UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended - September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
----------------- ----------------
Commission File Number 0-18299
EARTHFIRST TECHNOLOGIES, INCORPORATED
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA 59-3462501
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1226 TECH BLVD., TAMPA, FLORIDA 33606
----------------------------------------
(Address of principal executive offices)
(813)635-2050
---------------------------
(Issuer's telephone number)
7887 BRYAN DAIRY ROAD, STE. 105, LARGO, FLORIDA 33777, (727)548-0918
--------------------------------------------------------------------
(Former name, former address and former fiscal
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
12, 13 or 15 (d) of the Exchange Act during the past 12 months (or 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 10, 2000: 83,986,278 shares $ .0001 par value common
stock.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
FORM 10-QSB
EARTHFIRST TECHNOLOGIES, INCORPORATED
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and December 31, 1999................................2
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999
(Unaudited)......................................................3
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 2000 (Unaudited).........4
Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 (Unaudited)...........5-6
Notes to Condensed Consolidated Financial Statements.............7
Item 2 - Management's Discussion and Analysis or Plan of
Operation.......................................................18
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds...............23
Item 6. Exhibits and Reports on Form 8-K........................24
Signatures....................................................................24
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 72,787 $ 72,224
Accounts receivable 2,459,893 19,501
Inventories 181,943 1,072,280
Prepaid expenses and other current assets -- 63,166
Costs and estimated earnings in excess of billings on
uncompleted contracts 693,325 --
------------ ------------
Total current assets 3,407,948 1,227,171
Property and equipment, net 2,273,810 1,970,334
Deferred charge, net -- 279,367
Goodwill, net 4,340,142 --
Other assets 1,541 80,668
------------ ------------
$ 10,023,441 $ 3,557,540
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ -- $ 184,063
Due to related parties 227,088 719,803
Current maturities of long-term debt 470,436 250,733
Accounts payable 3,746,109 1,149,356
Accrued expenses 1,067,041 803,988
Customer deposits -- 288,148
Dividends payable 73,693 39,375
Billings in excess of costs and estimated earnings on
uncompleted contracts 113,356 --
------------ ------------
Total current liabilities 5,697,723 3,435,466
Notes payable, related parties, less current maturities 72,526 41,487
Long-term debt, less current maturities 815,148 622,538
Convertible debentures, net of discount 700,000 750,000
------------ ------------
Total liabilities 7,285,397 4,849,491
------------ ------------
Commitments and contingencies -- --
Stockholders' equity (deficit):
Series A preferred stock, par value $1, 10,000,000
shares authorized (A) 501 750
Common stock, 100,000,000 shares authorized, 83,986,278
(2000) and 33,290,948 (1999) shares issued (B) 8,398 33,291
Additional paid-in capital 30,644,082 17,988,553
Accumulated deficit (26,646,877) (18,046,485)
------------ ------------
4,006,104 (23,891)
Less treasury stock (1,950,000 shares of common stock at cost) (1,268,060) (1,268,060)
------------ ------------
Total stockholders' equity (deficit) 2,738,044 (1,291,951)
------------ ------------
$ 10,023,441 $ 3,557,540
============ ============
</TABLE>
(A) 501 and 750 shares issued and outstanding in 2000 and 1999, respectively
(B) Par value 2000, $.0001; par value 1999, $.001
See notes to condensed consolidated financial statements.
F-2
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1999 1999
2000 (RESTATED) 2000 (RESTATED)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 3,982,149 $ -- $ 5,573,529 $ --
Cost of sales 3,165,736 -- 4,498,490 --
------------ ------------ ------------ ------------
Gross profit 816,413 -- 1,075,039 --
Selling, general and administrative
expenses 933,579 151,250 2,439,440 403,750
Research and development expenses 801,846 150,781 1,165,893 2,399,383
------------ ------------ ------------ ------------
Loss from continuing operations before
income taxes and other items (919,012) (302,031) (2,530,294) (2,803,133)
------------ ------------ ------------ ------------
Other income (expenses):
Interest expense (15,074) (56,442) (870,834) (254,592)
Write off of investment in joint
venture -- -- -- (375,706)
Other income 145 -- 19,644 3,301
------------ ------------ ------------ ------------
(14,929) (56,442) (851,190) (626,997)
------------ ------------ ------------ ------------
Loss from continuing operations (933,941) (358,473) (3,381,484) (3,430,130)
Discontinued operations:
Loss from discontinued operations
(no applicable income taxes) (735,523) (1,042,498) (3,311,528) (3,943,061)
Loss on disposal of business
segments (no applicable income
taxes) (502,337) -- (2,565,048) --
------------ ------------ ------------ ------------
Loss before extraordinary item (2,171,801) (1,400,971) (9,258,060) (7,373,191)
Extraordinary gain on
extinguishment of debt (no
applicable income taxes) 607,097 -- 691,986 --
------------ ------------ ------------ ------------
Net loss (1,564,704) (1,400,971) (8,566,074) (7,373,191)
Preferred stock dividends (13,913) (100,000) (34,318) (250,000)
------------ ------------ ------------ ------------
Net loss attributable to common
stockholders $ (1,578,617) $ (1,500,971) $ (8,600,392) $ (7,623,191)
============ ============ ============ ============
