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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1997
Commission File Number: 0-19471
PAN ENVIRONMENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 91-1632888
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
19239 Aurora Avenue North
Shoreline, WA 98133-3930
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (206) 546-9660
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
There was no revenue for the fiscal year ended December 31, 1997.
As of December 31, 1997, the aggregate number of shares of Common Stock held by
non-affiliates was 752,565 shares. For purposes of this disclosure, shares of
Common Stock held by persons who hold more than 10% of the outstanding shares of
Common Stock and shares held by officers and directors of the registrant have
been excluded because these persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily conclusive for other
purposes. Since there was no established market for the registrant's Common
Stock, the registrant cannot estimate the market value for such shares. See Item
5.
As of December 31, 1997, the aggregate number of shares outstanding of the
registrant's Common Stock was 3,188,163.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote Security Holders 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Matters 18
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act 19
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners and
Management 20
Item 12. Certain Relationships and Related Transactions 22
Item 13. Exhibits 24
</TABLE>
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PART I
ITEM 1. BUSINESS
General
Until December 31, 1994, PAN Environmental Corporation, a Delaware
corporation (the "Company"), supervised the operations of businesses engaged in
the reclamation, remediation, and recycling of industrial waste materials and
by-products. The Company provided its operating companies with accounting,
planning, budgeting and other administrative services. The Company also provided
technical environmental management support to each of its operating companies.
Prior to January 2, 1995, the Company had acted as a holding company,
with all daily operations and revenue generation occurring at the operating
subsidiary level. The Company employed two persons and had offices in Seattle,
Washington.
The Company undertook a comprehensive program of business restructuring
and debt reduction due to the failure of equity financing efforts undertaken in
1994. The Company completed the divestiture of all of its subsidiaries on
January 2, 1995. There were no revenues from the divested companies during
January 1995.
Advantage Parking Lot Service, Inc. ("Advantage"), a subsidiary engaged
in the manufacture and sale of asphalt-based slurry sealants since 1986, was
sold to its principal officer, Ronald Williams, effective January 2, 1995. Mr.
Williams was the founder and principal shareholder of Advantage prior to its
March 1993 acquisition by the Company. The terms of the agreement with Williams
included a write-off by the Company of $166,000 advanced to Advantage by the
Company and a return to the Company's treasury of 183,722 shares of the
Company's common stock held by Williams. Advantage operated a slurry sealer
manufacturing plant in Fontana, California and in 1993 and 1994 completed a
major plant expansion, subject to a large amount of encumbering debt. When the
Company lost its financing with Credit Lyonnais in 1994, it could not finance
nor bond any of Advantage's projects and therefore the subsidiary became a
burden to the Company. Advantage ceased operations immediately upon being
reacquired by Ronald Williams.
MRR Construction Services, Inc. ("MRR") performed environmental
construction management and construction activities, as well as soil remediation
activities, throughout Southern California, throughout 1993. When the Company
lost its financing with Credit Lyonnais in 1994, it could not finance nor bond
any of MRR's projects and therefore the subsidiary became a burden to the
Company. MRR was sold to Roaul Wheeler, in exchange for forgiveness of a $50,000
advance owed to MRR by the Company. During 1994, MRR became embroiled in a
significant litigation matter on a project in Cerritos, California. As a result
of this
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litigation, and a lack of working capital, MRR suspended its operations in the
third quarter of 1994, and had not resumed operations prior to its divestiture
by the Company.
Northwest Specialties, Inc. ("Northwest") had reclaimed timber and
commodity metals, primarily from obsolete railroad telecommunications and
signaling systems in the Midwest, Rocky Mountain and Eastern regions of the
United States, since 1993. Northwest operated on active and inactive railroad
right-of-ways, extracting utility poles, wire and other metal salvage. The
poles, other timber products, wire and other metals were then sorted, graded,
and processed for resale. Northwest completed approximately 65% of an 800 mile
project in North Dakota for Canadian Pacific Railroad and had several projects
under contract for large regional and short-line railroads. Northwest had
significantly reduced the seasonality of its work during 1994 by expanding its
reclamation activities into regions with less severe winter weather conditions.
Northwest employed nine persons. When the Company lost its financing with Credit
Lyonnais in 1994, it could not finance nor bond any of Northwest's projects and
therefore the subsidiary became a burden to the Company. Northwest was sold back
to Orland Howard in exchange for the forgiveness by Northwest of a contingent
liability to the Company to finance operations of Northwest, estimated to be
approximately $300,000.
The Company undertook to acquire the stock of Glengarry Investment Fund
Company on September 30, 1994. The Company purported to enter into the
acquisition and issued 1,003,334 shares of Class A Series Preferred Stock on
that date. Subsequent to that date, as a result of investigations undertaken by
the Company, it came to light that the signatory signing on behalf of a 40%
shareholder of Glengarry was not authorized to sign on the shareholder's behalf.
In subsequent negotiations, that shareholder declined to agree to the exchange
of its share holdings in Glengarry for Class A Series Preferred shares of the
Company. As a result of subsequent negotiations, the agreement was amended and
ratified by the remaining shareholders of Glengarry. On March 3, 1995, the
Company thought it had completed the acquisition of a 60% interest in Glengarry
in exchange for 620,000 shares of its Class A Series Preferred stock; however,
Glengarry subsequently voided the acquisition in its entirety, and all Preferred
shares issued were cancelled. Glengarry is a real estate company, organized in
May 1993 to own and develop residential and commercial income properties and
vacant land.
