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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D. C. 20549
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FORM 10-SB/A-1
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
EXHAUST TECHNOLOGIES, INC.
(Exact name of registrant as specific in its charter)
Washington 91-1970433
(State of Incorporation) (I.R.S. Employer
Identification No.)
230 North Division
Spokane, Washington 99201
(Address of executive offices, including zip code.)
Registrant's telephone number: (509) 838-4401
Copies to: Conrad C. Lysiak, Esq.
601 West First Avenue
Suite 503
Spokane, Washington 99201
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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(Title of Class)
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ITEM 1. DESCRIPTION OF BUSINESS.
THE BUSINESS
EXHAUST TECHNOLOGIES, INC. (the "Company") is a development stage
enterprise formed under the laws of the State of Washington on July 21,
1998, for the purpose of developing, manufacturing and marketing two
automotive devices.
The Devices
The two automotive devices the Company intends to develop,
manufacture and market are the Turbolator and the Pneumatic Hand Tool
Exhaust Muffler. Both devices are expected to be available for sale by
December 1999.
The Turbolator
The Turbolator was invented by Robert Sterling, the Company's
President and a member of the Board of Directors and his son, Matthew
R. Sterling in 1990. A patent was applied for on November 18, 1992 and
issued on October 18, 1994 (No. 5,355,673). During the period that the
patent was pending, the Turbolator was marketed and generated gross
revenues of $160,364. The foregoing revenue was earned prior to the
Company being formed and is not revenue to the Company. In addition to
obtaining a patent for the Turbolator, Robert Sterling obtained a
trademark with the United States Trademark office on the name
"Turbolator." Messrs. Sterling and Sterling have issued an exclusive
license to the Company to manufacture, develop and market the
Turbolator in the United States, provided the Company generates sales
from the Turbolator of $-0- in fiscal 1999 and $1,000,000 per year,
thereafter. The licenses granted to the Company for the Turbolator and
the PHTEM require that Robert Sterling and Matthew Sterling approve any
license transfer from the Company by either a merger or sale of assets.
The Turbolator is designed for installation on all vehicles, with
the exception of turbo-charged vehicles. It is composed of a spring
butterfly valve mounted in a tube housing. The butterfly valve is
regulated by a pre-loaded torsion spring. The tube housing or tip
housing is installed directly behind the catalytic converter or
directly behind the muffler. The Turbolator comes in five sizes which
are six inches long with an outside diameter varying from 2 7/8 inches
to 4 1/8 inches depending on the exhaust pipe size. Two Turbolators are
installed for a vehicle equipped with dual exhausts.
The purpose of the Turbolator is to regulate exhaust flow from the
engine. By regulating exhaust flow, the device creates a more efficient
fuel burning engine, thus creating more horsepower and torque without
other modifications to the engine.
The Turbolator operates in conjunction with the exhaust system
"OEM" computer controlled electronic port fuel injection and emission
control systems already certified with the stock engine. Installation
of the Turbolator does not alter the OEM location of the oxygen sensor
and the converter. The tune-up specifications for a vehicle remain the
same. In lab (controlled) tests the Turbolator have shown to reduce
certain emissions and improve fuel mileage.
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Pneumatic Hand Tool Exhaust Muffler
The Pneumatic Hand Tool Exhaust Muffler (the "PHTEM") was invented
by Robert E. Sterling, the Company's President and a member of the
Board of Directors, in 1997. Mr. Sterling applied for a patent on
January 13, 1998 and the patent has been approved. The PHTEM is
currently being test marketed. No sales have been made to date and the
Company has not concluded if the PHTEM will be economically successful.
Mr. Sterling has granted an exclusive license to the Company to
manufacture and market the PHTEM, in the United States, provided the
Company generates sales of $-0- in fiscal 1999, $500,000 in fiscal 2000
and $1,000,000 each year thereafter.
The PHTEM is a tool with a noise muffling system that can reduce
sound levels and remove entrained solid and oil contaminates from the
exhaust air before it is discharged into the atmosphere. The PHTEM has
a handle with an exhaust passage where the contaminates pass. The PHTEM
includes a number of washers positioned longitudinally about the inner
tube. The combination of the inner tube and washers are located within
the handle exhaust passage. An end cap is provided in closing off the
inner tube distal end. During use, exhaust air enters the inner tube,
flows out the inner tube airflow openings into the washers, and out the
end cap. The handle muffles the sound the tool and retains the
contaminates therein.
Manufacturing
The Company intends to contract with third parties for the
manufacture of the Turbolator and PHTEM. As of the date hereof, the
Company has not entered into any contracts with any manufacturers, and
there is no assurance that the Company will enter into any contracts
with any manufacturers in the future. The Company believes there are
any number of manufacturers who are capable of producing the Turbolator
and the PHTEM. Raw materials for the Company's products are readily
available from numerous sources. The Company's founders have spent in
excess of $50,000 during the two years prior to incorporating the
Company in the development of the Turbolator and PHTEM.
Distribution
The Company intends to distribute the Turbulator and the PHTEM by
direct shipment from the manufacturer.
Marketing
The Company intends to market the Turbolator and the PHTEM through
other automotive suppliers. As of the date hereof, the Company has not
contacted any other automotive suppliers and there is no assurance that
any other automotive suppliers will ever sell Turbolators or PHTEMs.
The Company has entered into a Consulting and Marketing Agreement
with Clarkstone International Corporation ("Clarkstone") relating to
product development and marketing of the Company's products. For the
foregoing services, Clarkstone will be paid a fee of $150.00 per hour
and has estimated that 80 hours of time will be expended on this
project. Clarkstone will bill the Company monthly, beginning October 5,
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1999 for its services which will be paid by the Company not later tahn
20 days after receipt. Payment will be made by delivery of one share
of the Company's common stock for each $0.20 billed. In addition, the
Company will pay commissions of 15% of the amount of sales price for
sales under $10,000; $1,500 plus 12% of the amount of sales price over
sales of $10,000; $2,700 plus 11% of the amount of sales price over
sales of $20,000; and, $3,800 plus 10% of the amount of the sales price
over sales $30,000. Commissions will be paid on or before the twentieth
day of the month immediately following the month in which payment is
received by the Company. The foregoing agreement may be terminated by
either party upon 90 days written notice to the other, however
Clarkstone will be entitled to the compensation set forth therein for
a period of twelve months from the date of termination.
Competition
With respect to the Turbolator, the Company is not aware of
any competitors within the industry that manufacture a similar product.
With respect to the PHTEM, the Company is aware of a number of
competitors within the industry that manufacture a similar, but not an
identical product. Some of the foregoing manufacturers have
considerably greater financial and other resources than the Company.
Governmental Regulation
The Company is not aware of any governmental regulations
which effect the manufacture, development or sale of the Turbolator or
PHTEM.
Company's Office
The Company's offices are located at 230 North Division, Spokane,
Washington 99202. These are the offices of Robert Sterling, the
Company's President and major shareholder.
Employees
The Company has no full-time employees. The Company's three
Officers provide their services on a part-time basis. See
"Management."
Risk Factors
1. No Operating History and Revenues and Development Stage
Operation. The Company is recently formed and is subject to all the
risks inherent in the creation of a new business. Since the Company is
a new venture, it has no record of operations and there is nothing at
this time upon which to base an assumption that the Company's plans
will ultimately prove successful. The Company's Independent Certified
Public Accountant's report on the Company's January 31, 1999 financial
statements contained an explanatory paragraph which expressed
substantial doubt about the Company's ability to continue as a going
concern due to the Company's loss from operations and lack of revenue.
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2. Lack of Market Research. The Company has neither conducted nor
has the Company engaged other entities to conduct market research such
that management has assurance market demand exists for the business
contemplated by the Company. See "Business."
3. Year 2000. The Company is aware of the issues associated
with the programming code in existing computer systems as the
millennium (year 2000) approaches. The "year 2000" problem is
pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00.
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. Since the Company has not acquired
additional hardware or software technology in support of its services
at present, the year 2000 problem is not anticipated to have a
significant impact on the Company's operations. However, it
may have a significant impact on key suppliers and customers with
whom the Company may conduct business in the future.
4. Securities are Subject to Penny Stock Rules. The Company's
shares are "penny stocks" consequently they are subject to Securities
and Exchange Commission regulations which impose sales practice
requirements upon brokers and dealers to make risk disclosures to
customers before effecting any transactions therein.