Loss per common share
attributable to common stockholders:
Continuing operations $ (.01) $ (.01) $ (.06) $ (.13)
Discontinued operations (.02) (.03) (.11) (.14)
Extraordinary item .01 -- .01 --
------------ ------------ ------------ ------------
Net loss $ (.02) $ (.04) $ (.16) $ (.27)
============ ============ ============ ============
Weighted average shares outstanding 74,886,910 35,281,181 54,417,326 27,897,004
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PREFERRED SERIES A 7% CONV COMMON
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, January 1, 2000 750 $ 750 $ 33,290,948 $ 33,291
Warrants issued in connection with:
Loan costs
Stock based compensation
Common stock options
Common stock issued for cash, net
of stock offering costs ($56,125) 6,503,235 4,592
Stock issued for:
Research and development expense 1,500,000 150
Employee/non-employee services 710,000 710
Loan costs 15,441 15
Legal services 1,600,000 1,600
In connection with segment disposal
and warranty assumption 500,000 500
Other 550,000 55
Conversion of debt to equity 11,773,581 3,314
Preferred stock dividends
Convertible debenture beneficial
conversion feature (interest expense)
Conversion of preferred stock to common (249) (249) 1,043,073 656
Acquisition of SAC-1, Inc. 26,500,000 26,500
Net loss nine months ended September 30
Change in par value (62,985)
-------------------------------------------------------------------
Balances, September 30, 2000 501 $ 501 83,986,278 $ 8,398
===================================================================
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL DEFICIT STOCK TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances, January 1, 2000 $ 17,988,553 $(18,046,485) $ (1,268,060) $ (1,291,951)
Warrants issued in connection with:
Loan costs 38,347 38,347
Stock based compensation 31,230 31,230
Common stock options 57,000 57,000
Common stock issued for cash, net
of stock offering costs ($56,125) 1,883,818 1,888,410
Stock issued for:
Research and development expense 492,038 492,188
Employee/non-employee services 181,590 182,300
Loan costs 4,618 4,633
Legal services 398,400 400,000
In connection with segment disposal
and warranty assumption 124,500 125,000
Other 133,820 133,875
Conversion of debt to equity 3,332,890 3,336,204
Preferred stock dividends (34,318) (34,318)
Convertible debenture beneficial
conversion feature (interest expense) 641,200 641,200
Conversion of preferred stock to common (407) --
Acquisition of SAC-1, Inc. 5,273,500 5,300,000
Net loss nine months ended September 30 (8,566,074) (8,566,074)
Change in par value 62,985 --
---------------------------------------------------------------
Balances, September 30, 2000 $ 30,644,082 $(26,646,877) $ (1,268,060) $ 2,738,044
===============================================================
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
1999
2000 (RESTATED)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,566,074) $(7,373,191)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 353,541 229,593
Extraordinary gain on extinguishment of debt (691,986) --
Write-down of assets in connection with discontinued
operations and loss on disposal 2,151,072 --
Stock-based compensation 1,464,573 2,441,453
Interest expenses funded from debt conversion to equity 73,620 --
Amortization of beneficial conversion feature of
convertible debenture 641,200 187,500
Write-off of investment in joint venture -- 375,705
Increase (decrease) in cash due to changes in:
Current assets (2,180,214) (932,544)
Current liabilities 1,818,021 540,072
----------- -----------
Net cash used in operating activities (4,936,247) (4,531,412)
----------- -----------
Cash flows from investing activities:
Cash acquired in business acquisition 517,203 --
Acquisition of property and equipment (346,045) (910,072)
----------- -----------
Net cash provided by (used in) investing activities 171,158 (910,072)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of capital stock 1,888,410 3,274,686
Principal repayments on long-term debt (149,022) (104,767)
Proceeds from long-term debt 700,000 1,620,492
Proceeds from related party advances 2,326,264 --
----------- -----------
Net cash provided by (used in) financing activities 4,765,652 4,790,411
----------- -----------
Increase (decrease) in cash 563 (651,073)
Cash, beginning of period 72,224 772,080
----------- -----------
Cash, end of period $ 72,787 $ 121,007
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
2000 1999
--------- ---------
Interest $ 5,000 $ --
========= =========
Income taxes $ -- $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES
During the nine months ended September 30, 2000, the Company:
o Acquired 100% of the outstanding stock of SAC in exchange for the
issuance of 26,500,000 shares of common stock in a transaction valued
at $5,300,000
o Converted $750,000 of convertible debentures along with accrued
interest of $152,204 to 2,202,287 shares of common stock
o Incurred $42,980 of loan costs in connection with the issuance of a
convertible debenture through the issuance of 15,441 shares of common
stock and 75,000 warrants
o Converted 249 shares of preferred shares to 1,043,073 shares of common
stock
o Converted $2,434,000 of related party debt to 9,571,294 shares of
common stock
During the nine months ended September 30, 1999, the Company:
o Incurred $63,900 of loan costs through the issuance of common stock
warrants
o Acquired equipment with a cost of $341,200 and $7,514 through capital
lease obligations and the issuance of 10,000 shares of common stock,
respectively
o Incurred joint venture investment costs of $375,706 through the
issuance of 500,000 shares of common stock
o Converted $403,750 in debt to 1,061,581 shares of common stock
See notes to condensed consolidated financial statements.