Attempted Acquisition of Oil and Gas Properties
In November and December 1995, the Company attempted to acquire oil and
gas properties in a business combination agreement with Maximum Resources, Inc.
("Maximum"), a Vancouver Stock Exchange company, and two other companies, NP
Energy Corporation ("NP"), a U. S. over the counter electronic bulletin board
(OTCBB) company, and Polaris Equities, Inc. ("Polaris"), a U. S. private
company.
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The business combination agreement would have taken the following form:
each of the above three oil and gas companies would set up a U. S. subsidiary
into which they would vend in selected oil and gas properties. These three
subsidiaries would then be acquired in a reverse takeover transaction wherein
the Company would issue 4,000,000 new restricted Rule 144 common shares each to
Maximum, NP and Polaris in exchange for acquiring one hundred percent (100%) of
the issued and outstanding common shares of their three U. S. subsidiaries.
Since the Company did not have the necessary funds to do its
accounting, audits, 10-Q's, 10-K's and legal work, Maximum, NP and Polaris
agreed to advance the necessary funds to complete the work. In March and April
1996, Maximum, NP and Polaris defaulted on their obligations to advance the
necessary funds and the proposed business combination agreement was never
consummated.
Settlement Agreement and Cancellation of 1994 Stock Option Plan
In August 1994, the shareholders of the Company adopted the 1994 Stock
Option Plan, canceling and superseding all prior stock option plans. The Plan
permitted the Compensation and Stock Option Committee to issue options for up to
3,500,000 shares of common stock at various prices for purposes of compensation
for services rendered by officers, employees, directors and consultants to the
Company and its subsidiaries. As of December 31, 1994, the Company had issued
3,102,000 options, including 100,000 at $0.001 per share and 3,002,000 at $0.55
per share. The Plan generally provided for these options to be exercisable for a
period of ten years from the date of grant.
This Plan was cancelled in 1995. Thereafter the Board of Directors
authorized issuance of 720,000 Rule 144 restricted shares to be issued,
effective January 2, 1996, pursuant to a December 5, 1995 Settlement Agreement,
pro rata to the participants in the Stock Option Plan in exchange for the
participants giving up all right, title and interest in any accrued salary,
accrued employee benefits, whether separate or under an employee benefit plan,
accrued commissions or fees, reimbursements, stock options, contracts,
agreements or any other relationship due from or with the Company.
Search for Suitable Acquisitions
As a result of its divestitures, the Company substantially reduced its
overall debt load and its operating expenses, however it was left with no assets
and no revenue-producing business activities. The Company focused its attention
during 1995, 1996 and 1997 upon the acquisition of a company or companies with
sufficient capital to sustain the acquired operations, so as to improve its
business prospects before returning to the equity markets. During 1995, 1996 and
1997, the Company was unable to locate or consummate any suitable acquisitions.
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The Company will continue to seek, investigate, and, if warranted,
acquire an interest in a business opportunity. The Company does not propose to
restrict its search for a business opportunity to any particular industry or
geographical area and may therefore engage in essentially any business in any
industry. Business opportunities available to the Company may be in the form of
companies which have recently commenced operations or with established
operations, which desire to establish a public trading market for their common
stock. Because of rapid technological advances being made in certain industries
and shortages of available capital, management believes that there are numerous
business entities seeking the benefits of a publicly-traded corporation. The
perceived benefits of a publicly-traded corporation may include facilitating or
improving the terms upon which additional equity financing may be sought,
providing liquidity for the needs of principal shareholders, creating a means
for providing incentive stock options or similar benefits to key employees and
other factors.
The selection of a business opportunity in which to participate is
complex and extremely risky and may be made on management's analysis of the
quality of the other company's management and personnel, the anticipated
acceptability of new products or services, the merit of technological changes,
and numerous other factors which are difficult to analyze through the
application of any objective criteria. Consequently, the Company's potential
success is heavily dependent on the Company's management, which will have
virtually unlimited discretion in searching for and entering into an acquisition
of an interest in a business opportunity. There is no assurance that the Company
will be able to identify and acquire any business opportunity which will
ultimately prove to be beneficial to the Company and its shareholders. It is
anticipated that business opportunities will be available to the Company from
various sources, including its officers and directors, professional advisors
such as attorneys and accountants, securities broker-dealers, venture
capitalists, members of the financial community, and others who may present
unsolicited proposals.
In implementing a structure for a particular business acquisition, the
Company is likely to become party to a merger or other business reorganization
with another corporation. Generally, when a public company combines with an
existing private company, the transaction is accomplished through a
reorganization in which the companies merge or the shareholders of the public
company ultimately receive a minority interest in the combined companies. As a
result, if a transaction of this nature were consummated, it is likely that the
present management and shareholders of the Company will not be in control of the
Company. In addition, a majority or all of the Company's directors are likely
to, as part of the terms of the acquisition transaction, resign and be replaced
by new directors without a vote of the Company's shareholders. Furthermore, the
board of directors acting without shareholder approval, has authority to issue
any part or all of the authorized but unissued common stock of the Company.
