U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURTIES AND
EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 1999
__ TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES AND EXCHANGE
ACT OF 1934.
For the transition period from _________________ to
____________________.
Commission File No. - 000-28509
National Sorbents, Inc.
formerly known as Polyspherics, Inc.
Nevada 31-1291923
(State of organization) (I.R.S. Employer Identification No.)
10139 Commerce Park Drive, Cincinnati, Ohio 45246
(Address of principal executive offices)
Issuer's telephone number (513) 860-4144
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was
required to file such reports), and 2 has been subject to such
filing requirements for the past 90 days. Yes X No .
Check if disclosure of delinquent filers in response to Item 405
of the Regulation S-B is not contained in this form, and no
disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenue for its most recent fiscal year.
$3,551,260
Aggregate market value of voting stock held by non-affiliates of
registrant as of March 30: $7,710,726
Shares of Common Stock outstanding as of March 30: 9,763,938
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (check one): Yes
___; No X
10-KSB
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes In and Disagreements with Accountants or
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a)
Of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and reports on Form 8-K
This Annual Report on Form 10-KSB contains statements which
constitute forward-looking statements. These statements appear in
a number of places in this Form 10-KSB and include statements
regarding the intent, belief or current expectations of National
Sorbents, Inc. together with its subsidiaries (referred in this
report as "we", "us" and "our") with respect to (i) our financing
plans, (ii) trends affecting our financial condition or results
of operations, (iii) the impact of competition, and (iv) the
expansion of certain operations. Investors are cautioned that any
such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that the
actual results may differ materially from those in the forward-
looking statements as a result of various factors. The
information contained in this Form 10-KSB, including, without
limitation, the information under "Risk Factors," "Management's
Discussion and Analysis or Plan of Operations" and "Description
of Business" identifies important factors that could cause or
contribute to such differences. See "Description of Business-Risk
Factors-All forward-looking statements should be read with
caution."
PART I
Item 1. Description of Business
National Sorbents, Inc., ("NSI") is engaged in the business of
developing, manufacturing and marketing sorbent products
("sorbents") to industrial and governmental entities.
Additionally, NSI provides waste disposal management services to
clients (primarily one large customer in the Midwest) on a
contractual basis.
Sorbents are employed in control, containment, and clean-up of a
variety of liquids including oil, chemical, acid, caustic, and
water based liquids. Sorbents may be comprised of either natural,
manufactured materials or a combination of both. The development
of products consisting of a combination of materials allow the
industry to offer products suited for specific application to the
type of spill. NSI concentrates on developing sorbents, which
maximize the amounts of liquids contained, controlled and cleaned
up from any spill.
NSI markets its sorbents under the trademarked name "MAXX". The
sorbents are categorized into three main product lines:
MAXX ULTRA a general purpose absorbent engineered for
maximum absorption of coolants, solvents, water, oil and other
liquids with the exception of aggressive acids and caustics.
MAXX SELECT is a specific purpose absorbent engineered for
maximum absorption of oil and petrochemicals while repelling
water.
MAXX RESCUE is a universal absorbent which will absorb
virtually any liquid including strong acids and caustics. The
ability of the product to absorb any type of liquid makes it
especially useful in controlling and containing spills of an
unknown origin.
Recent Developments
Industry Overview
Sorbent materials are used in increasing amounts for both large
and small situations, from hazardous waste control/cleanup
through medical and mortuary applications. There is continuing
growth in the concern for the impact of released chemicals, oils,
hazardous materials, infectious and other toxic substances on
both people and the environment. Federal and local regulations
regarding the control/cleanup of spills as well as the ultimate
disposal of sorbent materials used in the process are becoming
more restrictive and specific. Generators are legally liable for
the proper handling, control, and disposal of these materials.
This constant increase in laws and enforcement mandates that
companies be well informed of the regulations and the potential
results/effects of any violation.
All private and governmental functions are being mandated to
pursue waste minimization, resource recovery, and controlled
disposition of materials used in the process. Proper sorbent
material selection and usage provides fast and efficient control
and cleanup of any incidence, provides personnel protection to
those involved in the process, as well as protection to the
safety personnel, such as fire and other emergency personnel,
involved in the process.
Environmental concerns are the source of additional regulation
and control of materials used by industry and governments.
The industry is comprised of a range of companies from
wholesaler/distributors, through manufacturers/distributors, to
direct manufacturers of sorbent materials. The relative size of
companies in the industry ranges from small distributors through
multi-national producers.
The product which may be classified as sorbents range from the
basics, such as clay, sawdust, rags, etc. through the application
specific man- made materials developed to maximize the amount of
waste/spill controlled.
Competition
There are a large number of companies classifying themselves as
providers of sorbent, but the major companies in the industry are
less than twenty, and include such companies as 3M, Ergon, SPC,
SpillTech, New Pig Corp., Matarah, and NSI.
The determinants of success in the market are the combination of
product knowledge, application, quality, response and support at
the time of an occurrence. NSI is acknowledged as an industry
leader in these categories and maintains its commitment to
support the needs of its customers.
Intellectual Property
Sorbents are produced from natural materials as well as generic
formulated materials. The generic composition of the material
precludes the acquisition of patents on the product. NSI does
pursue design patents both domestically and internationally for
products which it has developed and which offer unique features
to the user of the product, to date NSI has not received the
award of a design patent. NSI owns various trademarks on product
lines which it has been awarded over time.
NSI has registered the trademark MAXX as the unique
identification of the differentiation between its products and
that of competitors. NSI vigorously protects this trademark.
History and Organization
NSI was formed as a proprietorship in 1988 by Daniel B. and
Leslie E. Jones. NSI was incorporated in the State of Ohio on
January 18, 1990 and reincorporated in the State of Nevada on
January 19. 2000. NSI shares are traded under the symbol "NSIE"
on the Over the Counter/Bulletin Board market.
On January 19, 2000 NSI reorganized as a Nevada corporation,
while maintaining its administrative, sales and manufacturing
facilities in Cincinnati, Ohio. Following the reorganization NSI
acquired all of the outstanding shares of Polyspherics
Corporation, a Nevada Corporation , with no assets, liabilities,
revenues or operations. Subsequent to the completion of the
acquisition of Polyspherics, NSI merged its wholly-owned
subsidiary into itself and is the surviving entity for reporting
purposes.
NSI has historically engaged in two segments of the environmental
industry, the first being the sale of sorbent materials to
distributors and end-users of the product, and the second being
the contract management of waste disposal services for clients,
primarily one large Midwest client. The sale of sorbents
represented 49%, 26% and 19% of the total revenues of NSI for the
years ended December 31, 1999, 1998 and 1997 respectively.
Revenues from contract activities represented 51%, 74% and 81% of
total revenues for NSI for the years ended December 31, 1999,
1998 and 1997 respectively, with a single waste management
customer representing 98%, 95% and 99% of revenues from contract
activities for the years ended December 31, 1999, 1998, and 1997
respectively.
Potential Expansion of Business
NSI has followed the corporate philosophy of identifying areas
and/or industries where the control of various materials and
liquids is a critical concern.
One of the most recent industries identified in this process is
the mortuary industry. After several years of development and
testing, during the fourth quarter of 1999 NSI introduced a line
of products developed specifically to provide maximum control of
body fluids and process fluids used during the preparation for
interment or cremation of human corpses.
Employees
At December 31, 1999, NSI employed twenty five (25) individuals.
The distribution of employees by function is as follows:
<TABLE>
<S> <C>
Production 13
Sales and marketing 7
Administration 5
</TABLE>
No employees of NSI are covered by a collective bargaining
agreement. NSI has employment contracts with Daniel B. and Leslie
E. Jones, which automatically renew on an annual basis, no other
employees are covered by an employment contract.
Risk Factors
All forward-looking statements should be read with caution.
Statements in this Annual Report on Form 10-KSB under the
captions "Description of Business," "Management's Discussion and
Analysis or Plan of Operations," and elsewhere in this Form 10-
KSB, as well as statements made in press releases and oral
statements that may be made by us or by officers, directors or
employees acting on our behalf, that are not statements of
historical fact, constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, including those described in
this Form 10-KSB under the caption "Risk Factors," that could
cause our actual results to be materially different from the
historical results or from any future results expressed or
implied by such forward-looking statements. In addition to
statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled
with terms "believes," "expects," "plans," "anticipates," or
"intends," to be uncertain and forward-looking. All cautionary
statements made in this Form 10-KSB should be read as being
applicable to all related forward-looking statements wherever
they appear. Investors should consider the following risk factors
as well as risks described elsewhere in this Form 10-KSB.
NSI has experienced losses. During its history NSI has
experienced net losses from its operations. NSI had a net loss of
$37,677 for the year ended December 31, 1999, as compared to a
net loss of $188,237 for the year ended December 31, 1998, and a
net loss of $495,746 for the year ended December 31, 1997.The
results for the year ended December 31, 1999 were affected by a
one time gain of $497,863 as the result of a settlement agreement
with a prior employee/finance source. NSI's losses from
operations were $472,889, $161,200 and $421,924 for the years
ended December 31, 1999, 1998 and 1997, respectively. NSI can not
assure you that it will operate profitably in the near future if
at all.
NSI has a negative net worth. At December 31, 1999, NSI has a
negative net worth of $1,153,793. NSI cannot assure you that we
will be able to operate profitably in the future if at all.
NSI may continue to need financing or additional equity to meet
our future capital requirements. At December 31, 1999 current
liabilities exceeded current assets $1,380,402 and our total
liabilities exceeded our total assets by $1,153,793. NSI
continues to explore additional sources for financing to meet our
needs. NSI has not determined the amount or the form of this
additional financing (i.e. debt or equity). NSI cannot assure
success in obtaining additional financing for future operations
or capital needs on favorable terms if at all.
Existing shareholders are able to exercise control. Officers and
directors beneficially own approximately 43% of the outstanding
shares of common stock and Leslie E. Jones owns approximately
43%. The Articles of Incorporation do not provide for cumulative
voting rights.
Loss of key employee could jeopardize NSI. Daniel B. Jones', the
co-founder of NSI with his wife Leslie E. Jones, and currently
President of NSI, continued contributions are critical to the
success and future performance of the company. Mr. Jones is
recognized as a true leader of the commercial sorbent industry,
as well as an industry leader in knowledge of proper procedures
to be employed in the control, containment and clean-up of
material spills. Loss of Mr. Jones leadership in these areas
could be devastating to the continued operations of NSI. NSI
maintains key man term life insurance totaling $1,500,000 on the
life of Mr. Jones.
Intense competition could affect market share. NSI manufactures
and sells its sorbent products in a highly competitive market
comprised of numerous companies of varying financial strength.
This variety at times causes pricing pressure on sorbent
materials. Additionally, the variety of types of products and
variation in effectiveness of the product create multiple levels
of competition.
NSI cannot predict or assure the potential investor of its
ability to grow its market share or in fact to maintain current
share levels in light of the diversity of the competitive forces
affecting the sorbent market.
