The following revised submission is in response to staff comments in a
letter to Sustainable Development International, Inc., dated June 11, 1999.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D. C., 20549
Form 10-SB/A
General Form for Registration of Securities of Small Business Issuers
(Under Section 12(b) or (g) of the Securities Exchange Act of 1934)
SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
Nevada 86-0857752
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10240 - 124TH Street, Suite 208
Edmonton, Alberta, Canada T5N 3W6
(Address of Principal Executive Office) (Zip Code)
(780) 488-9193
( Telephone Number)
Securities To Be Registered Under Section 12(b) of the Act:
Title of each Class Name of each Exchange on which
To Be Registered each Class is to be Registered
None None
Securities To Be Registered Under Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Item 1. Description of Business
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Legal Proceedings
Item 9. Market for Common Equity and Related Stockholder Matters
Item 10. Recent Sales of Unregistered Securities
Item 11. Description of Securities
Item 12. Indemnification of Directors and Officers
Item 13. Financial Statements
Item 14. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Item 15. Financial Statements and Exhibits
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INTRODUCTORY STATEMENT
Sustainable Development International, Inc., has prepared this Form
10SB on a voluntary basis to make available reportable information about
the Company to existing shareholders and others interested in the
activities of the Company.
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Sustainable Development International, Inc., a Nevada corporation (the
"Company") is a development stage company formed in 1998 to commercialize
innovative technologies in the environmental energy from waste, and
alternative power system industries. The Company's goal is to acquire
technology rights and licenses from patent holders and others, then secure
a market, and raise sufficient capital to build, own, and operate
facilities throughout the world.
We have obtained the rights in Germany from Enviro-Mining Inc. for
technologies which when combined can produce a high grade low sulfur diesel
fuel meeting European standards for diesel fuel. The EMI Process is an
alternative to the present waste disposal methods by converting automotive
waste oil into light heating oil and high quality diesel fuel. (See
"Intellectual Property")
We have added separate innovations to the processing package to
provide stability to the products, which meet the lower sulphur standards
required in Europe. The Company has combined these technologies under the
operating name of The EMI Process (EMI). The objective is to establish the
most appropriate system, which will meet the operating, technical, and
business objectives to be operated by us in Europe.
Industry Description and Outlook
The collection of waste oil has been long established in most
industrialized nations. According to the scientific reports prepared by
CANMET, a division of Natural Resources of Canada, at the Canada Centre for
Mineral and Energy Technology, (the "CANMET Report"), dated November 8,
1998, the amount of waste oil collected per capita is approximately 10
Litres annually. According to waste oil data prepared in a report entitled
"Jahresbericht 1996." (the Jahresbericht Report"), obtained by the Company
from Gernman Environmental Department, Umwelt Bundes Amt., estimations of
the total waste oil produced in the nation of Germany are at 1,200,000 tons
annually. All waste oil is not collected. A percentage is lost in the
combustion process, some is not disposed of in an existing collection
system, and some is simply burned. A net amount of 650,000 tons of waste
oil per year is reported by the Mineral Oil Association of Germany.
Waste oil is considered hazardous and as such the handling of this
waste, disposal, and collection methods are heavily regulated in Germany. A
specific list of waste collectors is approved to transport this waste,
along with manifests as to how many liters are produced, which locations
produces/collects this oil, and any variation as to seasonal effects.
The types of oil collected are important for our process and our
environmental permitting. Approximately 320,000 tons of this used engine
oil is of extremely high quality in Germany. Automobile laws stringently
require regular oil changes be done and overall car maintenance must be
performed regularly in order to be road worthy. These check ups are made on
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a regular basis and must be completed to retain ones license. Secondly,
considering the value individuals place in owning and maintaining their
vehicles in Germany, oil changes are more frequent than is the standard in
North America.
The type of oils to be processed include, engine, hydraulic, and
transmission oils primarily from automobiles, military vehicles, and heavy
equipment. The quality of the oil and its collection will be strictly
adhered to in order to fall under the 4.4 BimscH procedure. This is the
standard set out by the environment departments for the collection disposal
and transport of waste oil.
Input - Waste Oil
The primary source of the type of waste oil we require are lube oil
change shops, the machining industry, and military vehicles which produce
engine and hydraulic waste oils. Germany has been a developed industrial
country for over 50 years. They are highly recognized as being world
leaders in manufacturing, chemicals, and heavy industry. The present and
future growth of industry will shift to more service, and knowledge based
efforts. However, automobile usage will remain high for the foreseeable
future resulting in a relatively stable waste oil market in the 650,000 ton
range per year.
Output - Diesel Fuel
The price of diesel fuel fluctuates seasonally and over time, yet
remains much higher than North American prices due to the importation of
fuels into Germany. The price of diesel fuel FOB German Refinery before
national sales and mineral oil taxes has been as high as $0.21 US per liter
and is currently in the $0.15-$0.17 US range. Our calculations are based on
the conservative assumption of a $0.15 US purchase price.
The diesel fuel industry is very price sensitive. There are multiple
refinery sources. Buyers will shift to an alternative source based on price
points, fuel quality, and price stability. Environmental considerations are
usually not considered. Environmental concerns are only addressed when
legislation is involved requiring purchases be based on a percentage coming
from a recycled source or government incentives providing a lower overall
cost to the buyer. These considerations are not current law in Germany. We
are not expecting these to arise in the near future.
Pursuant to the "Waste Avoidance, Recycling and Disposal Act," enacted
in September of 1994, German regulations only state waste oil disposal by
"burning" must be reduced and "recycling" must increase. Recycling to
diesel fuel is not mandated. The Company's plan is to become a preferred
recycling option by virtue of its inherent advantages. In summary, price,
stable supply, and quality of the diesel fuel are the factors to be
considered by our potential customers.
The Company's consumer base for our diesel fuel includes transport
companies, gas stations, and two sizable diesel fuel distributors. The
ultimate end users are the transportation industry, small independent
trucks, diesel autos, trailer trucks, and city/tour buses.
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The Company's Oil Recycling Process
Our oil recycling process has been developed to solve a worldwide
problem of removing used oil from the environment in a safe and non-
polluting way. Most countries have developed collection methods to remove
this hazardous waste from their communities with new emphasis on diversion
from existing landfills. Registered waste oil transporters are tracked to
determine annual volumes, and disposal methods. The majority of the waste
oil enters refineries for upgrading and blending, or is burned in the
cement industry.
Process-Operations
The EMI Process surpasses an older patented system developed in the
mid 1970s. The new process is an updated version whereby automotive
engine oil is de-watered and enters a thermal treatment unit whereby the
hydrocarbon chains are cracked (broken). The treated oil enters a condenser
unit to recover light fuels, diesel, and naphtha. The light fuels are
recaptured to heat the initial cracking unit, while the diesel and heating
oil continues on to further processing. The last stage treats the product
to provide the appropriate sulphur, acid, odor, and chlorine levels, while
providing stability to the fuel for longer shelf life. The end product of
the process is a good quality heating oil, naphtha, bottoms, and diesel
fuel for resale.
