UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended September 30, 1997
Commission File No. 0-109659
SOUTHWESTERN ENVIRONMENTAL CORP.
COLORADO 93-0962072
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Alpine Drive, Colorado Springs, Colorado 80909
(Address of principal executive offices)
Issuer's telephone number: (719) 633 - 5301
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: $.01 Par Value
Common Stock
Check whether the 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 ____ No X
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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: [X]
Issuer's revenues for the most recent fiscal year: $0
The aggregate market value of the voting stock held by non-affiliates of the
issuer was approximately $10,000. The aggregate market value was based upon the
mean between the closing bid and asked price for the shares of common stock as
reported by the National Association of Securities Dealers, Inc. as of September
30, 1997.
Number of shares outstanding of each of the issuer's classes of common equity,
as of September 30, 1997; 3,999,929 shares of common stock
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibits.
Transitional Small Business Disclosure Format: Yes ____ No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A) General
Southwestern Environmental Corp. (the "Company"), was incorporated in
Colorado on June 9, 1981, under the name "Blue Grass Breeders, Inc." The Company
was formed for the purpose of engaging in the business of acquiring, breeding,
racing and selling thoroughbred horses. The Company completed an initial public
offering of its $.01 par value common shares (the "Common Shares") in February,
1983, receiving net proceeds of approximately $2,134,000.
In March, 1987, the Company acquired all of the assets of Equine
Enterprises, Inc. ("Equine") a privately-held New Mexico corporation engaged in
the acquisition, breeding, racing and sale of thoroughbreds and quarterhorses.
As a result of the acquisition, the principal owners of Equine obtained control
of the Company. Until May 1, 1989, the Company continued in the business of
breeding and selling thoroughbred and quarterhorse broodmares and their
offspring.
The Company attempted but did not complete a secondary offering of its
Common Shares in May, 1988. In September, 1988, the Company's credit facility
with Citizens Fidelity Bank and Trust Company Equine Division ("Citizens")
expired and was not renewed. In May, 1989, management of the Company entered
into an informal agreement with Citizens pursuant to which it was agreed that
all thoroughbred and quarterhorse broodmares and their offspring would be
liquidated by the Company on or before December 31, 1989 in a commercially
prudent and orderly manner. A substantial portion of the Company's inventory of
thoroughbred and quarterhorses were sold in the July, September and November,
1989 Keeneland Public Auction Sales in Lexington, Kentucky. All proceeds of such
liquidations, less commissions and selling expenses, were paid to Citizens and
applied to the Company's balance due on its credit facility. The balance of the
inventory and thoroughbreds and quarterhorse were subject to an agisters' lien
in favor of an officer and director of the Company who had provided the
Company's horses with board and maintenance during the period March 1987 through
February 1990. In March 1990, all remaining quarterhorses and thoroughbreds,
which were the sole remaining assets of the Company, were delivered to that
officer and director in full satisfaction of the Company's obligations for
unpaid board and maintenance.
From March 1990 through October 1991, the Company did not engage in any
meaningful operations. In October 1991 the Company entered into an Agreement and
Plan of Reorganization with the Mentor Group International Corporation, a
privately-held Nevada corporation engaged in the development of residential,
commercial and industrial real estate. Pursuant to its agreement with Mentor,
the Company issued to Mentor's shareholders a number of Common Shares
constituting approximately 75% of the Company's issued and outstanding Common
Shares in exchange for all the issued and outstanding shares of Mentor. Upon
completion of the acquisition, new management was elected, and the name of the
Company was changed to Mentor Group International Corporation. In December 1991,
following negotiations between former management and the newly elected
management of the Company, it was agreed that, due to mutual misunderstandings
as to certain representations of the parties, the transaction with Mentor should
be rescinded and that all shares of the Company delivered to the Mentor
shareholders be surrendered in exchange for the return of all the issued and
outstanding Mentor shares. As a result, the Company, Mentor, and their
respective shareholders returned to the status quo ante and former management of
the Company was returned to office.
<PAGE>
At June 30, 1993, the Company was indebted to PNC Bank, Kentucky, Inc.
