a permitting
process to ensure that certain conditions are met. Also, there are state and
local regulations that may have additional requirements. The United States
Department of Agriculture (USDA) Natural Resources Conservation Service (NRCS)
estimates that at least 300,000 AFOs need to voluntarily comply by preparing a
Comprehensive Nutrient Management Plan (CNMP) and a site-specific Pollution
Prevention Plan (PPP). The CNMP must be site-specific and formulated to address
the goals and needs of the individual operator, as well as the conditions on the
farm.
Plans will be subject to periodic review.
Elements of the CNMP include the following: aerial photos or plan maps,
planned conservation practices and schedules for implementation, engineering
designs for any constructed facilities for storing or handling manure, records
of all soil and nutrient tests, appropriate rates of land application to prevent
the application of nutrients at rates that will exceed the capacity of the soil,
planned crops to assimilate and prevent pollution, and records of practices and
actions.
All of these permits have one purpose in mind: to keep America's
waterways, watersheds and wetlands free of the effects of toxic and
nutrient-overloaded wastestreams. The goal is to have the farmer be a good
steward of the land he controls, not to contaminate the water we drink, the air
we breathe, or the food we eat.
EPTC's Closed-Loop Waste Management System can reduce or eliminate the
costs and time associated with compliance with new regulations. "Best Management
Practices" would require that barns would be scraped or flushed frequently and
that the EPTC system would be operated on a continuous basis, as designed.
EPTC has established a website: I-C-A-N.COM (Integrated Compliance
Assistance Network) as a single source for information, resources, education and
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products concerning the issues of compliance; federal, state and local
permitting requirements, sources of financial assistance, current and
alternative practices, and step-by-step guidance.
The ICAN website will encourage repeated visits and assist EPTC in
generate sales leads through consistent tie-ins to EPTC's main website. EPTC
plans to add to the staff trained engineers to assist potential customers with
the preparation and processing of applications to obtain SRF financing to
purchase and install the company's solution -- the Closed-Loop Waste Management
System.
Intensive livestock production practices have created a manure storage
and disposal dilemma. The most pressing problems are currently in the hog
industry. Every large hog-producing region of North America currently has its
own stories to tell of angry neighbors and polluted waterways. Perhaps the most
serious of these situations exists in North Carolina, which has seen its hog
production increase 122 percent over the past 5 years. In 1996 a total of 103
million hogs were marketed in the United States -- a total waste production
equivalent of 1 billion people.
EPTC's initial target markets will be dairies and large-scale hog
production facilities. Processed animal manure, municipal sludge and
slaughterhouse waste will be converted to environmentally-friendly soil
amendments.
There are a number of equally-large markets available: food processing
plants, bakery waste, fruit and vegetable wastes, dairy products including whey,
brewery and winery wastes, supermarket wastes, and restaurant and catering
wastes. Disposal companies are in a continual search for acceptable dumpsites
for organic materials. EPTC supports 100% diversion of wet organics from
landfills.
The handling and disposal of wet organic wastes has created a
tremendous business opportunity worldwide. EPTC will focus its sales efforts on
the creation of environmentally-friendly and cost-effective alternatives to
traditional disposal methods.
World population is expected to grow from 5.5 billion now to about 8
billion in the year 2020. By the year 2000, approximately 44 pevcent of the
world's population is expected to$reside mn urban areas, $up from 30 percent in
1980. These trends will have immense consequences on the volume$and comtosition
of global food demand. Specialists of$the International Food Policy$ Researgh
Instmtute estimates that tle current demand of 1.7 billion$tons of cereals and
206 million tons of meat, may rmse by tle year 2020 to 2.5 billion tons of
cereal and al leest 275 to 310 mmllion tons of meat.
According to a 5995 General Accounting Office report, tlere are 450,000
farms with confined (not pasture) feedlots out of 640,000 farms with livestock.
EPTC is using the recently released "Unified National Strategy for Animal
Feeding Operations," a document prepared and jointly released by the USDA
(United States Department of Agriculture) and the EPA (Environmental Protection
Agency), as a guide to develop its marketing strategy for the next five years.
The regulations contained in this Strategy will become effective January 1999.
These regulations will provide the minimum guidelines for permitting of
farms and feedlots. The Strategy will focus technical and financial assistance
to support Animal Feeding Operations (AFOs) in meeting the national performance
expectations established in this Strategy. While there are other potential
environmental impact associated with AFOs (e.g. odor, habitat loss, ground water
depletion), this Strategy focuses on addressing surface and ground water quality
problems.
USDA and EPA believe that approximately 6,600 livestock facilities have
over 1,000 "animal units." Based on size alone, these facilities are considered
to be Concentrated Animal Feeding Operations (CAFOs) and, therefore, are "point
sources" subject to National Pollution Discharge Elimination System (NPDES)
permitting requirements. The EPA believes that virtually all CAFOs are covered
by the NPDES permit program and are a priority for permit issuance. Less than
2,000 CAFOs, according to EPA records, have been issued NPDES permits. A recent
U.S. Senate Committee report says CAFO's contribute significantly to an
estimated 1.37 billion tons of manure produced annually.
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In addition, the NPDES permit issuing agency may, after conducting an
on-site inspection, designate any AFO of any size as a CAFO based on the finding
that the facility "is a significant contributor of pollution to the waters of
the United States." The EPA estimates the number of AFOs that will be subject to
the permit program, as a result of identified watershed impairment, could be up
to 5,000 sites. The EPA and the USDA expect the total number of CAFOs in the
situation described above will be approximately 15,000.
In addition to systems sales, there is a growing market for quality
composts and soils. Battelle Institute in a research study conducted of the
Solid Waste Composting Council, calculated that the demand for compost and
compost-like products, including products ranging from manure to composted
wastes to manufactured potting soils and soil enhancers, in selected areas of
the U.S. alone, is projected to be in excess of one billion cubic yards per
year.
This demand, categorized in nine application segments--landscapers,
delivered topsoil, bagged retail, nurseries, landfill final cover, surface mine
reclamation, sod production, silvaculture, and agriculture-- far exceeds
projected supply. The initial target market for soils, to be sold in bulk, is
large agricultural farmers desiring to add organic matter back into their
croplands.
At the end of fiscal 1999, EPTC expects to have sixty-three Bioreactors
installed and operating with a production capacity on excess of 400,000 yards of
soil amendment. This production capacity will be spread through eight different
states; therefore, not enough product will be produced to warrant a significant
marketing program until the fourth or fifth year of operation. At the end of the
fifth year of operation, the Bioreactor systems will have the capacity to
produce approximately five-million yards of material.
SUPPLIERS
It is the Company's intention not to manufacture on its own any of the
components necessary to produce its waste management system. The Company intends
to utilize third party suppliers to provide the products necessary to complete
its waste management systems. While the Company believes that there are a
variety of suppliers for most of the components that will comprise its waste
management system, there are certain components of the waste management system
that will only be available from one or possibly two suppliers. In this regard,
the Company will be reliant on Lifeline for the co-generation technology,
Vinyard Engines Systems, Inc. for the dual fuel engine, and RBR Technologies and
Fan Systems, Inc. for the waste separator. The Company does not have any
agreements or arrangements with any of the above-mentioned companies to provide
the Company with the products that the Company will need to assemble a full
waste management system. However, the Company believes that it will be able to
purchase the products that it needs from each of these companies. There can be
no assurance, however, that the Company will be able to purchase the components
from the above-mentioned companies, or if it is able to purchase such
components, that it will be able to do so on terms that are satisfactory to the
Company.
ASSEMBLY
The Company currently contemplates that once it has proven the utility
of its waste management system that it will contract with the various suppliers
of the constituent components of the waste management system to deliver them
(i.e., dropship) to sites specified by the Company. The Company will then
provide for the assembly of the components into the waste management system for
use at the specified location. There can be no assurance that the Company will
be successful in coordinating the various deliveries of the component parts of
its waste management system, or that it will be successful in assembling the
component parts in the field, as currently contemplated.
COMPETITION
The Company will directly and indirectly compete with other businesses,
including businesses in the solid waste collection and disposal business,
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including Bion Environmental Technologies, Inc. and Thermo Tech Technologies
Inc., both of which companies engage in organic waste conversion. In many cases,
these potential competitors are larger and more firmly established than the
Company. In addition, many of such potential competitors have greater marketing
and development budgets and greater capital resources than the Company.
Accordingly, there can be no assurance that the Company will be able to achieve
and maintain a competitive position in the businesses in which it will compete.
INTELLECTUAL PROPERTY
The Company's success will depend, in part, on its ability to maintain
protection for its products and processes under United States and foreign patent
laws, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. Currently, a portion of the Company's
technology for its waste management system is licensed from third parties and
the Company has not obtained indemnification from the licensors of such
technology. Accordingly, if the technology licensed by such licensors to the
Company infringes the rights of third parties, the Company could be held liable
for damages to such third party and could not seek reimbursement from the
licensor. The Company does not maintain any insurance to protect against such
occurrence and, if such a claim were made against the Company it could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not possess any patents but does have
applications pending. There can be no assurance that any such patent
applications will result in issued patents, that any issued patents will afford
adequate protection to the Company or not be challenged, invalidated, infringed
or circumvented, or that any rights thereunder will afford competitive
advantages to the Company. Furthermore, there can be no assurance that others
have not independently developed, or will not independently develop, similar
products and technologies or otherwise duplicate any of the Company's products
and technologies.
There can be no assurance that the validity of any patent issued to the
Company or any licensor of technology to the Company would be upheld if
challenged by others in litigation or that the Company's activities would not
infringe patents owned by others. The Company could incur substantial costs in
defending itself in suits brought against it, or in suits in which the Company
seeks to enforce its patent and/or license rights against others. Should the
Company's products or technologies be found to infringe patents issued to third
parties, the Company would be required to cease the manufacture, use and sale of
the Company's products and the Company could be required to pay substantial
damages. In addition, the Company may be required to obtain licenses to patents
or other proprietary rights of third parties in connection with the development
and use of its products and technologies. No assurance can be given that any
such licenses required would be made available on terms acceptable to the
Company, or at all.
The Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, by confidentiality agreements with its
employees, consultants, advisors and others. There can be no assurance that such
parties will maintain the confidentiality of such trade secrets or proprietary
information, or that the trade secrets or proprietary information of the Company
will not otherwise become known or be independently developed by competitors in
a manner that would have a material adverse effect on the Company's business,
financial condition and results of operations.
ENVIRONMENTAL MATTERS
Federal, state and local environmental legislation and regulations
mandate stringent waste management and operations practices, which require
substantial capital expenditures and often impose strict liabilities for
non-compliance. Environmental laws and regulations are, and will continue to be,
a principal factor affecting demand for the technology and services being
developed or offered by the Company. The level of enforcement activities by
federal, state and local environmental protection and related agencies, and
changes in regulations and waste generator compliance activities, will also
affect demand. To the extent that the burdens of complying with such laws and
regulations may be eased as a result of, among other things, political factors,
or that producers of industrialized farm waste find alternative means to comply
with applicable regulatory requirements, demand for the Company's products and
services could be adversely affected, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
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changes in these regulations which increase compliance standards may require the
Company to change or improve its operating procedures. To the extent the Company
conducts its business overseas, international environmental regulations will be
applicable. Such regulations vary by country and are subject to changes which
may adversely affect the Company's operations.
The Company and its customers operate in a highly regulated
environment, and the Company's potential customers and/or the Company's products
and services may be required to have various federal, state and/or local
government permits and authorizations, registrations and/or exemptions. Any of
these permits or approvals may be subject to denial, revocation or modification
under various circumstances. Failure to comply with the conditions of such
permits, approvals, registrations, authorizations or exemptions may adversely
affect the installation or operation of the Company's waste management system
and may subject the Company to federal, state or locally-imposed penalties. The
Company's ability to satisfy the permitting requirements for a particular
installation does not assure that permitting requirements for other
installations will be satisfied. In addition, if new environmental legislation
is enacted or current regulations are amended or are interpreted or enforced
differently, the Company or its customers may be required to obtain additional
operating permits, registrations, certifications, exemptions or approvals. There
can be no assurance that the Company or its customers will meet all of the
applicable regulatory requirements.