Consequently, the current business of the Company is to provide a
mechanism to take advantage of business opportunities which management
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believes may arise from time to time. On occasion, the Company enters into
discussions with the principals of potential opportunity companies. The Company
recently entered into preliminary discussions with an existing private business
involved in providing wholesale services on the Internet. If these discussions
result in an agreement, of which there is no assurance, it is anticipated that
the acquisition would be structured as discussed in the preceding paragraph, and
that the shareholders of the Company would receive a minority interest in the
combined companies.
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM
10-KSB CONTAIN FORWARD-LOOKING STATEMENTS WHICH MAY INVOLVE RISKS AND
UNCERTAINTIES OR DEAL WITH POTENTIAL FUTURE CIRCUMSTANCES AND DEVELOPMENTS. THE
COMPANY'S ACTUAL RESULTS OR FUTURE EXPERIENCE MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS OR POTENTIAL DEVELOPMENTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
THE COMPANY HAS ATTEMPTED TO IDENTIFY CERTAIN OF THE FACTORS THAT IT CURRENTLY
BELIEVES MAY CAUSE ACTUAL FUTURE EXPERIENCE AND RESULTS TO DIFFER FROM ITS
CURRENT EXPECTATIONS REGARDING THE RELEVANT MATTER OR SUBJECT AREA. FACTORS THAT
MIGHT CAUSE THIS DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS
DISCUSSED IN THIS BUSINESS SECTION INCLUDING "ADDITIONAL RISK FACTORS AFFECTING
FUTURE PERFORMANCE" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS."
Accounting, Financial Statements and Debt Settlements
During the last quarter of 1997, the Company worked to complete all
documentation necessary to bring the Company into compliance with SEC
requirements as a reporting company. This included finishing all accounting for
1994, 1995, 1996 and 1997; preparing quarterly financial statements for the
quarters ended March 31, June 30 and September 30, of 1995, 1996 and 1997; and
obtaining certified audits of the yearly financial statements for the years
ended December 31, 1994, 1995, 1996 and 1997. In addition, the Company is
working diligently at completing settlement agreements with creditors of the
Company so that it would be possible to locate and consummate a suitable
acquisition.
Common Share Issuances for Debt Settlements, Services or Financings
Bristol Media, Ltd. is a dba of TCKTS, L.L.C., a business entity of
which Clifford M. Johnston is a principal. In March 1996 the Company issued an
aggregate total of 180,000 shares of restricted common stock to Clifford M.
Johnston or Bristol Media, Ltd., to be used to negotiate settlements with
various creditors of the Company. Mr. Johnston intends to use the stock to
obtain settlements with judgment creditors Kenneth Williams, Robert Bickel and
John Douthwaite as indicated in the following two paragraphs.
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In March 1997 the Company issued 50,000 common shares of restricted
Rule 144 common stock to Clifford M. Johnston for consulting services. Mr.
Johnston intends to use the shares to negotiate settlements with Kenneth
Williams and Robert Bickel, judgment creditors of the Company in the amounts of
$121,809 and $122,709 respectively. Mr. Williams has agreed to settle for 25,000
shares, but Mr. Bickel has not. Negotiations are ongoing.
In March 1997 the Company issued 130,000 shares of restricted Rule 144
common stock to Bristol Media, Ltd. Bristol intends to use the shares to settle
with John Douthwaite dba MarketArt, a judgment creditor of the Company in the
amount of $8,000. The settlement agreement for this transaction, subject to the
issuance of the shares, was executed on March 26, 1997; however, since the
shares were not issued by September 26, 1997 as agreed, the settlement amount is
now in question. Bristol will continue its negotiations and/or legal efforts.
In December 1997 the Company issued 160,000 shares of restricted Rule
144 common shares to Stephen M. Roake IRA and to Bristol Media, Ltd. The Company
agreed to issue 60,000 shares to Roake for $15,000 cash and 100,000 shares to
Bristol for consideration of $25,000 consisting of cash paid on behalf of the
Company or for services rendered to the Company. The $40,000 of consideration
was used for legal fees, accounting fees, past audit fees, current audit fees,
transfer agent fees and payment of small cash loans to the Company. This
consideration of $40,000 is expected to be sufficient to enable the Company to
obtain certified audits for 1994, 1995, 1996 and 1997 and to file all 10-K's and
10-Q's from 1994 through December 31, 1997 to bring the Company current with the
SEC in its reporting requirements.
In January 1996 the Company issued 450,000 shares of restricted Rule
144 common stock in escrow to Douglas Millard, Escrow Agent, for the purpose of
paying off or settling $225,000 of accrued trade debt, accrued taxes payable and
accrued interest. In December of 1997 the Company agreed to use 189,804 shares
of the 450,000 shares for the purpose of settling out $94,902 of accrued
interest owed to Stephen M. Roake IRA, and in preventing the accrual of any
further interest as discussed in Item 3 below.
ADDITIONAL RISK FACTORS AFFECTING FUTURE PERFORMANCE
Absence of Revenue-Producing Operations
The Company has produced no revenues during the last three fiscal years
and is seeking to acquire an interest in a business opportunity. If a business
combination is consummated, the Company will be subject to all the risks of the
acquired business, which may be a start-up or developmental-stage corporation.
Any purchase of securities of the Company during this stage of its development
must be seen as speculative, along with the placing of funds at a high risk in
an
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undetermined or start-up venture with all of the unforeseen costs, expenses,
problems and difficulties to which the future business may be subject.
