SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: October 31, 1999
Commission File Number: 000-25409
SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.
(Exact name of registrant as specified in our charter)
Nevada 86-0857752
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10240 - 124th Street, Suite 208
Edmonton, Alberta, Canada T5N 3W6
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (780) 488-9193
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
Indicate by check mark whether the registrant (a) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The number of shares of Common Stock, $0.001 par value, outstanding on
October 31, 1999, was 13,720,000 shares, held by approximately 51
stockholders.
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This form 10KSB contains forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements are
necessarily based on certain assumptions and are subject to significant risks
and uncertainties. These forward-looking statements are based on management's
expectations as of the date hereof, and the Company does not undertake any
responsibility to update any of these statements in the future. Actual future
performance and results could differ from that contained in or suggested by
these forward-looking statements as a result of factors set forth in this
Form 10KSB (including those sections hereof incorporated by reference from
other filings with the Securities and Exchange Commission), in particular as
set forth in "Business Risks" under Item 1 and set forth in the "Management's
Discussion and Analysis" under Item 6.
In this registration statement references to "Accessory Specialists"
"we," "us," and "our" refer to SUSTAINABLE DEVELOPMENT INTERNATIONAL, INC.
PART I
ITEM 1. BUSINESS
General
Sustainable Development International, Inc., a Nevada corporation is a
development stage company formed in 1998 to commercialize innovative
technologies in the environmental energy from waste, and alternative power
system industries. Our 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., ("EMI")
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. We have 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.
Subsequent Events.
Subsequent to the year end, we entered into agreements pertaining to
Intercontinental Granite Incorporated, and North American Granite, Ltd.
On November 22, 1999, we incorporated Intercontinental Granite
Incorporated. We will own 80% of the outstanding common shares in exchange
for 100,000 shares of our common stock. The new subsidiary was formed to
oversee the production of ornamental stone products. On January 14, 2000,
Intercontinental Granite Incorporated entered into an agreement to acquire
22,500 acres of mineral claims containing high quality granite deposits in
Canada.
On December 16, 1999, we entered into a joint venture agreement with a
private company based in Edmonton Alberta, Canada to form Pro-Active
Incorporated, which will manage healthcare information. We will own 60% of
Pro-Active Incorporated.
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 German 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
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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 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 our 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. We believe 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 in Germany 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. Our plan is to become a preferred recycling option by
virtue of our inherent advantages. In summary, price, stable supply, and
quality of the diesel fuel are the factors to be considered by our potential
customers.
Our consumer base for 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 our 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.
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
Our 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.
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The size of our 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 our 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 us, 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 frequent oil changes, thereby 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. Our 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
our 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 our 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,
* 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. Our relationship to Propak is solely a third party
purchaser of Propak's design, fabrication, and installation of our 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 we meet and exceed 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.
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Competition
Although there are Companies with substantially greater financial
resources, there is minimal waste oil recycling being conducted in Germany at
the present time. The Mineral Oil Association of Germany classifies an oil
recycler as a refinery which will accept waste oil as a blend to our
feedstock or a cement kiln using waste oil as a fuel for our 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, we have 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.
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 us.
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 our 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
our 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
Our waste oil supply base is established, registered waste oil
collectors. Our 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.
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* Stability. Contracts will provide a sense of comfort for an industry
facing many regulatory laws, shifts in community values, and market price
fluctuations.
* 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. Our plan is to market to this group of
collectors.
We believe 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 our 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. We are 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, our 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 our business; however, there can be
no assurance what course future regulation may take. Under some
circumstances, further regulation could materially increase the costs of our
operations and have an adverse effect on our business. Costs associated with
Germany's regulatory compliance are estimated to be $25,000. In addition, as
is the case with companies 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.
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Environmental Matters
Hazardous Materials.
Our research and development, manufacturing and collection processes
involve the controlled storage, use and disposal of hazardous materials. We
are 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 we believe that our 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, we may be held liable for any damages that
result, and any such liability could exceed our resources. There can be no
assurance that we will not be required to incur significant costs to comply
with environmental laws and regulations in the future, nor that our
operations, business or assets will not be materially adversely affected by
current or future environmental laws or regulations.
