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 3, 1999, the aggregate market value of the voting stock
held by non-affiliates of the issuer was approximately $ 13,618,209 based upon
the average closing bid and asked price of such stock on such date.
DOCUMENTS INCORPORATED BY REFERENCE
None.
1
<PAGE>
ENVIRONMENTAL PRODUCTS & TECHNOLOGIES CORPORATION
FORM 10-KSB
For the Fiscal Year Ended September 30, 1999
TABLE OF CONTENTS
Page No.
--------
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.......................................F1-F29
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................. 23
PART III.
Item 9. Directors, Executive Officers, Promoters and Control Persons; 24
Compliance with Section 16(a) of the Exchange Act....
Item 10. Executive Compensation............................... 25
Item 11. Security Ownership of Certain Beneficial Owners and
Management........................................... 26
Item 12. Certain Relationships and Related Transactions....... 26
51601:029
2
<PAGE>
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 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,
3
<PAGE>
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
4
<PAGE>
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
the co-generation technology, that such product does 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.
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 1999. These efforts are currently focused on large dairies milking
approximately one thousand cows. These large dairies are concentrated in the
5
<PAGE>
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.
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
6
<PAGE>
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 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.
7
<PAGE>
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.
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. 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,
8
<PAGE>
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. 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
9
<PAGE>
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 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.
10
<PAGE>
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.
In the year 2000, Enviornmental Products & Technolgy, Inc. took back
National D.E. Systems, Inc.
PERSONNEL
As of September 30, 1999, 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, 1999, the Company had an accumulated deficit of
approximately $8,637,000. 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
11
<PAGE>
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, 1999, 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.
Dr. Connelly Hansen, Phd., of Utah State University, who has one of our
digesters, has tested the results and has found them to be in very good shape.
The company has three sites where company digesters have been put to
work, and all have been successful . As of this date there have been no sales.
12
<PAGE>
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
13
<PAGE>
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. 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 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
14
<PAGE>
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,
15
<PAGE>
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 41.59% 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 25,000 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 25,000 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.
16
<PAGE>
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
17
<PAGE>
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.The company
has extended the lease.
18
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company has been served in legal proceedings by a former employer,
John Bird.
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, 1999.
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
3, 1999, the Company had approximately 449 stockholders of record.
HIGH LOW
------- -------
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
1999
First Quarter..................................... 5.750 3.00
Second Quarter....................................10.250 3.125
Third Quarter.....................................10.125 5.00
Fourth Quarter.................................... 8.250 2.50
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. MANAGEMENTS 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 back 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 and, to
this time, has devoted its time to rising capital, product and supplier
development and marketing future products. No product has been assembled
manufactured or marketed at this time, except that the Company has assembled a
prototype Closed- Loop Waste Management System or demonstration purpose and
three prototype systems for operation by various universities.
19
<PAGE>
The Company has projected expense of $ 850,000 through June 2000. As of
September 30,1999, the Company had approximately $ 174,000 of cash and cash
equivalents. The Company is in the process of raising additional funds which
will allow the Company to operate even is the Company generates no revenue
during this period.
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 the bioreactor needs to be completed. In addition, a
solid waste process will also need to be developed.
RESULTS OF OPERATION
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1998
The Company generated no revenue for this Fiscal year ended September
30, 1999 ("Fiscal 1999") and for the fiscal year ended September 30, 1998
("Fiscal 1998").
Research and development expenses for Fiscal 1999 decreased by $29,782,
to $355,580 from $385,362 or Fiscal 1998. This decrease in research and
development expenses for Fiscal 1999 reflects expenses associated with the
research, design and development of the Company's Closed -Loop Waste Management
System.
General and administrative expenses for Fiscal 1999 increased by
$209,642, or approximately 20%, to $1,232,906, from $1,023,264 for Fiscal 1998.
This increase in general and administrative expenses was primarily the result of
the increased salaries and rental expense which was partially offset by
decreased consulting and other expenses.
Interest expense for Fiscal 1999 was $-0- compared to $5,003 for Fiscal
1998. Interest expense for Fiscal 1998 related to the note payable to Ronald
Knudsen, formerly the Director of Product Development of the Company.
FISCAL YEAR ENDED SEPTEMBER 30,1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30,1997
The Company recognized no revenue for the twelvemonths 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 expense 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
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.
20
<PAGE>
LIQUIDTY 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
March1996, 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
the 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 continue research and development, working capital and general
corporate purpose. 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,
reorganization, reclassification, consolidations, certain dilutive sales of
securities for which the Private Placements Warrants are exercise able 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 of
the Company; and (iii) an officer 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 anticipates levels of revenues and cash
flow are subject to any uncertainties and cannot be assured. Further, the
Company's business plan may change, or unforeseen 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 limitations, the extent
and timing of sales of the Company's waste management system, future product
cost, the timing and cost 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
obtaining additional, or available on acceptable terms. The inability to obtain
additional financing or generate sufficient cash form 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.
21
<PAGE>
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 its complete
its Year 2000 compliance program by mid-1999 and anticipates that its total
expenditures on such programs will not exceed $20,000. However, we may
experience cost overturns or delays, in the future, which could have 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.