"PNC", the successor to Citizens, pursuant to a promissory note in the
approximate principal amount of $1,800,000 (the "Note"). On June 30, 1993, PNC
entered into an agreement with an unaffiliated individual, Gary E. Keogh,
pursuant to which PNC assigned all of its right, title and interest in and to
the Note and any collateral security thereunder to Mr. Keogh. On August 6, 1993,
Mr. Keogh entered into an agreement with the Company pursuant to which he
assigned the Note and his interest in any collateral security thereunder to the
Company for 1,500,000 Common Shares. As a result, immediately following the
transaction, Mr. Keogh owned 1,500,000 of the Company's 2,665,533 issued and
outstanding Common Shares, constituting 56.3%.
From October 1, 1993 through December 15, 1994 the Company was engaged in
the manufacture and sale of computer hardware and software. The Company ceased
both operations due to continued losses and the inability to meet obligations.
Through September 30, 1997 the Company incurred cumulative losses of $3,762,521.
The horse breeding business was abandoned in September 1992 and the computer
business was abandoned in December 1994. From December 15, 1994 the Company was
an inactive shell corporation. In December 1997 the major shareholders of the
Company elected two directors and directed them to seek to locate an acquisition
or merger candidate for the Company. As of March 1998 management's
representatives had discussions with possible acquisition or merger candidates
but no definitive agreements have been entered into.
Except as set forth above, the Company has not been a party to any
bankruptcy, receivership, reorganization, readjustment or similar proceedings.
The Company does not own any assets, tangible or intangible, and did not
generate any revenues during the fiscal year ended September 30, 1997. The
Company had no back-log of orders for goods or services and did not make any
material expenditures for research or development during the fiscal year then
ended.
B) Narrative Description of Business
The Company is actively seeking new business opportunities.
Employees and Consultants
The Company had no employees until December 15, 1997 when two directors and
officers were elected. The two officers and directors devote only part-time to
the affairs of the Company and will receive deferred compensation at the rate of
$2,000 each per month. The President currently devotes approximately ten hours
per month to Company matters. (See "ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS").
The Company's president currently provides all secretarial and clerical
services to the Company on a part-time basis. Management believes such
arrangements are adequate for the foreseeable future, although there is no
assurance such arrangements will continue indefinitely in the future. The
President and Secretary are currently seeking out candidates for a potential
merger or acquisition. (See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.")
ITEM 2. DESCRIPTION OF PROPERTY
The Company does not own or lease any real or personal property.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings, to which the Company is a party or to which
the property of the Company is subject, are pending or are known by the Company
to be threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1997 a special meeting of shareholders of the Company was
held pursuant to notice given by holders of at least 10% of the outstanding
shares of the Company. At the meeting the shareholders voted (a) to remove any
persons acting or purporting to act as directors of the Corporation, and (b) to
elect Michael Hinton, Joseph Dunn and Steven Levy as directors of the
Corporation. Mr. Levy declined to serve as a director. Three million of the
three million nine hundred ninety nine thousand nine hundred twenty seven issued
and outstanding shares of Common Stock of the Corporation were represented at
such meeting and voted to elect Messrs. Dunn and Hinton.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed for quotation in the Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc. Since at least October 1, 1995 the high and low bid prices for the common
stock have been $.08 and $.01, respectively. The common stock is, however,
illiquid in that trading is sporadic and trading volume is very limited.
The number of record holders of Common Stock as of September 30, 1997 was
approximately 700 including nominees of beneficial owners.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common Stock
have been paid by the Company to date nor does the Company anticipate that
dividends will be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following summarizes the Company's results of operations and financial
conditions, and should be read in conjunction with the financial statements:
<PAGE>
(a) Liquidity and Capital Resources
As of the end of the period, the Company had no cash or cash equivalents.
There was no significant change in working capital during this fiscal year.
Management feels that the working capital position of the Company may improve
with the acquisition or merger with an operating company.
(b) Results of Operations
No operations were conducted during each of the two years in the two year
period ended September 30, 1997 and since January 1995 the Company has been
inactive. Any expenses incurred since January 1995 have been related to legal,
accounting and stock transfer agent fees in order to provide stock transfer
services to current shareholders and to comply with reporting as required by the
Securities Exchange Act of 1934.