No dividends are anticipated. NSI has never declared or paid any
cash or other dividends on its common stock. At present we do not
anticipate paying any dividends on the common stock and intend to
devote any earnings to the further development and growth of our
business. Investors who anticipate the need for immediate income
from their investment should refrain from purchasing our common
stock.
Common stock may lack liquidity. To date shares of common stock
of NSI have traded on the NASDAQ Over the Counter/Bulletin Board
market. We cannot however assure a shareholder that there is or
will be a ready market to buy or sell shares when desired.
Future sales of common stock by existing shareholders could
adversely affect the price of our stock.
Officers and directors of the NSI control 43% of the outstanding
shares of the company. An unrelated group of investors controls
33% of the outstanding shares of the company. Action by either of
these groups to divest of their holdings could have a negative
effect on the price and capability to divest of individual
holdings.
Item 2. Description of Property.
NSI's manufacturing and office facilities are located at 10139
Commerce Park Drive, Cincinnati, Ohio. The facility is comprised
of a 40,000 square foot office/production facility situated on
five acres of land. The site is located in an industrial park
with multiple direct accesses to the interstate highway system.
The property is financed by a twenty five year mortgage note with
an outstanding balance of $614,615 at December 31, 1999. The
property is pledged as collateral to secure the mortgage note.
The note provides for adjustable monthly payments, currently
$4,618, and bears an interest rate of 8,25%, which is adjustable
annually at July 1. The rate adjustment is subject to a 2.0%
annual increase limitation and a maximum annual rate of 14.50%.
NSI believes the facility is of sufficient size to handle all
production and administrative functions necessary to meet its
current and anticipated operating activities, with the knowledge
that the property provides adequate space for potential expansion
required by future growth of operations.
Item 3. Legal Proceedings.
NSI is involved in various legal actions arising out of its
normal course of business. The officers and directors of NSI do
not believe that an adverse decision on any of these actions,
whether considered individually or in the aggregate, will have a
material adverse affect on the company or its financial position.
Item 4. Submission of matters to a Vote of Security Holders
There were no matters submitted to a vote of stockholders during
the fiscal year ended December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Price range of Common Stock
The common stock of NSI has been traded on the NASDAQ OTC
Bulletin Board under the symbol "NSIE." The following table sets
forth, for the fiscal periods indicated, the high and low selling
prices of a share of common stock as reported by the OTC Bulletin
Board for each calendar quarter for the two prior years. Such
quotations reflect actual sale transaction prices rather than
inter-dealer prices.
<TABLE>
<S> <C> <C>
Quarter ended Low High
December 31, 1999 $0.4375 $2.00
September 30, 1999 0.4375 0.9375
June 30, 1999 0.3438 1.5625
March 31, 1999 1.125 1.50
December 31, 1998 0.75 1.375
</TABLE>
Prior quarters traded under "NSES"
As of March 30, 2000, the high and low bid prices per share of
common stock were $1.375 and $1.50, respectively. There were
approximately 4,000 holders of record of the common stock.
Item 6. Management's Discussion and Analysis or Plan of
Operations.
All statements contained herein that are not historical facts,
including but not limited to, statements regarding our current
business strategy and our plans for future development and
operations, are based upon current expectations. These statements
are forward-looking in nature and involve a number of risks and
uncertainties. Generally, the words "anticipates," believes,"
"estimates," "expects" and similar expressions as they relate to
NSI and its management are intended to identify forward-looking
statements. Actual results may differ materially. Among the
factors that could cause actual results to differ materially are
those set forth under the caption "Description of Business-Risk
Factors." We wish to caution readers not to place undue reliance
on any such forward-looking statements, which statements speak
only as of the date made.
Since its inception in 1988 NSI has been active in the
production, distribution and selling of sorbent materials used in
the control, containment and removal of material spills of both
hazardous and non-hazardous materials. NSI has evolved from being
primarily a distributor of such products to being a significant
converter of sorbent materials from a raw product to a usable
product. Additionally, NSI has developed as a significant
provider of material disposal management services to the
generators of such materials. NSI's operating history exceeds ten
years, but the risks, expenses and difficulties encountered by
start-up companies must be considered when evaluating NSI's
prospects.
Operating expenses of NSI although not entirely predictable can
be estimated with a reasonable measure of accuracy and except for
the fixed costs associated with the facility can be controlled by
management of the company. Several factors, including marketing
of NSI products and services, the types of products sold,
competitive pressures, distribution costs and order size, affect
both the level and timing of operating expenses.
Since its inception NSI has incurred costs associated with
developing product identity, name recognition, testing and
verifying product quality and appropriate use, developing
products for acceptance by new markets, costs of product
introduction including advertising and market research.
Management foresees such expenses continuing in the future as NSI
develops a complete line of product and services necessary to be
a leader of the sorbent industry.
To date NSI has financed its net expenditures through a
combination of borrowings and the sale of common stock of the
company. Since its incorporation in 1990 through December 31,
1999 NSI has issued 9,763,938 shares of its common stock for a
net cash consideration $4,907,944.
Results of operations
Year ended December 31, 1999 compared to year ended December 31,
1998
Revenues
Net revenues decreased $777,931, or 18%, to $3,551,261 from
$4,329,192 for the years ended December 31, 1999 and 1998
respectively. Revenues from the sale of sorbent materials
increased $408,263, or 33%, to $1,639,126 from $1,230,863 for the
years ended December 31, 1999 and 1998 respectively, as the
result of an increase in product shipped rather than a price
change. Environmental revenues decreased $1,377,412, or 43%, to
$1,807,141 from $3,184,553 for the years ended December 31, 1999
and 1998 respectively, as the result of the lower volume of
services performed, rather than a change in pricing of services.
The decrease in services reflected a temporary suspension of
production at a facility of our major customer during the second
and third quarter of 1999, by the fourth quarter activity levels
at that facility had returned to normal levels. Freight billings
increased $5,975, or 6% to $109,947 from $103,972 for the years
ended December 31, 1999 and 1998 respectively, as the result of
an increase in activity and not a rate increase. Sales returns &
allowances decreased $185,243 or 97%, to $4,953 from $190,196 for
the years ended December 31, 1999 and 1998 respectively.
Cost of sales and revenues
Cost of sorbents sold increased $267,215, or 26%, to $1,325,791
from $1,058,576 for the years ended December 31, 1999 and 1998
respectively. The increase reflects the increased amount of
material sold rather than an increase in unit cost of product.
Cost of environmental revenues decreased $948,643, or 39%, to
$1,474,916 from $2,423,559 for the years ended December 31, 1999
and 1998 respectively. The decrease reflects the lower disposal
activity level experienced rather than a reduction in price.
Gross profit
The changes in revenues and costs discussed in the preceding
paragraphs resulted in a gross profit decrease of $96,503 or 11%,
to $750,554 from $847,057 for the years ended December 31, 1999
and 1998 respectively. The decrease is attributed to an overall
decrease in revenues offset by the shift of revenues to a higher
profit line.
Operating Costs and Expenses
Operating expenses increased $215,186 or 21%, to $1,223,443 from
$1,008,257 for the years ended December 31, 1999 and 1998
respectively. The increase is primarily attributed to the
increase in sales promotion activities related to growing the
sorbent sales, higher commissions related to the growth in
sorbent sales, and increased professional fees related to
negotiating the debt restructuring and audit fees related to
bringing the company to full reporting status.
Other income/expense
Other expense, net was $62,651 for the year ended December 31,
1999 as compared to $27,037 for the year ended December 31, 1998.
The company realized a gain from insurance proceeds of $36,410
during 1998 which accounts for the difference between the two
years.
The company experienced a on time gain resulting from debt
restructuring during the year ended December 31, 1999 in the
amount of $497,863.
Taxes on income
The company has accumulated significant loss carry-forwards for
federal and state income tax purposes. Since the Company has not
attained profitability in any of its years of operations, any
recognizable tax benefit of current losses has been offset by a
valuation reserve reflecting the uncertainty of using the carry-
forward. The carry-forwards begin to expire in the year 2005.
Year ended December 31, 1998 compared to year ended December 31,
1997
Revenues
Net revenues decreased $89,575, or 2%, to $4,329,192 from
$4,418,767 for the years ended December 31, 1998 and 1997
respectively. Revenues from the sale of sorbent materials
increased $302,357, or 33%, to $1,230,863 from $928,506 for the
years ended December 31, 1998 and 1997 respectively, as the
result of an increase in product shipped rather than a price
change. Environmental revenues decreased $359,133, or 10%, to
$3,184,553 from $3,543,686 for the years ended December 31, 1998
and 1997 respectively, as the result of the lower volume of
services performed, rather than a change in pricing of services.
Freight billings increased $45,809, or 79% to $103,972 from
$58,163 for the years ended December 31, 1998 and 1997
respectively, as the result of the increase in product shipments
and not a rate increase. Sales returns & allowances increased
$28,607 or 18%, to $190,196 from $161,589 for the years ended
December 31, 1998 and 1997 respectively.
Cost of sales and revenues
Cost of sorbents sold increased $319,255, or 43% to $1,058,576
from $739,321 for the years ended December 31, 1998 and 1997
respectively. The increase reflects the increased amount of
material sold. Cost of environmental revenues decreased $677,646,
or 22%, to $2,423,559 from $3,101,205 for the years ended
December 31, 1998 and 1997 respectively. The decrease reflects
the lower disposal activity level.
Gross profit
The changes in revenues and costs discussed in the preceding
paragraphs resulted in a gross profit increase of $268,816, or
46%, to $847,057 from $578,241 for the years ended December 31,
1998 and 1997 respectively. The increase is attributed to the
shift of revenues to the higher profit line.
Operating Costs and Expenses
Operating expenses decreased $8,092 or 1%, to $1,008,257 from
$1,000,165 for the years ended December 31, 1998 and 1997
respectively. The decrease is primarily attributed to lower
commissions reflecting the growth in sorbent sales by an
individual not included in the commission structure, and lower
charges for uncollectible accounts, partially offset by increased
professional fees and other administrative costs.
Other income/expense
Other expense, net decreased $46,785, or 63% to $27,037 from
$73,822 for the years ended December 31, 1998 and 1997
respectively. The decrease reflects the lower interest charges
incurred as the result of interest charges being waived on
certain debt combined with a one time gain from recovery of
amounts on an insurance claim.
Taxes on income
The company has accumulated significant loss carry-forwards for
federal and state income tax purposes. The Company has not
attained profitability in the years of its operations, thus, any
recognizable tax benefit of current losses has been offset by an
equal valuation reserve reflecting the uncertainty of the
company's ability to use the benefit of the carry-forward.
Liquidity and Capital Resources
Cash was $12,287 and $0 at December 31,1999 and 1998
respectively. Net accounts receivable were $412,651 and $344,812
at December 31, 1999 and 1998 respectively. The $80,126 net
increase of cash and receivables at December 31, 1999 as compared
to December 31, 1998 reflects normal timing differences and is
not indicative of any specific trend.
The net working capital deficit was $1,380,402 and $1,875,678 at
December 31, 1999 and 1998 respectively. The improvement in the
net deficit reflects the impact of the debt settlement
accomplished at December 31, 1999, as well as the impact of
timing rather than a change in activity levels.