22
<PAGE>
Item 7. FINANCIAL STATEMENTS
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 1999 AND 1998
Environmental Products & Technologies Sep99 Aud #2403
released
------------------------
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
September 30, 1999
- --------------------------------------------------------------------------------
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2 - 3
Statements of Operations 4
Statements of Comprehensive Loss 5
Statements of Shareholders' Equity 6 - 9
Statements of Cash Flows 10 - 12
Notes to Financial Statements 13 - 29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Environmental Products & Technologies Corporation
We have audited the accompanying balance sheet of Environmental Products &
Technologies Corporation (a development stage company) as of September 30, 1999,
and the related statements of operations, comprehensive loss, shareholders'
equity, and cash flows for the year then ended. 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 audit. The financial
statements of Environmental Products & Technologies Corporation for the year
ended September 30, 1998 were audited by other auditors whose report dated
October 30, 1998 expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides 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, 1999, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of $2,254,653 during the
year ended September 30, 1999, and it had negative cash flows from operations of
$1,432,061. These factors, among others, as discussed in Note 2 to the financial
statements, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 3, 1999
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 105,058
Marketable securities 69,343
Current portion of notes receivable,
net of allowance of $200,000 14,296
Current portion of notes receivable -
related parties, net of allowance
of $244,715 187,401
Interest receivable, net of allowance
of $45,038 16,575
Prepaid and other assets 19,131
----------------
Total current assets 411,804
Property and equipment, net 43,790
Notes receivable, net of current portion 1,508
Notes receivable - related parties, net
of current portion 32,798
Other assets 8,220
Investment in related party, net of allowance
of $58,887 -
----------------
Total assets $ 498,120
================
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (Continued)
September 30, 1999
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,297
Accrued salaries 151,000
Due to officers 8,950
----------------
Total current liabilities 176,247
----------------
Commitments and contingencies
Shareholders' equity
Series A convertible preferred stock,
$0.01 par value 20,000,000 shares
authorized 2,000 shares issued and outstanding 20
Common stock, $0.01 par value
20,000,000 shares authorized
8,814,921 shares issued and outstanding 88,149
Additional paid-in capital 8,568,842
Other comprehensive loss (54,968)
Deficit accumulated prior to the
development stage (695,452)
Deficit accumulated during the
development stage (7,584,718)
----------------
Total shareholders' equity 321,873
----------------
Total liabilities and shareholders' equity $ 498,120
================
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the YearsEnded September 30, 1999 and 1998 and
for the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
October 1,
1995
For the Years Ended (Inception) to
September 30, September 30,
---------------------------------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Operating expenses
Selling, general, and administrative $ 1,232,906 $ 1,023,264 $ 2,850,423
Research and development 355,580 385,362 810,180
Write-down of note receivable 200,000 - 200,000
Write-down of note receivable - related party 289,753 - 289,753
Write-down of investment 58,887 - 58,887
---------------- --------------- ----------------
Total operating expenses 2,137,126 1,408,626 4,209,243
---------------- --------------- ----------------
Loss from operations (2,137,126) (1,408,626) (4,209,243)
---------------- --------------- ----------------
Other income (expense)
Interest income 84,234 52,438 141,001
Interest expense - (5,003) (23,313)
Loss on sale of marketable securities (200,961) - (200,961)
---------------- --------------- ----------------
Total other income (expense) (116,727) 47,435 (83,273)
---------------- --------------- ----------------
Loss before extraordinary item (2,253,853) (1,361,191) (4,292,516)
Extraordinary item
Gain on extinguishment of debt - 64,208 64,208
---------------- --------------- ----------------
Net loss before provision for income taxes (2,253,853) (1,296,983) (4,228,308)
Provision for income taxes 800 - 800
---------------- --------------- ----------------
Net loss (2,254,653) (1,296,983) (4,229,108)
Preferred stock dividend (60,000) (3,295,610) (3,355,610)
---------------- --------------- ----------------
Net loss attributable to common shareholders $ (2,314,653) $ (4,592,593) $ (7,584,718)
================ =============== ================
Net loss per common share $ (0.27) $ (0.56)
================ ===============
Weighted-average common shares outstanding 8,669,543 8,238,815
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the YearsEnded September 30, 1999 and 1998 and
for the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
October 1,
1995
For the Years Ended (Inception) to
September 30, September 30,
---------------------------------
1999 1998 1999
---------------- --------------- ----------
<S> <C> <C> <C>
Net loss attributable to common shareholders $ (2,314,653) $ (4,592,593) $ (7,584,718)
Other comprehensive loss, net of tax
Unrealized holding loss on marketable securities (39,980) (14,988) (54,968)
---------------- --------------- ----------------
Comprehensive loss $ (2,354,633) $ (4,607,581) $ (7,639,686)
================ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
Shares Amount Shares Amount
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance,
October 1,
1995
(Beginning of
Development
Stage) -- $ -- 5,356,148 $ 53,561
Common stock
issued for
cash -- -- 3,140,000 31,400
Common stock
cancelled -- -- (889,000) (8,890)
Executive
compensation -- -- -- --
Stock options
granted -- -- -- --
Costs to raise
capital -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Deficit Deficit
Other Accumulated Accumulated
Additional Compre- Prior to the during the
Paid-In hensive Development Development
Capital Loss Stage Stage Total
---------------- --------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
October 1,
1995
(Beginning of
Development
Stage) $ 646,525 $ -- $ (695,452) $ -- $ 4,634
Common stock
issued for
cash 690,375 -- -- -- 721,775
21,775
Common stock
cancelled 8,890 -- -- -- --
Executive
compensation 18,460 -- -- -- 18,460
Stock options
granted 54,450 -- -- -- 54,450
Costs to raise
capital (32,223) -- -- -- (32,223)
Net loss -- -- -- (677,472) (677,472)
---------- -------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
Shares Amount Shares Amount
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance,
September 30,
1997 - $ - 7,607,148 $ 76,071
Common stock
issued for
Cash - - 300,000 3,000
Research and
development - - 100,000 1,000
Note payable - - 10,000 100
Preferred stock
issued for
Cash 3,000 30 - -
Costs to raise
capital - - - -
Warrant
transactions - - 570,000 5,700
Common stock
redeemed - - (20,000) (200)
Preferred stock
dividend - - - -
</TABLE>
<TABLE>
<CAPTION>
Deficit Deficit
Other Accumulated Accumulated
Additional Compre- Prior to the during the
Paid-In hensive Development Development
Capital Loss Stage Stage Total
---------------- --------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
September 30,
1997 $ 1,386,477 $ - $ (695,452) $ (677,472) $ 89,624
Common stock
issued for
Cash 87,625 - - - 90,625
Research and
development 130,250 - - - 131,250
Note payable 9,900 - - - 10,000
Preferred stock
issued for
Cash 2,999,970 - - - 3,000,000
Costs to raise
capital (324,800) - - - (324,800)
Warrant
transactions (5,700) - - - -
Common stock
redeemed (5,500) - - - (5,700)
Preferred stock
dividend 3,295,610 - - (3,295,610) -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
Shares Amount Shares Amount
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Executive
compensation - - - -
Warrants granted - - - -
Unjrealized loss
on marketable
securities - - - -
Net Loss ---------- ---------- ---------- ----------
Balance,
September 30,
1998 3,000 30 8,567,148 85,671
Common stock
issued as a
premium
dividend upon
conversion of
preferred stock - - 15,484 155
Warrant
exercised - - 212,224 2,122
Common stock
cancelled - - (248,000) (2,480)
Preferred stock
conversion (1,000) (10) 258,065 2,581
</TABLE>
<TABLE>
<CAPTION>
Deficit Deficit
Other Accumulated Accumulated
Additional Compre- Prior to the during the
Paid-In hensive Development Development
Capital Loss Stage Stage Total
---------------- --------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Executive
compensation $ 5,000 $ - $ - $ - $ 5,000
Warrants granted 356,856 - - - 356,856
Unrealized loss
on marketable
securities - (14,988) - - (14,988)
Net Loss - - - (1,296,983) (1,296,983)
---------- ---------- ---------- ---------- ----------
Balance,
September 30,
1998 7,935,688 (14,988) (695,452) (5,270,065) 2,040,884
Common stock
issued as a
premium
dividend upon
conversion of
preferred stock 59,845 - - (60,000) -
Warrant
exercised 530,690 - - - 532,812
Common stock
cancelled 2,480 - - - -
Preferred stock
conversion (2,571) - - - -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible Preferred Stock Common Stock
Shares Amount Shares Amount
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Common stock
issued as an
investment - $ - 10,000 $ 100
Unrealized
loss on
marketable
securities - - - -
Net loss - - - -
--------- --------- --------- ---------
Balance,
September 30,
1999 2,000 $ 20 8,814,921 $ 88,149
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Deficit Deficit
Other Accumulated Accumulated
Additional Compre- Prior to the during the
Paid-In hensive Development Development
Capital Loss Stage Stage Total
---------------- --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Common stock
issued as an
investment $ 42,710 $ - $ - $ - $ 42,810
Unrealized
loss on
marketable
securities - (39,980) - - (39,980)
Net loss - - - (2,254,653) (2,254,653)
----------- ---------- ----------- ----------- ----------
Balance,
September 30,
1999 $ 8,568,842 $ (54,968) $ (695,452) $(7,584,718) $ 321,873
=========== ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1999 and 1998
and for the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
October 1,
1995
For the Years Ended (Inception) to
September 30, September 30,
1999 1998 1999
---------------- --------------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (2,254,653) $ (1,296,983) $ (4,229,108)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 34,776 18,457 53,233
Loss on sale of marketable securities 200,961 - 200,961
Write-down of notes receivable 200,000 - 200,000
Write-down of notes receivable - related party 289,753 - 289,753
Write-down of investment 58,887 - 58,887
Loss on abandoned property and 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 - 356,856 536,306
Non-cash executive compensation - 5,000 23,460
(Increase) decrease in
Interest receivable (60,167) 2,883 (61,613)
Prepaid and other assets (19,131) - (19,131)
Other assets 10,000 (12,520) (3,220)
Increase (decrease) in
Accounts payable 4,846 (5,933) 11,038
Accrued salaries 107,000 40,208 207,888
Accrued interest - (7,320) 7,320
Settlement payable - (17,005) 10,000
Due to officers (4,333) - (4,333)
---------------- --------------- ----------------