F-6
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES, BASIS OF PRESENTATION, AND NATURE OF BUSINESS:
The interim financial statements of EarthFirst Technologies,
Incorporated ("EarthFirst" or the "Company"), formerly known as Toups
Technology Licensing, Incorporated, that are included herein are
unaudited and have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB. In the opinion of management, these
interim financial statements include all the necessary adjustments to
fairly present the results of the interim periods, and all such
adjustments are of a normal recurring nature. The interim financial
statements should be read in conjunction with the audited financial
statements for the two years ended December 31, 1999 included in the
Company's Annual Report on Form 10-KSB for the year then ended. The
report of the Company's independent auditors for the year ended
December 31, 1999 contains an explanatory paragraph as to the
substantial doubt of the Company's ability to continue as a going
concern. No adjustments have been made to the accompanying financial
statements to give effect to this uncertainty. The interim results
reflected in the accompanying financial statements are not necessarily
indicative of the results of operations for a full fiscal year.
The basic net loss per common share is computed by dividing the net
loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss,
adjusted on an as if converted basis, by the weighted average number of
common shares outstanding plus potential dilutive securities (Common
Stock options and Warrants). For the three and nine months ended
September 30, 2000 and 1999 potential dilutive securities had an
anti-dilutive effect and were not included in the calculation of
diluted net loss per common share.
During the third quarter of 1999, an operating segment was
discontinued. Results for the three and nine months ended September 30,
1999 have been restated to reflect the discontinuance of this segment.
As discussed further in Note 6, during the second quarter of 2000, the
Company discontinued operations in three other business segments.
Results for the prior periods have been restated to reflect the
discontinuance of these segments.
NATURE OF BUSINESS:
EarthFirst was formed on July 28, 1997, and commenced operations on
November 1, 1997 to facilitate market applications through the
licensing of late-stage technologies.
Prior to May 15, 2000, the Company had four separate operating
segments. These segments were 1) Technology Development for
Environmental Solutions and Alternative Fuels, 2) Manufacture and sale
of the Balanced Oil Recovery System ("BORS") Lift, 3) Contract
Manufacturing, and 4) Sales of medical equipment (the "HealthCare
Division").
F-7
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES, BASIS OF PRESENTATION, AND NATURE OF BUSINESS
(CONTINUED):
NATURE OF BUSINESS (CONTINUED):
On May 15, 2000, the Company entered into an acquisition agreement (the
"Agreement") with the shareholders of Strategic Acquisition Corporation
("SAC") pursuant to which the Company exchanged 26,500,000 shares of
its common stock for all of the issued and outstanding shares of SAC
(see Note 3). Pursuant to the Agreement, all of the Company's officers
and the members of the Company's Board of Directors resigned, with the
exception of Phillip M. Rappa. John D. Stanton, Chairman of the Board
and Chief Executive Officer of SAC, was appointed to the Company's
Board as Chairman. Mr. Stanton also assumed the duties of the Chief
Executive Officer of EarthFirst. Upon consummation of the Acquisition,
new management determined that the Company should focus its efforts and
resources on the development of the technologies related to
environmental solutions and alternative fuels. Accordingly, the
Environmental Solutions and Alternative Fuels Division is the only
pre-May 15, 2000 continuing business segment of the Company.
The primary technological process under development in the
Environmental Solutions and Alternative Fuels segment is the Plasma Arc
Flow (TM) Reactor. This process creates an alternative fuel called
MagneGas.
SAC has two business segments which include 1) demolition and recycling
and 2) government contracting. In its demolition operations, SAC enters
into fixed-price contracts to demolish structures such as buildings and
bridges. Services are rendered primarily within the State of Florida.
In its recycling operations, SAC operates scrap yards at locations in
Gibsonton and Brooksville, Florida. SAC acquires scrap metal and other
items from unrelated parties and from its demolition business. Scrap
acquired is processed ultimately for resale to mills.
In its government contracting segment, SAC enters into contractual
arrangements primarily with the federal government to procure various
products. SAC acquired the business operations for the government
contracting segment on May 15, 2000, from an entity related to SAC in
contemplation of the Agreement.
F-8
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. EXECUTION OF WORLD-WIDE EXCLUSIVE ASSIGNMENT, LICENSE AND ROYALTY
AGREEMENT AND RELATED AGREEMENTS:
On July 5, 2000, EarthFirst entered into a World-Wide Exclusive
Agreement, License and Royalty Agreement (the "MagneGas Agreement")
with Hadronic Press, Inc. ("HPI"). Under the MagneGas Agreement,
EarthFirst acquired 80% of the capital stock of USMagneGas, Inc.
("USMagneGas"), a Florida corporation formed on June 15, 2000 in return
for EarthFirst's assignment of certain rights to technological
processes (with no asset cost basis) related to MagneGas to HPI and
agreeing to certain other contractual requirements. HPI simultaneously
licensed its interests in these technological rights, as well as its
rights to other technology, to USMagneGas pursuant to The Technology
Exclusive License and Royalty Agreement (the "Royalty Agreement")
executed between HPI and USMagneGas effective July 5, 2000.
Pursuant to the MagneGas Agreement, EarthFirst is obligated to provide
financing, facilities and resources to facilitate a program of research
and development for the MagneGas technology conducted by USMagneGas. In
addition, EarthFirst agreed to issue 1,500,000 shares of its common
stock and certain stock options to HPI in return for HPI entering into
the MagneGas Agreement and procurement of future patents by HPI which
patents will become subject to this agreement.