The Company's business exposes it to the risk that harmful substances
may be released or escape into the environment from its processes or equipment,
resulting in potential liability for the clean-up or remediation of the release
and/or potential personal injury associated with the release. Liability for
investigation and/or clean-up and corrective action costs exists under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), and corresponding state laws. Additionally, the Company is
potentially subject to regulatory liability for the generation, transportation,
treatment, storage or disposal of hazardous waste if it does not act in
accordance with the requirements of federal or state hazardous waste regulations
or facility specific regulatory determinations, authorizations or exemptions.
The Company is also potentially subject to regulatory liability for releases
into the air or water under the Clean Air Act of 1970, as amended, and the
Federal Water Pollution Control Act of 1972, as amended (hereinafter the "Clean
Water Act"), and analogous state laws and regulations and various other
applicable federal or state laws and regulations if it does not comply with
those requirements.
DIATOMACEOUS EARTH
In conjunction with its waste management efforts, the Company has also
resolved to develop a non-toxic, environmentally friendly insecticide and
application system. In connection with such effort, the Company recently
acquired four diatomaceous earth ("DE") claims in Eastern Oregon from Applied
Earth Technologies, Inc. ("Applied") for an aggregate of $40,000. Each claim is
comprised of 160 acres and will provide the Company a long-term supply of DE,
which is a basic insecticide ingredient. DE is a component of the Company's
waste management system in that it will be used to filter out hazardous elements
in the waste stream processing. In addition, DE provides water retention and
insecticide capability when mixed into the soil amendment.
Further, the Company intends to provide insect control with application
of DE-based insecticides. The Company intends to seek third-party validation
that DE will be an effective weapon in insect control, though no assurance can
be given that DE will be effective or if effective, that it will be cost
effective. It is the Company's intent to use DE as a replacement for
organophosphates and chemical agents that are considered harmful to humans as
well as insects.
The Company does not have the expertise or equipment to mine the DE
from the claims. Accordingly, the Company has held discussions with Terra
Minerals Corporation ("Terra") of Salt Lake City to act as its mining consultant
and operator. However, the Company does not intend to develop or promote this
business for the next 12 months, instead, focusing its efforts and resources on
the development of its Closed-Loop Waste Management Systems.
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On December 12, 1998 the Company entered into a letter of intent with
National D.E. Systems, Inc. ("National") pursuant to which the Company agreed to
sell, convey, transfer and assign its DE claims to National for 80 percent of
the issued and outstanding shares of capital stock of National. Finalization of
this transaction is subject to, among other things, negotiation and completion
of definitive documentation and the completion of due diligence.
There are no affiliations between the Company or Applied and Terra.
PERSONNEL
As of September 30, 1998, the Company employed eight people on a
full-time basis. In addition the Company utilizes on a regular basis the
services of 14 consultants and part-time employees. The Company believes that
its future success will depend, in part, on its ability to continue to attract,
hire and retain qualified personnel. The competition for such personnel is
intense and no assurance can be given that the Company will be successful in
attracting such personnel, particularly considering the low unemployment rate
currently being experienced across the United States. None of the Company's
employees is represented by a labor union and the Company has never experienced
a work stoppage. The Company believes that its relations with its employees are
good.
RISK FACTORS
In addition to the other information contained in this report, you
should carefully consider the following risk factors in evaluating the Company.
Accumulated Deficit; History of Operating Losses; Expectation of Future
Losses. The Company has experienced significant operating losses since its
inception. At September 30, 1998, the Company had an accumulated deficit of
approximately $6,323,000. The Company incurred an operating loss of
approximately $(388,000) for the fiscal year ended September 30, 1997, and
incurred an operating loss of approximately $(1,409,000) for the fiscal year
ended September 30, 1998. Such losses have resulted principally from no revenues
from operations and costs associated with the acquisition of the Company's
technologies and general and administrative expenses. The Company has generated
no revenues from operations and incurred increased losses to date and expects
that it will continue to incur losses until such time, if ever, as revenues from
product sales are sufficient to fund its continuing operations. The Company's
profitability will depend on its ability to commercialize its waste management
system. There can be no assurance that the Company will ever generate sufficient
revenues to achieve profitability. See "Management's Discussion and Analysis or
Plan of Operations."
Development Stage Company. The Company is designated by its
independent auditors as a development stage company in accordance with SFAS 7
"Accounting and Report by Development Stage Enterprises." Under this statement,
a development stage company is an enterprise that is devoting substantially all
of its time to$ establmshing a new business and planned operations have not
commenced. At this stage there is no assurance that the Comtany will be able to
raise sufficient capital and develop a profitable mavket fov its planned
product.
$ Capmtal Intensive Business; Need for Additional Financing. The
Company's business is capital intensive. Developments in the Company's business
and possmble expension into othev markets could mndicate that the Compan} should
expand$its busmness at a fastev rate tlan that$currently planned for. Moreovev,
there can be no aswurance that tle Company will not encounter$ unforeween
difficulties that may deplete its catital vesources more $rapidly$ than
enticipated, whmch would require that the Company seek additional funds$through
equity, debt or other$external financing. In any event, it is likely that the
Company will attempt to raise additional capital to meet its obligations and to
accelerate its growth. There can be no assurance that any additional capital
resources which the Company may need will be available to the Company if and
when required, or on terms that will be acceptable to the Company. If additional
financing is required, or desired, the Company may be required to forgo a
substantial interest in its future revenues or dilute the equity interests of
existing stockholders, and a change in control of the Company may result.
Further, if the Company is unable to obtain necessary financing, it may be
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required to significantly curtail its activities or cease operations. See
"Management's Discussion and Analysis or Plan of Operations."
Limited Operating History; New Business; No Product Sales. The Company
has a limited operating history and has not generated any revenues to date.
There can be no assurance that the Company will be able to successfully market
its waste management system, products and services. While attempting to
commercialize its products, the Company will be subject to risks inherent in a
new business. Such risks include unanticipated problems relating to
environmental regulatory compliance, the competitive environment in which the
Company operates and marketing problems, and additional costs and expenses that
may exceed current estimates. There can be no assurance that, even after the
expenditure of substantial funds and efforts, the Company will ever achieve or
maintain a substantial level of sales of its products. The failure to
successfully market its products and services will have a material adverse
effect on the Company's financial condition, business and results of operations.
Uncertain Market Acceptance of the Company's Products. Through
September 30, 1998, the Company has had no sales of its waste management system.
There can be no assurance that significant, or any, sales will occur or that the
Company's waste management system will obtain broad, or even limited, market
acceptance. The decision by a potential customer to utilize the Company's waste
management system is, among other things, technical in nature, requiring the
customer to make an evaluation as to whether changes in its capital equipment or
operating procedures will be required in order to realize the performance
benefits of the Company's products. There can be no assurance that potential
customers will choose to change their equipment or established procedures or be
willing to incur any necessary costs to make such changes or that the benefits
derived from utilizing the Company's waste management system will outweigh the
costs incurred to make such changes.
Further, there can be no assurance that all customers will experience
the performance and cost advantages expected by the Company. For example, a
by-product of the Company's waste management system is the ability to convert
the methane by-product into electricity. Such ability may be of little or no
interest to consumers at a time when electricity is relatively inexpensive. If
the Company is not successful in marketing its waste management system, its
ability to generate revenues will be greatly diminished and the Company will be
dependent on other future products and services that may be developed or
otherwise obtained by the Company. There can be no assurance that the Company's
waste management system will be successfully marketed or that future products
and services will be developed or obtained.
Development Risks. EPTC is a development stage company. The Company has
products in various stages of development, and no revenue has been recognized
from the sale of its products. The Company has developed and plans to market new
products and new applications of technology and, accordingly, is subject to
risks associated with such ventures. The probability of success of the Company
must be considered in light of the expenses and delays frequently encountered in
connection with the operation of a new business and the development of practical
production techniques for new products.
No Independent Certification as to the Effectiveness of the Company's
Products. The Company has only recently completed development of its Closed-Loop
Waste Management System. The Company has not yet tested its waste management
system under commercial circumstances. No assurance can be given that the
Company's waste management system will perform as anticipated under commercial
conditions or that substantial reengineering, redesign and/or redevelopment work
will not be required for the Company's waste management system to operate as
anticipated. Further, the Company has not submitted its waste management system
to an independent laboratory for testing to ensure that its system is effective.
Equipment Failure; Limited Engineering, Design and Construction
Experience; Limited Manufacturing Experience. The Company has completed assembly
of and operated since March 1, 1998 one waste management system. The Company
commenced demonstrations to dairies on April 24, 1998. From time to time, the
Company has experienced mechanical or technical difficulties with such waste
management system which has required repairs and maintenance. Any such
mechanical or technical difficulties with its systems in the future could result
in an interruption in the Company's ability to manufacture and sell such
systems.
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The failure of the Company to effect prompt repairs and otherwise keep its waste
management systems operating at targeted capacities could have a material
adverse effect on the business, financial condition and results of operations of
the Company. The Company may experience problems associated with the
manufacturing, assembling and engineering of additional waste management
systems, including, without limitation, cost overruns, start-up delays and
technical or mechanical problems.
To date, the Company has engaged in only limited manufacturing and
there can be no assurance that the Company's efforts to expand its manufacturing
capabilities will not exceed estimated costs or take longer than expected, or
that other unanticipated problems will not arise that would materially adversely
affect the Company's business and prospects. See "Management's Discussion and
Analysis or Plan of Operations" and "Business."
Dependence on Major Subcontractors and Suppliers. The Company relies on
subcontractors and suppliers to manufacture, subassemble and perform certain
testing of all of the components of the Company's waste management system. The
Company plans to outsource the manufacture of major components and complete
final assembly and testing of its waste management systems at its customers
operations. The inability to develop relationships with, or the loss of,
subcontractors or suppliers, or the failure of its subcontractors or suppliers
to meet the Company's price, quality, quantity and delivery requirements, could
require the Company to reduce or eliminate expenditures for research and
development, production or marketing of its products, or otherwise to curtail or
discontinue its operations, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Product Warranty. The Company intends to warrant its waste management
systems to be free of defects in workmanship and materials for 90 days from
installation at the location of the end user. There can be no assurance that the
Company will not experience warranty claims or parts failure rates in excess of
those which it has assumed in pricing its products and spare parts. Any such
excess warranty claims or spare parts failure rates could have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company currently has no experience with warranty claims
relating to its products.
Dependence on a Single Product Line. The Company anticipates that it
will derive substantially all of its revenue in the foreseeable future from
sales of its waste management systems, related consumables and spare parts. If
the Company is unable to generate sufficient sales of its waste management
systems due to market conditions, manufacturing difficulties or other reasons,
it may not be able to continue its business. Similarly, if purchasers of its
waste management systems were to continue utilizing current waste management
practices, the Company's business, results of operations and financial condition
could be materially adversely affected. Dependence on a single product line
makes the Company particularly vulnerable to the successful introduction of
competitive products.
No Product Liability Insurance. The Company could be subject to product
liability claims in connection with the use of the products that it sells. There
can be no assurance that the Company would have sufficient resources to satisfy
any liability resulting from these claims or would be able to have its customers
indemnify or insure the Company against such claims. The Company does not
currently carry product liability insurance and there can be no assurance that
such coverage, if obtainable, would be adequate in terms and scope to protect
the Company against material adverse effects in the event of a successful
product liability claim. Accordingly, any product liability claim brought
against the Company could, and probably would, have a material adverse effect on
the Company's business, financial condition and results of operations.
Risks Inherent in International Operations. The Company intends to
market its products and services internationally and plans to seek opportunities
overseas, either independently or through joint ventures or other collaborative
arrangements with strategic partners. To the extent that the Company operates
its business overseas and/or sells its products in foreign markets, it will be
subject to all of the risks inherent in international operations and
transactions, including the burdens of complying with a wide variety of foreign
laws and regulations, exposure to fluctuations in currency exchange rates and
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tariff regulations, potential economic instability and export license
requirements. In addition, international environmental regulations and
enforcement of such regulations vary by country and are subject to changes which
may adversely affect the Company's operations.