Net cash used in operating activities (1,432,061) (813,222) (2,615,424)
---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1999 and 1998
and for the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
October 1,
1995
For the Years Ended (Inception) to
September 30, September 30,
1999 1998 1999
---------------- --------------- ----------
<S> <C> <C> <C>
Cash flows from investing activities
Investment in related party $ (16,077) $ - $ (16,077)
Loans to related parties (285,000) (234,781) (554,631)
Loans to unrelated parties (216,800) - (216,800)
Purchase of property and equipment (985) (96,038) (98,116)
Purchase of mining rights - (40,000) (40,000)
Purchase of marketable securities (237,772) (400,000) (604,785)
Proceeds from sale of marketable securities 312,501 - 279,514
Proceeds from loans 996 - 996
---------------- --------------- ----------------
Net cash used in investing activities (443,137) (770,819) (1,249,899)
---------------- --------------- ----------------
Cash flows from financing activities
Proceeds from exercise of warrants 532,812 - 532,812
Proceeds from sale of preferred stock - 3,000,000 3,000,000
Proceeds from sale of common stock - 90,625 820,100
Costs to raise capital - (324,800) (357,023)
Common stock redeemed - (5,700) (5,700)
Loan payments - - (22,000)
---------------- --------------- ----------------
Net cash provided by financing activities 532,812 2,760,125 3,968,189
---------------- --------------- ----------------
Net increase (decrease) in cash (1,342,386) 1,176,084 102,866
Cash, beginning of year 1,447,444 271,360 1,449,636
---------------- --------------- ----------------
Cash, end of year $ 105,058 $ 1,447,444 $ 1,552,502
================ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1999 and 1998
and for the Period from October 1, 1995 (Inception) to September 30, 1999
- --------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
During the years ended September 30, 1999 and 1998 and the period from October
1, 1995 (inception) to September 30, 1999, the Company paid $800, $0, and $800,
respectively, in income taxes.
During the years ended September 30, 1999 and 1998 and the period from October
1, 1995 (inception) to September 30, 1999, the Company paid interest of $0,
$13,323, and $25,713, respectively.
Supplemental schedule of non-cash investing and financing activities During the
year ended September 30, 1999, the Company completed the following transactions:
o converted 1,000 shares of Series A convertible preferred stock into 273,549
shares of common stock, including 15,484 shares issued as a premium/dividend.
o in accordance with a court order, cancelled 248,000 shares of common stock.
o in connection with the receipt of a note receivable from a related party,
issued 10,000 shares of common stock valued at $42,810 as an investment.
During the year ended September 30, 1998, the Company completed the following
transactions:
o
issued 100,000 shares of common stock to Lifeline Enterprises for research
and development services valued at $131,250.
o as part of the terms of a settlement of a note payable of $103,000, issued
10,000 shares of common stock to the holder of the note.
o issued 600,000 warrants to outside consultants for services valued at
$356,856.
o 570,000 warrants were exercised into 570,000 shares of common stock.
o converted services provided by an officer valued at $5,000 into additional
paid-in capital.
o recorded a preferred stock dividend of $3,295,610 to additional paid-in
capital as a result of a below-market conversion feature on the preferred
stock.
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS
Environmental Products & Technologies Corporation (the "Company") was
incorporated in 1983 in the State of Delaware 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., 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 other than prototypes assembled
for demonstration and testing purposes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. However, during the
year ended September 30, 1999, the Company incurred a net loss of
$2,254,653, and it had negative cash flows from operations of
$1,432,061. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of
profitable operations is dependent upon the Company achieving a level
of sales adequate to support the Company's cost structure. In addition,
realization of a major portion of the assets in the accompanying
balance sheet is dependent upon the Company's ability to meet its
financing requirements and the success of its plans to sell its
product. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management plans to achieve a level of sales adequate to support the
Company's cost structure and also plans to raise funds to finance its
operations until its sales become adequate.
F-13
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 90 days or less to be cash or cash
equivalents.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation and
amortization are recorded using the accelerated method over the
estimated useful lives of five years. Additions, major renewals, and
replacements that increase the useful life are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax assets and
liabilities 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.
Research and Development Costs
------------------------------
Research and development costs are charged to expense as incurred.
Development Stage Enterprise
----------------------------
The Company is a development stage company as defined in SFAS No. 7,
"Accounting and Reporting by Development Stage Enterprises." The
Company is devoting substantially all of its present efforts to
establish a new business, and its planned principal operations have not
yet commenced. All losses accumulated since inception have been
considered as part of the Company's development stage activities.