Product Research and Development
The EMI technology is currently being utilized by Great Northern
Processing in Indiana, USA as part of their distillation process. The EMI
Process engineers and consultants to the technology continue to improve and
modify the system for better performance, increased output and final
product quality. The design of the recycling facilities includes numerous
advanced safety features. These features include the recycling of stack
gases in the burner unit to avoid contaminants, often found in other
systems, from being vented into the atmosphere. The system is operated at
low pressure to minimize the risk of explosions compared to other waste oil
systems. Further, the computer sensors though out the system monitor
temperatures, pressures, through puts, and other factors to avoid dangers
which can be advanced warned against.
Future Operations
As of this date, the Company is in a development stage with no current
operations. Upon commencement of operations, the Company anticipates
establishing the following operational functions:
Production and Service Delivery Procedure.
The production of diesel fuel is monitored and frequently tested to
ensure excellent quality for the end user. fuel is stored in a clean
tank area for final pick-up. The diesel fuel product will be trucked
via 30,000 Litre plus transport tanker vehicles owned and operated by
Hasenauer Transporte to its final destination.
Production and Service Capability
The system is designed to operate at a safe temperature with full
computer integration providing the operators with current information
on systems and foreseeable problems. In our Primary Plan we are using
a continuous flow process to ensure a constant supply of finished
product in the event of normal shutdown and maintenance of either
unit.
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The specification of the system is for 90,000 tons of waste oil input.
Downtime start-up delays or increases in waste volume can be regulated
through our units with a throughput potential of 100,000 tons.
Market Analysis
The Company's target market is Germany, which is a substantial
industrialized economy with exceptionally high volumes of low sulfur, waste
oil supply. Germany has over 82 million inhabitants producing 1.1 billion
liters of waste lubricants, and 650 000 tons of used waste oil.
The size of the Company's target market using figures provided by the
Mineral Oil Association of Germany and the National Association of Waste
Oil Recyclers, represents 240,000,000 Liters of the Company's product. At
a market price of US$0.52 per Liter excluding sales tax for the high
quality diesel fuel, potential sales in the Germany market alone is
US$55,000,000 annually. It is unknown at this time how much of the target
market is achievable by the Company, if any.
Key trends/changes with our Target Market
Alternative Fuels.
Diesel may be displaced by alternative fuels in the future. More
efficient engines may not require as frequent oil changes decreasing
the supply of waste oil. As technologies develop, more efficient
engines will arrive, thus shrinking the diesel fuel market over time.
In any event, our market share is a very small portion of the markets
large size. We will be informed on these matters by monitoring the
markets and being involved with the "Altol Verband" national used oil
association, responding to trends that indicate any changes in our
market.
Price.
Price is a factor when dealing with oil prices. The Company's
largest source of operating income is initially anticipated to be from
the sale of produced oil, natural gas and possible natural gas
liquids. Therefore, the level of the Company's revenues and earnings
are affected by price at which these commodities are sold. In the
past, average annual sales prices for oil, natural gas and natural gas
liquids, has been erratic, with a recent history of rising oil price
per barrel but lower gas prices. It is likely that these prices will
continue to fluctuate in the future. Various factors beyond the
Company's control affect prices of oil, including;
* worldwide and domestic supplies of oil;
* the ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil price and production
controls;
* political instability or armed conflict in oil-producing regions;
* the price of foreign imports;
* the level of consumer demand;
* the price and availability of alternative fuels;
* the availability of pipeline capacity; and,
<PAGE>
* changes in existing regulation and price controls.
Market Test Results
The manufacturing rights and the engineering design of The EMI Process has
been verified by qualified engineers at Propak Industries in Airdrie,
Canada. They have over 500 employees on staff. Propak engineers and
fabricates gas, oil, and other hydrocarbon facilities, which are shipped
around the world. The Company's relationship to Propak is solely a third
party purchaser of Propak's design, fabrication, and installation of the
Company's future facility in Germany. Propak Industries operates under ISO
9000 certification. This is a highly regarded certification process in the
industry, as it is recognized by industrial countries as a standardized
certification process.
The design of the recycling facilities includes numerous advanced
safety features including the recycling of stack gases in the burner unit
to avoid contaminants, often found in other systems, from being vented into
the atmosphere. The system is operated at low pressure to minimize the risk
of explosions compared to other waste oil systems. Further, the computer
sensors though out the system monitor temperatures, pressures, through
puts, and other factors to avoid dangers which can be advanced warned
against.
Quality of diesel fuel.
Diesel was provided to PetroLabs of Germany, the official Fuel
Laboratory for the German Government to conduct an independent testing
of the final product. Material supplied by Enviro-Mining Inc. and
tested by PetroLabs confirmed that the low sulphur standards are
achievable. This third party verification is a required step in the
approval process of meeting European wide acceptability.
To gain nationwide and European wide acceptability, the Company
engaged TUV (Thuringen Unterprufung Verein), equivalent to The
Canadian Standards Association - CSA, to conduct a test to verify that
the Company meets and exceeds the requirements for EN 590 European
Diesel fuel. EN 590 Legislation is the standard for all diesel fuel
within the European community. The TUV verification and acceptability
is a crucial seal of approval. The Thuringen State examination
association currently is responsible to the industry as a third party
independent tester of fuels.
Competition
Although there are Company's with substantially greater financial
resources, there is minimal waste oil recycling being conducted in Germany
at the present. The Mineral Oil Association of Germany classifies an oil
recycler as a refinery which will accept waste oil as a blend to its
feedstock or a cement kiln using waste oil as a fuel for its energy
requirements. These refineries are referred to as waste oil recyclers. They
represent our competition for the feed stock.
In addition to information relied upon in the CANMET Report and the
Jahresbericht Report, the Company has analyzed data on the reduction of
waste oil availability as presented on January 1, 1997 in a German document
entitled "Ermitthmg von Altolvermeidungspotentialen. The document was
prepared by Umwelt Bundes Amt. The report was the basis for the enactment
of the "Waste Avoidance, Recycling and Disposal Act," of 1994.
<PAGE>
Potential Competition
The current technology will allow us to recycle effectively today. Our
supply of waste oil is key. Technologies will continue to improve and
operating costs will decrease providing an ideal closed loop system for the
Company. In addition, our current competition may start a bidding war to
control the waste oil supply.
Competition is limited to the cement industry and refineries in very
defined regions of Germany which are not reliant on the waste oil as a
feedstock. Natural gas and other inputs are more efficient. Only one
competing technology originating out of Berlin exists for recycling used
waste oil. The system is in its experimental phase with low capacity and
throughput. Extensive research into other known processes confirms the lack
of fully commercialized conversion processes.
Competitive Operating Advantage
The systems are designed to be highly automated, enabling only 2
operators per shift to comfortably operate the plant. Each module will have
its own control panel with early warning systems and fail safe shut offs in
the event the operator is not present. This offers a reduced need to hire
many new employees. Employment expenses is a large component of operations.