Indebtedness amounted to $611,145 and $621,053 at December 31,
1999 and 1998 respectively. The reduction reflects the normal
amortization in accordance with loan agreements.
Indebtedness of the company consisted of the following
instruments:
A mortgage note, secured by the real estate of the company, in
the principal amount of $613,815, the note bears interest at the
rate of one year treasury notes plus three and one-half percent.
The rate of interest on the mortgage is adjustable to the then
current rate at each July 1, but never in excess of fourteen and
one-half percent, nor less than one and one-half percent. The
mortgage note has a maturity date of July 1, 2023.
The Company is obligated under a capital lease. The lease bears
an interest rate of 14.25% and has a term of five years maturing
in May, 2001. Annual commitment of principal and interest for the
year 2000 is $5,244.
Cash requirements to fund the operations and growth of the
company have historically exceeded cash flow from operations.
Accordingly, the company has funded its cash requirements through
a combination of debt and equity. The company foresees the need
to continue similar funding arrangements in the immediate future.
The company does not have material specific capital requirements
outside the funds necessary to grow the organization.
Year 2000
The company successfully implemented all necessary software
changes to recognize the year 2000, with minimal cost other than
time expended by company personnel. None of the company's
suppliers experienced any difficulties in handling transactions
in the year 2000.
Item 7. Financial Statements.
The Financial Statements and Notes thereto can be found beginning
on page F-1, "Index to Financial Statements," following Part III
of this Annual Report on Form 10-KSB.
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Person; Compliance with Section 16(a) of the Exchange Act.
Our directors and executive officers are as follows:
<TABLE>
<S> <C> <C>
Name Age Position
Daniel B. 64 President, Treasurer,
Jones and Director
Leslie E, 50 Vice President,
Jones Secretary, and Director
Dr. John P. 42 Director
Bryk
Efthimios 39 Vice President Sales &
Mamaligas Marketing
</TABLE>
Committees
During 1999, only special meetings were held to approve various
corporate authority changes mandated by changes in management
personnel.
No committees have been formed nor members appointed.
Biographies
Daniel B. Jones
Mr. Jones has been President, Chief Executive Officer, Treasurer,
and a member of the Board of Directors since the incorporation of
the company in January, 1990. From 1998 until January, 1990, he
was the Vice President and General Manager of Environmental
Absorbent Supply, Inc., a sorbent manufacturer and distributor.
From 1980 to 1988 he was General Manager of Cincinnati Fiber,
Inc., a sorbent manufacturer. From 1965 to 1980, he was President
and a Director of Premier Industries, Inc., a manufacturer of
component parts for the aircraft, automobile and steel
industries. In his capacity of President of NSI, Mr. Jones has
been primarily responsible for the development of the company
from a distributor of products, to a processor and manufacturer
of its own product line. His responsibilities have included
sales, marketing, administration, finance, product development ,
operations and contract management.
Leslie E. Jones
Ms. Jones has been the Executive Vice President, Secretary,
controlling shareholder and a member of the Board of Directors
since the incorporation of the company in January, 1990. From
1987 to 1988, she was an Administrator for Hondrous Academy, an
adult education school. From 1983 to 1988, she was a real estate
sales person for Sibcy-Cline,Inc., a real estate brokerage firm.
From 1978 to 1982, she was a sales person and buyer for Pogues
Department Store, an upscale retail department store. In her
capacity as Executive Vice President of NSI, Ms. Jones has been
responsible for Human Resources, legal, Public Relations, and
Product Promotion of the company.
Efthimios Mamaligas
Mr. Mamaligas has been a Vice President of the company since
September, 1997. He has been responsible for both the domestic
and international Sales and Marketing efforts of the company.
Prior to joining the company Mr. Mamaligas was a senior manager
with the Chiquita division of United Brands Inc., as well as
serving in a similar capacity with Gibson Greeting Cards, Inc.
Each Director holds office until our annual meeting of
stockholders and until his successor is duly elected and
qualified. Officers are elected by the Board of Directors and
hold office at the discretion of the Board of Directors. Daniel
B. and Leslie E. Jones are husband and wife. No other family
relationships exist between any of our directors and executive
officers.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires our directors and executive
officers, and persons who beneficially own more than the percent
of a registered class of our equity securities, to file with the
Securities and Exchange Commission (the SEC) initial reports of
ownership and reports of changes in ownership of Common Stock and
other equty securities. Officers, directors, and persons who
beneficially own more than ten percent of a registered class of
our equities are required by the regulations of the Commission to
furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such
reports furnished to the Company, during the fiscal year ended
December 31, 1999, all Section 16(a) filing requirements
applicable to our officers, directors, and greater than ten
percent beneficial owners were complied with.
Item 10. Executive Compensation.
Executive Compensation
The following table sets forth the annual and long-term
compensation for services in all capacities for the fiscal year
ended December 31, 1999 paid to Daniel B. Jones, our President
and a director, Leslie E. Jones, our Vice President and a
director. No other executive officer received compensation
exceeding $100,000 during the fiscal year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C>
Annual compensation Long term compensation
Awards Payout
s
Name and Year Salary Bonus Other Restric Securit LTIP All
Position ($) ($) Annua ted ies Payout other
l Stock underly s ($) Comp.
Comp. Awards ing ($)
($) ($) options
/ SARs
(#)
Daniel B. 1999 $48,000
Jones,
President and 1998 $48,000
Director
Leslie E. 1999 $48,000
Jones,
Vice President 1998 $48,000
and Director
</TABLE>
OPTIONS TABLE
Options Granted in Last Fiscal Year
No Stock options were granted in the fiscal years ended December
31, 1999 and 1998.
Director Compensation
No compensation was granted to directors for their participation
in meetings of the Board of Directors during the fiscal years
ended December 31, 1999 and 1998.
Option and Award Plan
At the present time and during the fiscal years ended December
31, 1999 and 1998 there was no stock option or stock award plan
in place in the company.
401(k) Savings Plan
The Company has adopted a 401(k) savings plan whereby
participants can elect to defer up to a specified maximum of
their compensation. The plan presently does not provide for any
matching contributions by the company. The Company pays all
administrative functions required by the operation of the plan.
Employment Agreements
Mr. Daniel B. Jones, President and Ms. Leslie E. Jones, Vice
President are employed in accordance with employment agreements
dated 1990 which provide automatic renewal each December 31 for a
one year period.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Principal Stockholders
The following table sets forth information known to us, as of
March 30, 2000, regarding the beneficial ownership of our voting
securities by (i) each person who is known by us to own of record
or beneficially more than 5% of the outstanding Common Stock,
(ii) each of our directors and the Named Executive Officers, as
defined in Item 6, and (iii) all directors and executive officers
as a group. Unless otherwise indicated, each of the stockholders
listed in the table below has sole voting and dispositive power
with respect to shares beneficially owned by such stockholder.
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature Percent of Class
Beneficial Owner (1) of Beneficial (2)
Ownership
Leslie E. Jones 4,156,137 42.6%
All directors and 4,172,803 42.7%
executive Officers as a
group (2 persons)
</TABLE>
(1) The address for Ms. Jones is c/o National Sorbents, Inc.,
10139 Commerce Park Drive, Cincinnati, Ohio 45246.
(2) Shares of Common Stock are deemed outstanding for purposes
of computing the percentage of beneficial ownership if such
shares of Common Stock are exercisable or convertible within 60
days of the date of this Form 10-KSB.
Item 12. Certain Relationships and Related Transactions.
A single customer, which generates over 95% of the revenue from
environmental services and NSI are party to a purchase contract
covering the services to be provided by NSI. The contract
provides for periodic review of the pricing schedules on
specified waste streams, as well as providing for pricing updates
on new waste streams after approval of the profile at the final
disposal facility. The contract expires on March 31,2001.
Item 13. Exhibits and Reports on Form 8-K.
FINANCIAL STATEMENTS
Reports of Independent Auditor, Van Buren & Hauke, LLC,
dated March 26, 2000
Balance Sheet as of December 31, 1999, and December 31,
1998.
Statement of Operation for the years ended December 31,
1999, and December 31, 1998.
Statement of Stockholders' Equity.
Statement of Cash Flows for the years ended December
31, 1999, and December 31, 1998.
Notes to Financial Statements
NATIONAL SORBENTS, INC.
