<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
----------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________________
Commission file number 0-222630
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Seiler Pollution Control Systems, Inc.
- - ------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 22-2448906
- - ------------------------------- ------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization Identification No.)
555 Metro Place North, Dublin, Ohio 43017
- - ---------------------------------------------------- ------------
(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code 614/791-3272
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X] Yes [ ] No
<PAGE>
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
Not Applicable
The number of shares outstanding of each of the Registrant's classes
of Common Stock, as of June 1, 1997 is 21,142,188 shares, all of one class of
$.0001 par value Common Stock. Of this number a total of 18,392,188 shares
having a market value of $47,129,982, based on the closing price of the
Registrant's common stock of $2.5625 on July 8, 1997 as quoted on the NASDAQ
SmallCap market, were held by non-affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Employment Agreements with Messrs. Heim, Sarko, Seiler, and Weser were
entered into on June 29, 1996. The complete Agreements were reproduced in the
Quarterly Report for the period ended June 30, 1996 and the description is
hereby incorporated by reference.
FORWARD LOOKING STATEMENTS
Certain statements included in this Annual Report are not based on
historical facts, but are forward looking statements. These statements can be
identified by the use of forward looking terminology such as "believes",
"expects", "may", "will", "should", or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. These statements reflect the Company's reasonable judgments with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those in the forward looking
statements. Such risks and uncertainties include, but are not limited to the
completion of an economically viable HTV system and the development and
marketing of additional systems. The Company must also generate additional
resources to enable it to continue the completion of the HTV system. Such
additional resources may be generated through the sale of additional equity
securities, the sale of an existing system, alliances, joint ventures or other
business transactions which would generate sufficient resources. Other factors
such as changes in business conditions and changes in regulations and laws may
also impact the outcome of forward looking statements.
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
Form 10-K
Fiscal Year Ended March 31, 1997
TABLE OF CONTENTS
Page No.
--------
PART I
Item 1. Business 1
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security-Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 46
PART III
Item 10. Directors and Executive Officers of the Registrant 46
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management 51
- i -
<PAGE>
Item 13. Certain Relationships and Related Transactions 53
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 53
SIGNATURES
SUPPLEMENTAL INFORMATION
- ii -
<PAGE>
Part I
------
ITEM 1. BUSINESS
- - ------ --------
Business Overview
- - -----------------
Seiler Pollution Control Systems, Inc. (hereafter, "Seiler", the
"Company", or the "Registrant") is engaged in the environmental service and
equipment business. The Company was incorporated in 1983 in the State of
Delaware, under the name of World Imports -- USA, Inc., an import-export company
that operated until 1989. The Company was inactive during the fiscal years
ended March 31, 1990 through 1993.
Following a change in control in June 1993, World Imports -- USA, Inc.
changed its name to Seiler Pollution Control Systems, Inc. and began active
operations in the environmental field. The Company is currently publicly traded
in the NASDAQ Small Capitalization Market under the stock symbol SEPC.
In July 1993, the Company formed a wholly owned subsidiary, Seiler
Pollution Control Systems International, Inc. ("Seiler International"), under
the laws of the State of Delaware. This subsidiary holds the exclusive European
rights to a High Temperature Vitrification System ("HTV System" or "System").
The HTV System was initially developed and patented in Switzerland by Seiler
High Temperature Separating Systems Ltd. ("Seiler HT") a company controlled by
Niklaus Seiler (a director of the Company) and his family. Seiler HT
transferred exclusive worldwide rights to the System to Maxon Finance & Trade
Ltd. ("Maxon"), a corporation organized under the laws of the Country of Panama
with offices in Fribourg, Switzerland. In July 1993, Maxon transferred the
European rights to Seiler International with the remaining worldwide rights
acquired directly by the Company from Maxon under a separate license agreement.
When the licensing agreements were executed, Maxon was a principal shareholder
of the Company. As of June 1, 1997, Maxon owned 1.4% of the Company's
outstanding stock.
In November 1993, under the laws of the Country of Switzerland, the
Company formed a wholly owned subsidiary, named Seiler SEPC AG. In February
1995, Seiler SEPC AG formed a subsidiary, under the laws of the Country of
Germany named Seiler Trenn-Schmelzanlagen Betreibs GmbH (STSB GmbH) SEPC AG
owns 90% of STSB GmbH and Dr. Gerold Weser, Seiler Vice President of European
Operations and President of STSB GmbH, owns the remaining 10%. Subsequent to
March 31, 1997, Dr. Weser has agreed to contribute capital to Seiler STSB in
exchange for an additional 40% interest in the company, which will reduce Seiler
AG's ownership interest in STSB to 50%. The transfer of the contributed capital
and the execution of the agreement have not yet taken place.
In March, 1997, Seiler acquired sixty percent (60%) of the issued
stock of N.W. Technology Inc. (NWT), a newly formed New Jersey private company,
in exchange for Seiler's expertise in vitrification technology. Seiler will
utilize $4.7 million of NWT capital to design and build a prototype
vitrification facility to eventually process low-level nuclear waste.
Unless specifically identified by their individual names, Seiler
Pollution Control Systems, Inc. and its three subsidiaries will hereafter be
referred to as "Seiler", "Company", or the "Registrant".
-1-
<PAGE>
Licensing Agreements
- - --------------------
In July 1993, the Company entered into two separate licensing
agreements with Maxon. The amended licensing agreements required the Company to
pay Maxon a licensing fee of $2.5 million for the European rights to the HTV
System and $2.5 million for the remaining worldwide rights. To date, $3,022,751
has been paid. The remaining sums due and owing are to be paid on a schedule as
reflected in Note 5 of the Company's financial statements. These licensing
agreements run for an indefinite term or until all of the proprietary
information becomes public knowledge and the patent rights expire.
The Technology
- - --------------
The HTV System is a high temperature vitrification process that
effectively processes a broad range of mixed and hazardous wastes into inert
glass ceramic materials. The heart of the HTV System is a patented high
temperature converter melter that operates at temperatures around 2700 to 3300
degrees F (1500 to 1800 degrees C). The energy causes chemical and physical
reactions that convert hazardous chemical compounds into inert nonhazardous
glass ceramics, metal oxides, and salts.
The dryer and preheater components permit processing wet materials
(e.g., sludges, metal hydroxide filter cake, wastewater treatment residues) or
dry waste feedstocks (e.g., incinerator ash, spent foundry sands, asbestos).
Also, the system's flexibility allows processing organic, inorganic or mixed
organic/inorganic waste feedstocks. The inorganic residues are the primary
components needed for producing glass ceramic products and metal oxides, while
the organic residues provide supplemental energy for the system.
The HTV System process can be controlled to produce materials in
different shapes and forms as well as various degrees of hardness. The
resulting materials are made into nonhazardous marketable products and recycled
back into the commercial marketplace, or the glass ceramic materials can be
stored in a non-hazardous waste landfill.
The HTV System
- - --------------
Seiler's commercial HTV System can process 2000 to 8000 tons (1800 to
7500 tonnes) of waste feedstocks per year at a rate of 600 to 2200 pounds (250
to 1000 kilograms) per hour. The commercial system is built to operate 24 hours
a day, 7 days a week, shutting down only for scheduled maintenance or emergency
repairs. The commercial HTV System includes extensive process controls,
combustion air heat exchanger, flue gas quench system, refined glass ceramic
exit system and sophisticated air pollution control components.
The Company promotes installing a commercial HTV System on the site
where the waste feedstocks are generated. By managing the waste onsite,
transportation costs, safety and liability concerns associated with offsite
management are eliminated. A commercial HTV System may, however, be built in a
central location to serve as a regional recycling center for a number of
hazardous and industrial waste generators and achieve economies of scale.
Market Strategy and Business Development
- - ----------------------------------------
Seiler's market strategy is to promote the Company's vitrification
process as the preferred option for managing hazardous and industrial wastes
because Seiler's HTV System offers environmental and economic advantages over
traditional waste disposal or storage methods. The Company also plans to
accelerate the product development and marketing side of the business.
-2-
<PAGE>
Environmental Advantages:
The HTV System recycles hazardous and industrial wastes into safe,
nonhazardous glass ceramic products by binding the metal components in the waste
feed to a glass ceramic matrix on a molecular level. The resultant inert
materials pass standardized governmental leachate tests: the United States Toxic
Characteristic Leaching Procedure in America and its equivalent eluent test in
Europe. Dangers and liabilities associated with hazardous waste storage and
disposal are removed, thereby providing a safer and more environmentally sound
method of waste management.
Economic Advantages:
Because hazardous wastes require "cradle to grave" monitoring,
disposal or storage costs are high both at the time of disposal and over the
long-term period of responsibility. Liability issues with their accompanying
potentially expensive legal fees and possible fines also remain open ended.
Additionally, companies/responsible parties are subject to financial
accountability on contamination issues not only for the future, but
retroactively as well.
Product Development and Marketing:
As already pointed out, the glass ceramic materials produced by the
HTV System are inert, nontoxic and reusable. Consistent characteristics such as
substantive hardness, toughness, color and insulating properties make the
recycled materials commercially marketable. The process produces reclaimable
products that can also be sold, such as metal oxides and salts.
Seiler's product research and development is conducted at The Ohio
State University in Columbus, Ohio, through an ongoing arrangement with the
university's Department of Materials Science and Engineering. Benchwork studies
and laboratory research have identified three commercial glass product markets:
Architectural Applications (floor and wall tile, sinks, bathtubs, patio stone,
mosaics, bricks, vanities and counter tops); Abrasive Applications (sandpaper,
grinding media, shot blast media, grinding wheels, glass beads, buffing
compounds and polishing compounds); and Refractory Applications (fireproof
wallboard, roofing media, filtration media, high temperature specialty products
and insulation).
In 1996, the Company's product development efforts were intensified
with excellent results. Laboratory research on Seiler HTV System glass ceramic
materials resulted in creation of more variety in shapes, forms and textures.
Expanded market development efforts located additional buyers for the
established and the newly developed products. Seiler intends to continue market
development and product expansion in the coming year.
Current Projects
- - ----------------
Freiberg, Germany:
Groundbreaking ceremonies took place May 21, 1997, for a commercial
HTV System to be installed in Freiberg. Construction of the building to house
the system and necessary site preparation will take three to four months and
system installation will require an additional three to four months.
The Freiberg facility will be operated by Seiler's German subsidiary,
STSB. The plant will serve as a regional recycling center and process various
industrial and governmental wastestreams. Initially, the facility will process
industrial paint and hydroxide sludges, petrochemicals, industrial wastewater
treatment sludges, spent solvents, oils, pesticides, electroplating sludges,
contaminated chemicals, asbestos containing residuals and mixed
organic/inorganic residuals.
-3-
<PAGE>
United States Air Force:
Seiler's work continued throughout the past year as a subcontractor on
a Radian International, Inc. contract with the United States Air Force. Phase I
of the project centered on laboratory testing to analyze, characterize and
evaluate five waste streams from two Air Force bases and develop formulations
for HTV System processing. Upon completion of Phase I, a report on the
benchscale findings was written and the Air Force authorized the next phase.
Phase II work called for further testing of the five Air Force waste
streams at the Company's pilot HTV System plant in Leibstadt, Switzerland.
Pilot tests were successfully completed on June 13, 1996 and in February 1997 a
pilot test report was compiled and submitted to the Air Force.
An additional component of Phase 2, which is currently underway,
involves designing, locating and permitting a commercial HTV System at McClellan
and/or Tinker Air Force bases. The project is currently in the permitting stage
for the McClellan Air Force base location. When approved, the Company will
build and operate the system.
Edison Materials Technology Center (EMTEC):
EMTEC is an organization made up of Ohio businesses and other
companies that join together in research and development projects to benefit
Ohio industries. Seiler's EMTEC project under the Core Technology Program began
in October 1995. The purpose of the project was to develop higher end-use glass
ceramics from waste feedstocks using the HTV System process. Phase 1 of the
project, completed in September 1996, successfully demonstrated that Seiler's
HTV System process could produce several high-value products from hazardous
waste feedstocks such as medium and high grade abrasives, roofing granules and
architectural filler material.
