SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 33-3385LA
EARTH PRODUCTS AND TECHNOLOGIES, INC.
-------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 87-0430816
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 South State Street, #1100, Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (801) 323-2394
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B 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-KSB or any amendment to
this Form 10-KSB. None.
State issuer's revenue for it most recent fiscal year: $83,473.
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $7,684,124.00
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of the latest practicable date: 7,287,004 shares of Common
Stock outstanding on March 31, 1998.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]
PART I
Item 1. Description of Business.
(a) Business Development.
Earth Products and Technologies, Inc. (the "Company") was
incorporated under the laws of the State of Nevada in 1986 under the name
Mainstay Investments, Inc. The Company's name was changed in 1987 to Bio
Helix, Inc., in 1990 to Concept Gold, Inc., in 1992 to Environmental Plasma
Arc Technology, Inc. and in October 1997 to its current name. From December
31, 1991 through June 1992, the Company had no ongoing business operations and
investigated various acquisition possibilities.
In June 1992, the Company entered into an agreement with Nu Arc
Scientific, Inc. ("Nu Arc Scientific") and its principal stockholders, Edward
and Carole Taylor (the "Taylors") whereby the Company acquired world-wide
commercial exploitation rights with respect to a technology used for the
treatment of industrial emissions and other sources of air pollution. The
technology, known as "environmental plasma arc technology" (the "EPAT
Technology"), principally relates to a method and devices used to remove and
reduce air pollutants from a variety of discharge facilities. From this
acquisition until June 1997, the Company has operated as a research and
development company, seeking to identify applications for the EPAT Technology.
In connection with the June 1992 agreement, the Company's
stockholders approved a 1-for-5 reverse stock split of the outstanding shares
of common stock of the Company and ratified the agreement. Thereafter, the
Company issued shares of common stock to the Taylors, Nu Arc Scientific and an
investor group, resulting in the Taylors' holding approximately 70 % of the
outstanding shares of the Company's common stock. In November 1993, the shares
of the Company's common stock owned by the Taylors were sold at a sheriff's
sale to a group of investors and current stockholders of the Company. The
Company has also worked to resolve third party claims with respect to the EPAT
Technology that had arisen from certain actions taken by the Taylors prior to
the August 1992 agreement and during their relationship with the Company. The
Company believes that resolution and settlement of all material claims have
been reached with the claimants, except for those that have not been deemed
meritorious and continue to be defended by the company. See "Legal
Proceedings."
In June 1994, pursuant to a court order, Mitchell Godfrey, acting
as trustee on behalf of a group of shareholders, acquired through a
garnishment proceeding the patent application relating to the EPAT Technology.
In July 1994, Mr. Godfrey assigned all rights to the patent application to the
Company, and the Company became the owner of the patent application relating
to the EPAT Technology. In November 1994, the Company was issued a patent
from the United States Patent and trademark Office with respect to the EPAT
Technology.
In March of 1997 the Company's common stock was listed on the OTC
Bulletin Board. The first trades of the common stock were reported on May 12,
1997. (See, Market for Common Equity and Related Stockholders Matters). The
Company offered a private placement starting on August 1, 1997 and closing on
December 31, 1997. The offering netted the Company $90,000 in revenues for
growth. (See, Management's Discussion and Analysis)
As of July 1997, the Company became a holding company which owns
two subsidiaries, Environmental Water Systems, Inc. and EPAT, Inc. On April
21, 1997, a majority of the Company's shareholders approved, by written
consent, the transfer of all of the Company's assets and liabilities to a
newly formed, wholly owned subsidiary corporation. The subsidiary corporation,
EPAT, Inc., was incorporated under the laws of the State of Delaware on
January 23, 1997 and owns the patent for the EPAT Technology. Later, on June
7, 1997, the Board of Directors of the Company approved a plan for the Company
to acquire substantially all of the issued and outstanding shares of
Environmental Water Systems, Inc. ("EWS"). The Company completed the
acquisition of eighty-seven percent (87%) of EWS's outstanding shares on July
21, 1997.
The officers of the Company as of March 31, 1998 are: John W.
Peters, President and Director; and Benjamin E. Hoskins, Secretary/Treasurer,
and Director. The Company has no employees
(b) Business of the Company.
EPAT, Inc.
- ----------
Development of the EPAT Technology and Products
As of December 31, 1997, EPAT, Inc. ("EPAT") operated primarily as
a research and development company working to identify applications and
develop products for the EPAT Technology. The EPAT Technology is an electro
mechanical system that the Company believes is capable of reducing air
pollutants from commercial and industrial facility discharge systems by means
of an electrical field. The process uses "non-thermal plasmas" generated by
electric arcs and coronas that energize air stream molecules and remove
pollutants by causing them to undergo molecular changes. Research engineers
retained by the Company believe that the applications of this process have the
potential to be used by oil refineries, steel production plants, public
utility power plants, co-generation facilities, chemical producers, commercial
printers, waste disposal facilities, incinerators and other discharge
facilities.
The research engineers retained by EPAT tested a prototype
configuration of the EPAT Technology on biomedical incineration and commercial
printing facilities. These tests were conducted by independent testing
agencies that measured removal rates of pollutants in industrial discharge.
Such tests of the EPAT prototype offers considerable promise for the
development of the EPAT Technology for numerous applications, although there
can be no assurance that such development will be successful.
Marketing Strategy
EPAT's short-term marketing strategy is to install a
test/demonstration unit at a host facility, which would agree to purchase a
system from the Company at such time as the unit demonstrates its
effectiveness. It is intended that a complete set of third party tests will
be conducted at such a site to evaluate the capabilities and effectiveness of
the EPAT Technology. Other opportunities will be sought to install units for
other applications that are compatible with the current stage of development
of the EPAT Technology in an attempt to attain technical credibility for the
systems. Assuming the EPAT Technology is demonstrated to be successful in
effectively removing and reducing air pollutants, of which there can be no
assurance, it is anticipated that the devices using the EPAT Technology will
be manufactured in various sizes, and would be capable of removing and
reducing emissions of a wide range of pollutants and compounds and of
providing either primary or secondary air stream treatment.
Competition
If EPAT is able to develop a product using the EPAT Technology
that is demonstrated to be effective in removing or reducing air pollutants,
the Company believes that the EPAT Technology can compete effectively with
other technologies that are currently used to control emissions of air
pollutants, including, for example, scrubbers, electrostatic precipitators,
catalytic converters, carbon absorption systems, filtration devices, thermal
incinerators and other methods of controlling such emissions. If a system
using the EPAT Technology is successfully developed, of which there can be no
assurance, the Company believes that such system will compete favorably in a
number of areas. The Company's system is intended to reduce multiple
pollutants in a single process, while most currently existing systems are
effective in reducing only one pollutant in the air stream and require by
product removal and clean-up. The Company believes that its system will most
likely compete favorably in the area of initial cost, the costs of continued
maintenance and effectiveness. The Company faces substantial competition,
however, from conventional environmental control methods and may compete with
companies that have more extensive research, marketing and manufacturing
capabilities and significantly greater financial, technical and personnel
resources than the Company.
Patent and Patent Applications
The Company has been issued a patent relating to the EPAT
Technology from the United States Patent and Trademark Office and has filed
patent applications in several foreign jurisdictions. The Company may seek
additional patents with respect to the EPAT Technology in the United States
and internationally.
Research and Development
As described above, virtually all of the Company's operations have
consisted primarily of research and development activities with respect to the
EPAT Technology.
Employees
As of December 31, 1997, EPAT did not employ any full time
employees.
Environmental Water Systems, Inc.
- ---------------------------------
EWS's primary business is providing turn-key waste water treatment
systems. EWS initially obtained a marketing and manufacturing license for a
patented electrocoagulation reaction chamber. Since obtaining this license,
EWS has further developed technology which, when combined with the
aforementioned, provides a complete wastewater treatment system for industries
whose wastewater contains heavy metals, emulsified oil and other organic and
inorganic matter. To date the EWS system is in use by several businesses in
Colorado, Mississippi, California and Louisiana.
In addition to the design of systems, EWS has a complete water
testing laboratory to support the specific design of treatment systems and to
continue a very aggressive research and development program which will open
additional markets.
The EWS Technical Team is comprised of over 30 professionals that
specialize in different technologies used in the treatment of wastewater.
Many members of the Team have one or more Doctorate Degrees in the areas of
chemistry, metallurgy and electronics. In the customer evaluation process the
Team studies the specific needs of the customer and a customized waste water
treatment system is designed utilizing the patented and proprietary systems
licensed and owned by EWS.
Marketing Strategy
In the past 20 years the United States government and other
governments throughout the world have enacted many environmental laws. The
U.S. Environmental Protection Agency ("EPA") has established progressively
stricter discharge standards based on Best Demonstrated Available Technology,
with the ultimate goal being ZERO DISCHARGE and the restoration of ground
water to drinking water standards. Industry throughout the world is now being
forced by government regulation to clean up their discharge water. With these
mandates being enforced, there is a need for effective and economical
treatment systems. These systems must accommodate the most stringent water
users today and in the future.
There are many different technologies dealing with water treatment
in the market today. None of these use the same type of technology as the
patented and proprietary component of the EWS Treatment System. Industry has
used chemicals and forms of filtration devices to clean its waste water to
date. EWS does not use these systems as its key technology. Through the use
of existing filtration systems and the EWS patented and proprietary process,
EWS's system results in significantly less harmful particulates in the
discharge water with lower overall operational costs.
Competition
The Company is aware of no other companies in the water
purification business using the same type of technology which makes up the
basic component of the proprietary EWS Treatment System. The industry has and
currently is using chemicals or some type of filtration system as key parts of
their systems to clean the water. EWS can supply its customers with a
complete treatment system or can retrofit specific components to an existing
treatment system, often lowering overall system operating costs. EWS combines
its treatment system with the customer's existing treatment system resulting
in a reduction in overall operational costs and compliance with water
discharge requirements.
Employees
As of December 31, 1997, EWS employed 8 full time employees.
Item 2. Properties.
As of December 31, 1997, the Company and EPAT, Inc. did not own
any real property. EWS owns an undeveloped recreational lot valued at $7,500.
Item 3. Legal Proceedings.
On September 29, 1993 Mitchell Godfrey took an assignment on a
judgment in favor of Brown & Brown, plaintiff in the case of Brown & Brown,
P.C. v. Nu Arc Scientific Incorporated, Carole Taylor and Edward Taylor, Third
District Court of Salt Lake County, Utah, in the amount of $50,000. Mr.