Competition. The Company will directly and indirectly compete with
other businesses, including businesses in the solid waste collection and
disposal business. In many cases, these potential competitors are larger and
more firmly established than the Company. In addition, many of such potential
competitors have greater marketing and development budgets and greater capital
resources than the Company. Accordingly, there can be no assurance that the
Company will be able to achieve and maintain a competitive position in the
businesses in which it will compete.
Dependence on Patents and Proprietary Technology; Reliance on Licensed
Technology. The Company's success will depend, in part, on its ability to
maintain protection for its products and processes under United States and
foreign patent laws, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties. Currently, a portion of the
Company's technology for its waste management system is licensed from third
parties and the Company has not obtained indemnification from the licensors of
such technology. Accordingly, if the technology licensed by such licensors to
the Company infringes the rights of third parties, the Company could be held
liable for damages to such third party and could not seek reimbursement from the
licensor. The Company does not maintain any insurance to protect against such
occurrence and, if such a claim were made against the Company it could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company does not possess any patents but does have
applications pending. There can be no assurance that any such patent
applications will result in issued patents, that any issued patents will afford
adequate protection to the Company or not be challenged, invalidated, infringed
or circumvented or that any rights thereunder will afford competitive advantages
to the Company. Furthermore, there can be no assurance that others have not
independently developed, or will not independently develop, similar products and
technologies or otherwise duplicate any of the Company's products and
technologies.
There can be no assurance that the validity of any patent issued to the
Company or any licensor of technology to the Company would be upheld if
challenged by others in litigation or that the Company's activities would not
infringe patents owned by others. The Company could incur substantial costs in
defending itself in suits brought against it, or in suits in which the Company
seeks to enforce its patent and/or license rights against others. Should the
Company's products or technologies be found to infringe patents issued to third
parties, the Company would be required to cease the manufacture, use and sale of
the Company's products and the Company could be required to pay substantial
damages. In addition, the Company may be required to obtain licenses to patents
or other proprietary rights of third parties in connection with the development
and use of its products and technologies. No assurance can be given that any
such licenses required would be made available on terms acceptable to the
Company, or at all.
The Company also relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, by confidentiality agreements with its
employees, consultants, advisors and others. There can be no assurance that such
parties will maintain the confidentiality of such trade secrets or proprietary
information, or that the trade secrets or proprietary information of the Company
will not otherwise become known or be independently developed by competitors in
a manner that would have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence on Environmental Regulation. Federal, state and local
environmental legislation and regulations mandate stringent waste management and
operations practices, which require substantial capital expenditures and often
impose strict liabilities for non-compliance. Environmental laws and regulations
are, and will continue to be, a principal factor affecting demand for the
technology and services being developed or offered by the Company. The level of
enforcement activities by federal, state and local environmental protection and
related agencies, and changes in regulations and waste generator compliance
activities, will also affect demand. To the extent that the burdens of complying
with such laws and regulations may be eased as a result of, among other things,
political factors, or that producers of industrialized farm waste find
alternative means to comply with applicable regulatory requirements, demand for
the Company's products and services could be adversely affected, which could
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have a material adverse effect on the Company's business, financial condition
and results of operations. Any changes in these regulations which increase
compliance standards may require the Company to change or improve its operating
procedures. To the extent the Company conducts its business overseas,
international environmental regulations will be applicable. Such regulations
vary by country and are subject to changes which may adversely affect the
Company's operations.
Regulatory Status of Operations. The Company and its customers operate
in a highly regulated environment, and the Company's potential customers and/or
the Company's products and services may be required to have various federal,
state and/or local government permits and authorizations, registrations and/or
exemptions. Any of these permits or approvals may be subject to denial,
revocation or modification under various circumstances. Failure to comply with
the conditions of such permits, approvals, registrations, authorizations or
exemptions may adversely affect the installation or operation of the Company's
waste management system and may subject the Company to federal, state or
locally-imposed penalties. The Company's ability to satisfy the permitting
requirements for a particular installation does not assure that permitting
requirements for other installations will be satisfied. In addition, if new
environmental legislation is enacted or current regulations are amended or are
interpreted or enforced differently, the Company or its customers may be
required to obtain additional operating permits, registrations, certifications,
exemptions or approvals. There can be no assurance that the Company or its
customers will meet all of the applicable regulatory requirements.
Potential Environmental Liability. The Company's business exposes it to
the risk that harmful substances may be released or escape into the environment
from its processes or equipment, resulting in potential liability for the
clean-up or remediation of the release and/or potential personal injury
associated with the release. Liability for investigation and/or clean-up and
corrective action costs exists under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and corresponding
state laws. Additionally, the Company is potentially subject to regulatory
liability for the generation, transportation, treatment, storage or disposal of
hazardous waste if it does not act in accordance with the requirements of
federal or state hazardous waste regulations or facility specific regulatory
determinations, authorizations or exemptions. The Company is also potentially
subject to regulatory liability for releases into the air or water under the
Clean Air Act of 1970, as amended, and the Federal Water Pollution Control Act
of 1972, as amended (hereinafter the "Clean Water Act"), and analogous state
laws and regulations and various other applicable federal or state laws and
regulations if it does not comply with those requirements.
Dependence on Key Management and Personnel. The Company is highly
dependent upon the efforts of its senior management and, effective April 15,
1998, entered into a four-year employment agreement with Marvin Mears, the
Company's President and Chief Executive officer. The Company does not possess
any key-man life insurance on Mr. Mears but intends to apply for a $1 million
key-man life insurance policy on him. No assurance can be given that the Company
will be able to obtain such a policy or, if obtainable, that it will be on terms
favorable to the Company. The Company is also dependent upon its other
management personnel, as well as certain scientific advisors and consultants.
The loss of the services of one or more of these individuals could have a
material adverse effect upon the Company. The Company's future success will
depend in large part upon its ability to attract and retain additional highly
skilled scientific, managerial, manufacturing and marketing personnel. The
Company faces competition for hiring such personnel from other companies,
research and academic institutions, government agencies and other organizations.
There can be no assurance that the Company will continue to be successful in
attracting and retaining such personnel.
Prior Legal Actions Involving Chief Executive Officer and Principal
Stockholders. On March 12, 1993, the United States District Court for the
Central District of California permanently enjoined Mr. Marvin Mears, the
President, Chief Executive Officer, Director and a major stockholder of the
Company, from, among other things, future violations or aiding and abetting
violations of the antifraud provisions of the Securities Act of 1933, as amended
(the "1933 Act"), and the Securities Exchange Act of 1934 (the "1934 Act"), as
amended. Further, Mr. Mears was permanently restrained and enjoined from making
any untrue statement of a material fact in any registration statement,
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application, report, account, record or other document filed or transmitted
pursuant to the Investment Company Act of 1940, or omitting to state therein any
fact necessary in order to prevent the statements made therein, in light of the
circumstances under which they were made, from being materially misleading in
violation of the Investment Company Act of 1940. In addition, by order dated
February 27, 1996, Mr. Mears, without admitting or denying any of the findings
contained in an order issued by the Securities and Exchange Commission,
consented to the entry of an Order Making Findings and Imposing Sanctions
Pursuant to Section 9(b) of the Investment Company Act of 1940 whereby Mr. Mears
agreed to be barred from association with any investment advisor or investment
company.
In February 1993, the United States District Court for the Central
District of California permanently enjoined Mr. Morris Lerner, a major
stockholder of the Company and formerly an officer and director of the Company,
from, among other things, future violations or aiding and abetting violations of
the antifraud provisions of the 1933 Act and the 1934 Act. In addition, Mr.
Lerner was permanently restrained and enjoined from making any untrue statement
of a material fact in any registration statement, application, report, account,
record or other document filed or transmitted pursuant to the Investment Company
Act of 1940, or omitting to state therein any fact necessary in order to prevent
the statements made therein, in light of the circumstances under which they were
made, from being materially misleading in violation of the Investment Company
Act of 1940.
Control by Existing Management. The Company's executive officers and
directors currently beneficially own approximately 45.74% of the outstanding
shares of Common Stock. These persons, if acting in concert, will have
significant voting power with respect to the election of directors and, in
general, the outcome of any other matter submitted to a vote of stockholders.
Potential Adverse Effects of Preferred Stock. The Company's Certificate
of Incorporation authorizes the issuance of shares of "blank check" preferred
stock, which will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. The preferred stock could be utilized to discourage, delay or prevent a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock other than the shares of Series A
Preferred Stock currently outstanding, there can be no assurance that the
Company will not do so in the future.
No Dividends. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future. The Company intends to retain earnings, if any, to provide
funds for the expansion of the Company's business. So long as any shares of
Series A Convertible Preferred Stock are outstanding, the Company may not,
without first obtaining the approval of the holders of 67% of the then
outstanding shares of Series A Convertible Preferred Stock, redeem, declare or
pay any dividend or distribution with respect to shares of Common Stock.
Outstanding Warrants and Options; Exercise of Registration Rights. The
Company has outstanding (i) warrants to purchase an aggregate of 300,000 shares
of Common stock at an exercise price of $2.00 per share; (ii) warrants sold in a
private placement (the "Private Placement Warrants") to purchase 300,000 shares
of Common Stock at an exercise price of $3.875 per share; and (iii) options to
purchase an aggregate of 330,000 shares of Common Stock granted under the
Company's 1996 Stock Option Plan at an exercise price of $.1875 per share,
except that option holders representing 280,000 shares have signed agreements to
not exercise their options prior to July 15, 1999. The Company has reserved an
aggregate of 400,000 shares of Common Stock for issuance under its stock option
plan. Holders of such warrants and options are likely to exercise them when, in
all likelihood, the Company could obtain additional capital on terms more
favorable than those provided by such warrants and options. Further, while these
warrants and options are outstanding, the Company's ability to obtain additional
financing on favorable terms may be adversely affected.
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General Risks of Business. Any future success that the Company might
enjoy will depend upon many factors, including factors which may be beyond the
control of the Company or which cannot be predicted at this time. These factors
may include technological advances or product obsolescence, increased levels of
competition, including the entry of additional competitors and increased success
by existing competitors, changes in general economic conditions, increases in
operating costs including costs of supplies, personnel, and equipment, reduced
margins caused by competitive pressures and other factors, and changes in
governmental regulation imposed under federal, state or local laws.
Risks Associated with Management of Potential Growth. The Company's
growth is expected to place a significant strain on its managerial, operation,
financial and information systems resources. To accommodate its current size and
manage growth, the Company must continue to implement and improve its
operational, financial and information systems, and expand, train and manage its
employee base. Additionally, expansion of the Company's information and network
systems is required to accommodate its growth. There can be no assurance that
the Company will be able to effectively manage the expansion of its operations,
or that the Company's facilities, systems, procedures or controls will be
adequate to support the Company's operations. The inability of the company to
manage effectively its future growth would have a material adverse effect on the
Company's business, financial condition and results of operations. This problem
may be exacerbated to the extent the Company continues to acquire additional
technologies, as each such technology must then be integrated into the Company's
operations and systems.
Delaware Anti-Takeover Statute; Issuance of Preferred Stock; Barriers
to Takeover. The Company is a Delaware corporation and thus, upon the
consummation of the Offering will become subject to the prohibitions imposed by
Section 203 of the Delaware General Corporation Law, which is generally viewed
as an anti-takeover statute. In general, this statute will prohibit the Company,
once public, from entering into certain business combinations without the
approval of its Board of Directors and, as such, could prohibit or delay mergers
or other attempted takeovers or changes in control with respect to the Company.