A Phase 2 contract was granted to Seiler for $300,000 by EMTEC to
continue the product development that began in Phase I and identify Ohio sites
to locate a Seiler pilot and commercial system. This contract began in October
1996 and will run until January 1999. To date, Seiler has identified possible
sites for placement of a pilot Seiler system in Ohio. Site selection criteria
were developed and an industrial park site in Coshocton, Ohio, was chosen. The
Company is moving ahead with preliminary engineering design and cost estimates.
Phase 2 also authorized additional laboratory testing and product development.
Coshocton, Ohio:
Seiler received approval in May 1997 from Coshocton's Solid Waste
District of its request to construct a pilot industrial high temperature
vitrification recycling facility in the Coshocton Industrial Park. The Company
will build and operate the pilot HTV System plant to provide important
information to: determine the suitability of different wastes for Seiler
vitrification; develop formulations for HTV System processing; ascertain the
proper energy balance; and supply preliminary air testing.
The planned Coshocton pilot facility will have a capacity to process
up to 600 tons (544 tonnes) of wastes per year at a rate of 55 to 220 pounds (25
to 100 kilograms) per hour. Costs for the building and land are expected to be
project- and/or equity-financed. Currently, an application has been submitted
to Coshocton's Solid Waste District requesting $150,000 in grants, which would
not have to be paid back. Construction of the building in Coshocton is expected
to start late summer or early fall of 1997. Within a year, the Company expects
to also house a commercial Seiler HTV System in this same building with a
capacity to process approximately 2200 pounds (1000 kilograms) per hour.
-4-
<PAGE>
Additional Projects
- - -------------------
Germany:
Negotiations for commercial HTV Systems are currently underway with
two recycling centers in Berlin/Brandenburg and Saxony. The availability of
important incentive programs for job creation and environmental projects
(similar to financial arrangements utilized in Seiler's Freiberg project) are
expected to facilitate financing for these projects.
Also, the largest German car manufacturer has contracted with Seiler
to conduct tests on industrial and hazardous wastes produced by their
operations. Upon successful completion of these tests, it is anticipated that
orders will be placed for one or more commercial HTV System plants.
France:
The French hazardous waste market is considered a prime market for
Seiler as a result of recently introduced national legislation. Currently,
Seiler is negotiating with two large operators of incinerators and toxic waste
facilities in France for commercial HTV System facilities. A contract was
recently signed with a major incinerator operator for Seiler to test flyash in
September 1997.
Switzerland:
Tests were completed in June 1997 at Seiler's Dottingen plant on waste
from a Canton of Jura toxic waste site, from which the Company expects to
receive a contract for construction of a commercial HTV System facility during
the 1998 fiscal year. Additionally, Seiler is looking into using the HTV System
to process auto shredder waste in Switzerland.
Employees
- - ---------
Currently, Seiler employs 7 full time, 7 part time personnel and 8
contract employees. Seiler SEPC AG in Switzerland has 2 full time employees, 2
part time staff members and 3 contract consultants. STSB GmbH in Germany
employs 2 full time employees and 1 contract consultant. The Company's North
American operations (including the corporate headquarters in Dublin, Ohio)
employ 3 full time, 5 part time and 4 contract staff members. Additional
technical, engineering, environmental and support staff are hired on a contract
basis as needed.
ITEM 2. PROPERTIES
- - ------- ----------
Seiler's corporate headquarters are located at 555 Metro Place North,
Dublin, Ohio, U.S.A. pursuant to a one-year lease. Seiler SEPC AG has offices
at Seestrasse 17, CH-8702, Zollikon 2, Switzerland, also on a one-year lease.
Seiler TSB GmbH is located at Amst. Niclas Schacht 13, D-09599, Freiberg,
Germany, pursuant to a one-year lease.
ITEM 3. LEGAL PROCEEDINGS
- - ------- -----------------
The Company is not presently a party to any material litigation nor,
to the knowledge of management, is any material litigation threatened.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
- - ------- ---------------------------------------------------
This item is omitted since no matters were submitted to a vote of
security-holders during the Company's fourth quarter.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- - ------- ---------------------------------------------------------------------
(a) Marketing Information. The Company's Common Stock is listed on the
---------------------
NASDAQ Small Cap Market and its securities are traded under the symbol SEPC.
The following table sets forth for the periods indicated the range of high and
low bid prices on the dates indicated for the Company's Common Stock for each
full quarterly period. The data covers the two most recent fiscal years and any
subsequent interim period for which financial statements are included and/or
required to be included.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1996 Quarterly Common Stock Price
By Quarter Ranges(1)
- - -------------------------------- ----------------------------
Quarter Date High Low
<S> <C> <C> <C>
1st June 30, 1995 $3.50 $1.1875
2nd September 30, 1995 3.28125 1.3125
3rd December 31, 1995 2.4375 1.40625
4th March 31, 1996 5.6875 1.625
<CAPTION>
Fiscal Year Ended March 31, 1997 Quarterly Common Stock Price
By Quarter Ranges(1)
- - -------------------------------- ----------------------------
Quarter Date High Low
<S> <C> <C> <C>
1st June 30, 1996 $6.02 $4.76
2nd September 30, 1996 4.8958 3.3958
3rd December 31, 1996 4.54 3.465
4th March 31, 1997 3.854 2.8958
<CAPTION>
Fiscal Year Ended March 31, 1998 Quarterly Common Stock Price
By Quarter Ranges(1)
- - -------------------------------- ----------------------------
Quarter Date High Low
<S> <C> <C> <C>
1st Through May 30, 1997 $2.9295 $2.749
</TABLE>
___________________
(1) The over-the-counter market quotations indicated above reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not
necessarily represent actual transactions.
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<PAGE>
(b) Holders. As of June 1, 1997, the approximate number of stockholders
--------
of the Company's Common Stock was 200.
(c) Dividends. The Company has not paid or declared any cash dividends
---------
upon its Common Stock since its inception and does not anticipate paying any
cash dividends in the foreseeable future. The payment by the Company of cash
dividends in the future rests within the discretion of its Board of Directors
and will depend, among other things, upon the Company's earnings, its capital
requirements and its financial condition, as well as other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
- - ------- ------------------------
The selected financial information set forth below is derived from the
Company's audited consolidated financial statements included herein in Item 8
hereof. The information set forth below should be read in conjunction with such
financial statements and notes thereto.
<TABLE>
<CAPTION>
For the fiscal years
Ended March 31,
----------------
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
Statement of Operations
Revenue $ - $ - $ -
Net Loss (5,556,500) (1,796,727) (1,967,813)
Net Loss Per Share (0.29) (0.11) (0.15)
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years
Ended March 31
---------------
1997 1996
----------------------------
<S> <C> <C>
Balance Sheet
Total Assets 19,564,154 15,045,62
Total Liabilities 6,413,791 3,639,769
Working Capital 2,752,430 (114,882)
Accumulated Deficit (12,906,183) (7,349,683)
Total Stockholder Equity 13,150,363 11,405,857
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- - ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
----------------------
The Company's net loss for the year ended March 31, 1997, was $5,556,500 as
compared to $1,796,727 for the year ended March 31, 1996. The increase in the
net loss is the result of the establishment of a valuation adjustment of the
High Temperature Vitrification Systems aggregating $1,542,200 to reduce the
carrying value of the systems to their net realizable value. Furthermore, the
loss increased due to increased professional and consulting fees and salaries,
wages and related fringe benefits as well as increases in general and
administrative expenses such as promotion and other expenses of developing the
HTV System for commercial use.
-7-
<PAGE>
Seiler made payments aggregating to $2,340,314 toward completion of its
High Temperature Vitrification Systems during the year ended March 31, 1997 and
expended $196,106 for the acquisition of property and equipment. The Company
funded these capital expenditures and operating losses through the issuance of
additional securities aggregating $5,821,620 and the acquisition of N.W.
Technology Inc. which provided additional paid in capital of $2,820,000 and
resulted in a minority interest of $1,880,000.
The Company expects to incur substantial expenditures to complete the HTV
Systems, including operational start-up costs and to develop and market
additional systems. Management's plans to generate additional resources include
consideration of the sale of additional equity securities, alliances or joint
venture agreements with entities interested in the Company's HTV System, project
financing agreements or other business transactions which would generate
sufficient resources to assure continuation of the Company's operations.
Results of Operations -- March 31, 1996 v March 31, 1995
- - -------------------------------------------------------
The Company's net loss for the year ended March 31, 1996, was $1,796,727 as
compared to $1,967,813 for the year ended March 31, 1995. The decrease in the
net loss is the result of decreases in professional and consulting fees and
salaries, wages and related fringe benefits. Increases in research and
development expenses mitigated the effects of the expense reductions.
Seiler has made payments aggregating $3,226,377 for completion of its High
Temperature Vitrification Systems during the year ended March 31, 1996. In
addition, $261,048 was expended for the acquisition of property and equipment.
The Company has funded these capital expenditures and operating losses through
the issuance of additional equity securities and loans from stockholders
aggregating $5,163,600 and $827,098, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ------- -------------------------------------------
The following financial statements have been prepared in accordance with
the requirements of Regulation S-X and supplementary financial information
included herein, if any, has been prepared in accordance with Item 301 of
Regulation S-K.
-8-
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
---------------------------------------
AND SUBSIDIARIES
----------------
Dublin, Ohio
Report on Audits of Consolidated Financial Statements
For the years ended March 31, 1997 and 1996
- 9 -
<PAGE>
CONTENTS
PAGE
----
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 11
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, March 31, 1997 and 1996 12
Consolidated Statements for the years ended March 31, 1997 and 1996:
Operations 13
Changes in Stockholders' Equity 14
Cash Flows 15
Notes to Consolidated Financial Statements 16 - 26
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Seiler Pollution Control Systems, Inc.
Dublin, Ohio
We have audited the accompanying consolidated balance sheets of Seiler Pollution
Control Systems, Inc. and Subsidiaries as of March 31, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Seiler SEPC AG, a wholly owned subsidiary, and Seiler AG's ninety percent owned
subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH, which statements reflect
total assets of $13,143,174 and operating expenses of $4,105,310. Those
statements were audited by other auditors whose report has been furnished to us
and our opinion, in so far as it relates to the amounts included for Seiler SEPC
AG and its Subsidiary, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Seiler Pollution Control Systems,
Inc. and Subsidiaries at March 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements for 1997 and 1996 have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company's recurring losses from
operations and limited capital resources raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ SCHNEIDER DOWNS & CO., INC.
Columbus, Ohio
June 19, 1997
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<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
<TABLE>
<CAPTION>
March 31
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,188,278 $ 200,351
Prepaid expenses and sundry receivables 207,066 109,152
---------------- ----------------
Total Current Assets 4,395,344 309,503
HIGH TEMPERATURE VITRIFICATION SYSTEMS (Note 4) 10,518,246 9,720,132
OTHER ASSETS
Licensing agreements, less accumulated amortization of
$1,178,048 and $860,712 in 1997 and 1996,
respectively (Note 5) 3,581,952 3,899,288
Advances to related party (Note 3) 516,832 624,902
Vetrotherm option (Note 11) 167,920 167,920
Deposits 27,776 36,103
---------------- ----------------
4,294,480 4,728,213
PROPERTY AND EQUIPMENT -- AT COST (net of
accumulated depreciation of $2,186 and $8,403 at 356,084 287,778
March 31, 1997 and 1996, respectively)
---------------- ----------------
$ 19,564,154 $ 15,045,626
================ ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
March 31
-----------------------------------
1997 1996
-------------- ----------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $1,005,577 $316,450
Accrued expenses 637,337 107,935
-------------- ----------------
Total Current Liabilities 1,642,914 424,385
LONG-TERM DEBT
Licensing agreements payable (Note 5) 1,977,250 1,977,250
Loans payable - stockholders (Note 7) 913,627 1,238,134
Minority Interest 1,880,000 -
-------------- ----------------
4,770,877 3,215,384
STOCKHOLDERS' EQUITY
COMMON STOCK
Common stock, $.0001 par value; authorized 25,000,000
shares, issued and outstanding 21,142,108 and 18,525,569 shares
at March 31,1997 and March 31, 1996, respectively. 2,115 1,853
ADDITIONAL PAID IN CAPITAL 26,538,439 17,897,081
ACCUMULATED DEFICIT (12,906,183) (7,349,683)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (484,008) 856,606
-------------- ----------------
13,150,363 11,405,857
-------------- ----------------
$19,564,154 $15,045,626
============== ===============
</TABLE>
See notes to consolidated financial statements.