Intellectual Property
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of a "Limited Technology
License Agreement," trade secret laws and non-disclosure agreements to
protect our proprietary technology. We have obtained a license from 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, we could lose our rights to
continue utilizing the technology. Further, the Limited Technology License
Agreement provides that we "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 we have not commenced 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, we will obtain sufficient funding for the construction. In the event
we are unable to develop our business operations in Germany within the time
constraints of the licensing agreement, we are 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 our 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 stockholder 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 us and
Enviro-Mining Inc. of the "Limited Technology License Agreement," thus
providing us 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 us 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. Our rights 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 our rights could concurrently be terminated.
Although we have not commenced construction of the first facility and thus
are in jeopardy of losing our license rights, we have been assured by Enviro-
Mining, the Licensor, that additional extensions are available. However, as
of this date we have not received an extension, which subjects us to losing
the licensed rights.
We also seek to protect our intellectual property rights by limiting
access to the distribution of our documentation and other proprietary
information. In addition, we enter into confidentiality agreements with our
employees and certain customers, vendors and strategic partners. There can be
no assurance that the steps taken by us in this regard will be adequate to
prevent misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
superior to our technologies.
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The license has not been registered in Germany or the European Union.
Employees
As of October 31, 1999, we had 3 employees. Harold Jahn and Lew Mansell
are full time employees. All employees are located at our headquarters in
Alberta, Canada. None of our employees are subject to any collective
bargaining agreement.
Our proposed personnel structure can be divided into three broad
categories: management and professional, administrative, and project
personnel. As in most small Companies, the divisions between these three
categories are somewhat indistinct, as employees are engaged in various
functions as projects and work load demands.
We are dependent upon Harold Jahn, our President, Chief Executive
Officer, and Secretary/Treasurer, Lew Mansell, Senior Vice President, and
Garry R. Knull, Chief Financial Officer, both internationally and nationally.
We have entered into employment agreements with Mr. Jahn. Further, upon
receipt of additional capital intend to apply for key man life insurance on
the lives of Mr. Jahn, and Mr. Mansell in the amount of $1,000,000 each. Our
future success also depends on our 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 our inability to attract and retain other qualified employees could have
material adverse effect on us.
Risks Associated with Year 2000 Problem
We have had no noticeable impact as the result of the year 2000 problem.
As is the case with most other Companies using computers in their operations,
we recognize the need to ensure that our operations will not be adversely
impacted by software and/or system failures related to such "Year 2000"
noncompliance. Within the past twelve months, we have been upgrading
components of our own internal computer and related information and
operational systems and continue to assess the need for further system
redesign and believe it is taking the appropriate steps to ensure Year 2000
compliance. Based on information currently available, we 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 our business, financial condition and results of
operations in any given year. However, even if our internal systems are not
materially affected by the Year 2000 problem, our business, financial
condition and result of operations could be materially adversely affected
through disruption in the operation of the enterprises with which we
interact. There can be no assurance that third party computer products used
by us are Year 2000 compliant. Further, even though we believe that our
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, being a development stage Company, has readily available
hard copy accounting records, invoices, and other paper trails which were up
dated prior to year end 1999. Since we have not commenced substantial
operations, third parties non compliance with the Year 2000 issue will have
minimal impact on us. We in contracting with new vendors, manufactures, and
plants are pre-establishing the third party's compliance with Year 2000
issues.
Additional Information
We intend to provide an annual report to out security holders, and to
make quarterly reports available for inspection by our security holders. The
annual report will include audited financial statements.
We are 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, California 90036.
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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). We
maintain a website at www.1sustainable.com.
ITEM 2. PROPERTIES
Office- Our main offices are located at 10240 - 124th Street, Suite
208, Edmonton, Alberta, Canada , and our 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 - We maintain 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 our 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
us at this time.