The MagneGas Agreement was entered into in order to cure alleged
defaults in previous agreements with HPI and to secure the rights to
other intellectual properties needed to develop MagneGas.
The $492,188 estimated fair value of the 1,500,000 shares of common
stock issued in connection with this transaction has been recognized as
research and development expense during the three and nine months ended
September 30, 2000.
Pursuant to the Royalty Agreement, USMagneGas has agreed to pay HPI a
royalty equal to 3% of the gross proceeds that USMagneGas receives from
commercializing the technology subject to the Royalty Agreement.
USMagneGas also agreed to pay HPI advance royalties of $10,000 per
month for the first year of the Royalty Agreement and advance royalties
of $20,000 and $30,000 per month for the second and third years of the
Royalty Agreement, respectively. HPI is also entitled to certain
additional royalties for the grant by USMagneGas of any sublicenses.
In a Letter of Intent executed between HPI and USMagneGas, it was
agreed that two new entities would be formed and that HPI would license
certain foreign rights to these new entities. EuroMagneGas, Ltd. will
receive the licensing rights for the MagneGas technology in Europe.
AsiaMagneGas, Ltd. will receive the licensing rights for the MagneGas
technology in Asia. EuroMagneGas, Ltd. and AsiaMagneGas, Ltd. are to be
owned 80% by EarthFirst and 20% by HPI.
F-9
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS COMBINATION:
As discussed in Note 1, on May 15, 2000 the Company acquired 100% of
the outstanding stock of SAC in exchange for the issuance of 26,500,000
shares of the Company's common stock in a transaction accounted for as
a purchase. Accordingly, the results of operations of SAC are included
in the accompanying financial statements from May 15 through September
30, 2000. The $5,300,000 recorded cost of this acquisition was based
upon the estimated fair value of the common stock issued. Goodwill of
$4,510,683 resulting from this acquisition will be amortized over ten
years using the straight-line method. Amortization expense of $170,541
was recognized through the quarter ending September 30, 2000.
Pro-forma results of operations for the three and nine months ended
September 30, 2000 and 1999 as though SAC and its predecessors had been
acquired at January 1, 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,982,149 $ 2,823,768 $ 9,636,524 $ 8,037,754
Loss before
extraordinary items $(2,171,801) $(1,711,929) $(9,733,331) $(8,600,851)
Net loss $(1,564,704) $(1,711,929) $(9,043,345) $(8,600,851)
Net loss per share $ (.02) $ (.03) $ (.13) $ (.16)
</TABLE>
F-10
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. RESTATEMENT:
As more fully discussed in the Form 10-KSB for the year ended December
31, 1999, certain adjustments were made in the fourth quarter, 1999
which applied, in part, to the financial statements of the first,
second and third quarters of 1999 as previously reported. Accordingly
the accompanying financial statements for the periods ended September
30, 1999 have been restated to give effect to those adjustments as
follows:
<TABLE>
<CAPTION>
INCREASE (DECREASE) NET INCOME AS
PREVIOUSLY REPORTED
-----------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Reverse licensing fee revenue
recognized -- $(4,125,000)
Write-off investment in joint venture -- (375,706)
Properly record stock-based
compensation (619,959) (1,527,848)
Correct revenue recognition 375,000 375,000
Other (18,670) (14,227)
----------- -----------
$ (263,629) $(5,667,781)
=========== ===========
Decrease in net income per share
previously reported $ (.00) $ (.20)
=========== ===========
</TABLE>
5. MANAGEMENT PLANS REGARDING LIQUIDITY AND CAPITAL RESOURCES:
The Company has experienced recurring net losses since its inception
and, as such, experienced negative operating cash flows through
September 30, 2000. Historically, negative operating cash flows have
been funded with proceeds from sales of common and preferred stock,
notes and convertible debentures payable and equipment sale/leaseback
transactions. The total amount received from these sources approximated
$5,500,000 during 1999, $4,900,000 during the nine months ended
September 30, 2000 and $60,000 from October 1 through October 23, 2000.
Notwithstanding the proceeds of these financing sources, the Company
had negative working capital of approximately $2,300,000 at September
30, 2000.
F-11
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. MANAGEMENT PLANS REGARDING LIQUIDITY AND CAPITAL RESOURCES (CONTINUED):
During the second quarter of 2000, the Company made significant changes
in its operations including discontinuing three of its four previously
existing business segments in order to reduce cash outflows and reduce
outstanding debt. Management has refocused the attention of the Company
on developing the technologies owned or licensed in the alternative
fuel industry. These technologies are currently in the research and
development stage and consequently are not producing any revenue. As
such, the Company will continue to require additional equity or debt
financing in order to provide its cash requirements and continue as a
going concern. Additional expenditures will be required to further
develop these technologies and there can be no assurance that these
technologies will ultimately yield any commercially viable processes or
products.
6. DISCONTINUED OPERATIONS:
Contemporaneous with entering into the Agreement (see Note 1), new
management decided to discontinue the contract manufacturing,
healthcare, and BORS Lift operations previously conducted by the
Company. The Company has been actively engaged in liquidating the
assets used in these segments and using the proceeds to settle or
reduce the liabilities associated with these operations. An auction was
held on August 29, 2000 at which time substantially all of the
remaining machinery and equipment used in these operations were sold.