Such provisions may discourage attempts to acquire the Company. In addition, the
Company's authorized capital consists of 40,000,000 shares of capital stock of
which 20,000,000 shares are designated as Common Stock and 20,000,000 shares are
designated as preferred stock. The Board of Directors, without any action by the
Company's stockholders, is authorized to designate and issue shares in such
classes or series (including classes or series of preferred stock) as it deems
appropriate and to establish the rights, preferences and privileges of such
shares, including dividends, liquidation and voting rights. The rights of
holders of preferred stock and other classes of Common Stock that may be issued
may be superior to the rights granted to the holders of the existing classes of
Common Stock. Further, the ability of the Board of Directors to designate and
issue such undesignated shares could impede or deter an unsolicited tender offer
or takeover proposal regarding the Company and the issuance of additional shares
having preferential rights could adversely affect the voting power and other
rights of holders of Common Stock. Issuance of preferred stock, which may be
accomplished through a public offering or a private placement, may dilute the
voting power of holders of Common Stock (such as by issuing preferred stock with
super voting rights) and may render more difficult the removal of current
management, even if such removal may be in the stockholders' best interests. Any
such issuance of preferred stock could prevent the holders of Common Stock from
realizing a premium on their shares.
Risks Associated with Forward-Looking Statements Included in this
Report. This Report contains certain forward-looking statements regarding the
plans and objectives of management for future operations. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based,
in part, on assumptions involving the Company's ability to successfully
integrate the various technologies it has licensed, the Company's ability to
market successfully its waste management system and insecticide products,
increased governmental regulation of livestock and poultry operations and that
there will be no unanticipated material adverse change in the Company's
business. Assumptions relating to the foregoing, among others, involve judgments
with respect to, among other things, future economic, competitive, regulatory
and market conditions and future business decisions, all of which are difficult
or impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that its assumptions underlying the
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forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, particularly in view of the Company's early stage operations,
the inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
Limited Market for the Common Stock. The Company's Common Stock is
traded on the OTC Bulletin Board, but is not listed on any stock exchange or on
NASDAQ. Trading volume in the Common Stock has fluctuated considerably in the
recent past. The Company has filed for the registration of the entire class of
its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act" ), in order to make the Company a "reporting
company." Accordingly, it is required to file all of the reports, proxy
statements and other information required to be filed with the Securities and
Exchange Commission (the "Commission") under the Exchange Act.
Possible Volatility of Stock Prices; Penny Stock Rules. The
over-the-counter markets for securities such as the Company's Common Stock
historically have experienced extreme price and volume fluctuations during
certain periods. These broad market fluctuations and other factors, such as new
product developments and general trends in the investment markets, as well as
general economic conditions and quarterly variations in the Company's results of
operations, may adversely affect the market price of the Company's Common Stock.
Moreover, unless and until it is approved for quotation on NASDAQ, the Company's
Common Stock could become subject to rules adopted by the Commission regulating
broker-dealer practices in connection with transactions in "penny stocks." Penny
stocks generally are equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges or quoted on
NASDAQ, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or the NASDAQ
system). Unless an exemption from the definition of a "penny stock" were
available, any broker engaging in a transaction in the Company's Common Stock
would be required to provide any customer with a risk disclosure document,
disclosure of market conditions, if any, disclosure of the compensation of the
broker-dealer and its salesperson in the transaction, and monthly accounts
showing the market values of the Company's Common Stock held in the customer's
account. The bid and offer quotation and compensation information must be
provided prior to effecting the transaction and must be contained on the
customer's confirmation. It may be anticipated that a number of brokers may be
unwilling to engage in transactions in the Company's Common Stock because of the
need to comply with the "penny stock" rules, thereby making it more difficult
for purchasers of Common Stock offered hereby to dispose of their shares. The
Company's Common Stock is covered by a Securities and Exchange Commission rule
that imposes additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse). For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell the Company's securities and also may affect the ability of purchasers in
this offering to sell their shares in the secondary market.
Item 2. DESCRIPTION OF PROPERTY
FACILITIES
The Company's facilities are located at 5380 North Sterling Center
Drive, Westlake Village, California and presently consist of approximately 3,150
sq. ft. The Company believes that these facilities will meet the Company's
needs. The Company leases this facility under a lease that expires on December
31, 1999. The base rent for the leased premises is $2,520 per month. The Company
has the option to extend the lease for an additional two-year period on the same
terms and conditions except that the monthly rental payment for the first year
of any such extension would be $2,674 and $2,754 for the second year.
51601:029
18
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, and is not aware
of any pending or threatened litigation against the Company.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fiscal year ended September 30, 1998.
PART II.
Item 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol EPTC. The following table sets forth the range of high and low bid
quotation per share for the Common Stock as reported by the OTC Bulletin Board
during the calendar years indicated. The bid price reflects inter-dealer prices
and does not include retail mark-up, markdown, or commission. The Company
effected a 2 for 1 forward stock split that became effective on May 12, 1998.
The following table does not give effect to such stock split except as
indicated. According to records of the Company's transfer agent, as of December
17, 1998, the Company had approximately 414 stockholders of record.
HIGH LOW
------- -------
1996
Third Quarter.....................................$ 5.50 $ 2.00
Fourth Quarter.................................... 5.00 1.125
1997
First Quarter.......................................4.25 1.875
Second Quarter.................................... 2.125 0.563
Third Quarter......................................3.188 0.625
Fourth Quarter.....................................4.188 1.000
1998
First Quarter.....................................10.375 2.313
Second Quarter....................................13.000 7.625
Second Quarter (after May 11, 1998)........... 9.125 7.250
Third Quarter..................................... 7.563 4.375
Fourth Quarter.................................... 5.625 3.00
The Company has never declared or paid a cash dividend on its Common
Stock and does not expect to pay any cash dividends in the foreseeable future.
So long as any shares of Series A Convertible Preferred Stock are outstanding,
the Company may not, without first obtaining the approval of the holders of 67%
of the then outstanding shares of Series A Convertible Preferred Stock, redeem,
declare or pay any dividend or make any distribution with respect to shares of
Common Stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company was incorporated in 1983 as CCRS, III, Inc. In 1989, the
Company changed its name to Central Corporate Reports Services, Inc., merged
with Information Bureau Inc. and operated in the financial public relations
business until March 1990 when the Company became inactive. In 1990 the Company
changed its name to Combined Assets, Inc. and in 1991 changed its name to ACP
International, Inc. and in 1994 changed its name back to Combined Assets, Inc.
In January 1995, the Company's name was changed to Environmental Products &
Technologies Corporation.
51601:029
19
<PAGE>
At the end of 1995, the Company commenced development of a waste
management system to control odors and solid stream waste in the farming
industry. In addition, the Company is developing organic based insecticides for
agricultural, commercial and residential use.
The Company is currently in the development stage of operations and, to
this time, has devoted its time to raising capital, product and supplier
development and marketing future products. No products have been assembled,
manufactured or marketed at this time, except that the Company has assembled one
prototype Closed-Loop Waste Management System for demonstration purposes and
three prototype systems for operation by various universities.
The Company has projected expenses of $1,800,000 through June 1999. As
of September 30, 1998, the Company had approximately $1,832,000 of cash and cash
equivalents and accordingly, even if the Company were to generate no revenues
through June 1999, the Company would not need to seek additional financing to
satisfy its cash requirements. The Company intends to continue its research and
development activities during the next twelve months.
The Company intends to continue product development with the test of
three full-scale systems to be operated at Utah State University, Cal
Poly-Pomona and the University of Wisconsin. The portable units will be employed
for continued demonstrations and sales activity. The goal of such tests is to
refine the process from a batch load to a continuous feed system. At the same
time the development of an input/feed conveyor system and a variable discharge
rate screw mechanism to load and unload the bioreactor needs to be completed. In
addition, a solids waste process will also need to be developed.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1997
The Company recognized no revenue for the twelve months ended September
30, 1998 ("Fiscal 1998") and for the twelve months ended September 30, 1997
("Fiscal 1997"). During each of the Fiscal 1998 and Fiscal 1997, the Company's
efforts were directed at researching, designing, developing and testing its
Closed-Loop Waste Management System.
Research and development expenses primarily consist of the cost of
personnel and equipment needed to conduct the Company's research and development
efforts. Research and development expenses for Fiscal 1998 increased $316,124,
or approximately 457%, to $385,362 from $69,238 for Fiscal 1997. This increase
in research and development expenses reflects additional expenses associated
with the design, development and testing of prototype systems, the increase in
personnel and purchase of components for the Company's currently operating
prototype waste management systems.
General and administrative expenses primarily consist of general and
administrative costs related to the salaries of the Company's administrative
personnel and associated costs, including legal and consulting fees. General and
administrative expenses for Fiscal 1998 increased by $704,120, or approximately
221%, to $1,023,264 from $319,144 for Fiscal 1997.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
The Company generated no revenue for the fiscal year ended September
30, 1997 ("Fiscal 1997") and for the fiscal year ended September 30, 1996
("Fiscal 1996").
Research and development expenses for Fiscal 1997 increased by $69,238,
to $69,238 from -0- for Fiscal 1996. This increase in research and development
expenses for Fiscal 1997 reflects expenses associated with the research, design
and development of the Company's Closed-Loop Waste Management System.
51601:029
20
<PAGE>
General and administrative expenses for Fiscal 1997 increased by
$44,035, or approximately 16%, to $319,144 from $275,109 for Fiscal 1996. This
increase in general and administrative expenses was primarily the result of
increased salaries and rental expense which was partially offset by decreased
consulting and other expenses.
Interest expense for Fiscal 1997 was $18,310 compared to -0- for Fiscal
1996. Interest expense for Fiscal 1997 related to the note payable to Ronald
Knudsen, formerly the Director of Product Development of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the design and
development of its prototype Closed-Loop Waste Management System. The Company's
primary sources of liquidity have been private placements of equity and debt
securities and loans from officers/stockholders on an as needed basis.
Between October and December 1995, the Company sold 100,000 shares of
Common Stock for an aggregate of $10,000, or $.10 per share. Between January and
March 1996, the Company sold 400,000 shares of Common Stock for an aggregate of
$189,650, or approximately $.47 per share. Between April and June 1996, the
Company sold 40,000 shares of Common Stock for an aggregate of $35,000, or $.87
per share. Between July and September 1996, the Company sold 480,000 shares of
Common Stock for an aggregate of $149,200, or approximately $.31 per share.
Between June and September 1997, the Company sold 550,000 shares of Common Stock
for an aggregate of $337,925, or approximately $.614 per share. The figures in
this paragraph do not give effect to the two-for-one forward stock split that
was effected by the Company in May 1998.
In April 1998, the Company sold 3,000 shares of Series A Preferred
Stock together with warrants (the "Private Placement Warrants") to purchase
300,000 shares of Common Stock (the "1998 Private Placement") for gross proceeds
of $3,000,000. The net proceeds to the Company of approximately $2,675,000 will
be used for continued research and development, working capital and general
corporate purposes. The Private Placement Warrants have an initial exercise
price of $3.875 per share. Private Placement Warrants expire on March 31, 2003.
The Private Placement Warrants contain provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon exercise under
certain circumstances, including without limitation, stock dividends, stock
splits, reorganizations, reclassifications, consolidations, certain dilutive
sales of securities for which the Private Placement Warrants are exercisable
below the then existing Market Price (as defined) and failure to maintain a
sufficient number of authorized shares of Common Stock for issuance and delivery
upon exercise of the Private Placement Warrants.
The Company also has commitments under (i) an employment agreement with
Marvin Mears, the Company's President and Chief Executive Officer; (ii) a
consulting agreement with Strategic Planning Consultants, Inc., a consultant to
the Company; and (iii) an office lease that expires December 31, 1999.
Based on its current operating plan, the Company anticipates that
additional financing will be required to finance its operations and capital
expenditures. The Company's currently anticipated levels of revenues and cash
flow are subject to many uncertainties and cannot be assured. Further, the
Company's business plan may change, or unforseen events may occur, requiring the
Company to raise additional funds. The amount of funds required by the Company
will depend upon many factors, including without limitation, the extent and
timing of sales of the Company's waste management system, future product costs,
the timing and costs associated with the establishment and/or expansion, as
appropriate, of the Company's manufacturing, development, engineering and
customer support capabilities, the timing and cost of the Company's product
development and enhancement activities and the Company's operating results.