- 12 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
-------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
OPERATING EXPENSES
General and administrative $1,752,218 $ 325,600
Valuation adjustment of High Temperature
Vitrification Systems 1,542,200 -
Salaries, wages and related fringe benefits 830,705 371,980
Professional and other consulting fees (net of
consulting revenue) 767,443 546,835
Depreciation and amortization (Note 5) 445,136 323,146
Research and development (Note 4) 186,350 181,281
------------- -------------
LOSS FROM OPERATIONS 5,524,052 1,748,842
Interest income (1,612) (2,573)
Interest expense (Note 5) 34,060 56,153
------------- -------------
LOSS BEFORE MINORITY INTEREST 5,556,500 1,802,422
Minority interest - (5,695)
------------- -------------
NET LOSS $5,556,500 $ 1,796,727
============ ============
LOSS PER COMMON SHARE $ .29 $ .11
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,495,492 16,927,652
============ ============
</TABLE>
See notes to consolidated financial statements.
- 13 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
-------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
-------------------------
Shares Amount Capital Deficit
------------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 14,250,569 $ 1,425 $12,733,909 $(5,552,956)
Exercise of stock options under the 1993
Non-Statutory Stock Option Plan 25,000 3 46,097 -
Exercise of stock options under the 1994
Non-Statutory Stock Option Plan 25,000 3 31,872 -
Issuance of common stock for cash 4,225,000 422 5,085,203 -
Foreign currency translation adjustment - - - -
Net loss - - - (1,796,727)
------------- --------- -------------- ----------------
BALANCE, MARCH 31, 1996 18,525,569 1,853 17,897,081 (7,349,683)
Exercise of stock options under the 1993
Non-Statutory Stock Option Plan 57,000 6 194,619 -
Exercise of stock options under the 1996
Non-Statutory Stock Option Plan 500,000 50 874,950 -
Issuance of common stock for cash 1,419,058 142 3,601,019 -
Acquisition of majority owned subsidiary (See note 2 - - 2,820,000 -
Debentures converted into stock 640,481 64 1,150,770 -
Foreign currency translation adjustment - - - -
Net loss - - - (5,556,500)
------------- --------- -------------- ----------------
BALANCE, MARCH 31, 1997 21,142,108 $ 2,115 $26,538,439 $ (12,906,183)
============ ======== ============= ===============
<CAPTION>
Foreign
Currency
Translation
Adjustment Total
------------- -------------
<S> <C> <C>
BALANCE, MARCH 31, 1995 $ 1,136,375 $8,318,753
Exercise of stock options under the 1993
Non-Statutory Stock Option Plan - 46,100
Exercise of stock options under the 1994
Non-Statutory Stock Option Plan - 31,875
Issuance of common stock for cash - 5,085,625
Foreign currency translation adjustment (279,769) (279,769)
Net loss - (1,796,727)
------------- -------------
BALANCE, MARCH 31, 1996 856,606 11,405,857
Exercise of stock options under the 1993
Non-Statutory Stock Option Plan - 194,625
Exercise of stock options under the 1996
Non-Statutory Stock Option Plan - 875,000
Issuance of common stock for cash - 3,601,161
Acquisition of majority owned subsidiary (See note 2) - 2,820,000
Debentures converted into stock - 1,150,834
Foreign currency translation adjustment (1,340,614) (1,340,614)
Net loss - (5,556,500)
------------- -------------
BALANCE, MARCH 31, 1997 $(484,008) $ 13,150,363
============= =============
</TABLE>
See notes to consolidated financial statements
- 14 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC. SUBSIDIARIES
---------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
-------------------------------------------
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($5,556,500) ($1,796,727)
Adjustments to reconcile net loss to net
cash provided from operating activities:
Valuation adjustment of HTV Systems 1,542,200 -
Depreciation and amortization 445,136 323,146
Foreign currency translation (707,254) (245,028)
Minority interest - (10,171)
Changes in assets and liabilities:
Prepaid expenses and sundry receivables (97,914) (73,637)
Deposits 8,327 (18,090)
Accounts payable 689,127 236,504
Accrued expenses 529,402 (9,439)
-------------- --------------
Net Cash Used In Operating Activities (3,147,476) (1,593,442)
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and equipment (196,106) (261,048)
Advances for High Temperature Vitrification Systems (2,340,314) (3,226,377)
-------------- --------------
Net Cash Used In Investing Activities (2,536,420) (3,487,425)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 5,821,620 5,163,600
Acquisition of majority owned subsidiary 2,820,000 -
Minority interest incurred with acquisition of majority owned subsidia 1,880,000 -
Proceeds on loans payable -- stockholder - 827,098
Payments on loans payable -- stockholder (324,507) (139,057)
Payments on (Advances to) related party 108,070 (624,902)
-------------- --------------
Net Cash Provided By Financing Activities 10,305,183 5,226,739
EFFECT OF EXCHANGE RATE CHANGES ON CASH (633,360) (34,741)
-------------- --------------
Net Increase In Cash 3,987,927 111,131
CASH -- BEGINNING OF YEAR 200,351 89,220
-------------- --------------
CASH -- END OF YEAR $4,188,278 $200,351
============= =============
</TABLE>
See notes to consolidated financial statements.
- 15 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 1 - NATURE OF BUSINESS AND LIQUIDITY
Seiler Pollution Control Systems, Inc. (the Company) was incorporated under
the laws of the State of Delaware in 1983 as World Imports -- USA, Inc. The
Company's initial business plans were unsuccessful and the Company was inactive
during the fiscal years ended March 31, 1990 through 1993. Following a change of
control in 1993, World Imports changed its name to Seiler Pollution Control
Systems, Inc. (SPCS). The Company presently is an environmental service and
equipment company which acquired the rights to a technology called High
Temperature Vitrification (HTV) which treats a potentially wide variety of
waste products. The Vitrification process transforms hazardous waste into non-
toxic substances which can either be stored in a non-hazardous waste landfill or
be recycled.
The Company's financial statements for the years ended March 31, 1997 and 1996
have been prepared on a going concern basis which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company incurred a net loss of $5,556,500 for the year ended
March 31, 1997, and as of March 31, 1997 had an accumulated deficit of
$12,906,183. The Company expects to incur substantial expenditures to complete
the first commercial HTV Systems (including operational start up costs) and to
develop and market additional systems. The Company's financial position at March
31, 1997 plus limited revenue will not be sufficient to meet such objectives as
presently structured. Management recognizes that the Company must generate
additional resources to enable it to continue operations with available
resources. Management's plans include consideration of the sale of additional
equity securities, the sale of an existing system located in Dottingen,
Switzerland, alliances or joint venture agreements with entities interested in
the Company's HTV Systems, project financing, or other business transactions
which would generate sufficient resources to assure continuation of the
Company's operations.
Management expects to raise additional equity resources and/or borrow
additional funds to support operations. Although management expects that these
efforts will result in additional resources for the Company, no assurances can
be given that the Company will be successful in raising additional capital.
Furthermore, there can be no assurance assuming the Company successfully raises
additional funds, that the Company's commercial HTV system will be economically
viable and that the Company will achieve overall profitability and positive cash
flows.
The Company acquired sixty percent of the stock of N.W. Technology, Inc. in
consideration of the Company providing expertise and vitrification technology.
NWT was incorporated on March 6, 1997 with capitalization of $4.7 million which
provided the Company with additional paid-in-capital of $2,820,000 and resulted
in a minority interest of $1,880,000.
- 16 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include Seiler Pollution Control
Systems, Inc., and its wholly owned subsidiaries, Seiler Pollution Control
Systems International, Inc., (SPCSI) (incorporated in Delaware), Seiler SEPC
AG (Seiler AG) (incorporated in Switzerland), and Seiler AG's majority, (90%),
owned subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH (Seiler TSB)
(incorporated in Germany) and the Company's majority (60%) interest in N.W.
Technology, Inc. (NWT). The statements reflect the financial position, results
of operations and cash flows of SPCS and its wholly owned and majority owned
subsidiaries as a single entity. All significant intercompany accounts and
transactions have been eliminated in consolidation.
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.
Property and equipment are recorded at cost. Depreciation is provided for
on the straight-line method over estimated useful lives. Repairs and maintenance
which do not extend the lives of the applicable assets are charged to expense as
incurred. Profit or loss resulting from the retirement or other disposition of
assets is included in operations.
Licensing agreements are stated at cost, less accumulated amortization.
Amortization is computed by the straight-line method over an estimated life of
fifteen years based upon management's expectations relating to the life of the
technology and current competitive market conditions. The estimated life is
reevaluated each year based upon changes in these factors.
Loss per common share is computed by dividing the net loss for the year by
the weighted average number of shares of common stock outstanding during the
year.
All costs incurred in connection with the sale of the Company's common stock
have been recorded as a reduction of additional paid in capital.
For subsidiaries whose functional currency is the local foreign currency,
balance sheet accounts are translated at exchange rates in effect at the end of
the year and the statement of operations is translated at average exchange rates
for the year. Translation gains and losses are included as a separate component
of stockholders' equity. Net foreign currency transaction gains and losses are
included in operations.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company acquired two licensing agreements from Maxon Finance and
Trade, Ltd., S.A. who owns 300,000 shares of the Company's outstanding shares of
common stock, representing an approximate 1.4% and 1.6% ownership interest at
March 31, 1997 and 1996, respectively. (See Note 5.)
- 17 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
The Company has a note payable to PTI Management AG, a stockholder owning
2,750,000 and 3,480,000 shares of the Company's outstanding common stock at
March 31, 1997 and 1996, respectively, representing an approximate 14.0% and
18.8% ownership interest at March 31, 1997 and 1996 respectively. (See Note 7.)
The Company has advanced $516,832 to Seiler Hochtemperatur Trennanlagen AG
(Seiler HT). A majority of the outstanding shares of Seiler HT is owned by a
director of the Company. The advances have been presented as non-current in the
accompanying balance sheet. Realization of the advances is dependent upon the
successful completion of the Company's first commercial HTV system. (See Note
1.)
Subsequent to March 31, 1997, the minority owner of TSB agreed to
contribute capital to TSB in exchange for an additional 40% ownership interest
in the Company which will reduce Seiler AG's ownership interest in TSB to 50%.
The transfer of the contributed capital and the execution of the agreement have
not yet taken place.
The Company charged $96,000 to operations for legal services rendered by a
stockholder in the year ended March 31, 1996.
NOTE 4 - HIGH TEMPERATURE VITRIFICATION SYSTEM
The HTV system is a patented high temperature converter melter which
supplies the energy necessary to provide final chemical and physical reactions
that convert hazardous chemical compounds into inert nonhazardous glass
ceramics, metal oxides, and salts.
The financial statements for the year ended March 31, 1996 presented the HTV
Systems as three contracts with Seiler HT (a related party); construction of a
full scale commercial system, a second production line for the commercial system
and the construction of a pilot system that will be used in the United States
for purposes of testing and developing commercial systems. The systems have been
under construction and have been undergoing air pollution control testing to
evaluate product characteristics and commercial viability.
Subsequent to March 31, 1996, the contracts were modified due to changes in
business conditions resulting from negotiations with the German government to
build a new system in Germany as a condition of obtaining the financing with the
Dresdner Bank described in Note 11.
Therefore, the Company's wholly owned subsidiary, Seiler AG, modified its
contracts with Seiler HT to develop HTV Systems located in Switzerland and the
United States. Amounts advanced to Seiler HT through March 31, 1997 amounted to
$8,758,706. Seiler AG's majority owned subsidiary, Seiler TSB entered into a
contract with Seiler HT during 1997 to construct a commercial HTV System in
Freiberg, Germany. Amounts advanced by Seiler TSB through March 31, 1997
amounted to $3,148,340.
- 18 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 4 - HIGH TEMPERATURE VITRIFICATION SYSTEM (Continued)
In addition N.W. Technology advanced to Seiler HT through Seiler AG,
$2,000,000 during March, 1997 for the purpose of developing technology that will
process low level nuclear waste.
Each of these contracts have been presented under the caption HTV System in
the accompanying financial statements and has been classified as long term in
the accompanying financial statements since it is management's intention, upon
completion, testing and permitting, to own and operate these systems to process
waste on a commercial basis in Switzerland, Germany and the United States.