No Assurance of Acquisition or of Profitability
There can be no assurance that the Company will be able to acquire or
enter into a business opportunity, or, if a business acquisition is consummated,
that the business can be operated profitably or develop into a successful
business. Profitability will depend on many factors, including the success of
the Company's marketing program, the control of expense levels and the success
of the Company's business activities.
Dependence upon Inexperienced, Part-time Management
The Company's management has had limited experience in seeking,
investigating or acquiring interests in business opportunities. The selection of
a business opportunity in which to participate is complex and extremely risky
and will be made on management's analysis of the quality of the other company's
management and personnel, the anticipated acceptability of new products or
services, the merit of technological changes, and numerous other factors which
are difficult to analyze through the application of any objective criteria. The
Company's potential success and its shareholders are dependent on the Company's
management, which will have virtually unlimited discretion in searching for and
entering into an acquisition of an interest in a business opportunity.
Additionally, the directors of the Company may be involved in other business
activities which compete for their time, and will devote only such time as they
deem necessary to manage the business of the Company.
Lack of Opportunity for Shareholders to Evaluate Details of Acquisition
The proposed business acquisition transaction is expected to be
accomplished through a reorganization in which the companies merge or the
shareholders of the Company ultimately receive a minority interest in the
combined companies. The board of directors acting without shareholder approval,
has authority to issue any part or all of the authorized but unissued common
stock of the Company. As a result, shareholders will be unable to evaluate for
themselves the economic merit of the investments that the Company may make.
Loss of Control of Company by Shareholders
The Company may elect to acquire an interest in a business opportunity
through a business reorganization involving the issuance by the Company of
additional shares of common stock. Although shareholder approval would be
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required to authorize additional shares, the board of directors, acting without
shareholder approval has authority to issue any part or all of the authorized
but unissued stock of the Company. It is likely that shares representing a
majority of the issued and outstanding common stock of the Company will be
issued to the shareholders of the business to be acquired. If issued, the
percentage of ownership of the Company by present shareholders will be reduced,
and existing shareholders will not be in control of the Company.
Lack of Continuity of Management
A majority or all of the Company's officers and directors are likely
to, as part of the terms of the acquisition transaction, resign and be replaced
by new directors without a vote of the Company's shareholders. Accordingly,
shareholders will be relying not only on the present management of the Company,
but also on the successors who may be designated and appointed by present
management.
Impracticality of Exhaustive Investigation
The lack of Company funds and of full-time management will likely make
it impracticable to conduct a complete and exhaustive investigation and analysis
of a business opportunity before the Company has committed its resources.
Management's decisions will likely be made without detailed feasibility studies,
independent analyses, and market surveys, which would be desirable if the
Company had funds available.
Lack of Diversification
The limited resources of the Company make it unlikely that the Company
will be able to acquire an interest in more than one business opportunity.
Accordingly, the Company will be subject to the risks associated with lack of
diversification. Shareholders in the Company should understand that the success
or failure of any business opportunity acquired by the Company will have a
substantial effect on the Company.
Financial Statement Reporting Requirements
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act") and is required to file
certain information about significant acquisitions, including audited financial
statements for the company acquired for one or two year periods, depending on
the size of the acquisition. Consequently, acquisition prospects that are unable
to obtain the required audited financial information may not be appropriate for
the Company as
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long as the Company is subject to the Exchange Act, and management will be
limited in its selection of a business opportunity.
Possible Need for Future Financing
Even if a business combination or acquisition is successfully
completed, there can be no assurance that the working capital of the Company, if
any, will be sufficient to successfully implement the Company's business plan or
meet its financing requirements. In addition, the Company may experience rapid
growth after commencing its new operations and may require additional funds to
expand its operations or enlarge its organization. There can be no assurance
that additional financing will be available when needed or on terms favorable to
the Company. Subsequent financing may further reduce the percentage of ownership
of the Company held by present shareholders.
No Present Market for Securities
There is presently a limited market for the Company's securities.
Although the Company intends, if possible, to establish a more active trading
market on the NASD Electronic Bulletin Board, there can be no assurance that an
active trading market for the Company's securities will be developed or
maintained, or that shares of the Company's common stock may be resold at any
price.
Risk of Possible Internet Business and Technological Obsolescence
The Company recently entered into preliminary discussions with an
existing private business involved in providing wholesale services on the
Internet. If these discussions result in an agreement, of which there is no
assurance, the Company could enter an emerging market subject to rapid
technological change. The Internet is rapidly evolving and is characterized by
an increasing number of market entrants who have introduced or developed
products and services for communication and commerce. As is typical in the case
of a new and rapidly evolving industry, demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty. The industry is young and has few proven products. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use, access, and quality of service) remain
unresolved and may impact the growth of Internet use. There can be no assurance
that commerce and communication over the Internet will become widespread, or
that any business acquired by the Company related to Internet traffic will
succeed.
For example, the Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone or timely development of complementary
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products, such as high speed modems. There can be no assurance that the
infrastructure or complementary products necessary to make the Internet a viable
commercial marketplace will be developed, or if developed, that the Internet
will become a viable commercial marketplace. If the necessary infrastructure or
complementary products are not developed, or if the Internet does not become a
viable commercial marketplace, any proposed Internet business will be unlikely
to succeed.