5. Lack of Key Personnel Insurance. The Company has not obtained
key personnel life insurance on the lives of any of the officers or
directors of the Company. The death or unavailability of one or all of
the officers or directors of the Company could have a material adverse
impact on the operation of the Company. See "Management."
6. No Insurance Coverage. The Company, like other companies in its
industry, is finding it difficult to obtain adequate insurance coverage
against possible liabilities that may be incurred in conducting its
business activities. At present, the Company has not secured any
liability insurance. The Company has potential liability from its
general business activities, and accordingly, it could be rendered
insolvent by a serious error or omission.
7. Uninsured Risks. The Company may not be insured against all
losses or liabilities which may arise from operations, either because
such insurance is unavailable or because the Company has elected not to
purchase such insurance due to high premium costs or other reasons.
8. Need for Subsequent Funding. The Company believes it will need
to raise additional funds in order to achieve profitable operations.
The Company's continued operations therefore will depend upon the
availability of cash flow, if any, from its operations or its ability
to raise additional funds through bank borrowings or equity or debt
financing. There is no assurance that the Company will be able to
obtain additional funding when needed, or that such funding, if
available, can be obtained on terms acceptable to the Company. If the
Company cannot obtain needed funds, it may be forced to curtail or
cease its activities. See "Business."
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9. Need for Additional Key Personnel. At the present time, the
Company employs no full time employees. The success of the Company's
proposed business will depend, in part, upon the ability to attract and
retain qualified employees. The Company believes that it will be able
to attract competent employees, but no assurance can be given that the
Company will be successful in this regard. If the Company is unable to
engage and retain the necessary personnel, its business would be
materially and adversely affected. See "Business."
10. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers who will exercise control over the day-to-day affairs of
the Company, and upon its Directors, most of whom are engaged in other
activities, and will devote limited time to the Company's activities.
The President will devote approximately ten hours per month to the
operation of the day-to-day affairs of the Company, the Vice President
will devote approximately two hours per month to the operation of the
day-to-day affairs to the Company and the Secretary/Treasurer will
devote approximately two hours per month to the operation of the day to
day affairs to the Company. Accordingly, while the Company may solicit
business through its Officers, there can be no assurance as to the
volume of business, if any, which the Company may succeed in obtaining,
nor that its proposed operations will prove to be profitable. As of the
date hereof, the Company does not have any commitments regarding its
proposed operations and there can be no assurance that any commitments
will be forthcoming. See "Business" and "Management."
11. Issuance of Additional Shares. As of April 19, 1999,
approximately 95,309,750 shares of Common Stock or 95.31% of the
100,000,000 authorized shares of Common Stock of the Company remain
unissued. The Board of Directors has the power to issue such shares,
subject to shareholder approval, in some instances. The Company may
also issue additional shares of Common Stock pursuant to a plan and
agreement of merger with a private corporation. Although the Company
presently has no commitments, contracts or intentions to issue any
additional shares to other persons, the Company may in the future
attempt to issue shares to acquire products, equipment or properties,
or for other corporate purposes. See "Description of Securities -
Shares Eligible for Future Sale."
12. Non-Arms' Length Transaction. The number of shares of Common
Stock issued to present shareholders of the Company for property and
services was arbitrarily determined and may not be considered the
product of arm's length transactions. See "Principal Shareholders."
13. Indemnification of Officers and Directors for Securities
Liabilities. The Articles of Incorporation of the Company provide that
the Company may indemnify any Director, Officer, agent and/or employee
as to those liabilities and on those terms and conditions as are
specified in the Washington Business Corporation Act. Further, the
Company may purchase and maintain insurance on behalf of any such
persons whether or not the corporation would have the power to
indemnify such person against the liability insured against. The
foregoing could result in substantial expenditures by the Company and
prevent any recovery from such Officers, Directors, agents and
employees for losses incurred by the Company as a result of their
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actions. Further, the Company has been advised that in the opinion of
the Securities and Exchange Commission, indemnification is against
public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
14. Competition. The Company believes that it will have
competitors and potential competitors, many of whom may have
considerably greater financial and other resources than the Company.
See "Business - Competition."
15. No Public Market for Securities. At present, no public market
exists for the Company's securities and there is no assurance that a
trading market will develop in the future, or if developed, that it
will be sustained. A shareholder of the Company's securities may,
therefore, be unable to resell the securities should he/she desire to
do so. Furthermore, it is unlikely that a lending institution will
accept the Company's securities as pledged collateral for loans unless
a regular trading market develops.
16. Cumulative Voting, Preemptive Rights and Control. There are no
preemptive rights in connection with the Company's Common Stock.
Cumulative voting in the election of Directors is not provided for.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the
Company's Board of Directors.
17. No Dividends Anticipated. At the present time the Company does
not anticipate paying dividends, cash or otherwise, on its Common Stock
in the foreseeable future. Future dividends will depend on earnings, if
any, of the Company, its financial requirements and other factors.
Investors who anticipate the need of an immediate income from their
investment in the Company's Common Stock should refrain from the
purchasing the Company's securities. See "Dividend Policy."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
During the next twelve months, the Company plans to complete
agreements for the manufacture of the Turbolator and PHTEM, initiate
manufacturing of the foregoing and begin sales of its products.
The Company has inadequate cash to maintain operations during
the next twelve months. In order to meet its cash requirements the
Company will have to raise additional capital through the sale of
securities or borrowings from the Company's shareholders. As of April
30, 1999, the Company has not made sales of additional securities and
there is no assurance that it will be able to raise additional capital
through the sale of securities in the future. Further, the Company has
not initiated any negotiations for additional loans to the Company,
other than a $50,000 line of credit from the Company's president and
there is no assurance that the Company will be able to raise additional
capital in the future through loans. The Company believes that it will
need an additional $100,000 to maintain operations during the next
twelve months. Robert Sterling, the Company's President has agreed to
loan the foregoing amount, if needed, pursuant to the line of credit.
At April 30, 1999, the Company has an outstanding balance of $22,509
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owed to Robert Sterling, the Company's President. In the event that
the Company is unable to raise additional capital, it may have to
suspend or cease operations.
The Company does not intend to conduct any additional product
research or development. The Company believes that Turbolator and
PHTEM are ready for manufacturing and marketing in their current
status. As a result, the Company is in the process of finalizing an
agreement with a marketing company to promote the products through the
use of television and networking and the Company has located
manufacturers for the products and is arranging for product molds to be
built for production of the products. The Company may conduct product
research and development in the future; however, there are no plans to
do so at the present time.
The Company does not intend to purchase a plant or significant
equipment.
The Company will hire employees on an as needed basis. The
Company, however, does not expect any significant changes in the number
of employees.
Results of Operations - Period from Inception (July 21, 1998) through
January 31, 1999.
The Company is considered to be in the development stage as
defined in Statement of Financial Accounting Standards No. 7. There
have been no revenues since incorporation. For the year ended January
31, 1999, the Company incurred a net loss of $35,866, or $(0.01) per
share, which is primarily the result of the recognition of compensation
expense for common stock issued to directors for services.
Liquidity and Capital Resources.
Through April 19, 1999, the Company has issued 4,690,250 shares of
its Common Stock to officers, directors and others. The Company has no
operating history and no material assets. The Company has $27,265 in
cash as of January 31, 1999.
At January 31, 1999, the Company had net deferred tax assets of
approximately $12,500 and has established a valuation allowance equal
to the net deferred tax assets as management of the Company cannot
determine that it is more likely then not that the Company will realize
the benefit of the net deferred tax asset.
The Company received funds of $16,244 from the sale of capital
stock and $15,298 from Robert Sterling pursuant to the line of credit.
Because the Company is in its initial stages of development and has not
commenced operations or generated revenues, the Company intends to
finance its operations through its line of credit (loans) from Robert
Sterling, the Company's President. Other than the foregoing, there are
no additional sources for cash for operating, investing and financing
activities. The Company has entered into a letter of intent with
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Castle Securities Corp., a broker/dealer registered with the Securities
and Exchange Commission and the National Association of Securities
Dealers, Inc. to raise up to $5,000,000; however, there is no assurance
that Castle Securities Corp. will raise any sums of money pursuant
thereto and a definitive underwriting agreement has not been entered
into as of the date hereof. Pursuant to the terms of the foregoing
letter of intent, the Company will pay a commission of approximately
13% of all money raised by Castle Securities Crop. Other than the line
of credit and the proposed sale of securities though Castle Securities
Corp. the Company has no other anticipated sources of capital during
the next twelve months.