Godfrey then succeeded in a garnishment proceeding in attaching U.S. patent
application serial no. 07/786,261, held by the defendants in satisfaction of
the judgment. Mr. Godfrey subsequently assigned this patent to EPAT.
During 1994, the Company negotiated stock settlement agreements
with several vendors and creditors of the Company. The board of directors
also approved the settlement of several obligations of Nu-Arc Scientific, Inc.
and Edward and Carole Taylor, with stock of the Company owned by shareholders
of the Company. This was done to alleviate the risk of any future claims
being brought against the Company's right to market the technology purchased
from Nu-Arc Scientific and Edward and Carole Taylor. Approximately $271,553
of accounts payable and accrued expenses recorded on the books of the Company
at December 31, 1993 were satisfied through these settlement agreements.
There have been no material developments in any legal proceedings
reported on in the Form 10-KSB for the year ended December 31, 1996, nor are
there any new proceedings or threatened proceedings to which the Company is a
party or threatened to be made a party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's stockholders
during the fourth quarter of the year ended December 31, 1997.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's common stock was listed with the OTC Bulletin Board
on March 24, 1997. The Company's Board of Directors approved a 10-for-1
reverse split which became effective on May 2, 1997. The first trades of the
common stock were reported on May 12, 1997.
The following table shows the range of high and low trading prices
for the three quarters for 1997, as reported by the National Associations of
Securities Dealers. (Such quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not necessarily
represent actual transactions.)
There was no activity for the year of 1996 and the first quarter
of 1997.
Quarter High Low
Q2 1997 4 1.25
Q3 1997 2.25 0.75
Q4 1997 1.5625 0.5625
------ ------
Summary: 4 0.5625
As of March 31, 1997, the Company has approximately 644 holders of
record of the Company's common stock.
The Company has never paid any dividends on its outstanding shares
of common stock, and no dividends are contemplated to be paid in the
foreseeable future.
Item 6. Management's Discussion and Analysis
During 1996 the Company remained a development stage company
focused on developing a plan to exploit the EPAT Technology. The Company did
not receive any revenues from operations during 1996. During 1997, the
Company accumulated revenues as a result of acquisition of two subsidiaries
and a private offering of common shares of the Company's stock. The Company
and its subsidiaries spent, or plan to spend, such revenues for general
operation expenses, research, and development and marketing.
The successful strategic combination with Environmental Water
Systems, Inc. ("EWS") provided the Company with a revenue producing
subsidiary. On June 20, 1997, the Company issued 3,000,000 shares (post
reverse) of its common stock to complete the Share Exchange Agreement with
EWS. Such shares represented by the Units were issued pursuant to applicable
exemptions from the registration statement requirements of the Securities Act
of 1933 as amended and are restricted securities as that term is defined by
Reg. Sec.230.144(a)(3). During the five months that the Company has owned EWS,
EWS has accumulated $83,473 in revenues. However, the Company has not yet
realized significant revenue from the sale of the EPAT Technology or the EWS
systems, and experienced a net operating loss of $516,441 during 1997.
It is uncertain whether EPAT, Inc. will locate a host facility to
test the EPAT Technology or if such tests will successfully demonstrate the
effectiveness of the EPAT Technology. Until such time, EPAT, Inc. will
continue to research and develop products for the EPAT Technology.
The Company conducted a private offering between August 1, and
December 31, 1997, which generated $90,000 to be used for growth of the
Company. The Company privately offered 150 Units, consisting of 10,000
shares of the Company's common stock ($.001 par value) per Unit, and included
a warrant to purchase 5,000 shares at a price of $2.00 per share at any time
from August 1, 1997 until April 30, 1999. The Company sold nine Units during
the private offering. Such shares represented by the Units were issued
pursuant to applicable exemptions from the registration statement requirements
of the Securities Act of 1933 as amended.
The United States government and other governments throughout the
world continue to enact environmental laws with stricter emissions standards.
There are many different systems being developed to satisfy the needs of
industry. The technologies owned by the Company's subsidiaries may provide a
means for industry to meet the tougher air and water emissions standards. The
subsidiaries face substantial competition from conventional environmental
control methods and must compete with other companies with greater research
and manufacturing resources.
The Company is currently exploring several options for future
capitalization of the Company's growth, including investment banking
relationships, additional offerings or private placements and loans.
Item 7. Financial Statements.
The consolidated audited financial statements of the Company for
the fiscal year ended December 31, 1997 are attached hereto and incorporated
herein by reference.
During 1997, the Company issued an aggregate of 1,075,620 shares
(post reverse) of its common stock to certain officers, directors, affiliated
parties and other creditors for services rendered, and repayment and
settlement of certain debts.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 9. Directors, Executive officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
(a) Directors and Executive Officers.
The following table sets forth as of March 31, 1998 certain
information regarding the executive officers and directors of the Company.
Name Age Position
John Peters 46 President, Director
Benjamin E. Hoskins 26 Secretary/Treasurer, Director
John W. Peters was appointed President and Chairman of the Board
on June 9, 1997. He served as a director of the Company from January 15,
1997. Mr. Peters was operations manager of the Company from 1993 through
1995. From 1991 to 1992, Mr. Peters was president of Certified Environmental
Laboratories, Inc. From 1987 to 1991, Mr. Peters was vice president of sales
and marketing for Comco Communications Corp. in California. Mr. Peters
studied Business Administration at Long Beach Community College and California
Polytechnic State University in San Louis Obispo, California.
Benjamin E. Hoskins was appointed Secretary Treasurer on March 2,
1998. He served as the President of Oxford Management Group, a management
consulting firm, since June 1997. Mr. Hoskins was the President of the
Internet Yellow Pages, which merged into the iMall, Inc. (OTCBB: IIML), from
March 1994 to May 1997. Mr. Hoskins studied finance in college in Arizona and
Nevada.
(b) Compliance with Section 16(a) of the Exchange Act.
The Company does not have a class of securities registered under
the Securities Exchange Act of 1934, and, therefore, its officers, directors
and holders of more than 10% of the outstanding shares of the Company are not
subject to the provisions of Section 16(a).
Item 10. Executive Compensation.
(a) Executive Compensation.
On January 20, 1997, John W. Peters, then acting
Secretary/Treasurer, received 15,000 shares (post reverse) for services
rendered to the Company during 1996. David Rees, then acting Director,
received 13,620 shares (post reverse) for services rendered to the Company
during 1996. No other compensation was given to any of the directors or
executive officers of the Company during the fiscal year ended December 31,
1997
(b) Employment Agreements.
None.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 19, 1997 the name and
address of each person who is known by the Company's Board of Directors to be
the beneficial owner of more than 5% of the Company's outstanding Common Stock
and the beneficial ownership of the Company's Common Stock by the Company's
directors and executive officers.
Under the rules of the Securities and Exchange Commission, a
person is deemed to be the beneficial owner of securities if he has or shares
"voting power" (which includes the power to vote, or to direct the voting of,
such securities) or "investment power" (which includes the power to dispose,
or to direct the disposition, of such securities). A person is also deemed to
be the beneficial owner of any securities that he has the power to acquire
beneficial ownership of within 60 days. Under these rules, more than one
person may be deemed the beneficial owner of the same securities.
At the present time, there are no beneficial owners of more than
5% of the Company's voting securities.
MANAGEMENT
Name and No. of Shares Percent of Outstanding
Address Beneficially Owned Common Stock
Dan Clark 100,000 1.4%
405 West 115th Avenue
Suite 4
Northglenn, CO 80234
Mitchell T. Godfrey 94,250 1.3%
c/o Mt. Baldy Associates
3626 Highway 284
Townsend, MT 59644
Benjamin E. Hoskins 22,421 .3%
180 South 300 West
Suite 208
Salt Lake City, Utah 84101
Theron John 100,000 1.4%
405 West 115th Avenue
Suite 4
Northglenn, CO 80234
Lindsay Mounteer 100,000 1.4%
405 West 115th Avenue
Suite 4
Northglenn, CO 80234
John W. Peters 40,000 .5%
215 South State Street
Suite 1100
Salt Lake City, Utah 84111
Item 12. Certain Relationships and Related Transactions.
None.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
2 Agreement and Plan of Reorganization
3.1 Articles of Incorporation of the Company, as amended *
3.2 By-laws of the Company *
27 Financial Data Schedule
* Previously filed.
(b) Reports on Form 8-K
Form 8-K Current Report filed with the Securities and Exchange
Commission on August 1, 1997, incorporated herein by this reference.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant cause this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
EARTH PRODUCTS AND TECHNOLOGIES, INC.
Date: 4/15/98 By: /s/ John W. Peters
-------------------------------
John W. Peters, President
EARTH PRODUCTS AND TECHNOLOGIES, INC.
(Formerly Environmental Plasma Arc Technology, Inc.)