Amortization of the cost of these systems has not been provided for in the
accompanying financial statements since the systems are still under construction
and are not yet operating commercially and a valuation reserve of $1,388,800 has
been provided at March 31, 1997 to reflect the HTV Systems at their net
realizable value.
Research and development costs associated with the development of these
systems amounted to $186,350 and $181,281 in the years ended March 31, 1997 and
1996, respectively.
NOTE 5 - LICENSING AGREEMENTS
The Company entered into two separate licensing agreements in 1993 with
Maxon Finance and Trade Ltd., S.A., a stockholder of the Company, and a
corporation organized under the laws of Panama. The agreements, as amended in
March of 1994, are for an exclusive field-of-use license to use the proprietary
information, including the patent rights, worldwide for the High Temperature
Vitrification System. Licensing fees aggregating $5,000,000 are to be paid
under the terms of the agreements. These fees have been discounted at 7%,
resulting in a net capitalized cost of $4,760,000. These agreements are for an
indefinite term or until all of the proprietary information becomes public
knowledge and the patent rights expire. Amortization expense for each of the
years ended March 31, 1997 and 1996 was $317,334.
Maxon Finance and Trade Ltd., S.A. modified its note agreement terms with
the Company in February 1996 by extending the payment terms to December 31,
2000. Subsequent to March 31, 1996, the Company modified the terms of the
agreement again to begin payments in June 1998 extending through December 31,
2002. These modifications reduced the effective interest rate from 7%, per the
original agreement, to approximately 1%.
- 19 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 5 - LICENSING AGREEMENTS (Continued)
The aggregate annual principal payments due in years subsequent to March 31,
1997 are payable as follows:
<TABLE>
<CAPTION>
Year Ended
March 31,
<S> <C>
1999 $ 312,880
2000 374,787
2001 380,826
2002 386,962
2003 521,795
Total $1,977,250
</TABLE>
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities consist of the following at March 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Payroll $347,754 $ 25,997
Other 214,635 8,804
Interest 66,579 64,297
Taxes 8,369 8,837
Total $637,337 $107,935
</TABLE>
NOTE 7 - LOAN PAYABLE - STOCKHOLDERS
Werner Heim, President, Chairman of the Board of Directors and stockholder,
has made unsecured, non-interest bearing advances to the Company which are
payable upon future mutual agreement of the parties. The advances have been
presented as a long term liability in the accompanying balance sheet based upon
the parties intent to not repay the advances currently. The balances at March
31, 1997 and 1996 were $824,542 and $1,149,049, respectively.
PTI Management AG, advanced $105,000 to the Company. The advances are
unsecured, non-interest bearing and due on December 31, 1997. The balance due to
PTI at March 31, 1997 and 1996 is $89,085.
- 20 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 8 - INCOME TAXES
For the years ended March 31, 1997 and 1996, there was no provision for
current and deferred federal, state or foreign income taxes.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Deferred income taxes recorded in the balance sheets at March 31, 1997 and
1996 include a deferred tax asset related to federal net operating loss
carryforwards of approximately $6,080,000 and $4,593,000 which have been fully
offset by valuation allowances. The valuation allowances have been established
equal to the full amount of the deferred tax asset, as the Company is not
assured that it is more likely than not that these benefits will be realized.
The loss carryforwards expire through March 31, 2012 if not fully utilized.
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations for the years ended
March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Amount Percent
--------------------------- ----------------
1997 1996 1997 1996
------------- ------------- ------ -------
<S> <C> <C> <C> <C>
Net Loss $ 5,556,500 $(1,796,727) 100.0% 100.0%
============= ============= ====== =======
Statutory U.S. federal income tax benefit $(1,889,200) $ (611,000) (34.0)% (34.0)%
Operating losses with no current tax benefits 506,200 327,600 9.1 18.2
Effect of foreign operations 1,383,000 283,400 24.9 15.8
------------- ------------- ------ -------
Provision for Income Taxes - - - -
============= ============= ====== =======
</TABLE>
NOTE 9 - PENSION PLAN
The Company adopted a Simplified Employee Pension Plan (SEP) for the
benefit of its eligible employees. The plan enables the employee to contribute
up to a maximum of 10% of their base salary through a salary reduction and
requires the Company to make a 5% contribution. For the years ended March 31,
1997 and 1996, the Company charged $9,970 and $6,000, respectively to operations
for plan contributions.
- 21 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 10 - STOCK OPTIONS
The Board of Directors has adopted Non-Statutory Stock Option Plans and
reserved 4,500,000 shares, for issuance to eligible full and part-time
employees, directors and consultants. Options are nontransferable and are
exercisable during a term of not more than ten (10) years from the grant date.
The options are issuable in such amounts and at such prices as determined by the
Board of Directors, except that each option price of each grant will not be less
than eighty-five percent of the fair market value of such shares on the date
the options are granted.
The following table summarizes Common Stock options outstanding as of March
31, 1997:
<TABLE>
<CAPTION>
Price Per Shares Shares Shares
Date Granted Share Granted Exercised Outstanding
- - ---------------------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
1993 Stock Option Plan:
----------------------
June 14, 1993 $ 2.00 $338,000 $ 338,000 -
June 30, 1993 $ 1.70 40,000 40,000 -
September 30, 1993 $ 3.61 50,000 50,000 -
November 1, 1996 $ 0.75 500,000 - $ 500,000
--------- ----------- ------------
Total outstanding $ 428,000 $ 428,000 $ 500,000
========= =========== ============
1994 Stock Option Plan:
----------------------
February 22, 1995 $ 1.275 $175,000 $ 175,000 -
March 29, 1995 $ 1.275 150,000 25,000 $ 125,000
February 1, 1996 $ 2.10 100,000 - 100,000
--------- ----------- ------------
Total outstanding $425,000 $ 200,000 $225,000
========= =========== ============
1995 Stock Option Plan:
----------------------
December 1, 1995 $ 1.65 $ 200,000 - $ 200,000
February 1, 1996 $ 2.10 800,000 - 800,000
--------- ----------- ------------
Total outstanding $1,000,000 - $1,000,000
========= =========== ============
1996 Stock Option Plan:
-----------------------
May 9, 1996 $ 1.75 $ 650,000 $ 500,000 $ 150,000
January 2, 1997 $ 3.14 40,000 - 40,000
--------- ----------- -----------
Total outstanding $ 690,000 $ 500,000 $ 190,000
========= =========== ============
</TABLE>
- 22 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 10 - STOCK OPTIONS (Continued)
Option activity for 1997 is as follows:
<TABLE>
<CAPTION>
Price Per
Shares Share
---------- ------------
<S> <C> <C>
Outstanding at March 31, 1996.. 2,022,000 $1.275-3.61
Granted during 1997........... 1,190,000 $ .75-3.14
Exercised during 1997......... (725,000) $1.275-3.61
Expired during 1997........... (572,000) $ 1.70-3.61
----------
Outstanding at March 31, 1997.. 1,915,000
==========
</TABLE>
NOTE 11 - COMMITMENTS
On February 27, 1996, the Company obtained a credit line commitment from the
Dresdner Bank approximating $1,422,000 and a long term investment loan in the
amount of $6,703,000 for the fabrication, construction and installation of a
high temperature separating and melting facility on land located in Germany
acquired by the Company from the German State of Saxony. The commitments
require that the German government provide the Dresdner Bank with a surety bond
covering eighty-percent of the commitment, obtain the necessary approvals and
permits and meet certain financial covenants relating to working capital
requirements and debt to equity ratios. In connection with this financing
package, the Company will receive certain German governmental grants of
approximately $4,469,000. The grants do not have to be repaid and will be
utilized by the Company to install an HTV system in Freiberg, Germany.
The Company entered into a three phase contract with Radian Corporation on
September 27, 1996 to provide laboratory and pilot testing services in the first
two phases of the contract and design, locate, permit and build a commercial HTV
System in the third phase. Radian's prime contract with the United States Air
Force is for the evaluation for the construction of two High Temperature
Vitrification Technology Systems.
The Company entered into a contract with the Edison Materials Technology
Center to produce and evaluate new glass and ceramic products generated from
waste materials from Ohio industry. Phase I of the contract in the amount of
$100,000 provides for laboratory studies. Phase II of the contract in the
amount of $300,000 provides for continued evaluation, product optimization,
pilot studies and site selection for a Seiler pilot system in Ohio.
- 23 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
NOTE 11 - COMMITMENTS (Continued)
The Company entered into written employment agreements with Werner Heim
(President), Alan B. Sarko (Vice President), Gerold Weser (Vice President) and
Niklaus Seiler (Vice President). The agreements commenced January 1, 1996 and
expire five years thereafter and provide for base salaries of $150,000 per year
as well as certain additional bonuses based upon the Company reaching certain
levels which have not yet been attained. Mr. Heim, Mr. Sarko, Mr. Weser, and
Mr. Seiler have also been granted options to purchase up to 300,000; 300,000;
200,000 and 300,000 shares, respectively of the Company's common stock in
accordance with the terms and conditions of the Company's Non-Statutory Stock
Option Plans.
The Company purchased an option to acquire 100% of the registered shares of
Vetrotherm AG, Netstal. The option price of $167,920 was paid in 1994 and will
be applied toward the final purchase price. The actual purchase of the
registered shares and related price is contingent upon a final valuation of the
shares and receipt of certain approvals by regulatory authorities.
The Company entered into management consulting agreements with the three
principals of the Studdert Companies, Messrs. Studdert, Murdock, and Dudley.
The agreements were to be for the period from April 1, 1995 through March 31,
1996 (unless terminated on 30 day written notice) and provided for aggregate
annual compensation of $18,000 ($6,000 each) and further provided that Messrs.
Studdert, Murdock and Dudley be granted 70,000, 52,500 and 52,500 options,
respectively, to purchase Company common stock in accordance with the Company's
1994 Non-Statutory Stock Option Plan. The options were exercised in July, 1996
and the agreements were terminated in June 1995. The Company paid $1,500 through
June 30, 1995 to each of the individuals resulting in consulting fee expense of
$4,500 for the year ended March 31, 1996.
The Company entered into a financial advisory services agreement with
Sands Brothers and Company, Ltd. whereby the Company issued five year warrants,
with certain registration rights, to purchase shares of the Company's common
stock. The demand to register the warrants could not be requested prior to
November 1, 1996. On November 1, 1996 the warrants were converted into 500,000
stock options under the 1993 Non-Statutory Stock Option Plan.
The Company entered into a financial advisory service contract with
Ladenburg, Thalmann & Co., Inc. in February 1994 which expired January 31, 1995.
The Company was required to pay $5,000 towards out-of-pocket expenses and is
required to issue warrants to purchase 400,000 shares of the Company's common
stock at $6.50 per share which expire January 31, 1999.
The Company leases various office space in the United States, Switzerland
and Germany, all on a month-to-month basis. The total charges to operations for
the years ended March 31, 1997 and 1996 were $30,730 and $35,446, respectively.
- 24 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
- 25 -
<PAGE>
NOTE 12 - SEGMENT INFORMATION
The following table summarizes segment information by geographic area:
<TABLE>
<CAPTION>
United
States Switzerland Germany Consolidated
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Operating Loss for the year
ended March 31, 1997 $1,487,602 $3,825,045 $ 243,853 $ 5,556,500
========== =========== ========== =============
Identifiable Assets as of
March 31, 1997 $6,420,981 $9,547,455 $3,595,718 $19,564,154
========== =========== ========== =============
</TABLE>
General corporate expenses, miscellaneous income and expense have not been
allocated in arriving at operating losses.
Identifiable assets are those assets of the Company which can be identified
with the operations of each geographic area.
- 26 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
MARCH 31, 1995 AND 1994
-----------------------
- 27 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
MARCH 31, 1995 AND 1994
-----------------------
CONTENTS
--------
Page
----
Independent Auditors' Report 29
Consolidated Balance Sheets 30 - 31
Consolidated Statements of Operations 32
Consolidated Statements of Stockholders' Equity
(Deficiency) 33
Consolidated Statements of Cash Flows 34 - 35
Notes to Consolidated Financial Statements 36 - 45
- 28 -
<PAGE>
[LOGO OF BEDERSON & COMPANY]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Seiler Pollution Control Systems, Inc.