The Company has been in the development stage since its inception.
The Company has had no recurring source of revenue and has incurred
operating losses since inception. These factors raise substantial
doubt about the Company's ability to continue as a going concern. As
a result of these factors, the Company's independent certified public
accountants have included an explanatory paragraph in their report on
the Company's January 31, 1999 financial statements which expressed
substantial doubt about the Company's ability to continue as a going
concern.
At the present time, the Company has no material commitments for
capital expenditures. If capital expenditures are required after
operations commence, the Company will pay for the same through the line
of credit with Robert Sterling, the Company's President; through the
sale of common stock; or through loans from third parties. There is no
assurance, however, that such financing will be available and in the
event such financing is not available, the Company may have to cease
operations.
Management of the Company has undertaken certain actions to
address these conditions. Management currently plans to commence
production in fiscal 2000. To this end, management is currently in
negotiations with manufacturers to produce the Company's products and
with marketing representatives to establish a product channel. Funds
required to carry out management's plans are expected to be derived
from future stock sales or borrowings from the Company's shareholders.
There can be no assurances that the Company will be successful in
executing its plans.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs written
using two digits rather than four to define the applicable year. As a
result, date sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations,
including among others, temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Though the Registrant has yet to acquire any additional hardware
or software technology in support of its services, the planned
acquisitions will most likely involve hardware or software which is
relatively new and therefore management does not anticipate that it
will incur significant operating expenses or be required to invest
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heavily in computer systems improvements to be Year 2000 compliant. As
the Registrant makes arrangements with significant hardware and
software suppliers, the Registrant intends to determine the extent to
which the Registrant's systems may be vulnerable should those third
parties fail to address and correct their own Year 2000 issues and take
measures to reduce the Registrant's exposure, such as, finding
alternative suppliers or requiring the suppliers to correct Year 2000
compliance issues prior to the Registrant acquiring the product.
Should the Registrant have to find alternative suppliers the Registrant
expects that it can find those suppliers promptly and on terms that are
similar to those being sought at this time. Other than the foregoing
measures, the Registrant has no other contingency plans for dealing
with third parties which do not become Year 2000 compliant within a
timely manner. The Registrant anticipates that this will be an ongoing
process as the Registrant begins to implement its Item 2, "Plan of
Operation" through 1999. There can be no assurances that the systems of
suppliers or other companies on which the Registrant may rely on will
be converted in a timely manner and will not have a materially adverse
effect on the Registrant's systems.
Additionally there can be no assurances that the computer systems
necessary to maintain the viability of the Internet will be Year 2000
compliant. The registrant believes that it is taking the steps
necessary regarding Year 2000 compliance issues with respect to matters
within its control. However, no assurance can be given that the
Registrant's systems will be made Year 2000 compliant in a timely
manner or that the Year 2000 problem will not have a material adverse
effect on the Registrant's business, financial condition and results of
operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133 requires companies to recognize all derivative contracts as either
assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of
gain or loss recognition on the hedging derivative with the recognition
of (i) the changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated as
a hedging instrument, the gain or loss is recognized as income in the
period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Based on its current and
planned future activities relative to derivative instruments, the
Company believes that the adoption of SFAS No. 133 on January 1, 2001
will not have a significant effect on its financial statements.
In June 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities. SOP 90-5 requires all start-up and organizational costs to
be expensed as incurred. It also requires all remaining historically
capitalized amounts of these costs existing at the date of adoption to
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be expensed and reported as the cumulative effect of a change in
accounting principle. SOP 98-5 is effective for all fiscal years
beginning after December 31, 1998. The Company believes that the
adoption of SOP 98-5 will not have a significant effect on its
financial statements.
In February 1999 the Financial Accounting Standards Board issued
SFAS No. 135, Rescission of Financial Accounting Standards Board No. 75
("SFAS No. 75") and Technical Corrections. SFAS No. 135 rescinds SFAS
No. 75 and amends SFAS No 35. SFAS No. 135 also amends other existing
authoritative literature to make various technical corrections, clarify
meanings, or described applicability under changed conditions. SFAS
No. 135 is effective for financial statements issued for fiscal years
ending after February 15, 1999. The Company believes that the adoption
of SFAS No. 135 will not have a significant effect on its financial
statements.
ITEM 3. DESCRIPTION OF PROPERTIES.
The Company does not own any real property. The Company owns
personal property in the form of inventory, office equipment and
manufacturing equipment. The Company currently uses office space
provided by the Company's President and major shareholder. There
is no formal lease agreement for the Company's offices.
The Company's offices are currently adequate and suitable for the
its operations. The Company may relocate its offices upon generating
revenues from operations, however, there is currently no plan to do so
and the Company has not entered into any negotiations with anyone to
relocate its offices.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth the Common Stock ownership as of
April 19, 1999, of each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common Stock,
each director individually and all officers and directors of the
Company as a group. Each person has sole voting and investment power
with respect to the shares of Common Stock shown, unless otherwise
noted, and all ownership is of record and beneficial.
Percentage
Name and Number of Of Shares
address of owner Shares Position Owned
Robert E. Sterling 4,300,000 President and a 91.68%
230 North Division Street member of the Board
Spokane, WA 99201 of Directors
Ronald L. Allen 50,000 Vice President and 1.07%
3031 West 22nd Avenue a member of the
Spokane, WA 99204 Board of Directors
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William A. Sutherland 50,000 Secretary/Treasurer, 1.07%
1761 55th Street Chief Financial Officer
Brooklyn, NY 11204 and a member of the
Board of Directors
All officers and 4,400,000 93.82%
directors as a
group (3 persons)
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The officers and directors of the Company are as follows:
Name Age Position
Robert E. Sterling 56 President and a member of the Board
of Directors
Ronald L. Allen 59 Vice President and a member of the
Board of Directors
William A. Sutherland 54 Secretary/Treasurer and a member of
the Board of Directors
All directors hold office until the next annual meeting of
shareholders and until their successors have been elected and
qualified. The Company's officers are elected by the Board of
Directors after each annual meeting of the Company's shareholders and
hold office until their death, or until they resign or have been
removed from office.
Robert E. Sterling - President and a member of the Board of Directors.
Mr. Sterling is a founder, President, and a member of the Board of
Directors of the Company. Mr. Sterling is the founding principal and
sole owner of Bob Sterling Enterprises, Inc., a Washington corporation,
located in Spokane, Washington. Sterling Enterprises was formed in 1967
and conducts business through itself and several subsidiary
corporations in general contracting, real estate and retail stores.
Since 1967, Mr. Sterling has owned Midas Muffler Shops in Washington
and Idaho and has from time-to-time owned and operated Midas Muffler
Shops in Hawaii and Nevada. Mr. Sterling has also served as an officer
and director of the following publicly traded corporations: Gold
Express Corporation and Gold Coin Mining, Inc.
Ronald L. Allen - Vice President and a member of the Board of
Directors.
Mr. Allen is a founder, Vice President and a member of the Board
of Directors of the Company. Mr. Allen has been engaged in the
commodity futures business since 1973 and is the owner of Merchants
Futures of the Northwest, a commodity brokerage company located in
Spokane, Washington. Mr. Allen has served as an officer and director
of the following publicly traded corporations: Gold Capital, Inc.:
Remco Enterprises, Inc.; and, Calco Enterprises, Inc.
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William A. Sutherland - Secretary/Treasurer, Chief Financial Officer,
and a member of the Board of Directors.
Mr. Sutherland is a founder, Secretary/Treasurer, Chief Financial
Officer and a member of the Board of Directors of the Company. Since
1970, Mr. Sutherland has been involved in the automotive industry as a
consultant and automobile dealer. He has owned Lincoln, Mercury, and
Mercedes Benz car dealerships and is currently a consultant to a number
of auto dealerships located in Spokane, Washington.
All of the officers and directors are engaged in other business.
As such, they will not be devoting time exclusively to the operation of
the Company. The President expects to devote approximately ten hours of
his time per month to the operation of the Company and the Vice
President and Secretary/Treasurer each expect to devote approximately
two hours of their time per month to the operation of the Company. It
is expected that the day-to-day operations of the Company will be
directed by Mr. Sterling, the Company's President.