Any cost savings in this area by way of economies of scale are very
beneficial for lower costs. These cost savings will provide us with an
opportunity to retain earnings for our further expansion on this site or
new locations throughout Germany.
The system is designed to operate with little maintenance or down
time. This reliability offers us an opportunity to maximize the excess
capacity of the system, while allowing room for extra throughput.
Other systems in the refining industry require larger economies of
scale to operate. They present higher debt servicing, larger
infrastructure, and excessive overhead. Our systems are designed to be more
compact, operate in an open structure, and require minimal investment
relative to chemical and petrochemical superstructures.
From an environmental standpoint, our system will be highly monitored
and is designed to produce no harmful emissions or waste to the air, land,
or water.
Supply of Raw Material
The Company's waste oil supply base is established, registered waste
oil collectors. The Company's marketing plan is to switch existing
collectors from their current disposal locations based on:
* Freight. Costs of trucking in Germany are three times greater than
North America.
* Price. We will be competitive on waste oil purchasing with the
existing cement industry.
* Ecology. Ideology and concern for health issues will play a major
factor as awareness increases and the "baby boomers" of industrialized
nations become more health conscious.
* Stability. Contracts will provide a sense of comfort for an industry
facing many regulatory laws, shifts in community values, and market price
fluctuations.
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* Law. A bill is awaiting approval in the European Community eliminating
burning as a method of waste oil disposal. The existing collectors will be
seeking facilities to divert their waste to other recycling refineries
which are near capacity at this time. The Company's plan is to market to
this group of collectors.
The Company believes that an opportunity exists to capture a large market
share:
* First, companies are being forced to comply with German legislation
under the Oil Act to reduce burning activities, which have adverse health
effects on the population, to more sustainable solutions.
* Second, locations where burning and refining industries are
unavailable will benefit by having a lower transportation fee. The costs of
transportation over greater distances in Germany are very high and
uneconomical.
* Third, collectors face price fluctuations in the oil market, yet when
transferring to the Company's facility, once established, they will be
provided a supply contract with preferential price and volume commitments.
They will have price stability over the long term.
Government Regulatory Restrictions
Government restrictions on the quality of final product, plant and
site operations, and environmental concerns must all be met. Emissions,
waste disposal, air, noise, groundwater, 24 hour operations and safety
permits must be attained. The Company is in the process of assessing the
extent and cost of compliance with the regulatory authorities. At this time
we are unable to provide an accurate assessment of time and cost of
compliance with the regulatory restrictions.
Germany, our target market, has adopted some of the strictest laws in
the world relating to the recycling and disposal of chemicals and waste.
The business of recycling and waste disposal is subject to various
governmental laws on both a federal and state basis in Germany. Further,
the regulations are becoming increasingly complex and recycling and
disposal more strictly regulated. These laws and regulations include
landfill disposal restrictions, hazardous waste management requirements and
air quality standards, as well as special permit and license conditions for
recycling and disposal of waste and outdated and or used products.
Once established, the Company's recycling center will be subject to
various federal, state and local laws and regulations and licensing
requirements relating to the collection, processing and recycling of
chemicals and waste. Requirements for registrations, permits and licenses
vary depending upon the locale in which the recycling center is located.
Management believes that further government regulation of the
recycling industry could have a positive effect on the Company's business;
however, there can be no assurance what course future regulation may take.
Under some circumstances, further regulation could materially increase the
costs of the Company's operations and have an adverse effect on the
Company's business. Costs associated with Germany's regulatory compliance
are estimated to be $25,000. In addition, as is the case with companies
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handling hazardous materials, under some circumstances, the Company may be
subject to contingent liability.
Present laws for disposal of waste oil by burning are becoming more
restricted. Our research indicates that burning could be abolished
completely in the next two years. Legislation from the European community
is in progress to strengthen the environmental laws pertaining to the
release of heavy metals to the atmosphere through burning methods. Such
burning has been linked to the cause of cancer in many countries.
Once this bill becomes law, the majority of the 34 current members of
the National Used Oil Recycling Association will face the challenge of
locating suitable approved disposal sites. Only a few refineries in Germany
have excess capacity to fill for used oil as a blend to their feedstock at
this time.
Environmental Matters
Hazardous Materials.
The Company's research and development, manufacturing and collection
processes involve the controlled storage, use and disposal of hazardous
materials. The Company is subject to federal, foreign, state, and local
laws and regulations governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by such laws and
regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an
accident, the Company may be held liable for any damages that result, and
any such liability could exceed the resources of the Company. There can be
no assurance that the Company will not be required to incur significant
costs to comply with environmental laws and regulations in the future, nor
that the operations, business or assets of the Company will not be
materially adversely affected by current or future environmental laws or
regulations.
Intellectual Property
The Company's success and ability to compete is dependent in part
upon its proprietary technology. The Company relies on a combination of a
"Limited Technology License Agreement," trade secret laws and non-
disclosure agreements to protect its proprietary technology. The Company
has obtained a license from the Enviro-Mining Incorporated, a company
controlled by officers and directors of the Company. The license is for a
period of thirty (30) years commencing on June 11, 1998, with renewable 10
year terms. The Limited Technology License Agreement requires the payment
of certain minimal annualized payments, and in the event of a default in
the payments, the Company could lose its rights to continue utilizing the
technology. Further, the Limited Technology License Agreement provides
that the Company "must commence construction in the first twelve (12)
months of this agreement, a plant of minimum capacity of 90,000 tons of
waste oil input in the Territory." The agreement, dated June 11, 1998,
further states that it shall be just cause for termination of the Licensee
of all license and marketing rights, if the Company has not commenced
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construction of the first plant within the first year of the license
agreement, and an additional commercial scale plant every year thereafter
for the next 5 years. A recent Letter Agreement was executed between the
Company and Enviro-Mining which provides an extension until June 11, 2000
to commence construction of the first facility. It is unknown at this time
whether, if ever, the Company will obtain sufficient funding for the
construction. In the event the Company is unable to develop its business
operations in Germany within the time constraints of the licensing
agreement, the Company is working with EMI on contingency plans which
include additional extensions on the licensing agreement in addition to
the licensing of additional countries.
The licensing of the proprietary process for the stabilization and
purification of gas/oil products has its place of origin from CANMET, the
principal research and development arm of the Ministry of Natural Resources
Canada. CANMET owns the intellectual property known as the CANPED process.
The CANPED process of waste oil processing was licensed to Par Excellence
Developments Inc. (PED), of Ontario Canada. On March 6, 1998 Enviro-Mining
Inc., a major shareholder of the Sustainable Development International,
Inc., entered into a "Sub-License Agreement" with PED, wherein the Enviro-
Mining Inc. obtained limited intellectual rights to utilize the CANPED
process of waste oil processing. PED subsequently approved the execution by
the Company and Enviro-Mining Inc. of the "Limited Technology License
Agreement," thus providing the Company with the use of the CANPED process.