(c) Plan of Operation
The plan of the Company's management, for the next twelve months, is to
focus on acquiring an operating entity. The two officers and directors have been
seeking possible merger candidates and expect to consummate a transaction in the
foreseeable future. Management anticipates utilizing additional equity financing
and short-term working capital advances in its acquisition endeavors.
ITEM 7. FINANCIAL STATEMENTS
See index beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE
In November, 1993 the Company engaged Cordovano & Company, P.C. Certified
Public Accountants, as the Company's independent auditors. Cordovano & Company
succeeded Anthony J. Haas, C.P.A., who served in the position as the Company's
independent auditor for the fiscal year ended September 30, 1992, and
subsequently discontinued his practice in the securities area. Cordovano &
Company changed its name to Cordovano and Harvey as of January 1, 1998.
The decision to change accountants was approved by the Company's Board of
Directors. There were no disagreements with Mr. Haas on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Cordovano & Company did not audit the financial statements of the
Company until the audit of the financial statements for the fiscal year ended
September 30, 1997.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
- ----------------- --- --------
Joseph Dunn 47 President and Chief Financial Officer
Michael C. Hinton 52 Secretary and Director
Joseph Dunn has served as an officer and director of the Company since
December 15, 1997. Since 1994 he has been Chief Executive Officer of Nako Matsu
Investment Services Limited, a firm engaged in providing consulting services to
international clients in the areas of finance and economic development. Prior
thereto and from 1980 he was Chief Executive Officer of Azonic Technology, Inc.
which was engaged in the design, manufacture, sale and distribution of devices
used in the etching and cleaning of silicon wafers. Mr. Dunn graduated from
Falls College in Atlanta, Georgia in 1970 with a degree in data processing and
has taken courses in business at the University of California in Hayward,
California and the UCLA Graduate School of Management in Los Angeles,
California.
Mr. Hinton has been an officer and director of the Company since December
15, 1997. Since 1990 he has been engaged in managing his own investments and is
the sole owner of Multimarket Americas Export Corp. which is engaged in
exporting telephone and construction equipment and the import of food products.
Mr. Hinton received a bachelor's degree in economics from Colorado State
University.
ITEM 10. EXECUTIVE COMPENSATION
The Company had no officers or directors from 1993 until December 1997. No
executive compensation or remuneration of any kind was paid by the Company
during the fiscal year ended September 30, 1997.
The Company has no retirement, pension, profit sharing, insurance or stock
option plan for the benefit of its officers, directors or other employees, but
the Board of Directors may recommend one or more such programs for adoption in
the future.
Employment Contracts
As of December 15, 1997, the Company agreed to pay deferred compensation of
$2,000 per month each to Joseph Dunn and Michael C. Hinton, its two officers and
directors. Each of the Company's officers serves at the pleasure of the Board of
Directors. The Company may execute employment agreements with and compensate its
executive officers or other employees or consultants in the future, depending on
results of operations.
No officer is entitled to receive any additional compensation for his
services to the Company as a director.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At September 30, 1997, the Company had outstanding 3,999,929 shares of
Common Stock the only class of voting securities outstanding. Each share of
Common Stock entitles the holder to one vote in any matter submitted to
shareholders for approval.
The following tabulates holdings of Common Stock of the Company by each
person who holds of record or is known by management of the Company to own
beneficially more than 5% of the voting securities outstanding as of September
30, 1997, and, in addition, by all directors and officers of the Company
individually and as a group. To the knowledge of management, the shareholders
listed below have sole voting and investment power, except as otherwise noted.
Number Percent
Name and Address of Shares of Voting Securities
- ---------------- --------- --------------------
Sterling Westminster Trust Co., Ltd. 800,000 20%
Independent House, 178 Brompton Road
London SW3 1HQ, England
Centre Trustees (C.I.) Ltd., Trustees 800,000 20%
for the Hyde Park Settlement
Owens House, P.O. Box 301
Don Road,
St. Helier, Jersey JE4 9SJ
Channel Islands
Clanbrassil Trust Company Ltd./CT 169 500,000 12.5%
26 Queens Street
St. Helier, Jersey JE4 9JS
Channel Islands
Corsica Investments Ltd. 800,000 20%
c/o Duncan Laurie Offshore
Services, Ltd.