FINANCIAL STATEMENTS
For the Years Ended December 31, 1999 and 1998
NATIONAL SORBENTS, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE NO.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5
Statements of Changes in Stockholders' (Deficit) 6
Notes to the Financial Statements 7-13
</TABLE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
To the Board of Directors
National Sorbents, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheets of National
Sorbents, Inc. as of December 31, 1999 and 1998, and the related
statements of operations, cash flows, and changes in
stockholders' (deficit) for the years 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of National Sorbents, Inc. at December 31, 1999 and 1998, and the
results of its operations, cash flows, and changes in
stockholder's (deficit) for the years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in note "Going Concern" to the financial statements, the Company
had incurred significant operating losses, had experienced a
significant decline in overall revenue in 1999 and at December
31, 1999 had a working capital deficit of $1,380,402 and a
stockholder deficit of $1,153,793. These factors raise
substantial doubt about its ability to continue as a going
concern. Management's plans are also described in the note. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Van Buren & Hauke, LLC
March 26, 2000
NATIONAL SORBENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Assets
Current assets:
Cash $ $
12,287 -
Trade receivables, net:
Sorbent
281,518 24,714
Environmental
131,133 320,098
Total Trade Recivables
412,651 344,812
Inventory:
Raw materials
106,189 59,675
Finished goods
98,882 108,198
Total Inventory
205,071 167,873
Prepaid expenses
18,144 7,980
Employee advances
10,428 -
Total Current Assets
658,581 520,665
Property, Plant and Equipment:
Land and building
850,000 850,000
Factory equipment
142,268 139,741
Computers and office equipment
49,873 47,297
Furniture and improvements
29,799 24,862
1,071,940 1,061,900
Less: Accumulated depreciation
(239,026) (207,655)
Net Property, Plant and Equipment
832,914 854,245
Other assets
4,840 1,005
Total Assets $ 1,496,335 $ 1,375,915
</TABLE>
NATIONAL SORBENTS, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Liabilities and Stockholders' (Deficit)
Current Liabilities:
Cash overdraft $ $
- 4,156
Trade payables:
Sorbents
802,386 579,777
Environmental
275,950 111,492
Accrued Expenses:
Payroll, taxes
58,860 59,643
Interest
23,875 150,438
Other
71,998 236,086
Notes payable
380,940 137,000
Notes payable - Stockholder
415,066 415,066
Notes payable - Moon
- 691,231
Current portion of long-term debt
9,908 11,454
Total Current Liabilities
2,038,983 2,396,343
Mortgage payable, net of current portion
608,967 613,815
Capital lease, net of current position
2,178 7,238
Total Long-Term Debt
611,145 621,053
Total Liabilities
2,650,128 3,017,396
Stockholders' (Deficit):
Common stock; $0.001 par value, 25,000,000
shares authorized, 9,764 5,499
outstanding shares, 9,763,938 and
5,498,838 in 1999 and 1998, respectively
Paid-in capital
5,012,440 4,377,080
(Subscription receivable)
(114,260) -
Retained (deficit)
(6,061,737) (6,024,060)
Total Stockholders' (Deficit)
(1,153,793) (1,641,481)
Total Liabilities and Stockholders' $ 1,496,335 $ 1,375,915
(Deficit)
</TABLE>
NATIONAL SORBENTS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Revenues:
Environmental $ 1,807,141 $ 3,184,553
Sorbents
1,639,126 1,230,863
Freight revenues
109,947 103,972
Sales returns and allowances
(4,953) (190,196)
Net Revenue
3,551,261 4,329,192
Cost of Sales:
Environmental
1,474,916 2,423,559
Sorbents
1,294,420 1,021,468
Depreciation (Sorbents)
31,371 37,108
2,800,707 3,482,135
Gross Profit
750,554 847,057
Operating Costs and Expenses:
Salaries, wages and taxes
542,380 529,695
Advertising and promotion
307,700 239,076
Commissions
89,850 42,424
Professional fees
125,292 64,511
Communications
27,214 21,627
Insurance
27,410 26,253
Bad debts
- 18,562
Other administration
103,597 66,109
Total Operating Costs and Expenses
1,223,443 1,008,257
(Loss) From Continuing Operations
(472,889) (161,200)
Interest Expense
(65,945) (63,447)
Other Income
3,294 36,410
(Loss) before extraordinary gain
(535,540) (188,237)
Extraordinary gain on debt restructuring
497,863 -
Net (Loss) $ $
(37,677) (188,237)
Net (Loss) Per Common Share:
(Loss) before extraordinary gain $ $
(0.07) (0.03)
Extraordinary gain on debt restructuring
0.07 -
Net (loss) $ $
- (0.03)
Weighted average number of common shares
outstanding 7,470,944 5,403,838
</TABLE>
NATIONAL SORBENTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Common Stock Additional Retained Total
Paid-In Stockholders'
Shares Amount Capital (Deficit) (Defic
it)
Balance, December 31, 5,368,838 $ $ 4,377,210 $ (5,835,823) $ (1,453,244)
1997 5,369
Stock issued to
noteholder 50,000 50 (50) - -
Stock issued for
compensation 80,000 80 39,920 - 40,000
Underwriting costs
- - (40,000) - (40,000)
Net (Loss) for Year
Ended - - - (188,237) (188,237)
December 31, 1998
Balance, December 31, 5,498,838 4,377,080
1998 5,499 (6,024,060) (1,641,481)
Sales of Common Stock 4,053,900
4,054 635,571 - 639,625
Stock Issued for 211,200
Compensation 211 105,389 - 105,600
Underwriting Costs
- - (105,600) - (105,600)
(Less) subscription
receivable - - (114,260) - (114,260)
Net (Loss) for Year
Ended - - - (37,677) (37,677)
December 31, 1999
Balance, December 31, 9,763,938 $ $ 4,898,180 $ (6,061,737) $ (1,153,793)
1999 9,764
</TABLE>
NATIONAL SORBENTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<S> <C> <<C>
C
>
1999 1998
Operating Activities:
Net (loss) $ $
(37,677) (188,237)
Adjustments to reconcile net (loss) to net
cash (used)
by operating activities:
Depreciation
31,371 37,108
Extraordinary gain from debt restructuring
(497,863 -
)
Changes in operating assets and liabilities:
(Increase) in accounts receivable
(67,839) (17,990)
(Increase) in inventory
(37,198) (41,410)
(Increase) in prepaid expenses
(10,164) (7,980)
(Increase) in employee advances
(10,428) -
(Increase) in other assets
(3,835) -
Increase (decrease) in trade payables
407,428 (171,414)
(Decrease) in accrued expenses
(155,163 (89,916)
)
Net cash (used) by operating activities
(381,368 (479,839)
)
Cash flows from investing activities:
Purchase of equipment
(10,040) (11,859)
Net cash (used) by investing activities
(10,040) (11,859)
Cash flows from financing activities:
(Decrease) increase in cash overdraft
(4,156) 4,156
Increase in notes payable
243,940 114,000
Increase in stockholder loan
- 340,000
(Decrease) in Moon note
(350,000 -
)
(Decrease) increase in current portion of
long-term debt (1,546) 7,483
(Decrease) increase in mortgage payable
(4,848) 4,916
(Decrease) in capital lease
(5,060) (4,611)
Proceeds from sale of common stock
525,365 -
Net cash provided by financing activities
403,695 465,944
Net increase (decrease) in cash
12,287 (25,754)
Cash at beginning of year
- 25,754
Cash at end of year $ $
12,287 -
</TABLE>
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
1. NATURE OF OPERATIONS
National Sorbents, Inc. (Company) was incorporated in 1990
in the state of Ohio where its administrative, sales and
manufacturing facilities are located. In January 2000 the
Company redomiciled in Nevada, authorizing 25,000,000 common
shares at $0.001 par value per share. Immediately following
the incorporation in Nevada, the Company affected a share-
for-share exchange with the shareholders of the Ohio Company
and then merged the Ohio Company into the Nevada Company, so
the surviving company is the Nevada company. Immediately
after, the Company purchased Polyspherics, Inc. (Poly), a
Nevada shell corporation with no assets, liabilities,
revenues or operations, by issuing to its five shareholders
10,000 shares of the Company's stock in return for all of
the issued and outstanding stock of Poly. Poly was a
company required to file annual and periodic reports with
the Securities and Exchange Commission by virtue of its
having filed a 12-g registration on Form 10-SB in December
1999. Subsequent to the acquisition of Poly, the Company
merged the subsidiary into itself and is the surviving
entity for reporting purposes. These financial statements
are those of the Company, adjusted to reflect the Company's
reincorporation in Nevada, but without any adjustment for
the 10,000 shares issued to Poly's shareholders in January
2000.
The Company engages in two segments of the environmental
industry, one dealing with containment/cleanup (sorbents)
and the other with waste disposal (environmental services).
In the sorbents segment, the Company is engaged in
engineering, manufacturing and distributing sorbents capable
of absorbing a variety of liquids, including oil, chemicals
and acids, and offering technical expertise and knowledge to
companies in need of containment/cleanup services. The
sorbent segment represents approximately 49% of total
revenues in 1999 and 29% in 1998.
The Company's environmental services business provides cost
effective innovative solutions to solve industries' problems
in waste management and disposal. In 1999 and 1998, this
segment of the business accounted for approximately 51% and
71%, respectively, of total revenues. The Company's
environmental services are provided principally to one
customer in the Midwest who accounted for 98% and 95%, in
1999 and 1998, respectively, of total environmental
revenues.
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 disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
Fair Value of Financial Instruments
Substantially all of the Company's financial assets and
liabilities are carried at fair value or contracted amounts,
which approximate fair value.
Concentration of Sorbent Raw Material Suppliers
The Company depends on two suppliers for sorbent raw
materials. Neither of these suppliers provide a unique
product and the Company could readily be able to acquire
similar materials from other suppliers in the event of any
disruptions from these suppliers. However, in the interim
period of finding other adequate supplies, the Company's
operations would be adversely affected.
Net Loss Per Common Share
Net loss per common share before extraordinary gain and
earnings per share from extraordinary gain have been
computed by dividing the respective numerator by the
weighted average number of common shares outstanding during
the periods.
Trade Receivables
The Company, in the normal course of business, extends
credit to customers on an uncollateralized basis. At year-
end and during the year, management reviews outstanding
accounts receivable, as well as the bad debt write offs in
the past, to establish an allowance for doubtful accounts
for uncollectible amounts.
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined using the first-in-first-out method (FIFO).
Property, Plant and Equipment
Property, plant and equipment are recorded at cost.
Depreciation is provided principally on the straight-line
method over the estimated useful lives of the assets.
Additions, improvements, and expenditures for repairs and
maintenance that are material in nature and significantly
add to the productivity or extend the economic life of
assets are capitalized. Any immaterial amounts or amounts
incurred as recurring expenditures for repairs are charged
to expense. Depreciation expense amounted to $31,371 and
$37,108 in 1999 and 1998, respectively.
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
Income Taxes
Income taxes are recorded in accordance with SFAS No. 109,
Accounting for Income Taxes. This statement requires the
recognition of deferred tax assets and liabilities to
reflect the future tax consequences of events that have been
recognized in the Company's financial statements or tax
returns. Measurement of the deferred items is based on
enacted tax laws. In the event the future consequences of
differences between financial reporting basis and tax basis
of the Company' assets and liabilities result in a deferred
tax asset, SFAS No. 109 requires an evaluation of the
probability of being able to realize the future benefits
indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than
not that some portion or all of the deferred tax asset will
not be realized.
3. GOING CONCERN
Through December 31, 1999 the Company had incurred
significant operating losses and has depended upon stock
sales, stockholder/officer loans and loans from others to
provide the liquidity necessary to maintain ongoing
operations. For the year 1999, the Company experienced a
significant decline in overall revenues and a $472,889 loss
from continuing operations, and at year-end had a working
capital deficit of $1,380,402 and stockholders' deficit of
$1,153,793. These factors raise substantial doubt about its
ability to continue as a going concern.
Management is exploring various alternative sources of
capital, including refinancing the mortgage, additional
equity and debt offerings or some combination of equity and
debt. There can be no assurance that the Company will
achieve any level of financing or that the level achieved
will be sufficient to maintain or grow the Company's
operations.
4. TRADE RECEIVABLES
At December 31, 1999 and 1998, the allowance for doubtful
accounts was $107,837 and $173,479, respectively.
5. NOTES AND DEBT
Mortgage Note
In September 1996 the Company acquired the present location
of its executive office and manufacturing facilities. The
Company signed a purchase money note in the amount of
$635,288, payable in consecutive monthly payments of $6,444,
including interest at 9% per annum, commencing November 1996
and continuing through July 1998, at which time all
remaining principal and interest was due. In June 1998, the
Company refinanced the balance for $625,000, payable in
monthly installments from August 1, 1998, initially of
$4,619 per month, including interest at 7.5% per annum. The
interest rate may change on
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
July 1, 1999 and on that day every 12 months thereafter,
with a maximum charge of 14.5% per annum but not less than
1.5% per annum. On each anniversary, the interest rate can
not increase or decrease by more than 2.0% based on an
index, as defined. The note is secured by a mortgage on the
facility. For the years 1999 and 1998 the Company paid
interest of $48,581 and $50,550, respectively. The
obligation to make principal payments over the next five
years is as follows:
<TABLE>
<S> <C>
2000 $5,187
2001 $5,94
9
2002 $6,777
2003 $7,676
2004 $8,651
</TABLE>
Capital Lease
The Company is obligated under a capital lease. The total
cost and accumulated depreciation of phone equipment under
the capital lease was $20,611 (included in computer and
office equipment) and $15,115, respectively at December 31,
1999. The Company entered into a five-year lease for
$20,611 with monthly payments of $437 expiring in May 2001.