The PED - Enviro-Mining Inc. "Sub-License Agreement" is currently limited
to Enviro Recycling GmbH to be built by the Company in or near the town of
Merkers, Germany and terminates on December 31, 2017. This termination date
coincides with the term of the Agreement between CANMET and PED. The rights
of the Company, in utilizing the proprietary process of waste oil
processing, is subject to the terms and conditions of the Agreement between
CANMET and PED. In the event of a termination of the rights of PED by
CANMET, then the Company's rights could concurrently be terminated.
The company also seeks to protect its intellectual property rights by
limiting access to the distribution of its documentation and other
proprietary information. In addition, the Company enters into
confidentiality agreements with its employees and certain customers,
vendors and strategic partners. There can be no assurance that the steps
taken by the Company in this regard will be adequate to prevent
misappropriation of its technology or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
The license has not been registered in Germany or the European Union.
Employees
As of December 31, 1998, the Company had 3 employees. Harold Jahn and
Lew Mansell are full time employees. All employees are located at the
Company's headquarters in Alberta, Canada. None of the Company's employees
are subject to any collective bargaining agreement.
The Company's proposed personnel structure can be divided into three
broad categories: management and professional, administrative, and project
personnel. As in most small Company's, the divisions between these three
categories are somewhat indistinct, as employees are engaged in various
functions as projects and work load demands.
The Company is dependent upon Harold Jahn, President, Chief Executive
Officer, and Secretary Treasurer of the Company, Lew Mansell, Senior Vice
President, and Garry R. Knull, Chief Financial Officer, both
internationally and nationally. The Company has entered into employment
agreements with Mr. Jahn. Further, upon receipt of additional capital
intends to apply for key man life insurance on the lives of Mr. Jahn, and
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Mr. Mansell in the amount of $1,000,000 each. The Company's future success
also depends on its ability to attract and retain other qualified
personnel, for which competition is intense. The loss of Mr. Jahn, Mr.
Mansell, and the other individuals involved in key management positions, or
the Company's inability to attract and retain other qualified employees
could have material adverse effect on the Company.
Risks Associated with Year 2000 Problem
In less than one year, computer systems and/or software used by many
Company's may need to be upgraded to accept four digit entries to
distinguish 21st century dates from 20th century dates. As is the case with
most other Company's using computers in their operations, the Company
recognizes the need to ensure that its operations will not be adversely
impacted by software and/or system failures related to such "Year 2000"
noncompliance. Within the past twelve months, the Company has been
upgrading components of its own internal computer and related information
and operational systems and continues to assess the need for further system
redesign and believes it is taking the appropriate steps to ensure Year
2000 compliance. Based on information currently available, the Company
believes that the costs associated with Year 2000 compliance, and the
consequences of incomplete or untimely resolution of the Year 2000 problem,
will not have a material adverse effect on the Company's business,
financial condition and results of operations in any given year. However,
even if the internal systems of the Company are not materially affected by
the Year 2000 problem, the Company's business, financial condition and
results of operations could be materially adversely affected through
disruption in the operation of the enterprises with which the Company
interacts. There can be no assurance that third party computer products
used by the Company are Year 2000 compliant. Further, even though the
Company believes that its current products are Year 2000 compliant, there
can be no assurance that under actual conditions such products will perform
as expected or that future products will be Year 2000 compliant. The
Company is in the process of fully testing its information technology
infrastructure and anticipates complete verification of its Y2K compliance
by September 1999.
Any failure of the Company's products to be Year 2000 compliant could
result in the loss of or delay in market acceptance of the Company's
products and services, increased service and warranty costs to the Company
or payment by the Company of compensatory or other damages which could have
a material adverse effect on the Company's business, financial condition
and results of operations.
The Company being a development stage Company has readily available
hard copy accounting records, invoices, and other paper trails which will
be up dated prior to year end 1999. Since the Company has not commenced
substantial operations, third parties non compliance with the Year 2000
issue will have minimal impact on the Company. The Company, in contracting
with new vendors, manufactures, and plants is pre-establishing the third
party's compliance with Year 2000 issues.
<PAGE>
Additional Information
The Company intends to provide an annual report to its security
holders, and to make quarterly reports available for inspection by its
security holders. The annual report will include audited financial
statements.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, will file reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information may be
inspected at public reference facilities of the Commission at Judiciary
Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7
World Trade Center, New York, New York, 10048; and 5670 Wilshire Boulevard,
Los Angeles, California90036. Copies of such material can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street N.W., Washington, D.C.20549 at prescribed rates. For further
information, the SEC maintains a website that contains reports, proxy and
information statements, and other information regarding reporting companies
at (http://www.sec.gov). The Company maintains a website at
www.1sustainable.com.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Following discussion should be read in conjunction
with, and is qualified in its entirety by the Financial Statements section
included below.
With the exception of historical matters, the matters discussed herein
are forward looking statements that involve risks and uncertainties.
Forward looking statements include, but are not limited to, statements
concerning anticipated trends in revenues and net income, the date of
introduction or completion of the Company's products, projections
concerning operations and available cash flow. The Company's actual results
could differ materially from the results discussed in such forward-looking
statements. The following discussion of the Company's financial condition
and results of operations should be read in conjunction with the Company's
financial statements and the related notes thereto appearing elsewhere
herein.
Overview
The Company, which was organized in May 1998, is a Development Stage
Company, engaged in the business of commercializing innovative
technologies in the environmental, energy from waste, and alternative
power system industries. The Company has a limited operating history and
has not generated revenues from the sale of any products. The Company's
activities have been limited to start up procedures. Consequently, we have
incurred the expenses of start-up and licensing. Future operating results
will depend on many factors, including the ability of the Company to raise
adequate working capital, demand for our services and products, the level
of competition and our ability to satisfy governmental regulations and
deliver company services and products while maintaining quality and
controlling costs.
<PAGE>
Results of Operations
Period from May 27, 1998 (Inception) to October 31, 1998
The first year of operation for the Company achieved two main goals.
The formation of the Company's organization to pursue its business strategy
and obtaining the licensing of technology required to pursue the Company's
objectives.
Revenues. The Company is a development stage enterprise as defined in
SFAS #7, and has yet to generate any revenues. The Company is devoting
substantially all of its present efforts to: (1) developing its management
team and administrative network, (2) developing its market, and (3)
obtaining sufficient capital to commence full operations.
General and Administrative. General and administrative, legal and
consulting expenses for the period from May, 1998 to October 31, 1998 were
$52,111, of which $18,000 was paid to a director for his services.
Liquidity and Capital Resources
Cash and cash equivalents will be increasing primarily due to
commencement of operations. The receipt of funds from Private Placement
Offerings and loans obtained through private sources by the Company are
anticipated to offset the near term cash equivalents of the Company for
the next 12 months. Since inception, the Company has financed its cash
flow requirements through issuance of common stock. As the Company
commences operational activities, it may continue to experience net
negative cash flows from operations, pending receipt of sales revenues.
Further, the Company may be required to obtain additional financing to
fund operations through Common Stock offerings and bank borrowings, to the
extent available, or to obtain additional financing to the extent
necessary to augment its working capital.