(A Development Stage Company)
Consolidated Financial Statements
December 31, 1997 and 1996
CONTENTS
Independent Auditors' Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Stockholders' Equity 7
Consolidated Statement of Cash Flows 11
Notes to the Consolidated Financial Statements 14
<Letterhead Crouch, Bierwolf, & Chisholm>
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
INDEPENDENT AUDITORS' REPORT
Board of Directors
Earth Products and Technologies, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of Earth Products
and Technologies, Inc., (A Development Stage Company), as of December 31,
1997, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year 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 audit. The financial statements for the year ended
December 31, 1996 and 1995 were audited by other accountants, who expressed an
unqualified opinion on their report dated April 17, 1997.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Earth Products and Technologies, Inc., (A Development Stage Company), as of
December 31, 1997, and the consolidated results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from operations which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 6. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Crouch, Bierwolf & Chisholm
Salt Lake City, Utah
April 9, 1998
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
December 31,
------------
1997 1996
---- ----
CURRENT ASSETS
Cash $ 3,210 $ 6,714
Accounts receivable
(net of allowance of $0.) 40,161 -
Inventory 54,563 -
--------- ---------
Total Current Assets 97,934 6,714
--------- ---------
PROPERTY AND EQUIPMENT - (Note 4) 191,511 16,065
--------- ---------
OTHER ASSETS
Goodwill - (Note 1 106,686 -
Work in process inventory - (Note 1) 381,143 366,143
--------- ---------
Total Other Assets 487,829 366,143
--------- ---------
TOTAL ASSETS $ 777,274 $ 388,922
========= =========
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
------------
1997 1996
---- ----
CURRENT LIABILITIES
Accounts payable $ 230,516 $ 98,501
Accrued expenses 32,578 16,325
Payroll taxes payable 121,594 32,670
Notes payable-shareholder - (Note 3) 223,836 2,336
Note payable, current portion -(Note 7) 7,684 -
------------- -------------
Total Current Liabilities 616,208 149,832
------------- -------------
LONG-TERM DEBT
Notes payable - (Note 7) 30,359 -
------------- -------------
Total Liabilities 646,567 149,832
------------- -------------
COMMITMENTS AND CONTINGENCIES - (Note 2) - -
------------- -------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value;
50,000,000 shares authorized,
7,287,004 and 3,037,004
shares issued and outstanding,
respectively 7,287 3,037
Additional paid-in capital 2,824,319 2,438,069
Stock subscription receivable - (15,000)
Deficit accumulated during the
development stage (2,700,899) (2,187,016)
------------- --------------
Total Stockholders' Equity 130,707 239,090
------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 777,274 $ 388,922
============ =============
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From Inception
On February 10,
1986 to
For the Years Ended December 31, December 31,
1997 1996 1995 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
REVENUE
Revenue $ 83,473 $ - $ - $ 133,473
Cost of goods sold 94,911 - - 94,911
------------ ------------ ------------ -----------
Gross Profit (11,438) - - 38,562
------------ ------------ ------------ -----------
EXPENSES
Selling expense - 109,489
Depreciation and
amortization 31,949 6,104 6,322 55,351
Research and development - 111,281 - 153,773
General and administrative 473,054 138,069 22,338 2,219,214
------------ ------------ ------------ -----------
Total Expenses 505,003 255,454 28,660 2,537,827
------------ ------------ ------------ -----------
OPERATING LOSS (516,441) (255,454) (28,660) (2,499,265)
------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Gain on disposition of debt
(Note 2) 15,700 87,584 - 103,284
Interest (12,640) (26,224) (28,237) (92,176)
Loss on disposal of assets - - - (211,831)
Income taxes (502) - - (911)
------------ ------------ ------------ -----------
Total Other Income
(Expense) 2,558 61,360 (28,237) (201,634)
------------ ------------ ------------ -----------
NET LOSS $ (513,883) $(194,094) $ (56,897) $(2,700,899)
============ ============ ============ ===========
WEIGHTED AVERAGE
LOSS PER SHARE $ (0.10) $ (0.10) $ (0.03)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development Treasury
Shares Amount Capital Stage Stock
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance, February 10, 1986 - $ - $ - $ - $ -
Shares issued to officers and
director at $0.25 per share 20,000 20 4,980 - -
Net loss for the period ended
December 31, 1986 - - - (160) -
--------- --------- ---------- ---------- ---------
Balance, December 31, 1986 20,000 20 4,980 (160) -
Shares issued through public
offering at $2.50 per share 40,000 40 99,960 - -
Public offering costs - - (20,315) - -
Shares issued in acquisition of
wholly-owned subsidiary 72,000 72 29,928 - -
Shares issued through private
placement at $25.0 per share 1,000 1 24,999 - -
Net loss for the year ended
December31, 1987 - - - (36,112) -
--------- --------- ---------- ---------- ---------
Balance, December 31, 1987 133,000 133 139,552 (36,272) -
Shares issued through private
placement at $25.0 per share 3,000 3 74,997 - -
Net loss for the year ended
December 31, 1988 - - - (48,075) -
--------- --------- ---------- ----------- ---------
Balance, December 31, 1988 136,000 136 214,549 (84,347) -
Net loss for the year ended
December 31, 1989 - - - (175,094) -
Balance, December 31, 1989 136,000 $ 136 $ 214,549 $ (259,441) -
--------- --------- ---------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development Treasury
Shares Amount Capital Stage Stock
--------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1989 136,000 $ 136 $ 214,549 $ (259,441) -
Expenses paid on behalf of the
Company by stockholders - - 53,481 - -
Shares issued for services
provided by stockholders
at $0.01 per share 17,000 17 (17) - -
Net loss for the year ended
December 31, 1990 - - - (8,685) -
---------- ---------- ------------ ----------- ----------
Balance, December 31, 1990 153,000 153 268,013 (268,126) -
Net loss for the year ended
December 31, 1991 - - - (41,701) -
---------- ---------- ----------- ----------- ----------
Balance, December 31, 1991 153,000 153 268,013 (309,827) -
Shares issued for cash and
relief of debt at $1.70 per
share 47,000 47 80,793 - -
Shares issued for marketing
and manufacturing rights at
$0.00 per share 1,400,000 1,400 (1,400) - -
Shares issued for services
performed at $0.00 per
share 200,000 200 (200)
Shares issued through private
placement at $2.50 per share 200,000 200 455,492 - (192)
Net loss for the year ended
December 31, 1992 - - - (387,200) -
---------- ---------- ----------- ----------- ----------
Balance, December 31, 1992 2,000,000 2,000 802,698 (697,027) (192)
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development Treasury
Shares Amount Capital Stage Stock
--------- --------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 2,000,000 2,000 802,698 (697,027) (192)
Shares issued through
private placement at $2.50
per share - - 47,808 - 192
Cancellation of shares
issued for private placement (200,000) (200) 200 - -
Shares issued through
private placement at $5.00
per share 33,200 33 166,159 - -
Capital contributed by
shareholder - - 80,826 - -
Net loss for the year ended
December 31, 1993 - - - (855,206) -
---------- ---------- ----------- -------------- --------
Balance, December 31, 1993 1,833,200 1,833 1,097,691 (1,552,233) -
Cancellation of shares (5,700) (6) 6 - -
Capital contributed by
shareholders - - 598,565 - -
Net loss for the year ended
December 31, 1994 - - - (383,792) -
---------- ---------- ----------- -------------- --------
Balance, December 31, 1994 1,827,500 1,827 1,696,262 (1,936,025) -
Cancellation of shares (Note 5) (8,000) (8) (40,972) - -
Capital contributed by
shareholders - - 40,665 - -
Net loss for the year ended
December 31, 1995 - - - (56,897) -
---------- ---------- ----------- -------------- --------
Balance, December 31, 1995 1,819,500 1,819 1,695,955 (1,992,922) -
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development Treasury
Shares Amount Capital Stage Stock
---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,819,500 1,819 1,695,955 (1,992,922) -
Shares issued to officers and
directors at $0.50 per share
for services rendered 233,620 234 116,576 - -
Shares issued to officers and
directors at an average price
of approximately $0.50 per
share in settlement of related
party loans 891,900 892 396,029 - -
Share issued to creditors at an
average price of approximately
$2.50 per share in settlement
of accounts payable 92,000 92 229,509 - -
Net loss for the year ended
December 31, 1996 - - - (194,094) -
--------- ------- ---------- ------------ --------
Balance, December 31, 1996 3,037,020 3,037 2,438,069 (2,187,016) -
Shares issued for purchase
of EWSI 3,000,000 3,000 (3,000) - -
Shares issued for payment
of notes to related parties 660,000 660 299,340 - -
Shares issued for cash at
$1.00 per share 90,000 90 89,910 - -
Shares issued as incentive
to public relation firm 500,000 500 - - -
Net loss for the year ended
December 31, 1997 - - - (513,883) -
--------- ------- ---------- ------------ --------
Balance, December 31, 1997 7,287,020 $ 7,287 $2,824,319 $(2,700,899) $ -
========= ======= ========== =========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
From Inception
On February 10,
1986 to
For the Years Ended December 31, December 31,
1997 1996 1995 1997
---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Loss From Operations $(513,883) $(194,094) $(56,897) $(2,700,899)
Adjustments to Reconcile
Net Cash Provided by
Operating Activities:
Depreciation and
amortization 31,949 6,104 6,322 55,351
Loss on disposal of
assets - - - 36,831
Gain on disposition of
assets (15,700) (87,584) - (103,284)
Common stock issued for
services rendered 500 116,810 - 117,310
Changes in operating
assets and liabilities:
(Net of effects of
purchase of EWSI)
(Increase) Decrease in:
Accounts receivable (15,076) - - (15,076)
Inventory (28,367) - - (28,367)
Decrease in shareholder
advances - - - 9,176
Increase (decrease)
in accounts payable,
accrued expenses and
payroll taxes 166,152 144,993 (10,905) 681,465
----------- --------- ---------- -------------
Net Cash Used by
Operating Activities $ (374,425) $(13,771) $(61,480) $(1,947,493)
--------- --------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
From Inception
On February 10,
1986 to
For the Years Ended December 31, December 31,
1997 1996 1995 1997
----------- ------------ -------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES
Cash acquired in
acquisition of
EWSI 5,050 5,050
Investment in inventory (15,000) (25,015) - (381,143)
Purchase of fixed assets (35,925) - - (121,743)
Payment of organization
costs - - - (110)
Cash advanced to
subsidiary prior
to acquisition (200,000) - - (200,000)
Cash from sale of assets - - - 1,970
--------- --------- -------- ----------
Net Cash Used by Investing
Activities $(245,875) $ (25,015) $ - $ (695,976)
--------- --------- -------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
From Inception
On February 10,
1986 to
For the Years Ended December 31, December 31,
1997 1996 1995 1997
----------- ------------ --------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Contribution by
stockholders - - 40,665 996,375
Payment to stockholder - - - (13,202)
Sale of common stock 105,000 - - 981,185
Cash received from
debt financing 521,500 45,500 14,040 931,384
Cash paid on debt
financing (9,704) - - (249,063)
----------- ----------- ---------- ---------------
Net Cash Provided from
Financing Activities 616,796 45,500 54,705 2,646,679
----------- ------------ ---------- ---------------
NET INCREASE (DECREASE)
IN CASH (3,504) 6,714 (6,775) 3,210
CASH AT BEGINNING
OF PERIOD 6,714 - 6,775 -
----------- ------------- --------- ---------------
CASH AT ENDING OF PERIOD $ 3,210 $ 6,714 $ - $ 3,210
=========== ============== ========= ================
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ 13,166 $ - $ - $ 13,166
Income taxes $ 502 $ - $ - $ 502
NON CASH FINANCING
ACTIVITIES
Issuance of stock in
settlement of debt $ 300,000 $ 611,522 $ - $ 952,358
Capital contributed by
shareholders $ - $ - $40,665 $ 639,230
</TABLE>
The accompanying notes are an integral part of these financial statements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The financial statements presented are those of Earth Products and
Technologies, Inc. (The Company). The Company was incorporated under the laws
of the State of Nevada on February 10, 1986 as Mainstay Investments, Inc. The
Company was organized for the purpose of searching out and acquiring or
participating in a business or business opportunity. In 1987, the Company
changed its name to Bio-Helix, Inc. On July 13, 1990, the Company's name was
changed to Concept Gold, Inc., and on September 30, 1992, the name was changed
to Environmental Plasma Arc Technology, Inc. At such time, the Company
resolved to issue stock for an agreement between Nu-Arc Scientific, Inc.,
Edward Taylor and Carole Taylor, which gave the Company exclusive marketing
and manufacturing rights of certain patented air purification systems for
internal combustion engines and other applications.