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation.
The following table sets forth the compensation paid by the
Company during fiscal 1999 to its officers. This information includes
the dollar value of base salaries, bonus awards and number of stock
options granted, and certain other compensation, if any.
SUMMARY COMPENSATION TABLE [1]
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation Award(s) SARs Payouts sation
($) ($) ($) ($) (#) ($) ($)
Robert E. 1999 - - $10,000[2] - - - -
Sterling 1998 - - - - - - -
President 1997 - - - - - - -
Ronald L. 1999 - - $10,000[2] - - - -
Allen 1998 - - - - - - -
Vice 1997 - - - - - - -
President
William A. 1999 - - $10,000[2] - - - -
Sutherland 1998 - - - - - - -
Secretary- 1997 - - - - - - -
Treasurer
[1] All compensation received by the officers and directors has been
disclosed.
[2] Represents the value of 50,000 shares issued to each individual
for services as a director.
There are no stock option, retirement, pension, or profit sharing
plans for the benefit of the Company's officers and directors.
<PAGE> 14
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem
with stock appreciation rights ("SARs"), and freestanding SARs have
been made to any executive officer or any director since the inception
of the Company, accordingly, no stock options have been exercised by
any of the officers or directors in fiscal 1999.
Long-Term Incentive Plan Awards.
The Company does not have any long-term incentive plans that
provide compensation intended to serve as incentive for performance to
occur over a period longer than one fiscal year, whether such
performance is measured by reference to financial performance of the
Company or an affiliate, the Company's stock price, or any other
measure.
Compensation of Directors.
Each member of the Board of Directors received 50,000 shares of
Common Stock to serve on the Board of Directors during fiscal 1999.
The directors did not receive any other compensation for serving as
members of the Board of Directors. The Board has not implemented a plan
to award options. There are no contractual arrangements with any member
of the Board of Directors.
The Company does expect not to pay any salaries to its officers
for the fiscal year-ended January 31, 2000. The Company does not
expect to pay salaries to any of its officers until such time as the
Company generates sufficient revenues to do so. The Company does not
anticipate paying any salaries to its officers until fiscal 2001. The
Company does not intend to pay any additional compensation to its
directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 21, 1998, the Company entered into a Licensing Agreement
with Robert Sterling, the Company's President and a member of the Board
of Directors and Matthew Sterling, the son of Robert Sterling for the
licensing of the development, manufacturing and marketing of the
Turbolator. Further, on the same date, the Company entered into a
licensing agreement with Robert Sterling, the Company's President and
a member of the Board of Directors for the development, manufacturing
and marketing of the PHTEM.
On July 31, 1998, the Company issued 4,500,000 shares of Common
Stock to the following pursuant to Reg. 504 of the Securities Act of
1933 (the "Act"):
<PAGE> 14
Total Shares
Name Consideration Acquired
Robert E. Sterling 4,250,000 shares for 4,300,000
President and the Licensing Agreement and
Dierctor 50,000 shares for services
as director
Ronald L. Allen 50,000 shares for services 50,000
Vice President as director
and director
William A. Sutherland 50,000 shares for services 50,000
Secretary/Treasurer as director
and director
Matthew R. Sterling 100,000 shares for the 100,000
Licensing Agreement
TOTAL Licensing Agreement and 4,500,000
Services valued at $45,841
The Company has received cash advances under a line of credit
totaling $22,509 at January 31, 1999 from Robert Sterling, the
Company's President. Borrowings under the line of credit accrue
interest at the rate of 8% per annum and mature on July 31, 1999. The
borrowings are unsecured.
ITEM 8. LEGAL PROCEEDINGS.
No material legal proceedings to which the Company is a party are
pending nor are any known to be contemplated and the Company knows of
no legal proceedings pending or threatened, or judgments entered
against, any Director or Officer of the Company in his capacity as
such.
ITEM 9. MARKET PRICE FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS.
No market exists for the Company's securities and there is no
assurance that a regular trading market will develop, or if developed,
that it will be sustained. A shareholder in all likelihood, therefore,
will be unable to resell the securities referred to herein should he or
she desire to do so. Furthermore, it is unlikely that a lending
institution will accept the Company's securities as pledged collateral
for loans unless a regular trading market develops.
There are no plans, proposals, arrangements or understandings with
any person with regard to the development of a trading market in any of
the Company's securities. Public Securities, Inc, however, has filed
a Form 211 with the National Association of Securities Dealers, Inc.
(the "NASD") requesting that the Company's common stock be listed on
the Bulletin Board operated by the NASD. On January 4, 1999, the NASD
amended its rules regarding listing of securities for trading on the
Bulletin Board. Effective on January 4, 1999, securities of
<PAGE> 16
corporations will not be listed for trading on the Bulletin Board
unless the corporation files reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. Accordingly, the Company's common
stock will not be listed for trading on the Bulletin Board until such
time as this registration statement is declared effective by the
Securities and Exchange Commission (the "Commission") and the Company
has satisfied all comments made by the Commission.
There are no outstanding options or warrants, or other securities
convertible into, common equity of the Company. Of the 4,690,250
shares of common stock outstanding as of August 15, 1999, 4,400,000
shares were issued to the Company's officers and directors of the
Company and may only be resold in compliance with Rule 144 of the
Securities Act of 1933 (the "Act") with the exception of the one year
holding period contained therein. Said officers and directors do not
have to comply with said one year holding period because the shares of
common stock issued to them were sold pursuant to Reg. 504 of the Act.
There are no shares of common stock currently being proposed to be
publicly offered (pursuant to an employee benefit plan or dividend
reinvestment plan) the offering of which could have a material adverse
effect upon the market price of the Company's common stock.
As of April 19, 1999, the Company has 45 holders of record of its
Common Stock.
The Company has not paid any dividends since it is inception and
does not anticipate paying any dividends on its Common Stock in the
foreseeable future.
SEC Rule 15g
The Company's shares are covered by Section 15g of the Securities
Act of 1933, as amended 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 spouses). For transactions covered by
the Rule, the broker/dealer must make a special suitability
determination for the purchase and have received 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 to sell their
shares in the secondary market.
Section 15g also imposes additional sales practice requirements on
broker/dealers who sell penny securities. These rules require a one
page summary of certain essential items. The items include the risk of
investing in penny stocks in both public offerings and secondary
marketing; terms important to in understanding of the function of the
penny stock market, such as "bid" and "offer" quotes, a dealers
"spread" and broker/dealer compensation; the broker/dealer
compensation, the broker/dealers duties to its customers, including the
disclosures required by any other penny stock disclosure rules; the
<PAGE> 17
customers rights and remedies in causes of fraud in penny stock
transactions; and, the NASD's toll free telephone number and the
central number of the North American Administrators Association, for
information on the disciplinary history of broker/dealers and their
associated persons.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In July 31, 1998, the Company issued 4,500,000 shares of Common
Stock to its officers, directors and one other person in consideration
of licensing agreements and services valued at $45,841. No commissions
were paid to any persons in connection with such sales, no advertising
of any nature was made in connection with the sale of said shares and
all Company information was made available to said purchasers. The
foregoing shares were issued pursuant to Reg. 504 of the Securities Act
of 1933, as amended (the "Act").
In March 1999, the Company completed its sale of 190,250 shares of
Common Stock to 41 persons in consideration of $38,050, pursuant to
Reg. 504 of the Act. No commissions were paid to any persons in
connection with such sales, no advertising of any nature was made in
connection with the sale of said shares and the Company delivered an
offering memorandum to the purchasers.
ITEM 11. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company currently consists of
100,000,000 shares of Common Stock, $0.00001 par value per share. As of
April 19, 1999, 4,690,250 share of common stock were issued and
outstanding. Of the 4,690,250 shares presently outstanding, 4,400,000
are owned by officers and directors of the Company and may only be
resold in compliance with Reg. 144 of the Securities Act of 1933 (the
"Act"), with the exception of the one year holding period. The balance
of the Shares (290,250) are freely tradeable.
In general, under Reg. 144, a person who has held his shares for
a period of one (1) year, may sell in ordinary market transactions
through a broker or with a market maker, within any three (3) month
period a number of shares which does not exceed the greater of one
percent (1%) of the number of outstanding shares of Common Stock or the
average of the weekly trading volume of the Common Stock during the
four calendar weeks prior to such sale. Sales under Reg. 144 require
the filing of Form 144 with the Securities and Exchange Commission. If
the shares of Common Stock have been held for more than two (2) years
by a person who is not an affiliate, there is no limitation on the
manner of sale or the volume of shares that may be sold and no Form 144
is required. Sales under Reg. 144 may have a depressive effect on the
market price of the Company's Common Stock.