Over the next twelve months, the Company intends to commence revenue
generation by establishing operational facilities under development in its
target markets. However, the Company will continue the research and
development of its products, increase the number of its employees, and
expand its facilities where necessary to meet development and completion
deadlines. The Company believes, that existing capital and anticipated
funds from operations will not be sufficient to sustain operations and
planned expansion in the next twelve months. Consequently, the Company will
seek additional financing in order to such additional funds will be
available or that, if available, such additional funds will be on terms
acceptable to the Company.
No assurance can be made that such financing would be available, and if
available it may take either the form of debt or equity. In either case,
the financing could have negative impact on the financial conditions of the
Company and its Shareholders.
The Company anticipates that it will incur operating losses in the next
twelve months. The Company's lack of operating history makes predictions
of future operating results difficult to ascertain. The Company's
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by Company's in their early stage of
development, particularly Company's in new and rapidly evolving markets
such as environmental technology. Such risks for the Company include, but
are not limited to, an evolving and unpredictable business model and the
management of growth. To address these risks, the Company must, among
other things, obtain a customer base, implement and successfully execute
its business and marketing strategy, continue to develop and upgrade its
technology and products, provide superior customer services and order
<PAGE>
fulfillment, respond to competitive developments, and attract, retain and
motivate qualified personnel. There can be no assurance that the Company
will be successful in addressing such risks, and the failure to do so can
have a material adverse effect on the Company's business prospects,
financial condition and results of operations.
Initial financing is only to provide funds to prove the business
concept and to finish the development of the environmental technology.
Additional funds will be necessary to take the product to market. The
Company hopes to enter into additional funding arrangements through
strategic partnerships, merger, equity offering or debt offering. Nothing
has been secured as of this time.
Additionally, the Company recently received an extension of 12 months
for the commencement of construction of its first plant in Germany for oil
recycling. Further, the licensing fee of $300,000 on the initial plant in
Germany has been delayed until construction is completed. Although this
extension provides the Company with additional time in which to capitalize
the construction through the sale of the Company's securities or through
debt, there can be no assurance the Company will be able to generate the
funds required to commence construction, or complete construction once
started. In the event the Company is unable to commence construction
during the extension period, or in the alternative, obtain additional
extensions, then in that event the licensing rights held by the Company
would be cancelled, leaving the Company with substantially no assets or
means of generating revenues.
ITEM 3. DESCRIPTION OF PROPERTY
Office. The Company's main offices are located at 10240 - 124th
Street, Suite 208, Edmonton, Alberta, Canada , and its telephone
number is (780) 488-9193, Fax No. (780) 488-9100. The facility is a
leased approximately 600 square foot facility utilized in the
following manner: a) administrative offices, b) professional offices,
c) miscellaneous. The headquarters is ideal to commencement the
pursuit of marketing activity throughout North America.
Technical Library - The Company maintains a technical library, which
is comprised of periodicals, trade journals, books, and other
documents related primarily to the basic sciences, government
regulations and industry materials.
Processing Plant - The manufacturing plant for the Company's products
is to be located in Merkers, Thuringia, Germany, where sufficient
processing equipment will be in place for production purposes. The
plant has not been acquired by the Company at this time.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners.
The following table sets forth certain information as of March 31,
1999 with respect to the beneficial ownership of Common Stock by (i) each
person who to the knowledge of the Company, beneficially owned or had the
right to acquire more than 5% of the Outstanding Common Stock, (ii) each
director of the Company and (iii) all executive officers and directors of
the Company as a group.
<PAGE>
<TABLE>
Name of Beneficial Owner (1) Number Percent
of Shares Of Class (2)
<S> <C> <C>
Sustainable Development Group(3) 9,500,000 69%
Enviro-Mining Inc. (4) 3,260,000 24%
Jeff Lea Investments (5) 20,000 1%
------------ -------------
All Directors & Officers as a Group 12,780,000 94%
------------ -------------
</TABLE>
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of, or to direct the disposition of, a security). In
addition, for purposes of this table, a person is deemed, as of any
date, to have "beneficial ownership" of any security that such person
has the right to acquire within 60 days after such date.
(2) Figures are rounded to the nearest percentage.
(3) Sustainable Development Group is controlled by Harold Jahn.
(4) Enviro-Mining Inc. is owned 50% by Harold Jahn and 50% by Lew Mansell.
(5) Jeff Lea Investments is controlled by Garry Knull.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors
will be elected at the Company's annual meeting of shareholders and serve
for one year or until their successors are elected and qualify. Officers
are elected by the Board and their terms of office are, except to the
extent governed by employment contract, at the discretion of the Board.
Harold Jahn and Lew Mansell are the only current full time employees of the
Company.
Executive Officers and Directors
<TABLE>
Name Age Title
<S> <C> <C>
Harold Jahn 29 President, CEO, Secretary/Treasurer, Director
Lew Mansell 52 Senior Vice President, Director
Garry R. Knull 52 Chief Financial Officer
</TABLE>
Duties, Responsibilities and Experience
Harold Jahn - President and Chief Executive Officer
Mr. Jahn has served as the Company's Chief Executive Officer, President,
and Chairman of the Board since May 1998. From mid 1995 until present Mr.
Jahn has been president of Enviro-Mining Inc. a company co-founded by Mr.
Jahn as a solution for recycling needs in the tire industry. Its mission
has expanded, developing a broader recycling mandate internationally with
<PAGE>
the inclusion of innovative technologies in power generation and mining
equipment worldwide. From July, 1991, to July, 1997, Mr. Jahn was involved
in real estate sales. Mr. Jahn graduated from the University of Alberta
with a BA degree in International Relations and Economics in 1991. His
education contributed to his knowledge of business and government issues,
creativity in problem solving, strengthened concerns for sustainable
development, and managing projects in a timely manner.
Lew Mansell - Senior Vice President
Lew Mansell has served as a Senior Vice President and a Director of the
Company since June, 1998. From August, 1995, to June, 1998, Mr. Mansell was
the Vice President of Enviro-Mining, Inc. From 1993 until present Mr.
Mansell owned and operated INVEQ Services, a mortgage brokerage firm. Mr.
Mansell graduated with a B.Sc. in chemistry in 1968, and brings over 25
years of management skills to this position. His experience includes
polymer research, industrial sales and services in the manufacturing,
petrochemical, and corrosion industry. Since 1978, he has successfully
turned around several Company's implementing new quality control systems,
and production procedures. The marketing and commercialization of
innovative technologies became his focus from 1990.
Garry R. Knull - Chief Financial Officer
Garry R. Knull, CA, has served as Chief Financial Officer of the Company
since June, 1998. From 1979 until present Mr. Knull has been a senior
partner in the accounting firm of Knull, Hales & Chapelsy. He has been
involved in corporate and commercial accounting, auditing and providing
financial and taxation advice to a variety of clients. He is also Chief
Financial Officer of a midsize oilfield manufacturing and supply company.