In June of 1997 the Company acquired 100% of the stock of Environmental
Water Systems, Inc. (EWSI) in a share for share exchange accounted for by the
purchase method of a business combination. EWSI is in the business of
constructing water purification systems for commercial manufacturers. On
October 20, 1997 the company changed it's name to Earth Products and
Technologies, Inc. The Company is currently in the beginning stages of
marketing and manufacturing both purification systems, and minimal revenues
have been realized from the sale of these systems. Accordingly, the Company
is classified as a development stage company as defined in SFAS No. 7.
b. Consolidation
The consolidated financial statements include those of Earth Products and
Technologies, Inc., and its wholly-owned subsidiaries, EPAT marketing
Corporation and Environmental Water Systems, Inc. All intercompany accounts
have been eliminated in the consolidation.
Inventory
Inventory consists of parts used to build water purification units, and
completed units as follows:
Parts and materials $ 28,263
Finished Units 26,300
----------
Total Inventory $ 54,563
==========
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d. Work in Process Inventory
Work in Process inventories are stated at the lower of cost or market and
consist of the following:
1997 1996
---------- ----------
Materials $ 277,915 $ 277,915
Labor 103,228 88,228
---------- ----------
$ 381,143 $ 366,143
========== ==========
These costs have been incurred in manufacturing air purification systems
for resale. At December 31, 1997 and 1996, the estimated market value was
determined to be greater than the cost of the inventory.
e. Organization Costs
The Company amortized its organization costs, which reflect amounts
expended to organize the Company, over sixty months using the straight-line
method.
f. Cash
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
g. Income Taxes
No federal income taxes have been accrued due to net operating losses in
each year presented. The Company has net operating loss carryforwards of
approximately $2,700,000 which begin to expire in 2007 through 2011. No tax
benefit has been reported in the consolidated financial statements for the net
operating loss carryforward because of the uncertainty that sufficient future
income will be generated to offset the losses. The valuation allowance of the
losses carryforwards offsets any potential tax benefit. These NOL's may also
be limited to use due to the change in ownership.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
h. Reclassifications
Certain 1995 items have been reclassified to conform to the 1996
presentation.
i. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Goodwill
The Company recorded $112,301 of goodwill in conection with the
acquisition of EWSI, due to the negative net equity position of EWSI at the
time of acquisition. Goodwill is being amortized over a 10 year life on the
straight line method.
Earnings (Loss) Per Share
The computation of earnings per share of common stock is based on the
weighted average number of shares outstanding at the date of the financial
statements.
Fair Value of Financial Instruments
Unless otherwise indicated, the fair values of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amounts.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
During 1996, the Company wrote off accounts payable of $81,012. The
statute of limitations has run for the amounts written off, and there have
been no recent collections actions by the former creditors. The Company
believes that the probability that it will be required to pay any of these
amounts to be remote.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 2 - COMMITMENTS AND CONTINGENCIES (Continued)
During 1997, the Company wrote off contingent liabilities of $15,700 due
to the remote possibility that the liability would occur.
EWSI is commited to a lease for office and warehouse space, The lease
expires in December 1999 with minimum future lease payments as follows:
1998 $ 25,200
1999 25,200
----------
Total $ 50,400
==========
NOTE 3 - RELATED PARTY TRANSACTIONS AND NOTES PAYABLE - SHAREHOLDERS
All of the original common shares issued were "restricted" shares and not
to be resold except in compliance with the provisions of Rule 144 promulgated
by the Securities and Exchange Commission.
Various shareholders advanced funds to the Company on a short-term basis
as needed. During 1997, shareholders advanced $516,500, of which $300,000 was
converted to equity for 660,000 shares. The balances owed to the shareholders
at December 31, 1997 and 1996 were $223,836 and $2,336 respectively. The
notes accrue interest at 12.0% , are due on demand and are unsecured.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1997 1996
------------ ------------
Land $ 7,500 $ -
Automobiles 83,890 2,500
Equipment 99,647 1,920
Furniture and Fixtures 44,699 497
Promotional video 25,597 25,597
------------ ------------
Total 261,333 30,514
Less accumulated
depreciation (69,822) (14,449)
------------ ------------
$ 191,511 $ 16,065
============ ============
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 4 - PROPERTY AND EQUIPMENT(Continued)
Property and equipment are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets. Depreciation expense for the years ended December 31, 1997 and 1996
was $26,334 and $6,104, respectively.
NOTE 5- STOCKHOLDER TRANSACTIONS
On September 25, 1992, stockholders ratified an agreement dated August
10, 1992, to purchase the manufacturing and marketing rights of air
purification systems held by Nu-Arc Scientific, Inc., Edward Taylor and Carole
Taylor. The agreement provided that 70% of the total issued and outstanding
stock would be owned by Nu-Arc Scientific, Inc. and the Taylors, 10% would be
held by the shareholders of Concept Gold, Inc.
In November of 1992, the Company issued 1,400,000 shares for the
marketing and manufacturing rights to the "Plasma Arc Technology." The value
of the rights was recorded at predecessor cost which was $-0-.
Also in November of 1992, the Company issued 200,000 shares to an
investor group for services performed and 200,000 shares were issued and kept
in treasury for the private placement. 180,800 shares were sold for cash of
$455,550 with the remaining 19,200 shares remaining in treasury at December
31, 1992. During 1993, the remaining 19,200 shares were sold for cash at
$2.50 per share.
In June of 1993, the board of directors approved the cancellation of
200,000 shares issued to Nu-Arc Scientific, Inc.
In July of 1993, the Company issued 33,200 shares of common stock for
cash at $5.00 per share.
As mentioned in Note 3, Nu-Arc Scientific, Inc. sold some of its stock in
the Company to pay liabilities incurred by the Company, with the remainder
being contributed to capital.
During 1993, Edward Taylor and Carole Taylor, major shareholders of the
Company, filed for bankruptcy. Their stock was sold at a sheriff's sale to a
group of investors and certain shareholders of the Company, thus changing the
majority control of the Company. In 1994, some of these shares were used to
settle debts of the Company (see Note 8).
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 5- STOCKHOLDER TRANSACTIONS (Continued)
During 1994, the board of directors approved the cancellation of 5,700
shares issued to Nu-Arc Scientific, Inc.
During 1995, 8,000 shares issued to a vendor in lieu of payment were
returned to the Company and were canceled. The corresponding liability was
added back to accounts payable.
As described in Note 1, the Company issued 3,000,000 shares of common
stock for all shares of EWSI, effective June 30, 1997. Due to the negative
book value of EWSI, goodwill was recorded and the value of the transaction
totals $-0-.
The Company also issued 660,000 shares for relief of notes in the amount
of $300,000 to shareholders.
During the year the Company sold 90,000 shares at $1.00 for cash in a
private placement, and 500,000 shares to a public relation firm as an
incentive to accept the company as a client.
During 1997 the Board of Directors authorized a 1 for 10 reverse stock
split. All per share information in these financial statements have been
retroactively restated to reflect the stock split.
NOTE 6 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, the Company has not yet realized
significant revenue from the sale of the purification systems, and must rely
on proceeds from stock sales to continue operations. The Company plans to
continue to market the systems in order to increase revenues to a level
sufficient to support operations. Until these sales levels are reached,
without realization of additional adequate financing, it would be unlikely
that the Company will be able to pursue and realize its objectives.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 7 - NOTE PAYABLE
Notes payable at December 31, 1997 and 1996 are as follows:
1997 1996
-------- --------
Note payable to a bank, interest
at 11.25% ,monthly payments due of
$426 through January 2002, secured
by an automobile $ 16,789 $ -
Note payable to a credit union, bears
interest at 9.25%, monthly payments due
of $510 through March 2002, secured by
an automobile. 21,254 -
--------- ---------
38,043 -
Less current portion (7,684) -
---------- ---------
Net Long-Term Debt $ 30,359 $ -
========== ==========
Future minimum principal payments are as follows:
1998 $ 7,684
1999 8,499
2000 9,404
2001 10,404
2002 2,052
---------
Total $ 38,043
=========
NOTE 8 - STOCK SETTLEMENTS
During 1994, the Company negotiated stock settlement agreements with
several vendors and creditors of the Company. The board of directors also
approved the settlement of several obligations of Nu-Arc Scientific, Inc. and
Edward and Carole Taylor, with stock of the Company owned by shareholders of
the Company. This was done to alleviate the risk of any future claims being
brought against the Company's right to market the technology purchased from
Nu-Arc Scientific and Edward and Carole Taylor.
Approximately $271,553 of accounts payable and accrued expenses recorded
on the books of the Company at December 31, 1993 were satisfied through these
settlement agreements.
Earth Products and Technologies, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 8 - STOCK SETTLEMENTS (Continued)
During 1996, the Company settled accounts payable of $229,601 by issuing
92,000 shares of its common stock. The Company also settled shareholder
loans totaling $381,921 by issuing 891,900 shares of its common stock.
NOTE 9 - INTANGIBLE ASSETS
In November of 1993, a group of investors and certain shareholders of the
Company acquired the patent rights of the "Plasma Arc Technology". The group
of investors and certain shareholders of the Company contributed the patent to
the Company. No dollar value has been assigned to the patent.
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Plan") is made this 28th day
of June, 1997, among Environmental Plasma Arc Technology, Inc., a Nevada
corporation ("EPAT"), Environmental Water Systems, Inc., a Nevada corporation
("EWS"), and certain shareholders of EWS (collectively referred to as the
"EWS Shareholders").
EPAT wishes to acquire approximately eighty seven of (87%) the issued and
outstanding stock of EWS (one hundred percent (100%) of the EWS stock held by
the EWS Shareholders) for and in exchange for stock of EPAT, in a stock for
stock transaction intending to qualify as a tax-free exchange pursuant to
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. The
parties intend for this Plan to represent the terms and conditions of such
tax-free reorganization, which Plan the parties hereby adopt.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, IT IS AGREED:
Section 1
Terms of Exchange
1.1 Number of Shares. Upon the execution hereof, EWS and the EWS
Shareholders agree to assign, transfer, and deliver to EPAT, free and clear of
all liens, pledges, encumbrances, charges, restrictions or known claims of any
kind, nature or description, all of their shares of EWS stock, and EPAT agrees
to acquire such shares on the date thereof, or as soon as practicable
thereafter, by issuing and delivering in exchange therefore solely common
shares of EPAT's stock, par value $0.001, in the aggregate of 3,000,000
shares, subject to the provisions of this Plan. Subsequent to the date hereof,
the EWS Shareholders shall, upon the surrender of the EWS certificates
representing their respective beneficial and record ownership of at least
eighty seven percent (87%) of the then issued and outstanding shares of EWS to
EPAT and further provided an exemption from the registration provisions of
Section 5 of the Securities Act of 1933 is available for the issuance thereof,
the EWS Shareholders shall be entitled to receive a certificate(s) evidencing
shares of the exchanged EPAT stock as provided for herein. Upon the
consummation of the transaction contemplated herein, EPAT shall be the
beneficial and record owner of at least eighty seven percent (87%) of the
issued and outstanding stock of EWS.