Dublin, Ohio
We have audited the accompanying consolidated balance sheets of Seiler Pollution
Control Systems, Inc. as of March 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The financial statements of Seiler Pollution Control Systems, Inc. as
of March 31, 1993 were audited by other auditors who have ceased operations and
whose report dated June 29, 1993 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Seiler
Pollution Control Systems, Inc. at March 31, 1995 and 1994 and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
BEDERSON & COMPANY
/s/ BEDERSON & COMPANY
June 28, 1995, except for Notes 1 and 3
to which the date is July 8, 1996
West Orange, New Jersey
- 29 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1995 AND 1994
-----------------------
<TABLE>
<CAPTION>
ASSETS
------
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 89,220 $ 40,047
Advances to supplier -- related party 6,661,676 7,971,197
Prepaid expenses and sundry receivables 35,514 31,797
----------- -----------
TOTAL CURRENT ASSETS 6,786,410 8,043,041
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Office furniture and equipment 35,133 11,188
Less: Accumulated depreciation 2,590 330
----------- -----------
NET PROPERTY AND EQUIPMENT 32,543 10,858
----------- -----------
OTHER ASSETS:
Licensing agreements, acquired from
stockholder, less accumulated amortization
of $543,379 (1995) and $226,046 (1994) 4,216,621 4,533,954
Deposits 18,013 -
Start up costs - 156,023
----------- -----------
TOTAL OTHER ASSETS 4,234,634 4,689,977
----------- -----------
TOTAL ASSETS $11,053,587 $12,743,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 30 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
MARCH 31, 1995 AND 1994
-----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of licensing agreement payable --
stockholder $ - $ 1,082,614
Loan payable -- stockholder 89,085 29,085
Cash overdraft 11,271 -
Accounts payable 68,675 62,467
Payroll taxes payable 1,134 4,396
Customer deposits - 5,079,000
Accrued officers' salaries - 33,038
Accrued interest -- stockholder 32,611 32,611
Accrued expenses 83,629 46,483
----------- -----------
TOTAL CURRENT LIABILITIES 286,405 6,369,694
----------- -----------
LONG-TERM DEBT:
Licensing agreement payable -- stockholder,
net of current portion 1,977,249 894,635
Loan payable -- officer 461,008 149,359
----------- -----------
TOTAL LONG-TERM DEBT 2,438,257 1,043,994
----------- -----------
MINORITY INTEREST 10,171 -
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value;
authorized 25,000,000 shares, issued
and outstanding 14,250,569 shares
at March 31, 1995 and 11,789,723 shares
at March 31, 1994 1,425 1,179
Additional paid-in capital 12,733,909 8,778,331
Accumulated deficit (5,552,955) (3,585,142)
Foreign currency translation adjustment 1,136,375 135,820
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,318,754 5,330,188
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,053,587 $12,743,876
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 31 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ---------
<S> <C> <C> <C>
REVENUE $ - $ - $ -
----------- ----------- --------
OPERATING EXPENSES:
Officers' salaries 416,056 125,493 21,250
Salaries -- other - 14,546 -
Payroll taxes 15,155 4,338 -
Directors' compensation 8,000 8,000 -
Advertising, promotional and selling 206,701 6,560 -
Consulting fees 198,770 336,229 -
Consulting fees -- related parties 108,083 1,671,707 -
Employee welfare 47,648 3,629 -
Insurance 26,966 501 -
Office expenses 53,551 13,582 -
Pension plan 8,415 1,875 -
Professional fees 133,073 65,494 3,000
Professional fees -- related party 215,516 114,393 6,120
Public relations 22,968 74,095 -
Rent 28,354 1,848 -
Research and development cost 50,881 30,973 -
Taxes 30,809 792 -
Telephone 5,683 946 -
Travel and entertainment 36,558 54,951 -
Depreciation 2,260 330 -
Amortization 317,333 226,046 -
Miscellaneous 46,731 25,736 -
----------- ----------- --------
TOTAL OPERATING EXPENSES 1,979,511 2,782,064 30,370
----------- ----------- --------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND PROVISION FOR INCOME TAXES (1,979,511) (2,782,064) (30,370)
----------- ----------- --------
OTHER INCOME (EXPENSES):
Interest income 73 6,399 -
Interest expense -- related party - (123,709) -
Foreign currency loss - (333) -
----------- ----------- --------
TOTAL OTHER INCOME (EXPENSES) 73 (117,643) -
----------- ----------- --------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST (1,979,438) (2,899,707) (30,370)
PROVISION FOR INCOME TAXES - - -
----------- ----------- --------
LOSS BEFORE MINORITY INTEREST (1,979,438) (2,899,707) (30,370)
MINORITY INTEREST 11,625 - -
----------- ----------- --------
NET LOSS $(1,967,813) $(2,899,707) $(30,370)
=========== =========== ========
LOSS PER COMMON SHARE $(.15) $(.36) $(.04)
=========== =========== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,065,659 8,098,573 770,734
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of
these financial statements.
- 32 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED STATEMENTS OF
--------------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
<TABLE>
<CAPTION>
Foreign
Additional Currency
Common Stock Paid-in Accumulated Translation
----------------------
Shares Amount Capital Deficit Adjustment Total
------------ -------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1992 700,023 $ 70 $ 393,190 $ (655,065) $ - $ (261,805)
YEAR ENDED MARCH 31, 1993:
Issuance of restricted shares of common stock
for accrued officer salary, rent and officer
advances 35,000 4 220,615 - - 220,619
Issuance of restricted shares of common stock
for accrued legal fees 50,000 5 24,995 - - 25,000
Issuance of restricted shares of common stock
for officer salary 35,000 3 21,247 - - 21,250
Net loss for the year - - - (30,370) - (30,370)
---------- ------ ----------- ----------- ---------- -----------
BALANCE, MARCH 31, 1993 820,023 82 660,047 (685,435) - (25,306)
YEAR ENDED MARCH 31, 1994:
Issuance of restricted shares of common stock
for officers' and directors' salaries 35,000 3 27,997 - - 28,000
Issuance of restricted shares of common stock
for legal fees 40,000 4 24,302 - - 24,306
Issuance of common stock for cash 10,169,700 1,017 6,616,058 - - 6,617,075
Issuance of common shares under stock option
plan for consulting fees 315,000 32 629,968 - - 630,000
Issuance of common stock for consulting fees 410,000 41 819,959 - - 820,000
Foreign currency translation adjustment - - - - 135,820 135,820
Net loss for the year - - - (2,899,707) - (2,899,707)
---------- ------ ----------- ----------- ---------- -----------
BALANCE, MARCH 31, 1994 11,789,723 1,179 8,778,331 (3,585,142) 135,820 5,330,188
YEAR ENDED MARCH 31, 1995:
Issuance of common shares under stock
option plan for cash 38,000 4 67,896 - - 67,900
Issuance of common stock for cash 2,422,846 242 3,887,682 - - 3,887,924
Foreign currency translation adjustment - - - - 1,000,555 1,000,555
Net loss for the year - - - (1,967,813) - (1,967,813)
---------- ------ ----------- ----------- ---------- -----------
BALANCE, MARCH 31, 1995 14,250,569 $1,425 $12,733,909 $(5,552,955) $1,136,375 $ 8,318,754
========== ====== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 33 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,967,813) $(2,899,707) $ (30,370)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization 319,593 226,376 -
Operating expenses through issuance
of restricted common stock --
related parties - 52,306 265,669
Operating expenses through issuance
of common stock -- related parties - 1,450,000 -
Foreign currency translation 1,011,016 146,568 -
Minority interest 10,171 - -
(Increase) decrease in operating assets:
Advances to supplier -- related party 1,309,521 (7,971,197) -
Prepaid expenses and sundry receivables (3,717) (31,797) -
Deposits (18,013) - -
Start up costs 156,023 (156,023) -
Increase (decrease) in operating liabilities:
Cash overdraft 11,271 - -
Accounts payable 6,208 37,161 (15,880)
Payroll taxes payable (3,262) 4,396 -
Customer deposits (5,079,000) 5,079,000 -
Accrued officers' salaries (33,038) 33,038 (24,425)
Accrued interest -- stockholder - 32,611 -
Accrued expenses 37,146 46,483 (194,994)
----------- ----------- ---------
NET CASH USED BY OPERATING ACTIVITIES (4,243,894) (3,950,785) -
----------- ----------- ---------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Acquisition of property and equipment (23,945) (11,188) -
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term
borrowings -- stockholder - (2,782,751) -
Proceeds from issuance of common stock 3,955,824 6,617,075 -
Proceeds from stockholder loan 60,000 45,000 -
Principal payments of stockholder loan - (15,915) -
Proceeds from officer loan 311,649 149,359
Decrease in related party loans - - (1,200)
Issuance of restricted common stock
for related party loan - - 1,200
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,327,473 4,012,768 -
----------- ----------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,461) (10,748) -
----------- ----------- ---------
NET INCREASE IN CASH 49,173 40,047 -
CASH, beginning of year 40,047 - -
----------- ----------- ---------
CASH, end of year $ 89,220 $ 40,047 $ -
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
- 34 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEARS ENDED MARCH 31, 1995, 1994 AND 1993
-----------------------------------------
(Continued)
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest - stockholder $ - $ 91,098 $ -
--------- ---------- ---------
Income taxes $ - $ - $ -
--------- ---------- ---------
NON-CASH OPERATING ACTIVITIES:
Issuance of restricted common stock
for officers and directors salaries $ - $ 28,000 $216,244
Issuance of restricted common stock for rent - - 24,425
Issuance of restricted common stock
for legal fees - stockholder - 24,306 25,000
Issuance of common stock exercised
under stock option plan for
consulting fees - 630,000 -
Issuance of common stock for consulting
fees - 820,000 -
--------- ---------- ---------
TOTAL NON-CASH OPERATING ACTIVITIES $ - $1,502,306 $265,669
--------- ---------- ---------
NON-CASH FINANCING ACTIVITIES:
Issuance of restricted common stock for
related party loan $ - $ - $ 1,200
Acquisition of licensing agreements for
long-term notes payable - stockholder - 4,760,000 -
--------- ---------- ---------
TOTAL NON-CASH OPERATING ACTIVITIES $ - $4,760,000 $ 1,200
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 35 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- - ------ ------------------------------------------
Organization and Business
-------------------------
The Company was incorporated under the laws of the State of Delaware on
April 11, 1983 as World Imports -- USA, Inc. The Company's initial
business plans were unsuccessful, and on July 1, 1993, it changed its
name to Seiler Pollution Control Systems, Inc. The Company presently is
a toxic waste disposal concern which acquired the rights to a
technology called High Temperature Vitrification which treats a
potentially wide variety of waste products. The Vitrification process
transforms hazardous waste into non-toxic substances which can either
be stored in a non-hazardous waste landfill or be recycled.
Principles of Consolidation
---------------------------
The consolidated financial statements include Seiler Pollution Control
Systems, Inc., its wholly owned subsidiary (incorporated in Delaware),
Seiler Pollution Control Systems International, Inc., the latter's
wholly owned subsidiary (incorporated in Switzerland), Seiler SEPC AG,
and it's majority (90%) owned subsidiary (incorporated in Germany),
Seiler Trenn-Schmeizanlagen Betriebs GmbH. The statements reflect the
financial position, results of operations and cash flows of Seiler
Pollution Control Systems, Inc. and its wholly owned and majority owned
subsidiaries as a single entity. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Basis of Accounting
-------------------
The Company maintains its records on the accrual basis of accounting.
Income is recorded when earned and expenses are recorded when incurred.
Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation of property
and equipment is provided for over the estimated useful lives of the
respective assets. Depreciation is recorded based on the straight-line
method over estimated useful lives of five (5) years.
Maintenance, repairs, and minor renewals are charged to earnings when
they are incurred. When assets are retired or otherwise disposed of,
the assets and related allowance for depreciation and amortization are
eliminated from accounts and any resulting gain or loss is reflected in
income.
Licensing Agreements
--------------------
Licensing agreements are stated at fair value (cost less imputed
interest) less accumulated amortization. Amortization is computed by
the straight-line method over an estimated life of fifteen (15) years.