<PAGE> 18
Dividends
Holders of the Common Stock are entitled to share equally in
dividends when, as and if declared by the Board of Directors of the
Company, out of funds legally available therefore. No dividend has been
paid on the Common Stock since inception, and none is contemplated in
the foreseeable future.
Transfer Agent
The Company's transfer agent is American Securities Transfer &
Trust, Inc., 938 Quail Street, Suite 101, Lakewood, Colorado 80215-5513
and its telephone number is (303) 298-5370.
Rights of Shareholders
All shares have equal voting rights and are not assessable. Voting
rights are not cumulative and, therefore, the holders of more than 50%
of the Common Stock could, if they chose to do so, elect all of the
directors of the Company.
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock
is not subject to redemption and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of
Common Stock are entitled to share equally in corporate assets after
satisfaction of all liabilities. The shares of Common Stock, when
issued, will be fully paid and non-assessable.
There are no outstanding options, warrants or rights to purchase
shares of the Company's Common Stock, other than as disclosed herein.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Washington Revised Statutes and certain provisions of the
Company's Bylaws under certain circumstances provide for
indemnification of the Company's Officers, Directors and controlling
persons against liabilities which they may incur in such capacities. A
summary of the circumstances in which such indemnification is provided
for is contained herein, but this description is qualified in its
entirety by reference to the Company's Bylaws and to the statutory
provisions.
In general, any Officer, Director, employee or agent may be
indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a party,
if that person's actions were in good faith, were believed to be in the
Company's best interest, and were not unlawful. Unless such person is
successful upon the merits in such an action, indemnification may be
awarded only after a determination by independent decision of the Board
of Directors, by legal counsel, or by a vote of the shareholders, that
the applicable standard of conduct was met by the person to be
indemnified.
<PAGE> 19
The circumstances under which indemnification is granted in
connection with an action brought on behalf of the Company is generally
the same as those set forth above; however, with respect to such
actions, indemnification is granted only with respect to expenses
actually incurred in connection with the defense or settlement of the
action. In such actions, the person to be indemnified must have acted
in good faith and in a manner believed to have been in the Company's
best interest, and have not been adjudged liable for negligence or
misconduct.
Indemnification may also be granted pursuant to the terms of
agreements which may be entered in the future or pursuant to a vote of
shareholders or Directors. The statutory provision cited above also
grants the power to the Company to purchase and maintain insurance
which protects its Officers and Directors against any liabilities
incurred in connection with their service in such a position, and such
a policy may be obtained by the Company.
ITEM 13. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
Exhaust Technologies, Inc.
Report of Independent Certified Public Accountants F-1
Balance Sheets F-2
Statements of Loss F-3
Statements of Changes in Stockholders' Equity F-4
Statements of Cash Flows F-5
Summary of Accounting Policies F-6 to F-8
Notes to Financial Statements F-9 to F-10
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Exhaust Technologies, Inc.
We have audited the accompanying balance sheets of Exhaust
Technologies, Inc. (a development stage company), as of April 30, 1999
and January 31, 1999, and the related statements of loss, changes in
stockholders' equity and cash flows for the three-months ended April 30,
1999 and for the period ended January 31, 1999. We have also audited
the statement of loss, changes in stockholders' equity and cash flows
from inception (July 21, 1998) through April 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Exhaust
Technologies, Inc. as of April 30, 1999 and January 31, 1999, and the
results of its operations and its cash flows for the three-months ended
April 30, 1999, the period ended January 31, 1999 and the period from
inception (July 21, 1998) through April 30, 1999, 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 1
to the financial statements, the Company has no recurring source of
revenue and has incurred losses since inception. These conditions
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 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Spokane, Washington
May 5, 1999
F-1
<PAGE>
<PAGE> 21
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS (Note 1)
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
-------- ----------
<S> <C> <C>
Current assets:
Cash $ 12,803 $ 27,265
Supplies inventory 9,021 7,991
--------- ---------
Total current assets 21,824 35,256
--------- ---------
Other assets:
Licenses, net of accumulated
amortization of $2,134 and
$1,584 (Note 2) 20,307 14,257
--------- ---------
$ 42,131 $ 49,513
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,516 $ -
Accrued interest 1,235 785
Line of credit related
party (Note 3) 22,509 22,509
--------- ---------
Total current liabilities 31,260 23,294
--------- ---------
Commitments and contingencies (Notes 1, 3 and 4)
Stockholders' equity:
Common stock, $.00001 par value;
100,000,000 shares authorized;
4,692,750 and 4,642,500 shares
issued and outstanding 47 46
Additional paid-in capital 72,088 62,039
Deficit accumulated during the
development stage (61,264) (35,866)
--------- ---------
Total stockholders' equity 10,871 26,219
--------- ---------
$ 42,131 $ 49,513
========= =========
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-2
<PAGE> 22
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF LOSS
<TABLE>
<CAPTION>
Date of
Three- Inception
Months Period (July 21, 1998)
Ended Ended Through
April 30, January 31, April 30,
1999 1999 1999
-------- ---------- --------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
---------- --------- ---------
Operating expenses:
Professional services 22,173 - 22,173
Advertising 1,300 - 1,300
Office expense 925 659 1,584
Amortization 550 1,584 2,134
Travel - 2,838 2,838
Directors fees - 30,000 30,000
---------- --------- ---------
Total operating expenses 24,948 35,081 60,029
---------- --------- ---------
Loss from operations (24,948) (35,081) (60,029)
--------- --------- ---------
Other expense:
Interest expense (450) (785) (1,235)
--------- --------- ---------
Net loss $ (25,398) $ (35,866) $ (61,264)
========= ========= =========
Net loss per share
basic and diluted $ (0.01) $ (0.01)
========= =========
Weighted average number
of shares basic
and diluted 4,682,385 4,516,264
========= =========
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-3
<PAGE> 23
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Common stock issued to
inventors for licenses at
$0.01 per share 4,350,000 $ 43 $ 15,798 $ - $ 15,841
Common stock issued for
services at $0.20 per
share 150,000 2 29,998 - 30,000
Common stock issued for
cash at $0.20 per share 142,500 1 16,243 - 16,244
Net loss for the period - - - (35,866) (35,866)
--------- ---- -------- --------- ----------
Balance,
January 31, 1999 4,642,500 46 62,039 (35,866) 26,219
Common stock issued for
cash at $0.20 per share 50,250 1 10,049 - 10,050
Net loss for the period - - - (25,398) (25,398)
--------- ---- -------- --------- ---------
Balance, April 30, 1999 4,692,750 $ 47 $ 72,088 $ (61,264) $ 10,871
========= ==== ======== ========= =========
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-4
<PAGE> 23
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Date of
Three- Inception
Months Period (July 21, 1998)
Ended Ended Through
April 30, January 31, April 30,
1999 1999 1999
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (25,398) $ (35,866) $ (61,264)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization 550 1,584 2,134
Issuance of common stock
for services - 30,000 30,000
Changes in assets and liabilities:
Accounts payable 7,516 - 7,516
Supplies inventory (1,030) (780) (1,810)
Accrued interest 450 785 1,235
--------- --------- ---------
Net cash used in operating
activities (17,912) (4,277) (22,189)
--------- --------- ---------
Cash flows from investing
activities:
Cash paid for licenses (6,600) - (6,600)
--------- --------- ---------
Net cash used in investing
activities (6,600) - (6,600)
--------- --------- ---------
Cash flows from financing activities:
Borrowings under line of
credit related party - 15,298 15,298
Net proceeds from sale of
common stock 10,050 16,244 26,294
--------- --------- ---------
Net cash provided by financing
activities 10,050 31,542 41,592
--------- --------- ---------
Net increase (decrease)
in cash (14,462) 27,265 12,803
Cash, beginning of period 27,265 - -
--------- --------- ---------
Cash, end of period $ 12,803 $ 27,265 $ 12,803
========= ========= =========
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
========= ========= =========
Noncash financing activities:
Issuance of common stock in
exchange for licenses $ - $ 15,841 $ 15,841
Inventory advanced under line
of credit - related party $ - $ 7,211 $ 7,211
========= ========= =========
<PAGE> 25
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
Nature of Business
Exhaust Technologies, Inc. ("Exhaust Technologies" or "the Company") is
a development stage enterprise which holds exclusive manufacturing,
developing, and marketing rights in the United States for the
Turbolator, a tube-housing designed for installation on vehicles to
regulate exhaust flow from the engine, and for the Pneumatic Hand Tool
Exhaust Muffler ("PHTEM"), a noise muffling system installed on
pneumatic wrenches which can reduce the sound levels and remove
contaminates from the exhaust air before discharging into the
atmosphere. The Company was incorporated pursuant to the laws of the
state of Washington in July 1998. The Company's fiscal year end is
January 31.