1.2 Anti-Dilution. For all relevant purposes of this Plan, the number
of EPAT shares to be issued and delivered pursuant to this Plan shall be
appropriately adjusted to take into account any stock split, stock dividend,
reverse stock split, recapitalization, or similar change in EPAT common stock,
which may occur between the date of the execution of this Plan and the date of
the delivery of such shares.
1.3 Delivery of Certificates. The EWS Shareholders shall transfer to
EPAT at the closing the shares of common stock of EWS listed opposite their
respective names on Exhibit A hereto (the "EWS shares") in exchange for shares
of the common stock of EPAT as outlined above in Section 1.1 hereof (the "EPAT
Stock"). Of the 3,000,000 shares of EPAT common stock issued, 1,500,000 of
such shares shall be held in escrow with Daniel W. Jackson, Esq. serving as
escrow agent pursuant to the terms and under the conditions set forth in a
separate escrow agreement. Those conditions shall include: (i) that subject
to EPAT providing adequate funding for EWS's operations, EWS shall have
achieved gross revenues in excess of five million dollars ($5,000,000); and
(ii) all actions necessary for the reorganization of EPAT and EWS or the
acquisition of all issued and outstanding shares of EWS by EPAT have been
completed. It is the agreement and understanding of the parties that the
escrowed shares shall be released from escrow at the written direction of the
Board of Directors of EPAT following fulfillment of the terms and conditions
set forth in the escrow agreement; (iii) the escrowed shares of common stock
of EPAT shall be distributed as directed by Daniel W. Jackson, Esq. The
transfer of EWS shares by the EWS Shareholders shall be effected by the
delivery to EPAT at the Closing of certificates representing the transferred
shares endorsed in blank or accompanied by stock powers executed in blank,
with all signatures guaranteed by a national bank and with all necessary
transfer taxes and other revenue stamps affixed and acquired at the EWS
Shareholders' expense.
1.4 Further Assurances. Subsequent to the execution hereof, and from
time to time thereafter, EWS shall execute such additional instruments and
take such other action as EPAT may request in order to more effectively sell,
transfer and assign clear title and ownership in the EWS shares to EPAT.
1.5 Management Contracts. The management of EWS will have the same management
contracts as of the date hereof, attached hereto as Schedule (e). After six
months EWS may negotiate new management contracts to be ratified by the Board
of Directors of EPAT.
Section 2
Closing
2.1 Closing. The Closing contemplated by Section 1.3 shall be held at
the law offices of Daniel W. Jackson, Esq. on or before June 30, 1997 or at
such other time or place as may be mutually agreed upon in writing by the
parties. The Closing may also be accomplished by wire, express mail or other
courier service, conference telephone communications or as otherwise agreed by
the respective parties or their duly authorized representatives. In any
event, the closing of the transactions contemplated by this Plan shall be
effected as soon as practicable after all of the conditions contained herein
have been satisfied.
2.2 Closing Events. At the Closing, each of the respective parties
hereto shall execute, acknowledge and deliver (or shall cause to be executed,
acknowledged, and delivered) any agreements, resolutions, rulings, or other
instruments required by this Plan to be so delivered at or prior to Closing,
together with such other items as may be reasonably requested by the parties
hereto and their respective legal counsel in order to effectuate or evidence
the transaction contemplated hereby.
Section 3
Representations, Warranties and Covenants of EPAT
EPAT represents and warrants to, and covenants with, the EWS Shareholders
and EWS as follows:
3.1 Corporate Status. EPAT is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. EPAT has
full corporate power and is duly authorized, qualified, franchised, and
licensed under all applicable laws, regulations, ordinances, and orders of
public authorities to own all of its properties and assets and to carry on its
business on all material respects as it is now being conducted, and there is
no jurisdiction in which the character and location of the assets owned by it,
or the nature of the business transacted by it, requires qualification.
Included in the EPAT schedules (defined below) are complete and correct copies
of its Articles of Incorporation and Bylaws as in effect on the date hereof.
The execution and delivery of this Plan does not, and the consummation of the
transactions contemplated hereby will not, violate any provision of EPAT'
Articles of Incorporation or Bylaws. EPAT has taken all action required by
law, its Articles of Incorporation, its Bylaws, or otherwise, to authorize the
execution and delivery of this Plan.
3.2 Capitalization. The authorized capital stock of EPAT as of the date
hereof consists of 50,000,000 common shares, par value $0.001. The common
shares of EPAT issued and outstanding are fully paid, non-assessable shares.
There are no outstanding options, warrants, or calls or any understanding,
agreements, commitments, contracts or promises with respect to the issuance of
EPAT's common stock or with regard to any options, warrants or other
contractual rights to acquire any of EPAT's authorized but unissued common
shares.
3.3 Financial Statements.
(a) EPAT hereby warrants and covenants to the EWS and the EWS
Shareholders that the audited financial statements for the year ened December
31, 1996, and the unaudited financial statements for the period ended March
31, 1997, fairly and accurately represent the financial condition of EPAT and
that the same will be prepared along with the period ended as of the date of
Closing, for consolidation by an independent public accountant, which shall be
prepared in accordance with generally accepted accounting principles
consistently applied, on or before the expiration of forty-five days from the
date of Closing.
(b) EPAT hereby warrants and represents that the audited financial
statements for the periods set forth in subparagraph (a), supra, fairly and
accurately represent the financial condition of EPAT as submitted heretofore
to the EWS Shareholders for examination and review.
3.4 Conduct of Business. EPAT owns an exclusive license and patent
(Patent No. 5366701, assigned on November 22, 1994) in certain technology,
equipment and devices which employ the principles of Environmental Plasma Arc
Technology in emission, exhaust reduction, and purification systems
(hereinafter referred to as the "EPAT Technology").
Since 1992, it has been the intent of the Company to develop a plan to exploit
the EPAT Technology as an exclusive licensee. As of the date hereof, the
Company's inventory of systems utilizing the EPAT Technology ("EPAT Systems")
is limited to two demonstration/test models, one production model to be
utilized for beta testing purposes and one commercially viable model which the
Company feels is ready for market with a commercial value of approximately
$250,000.
The Company is pursuing and will continue to pursue opportunities to
market the EPAT Technology to potential customers as well as to pursue
strategic combinations with potential business partners in an attempt to
maximize the value of the EPAT Technology and the EPAT Systems.
EPAT will use its best efforts to maintain and preserve its business
organization, employee relationships and goodwill intact, and will not,
without the prior written consent of EWS, enter into any material commitments
except in the ordinary course of business.
3.5 Litigation. On April 25, 1997, the Company entered into a
confidential settlement agreement with the plaintiffs in the matter of Philip
and Mary Sarver v. Nu Arc Scientific, Edward and Carole Taylor, and
Environmental Plasma Arc Technology, Inc. As specified in such agreement, the
exact terms of this settlement agreement may not be disclosed,. The
settlement agreement releases the Company from any and all liabilities and
future liabilities with respect to the subject matter of this case. The
Company, however, maintains the right to pursue both Nu Arc Scientific and
Edward and Carole Taylor for indemnification of the settlement amount. There
are no other material actions, suits, or proceedings, pending, or, to the best
knowledge of EPAT, threatened by or against or effecting EPAT at law or in
equity, or before any governmental agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind; EPAT does not have any
knowledge of any default on its part with respect to any judgment, order,
writ, injunction, decree, warrant, rule, or regulation of any court,
arbitrator, or governmental agency or instrumentality.
3.6 Books and Records. From the date hereof, and for any reasonable
period subsequent thereto, EPAT and its present management will (i) give to
EWS and the EWS Shareholders or their duly authorized representatives, full
access, during normal business hours, to all of its books, records, contracts
and other corporate documents and properties so that the EWS Shareholders or
their duly authorized representatives, may inspect them; and (ii) furnish such
information concerning the properties and affairs of EPAT as EWS, the EWS
Shareholders or their duly authorized representatives, may reasonably request.
Any such request to inspect EPAT's books shall be directed to EPAT' counsel,
Daniel W. Jackson, at the address set forth herein under Section 10.4 Notices.
3.7 Confidentiality. Until the Closing (and thereafter if there is no
Closing), EPAT and its representatives will keep confidential any information
which they obtain from EWS or the EWS Shareholders concerning EWS, its
properties, assets and the proposed business operations of EWS. If the terms
and conditions of this Plan imposed on the parties hereto are not consummated
on or before 5:00 p.m. MDT on June 30, 1997 or otherwise waived or extended in
writing to a date mutually agreeable to the parties hereto, EPAT will return
to EWS all written matter with regard to EWS obtained in connection with the
negotiations or consummation of this Plan.
3.8 Conflict with Other Instruments. The transactions contemplated by
this Plan will not result in the breach of any term or provision of, or
constitute a default under any indenture, mortgage, deed of trust, or their
material agreements or instrument to which EPAT was or is a party, or to which
any of its assets or operations are subject, and will not conflict with any
provision of the Articles of Incorporation or Bylaws of EPAT.
3.9 Corporate Authority. EPAT has full corporate power and authority to
enter into this Plan and to carry out its obligations hereunder and will
deliver to EWS and the EWS Shareholders or their respective representatives,
at the Closing, a certified copy of resolutions of its Board of Directors
authorizing execution of this Plan by its officers and performance thereunder.
3.10 Consent of Shareholders. EPAT hereby warrants and represents that
the shareholders of EPAT, being the owners of a majority of the issued and
outstanding stock of the Corporation consented in writing to the authorization
to execute an Agreement and Plan of Reorganization as between EPAT and the EWS
Shareholders pursuant to a stock-for-stock transaction in which EPAT would
acquire eighty seven percent (87%) of the issued and outstanding shares of EWS
in exchange for the issuance of a total of 3,000,000 common shares of EPAT.