Stockholder Loan
The stockholder loan is a demand loan without interest. No
activity occurred on the loan in 1999, while in 1998, the
Company borrowed $340,000. The loan is from the president
of the Company.
Moon Note
In September 1999, the Company executed a settlement
agreement wherein the Company (defendant) and the plaintiff
in a court action asserting various claims against each
other, have agreed to compromise a $847,863 obligation
($691,231 of principal, $136,271 of accrued interest and
$20,361 of other claims) for a payment of $50,000 in
September 1999 and $300,000 on or before December 31, 1999.
The Company made the required payments and recognized an
extraordinary gain of $497,863 in 1999.
Notes Payable
The Company has two demand notes and one note due June 26,
2000. The note due on June 26, 2000 was originally issued
on June 26, 1998 and due one year later but renewable for
one or more years by the mutual consent of the parties. The
notes bear interest of between approximately 10% to 12% per
annum. The Company also borrowed $200,000 in December 1999
with no interest. The loan is a third demand loan.
Interest accrued on the notes was $7,726 and $22,726 at
December 31, 1999 and 1998, respectively.
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
During 1999 and 1998, the Company paid total interest of
$50,945 and $54,697.
6. STOCKHOLDERS' (DEFICIT)
In 1999, the Company issued 4,053,900 shares of common stock
in three private placements at per share prices of $0.02,
$0.50 and $1.25, raising a total of $639,625. The private
placements were not registered under the Securities Act of
1933, as amended, or any state securities laws.
The Company also issued 211,200 shares in 1999 and 80,000
shares in 1998 in exchange for underwriting services. All
services have been valued at $0.50 per share, the Company's
estimate of the fair value of the stock. The value of
underwriters' services has been charged to additional paid-
in capital in both years. Also in 1998, the Company issued
50,000 shares at par for no money as an inducement to the
lender for the June 26, 1998 note.
7. INCOME TAXES
At December 31, 1999, the Company had federal and state tax
net operating loss (NOL's) carryforwards of approximately
$5,250,000 and $3,130,000, respectively. Primarily as a
result of these NOL's, the Company had a net tax deferred
tax asset which was fully offset by a valuation allowance
due to uncertainties as to whether the results of future
operations will enable the Company to realize the tax
benefits arising from these NOL's. The federal and state
NOL's expire in various amounts through the years 2005 to
2019.
8. 401(k) PLAN
The Company has a 401(k) plan (Plan) covering all employees.
The Company made no contributions to the Plan for the years
1999 and 1998. It however, pays all administrative fees
relating to the Plan.
9. EXTRAORDINARY GAIN FROM DEBT RESTRUCTURING
In 1999, the Company recognized $497,863 of extraordinary
gain on the restructuring of its note payable-Moon. The
Company has recorded the above amount in the statements of
operations for 1999.
10. RISKS AND UNCERTAINTIES
The Company's future operating results may be affected by a
number of factors. The Company is dependent upon a number
of major suppliers for sorbent raw materials. Although some
of the raw materials could be purchased from other sources
if a critical supplier had operational problems or ceased
making material available to the Company,
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
operations could be adversely affected. In particular,
approximately 85% of the sorbent raw materials purchased are
from two suppliers.
The Company's environmental services are provided
principally to one customer who accounted for approximately
98% of environmental revenue in 1999. Although the Company
has a non-cancelable 13 month contract to provide
environmental disposal services for this customer, the
Company is not guaranteed any minimum business level. Sales
prices are adjustable semi-annually by negotiation.
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is subject to legal proceedings and claims that
arise in the ordinary course of its business. In the
opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the
financial position of the Company.
12. RELATED PARTY TRANSACTIONS
The Company's president and vice-president maintain the
Company's presence at trade shows and certain sales
presentations, participate in significant customer
development activities, as well as devoting time to
maintaining relationships with existing customers and
vendors. The cost of these activities, primarily travel and
entertainment, are charged to the statement of operations as
advertising and promotion.
13. SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
The Company's noncash financing activities are reflected in
the table below:
Details of Items Discharged in Debt Restructuring
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Note payable-Moon $341,23 -
1
Accrued Interest 136,271 -
Accounts payable 20,361 -
Total $497,86 -
3
</TABLE>
Stock Issued For Compensation
<TABLE>
<S> <C> < <C>
C
>
1999 1998
Stock issued to $105,60 $40,00
underwriters as 0 0
compensation
</TABLE>
NATIONAL SORBENTS, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended December 31, 1999 and 1998
14. BUSINESS SEGMENT DATA
The Company's two operating segments within the
environmental industry are containment/cleanup (sorbents)
and waste disposal (environmental services). These are the
only two components of the Company about which separate
financial information is available and that is evaluated
regularly by the chief operating decision maker. The
Company's operating decision maker is its president.
Information concerning operations by business segment is
presented in the following table:
<TABLE>
<S> <C> <<C>
C
>
1999 1998
Revenues:
Environmental $1,807,14 $3,184,55
1 3
Sorbents 1,744,120 1,144,639
Total Revenues $3,551,26 $4,329,19
1 2
Gross Profits:
Environmental $332,225 $760,994
Sorbents 418,329 86,063
Total Gross Profit $750,554 $847,057
</TABLE>
The Company's environmental services business is operated
with sub-contractors performing substantially all the
required services. The Company performs billing, collection
and follow-up services. However, these services are
insubstantial and the Company does not report the cost of
these services on a stand alone basis to the chief operating
decision maker. Therefore, the Company's gross profit is
equal to its operating profit, and represents the difference
between what the Company bills for the services and what it
pays the sub-contractors.
The Company's assets, excluding any amounts receivable and
payable related to the waste disposal segment, are entirely
associated with the Company's sorbents business.
EXHIBITS
a) 2.1 Articles of Incorporation
2.2 By-Laws
b) Reports on Form 8-K:
On January 24, 2000, the Company filed a Form 8-K announcing
that the Company had completed a change in control of the
Company through a share exchange with National Sorbents, Inc.
As a result of this exchange agreement, National Sorbents,
Inc., which had redomiciled in Nevada became the surviving
entity.
SIGNATURE PAGE
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL SORBENTS, INC.
<TABLE>
<S> <C> <C>
Signature Title Date
\s\ Daniel B. Jones President and Director March 30,
2000
</TABLE>
In accordance with the Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
\s\ Daniel B. Jones President and Director March 30,
(Principal Executive 2000
Officer)
\s\ Leslie E. Jones Vice President and March 30,
Director 2000
\s\ Jerome J. Cain Director of Finance March 30,
and Operations 2000
(Principal Financial
Officer)
\s\ Dr. John Bryk Director March 30,
2000
</TABLE>
Articles of Incorporation
of
NATIONAL SORBENTS, INC.
KNOW ALL MEN BY THESE PRESENTS:
That I, the undersigned, for the purpose of association to
establish a corporation for the transaction of business and the
promotion and conduct of the objects and purposes hereinafter
stated, under the provisions of and subject to the requirements
of the laws of the State of Nevada, do make, record and file
these Articles of Incorporation in writing.
AND I DO HEREBY CERTIFY:
ARTICLE ONE: The name of this Corporation is:
NATIONAL SORBENTS, INC.
Article Two: The principal office in the State of Nevada is to
be located at:
2080 E. Flamingo Rd., Suite 112, Las Vegas, Nevada 89119
The Resident agent for this Corporation shall be:
Chapman & Flanagan, Ltd., 2080 E. Flamingo Rd., Suite 112, Las
Vegas, NV 89119. This Corporation may also maintain an office
or offices at such other places within or outside the State of
Nevada, as it may from time to time determine. Corporate
business of every kind and nature may be conducted, and
meetings of directors and stockholders held outside the State
of Nevada, the same as in the State of Nevada.
Article Three: This Corporation may engage in any lawful
activity.
Article Four: This Corporation is authorized to issue only one
class of shares of stock, the total number of which is 50,000,000
shares, each with par value of $0.001. Such stock may be issued
by this Corporation from time to time by the Board of Directors
thereof. The shares of stock shall be designated "Common Stock"
and the holders thereof shall be entitled to one (1) vote for
each share held by them.
Article Five: No Director or Officer of this Corporation shall
be liable to this Corporation or its stockholders for any breach
of fiduciary duty as Officer or Director of this Corporation.
This provision shall not affect liability for acts or omissions
which involve intentional misconduct, fraud, a knowing violation
or law, or the payment of dividends in violation of NRS 78.300.
All expenses incurred by Officers or Directors in defending a
civil or criminal action, suit, or proceeding, must be paid by
this Corporation as they are incurred in advance of a final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of a Director or Officer to
repay the amount if it is ultimately determined by a court of
competent jurisdiction, that he or she did not act in good
faith, and in the manner he or she reasonably believed to be
or not opposed to the best interests of this Corporation.
The members of the governing Board shall be styled Directors,
and the number of Directors shall not be less than one (1)
pursuant to the terms of NRS 78.115. The names and addresses
of the first Board of Directors, which shall consist of one
(1) member is:
<TABLE>
<S> <C>
Sean P. Flanagan 2080 E. Flamingo Rd.,
Suite 112, Las Vegas,
Nevada 89119
</TABLE>
The number of Directors of this Corporation may from time to
time be increased or decreased as set forth hereinabove by an
amendment to the By-Laws in that regard, and without the
necessity of amending these Articles of Incorporation.
The name and address of the incorporator is:
<TABLE>
<S> <C>
Sean P. 2080 E. Flamingo Rd.,
Flanagan, Esq. Suite 112
Las Vegas, NV 89119
</TABLE>
Article Six: The capital stock of this Corporation, after the
amount of the subscription price has been paid in cash or in
kind, shall be and remain non-assessable and shall not be subject
to assessment to pay debts of this Corporation.
Article Seven: This Corporation shall have perpetual
existence.
Article Eight: No holder of any shares of this Corporation
shall have any preemptive right to purchase, subscribe for, or
otherwise acquire any shares of this Corporation of any class now
or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or warrants or other instruments
evidencing rights or options to subscribe for, purchase or
otherwise acquire such shares.
Article Nine: This Corporation shall not be governed by the
provisions of NRS 78.411 to 78.444, inclusive.
Executed this 12th day of January, 2000.
/s/ Sean P. Flanagan
Sean P. Flanagan, Incorporator
By-Laws
of
National Sorbents, Inc.
ARTICLE I
Meetings of Stockholders
Section 1. The annual meeting of the stockholders of this
Corporation shall be held at the principal executive office of
this Corporation, or at any other place, within or outside of the
State of Nevada, specified by the Board of Directors. The annual
meeting of the stockholders, after the year of incorporation,
shall be held at the time and date in each year fixed by the
Board of Directors. The meeting shall be held for the purpose of
electing directors of this Corporation to serve during the
ensuing year and for the transaction of such other business as
may be brought before the meeting.
At least ten (10) days' written notice specifying the day,
hour and place when and where the annual meeting shall be
convened, shall be mailed in a United States Post Office
addressed to each of the stockholders of record at the time of
issuing the notice at his, her or its address last known as it
appears on the books of this Corporation.