Cash Equivalents
For financial reporting purposes, the Company considers all highly
liquid investments with an original maturity of three months or less
when purchased to be a cash equivalent. Financial instruments, which
potentially subject the Company to a concentration of credit risk,
consist of cash and cash equivalents. Cash and cash equivalents
consist of funds deposited with various high credit quality financial
institutions.
Supplies Inventory
Supplies inventory consists of supplies and component parts. Supplies
inventory is stated at the lower of cost (first-in, first-out method)
or market.
Equipment
Equipment is recorded at cost. Depreciation and amortization are
provided using the straight-line method over the useful lives of the
respective assets. Major additions and betterments are capitalized.
Upon retirement or disposal, the cost and related accumulated
depreciation or amortization are removed from the accounts and any gain
or loss is reflected in operations. Equipment with a nominal value was
contributed by the founders at inception, and accordingly, no asset has
been recognized.
Licenses
The costs associated with acquiring exclusive licensing rights to
patented technology have been capitalized and are being charged to
expense using the straight line method of amortization over ten years,
the estimated useful lives of the patents.
F-6
<PAGE> 26
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be Disposed of", management
of the Company reviews the carrying value of its intangible assets on
a regular basis. Estimated undiscounted future cash flows from the
intangible assets are compared with the current carrying value.
Reductions to the carrying value are recorded to the extent the net
book value of the property exceeds the estimate of future discounted
cash flows.
Income Taxes
Income taxes are provided based on the liability method of accounting
pursuant to SFAS No. 109, "Accounting for Income Taxes." Under this
approach, deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each
year end. A valuation allowance is recorded against deferred tax
assets if management does not believe the Company has met the "more
likely than not" standard imposed by SFAS No. 109 to allow recognition
of such an asset.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheet as of
January 31, 1999 for cash equivalents and accrued expenses approximate
fair value because of the immediate or short-term maturity of these
financial instruments. The fair value of the line of credit related
party approximates its carrying value as the stated rate of the debt
reflects recent market conditions.
Research and Development Costs
Research and development costs are charged to expense as incurred.
F-7
<PAGE> 27
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
SUMMARY OF ACCOUNTING POLICIES
Net Loss Per Share
SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements issued after December 15, 1997 for
all entities with complex capital structures. Adoption of SFAS No. 128
had no effect on the Company's financial statements. Basic EPS is
computed as net income divided by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through stock
options, warrants and other convertible securities. The Company had no
dilutive potential common stock at April 30, 1999 and January 31, 1999
and therefore, basic and diluted EPS are the same for both periods.
New Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with
the recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk, or (ii)
the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized as income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June
15, 2000. Based on its current and planned future activities relative
to derivative instruments, the Company believes that the adoption of
SFAS No. 133 on January 1, 2001 will not have a significant effect on
its financial statements.
In June 1998 the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires all start-up and organizational costs
to be expensed as incurred. It also requires all remaining
historically capitalized amounts of these costs existing at the date of
adoption to be expensed and reported as the cumulative effect of a
change in accounting principle. SOP 98-5 is effective for all fiscal
years beginning after December 31, 1998. The Company believes that the
adoption of SOP 98-5 on January 1, 2000 will not have a significant
effect on its financial statements.
In February 1999 the Financial Accounting Standards Board issued SFAS
No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections." SFAS No. 135 rescinds SFAS No. 75 and amends SFAS No 35.
SFAS No. 135 also amends other existing authoritative literature to
make various technical corrections, clarify meanings, or describe
applicability under changed conditions. SFAS No. 135 is effective for
financial statements issued for fiscal years ending after February 15,
1999. The Company believes that the adoption of SFAS No. 135 will not
have a significant effect on its financial statements.
<PAGE> 28
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. Development Stage Operations and Going Concern
The Company has been in the development stage since its inception. The
Company has no recurring source of revenue and has incurred losses
since inception. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments that may be necessary if the
Company is unable to continue as a going concern.
Management of the Company has undertaken certain actions to address
these conditions. Management currently plans to commence production in
fiscal 2000. To this end, management is currently in negotiations with
manufacturers to produce the Company's products and with marketing
representatives to establish a product channel. Funds required to
carry out management's plans are expected to be derived from future
stock sales or borrowings from the Company's shareholders. There can
be no assurances that the Company will be successful in executing its
plans.
2. Licenses
In 1998, the Company acquired exclusive licensing rights to
manufacture, develop and market the Turbolator and the PHTEM from the
Company's president and his son ("the inventors") under separate
licensing agreements. The licenses were acquired through the issuance
of 4,350,000 shares of common stock, valued at $15,841, which
represented the inventors' historical cost basis in the licenses.
Pursuant to the terms of the agreements, the Company is required to
generate sales of the Turbolator of $1,000,000 per year beginning in
fiscal 2000 and generate sales of the PHTEM of $500,000 in fiscal 2000
and $1,000,000 per year thereafter, in order to retain the licensing
rights.
3. Line of Credit Related Party
The Company has a line of credit with the Company's president which
allows for borrowings up to $50,000. Outstanding borrowings under the
line of credit, which accrue interest at 8% and mature on July 31,
1999, totaled $22,509 at April 30, 1999 and January 31, 1999.
Borrowings under the line of credit are unsecured.
4. Income Taxes
At April 30, 1999 and January 31, 1999, the Company had net deferred
tax assets of approximately $21,000 and $12,500 principally arising
from net operating loss carryforwards for income tax purposes. As
management of the Company cannot determine that it is more likely than
not that the Company will realize the benefit of the net deferred tax
asset, a valuation allowance equal to the net deferred tax asset has
been established at both April 30, 1999 and January 31, 1999.
F-9
<PAGE> 29
EXHAUST TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4. Income Taxes . . . continued
At April 30, 1999, the Company has net operating loss carryforwards
totaling approximately $60,000, which expire in the years 2014 through
2015.
F-10
<PAGE> 30
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no disagreements on accounting and financial
disclosures from the inception of the Company through the date of this
Registration Statement.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) List of Financial Statements.
Report of Independent Certified Public Accountants
Balance Sheet
Statement of Loss
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Summary of Accounting Policies
Notes to Financial Statements
(b) Exhibit No. Description
3.1* Articles of Incorporation.
3.2* Bylaws.
4.1* Specimen Stock Certificate.
27.2 Financial Data Schedule
10.1* Licensing Agreement for Turbolator
10.2* Licensing Agreement for Pneumatic Hand Tool
Exhaust Muffler.
10.3 Marketing Agreement with Clarkstone International
Corporation.
* Previously filed.
<PAGE> 31
SIGNATURES
In accordance with Section 12 of the Securities Ace of 1934, the
registrant caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized:
EXHAUST TECHNOLOGIES, INC.
BY: /s/ Robert E. Sterling
Robert E. Sterling, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature
appears below constitutes and appoints Robert E. Sterling, as true and
lawful attorney-in-fact and agent, with full power of substitution, for
his and in his name, place and stead, in any all capacities, to sign
any and all amendments (including post-effective amendments) to this
registration statement, and to file the same, therewith, with the
Securities and Exchange Commission, and to make any and all state
securities law or blue sky filings, granting unto said attorney-in-fact
and agent, full power and authority to do and perform each and every
act and thing requisite or necessary to be done in and about the
premises, as fully to all intends and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or any substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Form 10SB Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signatures Title Date
/s/ Robert E. Sterling
Robert E. Sterling Chairman of the Board 08/26/99
of Directors and
President
/s/ Ronald L. Allen
Ronald L. Allen Vice President and a 08/26/99
Member of the Board
of Directors
/s/ William A. Sutherland
William A. Sutherland Secretary/Treasurer 08/26/99
and a member of the
Board of Directors
</TABLE>
<PAGE> 33
EXHIBIT 10.3
CONSULTING AND MARKETING AGREEMENT
THIS AGREEMENT is made the _____ day of _______________, 1999, by
and between Clarkstone International Corporation ("CIC") and Exhaust
Technologies, Incorporated ("Company").