3.11 Special Covenants and Representations Regarding the Exchanged EPAT
Stock. The consummation of this Plan and the transactions herein contemplated
include the issuance of the exchanged EPAT shares to the EWS Shareholders,
which constitutes an offer and sale of securities under the Securities Act of
1933, as amended, and applicable states' securities laws. Such transaction
shall be consummated in reliance on exemptions from the registration and
prospectus requirements of such statutes which depend interlace on the
circumstances under which the EWS Shareholders acquire such securities. In
connection with the reliance upon exemptions from the registration and
prospectus delivery requirements for such transactions, at the Closing, EWS
Shareholders shall cause to be delivered to EPAT a Letter(s) of Investment
Intent in the form attached hereto as Exhibit B and incorporated herein by
reference.
3.12 Undisclosed or Contingent Liabilities. EPAT hereby represents and
warrants that it has no undisclosed or contingent liabilities which have not
been disclosed to EWS and the EWS Shareholders.
3.13 Information. The information concerning EPAT set forth in this
Plan, and the EPAT schedules attached hereto, are complete and accurate in all
material respects and do not contain, or will not contain, when delivered, any
untrue statement or a material fact or omit to state a material fact the
omission of which would be misleading to the EWS Shareholders in connection
with this Plan.
3.14 Title and Related Matters. EPAT has good and marketable title to
all of its properties, interests in properties, and assets, real and personal,
which are reflected, or will be reflected, in the EPAT balance sheets, free
and clear of any and all liens and encumbrances.
3.15 Contracts or Agreements. EPAT is not bound by any material
contracts, agreements or obligations which it has not already disclosed to
EWS.
3.16 Governmental Authorizations. EPAT has all licenses, franchises,
permits and other government authorizations that are legally required to
enable it to conduct its business in all material respects as conducted on the
date hereof.
3.17 Compliance with Laws and Regulations. EPAT has complied with all
applicable statutes and regulations of any federal, state, or other applicable
jurisdiction or agency thereof, except to the extent that noncompliance would
not materially and adversely effect the business, operations, properties,
assets, or condition of EPAT or except to the extent that noncompliance would
not result in the occurrence of any material liability, not otherwise
disclosed to EWS.
3.18 Approval of Plan. The Board of Directors of EPAT has authorized
the execution and delivery of this Plan by EPAT and have approved the Plan and
the transactions contemplated hereby. EPAT has full power, authority, and
legal right to enter into this Plan and to consummate the transactions
contemplated hereby.
3.19 Investment Intent. EPAT is acquiring the EWS shares to be
transferred to it under this Plan for investment and not with a view to the
sale or distribution thereof, and EPAT has no commitment or present intention
to liquidate EWS or to sell or otherwise dispose of the EWS shares.
3.20 Unregistered Shares and Access to Information. EPAT understands
that the offer and sale of the EWS shares have not been registered with or
reviewed by the Securities and Exchange Commission under the Securities Act of
1933, as amended, or with or by any state securities law administrator, and no
federal, state securities law administrator has reviewed or approved any
disclosure or other material concerning EWS or the EWS shares. EPAT has been
provided with and reviewed all information concerning EWS, the EWS shares as
it has considered necessary or appropriate as a prudent and knowledgeable
investor to enable it to make an informed investment decision concerning the
EWS shares. EPAT has made an investigation as to the merits and risks of its
acquisition of the EWS Shares and has had the opportunity to ask questions of,
and has received satisfactory answers from, the officers and directors of EWS
concerning EWS, the EWS shares and related matters, and has had an opportunity
to obtain additional information necessary to verify the accuracy of such
information and to evaluate the merits and risks of the proposed acquisition
of the EWS shares.
3.21 EPAT Schedules. EPAT has delivered to EWS the following items
listed below, hereafter referred to as the "EPAT Schedules", which is hereby
incorporated by reference and made a part hereof. A certification executed by
a duly authorized officer of EPAT on or about the date within the Plan is
executed to certify that the EPAT Schedules are true and correct.
(a) Copy of Articles of Incorporation, as amended, and Bylaws;
(b) Financial statements;
(c) Shareholder list;
(d) Resolution of Directors approving Plan;
(e) Officer's Certificate as required under Section 6.2 of the
Plan;
(f) Opinion of counsel as required under Section 6.4 of the Plan;
(g) Certificate of Good Standing;
(h) Consent of Shareholders approving Plan.
Section 4
Representations, Warranties and Covenants of EWS
EWS and the EWS Shareholders represent and warrant to, and covenant with,
EPAT as follows:
4.1 Corporate Status. EWS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada
incorporated on September 14, 1995. EWS has full corporate power and is duly
authorized, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities to own all of its
properties and assets and to carry on its business on all material respects as
it is now being conducted, and there is no jurisdiction in which the character
and location of the assets owned by it, or the nature of the business
transacted by it, requires qualification. Included in the EWS schedules
(defined below) are complete and correct copies of its Articles of
Incorporation and Bylaws as in effect on the date hereof. The execution and
delivery of this Plan does not, and the consummation of the transactions
contemplated hereby will not, violate any provision of EWS's Articles of
Incorporation or Bylaws. EWS has taken all action required by law, its
Articles of Incorporation, its Bylaws, or otherwise, to authorize the
execution and delivery of this Plan.
4.2 Capitalization. The authorized capital stock of EWS as of the date
hereof consists of 20,000,000 common shares, no par value. As of the date
hereof all common shares of EWS issued and outstanding are fully paid, non-
assessable shares. There are no outstanding options, warrants, or calls or
any understanding, agreements, commitments, contracts or promises with respect
to the issuance of the EWS Shareholders' common stock or with regard to any
options, warrants or other contractual rights to acquire any of EWS's
authorized but unissued common shares.
4.5 Conduct of Business. EWS has been in the business of manufacturing
and marketing water purification systems for commercial use.
EWS will use its best efforts to maintain and preserve its business
organization, employee relationships and goodwill intact, and will not,
without the prior written consent of EPAT, enter into any material commitments
except in the ordinary course of business.
EWS agrees that EWS will conduct itself in the following manner pending
the Closing:
(a) Certificate of Incorporation and Bylaws. No change will be
made in the Certificate of Incorporation or Bylaws of EWS.
(b) Capitalization, etc. EWS will not make any change in its
authorized or issued shares of any class, declare or pay any dividend or other
distribution, or issue, encumber, purchase or otherwise acquire any of its
shares of any class.
4.6 Options, Warrants and Rights. There are no existing options,
warrants, calls, or commitments of any character relating to the authorized
and unissued EWS common stock, except options, warrants, calls, or
commitments, if any, to which EWS is not a party and by which it is not bound.
4.7 Title to Property. EWS has good and marketable title to all of its
properties and assets, real and personal, proprietary or otherwise, as will be
reflected in the balance sheets of EWS, and the properties and assets of EWS
are subject to no mortgage, pledge, lien or encumbrance, unless as otherwise
disclosed in its financial statements.
4.8 Litigation. There are no material actions, suits, or proceedings,
pending, or, to the best knowledge of EWS, threatened by or against or
effecting EWS at law or in equity, or before any governmental agency or
instrumentality, domestic or foreign, or before any arbitrator of any kind;
EWS does not have any knowledge of any default on its part with respect to any
judgment, order, writ, injunction, decree, warrant, rule, or regulation of any
court, arbitrator, or governmental agency or instrumentality.
4.9 Books and Records. From the date hereof, and for any reasonable
period subsequent thereto, EWS and its present management will (i) give to
EPAT or its duly authorized representatives, full access, during normal
business hours, to all of its books, records, contracts and other corporate
documents and properties so that EPAT or its duly authorized representatives,
may inspect them; and (ii) furnish such information concerning the properties
and affairs of EWS as EPAT or its duly authorized representatives, may
reasonably request. Any such request to inspect EWS's books shall be directed
to EWS's representative, at the address set forth herein under Section 10.4
Notices.
4.10 Confidentiality. Until the Closing (and thereafter if there is no
Closing), EWS and its representatives will keep confidential any information
which they obtain from EPAT its shareholders concerning its properties, assets
and the proposed business operations of EPAT. If the terms and conditions of
this Plan imposed on the parties hereto are not consummated on or before 5:00
p.m. MST on June 30, 1997 or otherwise waived or extended in writing to a date
mutually agreeable to the parties hereto, EWS will return to EPAT all written
matter with regard to EPAT obtained in connection with the negotiations or
consummation of this Plan.
4.11 Investment Intent. The Shareholders represent and covenant that
they are acquiring the unregistered and restricted common shares of EPAT to be
delivered to them under this Plan for investment purposes and not with a view
to the subsequent sale or distribution thereof, and as agreed, supra, the EWS
Shareholders, their successors and assigns agree to execute and deliver to
EPAT on the date of Closing or no later than the date on which the restricted
shares are issued and delivered to the EWS Shareholders, their assigns, or
designees, an Investment Letter similar in form to that attached hereto as
Exhibit B.
4.12 Unregistered Shares and Access to Information. EWS and the EWS
Shareholders understand that the offer and sale of EPAT shares to be exchanged
for the EWS shares have not been registered with or reviewed by the securities
and Exchange Commission under the Securities Act of 1933, as amended, or with
or by any state securities law administrator, and no federal or state
securities law administrator has reviewed or approved any disclosure or other
material facts concerning EPAT or EPAT stock. EWS and the EWS Shareholders
have been provided with and reviewed all information concerning EPAT and EPAT
shares, to be exchanged for the EWS shares as they have considered necessary
or appropriate as prudent and knowledgeable investors to enable them to make
informed investment decisions concerning the EPAT shares, to be exchanged for
the EWS shares. EWS and the EWS Shareholders have made an investigation as to
the merits and risks of their acquisition of the EPAT shares, to be exchanged
for the EWS shares and have had the opportunity to ask questions of, and have
received satisfactory answers from, the officers and directors of EPAT
concerning EPAT shares to be exchanged for the EWS shares and related matters,
and have had an opportunity to obtain additional information necessary to
verify the accuracy of such information and to evaluate the merits and risks
of the proposed acquisition of the EPAT shares to be exchanged for the EWS
shares.
4.13 Title to Shares. The EWS Shareholders are the beneficial and
record owners, free and clear of any liens and encumbrances, of whatever kind
or nature, of all of the shares of EWS of whatever class or series, which the
Shareholders have contracted to exchange.
4.14 Contracts.
(a) Set forth in the EWS Schedules are copies or descriptions of
all material contracts which written or oral, all agreements, franchises,
licenses, or other commitments to which EWS is a party or by which EWS or its
properties are bound.
(b) Except as may be set forth in the EWS Schedules, EWS is not a
party to any contract, agreement, corporate restriction, or subject to any
judgment, order, writ, injunction, decree, or award, which materially and
adversely effect the business, operations, properties, assets, or conditions
of EWS.