ITEM 3. LEGAL PROCEEDINGS
We are not presently a party to any material litigation, nor to the
knowledge of management is any litigation threatened against us which may
materially affect us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of our fiscal
year ended October 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is traded in the over-the-counter securities market
through the National Association of Securities Dealers Automated Quotation
Bulletin Board System, under the symbol "SUDI". The following table sets
forth the quarterly high and low bid prices for our Common Stock during our
ast two fiscal year, as reported by the National Quotations Bureau. The
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not necessarily represent actual transactions.
<TABLE>
1999
Average Bid Average Ask
<S> <C> <C>
September $.94 $1.31
October $.89 $1.48
</TABLE>
Note: We started trading in 1999
As of October 31, 1999, we had approximately 51 stockholders of the
13,720,000 shares outstanding.
We have never declared or paid dividends on our Common Stock. We intend
to follow a policy of retaining earnings, if any, to finance the growth of
the business and do not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of future dividends on the
Common Stock will be the sole discretion of the Board of Directors and will
depend on our profitability and financial condition, capital requirements,
statutory and contractual restrictions, future prospects and other factors
deemed relevant.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Financial Statements and the notes thereto appearing elsewhere in this
document.
RISK FACTORS AND CAUTIONARY STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and events could differ materially from
those projected, anticipated, or implicit, in the forward-looking statements
as a result of the risk factors set forth below and elsewhere in this report.
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 our products, projections concerning operations and available
cash flow. Our actual results could differ materially from the results
discussed in such forward-looking statements. The following discussion of our
financial condition and results of operations should be read in conjunction
with our financial statements and the related notes thereto appearing
elsewhere herein.
Overview
We were organized in May 1998, and are a Development Stage Company,
engaged in the business of commercializing innovative technologies in the
environmental, energy from waste, and alternative power system industries.
We have a limited operating history and has not generated revenues from the
sale of any products. Our 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
our ability 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.
Results of Operations
Period from October 31, 1998 (Inception) to October 31, 1999
Our first year of operation achieved two main goals. The formation of
our organization to pursue our business strategy and obtaining the licensing
of technology required to pursue our objectives.
Revenues. We are a development stage enterprise as defined in SFAS #7,
and have yet to generate any revenues. We are devoting substantially all of
our present efforts to: (1) developing our management team and administrative
network, (2) developing our market, and (3) obtaining sufficient capital to
commence full operations.
Our expenses increased from $52,111 for the 157 days of operations in
1998 to $181,236 in 1999 as the result of our completing our 12(g) reporting
requirements with the Securities Act of 1934 and our commencement of trading
on the NASD OTC:BB.
Liquidity and Capital Resources
We have not generated revenues during this period and it is unknown
when we will generate revenues. The receipt of funds from Private Placement
Offerings and loans obtained through private sources by us are anticipated
to offset our near term cash equivalents for the next 12 months. Since
inception, we have financed our cash flow requirements through issuance of
common stock. As we commence operational activities, we may continue to
experience net negative cash flows from operations, pending receipt of sales
revenues. Further, we 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 our working capital.
<PAGE>
We intend to commence revenue generation by establishing operational
facilities under development in our target markets. However, we will continue
the research and development of our products, increase the number of our
employees, and expand our facilities where necessary to meet development and
completion deadlines. We believe, that existing capital and anticipated
funds from operations will not be sufficient to sustain operations and
planned expansion in the next twelve months. Consequently, we 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 us.
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 our financial conditions and our
stockholders.
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 our business and
marketing strategy, continue to develop and upgrade our technology and
products, provide superior customer services and order 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.
Subsequent financing is needed 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. We hope to
enter into additional funding arrangements through strategic partnerships,
merger, equity offering or debt offering. Nothing has been secured as of
this time.