Until the Company generates cash flow from operations which will be sufficient
to satisfy its cash requirements, the Company will need to seek alternative
means for financing its operations and capital expenditures and/or postpone or
eliminate certain investments or expenditures. Potential alternative means for
financing may include leasing capital equipment, obtaining a line of credit, or
51601:029
21
<PAGE>
obtaining additional debt or equity financing. There can be no assurance that,
if and when needed, additional financing will be available, or available on
acceptable terms. The inability to obtain additional financing or generate
sufficient cash from operations could require the Company to reduce or eliminate
expenditures for capital equipment, research and development, production or
marketing of its product, or otherwise curtail or discontinue its operations,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, if the Company raises funds
through the sale of additional equity securities, the Common Stock currently
outstanding may be further diluted.
INFLATION
Although certain of the Company's expenses increase with general
inflation in the economy, inflation has not had a material impact on the
Company's financial results to date.
YEAR 2000 COMPLIANCE
We have completed a comprehensive review of our computer systems to
identify all software applications that could be affected by the inability of
many existing computer systems to process time- sensitive data accurately beyond
the year 1999 (referred to as the "Year 2000" issue). We are also continuing to
monitor our computer systems and we are monitoring the adequacy of the processes
and progress of third-party vendors of systems that may be affected by the Year
2000 issue. We are dependent on third-party computer systems applications,
particularly with respect to such critical tasks as accounting, billing and
buying. We also rely on our own computer systems. EPTC expects to complete its
Year 2000 compliance program by mid-1999 and anticipates that its total
expenditures on such program will not exceed $20,000. However, we may experience
cost overruns or delays in the future, which could have a material adverse
effect on our business, results of operations and financial condition. While we
believe our procedures are designed to be successful, because of the complexity
of the Year 2000 issue and the interdependence of organizations using computer
systems, our efforts, or those of third parties with whom we interact, may not
be satisfactorily completed in a timely fashion. If we fail to satisfactorily
address the Year 2000 issue, then our business, results of operations and
financial condition could be materially adversely affected.
51601:029
22
<PAGE>
Item 7. FINANCIAL STATEMENTS
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
FINANCIAL REPORT
September 30, 1998 and 1997
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 24
Financial Statements
Balance Sheets 25
Statements of Stockholders' Equity 26-27
Statements of Operations 28
Statements of Cash Flow 29-30
Notes to Financial Statements 31-40
See Notes to Financial Statements
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
Environmental Products & Technologies Corporation
Westlake Village, California
We have audited the balance sheets of Environmental Products & Technologies
Corporation (a development stage company), as of September 30, 1998 and 1997 and
the related statements of stockholders' equity, operations and cash flows for
the years then ended and for the period October 1, 1995 (date of development
stage) to September 30, 1998. These financial statements are the responsibility
of the company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Environmental Products &
Technologies Corporation as of September 30, 1998 and 1997 and the results of
its operations and its cash flow for the years then ended and for the period
October 1, 1995 (date of development stage) to September 30, 1998, in conformity
with generally accepted accounting principles.
CLUMECK, STERN, PHILLIPS & SCHENKELBERG
Certified Public Accountants
Encino, California
October 30, 1998, except for Note 20 as to
which the date is December 1, 1998
See Notes to Financial Statements
24
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS
------
1998 1997
------ ------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,447,444 $ 271,360
Marketable securities 385,012 --
Note receivable - related party 135,000 --
Interest receivable 1,446 4,329
----------- -----------
Total Current Assets 1,968,902 275,689
----------- -----------
EQUIPMENT 77,581 1,093
----------- -----------
OTHER ASSETS
Notes receivable - related parties 31,631 34,850
Deposits 13,220 700
Mining rights 5,000 --
----------- -----------
Total Other Assets 49,851 35,550
----------- -----------
TOTAL ASSETS $ 2,096,334 $ 312,332
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 11,450 $ 17,383
Accrued salaries 44,000 68,000
Accrued interest -- 7,320
Settlement payable -- 27,005
Note payable - related party -- 103,000
----------- -----------
Total Current Liabilities 55,450 222,708
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, authorized 20,000,000 shares; issued and
outstanding 8,567,148 shares (1998)
and 7,607,148 shares (1997) 42,735 38,035
Preferred stock, $.01 par value, authorized 20,000,000
shares; issued and outstanding 3,000 shares (1998) 30 --
Additional paid in capital 8,335,647 1,456,736
Deficit accumulated during development stage (5,627,088) (709,695)
Retained (deficit) prior to development stage (695,452) (695,452)
Unrealized loss on marketable securities (14,988) --
----------- -----------
2,040,884 89,624
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,096,334 $ 312,332
----------- -----------
</TABLE>
See Notes to Financial Statements
25
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional
# of # of paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C>
Balance, September 30, 1995 5,356,148 $ 26,780 -- $ -- 673,306
Common stock issued for cash
Oct. - Dec., 1995 200,000 1,000 -- -- 9,000
Jan. - Mar., 1996 800,000 4,000 -- -- 185,650
Apr. - Jun., 1996 80,000 400 -- -- 34,600
July - Sept., 1996 960,000 4,800 -- -- 144,400
Executive compensation -- -- -- -- 9,230
Net loss, September 30, 1996 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1996 7,396,148 36,980 -- -- 1,056,186
Common stock cancelled (889,000) (4,445) -- -- 4,445
Common stock issued for cash
Jun. - Sep., 1997 1,100,000 5,500 -- -- 332,425
Executive compensation -- -- -- -- 9,230
Stock options granted -- -- -- -- 54,450
Cost to raise capital -- -- -- -- --
Net loss, September 30, 1997 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 7,607,148 38,035 -- -- 1,456,736
Common stock issued for cash 300,000 1,500 -- -- 89,125
Common stock issued for R&D 100,000 500 -- -- 130,75
Common stock issued for note 10,000 50 -- -- 9,950
Preferred stock issued for cash -- -- 3,000 30 2,999,970
Costs to raise capital -- -- -- -- --
Warrant transactions 570,000 2,850 -- -- (2,850)
Common stock redeemed (20,000) (200) -- -- (5,500)
Preferred stock dividend -- -- -- -- 3,295,610
Executive compensation -- -- -- -- 5,000
Warrants granted -- -- -- -- 356,856
Net loss, September 30, 1998 -- -- -- -- --
Unrealized loss on marketable
securities -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1998 $ 8,567,148 $ 42,735 $ 3,000 $ 30 $ 8,335,647
----------- ----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
26
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
Deficit Retained
accumulated deficit Unrealized
during prior to loss on Total
development development marketable stockholder
stage stage securities equity
----- ----- ---------- ------
<S> <C> <C> <C> <C>
Balance, September 30, 1995 $ -- $ (695,452) $ -- $ 4,634
Common stock issued for cash
Oct. - Dec., 1995 -- -- -- 10,000
Jan. - Mar., 1996 -- -- -- 189,650
Apr. - Jun., 1996 34,600 -- -- 35,000
July - Sept., 1996
-- -- -- 149,200
Executive compensation -- -- -- 9,230
Net loss, September 30, 1996 (273,737) -- -- (273,737)
----------- ----------- ----------- -----------
Balance, September 30, 1996 (273,737) (695,452) -- 123,977
Common stock cancelled -- -- -- --
Common stock issued for cash
Jun. - Sep., 1997 -- -- -- 337,925
Executive compensation -- -- -- 9,230
Stock options granted -- -- -- 54,450
Cost to raise capital (32,223) -- -- (32,223)
Net loss, September 30, 1997 (403,735) -- -- (403,735)
----------- ----------- ----------- -----------
Balance, September 30, 1997 (709,695) (695,452) -- 89,624
Common stock issued for cash -- -- -- 90,625
Common stock issued for R&D -- -- -- 131,250
Common stock issued for note -- -- -- 10,000
Preferred stock issued for cash -- -- -- 3,000,000
Costs to raise capital (324,800) -- -- (324,800)
Warrant transactions -- -- -- --
Common stock redeemed -- -- -- (5,700)
Preferred stock dividend (3,295,610) -- -- --
Executive compensation -- -- -- 5,000
Warrants granted -- -- -- 356,856
Net loss, September 30, 1998 (1,296,983) -- -- (1,296,983)
Unrealized loss on marketable
securities -- -- (14,988) (14,988)
----------- ----------- ----------- -----------
Balance, September 30, 1998 $(5,627,088) $ (695,452) $ (14,988) $ 2,040,884
----------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
27
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD
OCTOBER 1, 1995 (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
October 1, 1995
to
1998 1997 September 30, 1998
------- ------- ------------------
SALES $ -- $ -- $ --
------------- ------------- -------------
<S> <C> <C> <C>
EXPENSES
Consulting 453,979 104,171 717,755
Depreciation 18,457 --
18,457
Legal and professional 214,898 33,346 255,730
Liability insurance 2,494 11,007
13,501
Miscellaneous 13,794 24,236
52,230
Office supplies and expenses 27,746 8,138 38,376
Other expenses 366 216 44,224
Rent 23,633 52,155 95,563
Repairs and maintenance 3,180 -- 4,680
Research and development 385,362 69,238 454,600
Salaries and payroll taxes 153,154 77,230 239,614
Telephone and utilities 11,538 3,186 16,080
Travel 65,025 5,459 86,307
Write down of mining rights 35,000 -- 35,000
Total Expenses 1,408,626 388,382 2,072,117
LOSS FROM OPERATIONS (1,408,626) (388,382) (2,072,117)
OTHER INCOME (EXPENSE)
Interest income 52,438 2,957 56,767
Interest expense (5,003) (18,310) (23,313)
47,435 (15,353) 33,454
LOSS BEFORE EXTRAORDINARY
ITEM (1,361,191) (403,735) (2,038,663)
EXTRAORDINARY ITEM
Gain on extinguishment of debt 64,208 -- 64,208
NET LOSS (1,296,983) (403,735) (1,974,455)
(3,295,610) -- (3,295,610)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(4,592,593) $ (403,735) $(5,270,065)
NET LOSS PER COMMON SHARE $ (.56) $ (.06) $ (.73)
</TABLE>
(See Notes to Financial Statements)
28
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 and 1997 AND THE PERIOD
OCTOBER 1, 1995 (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
October 1, 1995
to
1998 1997 September 30, 1998
---- ---- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,296,983) $ (403,735) $(1,974,455)
----------- ----------- -----------
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization 18,457 --
18,457
Loss on abandoned equipment 1,093 --
1,093
Write down of mining rights 35,000 --
35,000
Gain on extinguishment of debt (64,208) -- (64,208)
Non-cash research and development 131,250 -- 131,250
Non-cash consulting fees 356,856 54,450 536,306
Non-cash executive compensation 5,000 9,230 23,460
(Increase) decrease in operating assets
Prepaid expenses -- 9,500 --
Interest receivable 2,883 (2,957) (1,446)
Deposits (12,520) 9,500 (13,220)
Increase (decrease) in operating
liabilities
Accounts payable (5,933) (18,633) 6,192
Accrued salaries 40,208 68,000 100,888
Accrued interest (7,320) 7,320 7,320
Settlement payable (17,005) 27,005 10,000
----------- ----------- -----------
total Adjustments 483,761 163,415 791,092
----------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES (813,222) (240,320) (1,183,363)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to related parties (234,781) (4,000) (269,631)
Purchase of equipment (96,038) (1,093) (97,131)
Purchase of mining rights (40,000) -- (40,000)
Purchase of marketable securities (400,000) -- (400,000)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (770,819) (5,093) (806,762)
----------- ----------- -----------
</TABLE>
(See Notes to Financial Statements)
29
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (continued)
YEARS ENDED SEPTEMBER 30, 1998 and 1997 AND THE PERIOD
OCTOBER 1, 1995 (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
October 1, 1995
to
1998 1997 September 30, 1998
---- ---- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 90,625 547,125 820,100
Sale of preferred stock 3,000,000 -- 3,000,000
Costs to raise capital (324,800) (32,223) (357,023)
Loan payments -- (10,000) (22,000)
Common stock redeemed (5,700) -- (5,700)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,760,125 504,902 3,435,377
----------- ----------- -----------
NET INCREASE IN CASH 1,176,084 259,489 1,445,252
CASH, October 1 271,360 11,871 2,192
----------- ----------- -----------
CASH, September 30 $ 1,447,444 $ 271,360 $ 1,447,444
----------- ----------- -----------
</TABLE>
(See Notes to Financial Statements)
30
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company was incorporated in 1983 as CCRS III, Inc.. In
1989, the company changed its name to Central Corporate
Reports Service, Inc., merged with Information Bureau, Inc.
and operated in the financial public relation business until
March 1990 when the Company became inactive. In 1990 the
Company changed its name to Combined Assets, Inc., and in 1991
changed its name to ACP International, Inc. and in 1994
changed its name back to Combined Assets, Inc.. In January,
1995 the Company's name was changed to Environmental Products
& Technologies Corporation. At the end of 1995 the Company
commenced development of a waste management system to control
odors and solid stream waste in the farming industry. In
addition the Company is developing organic based insecticides
for agricultural, commercial and residential use.