Machinery and equipment associated with the discontinued segments that
was not sold ($15,000 at September 30, 2000) is reflected on the
September 30, 2000 balance sheet at its estimated realizable value.
BORS:
On June 16, 2000, a Technology Assignment and Royalty Agreement (the
"BORS Agreement") was entered into by and among EarthFirst, its
wholly-owned subsidiary, Ennotech, Inc., (collectively referred to as
the "Company") and BORS International L.L.C. ("BIL"). Under the BORS
Agreement, the Company transferred its rights to the "BORS Lift"
technology for lifting oil from shallow wells to BIL.
In addition to the BORS Agreement, the parties also entered into a
Royalty Agreement under which BIL agreed to pay the Company an amount
equal to 2% of the collected gross revenues, as defined, of BIL on a
monthly basis. As of November 14, 2000, EFT had not received any
royalties under this agreement.
F-12
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. SEGMENT REPORTING:
The following summarizes key segment information for the nine months
ended September 30, 2000:
<TABLE>
<CAPTION>
ALTERNATIVE FUELS/
ENVIRONMENTAL DEMOLITION GOVERNMENT CORPORATE &
SOLUTIONS & RECYCLING CONTRACTING DISCONTINUED CONSOLIDATED
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from
external customers $ -0- $ 3,996,715 $ 1,576,814 $ -0- $ 5,573,529
Cost of sales -0- 3,096,507 1,401,983 -0- 4,498,490
Gross profit -0- 900,208 174,831 -0- 1,075,039
Research &
Development 1,165,893 -0- -0- -0- 1,165,893
Segment Assets 50,000 6,207,955 3,103,508 646,978 10,023,441
15,000
</TABLE>
The following summarizes key segment information for the nine months
ended September 30, 1999:
<TABLE>
<CAPTION>
ALTERNATIVE FUELS/
ENVIRONMENTAL DEMOLITION GOVERNMENT
SOLUTIONS & RECYCLING CONTRACTING CORPORATE CONSOLIDATED
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue from
external customers $ -0- $ -0- $ -0- $ -0- $ -0-
Cost of sales -0- -0- -0- -0- -0-
Gross profit -0- -0- -0- -0- -0-
Research &
Development 2,399,383 -0- -0- -0- 2,399,383
</TABLE>
F-13
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (DEFICIT):
CONVERSION OF CONVERTIBLE DEBENTURES TO EQUITY/ADDITIONAL CONVERTIBLE
DEBT:
During January and March 2000, the investor in the Company's $750,000
Series 1999-A 8% convertible notes elected to convert an aggregate of
$517,956 of the notes and accrued interest into 1,037,784 shares of the
Company's common stock. During August and September 2000, the investor
elected to convert the remaining $232,044 of the notes and $42,327 of
accrued interest into 1,164,503 shares of the Company's common stock.
Additionally, during March 2000, the investor loaned the Company an
additional $700,000 through the purchase of the second installment of
the 8% convertible notes. In connection therewith, the investor was
granted additional warrants to purchase 75,000 shares of common stock
under terms similar to those granted in 1999. The $700,000 of
convertible notes contain a beneficial conversion feature which has
been recognized as a discount on the notes in the amount of $641,200.
The discount was amortized to interest expense over a three-month
period ended June 30, 2000. No portion of the notes issued during March
of 2000 have been converted into stock.
CONVERSION OF CONVERTIBLE PREFERRED STOCK TO COMMON:
During April and June of 2000, the preferred stockholder elected to
convert 154 shares of preferred stock to 613,188 shares of common
stock. During August and September of 2000, the preferred stockholder
elected to convert an additional 95 shares of preferred stock to
429,885 shares of common stock.
ISSUANCE OF CONVERTIBLE PREFERRED STOCK AND CONVERSION TO COMMON:
During the third quarter 2000, the Company issued 625,000 shares of a
new issue of preferred stock. The preferred shares acquired were
immediately converted into shares of common stock at a rate of 90% of
the closing price quoted at the time of the conversion. A total of
2,122,992 shares of common stock were issued as a result of the
conversions. Only the net effect of that transaction has been presented
in the condensed consolidated statement of stockholders' equity for the
nine months ended September 30, 2000. Of shares issued, 500,000
preferred shares were acquired by related parties. Each preferred share
included a warrant to acquire an additional share of common stock at a
price equal to 120% of the price of the common stock on the date of the
conversion. Each warrant expires two years after the date of the
acquisition.
F-14
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED):
CONVERSION OF RELATED PARTY DEBT TO EQUITY:
During the quarter ended June 30, 2000, a related party elected to
convert $334,000 in debt into 1,336,000 shares of common stock.
During the quarter ended September 30, 2000, related parties elected to
convert $2,100,000 of debt into 8,235,294 shares of common stock.
STOCK OPTIONS AND STOCK GRANTS:
In January 2000, 550,000 common stock options were granted to key
employees and 1,400,000 common stock options to an officer/employee.
These three-year options are exercisable at $.30 to $.34 per share and
vest immediately.