Research and Development
------------------------
Cost associated with research, new product development, and product
cost improvements are treated as expense when incurred. Research and
development cost charged to operations for the years ended March 31,
1995, 1994 and 1993 were $50,881, $30,973 and $-0-, respectively.
- 36 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- - ------ ------------------------------------------
Loss Per Common Share
---------------------
Loss per common share is computed by dividing the net loss for the year
by the weighted average number of shares of Common Stock outstanding
during the year.
Reclassifications
-----------------
Certain reclassifications have been made to prior year's financial
statements to conform to the March 31, 1995 presentation.
Expenses Related to Sales and Issuance of Securities
----------------------------------------------------
All costs incurred in connection with the sale of the Company's Common
Stock have been capitalized and charged to additional paid-in capital.
Foreign Currency Translation
----------------------------
Assets and liabilities of subsidiaries operating in foreign countries
are translated into U.S. dollars using the exchange rate in effect at
the balance sheet date. Results of operations are translated using the
average exchange rates prevailing throughout the year. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in stockholders' equity,
while gains and losses resulting from foreign currency transactions are
included in operations.
Restatement
-----------
The 1995 and 1994 financial statements have been restated due to a
change in the Company's policy regarding amortization of the licensing
agreements, the reclassification of certain research and development
cost and reclassification of foreign currency losses. The Company has
decided to amortize the licensing agreements from date of acquisition
rather than from the date of its initial sale of its first system.
Certain research and development costs were previously capitalized
rather than charged to operations. Certain foreign translation
adjustments were previously charged to operations rather than to
stockholders' equity. The effect of these changes increased the net
loss by $187,115 in 1995 and $223,876 in 1994. Loss per common share
increased by $.01 for 1995 and $.03 for 1994.
NOTE 2 - ADVANCES TO SUPPLIERS
- - ------ ---------------------
The Company has advanced, to it's sole supplier, Seiler Hochtemperatur-
Trennanlagen AG, a related party, the sum of $5,139,084 directly and on
it's behalf, $1,522,592 to other unrelated suppliers towards the
purchase of it's initial High Temperature Vitrification System. A
principal stockholder of Seiler Hochtemperatur-Trennanlagen AG is a
member of the Company's Board of Directors.
- 37 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 3 - LICENSING AGREEMENTS
- - ------ --------------------
The Company entered into two separate licensing agreements in July of
1993 with Maxon Finance and Trade Ltd., S.A., a stockholder of the
Company, and a corporation organized under the laws of Switzerland. The
agreements, as amended in March of 1994, are for an exclusive field-of-
use license to use the proprietary information, including the patent
rights, worldwide for the High Temperature Vitrification System. The
agreements required a one time licensing fee of $5,000,000. This fee
has been discounted at 7% for imputed interest of $240,000 resulting in
a net capitalized cost of $4,760,000. These agreements are for an
indefinite term or until all of the proprietary information becomes
public knowledge and the patent rights expire. Amortization expense for
the years ended March 31, 1995 and 1994 were $317,333 and $226,046,
respectively.
NOTE 4 - TROUBLED DEBT RESTRUCTURING
- - ------ ---------------------------
Maxon Finance and Trade Ltd., SA modified it's note agreement terms
with the Company in February 1995 (see Notes 3 and 5) by extending the
payment terms to December 31, 2000. This modification reduced the
effective interest rate from 7%, per the original agreement, to 1.6%.
NOTE 5 - LICENSING AGREEMENTS PAYABLE
- - ------ ----------------------------
Licensing agreements payable, Maxon Finance and Trade Ltd., S.A., a
Swiss Corporation, due December 31, 2000 (See Notes 3 and 4), and
require payments as follows:
<TABLE>
<CAPTION>
<S> <C>
June 30, 1996 $ 127,721
December 31, 1996 185,159
June 30, 1997 186,645
December 31, 1997 188,142
June 30, 1998 189,652
December 31, 1998 191,174
June 30, 1999 192,708
December 31, 1999 194,254
June 30, 2000 195,813
December 31, 2000 325,981
----------
TOTAL $1,977,249
==========
Annual maturities are as follows:
Year Ended
March 31,
----------
1996 $ -
1997 312,880
1998 374,787
1999 380,826
2000 386,962
2001 521,794
----------
TOTAL $1,977,249
==========
</TABLE>
- 38 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 7 - LOAN PAYABLE - OFFICER
- - ------ ----------------------
Werner Heim, President and Chairman of the Board of Directors, has
advanced the Company monies which are unsecured, non-interest bearing
loans payable upon future mutual agreement of the parties. The balances
at March 31, 1995 and 1994 were $461,008 and $149,359, respectively.
NOTE 8 - INCOME TAXES
- - ------ ------------
The Company adopted Statement of Financial Accounting Standard 109
("SFAS"). SFAS 109 provides for an asset and liability approach to
accounting for income taxes that require the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns.
In estimating future consequences, SFAS 109 generally considers all
expected future events other than proposed changes in the tax law or
rates prior to enactment.
Deferred income taxes recorded in the balance sheets at March 31, 1995
and 1994, after adoption of SFAS 109, includes a deferred tax asset
related to net operating loss carryforwards of approximately $4,200,000
and $2,825,000, respectively, which have been fully offset by a
valuation allowance. The valuation allowance has been established equal
to the full amount of the deferred tax asset, as the Company is not
assured that it is more likely than not that these benefits will be
realized.
For the years ended March 31, 1995, 1994 and 1993 there was no
provision for current and deferred federal, state or foreign income
taxes.
A reconciliation between the statutory federal income tax rate (34%)
and the effective income tax rates based on continuing operations is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Statutory federal income tax
(benefit) $(468,684) $(960,698) $(3,100)
Benefit not recognized on
operating loss - - 3,100
Valuation allowance 468,684 960,698 -
--------- --------- --------
TOTAL TAX PROVISION $ - $ - $ -
========= ========= ========
</TABLE>
The Company has unused Federal net operating loss carryforwards at
March 31, 1995 of approximately $4,200,000, which expire through March
31, 2010, if not fully utilized.
- 39 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 9 - MINORITY INTEREST
- - ------ -----------------
Minority interest represents a 10% interest in Seiler Trenn-
Schmeizanlagen Betriebs GmbH, a subsidiary of Seiler SEPC AG.
NOTE 10 - COMMON STOCK
- - ------- ------------
On July 8, 1993 the Company effectuated a 1 for 100 reverse stock
split to its then outstanding 84,002,000 shares of Common Stock so
that immediately subsequent thereto, the number of Company shares
outstanding was 840,023 shares.
The accompanying financial statements reflect the retroactive effect
of the reverse stock split, where applicable.
NOTE 11 - CERTIFICATE OF INCORPORATION
- - ------- ----------------------------
On October 31, 1994, the Company amended it's Certificate of
Incorporation, reducing the total number of shares of Common Stock
authorized from 250,000,000 to 25,000,000 shares.
NOTE 12 - ISSUANCE OF COMMON STOCK FOR CASH
- - ------- ---------------------------------
The Company issued 2,460,846 shares of Common Stock for $4,485,327
less commissions of $529,503 during the fiscal year ended March 31,
1995, and 10,169,700 shares of Common Stock for $6,842,500 less
commissions of $225,425 during the fiscal year ended March 31, 1994.
NOTE 13 - PENSION PLAN
- - ------- ------------
The Company, on January 1, 1994, adopted a Simplified Employee Pension
Plan (SEP) for the benefit of its eligible employees. The plan enables
the employee to contribute up to a maximum of 10% of their base salary
through a salary reduction and requires the Company to make a 5%
contribution. For the years ended March 31, 1995 and 1994, the Company
has charged to operations $8,415 and $1,875, respectively.
NOTE 14 - STOCK OPTIONS
- - ------- -------------
In 1993 and 1994, the Board of Directors adopted Non-Statutory Stock
Option Plans and reserved 1,000,000 and 500,000 shares, respectively,
for issuance to key employees or consultants. Options are non-
transferrable and are for a term of not more than ten (10) years from
the grant date. The options are issuable in such amounts and at such
prices as determined by the Board of Directors, except that each
option price will not be less than eighty-five (85%) percent of the
fair market value of such shares on the date the options are granted.
- 40 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 14 - STOCK OPTIONS (Continued)
- - ------- -------------
The following table summarizes Common Stock options outstanding as at
March 31, 1995:
<TABLE>
<CAPTION>
Price Per Shares Shares Shares
Date Granted Share Granted Exercised Outstanding
------------------ --------- --------- --------- -----------
1993 Stock Option Plan:
-----------------------
<S> <C> <C> <C> <C>
June 14, 1993 $ 2.00 345,000 326,000 19,000
June 30, 1993 $ 1.70 55,000 27,000 28,000
September 30, 1993 $ 3.61 600,000 - 600,000
--------- ------- -------
TOTAL OUTSTANDING 1,000,000 353,000 647,000
========= ======= =======
1994 Stock Option Plan:
-----------------------
March 1, 1995 $ 1.275 325,000 - 325,000
========= ======= =======
</TABLE>
NOTE 15 - COMMITMENTS
- - ------- -----------
The Company entered into a consulting agreement with Rolcan Finance,
Ltd. for a term of one year expiring June 20, 1994. The agreement
required payment for services rendered in the amount of 460,000 shares
of the Company's Common Stock. For the years ended March 31, 1995 and
1994, -0- and 410,000 shares, respectively, were issued for services
rendered.
The Company entered into a consulting agreement with Berkshire
International Finance, Inc. ("Berkshire") for a term of one year,
expiring June 11, 1994. The Company was required to pay $630,000 plus
$10,000 per month over the terms of the agreement. The Company issued
to Berkshire International Finance, Inc. options to purchase 315,000
shares of the Company's Common Stock at $2.00 per share. The option
price will be applied against fees due Berkshire upon the exercising
of options. Berkshire exercised all of its options to purchase 315,000
shares. (See Note 14). The agreement required Berkshire to provide
certain business consulting services, maintain an office at its
facility in Jersey City, New Jersey, and provide the necessary office
services until such time as new corporate offices are established and
Berkshire's services are concluded. The terms of this agreement were
amended effective January 1994 reducing the monthly fee from $10,000
to $5,000 per month.
- 41 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 15 - COMMITMENTS (Continued)
- - ------- -----------
The Company entered into a written employment agreement with Arthur J.
Helmstetter, its Chief Executive Officer and President, which
agreement commenced December 1, 1993. The agreement provides the
Company's President with a base annual salary of $150,000 as well as a
five percent annual cost of living increase and an annual bonus of 3%
of Company pre-tax profits and a further annual bonus of one-fourth of
one percent of Company gross revenues. The Company's President has
also been granted options to purchase up to 200,000 shares of the
Company's Common Stock in accordance with the terms and conditions of
the Company's 1993 and 1994 Non-Statutory Stock Option Plan (See Note
14). Mr. Helmstetter resigned his office on February 28, 1995.
The Company entered into a written employment agreement with Alan B.
Sarko, Vice President, which agreement commenced March 1, 1995 and
expires two years thereafter. The agreement provides for a base salary
of $90,000 per year as well as certain additional bonuses based upon
the Company reaching certain levels which have not yet been attained.
The Company's Vice-President has also been granted options to purchase
up to 100,000 shares of the Company's Common Stock in accordance with
the terms and conditions of the Company's 1994 Non-Statutory Stock
Option Plan (See Note 14).
Seiler SEPC AG, the Company's wholly owned Swiss subsidiary, entered
into a written agreement with its President, Paul Schmidhauser,
pursuant to which Mr. Schmidhauser is to receive Sfr. 15,000 per month
(each Sfr. currently being equivalent to approximately $1.13 U.S.
dollars) as well as certain bonus provisions. Mr. Schmidhauser has
also been granted options to purchase up to 150,000 shares of the
Company's Common Stock at $3.6125 per share in accordance with the
terms and conditions of the Company's Non-Statutory Stock Option Plan
(See Note 14). Mr. Schmidhauser resigned his office on January 1,
1995.