Loss per Share
--------------
The Company calculates loss per share in accordance with SFAS No. 128,
"Earnings per Share." Basic loss per share is computed by dividing loss
available to common shareholders by the weighted-average number of
common shares outstanding. Diluted loss per share is computed similar
to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. Because the Company has
incurred net losses, basic and diluted loss per share are the same.
F-14
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Options and Warrants
--------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value based method of accounting for stock-based compensation. However,
SFAS No. 123 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the
intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting method of
APB 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting defined in SFAS No. 123
had been applied. The Company has elected to account for its
stock-based compensation to employees under APB 25.
The Company applies SFAS No. 123 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 SFAS
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.
Common Stock Split
------------------
On April 20, 1998, the Board of Directors declared a two-for-one
forward stock split to the holders of record on May 4, 1998. The effect
of the stock split has been retroactively applied for all periods
presented.
Comprehensive Loss
------------------
For the year ended September 30, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." This statement establishes
standards for reporting comprehensive loss and its components in a
financial statement. Comprehensive loss as defined includes all changes
in equity (net assets) during a period from non-owner sources. Examples
of items to be included in comprehensive loss, which are excluded from
net loss, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. Total
comprehensive loss is presented in the statement of comprehensive loss.
Fair 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 and losses for available-for-sale
securities are excluded from earnings and reported net of any income
tax effect as a separate component of shareholders' equity. At
September 30, 1999, the Company had an unrealized loss of $60,517, and
the accounts were adjusted to reflect the loss.
F-15
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
-----------------
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 presentation.
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, as well as the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Recently Issued Accounting Pronouncements
-----------------------------------------
In October 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise," which is effective for financial
statements with the first fiscal quarter beginning after December 15,
1998. The Company does not expect adoption of SFAS No. 134 to have a
material effect, if any, on its financial position or results of
operations.
In February 1999, the FASB issued SFAS No. 135, "Rescission of FASB
Statement No. 75 and Technical Corrections," which is effective for
financial statements with fiscal years beginning February 1999. This
statement is not applicable to the Company.
In June 1999, the FASB issued SFAS No. 136, "Transfer of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others." This statement is not applicable to the
Company.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities." The Company does not expect
adoption of SFAS No. 137 to have a material impact, if any, on its
financial position or results of operations.
NOTE 3 - 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, 1999, uninsured portions of the balances held
at these banks totaled $67,319. The Company has not experienced any
losses in such accounts and believes it is not exposed to any
significant risk on cash and cash equivalents.
F-16
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 4 - MARKETABLE SECURITIES
As of September 30, 1999, the Company classified investments with a
cost of $124,311 and market value of $69,343 as available-for-sale
securities. The following marketable securities were included in the
accompanying balance sheet as of September 30, 1999:
Equity securities
Aggregate cost $ 124,311
Unrealized loss (54,968)
----------------
Aggregate market value $ 69,343
================
NOTE 5 - NOTES RECEIVABLE
In December 1998, the Company loaned $200,000 to an unrelated third
party. The note is unsecured and bears interest at 10% per annum with
principal and interest due at maturity on February 7, 1999. The due
date of the note was initially extended to November 25, 1999, and then
to February 25, 2000, which was mutually agreed on by both parties. The
note was fully reserved at September 30, 1999 since no payment has been
received.
The Company holds notes receivable of $8,300 and $8,500 from two
employees, of which $323 and $674, respectively, of principal has been
paid as of September 30, 1999, and the notes are due on October 15,
2000 and November 15, 2000, respectively. Interest is payable monthly
on both notes at 9% per annum.
NOTE 6 - NOTES RECEIVABLE - RELATED PARTIES
In October 1998, the Company loaned $185,000 to a company that is a
supplier and whose owner is a shareholder of the Company. The
shareholder pledged 705,873 shares of White Mountain Mining and
Manufacturing stock owned by three officers of the shareholder company,
a 71% interest, as collateral for the note. The note bears interest at
10% per annum with principal and interest due at maturity on June 15,
1999. Upon mutual agreement by both parties, the note was extended to
March 15, 2000. In connection with the note, the Company agreed to
provide up to $20,000 as working capital funds. At September 30, 1999,
the Company had distributed $16,077. In addition, the Company issued
10,000 shares of common stock to the related party on January 22, 1999
as an investment. The shares had a market value of $42,810 on the date
of issuance. The note and the investment were fully reserved at
September 30, 1999 since no payment has been received.
F-17
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 6 - NOTES RECEIVABLE - RELATED PARTIES (Continued)
In October 1998, the Company loaned $100,000 to a shareholder. The note
is collateralized by 50,000 shares of the Company's stock owned by the
shareholder, which had a market value of $159,350 at September 30,
1999. Interest accrues at 12% per year with principal and interest due
at maturity on December 22, 1998. Upon mutual agreement by both
parties, the note was initially extended to November 25, 1999, and then
to February 25, 2000. A reserve for $31,575, including $11,250 of
interest, was recorded at September 30, 1999 since no payment has been
received.