Section 2. Special meetings of the stockholders may be held
at the office of this Corporation in the State of Nevada, or
elsewhere, whenever called by the President, by the Board of
Directors, or by a vote of or an instrument in writing signed by
the holders of at least a majority of the issued and outstanding
capital stock of this Corporation. At least ten (10) days'
written notice specifying the day, hour and place when and there
the annual meeting shall be convened, shall be mailed in a United
States Post Office addressed to each of the stockholders of
record at the time of issuing the notice at his, her or its
address last known as it appears on the books of this
Corporation.
Section 3. If all the stockholders of this Corporation shall
waive notice of a meeting, no notice of such meeting shall be
required, and whenever all of the stockholders shall meet in
person or by proxy, such meeting shall be valid for all purposes,
without call or notice, and at such meeting any corporate action
may be taken.
The written certificate of the officer or officers calling any
meeting, setting forth the substance of the notice and the
day, hour and place of the mailing of the same to the several
stockholders, and the respective addresses to which the same
were mailed shall be prima facie evidence of the manner and
fact of the calling and giving of such notice.
If the address of any stockholder does not appear upon the books
of this Corporation, it will be sufficient to address any
notice to such stockholder at the principal office of this
Corporation.
Section 4. All business lawful to be transacted by the
stockholders of this Corporation may be transacted at any special
meeting or at any adjournment thereof. Only such business
referred to in the notice calling such special meeting, however,
shall be acted upon during such special meeting or adjournment,
unless all of the outstanding capital stock of this Corporation
is represented either in person or by proxy, in which case any
lawful business may be transacted, and such meeting shall be
valid for all purposes.
Section 5. At the stockholders' meetings, the holders of a
majority of the entire issued and outstanding capital stock of
this Corporation shall constitute a quorum for all purposes. If
the holders of the amount of stock necessary to constitute a
quorum shall fail to attend (at the time and place fixed by these
By-Laws for any annual meeting, or fixed by a notice as provided
above for any special meeting), either in person or by proxy, a
majority in interest of the stockholders present in person or by
proxy may adjourn from time-to-time without notice other than by
announcement at the meeting, until holders of the amount of stock
requisite to constitute a quorum shall attend. Any business that
might have been transacted at the originally-called meeting may
be transacted at any such adjourned meeting at which a quorum
shall be present.
Section 6. At such meeting of the stockholders, every
stockholder shall be entitled to vote in person or by his duly-
authorized proxy appointed by instrument in writing subscribed by
such stockholder of by his duly-authorized attorney. Each
stockholder shall have one (1) vote for each share of stock
standing registered in his, her or its name on the book of the
Corporation, ten (10) days preceding the day of such meeting.
The votes for directors, and upon demand by any stockholder, upon
any question properly before the meeting, shall be by viva voce.
At each meeting of the stockholders, a full, true and complete
list, in alphabetical order, indicating all stockholders
entitled to vote at such meeting and the number of shares held
by each such stockholder, certified by the Secretary of this
Corporation, shall be furnished. The list shall be prepared
at least ten (10) days before such meeting and shall be open
to inspection by the stockholders, their agents or their
proxies, at the place where such meeting is to be held, and
for ten (10) days prior thereto. Only persons in whose names
shares of stock are registered on the books of this
Corporation for ten (10) days preceding the date of such
meeting, as evidenced by the list of stockholders, shall be
entitled to vote at such meeting. Proxies and powers-of-
attorney to vote must be filed with the Secretary of this
Corporation before an election or a meeting of the
stockholders, or they cannot be used at such election or
meeting.
Section 7. At each meeting of the stockholders, the polls
shall be opened and closed; the proxies and ballots issued,
received, and be taken in charge of, for the purpose of the
meeting, and all questions touching the qualifications of voters
and the validity of proxies, and the acceptance or rejection of
votes, shall be decided by two inspectors. Such inspectors shall
be appointed at the meeting by the presiding officer of the
meeting.
Section 8. At the stockholders' meetings the regular order of
business shall be as follows:
Reading and approving the Minutes of previous meeting or
meetings;
Reports of the Board of Directors, President, Treasurer,
and/or Secretary of this Corporation in the order listed;
Reports of any Committee;
Election of Directors;
Unfinished business;
New business;
Adjournment.
ARTICLE II
Directors and Their Meetings
Section 1. The Board of Directors of this Corporation shall
consist of no less than one (1) and no more than five (5) persons
who shall be chosen by the stockholders at the annual meeting.
Each Director shall hold office for one year, and until his or
her successor is elected and qualified. The initial Board shall
consist of five (5) Directors.
Section 2. When any vacancy occurs among the Directors as a
result of death, resignation, disqualification or other cause,
the stockholders, at any regular or special meeting, or at any
adjourned meeting thereof, or the remaining Directors, if any, by
the affirmative vote of a majority thereof, shall elect a
successor to hold office for the unexpired portion of the term of
the Director whose place shall have become vacant and until his
or her successor is elected and qualified.
Section 3. The meeting of the Directors may be held at the
principal office of this Corporation in the State of Nevada, or
elsewhere, at such place or places as the Board of Directors may,
from time-to-time, determine.
Section 4. Regular meetings of the Board of Directors shall
be held as often as necessary. Notice of such regular meetings
shall be mailed to each director by the Secretary at least three
(3) days prior to the day fixed for such meeting. No regular
meeting shall be held void or invalid if such notice is not
given, provided that the meeting is held at the time and place
fixed by these By-Laws for holding such regular meetings.
Special meetings of the Board of Directors may be held on the
call of the President or Secretary on at least three (3) days'
notice by mail or telegraph.
Any meeting of the Board, no matter where held, at which all
of the members shall be present, even though without notice,
or of which notice shall have been waived by all absent
Directors, shall be valid for all purposes, provided a quorum
shall be present, unless otherwise indicated in the notice
calling the meeting or in the waiver of notice.
Any and all business may be transacted at any regular or
special meeting of the Board of Directors.
Section 5. A majority of the Directors in office shall
constitute a quorum for the transaction of business. At any
meeting at which less than a quorum is present, a majority of
Directors present may vote to adjourn from time-to-time until a
quorum shall be present; no notice of such adjournment shall be
required. The Board of Directors may prescribe rules not in
conflict with these By-Laws for the conduct of its business;
provided, however, that in fixing salaries for officers of this
Corporation, the unanimous action of all Directors shall be
required.
Section 6. A Director need not be a stockholder of this
Corporation.
Section 7. The Directors shall be allowed and paid all
necessary expenses incurred in attending any meeting of the
Board, but shall not receive any compensation for their services
as directors until such time as this Corporation is able to
declare and pay dividends on its capital stock.
Section 8. The Board of Directors shall make a report to the
stockholders at annual meetings of the stockholders and shall,
upon request, furnish a true copy of such report to each
stockholder. The Board, in its discretion, may submit any
contract or act for approval or ratification at any meeting of
stockholders called for the purpose of considering any such
contract or act, provided a quorum is present.
Section 9. The Board of Directors shall have the power from
time-to-time to provide for the management of the offices of this
Corporation in such manner as they see fit, and in particular,
from time-to-time to delegate any of the powers of the Board in
the course of the current business of this Corporation to any
standing or special committee or to any officer or agent and to
appoint any persons to be agents of this Corporation with such
powers (including the power to sub-delegate), and upon such terms
as may be deemed fit.
Section 10. At meetings of the Board of Directors, the regular
order of business shall be as follows:
Reading and approving the Minutes of previous meeting or
meetings;
Reports of Officers and Committee-members;
Election of Officers;
Unfinished business;
New business;
Adjournment.
ARTICLE III
Officers and Their Duties
Section 1. The officers of this Corporation shall consist of
the President, the Secretary, and the Treasurer, each of whom
shall be appointed by the Board of Directors. This Corporation
may also have one or more Vice Presidents, Assistant Secretaries,
or Assistant Treasurers. The Board of Directors may appoint
other officers. The order of seniority of the Vice Presidents,
if any such officers exist, shall be the order of their
nomination unless otherwise determined by the Board of Directors.
Any two or more of such offices may be held by the same
individual. The Board of Directors shall designate one officer
as the chief financial officer (CFO) of this Corporation. In the
absence of such designation, the Treasurer shall be the CFO. The
Board of Directors may appoint, and may empower the President to
appoint, such other officers as the business of this Corporation
may require. Each of these other officers shall have such
authority and may perform such duties as are provided in these By-
Laws or as the Board of Directors may determine from time-to-
time. The salary and other compensation of officers shall be
fixed from time-to-time by resolution or in the manner determined
by the Board of Directors.
Each officer of this Corporation shall hold office from the
date elected to the date when his or her successor is elected;
provided that all officers, as well as any employee or agent
of this Corporation, may be removed at any time at the
pleasure of the Board of Directors. Nothing in these By-Laws
shall be construed as creating any kind of contractual right
to employment with this Corporation. Any officer may resign
at any time by giving written notice to the Board of
Directors, the President or the Secretary of this Corporation.
Receipt of such notice, however, is without prejudice to the
rights, if any, of this Corporation under any contract to
which such officer is a party. Any such resignation shall
take effect at the date of receipt or at such later time
specified therein. Unless otherwise specified therein,
acceptance of such resignation is not necessary for the
resignation to become effective. A vacant office may be
filled by vote of the Board of Directors, or the Board may
vest an officer with the power to fill a vacant office.
Section 2. The President shall be the executive officer of
this Corporation and shall have a duty to supervise, control and
manage the day-to-day operation of this Corporation, subject only
to directions from the Board of Directors with regard to the
direction of this Corporation's affairs. The President shall
have full power to execute any and all documents for and on
behalf of this Corporation, including, but not limited to,
entering into leases for real property, equipment, furniture,
furnishings, hiring and firing all personnel, setting and
establishing operational manuals and policies, entering into
contracts necessary for the day-to-day operation of this
Corporation, establishing lines of credit for this Corporation
and accounts payable thereof; except when such powers have been
specifically limited by the Board of Directors. The President
shall also be a member and chairman of any Executive Committee
that may be established; shall preside at all meetings of the
Board of Directors and all meetings of stockholders; shall sign
all Certificates of Stock issued by this Corporation; perform any
and all other duties prescribed by the Board of Directors which
can be performed during the normal work period.
Section 3. The Vice Presidents (if any such officers are
appointed), in order of their seniority, may assume and perform
the duties of the President in the absence or disability of the
President, or at such times that the office of the President is
vacant. The Vice Presidents shall have such titles, perform such
other duties, and have such other powers as the Board of
Directors, the President, or these By-Laws may designate from
time-to-time.
Section 4. The Treasurer shall keep and maintain, or cause to
be kept and maintained, adequate and correct accounts of the
properties and business transactions of this Corporation. The
books of account shall at all reasonable times be open to
inspection by any Director.
The Treasurer shall deposit all moneys and other valuables in
the name of and to the credit of this Corporation, with such
depositories as may be designated by the Board of Directors.
The Treasurer shall render to the President and the Directors,
whenever they request, an account of all the Treasurer's
transactions as Treasurer, and of the financial condition of
this Corporation.