(c) Except as set forth in the EWS Schedules, EWS is not a party to
any material oral or written (i) contract for employment of any officer which
is not terminable on 30 days (or less) notice; (ii) profit sharing, bonus,
deferred compensation, stock option, severance, or any other retirement plan
of arrangement covered by Title IV of the Employee Retirement Income Security
Act, as amended, or otherwise covered; (iii) agreement providing for the sale,
assignment or transfer of any of its rights, assets or properties, whether
tangible or intangible, except sales of its property in the ordinary course of
business with a value of less than $2,000; or (iv) waiver of any right of any
value which in the aggregate is extraordinary or material concerning the
assets or properties scheduled by EWS, except for adequate value and pursuant
to contract. EWS has not entered into any material transaction which is not
listed in the EWS Schedules or reflected in the EWS financial statements.
4.15 Material Contract Defaults. EWS is not in default in any material
respect under the terms of any contract, agreement, lease or other commitment
which is material to the business, operations, properties or assets, or
condition of EWS, and there is no event of default or event which, with notice
of lapse of time or both, would constitute a default in any material respect
under any such contract, agreement, lease, or other commitment in respect of
which EWS has not taken adequate steps to prevent such default from occurring,
or otherwise compromised, reached a satisfaction of, or provided for
extensions of time in which to perform under any one or more contract
obligations, among others.
4.16 Conflict with Other Instruments. The consummation of the within
transactions will not result in the breach of any term or provision of, or
constitute a default under any indenture, mortgage, deed of trust, or material
agreement or instrument to which EWS was or is a party, or to which any of its
assets or operations are subject, and will not conflict with any provision of
the Articles of Incorporation or Bylaws of EWS.
4.17 Governmental Authorizations. EWS has all licenses, franchises,
permits and other government authorizations that are legally required to
enable it to conduct its business in all material respects as conducted on the
date hereof. Except for compliance with federal and state securities laws, no
authorization, approval, consent or order of, or registration, declaration, or
filing with, any court or other governmental body is required in connection
with the execution and delivery by the EWS Shareholders of this Plan and the
consummation by the EWS Shareholders of the transactions contemplated hereby.
4.18 Compliance with Laws and Regulations. EWS has complied with all
applicable statutes and regulations of any federal, state, or other applicable
jurisdiction or agency thereof, except to the extent that noncompliance would
not materially and adversely effect the business, operations, properties,
assets, or condition of EWS or except to the extent that noncompliance would
not result in the occurrence of any material liability, not otherwise
disclosed to EPAT.
4.19 Approval of Plan. The Board of Directors of EWS have authorized
the execution and delivery of this Plan by EWS and the EWS Shareholders and
have approved the Plan and the transactions contemplated hereby. EWS and the
EWS Shareholders have full power, authority, and legal right to enter into
this Plan and to consummate the transactions contemplated hereby.
4.20 Information. The information concerning EWS set forth in this
Plan, and the EWS Schedules attached hereto, are complete and accurate in all
material respects and do not contain, or will not contain, when delivered, any
untrue statement or a material fact or omit to state a material fact the
omission of which would be misleading to EPAT in connection with this Plan.
4.21 EWS Schedules. EWS has delivered to EPAT the following items
listed below, hereafter referred to as the "EWS Schedules", which are hereby
incorporated by reference and made a part hereof. A certification executed by
a duly authorized officer of EWS on or about the date within the Plan is
executed to certify that the EWS Schedules are true and correct.
(a) Copy of Articles of Incorporation and Bylaws;
(b) Financial Statements
(c) Resolution of Board of Directors approving Plan;
(d) Consent of Shareholders approving Plan;
(e) A list of key employees, including current compensation,
with notation as to job description and whether or not such employee is
subject to written contract, and if subject to a contract or employment
agreement, a copy of the same;
(f) A schedule showing the name and location of each bank or
other institution with which EWS has an account and the names of the
authorized persons to draw thereon or having access thereto;
(g) A schedule setting forth the shareholders, together with the
number of shares owned beneficially or of record by each (also attached as
Exhibit A);
(h) A schedule setting forth copies or descriptions of all
material contracts which written or oral, all agreements, franchises,
licenses, or other commitments to which EWS is a party or by which EWS or its
properties are bound.
(i) Officer's Certificate as required by Section 7.2 of the
Plan;
(j) Certificate of Good Standing.
Section 5
Special Covenants
5.1 EWS Information Incorporated in EPAT's Reports. EWS represent and
warrant to EPAT that all the information furnished under this Plan shall be
true and correct in all material respects and that there is no omission of any
material fact required to make the information stated not misleading. EWS and
the EWS Shareholders agree to indemnify and hold EPAT harmless, including each
of its Directors and Officers, and each person, if any, who controls such
party, under any applicable law from and against any and all losses, claims,
damages, expenses or liabilities to which any of them may become subject under
applicable law, or reimburse them for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
actions, whether or not resulting in liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based on
any untrue statement, alleged untrue statement, or omission of a material fact
contained in such information delivered hereunder.
5.2 Special Covenants and Representations Regarding the Exchanged EPAT
Stock. The consummation of this Plan and the transactions herein
contemplated, including the issuance of the EPAT shares in exchange for eighty
seven percent (87%) of the issued and outstanding shares of EWS to the
shareholders of EPAT constitutes the offer and sale of securities under the
Securities Act and the applicable state statutes, which depend, inter alia, on
the circumstances under which the EWS Shareholders acquire such securities.
EPAT intends to rely on the exemption of the registration provision of Section
5 of the Securities Act as provided for under Section 4.2 of the Securities
Act of 1933, which states "transactions not involving a public offering",
among others. Each Shareholder upon submission of his EWS shares and the
receipt of the EPAT shares exchanged therefor, shall execute and deliver to
EPAT a letter of investment intent to indicate, among other representations,
that the EWS Shareholder is exchanging the EWS shares for EPAT shares for
investment purposes and not with a view to the subsequent distribution
thereof. A proposed Investment Letter is attached hereto as Exhibit B and
incorporated herein by reference for the general use by the Shareholders, as
they may determine.
5.3 Action Prior to Closing. Upon the execution hereof until the
Closing date, and the completion of the consolidated audited financials,
(a) EWS and EPAT will (i) perform all of its obligations under
material contracts, leases, insurance policies and/or documents relating to
its assets and business; (ii) use its best efforts to maintain and preserve
its business organization intact, to retain its key employees, and to maintain
its relationship with existing potential customers and clients; and (iii)
fully comply with and perform in all material respects all duties and
obligations imposed on it by all federal and state laws and all rules,
regulations, and orders imposed by all federal or state governmental
authorities.
(b) Neither EWS nor EPAT will (i) make any change in its Articles
of Incorporation or Bylaws except and unless as contemplated pursuant to
Section 3 of this Plan; (ii) enter into or amend any contract, agreement, or
other instrument of the types described in the parties' schedules, except that
a party may enter into or amend any contract or other instrument in the
ordinary course of business involving the sale of goods or services, provided
that such contract does not involve obligations in excess of $10,000.
Section 6
Conditions Precedent to Obligations of
EWS and the EWS Shareholders
All obligations of EWS and the EWS Shareholders under this Plan are
subject to the satisfaction, on or before the Closing date, except as
otherwise provided for herein, or waived or extended in writing by the parties
hereto, of the following conditions:
6.1 Accuracy of Representations. The representations and warranties
made by EPAT in this Plan were true when made and shall be true as of the
Closing date (except for changes therein permitted by this Plan) with the same
force and effect as if such representations and warranties were made at and as
of the Closing date; and, EPAT shall have performed and complied with by EPAT
prior to the Closing, unless waived or extended in writing by the parties
hereto. EWS shall have been furnished with a certificate, signed by a duly
authorized executive officer of EPAT and dated the Closing date, to the
foregoing effect.
6.2 Officers' Certificate. EWS and the EWS Shareholders shall have been
furnished with a certificate dated the Closing date and signed by a duly
authorized executive officer of EPAT, to the effect that no litigation,
proceeding, investigation, or inquiry is pending, or to the best knowledge of
EPAT, threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Plan, or which might
result in any material adverse change in the assets, properties, business, or
operations of EPAT.
6.3 No Material Adverse Change. Prior to the Closing date, there shall
have not occurred any material adverse change in the final condition, business
or operations of EPAT, nor shall any event have occurred which, with lapse of
time or the giving of notice or both, may cause or create any material adverse
change in the financial condition, business or operations of EPAT, except as
otherwise disclosed to EWS.
6.4 Opinion of Counsel of EPAT. EPAT shall furnish to EWS and the EWS
Shareholders an opinion dated as of the Closing date and in form and substance
satisfactory to the EWS Shareholders to the effect that:
(a) EPAT is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Nevada, and with all requisite
corporate power to perform its obligations under this Plan.
(b) The business of EPAT, as presently conducted, including, upon
the consummation hereof, the ownership of eighty seven percent (87%) of the
issued and outstanding shares of EWS, does not require it to register it to do
business as a foreign corporation on any jurisdiction other than under the
jurisdiction of its Articles of Incorporation or Bylaws and EPAT has complied
to the best of its knowledge in all material respects with all the laws,
regulations, licensing requirements and orders applicable to its business
activities and has filed with the proper authorities, including the Department
of Commerce, Division of Corporations, and Secretary of State for the State of
Nevada, all statements and reports required to be filed.
(c) The authorized and outstanding capital stock of EPAT as set
forth in Section 3.2 above, and all issued and outstanding shares have been
duly and validly authorized and issued and are fully paid and non-assessable.
(d) To the best knowledge of such counsel, the consummation of the
transactions contemplated by this Plan will not violate or contravene the
provisions of the Certificate of Incorporation or Bylaws of EPAT, or any
contract, agreement, indenture, mortgage, or order by which EPAT is bound.
(e) This Plan constitutes a legal, valid and binding obligation of
EPAT enforceable in accordance with its terms, subject to the effect of any
bankruptcy, insolvency, reorganization, moratorium, or similar law effecting
creditors' rights generally and general principles of equity (regardless of
whether such principles are considered in a proceeding in equity or law).
(f) The execution and delivery of this Plan and the consummation of
the transactions contemplated hereby have been ratified by a majority of the
shareholders of EPAT and have been duly authorized by its Board of Directors.
6.5 Good Standing. The EWS Shareholders shall have received a
Certificate of Good Standing from the State of Nevada, dated within sixty (60)
days prior to Closing, but in no event later than ten days subsequent to the
execution hereof certifying that EPAT is in good standing as a corporation in
the State of Nevada.