ITEM 2. PROPERTIES
The Company had no assets nor any property, other than the shares
issued to settle out previous option-holders of PAN and the shares issued in
escrow to settle out debt.
Since May 1996, the Company has utilized office space at the offices of
Valhalla Financial Group, L.L.C. Valhalla was previously at 6912-220th Street
SW, Mountlake Terrace, Washington 98043, and since September 1997 is located at
19239 Aurora Avenue North, Shoreline, Washington 98133. To date, the Company has
used this space free of charge and anticipates that it will continue to do so in
the foreseeable future, or until a business acquisition is consummated.
ITEM 3. LEGAL PROCEEDINGS
A shareholder of the Company sued the Company in March 1995 for a
default of the company's share repurchase agreement and obtained a default
judgment against the Company of $200,909. The Company, through Valhalla
Financial Group, L.L.C., has worked out a settlement of this matter for $225,000
through a proposed sale of the 150,000 shares owned by the shareholder which
underlie the share repurchase agreement. Under the terms of the settlement
agreement and extension thereof, the proceeds of the proposed sale must be
received by the shareholder by December 31, 1998 for the judgment to be
satisfied. At the end of 1997, the Company agreed to use 189,804 shares of the
450,000 shares issued to Douglas Millard, Escrow Agent, for the purpose of
settling out $94,902 of accrued interest owed to Stephen M. Roake IRA, and in
preventing the accrual of any further interest.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to the shareholders during 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is no established trading market for shares of the company's
Common Stock. Although the Company's Common Stock is quoted on the OTC Bulletin
Board from time to time, such quotations are limited, sporadic and often
volatile. Accordingly, shareholders may find it difficult to dispose of, or to
obtain accurate quotations as to the price of the Common Stock. In addition, the
Common Stock is subject to "penny stock" rules that impose restrictive sales
practice and market making requirements on broker-dealers who sell and/or make a
market in the Common Stock. This may affect the willingness of broker-dealers to
sell and/or make a market in the Common Stock as well as the ability of
shareholders to sell the Common Stock in the secondary market. The following
table sets forth the quarterly high and low bid prices for the Company's Common
Stock during 1996 and 1997. Quotations set forth below reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not represent
actual transactions. As of December 31, 1997 there were approximately 325
holders of record of the Company's Common Stock.
<TABLE>
<CAPTION>
Quarter Year High Low
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<S> <C> <C> <C>
Jan-Mar 1996 .125 .125
Apr-Jun 1996 .130 .125
Jul-Sep 1996 .063 .063
Oct-Dec 1996 .125 .063
Jan-Mar 1997 .125 .125
Apr-Jun 1997 .313 .125
Jul-Sep 1997 .313 .063
Oct-Dec 1997 .270 .094
</TABLE>
Dividends
No dividends on Common Stock of the Company have been paid and no such
payment is anticipated in the foreseeable future.
Recent Sales of Unregistered Securities; Use of Proceeds from Sales of
Unregistered Securities
1995
On November 1, 1995, the Company sold 28,000 shares of its Common Stock
for aggregate cash consideration of $7,000. The issuance of these shares
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was deemed exempt from the registration provision of the Securities Act in
reliance upon Section 4(2) of the Securities Act, as a transaction by an issuer
not involving a public offering.
On December 1, 1995 the Company issued 22,000 shares of its Common
Stock for services rendered at a deemed value of $11,000 to Valhalla Financial
Group, L.L.C. The services rendered were for consulting fees incident to the
Company's proposed acquisition of oil and gas properties. The issuance of these
shares was deemed exempt from the registration provision of the Securities Act
in reliance upon Section 4(2) of the Securities Act, as a transaction by an
issuer not involving a public offering.
1996
On January 2, 1996, the Company issued 116,000 shares of its Common
Stock for services rendered at a deemed value of $58,000 to Jerry Cornwell. The
services rendered were for past services rendered to the Company as CEO of the
Company. The issuance of these shares was deemed exempt from the registration
provision of the Securities Act in reliance upon Section 4(2) of the Securities
Act, as a transaction by an issuer not involving a public offering.
On January 2, 1996, the Company issued 168,436 shares of its Common
Stock for consideration of $84,218 to Jerry Cornwell. The stock was issued to
settle out a cash loan by Jerry Cornwell to the Company in 1993 and 1994 which
was used for working capital. The issuance of these shares was deemed exempt
from the registration provision of the Securities Act in reliance upon Section
4(2) of the Securities Act, as a transaction by an issuer not involving a public
offering.
On January 2, 1996, the Company issued 155,600 shares of its Common
Stock for an aggregate cash consideration of $77,800 to Bristol Ltd. The stock
was issued to settle out a cash loan to the Company in 1993 in the amount of
$17,800 and for services rendered to the Company in the amount of $60,000 for
consulting fees incident to the corporate reorganization in early 1993. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.
On January 2, 1996, the Company issued 450,000 shares of its Common
Stock into escrow for debt settlement at a deemed value of $225,000 to Douglas
Millard, Escrow Agent. The shares were issued for the purpose of settling out
accrued trade debt, accrued taxes payable and $94,902 of accrued interest. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.
On February 2, 1996, the Company issued 31,318 shares of its Common
Stock for services rendered to the Company at a deemed value of $15,659 to
14
<PAGE> 15
Valhalla Financial Group, L.L.C. The stock was issued for services rendered to
the Company incident to a proposed acquisition of oil and gas properties. The
issuance of these shares was deemed exempt from the registration provision of
the Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.