In September 2000, 250,000 common stock options were granted in
connection with the creation of EuroMagneGas, Inc. and AsiaMagneGas,
Inc. These three-year options are exercisable at $.4375 per share and
vest immediately.
Options outstanding at beginning of period 1,950,000
Granted during the current year 2,450,000
---------
Outstanding and exercisable at September 30, 2000 4,400,000
=========
Weighted average remaining life 28 Months
Weighted average exercise price $ .68
Additionally, 4,875,441 shares of common stock were issued to legal
counsel, officer/employees and in connection with research and
development and the BORS disposal. Total expense in connection therewith
aggregated approximately $1,500,000 for the nine months ended September
30, 2000.
F-15
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED):
COMMON STOCK WARRANTS:
The following table summarizes information for stock warrants outstanding
and exercisable at September 30, 2000.
WARRANTS OUTSTANDING AND EXERCISABLE
----------------------------------------------------------------
RANGE OF WEIGHTED AVG. WEIGHTED AVG.
PRICES NUMBER REMAINING LIFE EXERCISE PRICE
------------- ------------ -------------- --------------
$ 2.34-2.40 218,750 33 months $ 2.38
$ .70 25,000 22 months .70
$ .40 3,800,000 49 months .40
------------- ------------ -------------- --------------
Outstanding
1/1/00 4,043,750 48 months .51
Issued in 2000 2,862,612 27 months .35
------------ ---------------
Outstanding
9/30/00 6,906,362 28 months $ .44
============ ---------------
No warrants were exercised during the nine months ended September 30,
2000.
Stock-based compensation recorded for warrants issued during the nine
months ended September 30, 2000 aggregated $31,230.
The fair value of the options and the warrants granted in 2000 were
estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions:
Expected life of options 2-3 years
Risk free interest rate 5.458%
Expected volatility 50%
Expected dividend yield 0%
F-16
<PAGE>
EARTHFIRST TECHNOLOGIES, INCORPORATED
AND SUBSIDIARIES
(F/K/A TOUPS TECHNOLOGY LICENSING, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. COMMITMENTS AND CONTINGENCIES:
SEC ENFORCEMENT INQUIRY:
On November 19, 1999, the Company was notified that the Securities and
Exchange Commission was conducting an informal inquiry in connection with
matters relating to the Company's restatement of financial results. The
Commission has requested certain documents concerning the previous
revision of its financial results and financial reporting documents. The
Commission indicated that its inquiry should not be construed as any
indication that any violation of law has occurred, nor as an adverse
reflection upon any person, entity or security. The Company is
cooperating with the Commission in connection with this inquiry and its
outcome cannot be determined at this time.
10. MAJOR CUSTOMER INFORMATION:
During the nine months ended September 30, 2000, the Company derived
revenues from one customer that aggregated 28% of total revenues.
11. SUBSEQUENT EVENTS:
SALES OF COMMON STOCK:
From October 1 through October 23, 2000, net proceeds of $60,000 were
generated from the sale of 60,000 shares of preferred stock to unrelated
parties. These preferred shares were immediately converted into 215,053
shares of common stock.
F-17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis provides information that is relevant to
an assessment and understanding of the Company's results of operations and
financial condition. The discussion should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto.
During the quarter ended June 30, 2000 the Company decided to concentrate its
primary focus on alternative fuel technologies. Alternative fuels, generally,
are fuels not derived substantially from petroleum and that provide
environmental benefits. The various technologies licensed by the Company were
evaluated for relevance to the development of alternative fuels. Accordingly,
the Company has initially focused on a plan to develop MagneGas. There is broad
potential for MagneGas in diverse applications including use as an automotive
fuel.
On July 5, 2000, the Company acquired an 80% interest in USMagneGas, Inc.
("USM"). USM entered into a licensing agreement with Hadronic Press, Inc., the
entity that owns the patents and patents pending associated with MagneGas. USM
is developing applications for this technology at a research facility located in
Largo, Florida.
We believe that progress has been made in developing the MagneGas technology
during the third quarter. This includes further development of MagneGas as an
automotive fuel and as a cutting gas. An automobile, whose engine was converted
to use MagneGas, was certified by an independent testing laboratory to beat EPA
emission standards without the use of a catalytic converter. The Company is
continuing its pursuit of the application of MagneGas to the automotive industry
by modifying several automobiles to run on MagneGas. The use of MagneGas as a
cutting gas in the Company's operations, or that of related entities, has also
met with favorable preliminary results.
The Company believes that significant additional research will be needed, and
significant additional expenditures will need to be incurred, to develop the
MagneGas technology. The Company believes that the future development of
MagneGas might be accomplished by partnering with likely end users of specific
applications of the MagneGas technology. Such partnering would seek to develop
one or more applications of the technology to meet the specific needs of the end
user.
To date, USM has had preliminary discussions with several potential users of
MagneGas concerning the joint development of applications of this technology.
Such discussions have been of an investigatory nature and no joint development
agreements have been concluded. There can be no assurances that any such
agreements will be entered into in the future. MagneGas continues to be the
subject of research and development and, consequently, there is significant
uncertainty as to whether MagneGas can be developed into a commercially viable
product.