Compensation Committee Interlocks and Insider Participation
The Company does not currently have a compensation committee of the
Board of Directors. However, the Board of Directors intends to establish a
compensation committee which is expected to consist of three inside
directors and the two independent members of the Board of Directors.
Stock Option Plan and Non-Employee Directors' Plan
The following descriptions apply to stock option plans, which the
Company has adopted; however, no options have been granted as of this date.
The Company intends to reserve for issuance an aggregate of 1,000,000
shares of Common Stock under a Stock Option Plan (the "Stock Option Plan")
and Non-Employee Directors' Plan described below (the "Directors' Plan")
which has been adopted by the Company. These plans are intended to
encourage directors, officers, employees and consultants of the Company to
acquire ownership of Common Stock. The opportunity is intended to foster
in participants a strong incentive to put forth maximum effort for the
continued success and growth of the Company, to aid in retaining
individuals who put forth such efforts, and to assist in attracting the
best available individuals to the Company in the future.
<PAGE>
Stock Option Plan
Officers (including officers who are members of the Board of
Directors), directors (other than members of the Stock Option Committee
(the "Committee") to be established to administer the Stock Option Plan and
the Directors' Plan) and other employees and consultants of the Company and
its subsidiaries (if established) will be eligible to receive options under
a the planned Stock Option Plan. The Committee will administer the Stock
Option Plan and will determine those persons to whom options will be
granted, the number of options to be granted, the provisions applicable to
each grant and the time periods during which the options may be exercised.
No options may be granted more than ten years after the date of the
adoption of the Stock Option Plan.
Unless the Committee, in its discretion, determines otherwise, non-
qualified stock options will be granted with an option price equal to the
fair market value of the shares of Common Stock to which the non-qualified
stock option relates on the date of grant. In no event may the option
price with respect to an incentive stock option granted under the Stock
Option Plan be less than the fair market value of such Common Stock to
which the incentive stock option relates on the date the incentive stock
option is granted.
Each option granted under the Stock Option Plan will be exercisable
for a term of not more than ten years after the date of grant. Certain
other restrictions will apply in connection with this Plan when some awards
may be exercised. In the event of a change of control (as defined in the
Stock Option Plan), the date on which all options outstanding under the
Stock Option Plan may first be exercised will be accelerated. Generally,
all options terminate 90 days after a change of control.
Directors Plan
The Directors' Plan is intended to:
* Enable the Company to secure persons of requisite business experience
to serve on the Board of Directors,
* To motivate directors to enhance the future growth of the Company by
furthering their identification with the interests of the Company and its
stockholders, and
* To assist in retaining directors.
The Directors' Plan provides for the grant of stock options to persons
who are members of the Board of Directors and who at the time they joined
the Board of Directors were not employees of the Company or any of its
affiliates ("Non-Employee Directors"). The Committee will administer the
Directors' Plan. Each of the Non-Employee Directors will receive an option
to purchase shares of Common Stock. Such options will vest in three equal
annual installments commencing on the first anniversary of such Non-
Employee Director's election. Options granted under the Directors' Plan may
not be exercised more than five years after the date of grant. No option
may be granted more than ten years after the date of the adoption of the
Directors' Plan. In the event of a change of control (as defined in the
Directors' Plan), the date on which all options outstanding under the
Directors' Plan may first be exercised is accelerated. Generally, all
options will terminate 90 days after a change of control.
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation of the Company's
executive officers and directors during each of the fiscal years since
inception of the Company. The remuneration described in the table does not
include the cost to the Company of benefits furnished to the named
executive officers, including premiums for health insurance and other
benefits provided to such individual that are extended in connection with
the conduct of the Company's business. The value of such benefits cannot be
precisely determined, but the executive officers named below did not
receive other compensation in excess of the lesser of $50,000 or 10% of
such officer's cash compensation.
<TABLE>
Summary Compensation Table
Long Term
Annual Compensation Compensation
Name and Other Restricted
Principal Year Salary Bonus Annual stock Options Others
Position Compensa-
tion
<S> <C> <C> <C> <C> <C> <C> <C>
Harold Jahn 1998 $18,000 -0- -0- -0- -0- -0-
(1)(2)
Lew Mansell (2) 1998 -0- -0- -0- -0- -0- -0-
Garry R. Knull 1998 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Sustainable Development Group, controlled by Harold Jahn, received
9,500,000 shares of founders stock in 1998.
(2) Enviro-Mining, Inc. controlled equally by Lew Mansell and Harold Jahn
received 2,800,000 shares of founders stock in 1998.
Compensation of Directors
All directors will be reimbursed for expenses incurred in attending
Board or committee meetings.
Compensation of Chief Executive Officer
Pursuant to the terms and conditions of an employment agreement
between the Company and Harold Jahn, the Company's CEO, dated June 30,
1998, and ending December 21, 2000, the CEO received $18,000 for salary in
1998, and will receive an additional $3,000 per month commencing February
1, 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
License Agreement. On June 11, 1998, the Company entered into a
license agreement ("Limited Technology License Agreement") with Enviro-
Mining Inc., a shareholder of the Company, regarding the licensing of the
Company by Enviro-Mining, Inc. to use certain patented technology in
connection with the recycling of waste oil into low sulphur diesel.
The license is for a period of thirty (30) years commencing on June
11, 1998, with renewable 10 year terms. The Limited Technology License
Agreement requires the payment of certain minimal annualized payments, and
in the event of default in the payments, the Company could lose its rights
to continue utilizing the technology. Further, the Limited Technology
License Agreement provides that the Company "must commence construction in
the first twelve (12) months of this agreement, a plant of minimum
<PAGE>
capacity of 90,000 tons of waste oil input in the Territory." The
agreement, dated June 11, 1998, further states that it shall be just cause
for termination of the Licensee of all license and marketing rights if the
Company has not commenced construction of the first plant within the first
year of the license agreement, and an additional commercial scale plant
every yea thereafter for the next 5 years. On May 11, 1999 the Limited
Technology License Agreement was amended to reflect an extension until
June 11, 2000 for the Company to comply with the commencement of
construction and delayed payment of the License fee of $300,000.
Enviro-Mining, Inc. Harold Jahn, President and CEO of the Company, and Lew
Mansell, Senior Vice President of the Company, are joint owners of Enviro-
Mining, Inc.
Sustainable Development Group Harold Jahn, President and CEO of the
Company, and Lew Mansell, Senior Vice President of the Company, are joint
owners of Sustainable Development Group.
At year end, October 1998, management fees of $18,000 were paid to Harold
Jahn.
ITEM 8. LEGAL PROCEEDINGS
The Company is not presently a party to any litigation, nor to the
knowledge of management is any litigation threatened against the Company,
which would materially affect the Company.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to this filing there has not been a public market for the
Company's Common Stock, and there can be no assurance that a public market
for the Common Stock will develop or be sustained after this filing. The
trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcement of technological innovations or new products by the Company
or its competitors, and other events or factors. In addition, in recent
years the stock market has experienced extreme price and volume
fluctuations that have had a substantial effect on the market prices for
many emerging growth Company's, which may be unrelated to the operating
performance of the specific Company's.