Additionally, we received an extension of 12 months for the
commencement of construction of our 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 us with additional time in which to capitalize the
construction through the sale of our 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
we are unable to commence construction during the extension period, or in
the alternative, obtain additional extensions, then in that event the
licensing rights held by us would be cancelled, leaving us with
substantially no assets or means of generating revenues.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 through F-8 of this Form 10-KSB
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No Changes to Report
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
SECTION 16(a) Beneficial Ownership Reporting Compliance. Section 16(a)
of the 1934 Act requires our executive officers, directors and persons who
beneficially own more than 10% of a registered class of our equity securities
to file with the S.E.C. initial reports of ownership and reports of changes
<PAGE>
in ownership of common stock and other equity securities of the Company. Such
executive officers, directors, and greater than 10% beneficial owners are
required by S.E.C. regulation to furnish us with copies of all Section 16(a)
forms filed by such reporting persons. Based solely on representation from
certain reporting persons, we believe that all filing requirements applicable
to our executive officers, directors and greater than 10% beneficial owners
were complied.
DIRECTORS AND EXECUTIVE OFFICERS
<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>
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. Our mission has
expanded, developing a broader recycling mandate internationally with 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.
LIMITATION OF LIABILITY OF DIRECTORS
Pursuant to the Nevada General Corporation Law, our Articles of
Incorporation exclude personal liability for our Directors for monetary
damages based upon any violation of their fiduciary duties as Directors,
except as to liability for any breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or any transaction from which a Director receives
an improper personal benefit. This exclusion of liability does not limit any
right which a Director may have to be indemnified and does not affect any
Director's liability under federal or applicable state securities laws. We
have agreed to indemnify our directors against expenses, judgments, and
amounts paid in settlement in connection with any claim against a Director if
he acted in good faith and in a manner he believed to be in our best
interests.
<PAGE>
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
Compensation Committee Interlocks and Insider Participation
The Board of Directors does not have a Compensation Committee. Harold
Jahn, President, oversaw the compensation of our executive officers.
Board of Director's Report on Executive Compensation
General. As noted above, our Board of Directors does not have a
Compensation Committee and, accordingly, during the fiscal year ended October
31, 1999, the Board of Directors, through the President, reviewed and
approved the compensation of our executive officers.
Overall Policy; Significant Factors. During fiscal 1999, the
compensation decisions made by the Board of Directors in respect of our
executive orders were influenced by three major factors. First, our start-up
nature brings with it all of the normal capital requirements to sustain
growth, therefore certain stock compensation was granted in lieu of salaries,
commissions and for services rendered. This practice may be extended into
the future on a case by case basis and accordingly filed with the Securities
and Exchange Commission. Finally, as we continue to mature, certain
additions to the executive staff will be required. As we are required to
seek talent in outside market, we will be required to provide a competitive
compensation package.
As overall policy, however, the Board continues to believe that long-
term compensation tied to the creation of stockholder value should constitute
a significant component of the compensation to be earned by our executive
officers. In this respect, it will be the Board's policy to attempt to
restrain base cash compensation (subject to competitive pressures), while
providing the incentive for Management to increase stockholder value by
providing such officers with significant numbers of market-price stock that
will not confer value upon the officers unless and until the Company's share
price rises. The Board of Directors expects that stock options will
constitute a significant component of the compensation package provided to
executive officers.
The Board believes that cash bonuses are, at times, appropriate based
upon the performance of the Company's business compared to our internal
expectations and general business conditions.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
Long Term
Annual Compensation Compensation
Name and
Principal Other Annual Restricted
Position Year Salary Bonus Compensation stock Options Others
<S> <C> <C> <C> <C> <C> <C> <C>
Harold Jahn
(1)(2) 1999 $36,000
Lew Mansell
(2) 1999 0
Garry R.
Knull 1999 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.
Stock Option Plan
The following descriptions apply to stock option plans, which we have
adopted; however, no options have been granted as of this date.
We intend 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 us. These plans are intended to encourage directors, officers,
<PAGE>
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 our continued success and growth,
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.
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 our 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 our 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 us to secure persons of requisite business experience to serve on
the Board of Directors,
* To motivate directors to enhance our future growth by furthering their
identification with our interests and our 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 our 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.
Director's Compensation
At the date of this filing, there were no formal Director's Compensation
programs. The Board of Directors does, however, reserve the right to
implement such a plan as appropriate for retaining our current members and in
attracting outside directors. Directors are reimbursed for their reasonable
out-of-pocket expenses incurred on Company business. From time to time
directors may be provided with stock options.