F-18
<PAGE>
In September of 2000, the Company and the Pinellas County Industrial Development
Authority (the "Authority") executed a lease modification agreement involving
the Company's lease of space at the Science Technology and Research ("STAR")
Center in Pinellas County. As part of this agreement, the Authority has applied
to the Economic Development Authority for a grant in the form of matching funds
to install, maintain, and operate a sewage treatment and alternative fuel
production facility using the PlasmaArcFlow sewage treatment and MagneGas
production systems. If the grant is obtained, the Company is obligated to
perform services related to the development, installation and maintenance of a
PlasmaArcFlow sewage treatment and MagneGas production system at the STAR Center
in lieu of payment of $100,000 due for past rent.
During the third quarter, the Company continued to investigate the viability of
further developing one or more technologies intended to recycle used tires and
other solid waste products. Through September 30, 2000, the Company has expended
over $100,000 in its investigation. The Company is currently considering its
alternatives regarding these technologies and has not yet reached a decision as
to whether it will further investigate the commercial viability of these
technologies.
On May 15, 2000, the Company acquired SAC, an entity engaged in the demolition
and recycling business and in government contracting. During the third quarter,
SAC continued working on its contract for the demolition of a bridge located in
West Palm Beach, Florida. At this time, is significantly underbilled on one of
its government contracts. This, as well as other working capital needs, has
forced SAC to borrow funds from an entity controlled by related parties.
The combination of the funding requirements for the further development of
MagneGas as well as the funding required to satisfy the significant liabilities
and obligations incurred by prior management have caused the Company to sell
significant amounts of its common stock. While approximately $225,000 has been
raised through an offering that concluded on October 31, 2000, the vast majority
of capital was raised from the Chief Executive Officer of the Company or
affiliates. During the third quarter, the Chief Executive Officer and a related
party converted debt obligations owed by the Company into 8,235,294 shares of
common stock.
The Company and SAC anticipate entering into one or more revolving lines of
credit with an entity affiliated with the Chief Executive Officer during the
month of November. The line of credit will bear interest at the rate of 10% and
will be payable upon demand. The balance of the lines of credit may be converted
into additional shares of the Company's common stock at rates comparable to that
realized from sales of unregistered common stock to unrelated parties. There are
no assurances that this funding will continue in the future.
F-19
<PAGE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2000
Revenues, cost of sales, and gross profits for the three and nine month periods
ending September 30, 2000 and 1999 were not comparable because the businesses
which generated revenues in the September 30, 1999 periods were discontinued on
or before September 30, 2000. Accordingly, the results of these operations are
included under the Discontinued Operations section of the Condensed Consolidated
Statements of Operations. In addition, the business segments that produced
revenues during the periods ending September 30, 2000 were acquired on May 15,
2000 and consequently did not impact the fiscal 1999 amounts.
Selling, general and administrative expenses for the three and nine month
periods ending September 30, 2000 are also not comparable to the three and nine
month periods ending September 30, 1999 for the reasons stated above. Selling,
general and administrative expenses for the periods ending September 30, 2000
are related primarily to the business operations of SAC, accounting fees, stock
issued for legal services, and stock issued to employees.
Direct research and development expenses declined from $2,399,383 in the nine
months ended September 30, 1999 to $1,165,893 in the nine months ended September
30, 2000 or a 51% decrease. The decline is attributable to non-cash charges
relating to research-related stock-based compensation and licensing agreements
in the nine months ended September 30, 1999 (principally in the first quarter),
which did not occur in the comparable period in 2000. Research and development
expenses for the three months ended September 30, 2000 increased from $150,781
in 1999 to $801,846 in 2000 attributable to increased activity relating to
MagneGas. Total stock-based compensation related to research and development in
the three and nine months ended September 30, 2000 was $492,188 as compared to
$-0- and $1,994,040 in the three and nine months ended September 30, 1999,
respectively.
Interest expense increased for the three and nine months ended September 30,
2000 over that of the comparable prior year period due principally to the
beneficial conversion feature of convertible debentures issued late in the first
quarter 2000 resulting in non-cash interest expense for the periods of $641,200.
Losses from continuing operations decreased approximately $50,000 from $3.4
million to $3.35 million in the nine months ended September 30, 2000. This
decrease is a result of lower research and development costs in 2000, offset by
increased interest expense and selling, general and administrative expenses in
the same period. Consolidated net loss of $8.6 for the nine months ended
September 30, 2000 was up approximately $1.2 million from the $7.4 million
reported in the comparable 1999 period, a 16% increase. This increase is a
result of the aforementioned changes in interest expense, and selling, general
and administrative expenses, coupled with the loss on the segment disposals,
offset by lower research and development expenses.
F-20
<PAGE>
Losses from continuing operations increased approximately $600,000 from $300,000
to $900,000 in the three months ended September 30, 2000. This increase is
principally a result of the SAC general and administrative expenses, which did
not exist in 1999, and increased research and development expenses. Consolidated
net loss of $1.6 million for the three months ended September 30, 2000 was up
approximately $200,000 from the $1.4 million reported in the comparable 1999
period, an increase of approximately 11 percent. The increase is a result of the
aforementioned changes in research and development expenses offset by the
extraordinary gain on extinguishments of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced recurring net losses since its inception and, as
such, has experienced negative operating cash flows through September 30, 2000.