The Company's shares of Common Stock are not registered with the U.S.
Securities and Exchange Commission under the Securities Act of 1933, as
amended (hereinafter referred to as the "Act"), and with the exception of
certain shares issued pursuant to Regulation D-504, are "restricted
securities." Rule 144 of the Act provides, in essence, that holders of
restricted securities for a period of one year (unless an affiliate of the
Company) may, every three months, sell to a market maker or in ordinary
brokerage transactions an amount equal to one percent of the Company's then
outstanding securities. Affiliates may be required to hold for two years.
Non-affiliates of the Company who hold restricted securities for a period
of two years may sell their securities without regard to volume limitations
or other restriction. A total of 956,200 shares are unrestricted and the
balance of 12,760,800 shares of Common Stock will be available for resale
under Rule 144 commencing in 1999. Sales of shares of Common Stock under
Rule 144 may have a depressive effect on the market price of the Company's
Common Stock, should a public market develop for such stock. Such sales
might also impede future financing by the Company.
<PAGE>
Since its inception in May 1998, the Company has not paid cash
dividends on its Common Stock. It is the present policy of the Company not
to pay cash dividends and to retain future earnings to support the
Company's growth. Any payments of cash dividends in the future will be
dependent upon, among other things, the amount of funds available
therefore, the Company's earnings, financial condition, capital
requirements, and other factors which the Board of Directors deem relevant.
As of December 31, 1998 there were approximately 53 Common
Shareholders of record.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
At inception, the Company issued 11,500,000 (eleven million five
Hundred thousand) Common Shares to founders for cash consideration of
$8.00, (see "Note 4 Capital Stock" of the audit), in addition for their
services in forming the Company and pursuing the initial stage of its
strategic business plan. The Shares were valued at par value ($.001). The
transaction is deemed to be exempt under 4(2) and Rule 504 of the Securities
Act of 1933. No underwriters fees or commissions were paid in the
transactions
June 1998, the Company issued 1,200,000 shares of common stock at $.25
per share to Enviro-Mining, Inc. for a total consideration of $300,000 in a
transaction deemed to be exempt under Rule 504 of the Securities Act of
1933. No underwriters fees or commissions were paid in the transaction.
September 1998, the Company issued 706,596 shares of common stock at
$.25 per share pursuant to Rule 504 for a total of $176,649 consideration
received by the Company. No underwriters fees or commissions were paid in
the transaction.
June-October, the Company issued 93,404 shares of common stock, valued
at a per share price of $.25 pursuant to Rule 504 for a total of $23,351 in
services rendered to the Company. No underwriters fees or commissions were
paid in the transaction. The services rendered to the Company included
consulting services rendered in Germany for environmental and regulatory
matters in addition to assistance provided to the Company in assistance in
pre-plant and facility setup. Services rendered in Canada included
financial and pro-forma analysis of Company related activities in addition
to translation assistance for German documentation. Services rendered in
California included environmental matters.
October 1998, the Company issued 200,000 shares of common stock at
$1.00 per share pursuant to a private placement deemed exempt pursuant to
Regulation D 504 under the Securities Act of 1933, for a total of $200,000.
The Regulation D 504 exemption was relied upon as the total dollars raised
during the preceding 12 months did not exceed $1 million. No underwriters
fees or commissions were paid in the transaction.
ITEM 11. DESCRIPTION OF SECURITIES
Common Stock
The Company's Articles of Incorporation authorizes the issuance of
50,000,000 shares of common stock, $0.001 par value per share, of which
13,720,000 shares were outstanding as of the date of this filing. Holders
of shares of common stock are entitled to one vote for each share on all
matters to be voted on by the stockholders and have no cumulative voting
rights. Holders of shares of common stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
<PAGE>
Directors in its discretion, from funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, the
holders of shares of common stock are entitled to share pro rata all
assets remaining after payment in full of all liabilities. Holders of
common stock have no preemptive rights to purchase the Company's common
stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock. All of the outstanding shares
of common stock are validly issued, fully paid and non-assessable.
Preferred Stock
The Company's Articles of Incorporation authorizes the issuance of
10,000,000 shares of preferred stock, $0.001 par value per share, of which
no shares were outstanding as of the date of this filing. The Preferred
Stock may be issued from time to time by the Board of Directors as shares
of one or more classes or series. Subject to the provisions of the
Company's Certificate of Incorporation and limitations imposed by law, the
Board of Directors is expressly authorized to adopt resolutions to issue
the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the
shares constituting any class or series of the Preferred Stock, in each
case without any further action or vote by the stockholders.
One of the effects of undesignated Preferred Stock may be to enable
the Board of Directors to render more difficult or to discourage an attempt
to obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of Preferred Stock pursuant to the Board
of Director's authority described above may adversely affect the rights of
holders of Common Stock. For example, Preferred stock issued by the Company
may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock at a
premium or may otherwise adversely affect the market price of the Common
Stock.
The Company has no plans for the issuance of Preferred Stock as of
this date.
Dividend Policy
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for use in the operation and expansion of its business and does
not anticipate paying any cash dividends in the foreseeable future.
Transfer Agent
The transfer agent for the common stock is Pacific Stock Transfer,
5844 South Pecos Road, Suite D, Las Vegas, Nevada 89120.
<PAGE>
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation for the Company do not contain provisions for
indemnification of the officers and directors; however, Section 78.751 of
the Nevada General Corporation Laws provides as follows:
78.751 Indemnification of officers, directors, employees and agents;
advance of expenses.
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding,
he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or
matter as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to
the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit
was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the
court deems proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections 1 and 2, or in
defense of any claim, issue or matter therein, he must be indemnified by
the corporation against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the
corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper
in the circumstances. The determination must be made:
(a) By the stockholders:
<PAGE>
(b) By the board of directors by majority vote of a quorum consisting o
directors who were not parties to act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot to obtained, by independent legal counsel in a
written opinion; or
5. The articles of incorporation, the bylaws or an agreement made by
the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal, suit or proceeding must be paid
by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than the directors or officers may be entitled
under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except
that indemnification, unless ordered by a court pursuant to subsection 2 or
for the advancement of expenses made pursuant to subsection 5, may not be
made to or on behalf of any director or officer if a final adjudication
establishes that his act or omissions involved intentional misconduct,
fraud or a knowing violation of the law and was material to the cause of
action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
<PAGE>
ITEM 13. FINANCIAL STATEMENTS
The 1998 Audited Financial Statement of the Company, audited by the
Accounting Firm of Grant Thornton, required by Regulation S-X commence on
page F-1 hereof in response to Item 13 of this Registration Statement on
Form 10SB and are incorporated herein by this reference.
Audited Financial Statements of Sustainable Development International, Inc.