Other Significant Benefit Arrangements
Employees Stock Option Plan. At the date of this filing there are no
formal Employee Stock Option Plans. However, Management will ask the Board of
Directors to review the possible implementation of such a program as
Management believes employees' ownership interest in the company is positive
both in terms of employee morale and in personnel retention.
<PAGE>
Profit Sharing 401(k) Plan. No segment of the Company currently
provides a 401(k) plan for any of our employees. It is, however, expected to
be a matter for our Board of Directors to review as Management believes such
programs are beneficial both to our employees themselves and as a means of
attracting and retaining quality personnel.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date of this Form
10KSB, relating to the beneficial ownership of our common stock by those
persons known to us to beneficially own more than 5% of our capital stock, by
each of our directors, proposed directors and executive officers, and by all
of our directors, proposed directors and executive officers as a group. The
address of each person is care of the Company.
<TABLE>
Name of Beneficial Owner(1) Number Percent
Of Shares Of Class
<S> <C> <C>
Sustainable Development Group (2) 9,500,000 69%
Enviro Mining Inc (3) 3,260,000 24%
Harold Jahn (2) 0 0
Lew Mansell (3) 0 0
Gary Knull 0 0
All Directors & Officers as a Group
</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 share
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) Sustainable Development Group, controlled by Harold Jahn, received
9,500,000 shares of founders stock in 1998.
(3) Enviro-Mining, Inc. controlled equally by Lew Mansell and Harold Jahn
received 2,800,000 shares of founders stock in 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
License Agreement. On June 11, 1998, we entered into a license agreement
("Limited Technology License Agreement") with Enviro-Mining Inc., a
stockholder 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, we could lose our rights to continue
utilizing the technology. Further, the Limited Technology License Agreement
provides that we "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 we have not commenced 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. On May
11, 1999 the Limited Technology License Agreement was amended to reflect an
extension until June 11, 2000 for us to comply with the commencement of
construction and delayed payment of the License fee of $300,000.
Enviro-Mining, Inc. Harold Jahn our President and CEO, and Lew Mansell our
Senior Vice President are joint owners of Enviro-Mining, Inc.
Sustainable Development Group Harold Jahn our President and CEO, and Lew
Mansell our Senior Vice President are joint owners of Sustainable Development
Group.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
1. Financial Statements:
A. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
1.Independent Auditors Report F-1
2.Financial Statements:
Statements of Loss and Deficit for the Period Ended October 31, 1999 F-2
Balance Sheet F-3
Statement of Cash Flows for the Period Ended October 31, 1999 F-4
Statement of Changes in Stockholders' Equity for the
period ended October 31, 1999 F-5
Notes to Consolidated Financial Statements F-6 - F-8
All schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
2. During the fiscal year 1999, the Company filed the following
8-Ks.
3. Subsequent to the end of the fiscal year, the Company filed
the following reports on Form 8-K
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized.
SUSTAINABLE DEVELOPMENT, INC. DATED: February 8, 2000
By:/s/ Harold Jahn
Harold Jahn
President
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/ Horold Jahn President February 8, 2000
Harold Jahn
/s/ Lew Mansell Senior Vice President February 8, 2000
Lew Mansell
<PAGE>
Grant Thornton LL{
Chartered Accounts
Canadian Member Firm of
Grant Thornton International
Auditors' Report
To the Stockholders of
Sustainable Development International Inc. (A Development Stage
Company)
We have audited the balance sheet of Sustainable Development
International Inc. (A Development Stage Company) as at October 31,
1999 and 1998 and the statements of loss and deficit, cash flows,
and changes in stockholders' equity for each of the two periods 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 Canadian 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, 1999 and 1998 and the results of our operations and our
cash flows for each of the two periods then ended in accordance with
generally accepted accounting principles in the United States.
Edmonton, Canada
January 21, 2000 Chartered Accountants
<PAGE>
<TABLE>
Sustainable Development International Inc.