On October 6, 1993 the Company entered into a consulting agreement
with Sands Brothers & Co., Ltd., a member of the New York Stock
Exchange ("Sands Brothers") which agreement provided for the
engagement of Sands Brothers as the Company's financial advisor and
consultant with respect to corporate finance, mergers and acquisitions
and financial service matters for a period of three (3) years. In
addition to providing for certain monetary compensation, Sands
Brothers was to receive (A) transaction fees and an equity
participation in the surviving entity of any acquisition transaction,
and (B) certain financial fees in the event of the consummation of
defined financing transactions through any third party financing
source introduced by Sands Brothers. The agreement further provides
Sands Brothers with certain rights of first refusal with respect to
the underwriting or placement of the Company's future public or
private financing of debt or equity securities and gives Sands
Brothers the right to designate a member to the Company's Board of
Directors. Further, the
- 42 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 15 - COMMITMENTS (Continued)
- - ------- -----------
agreement provided Sands Brothers with the potential for an equity
participation in the Company through the proposed issuance to Sands
Brothers of five (5) year Warrants (with certain registration rights)
to purchase restricted shares of the Company's Common Stock. As a
result of certain disputes and differences that have arisen between
the Company and Sands Brothers, the original agreement has been
amended as of December 3, 1994, as follows:
a. The financial advisory and consulting agreements were cancelled
in exchange for a $25,000 payment to Sands Brothers for full and
complete settlement thereof and,
b. The warrant agreements were modified and amended so that demand
rights to register shares of the Company's Common Stock, which
underlie the Warrants, cannot be demanded prior to November 1,
1996 nor may the Warrants be exercised prior to November 1,
1995.
The Company entered into a financial advisory service contract with
Ladenburg, Thalmann & Co., Inc. in February 1994. The effective date
of this contract was February 1, 1994 and expired January 31, 1995.
The Company was required to pay $5,000 towards out-of-pocket expenses
and is required to issue Warrants to purchase 400,000 shares of the
Company's Common Stock at $6.50 per share. These Warrants will expire
January 31, 1999.
The Company leases various office space in the United States,
Switzerland and Germany, all on a month-to-month basis. The total
charges to operations for the years ended March 31, 1995 and 1994 were
$28,354 and $1,848, respectively.
NOTE 16 - RELATED PARTY TRANSACTIONS
- - ------- --------------------------
The Company's past President converted accrued rent, salaries, and
cash advances due him for 70,000 shares of the Company's restricted
common stock during the fiscal year ended March 31, 1993.
<TABLE>
<CAPTION>
Dates
------------------------------
May 6, 1992 December 17, 1992 Total
----------- ----------------- --------
<S> <C> <C> <C>
Accrued rent $ 24,425 $ - $ 24,425
Accrued salary 194,994 21,250 216,244
Advances 1,200 - 1,200
-------- -------- --------
$220,619 $ 21,250 $241,869
======== ======== ========
</TABLE>
The Company acquired two licensing agreements for $5,000,000 including
imputed interest (see Note 4) from Maxon Finance and Trade Ltd., S.A.
who owns 2,000,000 shares of the Company's outstanding shares of
Common Stock, representing an approximate 17% ownership interest. The
Company has paid $2,871,405 of which $121,255 has been charged to
operations, and $2,128,595 remains outstanding at March 31, 1995
including imputed interest.
- 43 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 16 - RELATED PARTY TRANSACTIONS (Continued)
- - ------- --------------------------
Certain former officers of the Company received restricted Common
Stock in July 1993 for services rendered as follows:
<TABLE>
<CAPTION>
Shares Amount
------ --------
<S> <C> <C>
Michael Castoro 15,000 $12,000
John Posteraro 10,000 8,000
Kathleen Histon 10,000 8,000
------ -------
TOTAL 35,000 $28,000
====== =======
</TABLE>
The former officers indicated above are/or were employees of Berkshire
International Finance, Inc. (See Note 15). The Company has charged to
operations, for the years ended March 31, 1995 and 1994, $20,000 and
$720,000, respectively, for consulting services.
In October 1993 the Company entered into a written management
consulting agreement with the Studdert Companies ("SC"), whose
President, Stephen M. Studdert, formerly served on the Company's Board
of Directors as Vice Chairman (resigned March 17, 1995). In accordance
with the terms of the agreement SC is required to provide and has been
providing consulting services to the Company in the areas of marketing
strategies, governmental affairs and regulation and general corporate
matters. The Company paid SC a retainer fee upon execution of the
agreement and is obligated to pay a monthly retainer fee of $10,000.
The Company has charged to operations for the years ended March 31,
1995 and 1994 $88,083 and $75,000, respectively, for consulting
services. The management consulting agreement was terminated and
replaced with three (3) separate consulting agreements, each dated
March 1, 1995, with the three (3) principal's of the Studdert
Companies, Messrs. Studdert, Murdock and Dudley. Such new agreements
which were to be for the period April 1, 1995 through March 31, 1996
(unless terminated on 30 day written notice) provided for aggregate
annual compensation of $18,000 ($6,000 each) and further provided that
Messrs. Studdert, Murdock and Dudley be granted 70,000, 52,500 and
52,500 options, respectively, to purchase Company Common Stock in
accordance with the Company's 1994 Non-Statutory Stock Option Plan.
The Company charged to operations $215,516, $114,393 and $6,120 in
legal fees in 1995, 1994 and 1993, respectively, for services rendered
by a stockholder.
The Company charged to operations in 1994 $123,709, representing
interest in connection with the licensing agreement with Maxon Finance
and Trade Ltd., S.A. (See Note 3).
- 44 -
<PAGE>
SEILER POLLUTION CONTROL SYSTEMS, INC.
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1995, 1994 AND 1993
-----------------------------
NOTE 17 - SUBSEQUENT EVENTS
- - ------- -----------------
On April 6, 1995, the Company sold 800,000 shares of its Common Stock
for $880,000.
On May 15, 1995, the Company sold 1,200,000 shares of its Common Stock
for $1,320,000.
In June 1995, 175,000 options were exercised under the 1994 Non-
Statutory Stock Option Plan with the Company receiving an aggregate of
$230,000.
On May 11, 1995, Paul Schmidhauser (former President of the Company's
wholly-owned Swiss subsidiary, Seiler SEPC AG) waived all rights
granted to him with respect to the Company's 1993 Non-Statutory Stock
Option Plan and the 150,000 options previously granted to him,
thereunder.
- 45 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
---------------------
There were no disagreements between the Company and Schneider Downs & Co.,
Inc. on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope procedure.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -------- --------------------------------------------------
The Directors and Executive Officers of the Company, as of March 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Name and Address Position(s) Held Age
- - ---------------------------------------- ----------------------------------------- ---
<S> <C> <C>
Werner Heim Chairman of the Board, 64
Witikoenstrasse 311B President
CH-8053 President; SEPC AG
Zurich, Switzerland
Alan B. Sarko Vice President; North American Operations 49
Seiler Pollution Control Systems, Inc. Chief Financial Officer
555 Metro Place North Secretary
Dublin, Ohio, USA 43017 Treasurer
Director
Dr. Gerold Weser* Vice President; European Operations 51
Seiler TSB GmbH President; Seiler TSB GmbH
Amst. Niclas Schacht 13
D-09599
Freiberg, Germany
Niklaus Seiler Vice President; System Research Development 59
Seiler HT AG President; Seiler HT AG
Steiacher Director
CH-5312
Dottingen, Switzerland
</TABLE>
___________________
*Subsequent to March 31, 1997, Dr. Weser was nominated to serve on the Board of
Directors.
Directors are elected to serve until the next annual meeting of
shareholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of shareholders and until their successors
have been elected and have qualified.
- 46 -
<PAGE>
Werner Heim has been Chairman of the Board since June 1993 and President since
March 1995. Mr. Heim is a Swiss national and he currently serves as President
of SEPC AG, a position he has held since it was founded in November 1993. Mr.
Heim's experience in international business development spans more than 30
years. From 1963 to 1971, Mr. Heim was employed by Friden Computer, which
merged into Singer Corporation, where he served as Vice President. In 1971, Mr.
Heim founded Swimex, a Swiss company that provided building materials and
consulting services. In 1978, Swimex was sold to management. That same year,
Mr. Heim founded Petrotech Holding AG, a holding company for businesses engaged
in oil recovery and microbial waste processing. At the same time, Mr. Heim was
a principal in MBR Bioreactor and he continued his association with both
companies until 1988. From 1988 to 1991, Mr. Heim was Chairman of Biopore; a
United States based company involved in a joint venture that centered on
microfiltration research and development. From 1991 to 1993, Mr. Heim was an
Industrial/Business Development Consultant for the following companies:
Clearwater Ltd., a firm engaged in biological clean-up of oil spills; Seiler
SHT, a firm engaged in high temperature waste vitrification; Set AG, a firm
specializing in insulating, security and high temperature glass production; and
ASI Artificial Sensing Instruments, a firm engaged in bioprocess control and
related activities. In May 1995, Mr. Heim became Director of Swissray
International, Inc., a public company trading under the symbol SRMI which
engaged through its wholly owned subsidiary SR-Medical AG in the business of
diagnostic x-ray medical equipment.
Mr. Heim received a Diploma in Economic Studies from School of Economics, St.
Gallen, in 1956 and conducted post-graduate studies in 1957 at HEC in Paris.
Subsequently, Mr. Heim was Assistant at Institute of Economics in Switzerland,
then appointed to be a full-time member of the Planning Board of the University
of Zurich. Mr. Heim currently devotes a substantial portion of his business
time to the ongoing business affairs of Seiler and intends to continue active
involvement on a daily basis for the foreseeable future.
Alan B. Sarko has served as Vice President of North American Operations since
March 1995. That same year, he also became a Director of the Company. In May
1996, Mr. Sarko was appointed Secretary, Treasurer and Chief Financial Officer
of Seiler. Mr. Sarko joined the Company in February 1994 as Director of
Marketing. Before joining Seiler, Mr. Sarko worked for 10 years as Director of
Marketing and Environmental Compliance for Inorganic Recycling Corporation.
From 1973 until 1984, Mr. Sarko was Chief Executive Officer and Administrator of
Sarko Equipment, Inc., a Midwestern industrial demolition contractor.
Mr. Sarko received a Bachelor of Arts Degree from Michigan State University in
1969 and his Juris Doctorate from Detroit College of Law in 1972. He has also
received Certificates of Completion for various post graduate courses in the
field of hazardous waste management. Mr. Sarko devotes his full time and best
efforts to the Company's business activities.
Niklaus Seiler has been a Director of the Company since 1984 and Vice President
of System Research Development since 1996. Currently, Mr. Seiler also serves as
President and Chief Executive Officer of Seiler Patent AG, a company involved in
development and operation of vitrification systems for waste processing. In
1993, Mr. Seiler founded and became a Director of Seiler HT AG. Mr. Seiler has
also been professionally associated with two other companies he founded: N & H
Seiler Pumpenbau, 1974-1993, and Seiler Montageunternehmon, 1969-1974.
With more than 30 years of technical/scientific experience with mechanical and
thermochemical systems, Mr. Seiler's accomplishments include personally
developing sludge pumping systems, contact dryers and incineration equipment.
Mr. Seiler holds Swiss Patent #680656, October 15, 1992, High Temperature
Vitrification System, which provides the basis for the proprietary Seiler
System. Mr. Seiler devotes such time as he deems reasonable and necessary to
the Company's business affairs and research.
- 47 -
<PAGE>
Dr. Gerold Weser has been Vice President of European Operations since January
1996, having joined the Company in January 1995. He became a Director of the
Company in May 1997. Currently, Dr. Weser serves as President of STSB GmbH.
From 1993 until he began his association with Seiler, Dr. Weser was Chief
Executive Officer and Administrator of Dr. Weser & Partner. From 1990 to 1993,
Dr. Weser served as Managing Director of Centralsug, Hamburg/Stockholm, Sweden.
Dr. Weser received Vordiploma (B.A.) in Chemistry and Physics from Technical
University of Karlsruhe in 1969. Subsequently, Dr. Weser received a Diploma in
Chemistry from the University of Oxford, England, and a Diploma in Physics from
the University of Marburg, Germany. In 1978, he received his Dr. Rer. Natl.
(Ph.D.) from the Institute for Physical Chemistry, University of Marburg. From
1978 to 1990, Dr. Weser worked for various companies engaged in environmental
processing, handling, recycling and management. Dr. Weser devotes his full
time and best efforts to the Company's business activities.