In September 1998, the Company loaned $135,000 to a shareholder. The
note is collateralized by shares of publicly traded companies,
including 60,000 shares of the Company's stock owned by the
shareholder, which had a market value of $191,220 at September 30,
1999. Interest accrues at 12% per year with principal and interest due
at maturity on December 17, 1998. The due date of the note was
initially extended to November 25, 1999, and then to February 25, 2000,
which was mutually agreed on by both parties. A reserve for $55,590,
including $16,200 of interest, was recorded at September 30, 1999 since
no payment has been received.
The Company holds notes receivable from two officers/shareholders. Both
notes bear interest at 9% per year. One note is for $12,116 and was due
November 12, 1999, but has been extended to July 29, 2001. The second
note is for $32,798 and is due July 29, 2001.
NOTE 7 - AMOUNTS DUE TO/FROM OFFICERS
For the year ended September 30, 1999, the Company advanced $5,000 to
an officer/shareholder. The Company owes $13,950 for expense
reimbursements to two officers/shareholders, of which $13,283 is due to
the same officer/shareholder for which the $5,000 advance was made,
resulting in a net liability of $8,950.
F-18
<PAGE>
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1999 consisted of the
following:
Office equipment $ 30,495
Computer equipment 64,796
Leasehold improvements 1,732
----------------
97,023
Less accumulated depreciation and amortization 53,233
----------------
Total $ 43,790
================
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Lease
-----
The Company leases its facilities under a two-year, non-cancelable,
operating lease agreement entered into on January 1, 1998. The lease
has an option to extend the term for an additional two years to expire
on December 31, 2001, which was exercised by the Company during 1998.
Future minimum lease payments were as follows:
Year Ending
September 30,
-------------
2000 $ 31,626
2001 32,808
2002 8,262
----------------
Total $ 72,696
================
Rent expense was $37,252 and $23,633 for the years ended September 30,
1999 and 1998, respectively.
F-19
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreement
--------------------
The Company has entered into 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, 1999 was as follows:
Year Ending
September 30,
-------------
2000 $ 131,000
2001 155,000
2002 91,000
----------------
Total $ 377,000
================
Litigation
----------
On May 13, 1999, the Company filed a lawsuit against a former Director
of the Company, alleging that a third party failed to pay $210,000 for
150,000 shares of the Company's common stock issued on February 27,
1996. A judgement was made by the United States District Court in favor
of the Company, finding that the Company is entitled to $500,500 in
damages from the third party and the cancellation of 124,000 of the
issued shares. As of September 30, 1999, the shares had been cancelled,
and no damages had been collected from the third party. Management
believes it is unlikely that any damages will be recovered from the
third party in the future.
On March 16, 1999, the Company was named as the defendant in a civil
complaint filed by certain former employees. The lawsuit alleges the
existence of two separate stock option plans for the Company, one
written, approved by the shareholders and the Board of Directors and
filed with the Securities and Exchange Commission, and a second "oral"
stock option plan. Management believes it to be unlikely that the
Company will be required to pay any damages regarding the complaint.
F-20
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 9 - COMMITMENTS AND CONTINGENCIES (Continued)
Other Commitments and Contingencies
-----------------------------------
Pursuant to a revised letter of understanding dated May 18, 1998,
Lifeline Enterprises ("Lifeline"), 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 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. The value of the initial 100,000 shares on the date of issuance
was $131,250 and was expensed as incurred as research and development.
NOTE 10 -SHAREHOLDERS' EQUITY
Convertible Preferred Stock
---------------------------
On March 31, 1998, the Company issued 3,000 shares of Series A
convertible preferred stock and 300,000 warrants for $3,000,000. The
holders of the Series A convertible preferred stock are not entitled to
receive dividends and do not have voting rights. The preferred stock
can be converted to common stock at a fixed or variable conversion
price, whichever is more beneficial to the shareholder, at the option
of the holder upon issuance. The preferred stock will automatically be
converted to common stock two years from the issuance date. 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 15 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 (dividend)
that can be redeemed at the time of conversion 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 6% (on an annualized basis) of the stated value
of the preferred shares.
In accordance with generally accepted accounting principles, the
difference between the variable conversion price of $1.70 on the date
of issuance and the Company's stock price on the date of issuance of
the preferred stock of $5.031 is considered to be a dividend to the
preferred shareholders over the minimum period in which the preferred
shareholders can realize the return. In connection with the issuance of
the preferred stock, the Company recorded a dividend of $2,948,810 in
the accompanying statement of operations for the year ended September
30, 1998. On March 31, 1999, 1,000 shares of Series A preferred stock
were converted into 273,549 shares of common stock, including 15,484
shares issued for the premium (dividend).
F-21
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 10 -SHAREHOLDERS' EQUITY (Continued)
Convertible Preferred Stock (Continued)
---------------------------
The warrants issued in conjunction with the Series A preferred stock
entitle the holder to purchase an equal number of shares of common
stock at $3.875 per share. The warrants vest immediately and expire
five years from the issue date. The difference between the exercise
price of $3.875 and the Company's stock price on the date of grant of
the warrants of $5.031 is considered to be a dividend. On June 20,
1999, 275,000 private placement warrants were exercised in exchange for
212,224 shares of common stock and cash of $532,812.