(A Development Stage Company)
Statements of Loss and Deficit
(Expressed in United States Dollars)
Period Ended October 31 1999 1998
(157 days)
Cumulative from
May 27, 1998 to
October 31, 1999
<S> <C> <C> <C>
Expenses
Advertising $417 $267 $150
Amortization 14,167 10,000 4,167
Consulting fees 107,842 84,441 23,401
Management fees (Note 5) 54,000 36,000 18,000
Office 1,728 1,728 -
Professional fees 43,861 38,873 4,988
Service charges 1,008 553 455
Travel 10,324 9,374 950
-------------- ------------ -------------
233,347 181,236 52,111
Other items
Loss on exploration 6,680 6,680 -
Gain on foreign exchange (8,776) (8,776) -
Interest revenue (6,355) (6,355) -
--------------- ----------- ------------
(8,451) (8,451) -
--------------- ------------- ------------
Net loss $(224,896)$ (172,785)$ (52,111)
=============== =============== =============
</TABLE>
<TABLE>
<S> <C> <C>
Deficit accumulated through
development stage, beginning of year $(52,111) $-
Net loss (172,785) (52,111)
----------- --------------
Deficit accumulated through
development stage, end of year $(224,896)$ (52,111)
=========== ===============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
Sustainable Development International Inc.
(A Development Stage Company)
Balance Sheet
(Expressed in United States Dollars)
October 31 1999 1998
Assets
<S> <C> <C>
Current
Cash $ 155,042 $ 330,053
Deposit 16,925 -
Due from related party (Note 5) 94,764 -
Licensing agreement (Note 3) 285,833 295,833
---------- ----------
$ 552,564 $ 625,886
========== ==========
</TABLE>
<TABLE>
Liabilities
<S> <C> <C>
Current
Payables and accruals $ 93,452 $ 13,989
------------ ----------
Stockholders' Equity
Capital stock (Note 4) 684,008 664,008
Deficit (224,896) (52,111)
---------- ----------
459,112 611,897
----------- ----------
$ 552,564 $ 625,886
=========== ==========
</TABLE>
Going concern (Note 1)
Commitment (Note 3)
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
Sustainable Development International Inc.
(A Development Stage Company)
Statement of Cash Flows
(Expressed in United States Dollars)
Period Ended October 31 1999 1998
(157 days)
Cumulative from
May 27, 1998 to
October 31, 1999
<S> <C> <C> <C>
Increase (decrease) in cash
Operating
Net loss $ (224,896) $(172,785) $ (52,111)
Amortization 14,167 10,000 4,167
Services settled with shares 43,351 20,000 23,351
Change in non-cash operating
working capital:
Increase in deposits (16,925) (16,925) -
Increase in payables and
accruals 93,452 79,463 13,989
------------- ----------- -------------
(90,851) (80,247) (10,604)
Financing
Issuance of capital stock 640,657 - 640,657
Advances to related parties (94,764) (94,764) -
------------- ---------- ------------
545,893 (94,764) 640,657
Investing
Purchase of licensing agreement (300,000) - (300,000)
------------ ----------- --------------
Net increase (decrease) in cash 155,042 (175,011) 330,053
Cash
Beginning of period - 330,053 -
------------- ---------- -------------
End of period $ 155,042 $ 155,042 330,053
============= ========== =============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
Sustainable Development International Inc. (A Development Stage Company)
Statement of Changes in Stockholders' Equity (Expressed in United States
Dollars)
Period Ended October 31, 1999
Additional
Number of Par Common Paid-in
Shares Value Stock capital deficit total
<S> <C> <C> <C> <C> <C> <C>
Balance,
May 27, 1998 - $ - $ - $ - $ - $ -
Shares issued
to founding
stockholders,
May 1998 11,500,000 .001 11,500 (11,492) - 8
Common shares
issued for
transfer of
Licensing Agreement,
June 1998 1,200,000 .001 1,200 298,800 - 300,000
Common shares issued
for cash consideration
of $0.25 per share
by private placement,
September 1998 706,596 .001 707 175,943 - 176,650
Common shares issued
for services,
June 1998
to October 1998 93,404 .001 93 23,257 - 23,350
Common shares issued
for cash consideration
of $1.00 per share
by private placement,
October 1998 200,000 .001 200 199,800 - 200,000
Expenses on issuance
of share capital - - - (36,000) - (36,000)
Net loss - - - - (52,111) (52,111)
--------------------------------------------------------------
Balance, October
31, 1998 13,700,000 - 13,700 650,308 (52,111) 611,897
Common shares
issued for
services,
November 1998 20,000 .001 20 19,980 - 20,000
Net loss - - - - (172,785) (172,785)
Balance,
October 31,
1999 13,720,000 $.001 $13,720 $670,288 $(224,896)$(459,112)
</TABLE>
<PAGE>
Sustainable Development International Inc.