6.6 Other Items. EWS shall have received such further documents,
certifications or instruments relating to the transactions contemplated hereby
as the EWS Shareholders may reasonably request.
Section 7
Conditions Precedent to Obligations of EPAT
All obligations of EPAT under this Plan are subject, at its option, to
the fulfillment, before the Closing, of each of the following conditions:
7.1 Accuracy of Representations. The representations and warranties
made by the EWS Shareholders under this Plan were true when made and shall be
true as of the Closing date (except for changes therein permitted by this
Plan) with the same force and effect as if such representations and warranties
were made at and as of the Closing date; and, EPAT shall have performed and
complied with by the EWS Shareholders prior to the Closing, unless waived or
extended in writing by the parties hereto. EPAT shall have been furnished
with a certificate, signed by a duly authorized executive officer of EWS and
dated the Closing date, to the foregoing effect.
7.2 Officers' Certificate. EPAT shall have been furnished with a
certificate dated the Closing date and signed by a duly authorized executive
officer of EWS, to the effect that no litigation, proceeding, investigation,
or inquiry is pending, or to the best knowledge of EWS, threatened, which
might result in an action to enjoin or prevent the consummation of the
transactions contemplated by this Plan, or which might result in any material
adverse change in the assets, properties, business, or operations of EWS.
7.3 No Material Adverse Change. Prior to the Closing date, there shall
have not occurred any material adverse change in the final condition, business
or operations of EPAT, nor shall any event have occurred which, with lapse of
time or the giving of notice or both, may cause or create any material adverse
change in the financial condition, business or operations of EWS, except as
otherwise disclosed to EPAT.
7.4 Good Standing. EPAT shall have received a Certificate of Good
Standing from the State of Nevada, dated within sixty (60) days prior to
Closing, but in no event later than ten days subsequent to the execution
hereof certifying that EWS is in good standing as a corporation in the State
of Nevada.
7.5 Dissenters' Rights Waived. The EWS Shareholders, and each of them,
have agreed and hereby waive any dissenters' rights, if any, under the laws of
the State of Nevada in regards to any objection to this Plan as outlined
herein and otherwise consent to and agree and authorize the execution and
consummation of the within Plan in accordance to the terms and conditions of
this Plan by the management of EWS.
7.6 Other Items. EPAT shall have received such further documents,
certifications or instruments relating to the transactions contemplated hereby
as EPAT may reasonably request.
7.7 Execution of Investment Letter. The Shareholders shall have
executed and delivered copies of Exhibit B to EPAT.
Section 8
Termination
8.1 Termination by EWS or the EWS Shareholders. This Plan may be
terminated at any time prior to the Closing date by action of EWS or the EWS
Shareholders, if EPAT shall fail to comply in any material respect with any of
the covenants or agreements contained in this Plan, or if any of its
representations and warranties contained herein shall be inaccurate in any
material respect.
8.2 Termination by EPAT. This Plan may be terminated at any time prior
to the Closing date by action of EPAT if EWS or the EWS Shareholders shall
fail to comply in any material respect with any of the covenants or agreements
contained in this Plan, or if any of its representations or warranties
contained herein shall be inaccurate in any material respect.
8.3 Termination by Mutual Consent
(a) This Plan may be terminated at any time prior to the Closing
date by mutual consent of EPAT, expressed by action of its Board of Directors,
EWS, or the EWS Shareholders.
(b) If this Plan is terminated pursuant to Section 8, this Plan
shall be of no further force and effect and no obligation, right or liability
shall arise hereunder. Each party shall bare its own costs in connection
herewith.
Section 9
EWS Shareholders' Representative
The EWS Shareholders hereby irrevocably designate and appoint Theron
John, 405 West 115th Avenue, Suite 4, Northglenn, Colorado 80234 as their
agent and attorney in fact (the "EWS Shareholders' Representative") with full
power and authority until the Closing to execute, deliver and receive on their
behalf all notices, requests and other communications hereunder; to fix and
alter on their behalf the date, time and place of the Closing; to waive, amend
or modify any provisions of this Plan and to take such other action on their
behalf in connection with this Plan, the Closing and the transactions
contemplated hereby as such agent deems appropriate; provided, however, that
no such waiver, amendment or modification may be made if it would decrease the
number of shares to be issued to the EWS Shareholders under Section 1 hereof
or increase the extent of their obligation to EPAT hereunder, unless agreed in
writing by the EWS Shareholders.
Section 10
General Provisions
10.1 Further Assurances. At any time, and from time to time, after the
Closing date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of the Plan.
10.2 Payments of Estimated Costs and Fees. EPAT and EWS mutually
determine and agree that EWS shall pay the estimated costs and fees incurred
in connection with the execution and consummation of the Plan.
10.3 Press Release and Shareholders' Communications. On the date of
Closing, or as soon thereafter as practicable, the EWS Shareholders shall
cause to have promptly prepared and disseminated a news release concerning the
execution and consummation of the Plan, such press release and communication
to be released promptly and within the time required by the laws, rules and
regulations as promulgated by the United States Securities and Exchange
Commission, and concomitant therewith to cause to be prepared a full and
complete letter to EPAT's shareholders which shall contain information
required by Regulation 240.14f-1 as promulgated under Section 14(f) as
mandated under the Securities and Exchange Act of 1934, as amended.
10.4 Notices. All notices and other communications required or
permitted hereunder shall be sufficiently given if personally delivered, sent
by registered mail, or certified mail, return receipt requested, postage
prepaid, or by facsimile transmission addressed to the following parties
hereto or at such other addresses as follows:
If to EPAT: Environmental Plasma Arc Technology, Inc.
Attention: John W. Peters
215 South State Street, Suite 1100
Salt Lake City, Utah 84111
With a copy to: Daniel W. Jackson, Esq.
215 South State Street, Suite 1100
Salt Lake City, Utah 84111
If to EWS: Environmental Water Systems
Attention: Theron John
405 West 115th Avenue, Suite 4,
Northglenn, Colorado 80234
If to the EWS Shareholders: Theron John
405 West 115th Avenue, Suite 4,
Northglenn, Colorado 80234
or at such other addresses as shall be furnished in writing by any party in
the manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered, mailed, sent
by facsimile transmission, or telegraphed.
10.5 Entire Agreement. This Plan represents the entire agreement
between the parties relating to the subject matter hereof, including any
previous letters of intent, understandings, or agreements between EPAT, EWS
and the EWS Shareholders with respect to the subject matter hereof, all of
which are hereby merged into this Plan, which alone fully and completely
expresses the agreement of the parties relating to the subject matter hereof.
Excepting the foregoing agreement, there are no other courses of dealing,
understandings, agreements, representations, or warranties, written or oral,
except as set forth herein.
10.6 Governing Law. This Plan shall be governed by and construed and
enforced in accordance with the laws of the State of Utah, except to the
extent preempted by federal law, in which event (and to that extent only)
federal law shall govern.
10.7 Tax Treatment. The transaction contemplated by this Plan is
intended to qualify as a "tax-free" reorganization under the provisions of
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. EWS
and the EWS Shareholders and EPAT acknowledge, however, that each are being
represented by their own tax advisors in connection with this transaction, and
neither has made any representations or warranties to the other with respect
to treatment of such transaction or any part or effect thereof under
applicable tax laws, regulations or interpretations; and no attorney's opinion
or tax revenue ruling has been obtained with respect to the tax consequences
of the transactions contemplated by the within Plan.
10.8 Attorney Fees. In the event that any party prevails in any action
or suit to enforce this Plan, or secure relief from any default hereunder or
breach hereof, the nonprevailing party or parties shall reimburse the
prevailing party or parties for all costs, including reasonable attorney fees,
incurred in connection therewith.
10.9 Amendment of Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law or in equity, and may be enforced concurrently or separately, and no
waiver by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, therefore, or
thereafter occurring or existing. Any time prior to the expiration of thirty
(30) days from the date hereof, this Plan may be amended by a writing signed
by all parties hereto, with respect to any of the terms contained herein, and
any term or condition of this Plan may be waived or the time for performance
thereof may be extended by a writing signed by the party or parties for whose
benefit the provision is intended.
10.10 Counterparts. This Plan may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which together shall constitute one and the same
instruments.
10.11 Headings. The section and subsection headings in this Plan are
inserted for convenience only and shall not effect in any way the meaning or
interpretation of the Plan.
10.12 Parties in Interest. Except as may be otherwise expressly
provided herein, all terms and provisions of this Plan shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
beneficiaries, personal and legal representatives, and assigns.
IN WITNESS WHEREOF, the parties have executed this Plan and Agreement of
Reorganization effective the day and year first set forth above.
ENVIRONMENTAL PLASMA ARC TECHNOLOGY, INC.
Attest:
/s/ Malinda Madsen By: /s/John W. Peters
- ------------------ ------------------
Its President
ENVIRONMENTAL WATER SYSTEMS, INC.
Attest:
/s/ Lindsey Mounteer By: /s/ Theron John
- -------------------- ---------------
Its President
SHAREHOLDERS:
Attest:
/s/ Theron John By: /s/ Dan W. Clark
- --------------- ----------------
Attest:
/s/ Theron John By: /s/ Brandon John
- --------------- ----------------
Attest:
/s/ Theron John By: /s/ Jason Padillo
- --------------- -----------------
Attest:
/s/ Theron John By: /s/ Trent John
- --------------- --------------
<Letterhead of Crouch, Bierwolf & Chisholm>
Certified Public Accountants
50 West Broadway, Suite 1130
Salt Lake City, Utah 84101
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, dated April 9, 1998, in this
annual report on Form 10-K for Earth Products and Technologies, Inc.
/s/ Crouch, Bierwolf & Chisholm
Crouch, Bierwolf & Chisholm
April 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,210
<SECURITIES> 0
<RECEIVABLES> 40,161
<ALLOWANCES> 0
<INVENTORY> 54,563
<CURRENT-ASSETS> 97,934
<PP&E> 191,511
<DEPRECIATION> 26,334
<TOTAL-ASSETS> 777,274
<CURRENT-LIABILITIES> 616,208
<BONDS> 0
0
0
<COMMON> 7,287
<OTHER-SE> 123,420
<TOTAL-LIABILITY-AND-EQUITY> 777,274
<SALES> 83,473
<TOTAL-REVENUES> 83,473
<CGS> 94,911
<TOTAL-COSTS> 94,911
<OTHER-EXPENSES> 505,003
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,640
<INCOME-PRETAX> (513,381)
<INCOME-TAX> 502
<INCOME-CONTINUING> (513,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (513,883)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