The Treasurer shall be responsible for the establishment and
maintenance of accounting and other systems required to
control and account for the assets of this Corporation, and
provide safeguards therefore; to collect information required
for management purposes; and to perform such other duties, and
to have such other powers, as the Board of Directors or the
President may designate from time-to-time.
The President may direct any Assistant Treasurer to assume and
perform the duties of the Treasurer in the absence or
disability of the Treasurer, and each Assistant Treasurer
shall perform such other duties and have such other powers as
the Board of Directors or the President may designate from
time-to-time.
Section 5. The Secretary shall keep the minutes of all
meetings of the Board of Directors, the stockholders, and the
Executive Committee, if any, in books provided for such purpose.
The Secretary shall attend to the giving and serving of all
notices of this Corporation; may sign with the President or Vice
President, in the name of this Corporation, all contracts
authorized by the Board of Directors or Executive Committee;
shall affix the corporate seal of this Corporation thereto when
so authorized by the Board of Directors or Executive Committee;
shall have custody of the corporate seal; shall affix the
corporate seal to all Certificates of Stock duly issued by this
Corporation; shall have charge of the Stock Certificate Books,
Transfer Books, Stock Ledgers and such other books and papers as
the Board of Directors or Executive Committee may direct, all of
which shall at all reasonable times be open to the examination of
any Director upon application at the office of this Corporation
during business hours; and shall, in general, perform all duties
incident to the office of Secretary.
Section 6. The Board of Directors may appoint an Assistant
Secretary who shall have such powers and perform such duties as
may be prescribed by the Secretary or the Board of Directors.
Section 7. Unless otherwise ordered by the Board of
Directors, the President shall have full power and authority on
behalf of this Corporation to attend and to act and vote at any
meeting of the stockholders of any corporation in which this
Corporation may hold stock. At such meetings, the President
shall possess and may exercise any and all rights and powers
incident to the ownership of such stock, and which, as the owner
thereof, this Corporation might have possessed and exercised if
present. The Board of Directors, by resolution, from time-to-
time, may confer like powers on any person or persons in place of
the President to represent this Corporation for the purposes in
this section mentioned.
ARTICLE IV
Capital Stock
Section 1. The capital stock of this Corporation shall be
issued in such manner, at such times, and upon such conditions as
shall be prescribed by the Board of Directors.
Section 2. Ownership of stock in this Corporation shall be
evidenced by Certificates of Stock in such forms as shall be
prescribed by the Board of Directors, and shall be under the seal
of this Corporation and signed by the President or Vice President
and the Secretary or Assistant Secretary. No certificate shall
be valid unless it is so signed.
All Certificates shall be numbered consecutively. The name of
the person owning the shares represented thereby with the
number of such shares and the date of issue shall be entered
upon the books of this Corporation.
All certificates surrendered to this Corporation shall be
canceled. No new certificate shall be issued until the former
certificate for the same number of shares shall have been
surrendered or canceled.
Section 3. No transfer of stock shall be valid as against
this Corporation except on surrender and cancellation therefore,
accompanied by an assignment or transfer by the owner, made
either in person or under assignment, a new certificate shall be
issued therefore.
Whenever any transfer shall be expressed as made for
collateral security and not absolutely, the same shall be
expressed in the entry of said transfer on the books of this
Corporation.
Section 4. The Board of Directors shall have power and
authority to make all such rules and regulations not inconsistent
herewith as it may deem expedient concerning the issue, transfer
and registration of Certificates for shares of the capital stock
of this Corporation. The Board of Directors may appoint a
transfer agent and registrar of transfers, and may require all
Certificates to bear the signature of such transfer agent and
registrar of transfers.
Section 5. The Stock Transfer Books shall be closed for all
meetings of the stockholders for the period of ten (10) days
prior to such meetings, and shall be closed for the payment of
dividends during such periods as may be fixed from time-to-time
by the Board of Directors. During such periods, no stock shall be
transferable.
Section 6. Any person or persons applying for a Certificate
in lieu of one alleged to have been lost or destroyed shall make
affidavit of affirmation of the fact, and shall deposit with this
Corporation an affidavit. Whereupon, at the end of six months
after the deposit of said affidavit and upon such person or
persons giving bond of indemnity to this Corporation in an amount
double the current value of the stock against any damage, loss,
or inconvenience to this Corporation, which may or can arise in
consequence of a new or duplicate Certificate being issued in
lieu of the one lost or missing, the Board of Directors may cause
to be issued to such person or persons a new Certificate, or a
duplicate of the Certificate so lost or destroyed. The Board of
Directors may, in its discretion, refuse to issue such new or
duplicate Certificate save upon the order of some court having
jurisdiction in such matter, anything herein to the contrary
notwithstanding.
Section 7. All holders of stock of this Corporation are
subject to the provisions of Article IX of these By-Laws.
Section 8. Each certificate evidencing ownership of stock in
this Corporation shall contain the following endorsement upon its
face so as to give notice to any transferee thereof:
"The shares of stock represented by this certificate are subject
to all of the terms expressed in the Corporation's By-Laws,
particularly those in Article IX that restrict the transfer or
encumbrance of these shares. A copy of the By-Laws is on file at
the Corporation's office."
ARTICLE V
Offices and Books
Section 1. The principal office of this Corporation, in
Nevada, shall be:
National Sorbents, Inc.
Section 2. This Corporation may have a principal office in
any other state or territory as the Board of Directors may
designate.
Section 3. The Stock and Transfer Books and a copy of the By-
Laws and Articles of Incorporation of this Corporation shall be
kept at its principal office in the State of Nevada, for the
inspection of all who are authorized or have the right to see the
same, and for the transfer of stock. All other books of this
Corporation shall be kept at such places as may be prescribed by
the Board of Directors.
ARTICLE VI
Indemnification
Section 1. For purposes of this Article, "Indemnitee" shall
mean each Director or Officer who was or is a party to, or is
threatened to be made a party to, or is otherwise involved in,
any Proceeding (as hereinafter defined), by reason of the fact
that he or she is or was a Director or Officer of this
Corporation or is or was serving in any capacity at the request
of this Corporation as a Director, Officer, employee, agent,
partner, or fiduciary of, or in any other capacity for, another
corporation, partnership, joint venture, trust, or other
enterprise. The term "Proceeding" shall mean any threatened,
pending or completed action or suit (including, without
limitation, an action, suit or proceeding by or in the right of
this Corporation), whether civil, criminal, administrative or
investigative.
Each Indemnitee shall be indemnified and held harmless by this
Corporation for all actions taken by him or her, and for all
omissions (regardless of the date of any such action or
omission), to the fullest extent permitted by Nevada law,
against all expense, liability and loss (including, without
limitation, attorney fees, judgments, fines, taxes, penalties,
and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Indemnitee in connection with any
Proceeding.
Indemnification pursuant to this Section shall continue as to
an Indemnitee who has ceased to be a Director or Officer and
shall inure to the benefit of his or her heirs, executors and
administrators.
This Corporation may, by action of its Board of Directors, and
to the extent provided in such action, indemnify employees and
other persons as though they were Indemnitees.
The rights to indemnification as provided in this Article
shall be non-exclusive of any other rights that any person may
have or hereafter acquire under an statute, provision of this
Corporation's Articles of Incorporation or By-Laws, agreement,
vote of stockholders or Directors, or otherwise.
Section 2. This Corporation may purchase and maintain
insurance or make other financial arrangements on behalf of any
person who is or was a Director, Officer, employee or agent of
this Corporation, or is or was serving at the request of this
Corporation in such capacity for another corporation,
partnership, joint venture, trust or other enterprise for any
liability asserted against him or her and liability and expenses
incurred by him or her in such capacity, whether or not this
Corporation has the authority to indemnify him or her against
such liability and expenses.
The other financial arrangements which may be made by this
Corporation may include, but are not limited to, (a) creating
a trust fund; (b) establishing a program of self-insurance;
(c) securing its obligation of indemnification by granting a
security interest or other lien on any of this Corporation's
assets, and (d) establishing a letter of credit, guarantee or
surety. No financial arrangement made pursuant to this
section may provide protection for a person adjudged by a
court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable for intentional misconduct,
fraud, or a knowing violation of law, except with respect to
advancing expenses or indemnification ordered by a court.
Any insurance or other financial arrangement made on behalf of
a person pursuant to this section may be provided by this
Corporation or any other person approved by the Board of
Directors, even if all or part of the other person's stock or
other securities is owned by this Corporation. In the absence
of fraud:
the decision of the Board of Directors as to the propriety
of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section, and the choice of the
person to provide the insurance or other financial arrangement is
conclusive; and
the insurance or other financial arrangement
v is not void or voidable; and
v does not subject any Director approving it to personal
liability for his action,
v even if a Director approving the insurance or other
financial arrangement is a beneficiary of the insurance or other
financial arrangement.
Section 3. The provisions of this Article relating to
indemnification shall constitute a contract between this
Corporation and each of its Directors and Officers, which may be
modified as to any Director or Officer only with that person's
consent or as specifically provided in this section.
Notwithstanding any other provision of the By-Laws relating to
their amendment generally, any repeal or amendment of this
Article which is adverse to any Director or Officer shall apply
to such Director or Officer only on a prospective basis and shall
not limit the rights of an Indemnitee to indemnification with
respect to any action or failure to act occurring prior to the
time of such repeal or amendment. Notwithstanding any other
provision of these By-Laws, no repeal or amendment of these By-
Laws shall affect any or all of this Article so as to limit or
reduce the indemnification in any manner unless adopted by (a)
the unanimous vote of the Directors of this Corporation then
serving, or (b) the stockholders as set forth in ARTICLE VIII
hereof; provided that no such amendment shall have retroactive
effect inconsistent with the preceding sentence.
Section 4. References in this Article to Nevada law or to any
provision thereof shall be to such law as it existed on the date
these By-Laws were adopted or as such law thereafter may be
changed; provided that (a) in the case of any change which
expands the liability of an Indemnitee or limits the
indemnification rights or the rights to advancement of expenses
which this Corporation may provide, the rights to limited
liability, to indemnification and to the advancement of expenses
provided in this Corporation's Articles of Incorporation, these
By-Laws, or both shall continue as theretofore to the extent
permitted by law; and (b) if such change permits this
Corporation, without the requirement of any further action by
stockholders or Directors, to limit further the liability of
Indemnitees or to provide broader indemnification rights or
rights to the advancement of expenses than this Corporation was
permitted to provide prior to such change, liability thereupon
shall be so limited and the rights to indemnification and
advancement of expenses shall be so broadened to the extent
permitted by law.
ARTICLE VII
Miscellaneous
Section 1. The Board of Directors shall have power to reserve
over and above the capital stock paid in, such an amount in its
discretion, as it may deem advisable, to fix as a reserve fund,
and may, from time-to-time, declare dividends from the
accumulated profits of this Corporation in excess of the amounts
so reserved and pay the same to the stockholders of this
Corporation, and may also, if it deems the same advisable,
declare stock dividends of the unissued capital stock of this
Corporation.