14/15 Mount Havelcock
Douglas, Isle of Man JM1 2QG
All Directors and Officers 0 0%
as a group (two persons)
- --------------------------
The Company knows of no arrangement, including the pledge by any person of
securities of the Company, which may at a subsequent date result in a change of
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules. See Index to Financial Statements
beginning on page F-1.
(b) Exhibits. The following exhibits are filed with or incorporated by
reference into this report:
Exhibit Description
2.3 Closing Agreement between Equine Enterprises, Inc., and the Company,
dated March 10, 1987.(1)
3.1 Amended and Restated Articles of Incorporation filed January 14, 1982
with the Secretary of State of the State of Colorado.(2)
3.2 Amended and Second Restated Articles of Incorporation filed January 3,
1983 with the Secretary of State of the State of Colorado.(2)
3.3 Amended and Second Restated Articles of Incorporation filed July 28,
1993, with the Secretary of State of the State of Colorado.(3)
3.4 Bylaws adopted by the Company effective June 9, 1981.(2)
4.1 Specimen certificate for Common Shares, par value $.01 per share.(2)
10.1 Agreement between Company and Mr. Gary E. Keogh.(4)
10.2 1993 Stock Option Plan.(5)
(c) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
year ended September 30, 1997.
- --------
(1) Incorporated by reference to the Company Form 8-K dated March 20,
1987.
(2) Incorporated by reference to the Company's Registration Statement No.
2-81022-D on Form S-18 dated December 21, 1992.
(3) Incorporated by reference to the like-numbered exhibits filed with the
Company's Form 8-K dated July 7, 1993.
(4) Incorporated by reference to the like-numbered exhibits filed with the
Company's Form 8-K dated August 6, 1993.
(5) Incorporated by reference to the like-numbered exhibits filed with the
Company's report on Form 10-KSB for the fiscal year ended September
30, 1993.
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
Denver, Colorado
FINANCIAL STATEMENTS
With
INDEPENDENT AUDITORS' REPORT
September 30, 1997
Prepared by:
Cordovano and Harvey, P.C.
Certified Public Accountants
Denver, Colorado
<PAGE>
ITEM 7.
SOUTHWESTERN ENVIRONMENTAL CORP.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent auditors' report.................................................... F-2
Balance sheet as of September 30, 1997.......................................... F-3
Statements of operations, for the years ended
September 30, 1997 and 1996................................................... F-4
Statements of cash flows, for the years ended
September 30, 1997 and 1996................................................... F-5
Statement of shareholders' deficit, October 1, 1995
through September 30, 1997.................................................... F-6
Summary of significant accounting policies...................................... F-7
Notes to financial statements................................................... F-8
</TABLE>
F-1
<PAGE>
To the Board of Directors and Shareholders of
Southwestern Environmental Corp.
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Southwestern Environmental
Corp. (the "Company") as of September 30, 1997 and the related statements of
operations, shareholders' deficit, and cash flows for the years ended September
30, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 the company as of September 30,
1997, and the results of its operations and its cash flows for the years ended
September 30, 1997 and 1996, 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 G to the
financial statements, the Company's continuing operating losses and net capital
deficiency raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in Note
G. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Cordovano & Harvey, P.C.