The Company is currently in the development stage of
operations devoting its time to raising capital, product and
supplier development, and marketing future products. No
products have been manufactured or marketed at this time,
except that the Company has assembled prototypes for
demonstration and testing purposes.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers
all cash accounts not subject to withdrawal restrictions and
certificates of deposits with original maturities of ninety
days or less to be cash or cash equivalents.
Income Taxes
The Company accounts for income taxes in accordance with
Financial Accounting Standards Statement No. 109, Accounting
for Income Taxes, which requires recognition of deferred tax
liabilities and assets for the expected future tax
consequences of events that have been included in the
financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect
for the year which the differences are expected to be settled
or realized.
31
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock-based Compensation
The Company applies Financial Accounting Standards Boards
(FASB) Statement No. 123 "Accounting for Stock-Based
Compensation" in accounting for transactions in which goods or
services are received from non-employees in exchange for
equity instruments, including stock options and warrants.
Under FASB No. 123, all transactions in which goods or
services are received in exchange for equity instruments are
recorded at the fair value of the goods or services received
or the fair value of the equity instrument issued.
Loss per Share
The computations of loss per share of common stock are based
on the weighted average number of shares outstanding of
8,238,815 shares (1998) and 7,182,690 shares (1997) and
7,192,546 shares (cumulative period).
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosures of contingent
assets and liabilities as the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
NOTE 2 - CONCENTRATION OF CREDIT RISK
The Company primarily transacts its business with two financial
institutions and may maintain deposits in excess of federally insured
limits. At September 30, 1998, the Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
32
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 3 - FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
The fair market value of the notes receivable approximates cost based
on current borrowing rates. Equity securities held by the Company
include available for sale securities, which are reported at fair
value. Unrealized holding gains & losses for available for sale
securities are excluded from earnings and reported, net of any income
tax effect as a separate component of stockholders' equity. At
September, 1998, the company had an unrealized loss of $14,988 and the
accounts were adjusted to reflect the loss.
NOTE 4 - NOTES RECEIVABLE - RELATED PARTY
In September 1998, the Company loaned $135,000 to a related party. The
loan is collateralized by shares of publicly traded companies having a
market value of $415,000 at September 30, 1998. A part of the
collateral is 60,000 shares of Environmental Products & Technologies
Corporation stock. Interest accrues at 12% per year.
Principal and interest are due by December 17, 1998.
The long-term notes receivable are due from two officer-stockholders.
Both notes bear interest at 9% per year. One note is due November 12,
1999 and the other one is due July 29, 2001.
NOTE 5 - EQUIPMENT
Equipment and leasehold improvements are stated at cost. Depreciation
is recorded using the accelerated method over the estimated useful
lives of five years. Additions, major renewals and replacements that
increase the property's useful life are capitalized.
1998 1997
---- ----
Office equipment $ 30,335 $ 1,093
Computer equipment 63,971 --
Leasehold improvements 1,732 --
---------- ----------
96,038 1,093
Accumulated depreciation 18,457 --
---------- ----------
$ 77,581 $ 1,093
33
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 6 - COMMITMENTS
Pursuant to a revised letter of understanding dated May 18, 1998,
Lifeline Enterprises, a Utah Limited Liability Company agreed to
transfer to the Company all rights, title and interest in and to an
anaerobic digester, a bio-reactor and the biologicals used therewith.
In consideration for this transfer, the Company issued 100,000 shares
of common stock to the Utah company and has agreed to issue an
additional 50,000 shares of common stock upon assignment to the Company
of all patents to the bio-reactor. In addition, the Company has agreed
to issue to the Utah company an aggregate of 320,000 shares of common
stock, payable 80,000 shares on each of October 15, 1999, 2000, 2001
and 2002. The value of the initial 100,000 shares at the market price
on the date of the issuance of the shares was recorded as research and
development and expensed as incurred.
The Company has an employment contract with an executive officer which
will expire in April 2002. The agreement provides for minimum salary
levels plus annual bonuses at the sole discretion of the Board of
Directors. The aggregate commitment for future salaries at September
30, 1998 was $520,000.
The Company entered into a lease for facilities beginning January 1,
1998. The lease calls for a term of two years, plus an option for an
additional two years. The minimum annual commitment is as follows:
September 30, 1999 $30,924
September 30, 2000 7,788
---------
$38,712
Rent expense was $23,633 for the year, representing minimum rents.
The Company entered into an agreement on October 30, 1998, with a
supplier to purchase diatomaceous earth over a five-year period. The
Company has a right, but not an obligation, to purchase a specified
tonnage per year. In exchange for this right, the Company will issue
10,000 shares of its stock to the supplier. In addition, the Company
has loaned the supplier $185,000. The note calls for interest at the
rate of 10% per annum and is due June 15, 1999. The note is
collaterlized by a 71% interest in a mining company.
34
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 7 - STOCK OPTIONS
In December 1995, the Board of Directors and the shareholders approved
the 1996 Stock Option Plan. The Plan provides for non-qualified and
incentive stock options. The Board has designated 800,000 shares for
the Plan. No options may be granted under this plan after December
2005, and the Plan terminates September 30, 2006. The exercise price of
the non-qualified stock option shall not be less than 85 percent of the
fair market value at the date of grant. The Board of Directors granted
330,000 options on July 29, 1997 to outside consultants for services
rendered to the Company. The option price, which was equal to the
trading price on the grant date is $.1875 per share. The options are
immediately exercisable under the plan; however, option holders
representing 280,000 shares have signed agreements to not exercise the
option prior to July 15, 1999. Options of 50,000 remain immediately
exercisable. As of September 30, 1998 none of the options had been
exercised. Under Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, options granted to non-employees are
recognized at the fair value of the goods or services received or the
fair value of the equity instrument issued. The Company has recorded
the service at the fair value of the option on the grant date using an
option pricing model which used the one-year U.S. Treasury rate of
5.54%, volatility of 300, a one year expected life, and no expected
dividends.
NOTE 8 - WARRANTS
The Board of Directors at their June 1995 meeting authorized the
issuance of 1,200,000 warrants. These warrants entitled the holder to
purchase an equal number of capital stocks at $.05 per share. The
warrants authorized were purchased for the Board-stated price of $200.
In 1997, 600,000 warrants were cancelled. In April, 1998, the 600,000
remaining warrants were exercised. In lieu of the $30,000 cash payment
required, the Company took back and canceled 30,000 shares.
In January 1998, the Company issued 300,000 warrants to outside
consultants for services rendered to the Company. The warrants entitle
them to purchase an equal number of common shares at the exercise price
of $2.00 per share. The exercise period terminates on January 21, 2001.
The Company has recorded their services at the fair value of the
warrant on the grant date using an option pricing model which used the
one year U.S. Treasury rate of 5.45 percent, volatility of 225, a one
year expected life an no expected dividends. 300,000 warrants remain
outstanding at September 30, 1998.
35
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 9 - CONVERTIBLE PREFERRED STOCK
In March 1998, the Board of Directors authorized the issuance of 3,000
Series A convertible preferred stock and 300,000 warrants and the
reserving of shares of common stock for issuance upon the conversion of
the preferred stock and exercise of the warrants. The holders of the
Series A convertible preferred stock are not entitled to receive
dividends. The preferred stock can be converted to common stock at the
fixed or variable conversion price, whichever is more beneficial to the
stockholder. The fixed conversion price is $3.875 per share. The
variable conversion price is 80% of the average of the five lowest
closing market prices of the stock in the fifteen trading days
immediately before the conversion date. The number of common shares is
determined by dividing $1,000 by the conversion price and multiplying
the resulting amount by the number of preferred shares being converted.
There is also a premium that can be redeemed by the Company in cash. If
it is not redeemed in cash, it will add to the stated value of the
preferred shares in arriving at the number of common shares to be
issued. The premium is six percent (on an annualized basis) of the
stated value of the preferred shares. The securities issued have a
below-market conversion feature which the Company recorded as a
preferred stock dividend in April 1998. At September 30, 1998, none of
the holders of the preferred stock had converted their shares into
shares of common stock.
NOTE 10 - STOCK OPTIONS AND WARRANTS OUTSTANDING
Options/ Exercise
Warrants Price Exercise Date
-------- ----- -------------
Options granted 280,000 $ .1875 July 16, 1999 to
September 30, 2006
Options granted 50,000 .1875 Up to September 30, 2006
Warrants issued 300,000 2.0000 Up to January 21, 2001
Warrants issued 300,000 3.8750 Up to April, 2003
-------
Options/warrants outstanding
at September 30, 1998 930,000
-------
Options/Warrants exercisable
at September 30, 1998 650,000
-------
36
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1,
1995 (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 11 - COMMON STOCK SPLIT
On April 20, 1998, the Board of Directors declared a two-for-one
forward stock split to holders of record on May 4, 1998. The effect of
the stock split has been retroactively applied.
NOTE 12 - EXECUTIVE COMPENSATION
An officer - stockholder of the Company devoted part of his time to the
business for which he received no compensation. The fair value of that
time has been estimated to be $5,000 for 1998 and $9,230 for 1997.
These amounts have been charged to income and recorded as additional
paid-in capital.
NOTE 13 - INCOME TAXES
The Company has available at September 30, 1998, unused operating loss
carryforwards that may be applied against future taxable income and
that expire as follows:
September 30, 2018 $ 1,257,000
September 30, 2012 340,055
September 30, 2011 264,507
September 30, 2010 23,133
September 30, 2003 530,859
September 30, 2004 15,507
September 30, 2005 1,061
--------------
Total $ 2,432,122
--------------
No deferred tax asset has been recorded, as there is a more than 50%
chance that the loss carryovers will expire unused.
37
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
(DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 14 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
October 1, 1995
to
1998 1997 September 30, 1998
----- -------- ------------------
<S> <C> <C> <C>
Cash paid during the year for
Interest $ 12,323 $ 10,990 $ 25,713
</TABLE>
NOTE 15 - RELATED PARTY TRANSACTIONS
A corporation owned by an officer-stockholder advanced expenses on
behalf of the Company in the amount of $48,132. These expenses were for
research and development, travel and other operating expenses and have
been reimbursed to the officer-stockholder.
An officer of Strategic Planning Consultants, Inc. is a shareholder of
the Company. Strategic Planning has rendered consulting services to the
Company in the amount of $84,186 for 1998.
In May 1998, a stockholder of Lifeline Enterprises became an employee
of the Company. Cash payments to Lifeline for research and development
for 1998 amounted to $168,211. In December 1997 $131,250 was charged to
research and development for the fair market value of 100,000 shares of
company stock issued to Lifeline. In addition, the Company has
committed to the issuance of an additional 370,000 shares of Company
stock (see Note 6).
NOTE 16 - EXTRAORDINARY ITEM
The Company settled a note payable and accrued compensation which
resulted in a gain on the extinguishment of debt of $64,208. The gain
will reduce the current year's net operation loss by the same amount.
This extraordinary item amounted to a $.007 gain per weighted average
common share.