Section 2. No agreement, contract or obligation (other than
checks in payment of indebtedness incurred by authority of the
Board of Directors) involving the payment of moneys or the credit
of this Corporation of more than FIVE THOUSAND DOLLARS ($5,000),
shall be made without the authority of the Board of Directors or
of the Executive Committee, if any.
Section 3. Unless otherwise ordered by the Board of
Directors, all agreements and contracts shall be signed by the
President and the Secretary in the name and on behalf of this
Corporation, and shall have the Corporate Seal attached thereto.
Section 4. All moneys of this Corporation shall be deposited
when and as received by the Treasurer in such bank or banks or
other depository as may from time-to-time be designated by the
Board of Directors, and such deposits shall be made in the name
of this Corporation.
Section 5. No note, draft, acceptance, endorsement or other
evidence of indebtedness shall be valid against this Corporation
unless the same shall be signed by the President or Vice
President and attested by the Secretary or an Assistant
Secretary, or signed by the Treasurer or an Assistant Treasurer
and countersigned by the President, Vice President or Secretary,
except that the Treasurer or an Assistant Treasurer may, without
countersignature, make endorsements for deposit to the credit of
this Corporation in all its duly authorized depositories.
Section 6. No loan or advance of money shall be made by this
Corporation to any stockholder or Officer therein, unless the
Board of Directors shall otherwise authorize.
Section 7. No Director or Officer of this Corporation shall
be entitled to any salary or compensation for any services
performed for this Corporation, unless such salary or
compensation shall be fixed by resolution of the Board of
Directors, adopted by the unanimous vote of all the Directors
voting in favor thereof.
Section 8. This Corporation may take, acquire, hold,
mortgage, sell or otherwise deal in stocks, bonds or other
securities of any other Corporation, if and as often as the Board
of Directors shall so elect.
Section 9. The Directors shall have the power to authorize
and cause to be executed, mortgages and liens, without limit as
to amount, upon the property and franchise of this Corporation.
Pursuant to affirmative vote, either in person or by proxy, of
the holders of a majority of the capital stock issued and
outstanding, the Directors shall have the authority to dispose in
any manner of the whole property of this Corporation.
Section 10. This Corporation shall have a Corporate Seal, the
design thereof being as follows:
ARTICLE VIII
Amendment of By-Laws
Section 1. Amendments and changes of these By-Laws may be
made at any regular or special meeting of the Board of Directors
by a vote of not less than all of the entire Board, or may be
made by a vote of, or a consent in writing by the holders of a
majority of the issued and outstanding capital stock.
ARTICLE IX
Restrictions on Transfers of Stock
Section 1 Restrictions
Section 1.1 No stock of this Corporation shall be transferred
on the books of this Corporation unless in compliance with the
terms of this Article.
Section 1.2 Except as otherwise provided below, a shareholder
is hereby prohibited from making a voluntary sale, transfer,
assignment, hypothecation, gift, or any other alienation of any
share or shares in this Corporation, or any right or interest
therein; nor shall a shareholder allow any such share or shares
to become subject to an involuntary transfer by order of a court,
sale upon execution of a judgment, appointment of a receiver or
trustee in bankruptcy for a shareholder, or any other legal
process resulting in a transfer of said shares.
Section 1.3 In the event that a shareholder desires to make a
prohibited voluntary transfer, or has been forced to subject his
stock to a prohibited involuntary transfer, the shareholder shall
be required to offer for sale to this Corporation all of his
shares subject to such a prohibited transfer, at the price and
upon the terms specified in this Article. This Corporation shall
be notified of the offer by the shareholder in writing, and that
shall constitute a notice of disposition of shares within the
meaning of section 2 below.
Section 1.4 Any shares of stock of this Corporation shall be
subject to the terms of this Article, and any holder hereof shall
confirm in writing the holder's obligation to be bound by all of
the terms, provision, options, and restrictions of this Article.
Section 2 Purchase of shares
Section 2.1 Within a period of sixty (60) days following the
delivery of such notice of disposition of shares, this
Corporation shall notify the holder of such shares (the "Selling
Shareholder") if it elects to purchase all or a portion of such
shares.
Section 2.2 The occurrence of any event which would require
transmission to this Corporation of a notice of disposition of
shares shall immediately give rise to all options given herein to
this Corporation and its shareholders to purchase such shares,
and such options may be exercised without regard to whether any
notice of disposition of shares is in fact given by the Selling
Shareholder. The period under section 2.1 above shall not,
however, begin to run until this Corporation, through its
officers or directors, shall have actual knowledge of such event.
Section 2.3 To the extent this Corporation elects not to
purchase such shares or is legally prohibited from doing so, it
shall, within the said sixty (60) day period, so notify all
shareholders of record who own at least twenty percent (20%) of
the outstanding stock of this Corporation (a "Qualified
Shareholder"). Any such shareholder may, within thirty (30) days
after the service of such notice, elect to purchase any part or
all of the stock so offered. Any Qualified Shareholder desiring
to purchase said stock shall notify the Selling Shareholder in
writing within the said thirty (30) day period. In the event
more than one Qualified Shareholder desires to purchase said
stock, those shares shall be prorated among them based upon their
respective holdings in this Corporation.
Section 2.4 In the event this Corporation and all Qualified
Shareholders declines to purchase said stock, the holder may
within a period of six months from the date of giving said notice
sell or transfer said stock as he or she may see fit. The person
or persons acquiring said stock shall hold it subject to all the
terms, conditions and options contained in this Article. If no
transfer is made within the six month period, no further
disposition of said stock may be made without again giving the
notice and providing the option to this Corporation as set forth
herein.
Section 2.5 The purchase price and terms of any purchase under
this Article shall be as set forth in sections 6 and 7 below.
Section 3 Notwithstanding the above provisions, a shareholder may
make a lifetime gift of his stock, whether in trust or outright,
to another shareholder, his parents, or his children or their
issue. Any such gift to a minor shall be subject to the
condition that the same be affirmed by such minor upon attaining
the age of majority and, if not affirmed by a letter in writing
to this Corporation within sixty (60) days after such minor
attains majority, such stock shall be subject to the purchase
option provisions set forth above as if a notice of disposition
had been given on the last day of said period for affirmance,
except as limited by section 9 below.
Section 4 No provision in this Article shall prevent any
shareholder from pledging his shares as security for a debt or
obligation, but such pledge shall provide that in the event of
foreclosure, the person acquiring such shares shall be subject to
the terms and conditions of this Article. A foreclosure shall be
deemed to constitute notice from the purchaser thereof to this
Corporation of a disposition of the stock under section 2 above.
The options thereupon given this Corporation under the terms of
section 2 above shall apply to all foreclosed shares.
Section 5 Death of a Shareholder
Section 5.1 Upon the death of a shareholder, the personal
representative of his estate, trustee of his living trust, or
other successor-in-interest to his shares, shall within thirty
(30) days of the date of the death notify this Corporation of
such death and deliver to this Corporation proof of its authority
to act as the successor-in-interest to the deceased shareholder.
Section 5.2 Upon receipt of the notification of death, this
Corporation shall within sixty (60) days purchase the stock of
the deceased shareholder from the successor-in-interest of the
deceased shareholder according to the provisions of sections 6
and 7 below.
Section 6 Purchase Price
Section 6.1 At least annually, at the annual meeting of this
Corporation or as otherwise mutually agreed, the shareholders
shall determine by unanimous agreement a total value to be placed
upon all outstanding stock of this Corporation.
Section 6.2 The total value of this Corporation's stock shall
be divided by the number of outstanding shares of stock of this
Corporation at the date a notice of disposition is delivered.
This value shall be used to calculate the total value of shares
offered by the Selling Shareholder.
Section 6.3 If, at the time a notice of disposition is
delivered, more than one year has elapsed since the base value
was last determined, the base value shall be the last agreed
value or the net book value of this Corporation determined in
accordance with generally accepted accounting principles,
whichever is higher.
Section 7 Purchase Terms
Section 7.1 The down payment shall be five percent (5%) of the
total purchase price. The down payment shall be in cash at the
time notification is made by the purchaser of his or her election
to purchase, or upon determination of the total purchase price
under the provisions of this Article, whichever is later.
Section 7.2 The balance of the purchase price shall be
represented by a promissory note of the purchaser or purchasers
payable in equal annual installments on the anniversary date of
the payment of the down payment.
Section 7.3 Such promissory note shall be non-negotiable in
form and shall bear interest at the prevailing prime rate for
loans of similar duration charged by the largest bank in the
state of Nevada. Such interest shall be payable on the annual
payment date of principal. The holder of such note shall have
the right to declare the note due and payable in full in the
event of a default in the making of any payment. In the event of
the death of the maker of the note, the unpaid balance of that
note shall become immediately due and payable at the election of
the holder of the note.
Section 7.4 The Selling Shareholder shall, upon receiving the
down payment and the note, if any, for the balance of the
purchase price, endorse the certificates representing the shares
being sold to the purchaser or purchasers of said shares.
Section 7.5 So long as no default occurs in making payments
due under the note, the purchaser of the shares shall be entitled
to receive all dividends thereon and shall be entitled to vote
such shares.
Section 8 Life Insurance
Section 8.1 This Corporation may, if it deems advisable in
order to assure continuity in its management and policies,
purchase life insurance policies in such amounts as it deems
advisable upon the lives of any one or more of its shareholders,
but shall not be obligated to do so. Should such insurance be
purchased, the down payment to be made by reason of sale
following the death of an insured shareholder shall be increased
above the section 7 amount to the lesser of the agreed selling
price as determined in section 6 and the actual amount of the
life insurance proceeds.
Section 8.2 If this Corporation has purchased a life insurance
policy for a shareholder who has sold his shares under the
provisions of this Article during his lifetime, the coverage
shall be continued by this Corporation during the period allowed
for the installment payment of such shares. After final payment
has been made, the Selling Shareholder may purchase from this
Corporation any life insurance policies then in effect at their
cash surrender values.
Section 9 Other Provisions
Section 9.1 Time is of the essence in carrying out the terms
of this Article. Each party, therefore, agrees to perform any
acts herein required of such party and to execute and deliver any
documents required to carry out the provisions of this Agreement
promptly within the time periods herein described.
Section 9.2 Each shareholder agrees to insert in his will a
direction and authorization to his executor to fulfill and comply
with the provisions hereof.
Section 9.3 Notwithstanding any of the restrictions imposed
above, this Corporation has the absolute right to refuse to
record any transfer of stock where such refusal is necessary to
maintain the Corporation's status, where that status is dependent
upon the number or identity of this Corporation's shareholders,
to preserve exemptions under federal or state security laws, or
for any other reasonable purpose.
Section 9.4 The provisions of this Article shall extend to and
be binding upon this Corporation, its successors and assigns, and
to all shareholders, their personal representatives, heirs,
legatees, and assigns.
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being
the Directors of National Sorbents, Inc., do hereby consent to
the foregoing By-Laws and adopt the same as and for the By-Laws
of Inc. IN WITNESS WHEREOF, we have hereunto set our hands this
13th day of January, 2000.
/s/ Sean P. Flanagan
Sean P. Flanagan, Director
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