1997
On February 25, 1997, the Company issued 50,000 shares of its Common
Stock for debt settlement at a deemed value of $25,000 to Clifford M. Johnston.
The stock was issued for purposes of settling out judgments against the Company
obtained by Robert Bickel in the amount of $122,709 and by Ronald Williams in
the amount of $121,809. The issuance of these shares was deemed exempt from the
registration provision of the Securities Act in reliance upon Section 4(2) of
the Securities Act, as a transaction by an issuer not involving a public
offering.
On March 26, 1997, the Company issued 130,000 shares of its Common
Stock for debt settlement of a judgment against the Company to Bristol Media,
Ltd. The stock was issued for purposes of settling out a judgment against the
Company obtained by John Douthwaite in the amount of $8,000. The issuance of
these shares was deemed exempt from the registration provision of the Securities
Act in reliance upon Section 4(2) of the Securities Act, as a transaction by an
issuer not involving a public offering.
On December 11, 1997, the Company 160,000 shares of its Common Stock
for an aggregate consideration of $40,000 to Stephen M. Roake IRA (60,000
shares) and to Bristol Media, Ltd (100,000 shares). The consideration of $40,000
was used for legal fees, accounting fees, past audit fees, current audit fees,
transfer agent fees and payment of small cash loans to the Company. The issuance
of these shares was deemed exempt from the registration provision of the
Securities Act in reliance upon Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has produced no revenues during the last three fiscal years
and is seeking to acquire an interest in a business opportunity. If a business
combination is consummated, the Company will be subject to all the risks of the
acquired business, which may be a start-up or developmental-stage corporation.
If a business acquisition is consummated, there can be no assurance that the
business can be operated profitably or develop into a successful business.
Profitability will depend on many factors, including the success of the
Company's marketing program the control of expense levels and the success of the
Company's business activities. The Company may incur substantial operating
losses after the proposed business acquisition. The Company's ability to
continue its operations is
15
<PAGE> 16
also dependent upon the availability of additional capital. See "Liquidity and
Capital Resources".
The results of operations for the year ending December 31, 1997 reflect
an operating loss of $118,062, compared to a loss of $117,695 for the year
ending December 31, 1996. Included in the $118,062 loss were the $70,611 in
losses recorded due to shares issued for consulting fees incident to the
Williams and Bickel settlements, to shares issued incident to the Douthwaite
settlement, to legal and accounting expenses incident to certified audits and
preparation of 10-K's and 10-Q's, increased expenses due to the correction of
accounts payable amounts, and $47,451 in accrued interest on the $200,909
default judgment obtained against the Company for a default in a share
repurchase agreement with a shareholder of the Company.
Included in the $117,695 loss for December 31, 1996 were the $61,541 in
losses recorded due to expenses for services rendered incident to attempts to
acquire oil and gas properties in late 1995 and early 1996 and $47,451 in
accrued interest on the $200,909 default judgment obtained against the Company
for a default in a share repurchase agreement with a shareholder of the Company.
The accumulated deficit at December 31, 1997 was $1,598,674, compared
to $1,480,612 at December 31, 1996. The Company sponsored no research and
development during fiscal 1997, 1996 or 1995. The rate of inflation as measured
by changes in the consumer price index had no effect on the revenues or net
earnings of the Company in its two most recent fiscal years.
There was no provision for federal income tax for the years ended
December 31, 1997, 1996, 1995 or 1994 as the Company incurred net operating
losses.
Liquidity and Capital Resources; Plan of Operation
As of December 31, 1997, the Company had no cash reserves or cash
equivalents. During the last two fiscal years, the Company has financed itself
through the issuance of common stock and through capital contributions from
certain shareholders. At December 31, 1997, the Company had no current assets
and current liabilities of $762,851, resulting in a working capital deficiency
of $762,851. This can be compared to no current assets and current liabilities
of $718,788 at December 31, 1996, and a working capital deficiency of $718,788.
Current liabilities include judgments payable totaling $453,427. See
"Legal Proceedings" and Notes to Financial Statements.
In light of the Company's significant working capital deficiency, the
Company's independent auditor included an explanatory paragraph in his audit
opinion with respect to the Company's 1997 financial statements which indicated
substantial doubt about the Company's ability to continue as a going concern.
Due
16
<PAGE> 17
to the plans of the Company to acquire a business entity having sufficient
assets and cash flow to enable the Company to be self-sufficient and to raise
additional working capital through equity financing, the financial statements
were prepared on the assumption that the Company would continue its operations
as a going concern, rather than based on the assumption of liquidation. The
factors leading to, and the existence of, the explanatory paragraph may
materially adversely affect the Company's ability to acquire a business entity
or obtain financing.
The Company is attempting to settle with certain of its creditors
through the issuance of common stock. However, the Company's ability to satisfy
its debt obligations and settle with judgment creditors may ultimately depend
upon the future operating performance of an acquired business entity, the
performance of which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
There is no assurance that the Company's operating cash flow will be sufficient
in the near term to meet its operating expenses or to service debt requirements
as they become due. Furthermore, there can be no assurance that the Company will
be able to acquire a business entity having sufficient assets and cash flow to
enable the Company to be self-sufficient.