38
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1,
1995 (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 17 - MINING RIGHTS
The Company periodically evaluates the carrying value of long-lived
assets to be held and used when events and circumstances warrant such a
review. The Company purchased mining rights for mineral deposits for
$40,000. At September 30, 1998, a mining engineer was hired to evaluate
the claims. His value for the rights was determined to be $5,000. The
asset is not, at present, a working mine that would allow for the use
of an estimated future cash flows for valuation purposes. The Company
has, at this time, accepted the engineer's value and has written down
the mining rights to a carrying value of $5,000.
NOTE 18 - RELATED ENTITIES
The Company incorporated fourteen companies in July and August 1998.
These corporations have filed articles of incorporation and bylaws in
their states of incorporation. It is the intention of the Company that
these entities will be wholly owned subsidiaries, but capital stock has
not yet been issued. Neither bank accounts nor operations have been set
up for any of the new entities. The expenses of incorporation of $8,933
have been expensed.
NOTE 19 - NEW ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued Financial Accounting Standards Statement
No. 130, Reporting Comprehensive Income and No. 131, Disclosures about
Segments of an Enterprise Related Information. Statement No. 130
established standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial
statements. The Company will be required to comply with the
requirements of statement No. 130 for the year ending September 30,
1999. Statement No. 131 establishes revised guidelines for determining
an entity's operating segments and the type and level of finencial
information to$be disclosed. The Company will be required to comply
with the requmrements$of Statement No. 131 in the yeav ending$September
30,$ 1999. The Company believes that the implementation of tlese
$ statements will $not have a smgnificant impagt on tle nature of
$ $information disglosed in the Company's financial statements.
$ $ 79
<PAGE>
$ $ ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
$ $ (A Development Stage Company)
$ $ NOTES TO FINANGIAL STATEMENTS ,CONTINUED)
YEARS ENDED WEPTEMBER 30, 1998 AND 1997 AND THE PERIOD OCTOBER 1, 1995
$ (DATE OF DEVELOPMENT STAGE) TO SEPTEMBER 30, 1998
NOTE 60 - SUBSEQUENT EVENT
$ There has been a decline in the value of the marketable securities
subsequent to the year-end. As of the close of trading on December 1,
1998, the value of the marketable securities was $253,000.
40
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
51601:029
41
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Marvin Mears.......... 64 President, Chief Executive Officer and Director
Joel G. Wadman........ 38 Chief Financial Officer and Secretary
Two directors of the Company recently resigned and the Company is
currently seeking replacements. The Company anticipates that the Board of
Directors will consist of five members and that four additional members will be
nominated and appointed by January 23, 1999, during which time the Company
expects to amend its Certificate of Incorporation and Bylaws to provide for
indemnification, to the fullest extent possible under Delaware law, for the
Company's officers, directors, employees and agents.
Marvin Mears has been the President, Chief Executive Officer and a
director of the Company since December 1994. From March 1993 to November 1994,
Mr. Mears was President of Combined Assets, Inc., a privately-held consulting
company. From January 1991 to February 1993, Mr. Mears was the President of
Corporate Capital Resources, Inc. and prior thereto, from November 1986 to
January 1991, Mr. Mears was the Vice President -- Corporate Development and a
member of the Valuation Committee of Corporate Capital Resources, Inc., a
publicly-traded venture capital company that specialized in early stage and
start-up companies. Mr. Mears also currently serves on the Board of Directors of
Chatsworth Products Inc., a privately-held company engaged in manufacturing
hardware for computer networks and Robert T. Dorris and Associates, a
privately-held company that provides employee assistance programs to large
corporations.
On March 12, 1993, the United States District Court for the Central
District of California permanently enjoined Mr. Mears from, among other things,
future violations or aiding and abetting violations of the antifraud provisions
of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. Furthermore, Mr. Mears was permanently restrained and enjoined
from making any untrue statement of a material fact in any registration
statement, application, report, account, record or other document filed or
transmitted pursuant to the Investment Company Act of 1940, or omitting to state
therein any fact necessary in order to prevent the statements made therein, in
light of the circumstances under which they were made, from being materially
misleading in violation of the Investment Company Act of 1940. In addition, by
order dated February 27, 1996, Mr. Mears, without admitting or denying any of
the findings contained in an order issued by the Securities and Exchange
Commission, consented to the entry of an Order Making Findings and Imposing
Sanctions Pursuant to Section 9(b) of the Investment Company Act of 1940 whereby
Mr. Mears agreed to be barred from association with any investment advisor or
investment company. See "Risk Factors -- Prior Legal Actions Involving Chief
Executive Officer and Principal Stockholders."
Joel G. Wadman has been the Chief Financial Officer of the Company
since July 1997 and became Secretary of the Company in May 1998. Mr. Wadman is
not employed by the Company full time and currently devotes approximately 40
hours per month to the Company's business. Since January 1994 Mr. Wadman has
been a consultant to SRS Consulting specializing in system development and
forensic accounting. From February 1990 to December 1993, Mr. Wadman was the
Vice President and Controller of WCT Communications, Inc. Mr. Wadman received a
B.S. in Finance from Brigham Young University in 1989.
51601:029
42
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT:
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than ten percent of its Common Stock to file reports of ownership and
changes of ownership with the Securities and Exchange Commission. Such persons
are also required to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on the Company's review of the copies of those forms
received by the Company, or written representations from such persons that no
Forms 5 were required to be filed, it appears that all reports due were timely
filed.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth certain compensation paid or accrued by
the Company during the years ended September 30, 1996, September 30, 1997 and
September 30, 1998 to its President and Chief Executive Officer (the "Named
Executive Officers").
ANNUAL COMPENSATION
----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ALL OTHER
COMPENSATION
- --------------------------- ---- ------ ----- ------------
Marvin Mears, President and CEO 1996 -0- -0- -0-
1997 -0- -0- -0-
1998 -0- -0- -0-
EMPLOYMENT AND CONSULTING AGREEMENTS AND OTHER COMPENSATION AGREEMENTS
The Company entered into a four-year employment agreement with Marvin
Mears effective as of April 15, 1998 (the "Mears Employment Agreement"). The
Mears Employment Agreement provides, among other things, that the Company shall
pay and/or provide to Mr. Mears: (i) a fixed annual salary of $96,000 in year
one, $120,000 in year two, $144,000 in year three and $168,000 in year four,
payable in each case in equal bi monthly installments; (ii) all fringe benefits
which the Company or any subsidiary may make available from time-to-time for
persons with comparable positions and responsibilities; (iii) medical group
insurance coverage or equivalent coverage for Mr. Mears and his dependents,
which coverage shall commence on December 31, 1998 and continue throughout the
term of employment; (iv) reimbursement for reasonable and necessary business
expenses incurred by Mr. Mears in the course of his duties as Chief Executive
Officer of the Company; and (v) $750.00 per month as an automobile allowance.
The company may terminate Mr. Mears' employment "for cause" provided the Company
provides Mr. Mears with 30 days notice and an opportunity to cure any alleged
breach or violation of the agreement. Further, Mr. Mears may be terminated if he
commits gross negligence in the performance of his duties under the agreement or
breaches his fiduciary duties to the Company. If Mr. Mears is disabled to a
degree that he is unable to fulfill his duties then the Company will pay his
full salary for the first 12 months of his disability, 75% of salary for the
second twelve months and 50% of salary for the next twenty-four months;
provided, however, that any such disability payment will cease on April 14,
2002, regardless of when any such disability commenced. If Mr. Mears is
terminated without cause upon a change of control, all of the Mr. Mears'
converted stock options will immediately vest and Mr. Mears will also be
entitled to receive $250,000 and an amount of money sufficient to allow him to
exercise all unexercised options and to pay any taxes due therefor.
Pursuant to a letter agreement (the "SPC Agreement") dated January 22,
1998, the Company retained the services of Strategic Planning Consultants, Inc.
("SPC") pursuant to which SPC has agreed to provide the Company with general
business consulting services, including without limitation, strategic planning
and analyzing the Company's capital structure. The SPC Agreement is for a period
51601:029
43
<PAGE>
of 360 days from January 22, 1998. In consideration for entering into the SPC
Agreement, the Company agreed to provide to the principals of SPC warrants to
purchase 300,000 shares of the Company's Common Stock at an exercise price of
$2.00 per share, the underlying shares of which are being registered under the
Registration Statement of which this Prospectus is a part. In addition, the
Company has agreed to pay SPC $3,000 per month for a period of 24 months and to
reimburse SPC for pre-approved expenses. SPC's services include consulting to
management on strategic planning, acquisitions, corporate structure and
management compensation.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of November 30, 1998, by
each director and executive officer of the Company, each person known to the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, and all directors and executive officers of the Company as a group.
Except as otherwise indicated below, each person has sole voting and investment
power with respect to the shares owned, subject to applicable community property
laws.
SHARES BENEFICIALLY
OWNED
(INCLUDES EXERCISABLE
OPTIONS)(2)
-----------------------
NAME AND ADDRESS(1) NUMBER PERCENT
- ------------------- ---------- ---------
Marvin Mears............................... 3,868,412 45.15%
Morris L. Lerner..............................562,000 6.56%
Joel G. Wadman.................................50,000 0.58%
All directors and executive officers of the
Company as a group (2 persons)..............3,918,412 45.74%
(1) The address of each such person is 5380 North Sterling Center Drive,
Westlake Village, California 91361.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable, or become
exercisable within 60 days from the date hereof, are deemed outstanding.
However, such shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Percentage ownership is based on
8,567,162 shares of Common Stock outstanding as of December 15, 1998.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an employment agreement with Marvin Mears. See
"Management -- Employment and Consulting Agreements."
On November 13, 1997, Morris Lerner, formerly a director and secretary
of the Company, borrowed $12,115.88 from the Company (the "Lerner Note"). The
Lerner Note bears interest at the rate of 9% per annum and matures on November
12, 1999.
On November 1, 1995, a company controlled by Marvin Mears, the Chief
Executive Officer, President and a Director of the Company, issued a note to the
Company in the original principal amount of $35,000 (the "Mears Note"). The
Mears Note bears interest at the rate of 9% per annum and matures on November 1,
1998. Interest has not been paid on the Mears Note and as of September 30, 1997,
51601:029
44
<PAGE>
accrued interest on the Mears Note totaled $4,329. The Mears Note was repaid and
on July 29, 1998, Mr. Mears borrowed $32,797.66 from the Company which, when
netted against amounts owing to Mr. Mears left a note receivable from Mr. Mears
of $19,515. This note matures on July 29, 2001 and bears interest at 9% per
annum.
In August 1996, in satisfaction for acquiring odor control application
technology from Ronald Knudsen, formerly a Manager of Product Development of the
Company, the Company issued to Mr. Knudsen a promissory note in the original
principal amount of $125,000 (the "Knudsen Note"). The Knudsen Note bears
interest at the rate of 12% per annum and matures on August 1, 1998. The Knudsen
Note contains an acceleration clause that requires full principal and interest
payments within ten business days of the completion of a secondary offering to
the public of at least $3,000,000. The Knudsen Note has been repaid in full
resulting in an extraordinary gain on the extinguishment of debt.
In September 1998, the Company loaned $135,000 to SPC. The loan is
collateralized by marketable securities. Interest accrues at 12% per year.
Principal and interest are due by February 17, 1999.
An officer of SPC is a shareholder of the Company. SPC rendered
consulting services to the Company in the amount of $84,186 for 1998.
In May 1998, a stockholder of Lifeline Enterprises became an employee
of the Company. Cash payments to Lifeline for research and development for 1998
amounted to $168,211. In December 1997, $131,250 was charged to research and
development for the fair market value of 100,000 shares of Company stock to
Lifeline. In addition, the Company has committed to the issuance of an
additional 370,000 shares of Company stock to Lifeline.