Denver, Colorado
January 28, 1998
F-2
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
BALANCE SHEET
September 30, 1997
ASSETS
<TABLE>
<CAPTION>
TOTAL ASSETS $ -
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C>
LIABILITIES
Accounts payable and accrued expenses................... $ 65,623
Accrued interest payable ............................... 38,194
Note payable (Note C).................................. 150,000
---------
TOTAL LIABILITIES 253,817
---------
CONTINGENCY (Note F)......................................... -
SHAREHOLDERS' DEFICIT
Preferred stock, 4,000,000 shares authorized,
$.10 par value; -0- shares issued and outstanding....... -
Common stock, 18,000,000 shares authorized,
$.01 par value; 3,999,929 shares issued and
outstanding ............................................ 40,000
Additional paid-in capital................................ 3,468,704
Deficit accumulated during development stage ............. (3,762,521)
---------
TOTAL SHAREHOLDERS' DEFICIT (253,817)
---------
$ -
=========
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements
F-3
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended
September 30,
---------------------
1997 1996
------------ ------------
<S> <C> <C>
COST AND EXPENSES
General and administrative....................... $ 15,623 $ -
--------- ---------
OPERATING LOSS (15,623) -
INTEREST EXPENSE................................... (12,687) (11,832)
INCOME TAX BENEFIT (EXPENSE) (NOTE D)
Current.......................................... 8,494 3,550
Deferred......................................... (8,494) (3,550)
--------- ---------
NET LOSS (28,310) (11,832)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 3,999,929 3,999,929
========= =========
NET LOSS PER SHARE * *
========= =========
</TABLE>
* Less than $.01 per share
See accompanying summary of significant accounting policies
and notes to the financial statements
F-4
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
September 30,
---------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $ (28,310) (11,832)
Changes in current assets and
current liabilities
Accounts payable and
Accrued expenses.......................... 28,310 11,832
--------- ---------
NET CASH (USED IN)
OPERATING ACTIVITIES - -
--------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS - -
Cash and cash equivalents
at beginning of year....................... - -
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest..................................... $ - $ -
========= =========
Income taxes................................. $ - $ -
========= =========
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements
F-5
<PAGE>
SOUTHWESTERN ENVIRONMENTAL STAGE COMPANY
(A DEVELOPMENTAL STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
October 1, 1995 trough September 30, 1997
<TABLE>
<CAPTION>
Common Stock Additional
Paid-in Accumulated Total
Shares Par Value Capital Deficit Deficit
--------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AS OF OCTOBER 1, 1995 3,999,929 $ 40,000 $3,468,704 $(3,722,39) $(213,675)
Net loss for the year....................... - - - (11,832) (11,832)
--------- --------- ---------- ---------- ---------
BALANCE AS OF SEPTEMBER 30, 1996 3,999,929 40,000 3,468,704 (3,734,211) (225,507)
Net loss for the year....................... - - - (28,310) (28,310)
--------- --------- ---------- ---------- ---------
BALANCE AS OF SEPTEMBER 30, 1997 3,999,929 40,000 3,468,704 (3,762,521) (253,817)
========= ========= ========== ========== =========
</TABLE>
See accompanying summary of significant accounting policies
and notes to the financial statements
F-6
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
Summary of Significant Accounting Policies
September 30, 1997
Cash equivalents
For financial accounting purposes and the statement of cash flows, cash
equivalents include all highly liquid debt instruments with original maturities
of three months or less.
Net loss per share
Net loss per share is based on the weighted average number of common shares
outstanding for the periods presented.
Income taxes
The Company reports income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes", which requires the liability method in accounting for income
taxes. Deferred tax assets and liabilities arise from the difference between the
tax basis of an asset or liability and its reported amount in the financial
statements.
Deferred tax amounts are determined by using the tax rates expected to be in
effect when the taxes will actually be paid or refunds received, as provided
under currently enacted law. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income tax
expense or benefit is the tax payable or receivable, respectively, for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
New accounting pronouncements
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" as of October 1, 1996. This statement supersedes Accounting
Principles Board Opinion No. 15, "Earnings Per Share". As a result, the Company
has changed from one generally accepted accounting principal to another.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" as of October 1, 1996. The Company
currently accounts for its stock-based compensation plans using the accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued To Employees". The Company is not required to adopt the fair value based
recognition provisions prescribed by SFAS No. 123 and has elected only to comply
with the disclosure requirements set forth in the statement, which includes
disclosing pro forma net income as if the fair value based method of accounting
had been adopted.
Adoption of the Statements did not have material impact on the accompanying
financial statements.
F-7
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
Notes to Financial Statements
September 30, 1997
Note A: Nature of Organization
Southwestern Environmental Corp. ( the "Company"), formerly known as
Blue Grass Breeders, Inc., was incorporated in Colorado on June 9,
1981. The Company completed an initial public offering of its $.01 par
value common stock in February 1983. Net proceeds from the offering
were approximately $2 million after deducting the costs of the
offering.
The Company has generated revenue from two primary sources. From
February 1983 through March 30, 1991, the Company was engaged in the
business of acquiring, breeding and selling thoroughbreds and
quarterhorses and from October 1, 1993 through December 15, 1994, the
Company was engaged in the manufacture and sale of computer hardware
and software.