Warrants
--------
In June 1995, the Board of Directors authorized the issuance of
1,200,000 warrants. These warrants entitled the holder to purchase an
equal number of shares of common stock at $0.05 per share. The warrants
authorized were issued 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 shareholder forfeited 30,000 shares, and the shares were canceled
by the Company.
In January 1998, the Company issued 300,000 warrants to outside
consultants for services rendered to the Company. The warrants entitle
the holder to purchase an equal number of common shares at an exercise
price of $2.00 per share. The exercise period terminates on January 21,
2001. The Company has recorded the services at the fair value of the
warrant on the grant date using an option pricing model, which used the
one-year United States Treasury rate of 5.45%, volatility of 225, a
one-year expected life, and no expected dividends. At September 30,
1999, 300,000 warrants remain outstanding.
F-22
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 10 - SHAREHOLDERS' EQUITY (Continued)
Warrants (Continued)
--------
The following summarizes the warrant transactions:
<TABLE>
<CAPTION>
Weighted-
Average
Warrants Exercise
Outstanding Price
--------------- ----------
<S> <C> <C>
Outstanding, September 30, 1997 600,000 $ 0.05
Granted 600,000 $ 2.9375
Exercised (600,000) $ 0.05
---------------
Outstanding, September 30, 1998 600,000 $ 2.9375
Exercised (275,000) $ 3.875
---------------
Outstanding, September 30, 1999 325,000 $ 2.1442
===============
Exercisable, September 30, 1999 325,000 $ 2.1442
===============
</TABLE>
Stock Options
-------------
In December 1995, the Board of Directors and the shareholders approved
the 1996 Stock Option Plan (the "Plan"). The Plan provides for the
granting of up to 800,000 non-qualified and/or incentive stock options.
No options may be granted under the Plan after December 2005, and the
Plan terminates September 30, 2006. All options granted under the Plan
are immediately exercisable and shall be exercisable in whole or in
part; however, they are not exercisable until a written stock option
agreement is executed by both the Company and the optionee. Options
granted to employees expire three months after the optionee ceases to
be an employee of the Company. Incentive stock options expire 10 years
from the grant date and are granted with an exercise price not less
than the fair market value of the Company's stock on the date of grant.
Incentive stock options granted to employees who own more that 10% of
the Company's common stock expire five years from the date of grant and
are granted with an exercise price not less than 110% of the fair
market value of the Company's stock on the date of grant. Non-qualified
stock options expire 10 years from the grant date and are granted with
an exercise price of not less than 85% of the fair market value of the
Company's stock on the date of grant.
F-23
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 10 - SHAREHOLDERS' EQUITY (Continued)
Stock Options (Continued)
-------------
On July 29, 1997, the Company granted options to purchase 330,000
shares of the Company's common stock to certain employees. The option
price was set at $0.1875 per share, the fair value of the underlying
shares. Employees holding 280,000 of the options resigned from the
Company during the year ended September 30, 1999, and all of the
options had expired as of September 30, 1999. These options are the
subject of current litigation between the Company and some former
employees.
The following summarizes the stock option transactions:
<TABLE>
<CAPTION>
Weighted-
Stock Average
Options Exercise
Outstanding Price
----------- -----
<S> <C> <C>
Outstanding, September 30, 1997 and 1998 330,000 $ 0.1875
Expired (280,000) $ 0.1875
---------------
Outstanding, September 30, 1999 50,000 $ 0.1875
===============
Exercisable, September 30, 1999 50,000 $ 0.1875
===============
</TABLE>
The weighted-average remaining contractual life of the options
outstanding at September 30, 1999 is seven years.
NOTE 11 - EXECUTIVE COMPENSATION
An officer/shareholder 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 the year ended September 30,
1998. These amounts have been charged to income and recorded as
additional paid-in capital.
F-24
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES
The components of the Company's net deferred taxes as of September 30,
1999 were as follows:
Deferred tax assets
Net operating loss carryforward $ 1,567,773
Write-down of assets 219,456
Accrued salaries 60,400
Mining rights 30,844
----------------
1,878,473
Valuation allowance 1,878,473
----------------
Net deferred taxes $ -
================
The Company has established a valuation allowance based on a number of
factors which impact the likelihood the deferred tax assets will be
recovered, including the Company's history of operating losses. Based
upon a weighting of all available evidence, management believes that
there is no basis to project significant United States-sourced taxable
income. Therefore, it is more likely than not that the deferred tax
assets will not be realized, and a full valuation allowance has been
established. The net change in the valuation allowance for the year
ended September 30, 1999 was an increase of $898,081. No provision for
income taxes for the year ended September 30, 1999 is required, except
for minimum state taxes, since the Company incurred a loss during the
year.
As of September 30, 1999, the Company had a consolidated federal net
operating loss carryforward of $3,651,794. This carryforward, if
unused, begins to expire in 2003.