51601:029 26
45
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this
report as required by Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant (2)
3.2 Bylaws of the Registrant (2)
3.3 Certificate of Designation, Preferences and Rights (1)
4.1 Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1)
4.2 Form of Common Stock Certificate (2)
10.1 Securities Purchase Agreement dated as of March 31, 1998 by and
between the Registrant and each of Diversified Strategies fund, L.P. and
JNC Opportunity Fund, Ltd. (1)
10.2 Warrant to purchase 137,500 shares of Common Stock of the Registrant
issued to JNC Opportunity Fund, Ltd. (1)
10.3 Warrant to purchase 12,500 shares of Common Stock of the Registrant
issued to Diversified Strategies Fund, L.P. (1)
10.4 Registration Rights Agreement dated as of March 31, 1998 by and between
the Registrant and each of Diversified Strategies Fund, L.P. and JNC
Opportunity Fund, Ltd. (1)
10.5 Consulting Agreement dated January 22, 1998 by and between the
Registrant and Strategic Planning Consultants, Inc. (2)
10.6 Warrant to purchase 200,000 shares of Common Stock of the Registrant
issued to Jonathan Fink (the "Fink Warrant") at an exercise price of $.10 per
share (2)
10.7 Letter agreement from Jonathan Fink to the Registrant agreeing to exercise
the Fink Warrant (2)
10.8 Warrant to purchase 100,000 shares of Common Stock of the Registrant
issued to Brad Billik (the "Billik Warrant") at an exercise price of $.10 per
share (2)
10.9 Letter agreement from Brad Billik to the Registrant agreeing to exercise the
Billik Warrant (2)
10.10 Warrant to purchase 100,000 shares of Common
Stock of the Registrant issued to Jonathan
Fink at an exercise price of $4.00 per share
(2)
10.11 Warrant to purchase 50,000 shares of Common
Stock of the Registrant issued to Brad
Billik at an exercise price of $4.00 per
share (2)
10.12 Lease Agreement dated December 3, 1997 by and between the Registrant
and Westlake Industrial Complex (2)
10.13 1996 Stock Option Plan and related agreements (2) +
10.14 Employment Agreement dated as of April 15, 1998 by and between the
Registrant and Marvin Mears (2) +
10.15 [Intentionally Omitted]
10.16 Promissory Note issued to Registrant by Morris Lerner (2)
10.17 Promissory Note issued to the Registrant by Combined Assets, Inc. (2)
10.18 Promissory Note issued by the Registrant to Ronald Knudsen (2)
10.19 Agreement with Lifeline Enterprises L.L.C. (2)
10.20 Promissory Note issued to Registrant by Marvin Mears (3)
10.21 Letter of Intent dated December 12, 1998 by and between the Registrant
and National D.E. Systems, Inc. (3)
27.1 Financial Data Schedule (3)
</TABLE>
51601:029
46
<PAGE>
<TABLE>
<CAPTION>
[FOOTNOTES TO DESCRIPTION OF EXHIBITS]
<S> <C>
(1) Incorporated by reference to the Company's Registration Statement on Form SB-2 (Registration
No. 333-53397) filed on May 22, 1998 (the "Registration Statement")
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement filed
August 18, 1998.
(3) Filed herewith
+ Management Contract or Compensation Plan
(b) Reports on Form 8-K
None.
</TABLE>
51601:029
47
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on December __, 1998.
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
/s/ Marvin Mears
-----------------------
By: Marvin Mears
Title: Chief Executive Officer and President
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates stated:
Signatures Title Date
- ---------- ----- ----
/s/ Marvin Mears Chief Executive Officer, December __, 1998
- -------------------------------- President and Director
/s/ Joel Wadman Chief Financial Officer December __, 1998
- -------------------------------- (principal accounting
officer) and Secretary
51601:029
48
$32,797.66 NOTE
At Thousand Oaks, California
For value received, Marvin Mears (hereafter "Borrower") promises to pay, on or
before July 29, 2001, to Environmental Products & Technologies Corporation
("EPTC") up to the principal sum of thirty-two thousand seven hundred
ninety-seven dollars and sixty-six cents ($32,797.66) with interest from July 1,
1998 on the amounts of principal owed Environmental Products & Technologies
Corporation at the rate of (9%) per annum. Any payment shall be credited first
to the interest owed, with the remainder to the principal owed. This note will
have no prepayment penalty.
In witness, Borrower has caused this Note to be executed on July 29, 1998.
Borrower
/s/ Marvin Mears
------------------------
Marvin Mears
LETTER OF INTENT BETWEEN
NATIONAL D.E. SYSTEMS, INC.
AND
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
This Letter of Intent ("LOI") is entered into this 12th day of December, 1998 by
and between Environmental Products & Technologies Corporation ("EPTC"), a
Delaware corporation (the "SELLER") and National D.E. Systems, Inc. ("NDES"), a
Nevada corporation (the "BUYER"), with respect to the following facts:
RECITALS
NDES is a corporation duly formed and in good standing in the State of Nevada.
EPTC is a corporation duly formed and in good standing in the State of Delaware.
NOW, THEREFORE, in consideration of the mutual agreements, the parties hereto
agree as follows:
NDES is desirous of acquiring the mining claims and rights known as the
Tiger Claims from EPTC.
On the terms of and subject to the conditions set forth in this
Agreement, EPTC agrees to sell, convey, assign, transfer and deliver to
NDES, and NDES agrees to purchase from EPTC, at the closing (the
"Closing") on or before January 15, 1999 ("Closing Date") the mining
claims known as the "Tiger Claims" further described as being located
in Malheur County, Oregon in Section 15, Township 18 South, Range 41 E.
of Boise Meridian.
1. Purchase Price.
---------------
As consideration for the sale, conveyance, assignment, transfer and
delivery of the Tiger Claims to NDES, NDES agrees to issue EPTC up to
Eight hundred (800) shares of the common stock of National D.E.
Systems, Inc. which at the time of issue shall represent no less than
80% of all the issued and outstanding common shares of NDES. The
purchase price may be reduced if the purchaser finds that the claims
are not properly documented or that the books and records regarding the
claims are not as represented by EPTC. In addition, EPTC may have the
right to receive more shares of NDES if the books and records regarding
its assets and subsidiaries are as represented. The parties will use
the due diligence period to end no later than January 6, 1999 to
complete the due diligence and no later than January 13, 1999 to come
to a final agreement on the number of shares to be issued.
Tiger Claims LOI
Page 1 of 5
EPTC/National D.E. Systems, Inc.
<PAGE>
LETTER OF INTENT BETWEEN
NATIONAL D.E. SYSTEMS, INC.
AND
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
2. Transaction Structure. NDES understands that EPTC has the authority or
will obtain the authority to sell assign and transfer the assets herein
described.
A. At the closing of the transaction (the "Closing"), the parties
will exchange the following:
1). NDES will issue up to 800 shares of the common stock
of NDES, and
2). EPTC will deliver to NDES all of EPTC's right, title
and interests to the Mining Claims listed below:
Name of Claims BLM Serial No. County Instrument No.
-------------- -------------- ---------------------
Tiger #1 ORMC 153100 97-7312
Tiger #2 ORMC 153101 97-7313
Tiger #3 ORMC 153102 97-7314
Tiger #4 ORMC 153103 97-7315
3. EPTC agrees to the following:
-----------------------------
A. While the final negotiations and due diligence process is being
completed it will in no way materially change the status of any of
the assets contemplated to be transferred hereby.
B. EPTC will obtain all necessary corporate, shareholder and
other third-party approvals in form acceptable to NDES;
4. NDES Representation and Warranties the following:
-------------------------------------------------
A. NDES is a newly formed corporation duly organized, validly
existing and in good standing under the laws of the State of
Nevada, and has full corporate power and authority to enter
into this Agreement and to carry out its obligations
hereunder.
B. The execution and delivery of this LOI and the final consummation
of the transactions contemplated hereby will not violate the
Articles of Incorporation or the By-Laws of NDES or any agreement,
contract or other instrument to which NDES is a party.
Tiger Claims LOI
Page 2 of 5
EPTC/National D.E. Systems, Inc.
<PAGE>
LETTER OF INTENT BETWEEN
NATIONAL D.E. SYSTEMS, INC.
AND
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
5. Further Assurances
------------------
Prior to the closing there will be no change in the business activities
of NDES and EPTC will in no way alter the status of the mining claims.
Each party to this Letter of Intent will have approval of any press
release.
6. Notice
------
Notice will be deemed to be given by one party to the other party of
this Agreement upon personal delivery by messenger, air courier,
express mail or certified registered mail, return receipt requested, or
upon facsimile or telegram, or ten days after mailing by first class
mail by the party giving the notice, addressed to the parties as
indicated below their signatures to this Agreement, or to any other
address or facsimile numbers provided to the parties in writing in
accordance with this Agreement by the party making the change.
7. Waivers
If any party shall at any time waive any rights hereunder resulting
from any breach by the other party of any of the provisions of this
Agreement, such waiver is not to be construed as a continuing waiver of
other breaches of the same or other provisions of this Agreement.
Resort to any remedies referred to herein shall not be construed as a
waiver of any other rights and remedies to which such party is entitled
under this Agreement or otherwise.
8. Entire and Sole Agreement
-------------------------
This Agreement constitutes the entire agreement between the parties and
supersedes all agreements, representations, warranties, statements,
promises and undertakings, whether oral or written, with respect to the
subject matter of this Agreement. This Agreement may be modified only
by a written agreement signed by all parties.
9. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of California. The venue for any action or
proceeding brought under this Agreement will be in the appropriate
forum in the County of Los Angeles, State of California.
10. Severability
------------
The provisions of this Agreement are meant to be enforced severally so
that the determination that one or more provisions are enforceable or
Tiger Claims LOI
Page 3 of 5
EPTC/National D.E. Systems, Inc.
<PAGE>
LETTER OF INTENT BETWEEN
NATIONAL D.E. SYSTEMS, INC.
AND
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
invalid shall not affect or render invalid any other provision of this
Agreement, and such other provisions shall continue to be in full
forced in accordance with their terms.
11. Rights Cumulative
-----------------
All rights and remedies under this Agreement are cumulative, and none
is intended to be exclusive of another. No delay or omission in
insisting upon the strict observance of performance of any provision of
this Agreement, or in exercising any right or remedy, shall be
construed as a waiver or relinquishment of such provision, nor shall it
impair such right or remedy. Every right and remedy may be exercised
from time to time and as often as deemed expedient.
12. Captions
--------
The paragraph and other headings contained in this Agreement are for
reference purposes only, and shall not limit or otherwise affect the
meaning hereof.
13. Legal Holidays
--------------
In the case where the date on which any action required to be taken,
document required to be delivered or payment required to be made is not
a business day in Los Angeles, California, such action, delivery or
payment need not be made on that date, but may be made on the next
succeeding business day.
14. Counterparts
------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
15. Parties
-------
This Agreement shall inure solely to the benefit of and shall be
binding upon the parties hereto and their respective successors, legal
representatives and assigns, and no other person shall have or be
construed to have any equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision contained
herein.
16. Authority
---------
All signatories to this Agreement do hereby declare that they have the
authority to execute this Agreement on behalf of the parties to this
Agreement.
Tiger Claims LOI
Page 4 of 5
EPTC/National D.E. Systems, Inc.
<PAGE>
LETTER OF INTENT BETWEEN
NATIONAL D.E. SYSTEMS, INC.
AND
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
NDES: National D.E. Systems, Inc. EPTC: Environmental Products &
Technologies Corporation
By:/s/Michael Empey By:/s/Morris Lerner
---------------- ----------------
Michael Empey Morris Lerner
President Secretary
2020 Avenue Of The Stars 5380 Sterling Center Dr.
Suite 240 Westlake Village, CA 91361
Los Angeles, CA 90067
Tiger Claims LOI
Page 5of 5
EPTC/National D.E. Systems, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements with fiscal year ended September 30, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1447444
<SECURITIES> 383012
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1968902
<PP&E> 96038
<DEPRECIATION> 18457
<TOTAL-ASSETS> 2096334
<CURRENT-LIABILITIES> 55450
<BONDS> 0
0
30
<COMMON> 42735
<OTHER-SE> 1998119
<TOTAL-LIABILITY-AND-EQUITY> 2096334
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1408626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5003
<INCOME-PRETAX> (1361191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1361191)
<DISCONTINUED> 0
<EXTRAORDINARY> 64208
<CHANGES> 0
<NET-INCOME> (1296983)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