WHEREAS, the Company owns all rights, patents and trademarks
related to a product(s) known as "Pneumatic Hand Tool Exhaust
Muffler(s)" ("Product"),
WHEREAS, the Company and CIC desire that CIC render certain
services to the Company for the development and marketing of the
Product.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and conditions contained herein, the parties hereto agree as
follows:
1. CONSULTING SERVICES. CIC shall provide the following consulting
services to the Company:
1.1 Product Development. CIC will provide consulting services to
the Company related to the product development of the
Product. These services will include but are not limited to,
recommendations to identify appropriate service providers, as
well as advisory assistance that incorporates market trends
and perspectives into early decisions that are made in the
development of the Product.
1.2 Marketing. CIC will provide consulting services to the
Company in a marketing capacity which may include, but not
limited to the following:
* Identify and analyze potential markets
* Create market strategies for the most effective
introduction of the product
* Evaluate individual distribution organizations
* Study market share potential
* Recommend pricing structure
* Pursue publicity opportunities, i.e.; news releases and
publication editorials
* Produce a marketing video if appropriate
<PAGE> 34
* Assist in the design of collateral materials including
brochures and point-of-purchase displays
* Develop synergistic marketing relationships with
individual companies and vertical markets
1.3 Compensation. CIC will be compensated for consulting services
provided under Paragraphs 1. 1 and 1.2 at an hourly rate of
One Hundred Fifty Dollars ($150.00). CIC has estimated eighty
(80) hours for this project. Without the prior approval of
the Company, CIC will not be paid for more than eighty (80)
hours of services. On or before the 5th day of each month,
CIC shall provide the Company with an invoice of the services
rendered in the previous month. Such invoice shall be paid by
the Company within twenty (20) days of receipt. CIC shall be
paid its compensation for services rendered under Paragraphs
1. 1 and 1.2 in the form of common stock of the Company
valued at the price of $.20 per share. CIC acknowledges that
it has carefully reviewed the representations, warranties and
agreements contained in Exhibit "A" attached hereto with
respect to the shares to be issued. Unless CIC notifies the
Company in writing at the time an invoice is submitted that
such representations, warranties or agreements are not true
and correct, the Company may rely on such representations,
warranties and agreements each time a payment is made in
stock hereunder.
2. SALES. CIC will provide national and international sales
management of the "Product" and will use reasonable efforts to
develop appropriate markets for the "Product." This will include
efforts to sell, demonstrate and otherwise promote the sale of the
"Product" through, but not limited to catalog sales (i.e.:
Granger, McMaster Carr, etc.), OEM (private label opportunities),
primary and secondary market sales, trade shows if applicable, and
the development of a network of sales representatives.
2.1 Sales Compensation. CIC will be compensated for all sales of
the Product (except licensing), on a commission basis as
follows:
Sales under $10,000 15% of the sales price
Sales $10,000 - $20,000 $1,500 plus l2% of the
amount of the sales
price over $10,000
<PAGE> 35
Sales $20,000 - $30,000 $2,700 plus 11 % of the
amount of the sales
price over $20,000
Sales over $30,000 $3,800 plus 10% of the
amount of the sales
price over $30,000
For the purposes of this Agreement sales price shall be
exclusive of actual freight and transportation costs
(including insurance), normal and recurring bona fide trade
discounts approved by CIC and any applicable sales or similar
taxes. Sales are based on cumulative sales of a one year
period (the fiscal year of the Company), per individual
customer. In no event will the commission be more than 25% of
gross profit from the sale of the product. The cost of the
product will be shown at the beginning of each month to CIC
by the Company and the Company will make available all
information used in connection with determining costs.
All commission owed by the Company to CIC shall be due and
payable on or before the twentieth (20") date of the month
immediately following the month during which the payment of
invoice applicable to an order in whole or in part is
received by the Company.
CIC shall be responsible for all costs associated with the
development of a network of sales representatives and factory
representatives. CIC shall also be solely responsible for the
payment of all commissions and benefits (if any) to such
persons. CIC shall indemnify and hold the Company harmless
against any claims made by sales or factory representatives
for payments due to them or any other claim arising out of
their relationship with CIC.
2.2 License Fees. The parties acknowledge that CIC may also
market the Product by a license of the Product technology to
a third party. CIC shall have the right to negotiate the
terms of any such license, but in any event, the license
shall not be effective until the terms thereof are approved
by the Company. As compensation for these activities, CIC
shall be entitled to receive 25% of the royalties or other
fees paid to the Company under the terms of the license ("CIC
License Fee") for the life of the Product. Such fees shall be
paid by the Company to CIC within ten (10) days following
receipt of funds thereof by the Company from the third party.
<PAGE> 36
2.3 Advertising. The only marketing costs for which the Company
shall be responsible are costs associated with creation and
publication of advertisements, brochures, video and other
promotional materials for the Product. The Company shall
supply CIC with sufficient materials, as requested by CIC, to
meet the full demand of marketing and sales. CIC will submit
examples of all proposed advertisements and other promotional
materials for the Product to the Company for inspection and
approval. CIC shall not create any obligation or contract
which would become binding on the Company unless the Company
shall consent thereto in writing.
2.4 Samples. The Company shall supply CIC with sufficient
Product, as requested by CIC, for sample or demonstration
purposes to enable CIC to meet the full demand of marketing
and sales.
3. ADDITIONAL TERMS.
3.1 Exclusive Representation. The Company grants to CIC the
exclusive right to act as the Company's national and
international sales manager of the Product as described above
and subject to the terms and conditions set forth herein. The
Company agrees to refer all inquires to CIC and to promptly
furnish CIC with copies of all correspondence and
documentation between the Company and the customer.
3.2 Sales Policies. The Company shall establish the prices,
charges and terms of sales of the Product ("Sales Policies").
The Sales Policies shall be those currently in effect and/or
established from time to time by the Company in its price
books, bulletins and other authorized releases. Written
notice of each Sales Policy change shall be given by Company
to CIC at least thirty (30) days in advance of such change.
3.3 Orders and Collections. Orders for products shall be
forwarded to and subject to acceptance by the Company. The
Company agrees to refer all inquiries to CIC and to promptly
furnish CIC with copies of all orders, correspondence and
documentation between the Company and the Customer. All
invoices in connection with orders shall be rendered by the
Company, direct to the Customer, and full responsibility for
all products, services, collections, and bad debts rests with
the Company.
<PAGE> 37
3.4 Relationship Created. CIC is not an employee of Company for
any purpose whatsoever, but is an independent contractor. The
Company is interested only in the results obtained by CIC,
who shall have sole control of the manner and means of
performing under this Agreement. The Company shall not have
the right to require CIC to do anything which would
jeopardize the relationship of independent contractor between
Company and CIC. All expenses and disbursements incurred by
CIC in connection with this Agreement shall be borne wholly
and completely by CIC. CIC does not have, nor shall CIC hold
out as having any right, power, or authority to create any
contract or obligation, either express or implied, on behalf
of, in the name of, or binding upon the Company, unless the
Company shall consent thereto in writing. Designation by CIC
as "Sales Agent" or "Sales Agency" shall not expand the
limited authority to conduct "Sales" activities granted under
this Agreement. CIC shall have the right to appoint and shall
be solely responsible for representatives at their own risk,
expense, and supervision and shall not have any claim against
the Company for compensation or reimbursement. Unless
expressly permitted in writing, CIC shall not represent
products which directly compete with Products of the Company
during the existence of this contract relationship, or for a
period of one year following notice of termination should CIC
elect to terminate this Agreement.