Historically, these negative operating cash flows have been funded with proceeds
from sales of common and preferred stock, notes and convertible debentures
payable. The total amount received from these sources approximated $4,000,000
during the nine months ended September 30, 2000. Notwithstanding the proceeds of
these financing sources, the Company had negative working capital of
approximately $2,300,000 at September 30, 2000.
On May 15, 2000, the Company acquired the outstanding stock of SAC in exchange
for 26,500,000 shares of common stock. In connection with this acquisition,
management and board of directors of the Company underwent significant changes.
Management is currently evaluating the cost structure of the Company and has
recently made significant cost reductions. However, there can be no assurance
that these efforts will result in positive operating cash flows or restore
working capital to adequate levels. As such, the Company may continue to require
additional equity or debt financing in order to cover its cash requirements and
continue as a going concern.
The Company is currently reviewing options to finance its ongoing operations and
development activities, and to repay debt. The Company believes that additional
capital will be needed in the future. As indicated above, the Company believes
that the future development of MagneGas might be accomplished by partnering with
likely end users of specific applications of the MagneGas technology. It is
anticipated that such partnering may provide additional liquidity to fund future
development.
F-21
<PAGE>
NOTE ON FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS REPORT ON FORM 10-QSB, UNDER THE SECTION
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION," RELATE TO FUTURE
EVENTS AND EXPECTATIONS AND AS SUCH CONSTITUTE "FORWARD-LOOKING STATEMENTS,"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE
WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS IN
THIS REPORT ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND
OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS AND TO VARY
SIGNIFICANTLY FROM REPORTING PERIOD TO REPORTING PERIOD.
F-22
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(c) The securities below were issued by the Company during the period
covered by the report and were not registered under the Securities Act of 1933,
as amended. Each of the transactions is claimed to be exempt from registration
pursuant to Section 4 (2) of the Securities Act as transactions not involving a
public offering. All of such securities are deemed to be restricted securities
for the purposes of the Securities Act. All certificates representing such
issued and outstanding restricted securities have been properly legended, and
the Company has issued "stop transfer" instructions to its transfer agent with
respect to such securities. Except as noted, no commissions were paid in
connection with any of these issuances.
Between August 16 and September 26, 2000, the Company issued 125,000
shares of convertible preferred stock to nine (9) individuals who were unrelated
to the Company in exchange for cash payments totaling $125,000. The individuals
immediately exercised the conversion feature and received 439,490 shares of
common stock at a conversion rate of 90% of the bid price of registered shares
on the date of the conversion. The individuals also received a warrant to
purchase a like number of common shares at a price equal to 120% of the price at
which the conversion was made. These warrants are effective for a period of two
years.
In connection with the above issuances of stock and the performance of
other services, an unrelated entity was issued 100,000 shares of common stock.
The services rendered were valued at $22,500.
On August 7, 2000, the Company issued 500,000 shares of convertible
preferred stock to four individuals, including John Stanton, the Company's
Chairman, President and Chief Executive Officer, and certain individuals
employed by an affiliate of the Company in exchange for cash payments totaling
$500,000. The individuals immediately exercised the conversion feature and
received 1,683,502 shares of common stock at a conversion rate of 90% of the bid
price of registered shares on the date of the conversion. The individuals
received a warrant to purchase a like number of common shares at a price equal
to 120% of the price at which the conversion was made. These warrants are
effective for a period of two years.
On September 8, 2000, John Stanton and an individual employed by an
affiliated entity converted debt owed by the Company and SAC totaling $2,100,000
into a total of 8,235,294 shares of common stock at a conversion price of $0.255
per share. No warrants or any similar rights were issued in connection with this
conversion.
In July of 2000, the Company issued 500,000 shares of common stock to
Tim Klace, the Company's Chief Financial Officer, in exchange for cash payments
of $125,000.
On August 21, 2000, the Company issued 450,000 shares of common stock
to three (3) individuals not related to the Company in settlement of a claim for
damages. The common shares were valued at $111,375 or $0.2475 per share.
F-23
<PAGE>
Effective July 5, 2000, the Company obligated itself to issue 1,500,000
shares of its common stock to Hadronic Press, Inc. pursuant to a World-Wide
Exclusive Assignment, License, and Royalty Agreement between the Company and
Hadronic Press, Inc. See Note 2 of the Notes to Condensed Consolidated Financial
Statements for further information about this transaction.
Between August 14 and September 25, 2000, the holder of a convertible
note payable having a balance of $232,044 at the beginning of the quarter
converted the balance of the note plus accrued interest at a rate ranging from
$0.2320 per share to $0.258 per share into an aggregate of 1,164,503 shares of
the Company's common stock valued at $274,371.
Between August 28 and September 21, 2000, the holder of 95 shares of
Series A Preferred Stock, par value $1.00 per share, converted such shares into
an aggregate of 429,885 shares of common stock at a conversion rate of $0.225
per share with respect to 200,000 shares and $0.2175 per share with respect to
229,885 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K with the Securities and Exchange
Commission on May 30, 2000, in which it reported under Item 2 that it had
acquired all of the outstanding stock of Strategic Acquisition Corporation in
exchange for 26,500,000 shares of the Company's common stock.
(c) SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EARTHFIRST TECHNOLOGIES, INCORPORATED
(Registrant)
Date: November 15, 2000
By: /s/ JOHN STANTON
--------------------------------
John Stanton, President and Chief Executive Officer
F-24