Income tax expense differs from the amounts computed by applying the
United States federal income tax rate of 34% to income taxes as a
result of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
Computed "expected" tax benefit 34% 34.0%
Increase in income taxes resulting from
Change in the beginning-of-the-year balance
of the valuation allowance for deferred tax
assets allocated to income tax expense (34.0) (34.0)
------------ ----------
Total -% -%
============ ==========
</TABLE>
F-25
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
The overall effective tax rate differs from the federal statutory tax
rate of 34% due to operating losses not providing benefit for income
tax purposes.
The components of the income tax benefit for the year ended September
30, 1999 were as follows:
Current
Federal $ -
State 800
----------------
800
Deferred
Federal -
State -
----------------
-
----------------
Total $ 800
================
NOTE 13 - RELATED PARTY TRANSACTIONS
For the year ended September 30, 1998, a corporation owned by an
officer/shareholder 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/shareholder.
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 and has a note receivable to
the Company for $135,000.
In May 1998, a shareholder of Lifeline Enterprises became an employee
of the Company. Cash payments to Lifeline for research and development
for the years ended September 30, 1999 and 1998 amounted to $149,029
and $168,211, respectively. 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.
F-26
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 13 - RELATED PARTY TRANSACTIONS (Continued)
The Company entered into an agreement on October 30, 1998 with a
supplier and Company shareholder to purchase up to 5,000,000 tons of
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 issued 10,000 shares of its stock
valued at $42,810 to the supplier. In addition, the Company has loaned
the supplier $185,000. The note had an original maturity date of June
15, 1999, which was extended to March 15, 2000, and bears interest at
the rate of 10% per annum. The note is collateralized by a 71% interest
in a mining company. The Company has also advanced $16,077 to the
supplier as working capital.
NOTE 14 - EXTRAORDINARY ITEM
The Company settled a note payable and accrued compensation which
resulted in a gain on the extinguishment of debt of $64,208 for the
year ended September 30, 1998. The gain will reduce the current year's
net operation loss by the same amount. This extraordinary item amounted
to a $0.007 gain per weighted-average common share for the year ended
September 30, 1998.
NOTE 15 - 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 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.
F-27
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 16 - RELATED ENTITIES
The Company incorporated 14 companies in July and August 1998:
Environmental Products & Technologies Corporation of Arizona,
incorporated in the State of Arizona; California Environmental Products
& Technologies, incorporated in the State of California; Environmental
Products & Technologies Corporation of Illinois, incorporated in the
State of Illinois; Environmental Products & Technologies Corporation of
Iowa, incorporated in the State of Iowa; Environmental Products &
Technologies Corporation of Missouri, incorporated in the State of
Missouri; Environmental Products & Technologies Corporation of Nevada,
incorporated in the State of Nevada; Environmental Products &
Technologies Corporation of New Mexico, incorporated in the State of
New Mexico; Environmental Products & Technologies Corporation of New
York, incorporated in the State of New York; Environmental Products &
Technologies Corporation of North Carolina, incorporated in the State
of North Carolina; Environmental Products & Technologies Corporation of
Oregon, incorporated in the State of Oregon; Animal Waste Management
Corporation, incorporated in the State of Texas; Environmental Products
& Technologies Corporation of Utah, incorporated in the State of Utah;
Environmental Products & Technologies Corporation of Washington,
incorporated in the State of Washington; and Environmental Products &
Technologies Corporation of Wisconsin, incorporated in the State of
Wisconsin.
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 during the year ended September 30, 1998.
NOTE 17 - YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the Year 2000
Issue and is developing an implementation plan to resolve the Issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate erroneous
data or cause a system to fail. The Company is dependent on computer
processing in the conduct of its business activities.
Based on the review of the computer systems, management does not
believe the cost of implementation will be material to the Company's
financial position and results of operations.
F-28
<PAGE>
ENVIRONMENTAL PRODUCTS &
TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
NOTE 18 - SUBSEQUENT EVENT
Subsequent to September 30, 1999 and pursuant to a revised letter of
understanding dated May 18, 1998, the Company issued 80,000 shares of
common stock to Lifeline. These shares were subsequently returned by
Lifeline to the Company.
F-29
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
23
<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.......... 65 President, Chief Executive Officer and Director
Joel G. Wadman........ 39 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.
24
<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 1997 -0- -0- -0-
1998 -0- -0- -0-
1999 -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
25
<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. This contract is expired.
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............................... 3,607,212 40.92%
Morris L. Lerner..............................562,000 6.38%
Joel G. Wadman.................................58,600 0.66%
All directors and executive officers of the
Company as a group (2 persons)..............3,665,812 41.59%
(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 July 29,
2001.
26
<PAGE>
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 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.
27
<PAGE>
<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 __, 1999.
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
28
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 105058
<SECURITIES> 69343
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 411804
<PP&E> 97023
<DEPRECIATION> 53233
<TOTAL-ASSETS> 498120
<CURRENT-LIABILITIES> 176247
<BONDS> 0
0
20
<COMMON> 88149
<OTHER-SE> 233704
<TOTAL-LIABILITY-AND-EQUITY> 498120
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2137126
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2253853)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2253853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2253853)
<EPS-BASIC> (.27)
<EPS-DILUTED> (.27)
</TABLE>