If the Company is unable to settle with its creditors or service its
indebtedness, or acquire a solvent business entity, it will be forced to adopt
an alternative strategy that may include actions such as restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all, and the implementation of any of these alternative strategies
could have a negative impact on the Company's operations, financial condition,
and capital structure, and may be dilutive to existing stockholders.
The Company has no bank line or credit arrangements. Subsequent to a
business acquisition, if any, the Company's losses may continue. There can be no
assurance that the Company will ever achieve profitability. Whether or not a
business acquisition is completed, it is likely that the Company will require
additional capital to fund its operations. If equity financing is attempted,
there can be no assurance that additional financing will be available when
needed or on terms favorable to the Company.
If a business acquisition is consummated, the Company's actual working
capital needs will then depend upon numerous factors, including the extent and
timing of acceptance of the Company's products in the market, the Company's
operating results, the progress of the Company's research and development
activities, the cost of increasing the Company's sales and marketing activities,
the status of competitive products, and the continued availability of working
capital and equity financing, none of which can be predicted at this point in
time.
The inability to locate a business acquisition or obtain financing
would have a material adverse effect on the Company's operations. The Company
could be
17
<PAGE> 18
required to suspend its operations or sell additional securities on terms that
are highly dilutive to current investors in the Company.
ITEM 7. FINANCIAL STATEMENTS
Attached hereto and incorporated herein by this reference are audited
financial statements for the fiscal years ending December 31, 1997, 1996 and
1995.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Terrence J. Dunne, CPA, Suite 900 Washington Trust Building, West 717
Sprague, Spokane, Washington 99204 retained in 1993 as auditor of this
corporation resigned and declined to continue as the Company's auditor for 1994
and succeeding years. The former accountant's report for the fiscal year ended
December 31, 1993 contained a qualification in which the auditor expressed
uncertainty about the Company's ability to continue as a going concern.
There were no reportable disagreements with the former accountant on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
The resignation of Mr. Dunne and appointment of William L. Butcher,
CPA, P. O. Box 1035, Lynnwood, Washington 98046-1035, as auditor for the
corporation for 1994 and succeeding years effective November 1997 was approved
by the Board of Directors.
18
<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company as of December 31,
1997 were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerry Cornwell 59 President, Chief Executive Officer and Director
Roaul L. Wheeler 70 Secretary, Treasurer and Director
</TABLE>
Officers are appointed by and serve at the pleasure of the Board of
Directors. There are no family relationships between any director or officer of
the Company, nor are there any arrangements or understandings between any
director or officer and any other person pursuant to which such director or
officer was elected to serve. The named officers and directors devote only such
time as may be necessary to the company's business and affairs.
Jerry Cornwell was President and Chief Executive Officer of the Company
from January 1993 until March 15, 1995 when Dennis Brewer was appointed
President and Chief Executive Officer. Mr. Cornwell reassumed his position as
President and Chief Executive Officer on June 19, 1995 when Dennis Brewer
resigned. For the prior ten years, he was principal of Corn-Mill Enterprises, a
business investment advisory firm. Mr. Cornwell was previously President and
Chief Executive Officer of J. A. Cornwell, Inc., a land reclamation and
irrigation development firm, from 1975 to 1983.
Roaul L. Wheeler has served as Director and Secretary of the Company
since March 1994. Mr. Wheeler also assumed the duties of Treasurer in February
1995 upon the resignation of Ronald E. Williams. Previously, Mr. Wheeler served
as Vice President of Phoenix Construction Services, Inc., a privately held
construction management firm operating in Southern California. Prior to that,
Mr. Wheeler was an asphalt sealing and paving contractor for more than twenty
years.
Compliance with Section 16(a) of the Exchange Act
Based solely on review of the copies of the forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that Clifford M. Johnston
failed to file 2 monthly reports covering 3 transactions on Form 4, but did
report the
19
<PAGE> 20
transactions on his 1997 year end report on Form 5; and that Jerry Cornwell
failed to file 2 monthly reports covering 2 transactions but did report the
transactions on his 1997 year end report on Form 5.
ITEM 10. EXECUTIVE COMPENSATION
During fiscal year ended December 31, 1997, Jerry Cornwell was issued
116,000 restricted Rule 144 common shares authorized on January 2, 1996 at a
stated value of $0.50 per share for $58,000 in past services rendered. No other
executive officer's salary and bonus exceeded $10,000 during any of the
company's last three fiscal years.
There were no cash bonus, deferred compensation plans, or stock option
plans in effect at December 31, 1997. The Company does not maintain or
contribute to any pension or retirement plan in which the directors or executive
officers of the Company are participants or are entitled to receive benefits,
but the Board of Directors may recommend one or more programs for adoption in
the future. No stock options were issued by the Company in 1997.
Directors received no cash compensation for serving on the Board of
Directors or its committees during the year ended December 31, 1997.
The Company had no obligations under any executive compensation
agreements as of December 31, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Option Other
Principle Position Year Salary Grants Compensation
- ------------------ ---- ------ ------ ------------
<S> <C> <C> <C> <C>
Jerry Cornwell 1997 -0- -0- -0-
President, CEO 1996 -0- -0- $58,000
1995 -0- -0- -0-
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, the beneficial
ownership of Common Stock of all directors of the Company, all directors and
officers of the Company as a group, and each person who is known to the Company
to own beneficially more than 5% of the Company's Common Stock.