ITEM 11. EXECUTIVE COMPENSATION
- - ------- ----------------------
Board of Directors Fees
- - -----------------------
Except as noted, for the fiscal year ended March 31, 1997, members of the
Board of Directors did not receive any fees for attending meetings of the Board
of Directors. The Company's policy is to reimburse Board members for their
expenses incurred to attend Board meetings. Officers of the Company who are
also Directors do not receive any fees.
Executive Compensation
- - ----------------------
The following table sets forth information concerning the Chief Executive
Officer of the Company and the Company's executive officers whose total annual
salary and bonus exceeded $100,000 for the fiscal year ended March 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------- ----------------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year(1) Salary Compensation(6) Options (#) Compensation(7)
- - --------------------------- ------------ ------------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Werner Heim, Chairman 1997 $150,000 - - -
CEO, President (2) 1996 150,000 - 300,000 -
1995 121,002 - - -
Alan B. Sarko, Vice 1997 150,000 - - 7,500
President, CFO, 1996 105,000 - 200,000 5,250
Secretary, Treasurer (3)
Gerold Weser, Vice 1997 150,000 - - -
President (4)
Niklaus Seiler, Vice 1997 150,000 - - -
President (5)
</TABLE>
- 48 -
<PAGE>
(1) For the fiscal year ended March 31 of the year listed below.
(2) Became an executive officer in August 1994.
(3) Became an executive officer in March 1995.
(4) Became an executive officer in January 1996.
(5) Became an executive officer in June 1996.
(6) Individual amounts are not material.
(7) Pension benefits.
Option Exercises & Values
- - -------------------------
None of the persons identified in the Summary Compensation Table above were
granted any stock options during the fiscal year ended March 31, 1997. Stock
options which remained unexercised as of March 31, 1997, and the value of these
unexercised in-the-money options as of the same date for each executive officer
named in the Summary Compensation Table are given in the table below.
Potential Realizable Value
At Assumed Annual Rates
Of Stock Price Appreciation
Individual Grants For Option Term (2)
----------------- ---------------------------
<TABLE>
<CAPTION>
# of % of
Securities Total
Underlying Options Exercise
Options Granted in Price
Name Granted (1) Fiscal Year ($/Share) Expiration Date 5% 10%
- - ---------------- ---------- ----------- -------- --------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Werner Heim 300,000 20 $2.10 12/31/2002 363,011 682,727
Alan B. Sarko 300,000 20 $2.10 12/31/2002 306,726 570,338
Gerold Weser 200,000 20 $2.10 12/31/2002 242,007 455,151
Niklaus Seiler 200,000 20 $2.10 12/31/2002 242,007 455,151
Niklaus Seiler 100,000 10 $1.65 12/31/2001 82,599 147,439
</TABLE>
(1) Non-qualified options were granted at 85% of fair market value on the date
of grant.
(2) The potential realizable value of each grant of options assuming that the
market price of the underlying security appreciates in value from the date
of grant to the end of the option term, is presented at the indicated
annualized rates. The assumed growth rates in price in the Company's stock
are not necessarily indicative of actual performance that may be expected.
The amounts are net of the cost by the executive to exercise such options.
- 49 -
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End (2)
-------------------------- ----------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized (1) Unexercisable Unexercisable
- - --------------- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Werner Heim - - 300,000/0 316,875/0
Alan B. Sarko - - 300,000/0 398,875/0
Gerold Weser - - 200,000/0 211,250/0
Niklaus Seiler - - 300,000/0 361,875/0
- - ----------------------
</TABLE>
(1) Represents the difference between the fair market value of the securities
underlying the options and the exercise price of the options on the date of
exercise.
(2) Represents the difference between the fair market value of the securities
underlying the options and the exercise price of the options at March 31,
1997. The average of the high and low trading price on March 31, 1997 was
$3.15625.
Retirement Plan
- - ---------------
On January 1, 1994, Seiler adopted a Simplified Employee Pension Plan (SEP)
for the benefit of eligible employees. The SEP enables an employee to
contribute up to a maximum of 10% of base salary through a salary reduction and
requires the Company to make a contribution equal to 5% of the employee's base
salary. Amounts contributed by the Company under the SEP to officers of the
Company are contained in the Summary Compensation Table.
Employment Contracts, Terminations of Employment, and Changes in
- - ----------------------------------------------------------------
Control Agreements
- - ------------------
As reported in the Company's quarterly report ended June 30, 1996, Seiler
entered into employment agreements dated June 29, 1996, with Werner Heim, Alan
B. Sarko, Niklaus Seiler and Gerold Weser. The complete agreements were
reproduced in the quarterly report cited and the description is hereby
incorporated by reference.
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
The Company has no compensation committee; rather the Company's Board of
Directors performs the functions that would otherwise be performed by a
compensation committee. Mr. Heim, chairman of the board and president of the
Company, Mr. Sarko, vice president, chief financial officer, secretary and
treasurer of the Company, and Mr. Niklaus Seiler, Vice President, serve on the
Company's Board of Directors. Dr. Weser, Vice President, will serve on the
compensation committee when his nomination to the Board of Directors is
ratified. As members of the Board and in view of the fact that the Company does
not have a compensation committee, Messrs. Heim, Sarko and Seiler currently
participate and Dr. Weser, in the future, will participate in deliberations
concerning executive officer compensation. Mr. Heim has loaned the Company, as
of March 31, 1997, the sum of $824,542 on an interest-free basis with the
understanding that such amounts will be repaid on a mutually agreed-upon future
date.
- 50 -
<PAGE>
Stock Option Plan
- - -----------------
The Board of Directors has adopted non-statutory stock option plans (the
1993 Non-Statutory Stock Option Plan, the 1994 Non-Statutory Stock Option Plan,
the 1995 Non-Statutory Stock Option Plan, and the 1996 Non-Statutory Stock
Option Plan) and has reserved, 1,000,000, 500,000, 1,000,000, and 2,000,000
shares under the plans, respectively, for issuance to key employees, directors
and consultants.
Options are nontransferable and are exercisable during a term of not more
than 10 years from the date of grant. The options are issued in such amounts
and at such prices as determined by the Board of Directors, except that the
option price of each grant shall not be less than 85% (eighty-five percent) of
the fair market value of such shares on the date the options are granted. As of
the record date, all options except 72,000 under the 1993 Plan have been
granted. A total of 425,000 options have been granted under the 1994 Plan,
including 100,000 to Mr. Sarko and 100,000 to Mr. Heim. All options under the
1995 Plan have been granted, including 300,000 options to Mr. Seiler and 200,000
options each to Messrs. Heim, Sarko and Weser. A total of 690,000 options have
been granted under the 1996 Plan, none to directors or executive officers of the
Company. See the Summary Compensation Table and the accompanying stock options
tables presented above.
Related Party Transactions
- - --------------------------
See Item 13 below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -------- --------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners. The following persons
-----------------------------------------------
are known to the Company to be the beneficial owners of more than 5% of the
21,142,108 shares of the Company's outstanding $.0001 par value Common Stock as
of March 31, 1997. Each person has beneficial ownership of the shares and has
sole voting power and sole investment power with respect to the number of shares
beneficially owned.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- - ----------------------- -------------------- ---------
<S> <C> <C>
PTI Management AG (1) 2,750,000 14.0%
Witikoenstrasse 311B
CH-8053
Zurich, Switzerland
Cede & Co. (2) 15,982,562 75.6%
P. O. Box 20
Bowling Green Station
New York, New York USA 10004
</TABLE>
(1) PTI Management AG is a Swiss corporation whose shares are issued solely in
bearer name. Mr. Heim is a control person of PTI Management AG, but he
disclaims beneficial ownership of any such shares.
(2) A nominee of the Depository Trust Company, which held such shares of record
on behalf of various of its customers. The names of the beneficial owners
of the shares held by those stockholders are unknown to management.
- 51 -
<PAGE>
(b) Security Ownership of Management. The number and percentage of shares
--------------------------------
of Common Stock owned of record and beneficially by each current officer and
director of the Company and by all current officers and directors of the Company
as a group, are as follows as of March 31, 1997. Each individual has beneficial
ownership of the shares and sole voting power and sole investment power with
respect to the number of shares beneficially owned.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class (2)
- - -------------------------- ----------------------- ------------
<S> <C> <C>
Werner Heim (3) 405,500 1.9%
Seestrasse 17
CH-8702
Zollikon 2, Switzerland
Alan B. Sarko 300,000 1.42%
Seiler Pollution Control
Systems, Inc.
555 Metro Place North
Dublin, Ohio USA 43017
Niklaus Seiler 300,000 1.42%
Seiler Patent AG
Steicher
CH-5316
Leuggern, Switzerland
Dr. Gerold Weser 200,000 .95%
Seiler TSB GmbH
Dorfstrasse 12
D-22941
Jersbek, Germany
All Officers and Directors
As a Group (4 Persons) 1,205,500 5.7%
</TABLE>
_______________________
(1) Except for 105,500 shares owned by Mr. Heim, the shares represented below
are in the form of options to purchase shares of Seiler Common Stock. The
options are presently exercisable but are not transferable. The options were
granted pursuant to the Company's 1993 Non-Statutory Stock Option Plan, 1994
Non-Statutory Stock Option Plan or 1995 Non-Statutory Stock Option Plan.
(2) The percentage shown has been determined by dividing the number of option
shares held by the named person divided by the sum of the 21,142,108
outstanding shares and the option shares held by the above referenced
persons.
(3) Mr. Heim is a control person of PTI Management AG but he disclaims
beneficial ownership of any such shares.
The Company does not know of any arrangements or pledge of its securities
by persons now considered in control of the Company that might result in a
change of control.
- 52 -
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - ------- ----------------------------------------------
PTI Management AG, a principal stockholder of the Company and a firm in
which Mr. Heim, the Company's Chairman of the Board of Directors and President,
is a control person has, from time to time, loaned the Company sums of money on
an interest-free basis. The principal sum due and outstanding, as of March 31,
1997, was $89,085. These monies are due and payable on December 31, 1997.
Additionally, Mr. Heim has individually loaned funds to the Company. As of
March 31, 1997, the sum of $824,542 was outstanding on an interest-free basis
with the understanding that the loan is to be repaid to Mr. Heim on a future
mutually agreed-upon date.
The Company has paid during the year ended March 31, 1997, to its sole
supplier, Seiler HT AG, a total of $2,340,314 toward the purchase of its
initial High Temperature Vitrification System. Seiler HT AG on behalf of the
Company constructs system plants, tests the system and performs research and
development services on an ongoing basis. Mr. Niklaus Seiler, Vice President
and a director of the Company, is the founder and a director of Seiler HT AG.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- - -------- ----------------------------------------------------------------
(a) Reference is herewith made to the reports on audits of
consolidated financial statements.
(b) During the last quarter of the Company's fiscal year ended
March 31, 1996, the Company did not file any reports on Form 8-K.
(c) Exhibits.
No. Description
--- -----------
27. Financial Data Schedule
- 53 -
<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.
SEILER POLLUTION CONTROL SYSTEMS, INC.
Dated: June 30, 1997 By /s/ Alan B. Sarko
______________________________________
Alan B. Sarko, Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated
/s/ Werner Heim Chairman of the Dated: June 30, 1997
Board of Directors
__________________________ and President
Werner Heim
/s/ Alan B. Sarko Vice President, Dated: June 30, 1997
Treasurer, Secretary,
__________________________ Chief Financial
Alan B. Sarko Officer, Director
/s/ Dr. Gerold Weser Vice President Dated: June 30, 1997
__________________________
Dr. Gerold Weser
/s/ Niklaus Seiler Vice President Dated: June 30, 1997
Director
__________________________
Niklaus Seiler
Supplemental Information
Supplemental Information to be Furnished With reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act.
Not Applicable.
- 54 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEILER
POLLUTION CONTROL SYSTEMS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,188,278
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,395,344
<PP&E> 356,084
<DEPRECIATION> 2,186
<TOTAL-ASSETS> 19,564,154
<CURRENT-LIABILITIES> 1,642,914
<BONDS> 0
0
0
<COMMON> 2,115
<OTHER-SE> 13,148,248
<TOTAL-LIABILITY-AND-EQUITY> 19,564,154
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,524,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,060
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,556,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,556,000
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