3.5 Term. This Agreement shall continue in fall force and effect
until the date ("Termination Date") set forth in a notice
given by one party to the other indicating such party's
election to terminate this Agreement, which Termination Date
shall be at least ninety (90) days after the date notice of
such election is given. Alternatively, this agreement may be
terminated at any time by mutual written agreement between
both parties. If this Agreement shall terminate for any
reason whatsoever, CIC shall be entitled to receive CIC's
full commission for a period of twelve (12) months, as
determined in accordance with provisions of Paragraph 2.1
with respect to orders solicited prior to the effective date
of such termination, regardless of when such orders are
accepted by Company (provided CIC can demonstrate such orders
were solicited prior to the effective date of such
termination) and regardless of when such shipments are made
or invoices rendered. In addition, CIC shall continue to
receive the CIC License Fee (in accordance with Paragraph
2.2) under any license signed by the Company or solicited by
CIC prior to the Termination Date.
<PAGE> 38
3.6 Further Provisions. Company shall save CIC harmless from and
against and indemnify CIC for all liability, loss, costs,
expenses or damages however caused by reason of any Product
(whether, or not defective), or any act or omission of
Company, including, but not limited to, any injury (whether
to body, property, or personal or business character or
reputation) sustained by any person or to any person or to
property, and for infringement of any patent rights or other
rights of third parties, and for any violation of municipal,
state, or federal laws or regulations governing the Product,
or their sale, which may result from the sale or distribution
of Me Product by CIC hereunder.
CIC shall hold the Company harmless from and against and
indemnify Company for all liability, loss, costs, expenses or
damages arising out of, or related to, CIC's breach of any
term of this Agreement.
3.7 Legal Jurisdiction. This Agreement shall be subject to and
shall be enforced and construed pursuant to the laws of the
State of Washington. If any provision of this Agreement is
held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the provisions shall
remain in fall force and effect, and shall in no way be
affected, impaired, or invalidated. In the event of
litigation, the prevailing party may recover interest, court
costs, and reasonable attorney's fees.
3.8 Notices. Any notice, demand, or request required or permitted
to be given hereunder shall be in writing and shall be deemed
effective on personal delivery or seventy-two (72) hours
after having been deposited in the United States mail,
postage prepaid, registered or certified, and addressed to
the addressee at his or its main office as set forth below.
Any party may change his or her address for purposes of this
Agreement by written notice given in accordance herewith.
3.9 Dispute Resolution. In the event of any dispute or default
arising as a result of this Agreement, the parties agree to
submit such dispute or default to binding arbitration,
according to the then existing rules of the American
Arbitration Association to an arbitrator or arbitration panel
in Spokane County, Washington.
<PAGE> 39
3.10 Entire Agreement. This Agreement, together with the Exhibits
attached hereto, constitutes the entire agreement among the
parties hereto, and no party hereto shall be bound by an
communications between them on the subject matter hereof
unless such communications are in writing and bear a date
contemporaneous with or subsequent to the date hereof Any
prior written agreements or letters of intent among the
parties shall, upon the execution of this Agreement, be null
and void.
3.11 Assignment, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. No party shall
assign any of its rights or obligations hereunder without the
prior written consent of the other parties.
3.12 Waiver, Discharge. This Agreement may not be released,
discharged or modified except by an instrument in writing
signed on behalf of each of the parties hereto. The failure
of a party to enforce any provision of this Agreement shall
not be deemed a waiver by such party of any other provision
or subsequent breach of the same or any other obligation
hereunder.
3.13 Good Faith. Each party has a requirement to act in good faith
and in a fiduciary responsibility to the other. All terms and
conditions of this agreement shall be subject to normal and
reasonable business practices in good faith for the type of
services to be performed.
CIC: CLARKSTONE INTERNATIONAL CORPORATION
By: /s/ Emory Clark Date 5-11-99
Title: President
101 East Nora Ave., Spokane, Washington 99207
509-326-6654
THE COMPANY: EXHAUST TECHNOLOGIES, INCORPORATED
By: /s/ Bob Sterling Date 5-11-99
Title: President
P.O. Box 2822, Spokane, WA 99220
509-838-4447
<PAGE> 40
Exhibit "A"
Representations, Warranties, and Agreements
CIC represents, warrants, and agrees:
1. Right Not Transferable. The right to receive the shares of
common stock in the Company as provided in Paragraph 1.3 shall not be
assignable or transferable, voluntarily or involuntarily, by operation
or law, or otherwise, and any such assignment or transfer which may be
attempted shall be null and void.
2. Review of Documents. CIC has been granted access to and has
reviewed carefully copies of the Company's books and records. CIC is
entering into this Agreement and the transactions contemplated hereby
solely in reliance on CIC's own investigation and review, and warrants
that it has not relied upon any representations, oral or in writing not
contained in this Agreement. CIC has had an opportunity to meet with
the officers of the Company subsequent to review of such information to
discuss with them CIC's questions concerning the Company and the terms
and conditions of the acquisitions hereunder.
3. Acquisition of Shares for Own Account. The shares will be
acquired for CIC's own account, not as a nominee or agent and not for
the account of any other person or firm. No one else has or will have
any interest, beneficial or otherwise, in any of the shares. CIC is not
obligated to transfer any of the shares or any interest therein to
anyone else nor has it any agreement or understanding to do so. CIC
will acquire the shares, if at all, for investment for an indefinite
period and not with a view to the sale or distribution of any part or
all thereof, by public or private sale or other disposition, and has no
intention of selling, granting any participation in, or otherwise
distributing or disposing of any or of the shares or any interest
therein.
4. Restricted Nature of Shares. CIC is able to bear the economic
risk of any investment in the shares and is aware that CIC must be
prepared to hold the shares received for an indefinite period and that
the shares have not been registered under the Securities Act of 1933,
as amended (the "Act").
5. Sophistication of CIC. CIC has such knowledge and experience
in financial and business matters that CIC is capable of evaluating the
merits and risks of the prospective investment by CIC contemplated by
this Agreement and CIC has carefully reviewed and will carefully review
all the information regarding the Company, access to which has been or
<PAGE> 41
will be accorded to CIC hereunder, is thoroughly familiar with the
business, operations, and properties Of the Company by virtue of such
review.
6. Agreement to Refrain from Resales. Without in any way
limiting CIC's representations as set forth herein, CIC further agrees
that CIC shall in no event make any disposition of all or any part of
or interest in the shares and that the shares shall not be encumbered,
pledged, hypothecated, sold, or transferred by CIC nor shall CIC
receive any consideration for the shares or for any interest therein
from any person, unless and until prior to any proposed transfer,
encumbrance, disposition, pledge, hypothecation, or sale of any of the
shares, CIC either (a) sells the shares pursuant to a registration
statement under the securities laws or (b)(i) CIC notifies the Company
of the proposed disposition, (11) CIC furnishes the Company with an
opinion of counsel in form and substance satisfactory to the Company to
the effect that such disposition will not require registration of any
of the shares under the Act or qualification of the shares under any
other securities law and (iii) such opinion of counsel shall have been
concurred in by counsel for the Company and the Company shall have
advised CIC of such. concurrence.
7. Indemnification. CIC hereby agrees to indemnify the Company
and hold it harmless from and against any and all liability, damage,
cost, or expense incurred on account of or arising out of (a) any
inaccuracy in any of the representations, warranties, or agreement --
set forth in this Article 5, (b) the disposition of any shares which
CIC may receive, contrary to CIC's representations, warranties, and
agreements set forth herein or any action, suit, or proceeding based
on a claim that said representations, warranties, or agreements were
inaccurate or misleading or otherwise cause for obtaining damages or
redress from the Company under the federal or state Securities laws.
<PAGE> 41
ADDENDUM TO CONTRACT
THIS AGREEMENT HEREBY MODIFIES AND SUPERSEDES the contract entered
into between Exhaust Technologies, Inc. (Company) and Clarkstone
International Corporation (CIC). A copy of the contract is attached as
an exhibit. The modifications are as follows:
Amendment 1.
Page I paragraph 2: WHEREAS, the Company owns all
rights, patents and trademarks related to a product(s) known
as "Pneumatic Hand Tool Exhaust Muffler(s)" ("Product")
Amended to read: WHEREAS, the Company owns all rights,
patents and trademarks related to the products known as
"Pneumatic Hand Tool Exhaust Muffler(s)" and "Turbulator"
("Products")
Amendment 2.
Throughout the contract "Product" is amended to read
"Products"
These modifications are mutually agreed to by the contracting
parties, and are supported by legal consideration. The remaining terms
of the contact are unchanged by this agreement.
Date: May 11, 1
signed: /s/ Emory Clark
Clarkstone International Corporation
signed: /s/ Bob Sterling
Exhaust Technologies, Inc.
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