(A Development Stage Company)
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1999
1. Nature of operations and basis of presentation
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.
The company's accounting and reporting policies conform to generally accepted
accounting principles and industry practice in the United States. The amounts
reported in these financial statements are in United States dollars.
The accompanying financial statements have been prepared on the basis that
the company will continue as a going concern which assumes the realization of
assets and settlement of liabilities in the normal course of business. Since
our inception, the company has been engaged in organizational and pre-
operating activities. Further, the company has generated no revenues and
incurred losses. Continuation of the company's existence is dependent upon
our ability to obtain additional capital and our ability to successfully
develop technologies and sustain profitable operations. The uncertainty
related to these conditions raises substantial doubt about the company's
ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
2. Summary of significant accounting policies
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.
<PAGE>
Sustainable Development International Inc.
(A Development Stage Company)
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1999
3. Licensing agreement
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. Enviro-Mining Inc. has provided an
extension of the original agreement and has delayed payment, without any
penalties.
This licensing agreement allows the company to use a process that is related
to an oil re refining technology for the production of a high grade low
sulphur #2 diesel and associated products from waste lubrication oil.
The Agreement could be terminated if Sustainable Development International
Inc. does not commence construction by June 11, 2000, at a minimum plant
capacity of 90,000 Tonnes of waste oil input.
4. Capital stock 1999 1998
Authorized:
50,000,000 Common voting
shares, $.001 par value
10,000,000 Preferred shares
Issued:
13,720,000 (1998 - 13,700,000)
common voting shares $ 13,720 $ 13,700
Additional paid in capital 670,288 650,308
----------- -----------
$ 684,008 $ 664,008
=========== ============
During November 1998, 20,000 shares were issued for $20,000 of services
provided to the company.
5. Related party transactions
a) During the year, Enviro-Mining Inc., a stockholder of the company, paid
expenses on behalf of the company. Advances were also made to Enviro-Mining
Inc. to assist with acquiring new technologies. Amounts due from Enviro-
Mining Inc. are non-interest bearing with no set terms of repayment.
b) During the year, management fees were paid to a director of the company
totalling $36,000 (1998 - $18,000).
<PAGE>
Sustainable Development International Inc.
Notes to the Financial Statements
(Expressed in United States Dollars)
October 31, 1998
6. Subsequent events
a) On November 22, 1999, the company announced that it has incorporated
Intercontinental Granite Incorporated. The company will own 80% of the
outstanding common shares of Intercontinental Granite Incorporated for
nominal consideration.
b) On December 15, 1999, 56,800 common voting shares were issued to
consultants to the company pursuant to the Stock Compensation Plan, in
settlement of accounts payable of $60,350.
c) On December 16, 1999, the company entered into an agreement to form Pro-
Active Incorporated. The company will own 60% of Pro-Active Incorporated for
nominal consideration, which will manage health care information through the
use of integrated systems, customized databases and intelligent ID cards.
d) On January 14, 2000, the company acquired 22,500 acres of mineral claims
under a metallic and industrial minerals permit.
7. 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. Although the change in date has occurred, it is not possible to
conclude that all aspects of the Year 2000 Issue that may affect the entity,
including those related to customers, suppliers, or other third parties, have
been fully resolved.
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