The Company ceased operations in both industries due to continued
losses and the inability to meet obligations. As shown in the financial
statements, the Company incurred cumulative losses of $3,762,521
through September 30,1997.
The Company abandoned the horse breeding business in March 1991 and the
computer hardware and software business in December 1994. From April1,
1991 through September 31, 1993, and from December 15, 1994 through
September 30, 1997 the Company was an inactive shell corporation.
Note B: Related party transactions
The Company utilized office space on a rent-free basis from the
president of the Company for all periods presented. The Company does
not plan to change this arrangement in the foreseeable future.
Note C: The Note is payable to a private party
with interest at 7% due on demand, convertible
to common stock at the option of Tanaka Capital
Limited at 60% of the applicable market price ....... $150,000
========
Interest expense accrued on the note was $12,687 and $11,832, respectively,
for the years ended September 30, 1997 and 1996.
F-8
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
Notes to Financial Statements, Continued
September 30, 1997
Note D: Income Taxes
At September 30, 1997, deferred taxes consisted of the following:
Deferred tax asset,
net operating loss carryforward ..................... $ 1,128,756
Valuation allowance .................................. (1,128,756)
-----------
Net deferred taxes ................................... $ -
===========
The Company has available, as of September 30, 1997, unused Federal and
State operating loss carryfowards of approximately $1,128,756, which
expire through the years 2011 and 2011, respectively. The loss
carryfoward may not be available to the Company as its line of business
or its ownership changed substantially.
The valuation allowance will be evaluated at the end of each year,
considering positive and negative evidence about whether the asset will
be realized. At that time, the allowance will either be increased or
reduced; reduction could result in the complete elimination of the
allowance if positive evidence indicates that the value of the deferred
tax asset is no longer impaired and the allowance is no longer
required.
Note E: Stock options
The Company has granted to certain individuals and entities options to
purchase common stock in exchange for services and debt forgiveness.
Activity with respect to this unqualified plan is as follows:
Unissued options ................................. -
=========
Number of shares ................................. 324,396
=========
Option price per share ........................... $ 0.02
=========
Number of shares exercisable
at September 30, 1997 .......................... 324,396
=========
During the years ended September 30, 1997 and 1996, no shares became
exercisable, were exercised or expired. The options to purchase common
stock at $.02 per share expire on August 3, 1998.
Note F: Loss of control
If the Company is successful in its effort to merge with or acquire an
existing privately held company, the majority of the Company may rest
with the former shareholders of the merged or acquired company.
Therefore, significant changes may be made to the present slate of
officers and directors of the Company.
F-9
<PAGE>
SOUTHWESTERN ENVIRONMENTAL CORP.
Notes to Financial Statements, Continued
September 30, 1997
Note G: Going concern
As of September 30, 1997, the Company has suffered continuing operating
losses and has a net capital deficiency which raises substantial doubt
about its ability to continue as a going concern.
Management plans to seek a merger candidate, consummate a merger, and
become a profitable operating company. Certain members of management
plan to work without compensation to seek and evaluate potential merger
candidates. Principal shareholders plan to underwrite the Company's
obligation until such time as a merger is completed. There is no
assurance that the Company will be successful in consuming a merger
with a privately held company or that such a merger will result in
profitable operations.
F-10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHWESTERN ENVIRONMENTAL CORP.
Dated: May 14, 1998 By: /s/ Joseph Dunn
Joseph Dunn, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Joseph Dunn
Joseph Dunn President, Chief Executive
Officer, Chief Financial
Officer and Director
/s/ Michael C. Hinton
Michael C. Hinton Secretary and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM SOUTHWESTERN ENVIRONMENTAL CORP. AUDITED
BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE RELATED
STATEMENT OF INCOME FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000700890
<NAME> Southwestern Environmental Corp.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-1-1996
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 253,817
<BONDS> 0
0
0
<COMMON> 40,000
<OTHER-SE> (293,817)
<TOTAL-LIABILITY-AND-EQUITY> (253,817)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 15,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,687
<INCOME-PRETAX> (21,525)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,525)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