Independent Auditors' Report F-1
Statement of Loss and Deficit for the period ended October 31, 1998 F-2
Balance Sheet as of October 31, 1998 F-3
Statements of Cash Flows October 31, 1998 F-4
Notes to Financial Statements F-5-F-7
<PAGE>
Chartered Accountants
Canadian Member Firm of
Grant Thornton International
Auditors' Report
To the Shareholders of
Sustainable Development International Inc.
We have audited the balance sheet of Sustainable Development
International Inc. as at October 31, 1998 and the statements of
loss and deficit and cash flows for the period then ended.
These financial statements are the responsibility of
the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are
free of material misstatements. 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.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the company as at
October 31, 1998 and the results of its operations and changes in
its financial position for the period then ended in accordance
with generally accepted accounting principles.
Edmonton, Canada
November 6, 1998 Chartered Accountants
<PAGE>
<TABLE>
Sustainable Development International Inc.
Statement of Loss and Deficit
(Expressed in United States Dollars)
Period Ended October 31, 1998 (157 days)
<S> <C>
Expenses
Advertising $ 150
Amortization 4,167
Consulting fees 23,401
Management fees (Note 5) 18,000
Professional fees 4,988
Service Charges 455
Travel 950
--------------
(52,111)
--------------
Net loss and deficit, end of period $ (52,111)
=============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
Sustainable Development International Inc.
Balance Sheet
(Expressed in United States Dollars)
October 31, 1998
<S> <C>
Assets
Current
Cash $ 330,053
Licensing agreement (Note 2) 295,833
-----------
$ 625,886
===========
</TABLE>
<TABLE>
<S> <C>
Liabilities
Current
Payables and accruals $ 13,989
-----------
Shareholder's Equity
Capital stock (Note 4) 664,008
Deficit (52,111)
-----------
611,897
-----------
$ 625,886
===========
</TABLE>
Commitment (Note 3)
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
Sustainable Development International Inc.
Statement of Cash Flows
(Expressed in United States Dollars)
Period Ended October 31, 1998 (157 days)
<S> <C>
Operating
Net loss $ (52,111)
Amortization 4,167
Services settled with shares 23,351
Change in non-cash operating
working capital:
Payables and accruals 13,989
-------------
(10,604)
Financing
Issuance of capital stock 640,657
Investing
Purchase of licensing agreement (300,000)
--------------
Net increase in cash and balance, end of period $ 330,053
==============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
Sustainable Development International Inc.
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1998
1. Commencement of operations
Sustainable Development International, Inc., a Nevada corporation, is a
development stage company formed on May 27, 1998 to encourage sustainable
development by commercializing innovative technologies in environmental
industries.
The company's goal is to acquire technology rights and licenses from patent
holders for proven technologies, then secure a market, and finally raise
the necessary capital to build, own, and operate facilities throughout the
world.
2. Significant accounting policies
Basis of presentation
The company's accounting and reporting policies conform to generally
accepted accounting principles and industry practice in the United States.
The amounts are reported in these financial statements are in United States
dollars.
Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses for the
reported period. Actual results could differ from those estimates.
Licensing agreement
Licensing agreements are recorded at cost. Licensing agreements are
assessed for future recoverability or impairment on an annual basis by
estimating future net undiscounted cash flows and residual values or by
estimating replacement or appraised values. If the net carrying amount of
the licensing agreement exceeds the estimated net recoverable amount, the
agreement is written down with a charge against income.
Amortization of licensing agreements is being recorded in the financial
statements on a straight-line basis over the life of the agreement, which
is 30 years.
<TABLE>
3. Licensing agreement 1998
<S> <C>
Licensing agreement $ 300,000
==========
</TABLE>
On June 11, 1998 Sustainable Development International Inc. entered into a
Limited Technology License Agreement with Enviro-Mining Inc., an Alberta,
Canada Corporation. The Agreement commits Sustainable Development
International Inc. to pay an amount equal to or less than $300,000 to
Enviro-Mining Inc. as a production royalty.
The Agreement could be terminated if Sustainable Development International
Inc. does not commence construction within the first twelve months of the
agreement, at a minimum plant capacity of 90,000 Tonnes of waste oil input.
<PAGE>
Sustainable Development International Inc.
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1998
4. Capital stock
Authorized:
50,000,000 Common voting shares, $.001 par
value
10,000,000 Preferred shares
<TABLE>
<S> <C>
Issued:
13,700,000 Common voting shares $ 13,700
Additional paid in capital 650,308
----------
$ 664,008
==========
</TABLE>
<TABLE>
During the period, the company had the following
share transactions:
<S> <C> <C>
Shares $
Shares issued to founding shareholders, May 1998. 11,500,000 $ 8
Common shares issued for cash consideration of
$0.25 per share by private placement,
September 1998. 706,596 176,649
Common shares issued for cash consideration
at $0.25 per share, October 1998. 1,200,000 300,000
Common shares issued for services at $0.25
per share, June 1998 to October 1998. 93,404 23,351
Common share issued for cash consideration of
$1.00 per share by private placement,
October 1998. 200,000 200,000
---------- --------
13,700,000 700,008
Expenses on issuance of share capital. - (36,000)
----------- ---------
13,700,000 $ 664,008
=========== ==========
</TABLE>
<PAGE>
Sustainable Development International Inc.
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1998
5. Related party transactions
a) During the year, Enviro Mining Inc., a shareholder of the company, sold
to the company a Licensing Agreement for $300,000. This amount is less
than the cost incurred by Enviro Mining Inc. to develop this license.
b) During the year, management fees were paid to a director of the
company totaling $18,000.
6. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not had any changes in or disagreements with Accountants
since inception.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
Exhibit Description
Number
<S> <C>
(3)(i)* Articles of Incorporation
(a) Articles of Incorporation, as amended for Sustainable
Development International, Inc., a Nevada corporation
(3)(ii)* Bylaws
(a) Bylaws, as amended for Sustainable Development
International, Inc., a Nevada corporation
(4)* Instruments defining the rights of security holders:
(4)(i)* (a) Articles of Incorporation for Sustainable Development
International, Inc., a Nevada Corporation
(b) Bylaws of Sustainable Development International, Inc., a
Nevada Corporation
(c) Stock Certificate specimen
(d) Stock Option Plan
(10)(i)* Material Contracts
(a) Limited Technology License Agreement
(b) Power Purchase Agreement -German State Electrical
Utility
(c) Addendum to Limited Technology License Agreement
(d) Employment Agreement - Jahn, Harold
(24)* Consents of expert
(a) Grant Thornton - Auditors
(27)* Financial Data Schedule
</TABLE>
*Filed herewith.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
July 19, 1999 SUSTAINABLE DEVELOPMENT
INTERNATIONAL, INC.
(Registrant)
By: /S/ Harold Jahn
----------------------------
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Harold Jahn Chairman, CEO, President July 19, 1999
- --------------------
Harold Jahn
/s/ Lew Mansell Senior Vice President, Director July 19, 1999
- -------------------
Lew Mansell
/s/ Garry R. Knull Treasurer, CFO July 19, 1999
- --------------------
Garry R. Knull