20
<PAGE> 21
<TABLE>
<CAPTION>
Name and Address Amount / Nature Percent
of Beneficial Owner of Ownership (1) of Class
- ------------------- ------------ --------
<S> <C> <C>
Jerry Cornwell (2) 1,131,613 35.49%
14424 SE 78th Way
Newcastle, WA 98059
Orland L. Howard 204,255 6.41%
P. O. Box 206A
Rochert, MN 56578
Roaul L. Wheeler 149,746 4.70%
P. O. Box 1423
Chino, CA 91708
Stephen M. Roake IRA 226,666 7.11%
10650 Riviera Place NW
Seattle, WA 98125
Douglas Millard, Escrow Agent 450,000 14.11%
for debt settlement
3818 South Court Street
Seattle, WA 98144
Clifford M. Johnston (3) 413,318 12.97%
19111 3rd Avenue NW
Shoreline, WA 98133
All officers and directors
as a group 1,281,359 40.19%
</TABLE>
(1) Pursuant to applicable rules of the Securities and Exchange Commission,
"beneficial ownership" as used in this table means the sole or shared power to
vote shares (voting power) or the sole or shared power to dispose of shares
(investment power). Unless otherwise indicated, the named individual has sole
voting and investment power with respect to the shares shown as beneficially
owned. In addition, a person is deemed the beneficial owner of those securities
not outstanding which are subject to options, warrants, rights or conversion
privileges if that person has the right to acquire beneficial ownership within
sixty days.
(2) Because of his sole or shared investment power over the Company's common
stock beneficially owned by the corporation and limited liability company, Jerry
Cornwell is deemed beneficial owner of the 295,096 shares owned by XXX
Enterprises Corp. and 385,600 shares owned by Bristol Media, Ltd.
21
<PAGE> 22
(3) Because of his shared investment power over the Company's common stock
beneficially owned by the limited liability companies, Clifford M. Johnston is
deemed beneficial owner of the 133,318 shares owned by Valhalla Financial Group,
L.L.C. and 230,000 shares owned by Bristol Media, Ltd.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company issued 50,000 common shares of restricted Rule 144 common
stock to Clifford M. Johnston for consulting services. Mr. Johnston intends to
use the shares to negotiate settlements with Kenneth Williams and Robert Bickel,
judgment creditors of the Company in the amounts of $121,809 and $122,709
respectively. Mr. Williams has agreed to settle for 25,000 shares, but Mr.
Bickel has not. Negotiations are ongoing.
The Company has issued 130,000 shares of restricted Rule 144 common
stock to Bristol Media, Ltd. Bristol intends to use the shares to settle out
John Douthwaite dba MarketArt, a judgment creditor of the Company in the amount
of $8,000. The settlement agreement for this transaction, subject to the
issuance of the shares, was executed on March 26, 1997; however, since the
shares were not issued by September 26, 1997 as agreed, the settlement amount is
now in question. Bristol will continue its negotiations and/or legal efforts.
The Company has issued 160,000 shares of restricted Rule 144 common
shares to Stephen M. Roake IRA and to Bristol Media, Ltd. The Company agreed to
issue 60,000 shares to Roake for $15,000 cash and 100,000 to Bristol for
consideration of $25,000 consisting of cash paid on behalf of the Company or for
services rendered to the Company. The consideration of $40,000 was used for
legal fees, accounting fees, past audit fees, current audit fees, transfer agent
fees and payment of small cash loans to the Company. The consideration of
$40,000 is sufficient to enable the Company to obtain certified audits for 1994,
1995, 1996 and 1997 and to file all 10-K's and 10-Q's from 1994 through December
31, 1997 to bring the Company completely current with the SEC in its reporting
requirements. The Company will then seek an appropriate merger partner.
In 1996, the Company issued 450,000 shares of restricted Rule 144
common stock in escrow to Douglas Millard, Escrow Agent, for the purpose of
paying off or settling $225,000 of accrued trade debt, accrued taxes payable and
accrued interest. At the end of 1997, the Company agreed to use 189,804 shares
of the 450,000 shares for the purpose of settling out $94,902 of accrued
interest owed to Stephen M. Roake IRA, and in preventing the accrual of any
further interest as shown in Item 3 above.
22
<PAGE> 23
ITEM 13. EXHIBITS
The following documents are filed as part of this report:
(1) Exhibits.
The exhibits required to be filed by this report are listed in the
Exhibit Index on pages 24 and 25.
(2) Audited Financial Statements for the years ended December 31, 1997,
December 31, 1996, and December 31, 1995.
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 Plan of Reorganization and Merger of Aster Development Enterprises
Ltd. into PAN Environmental Services, Inc. Reference is made to
Exhibit 1 of the Company's 8-K filed on March 25,1993 which is
incorporated herein by reference.
2.2 Plan of Reorganization between PAN Environmental Services,
Inc. and Northwest Specialties, Inc., a Minnesota corporation,
Advantage parking Lot Service, Inc., a California corporation,
and MRR Construction Services, Inc., a California corporation.
Reference is made to Exhibit 2 of the Company's 8-K filed on
March 25, 1993 which is incorporated herein by reference.
2.3 Divestiture Agreement between Pan Environmental Corporation and
Northwest Specialties, Inc. Reference is made to Exhibit 2.3 of the
Company's 10-K for the year ended December 31, 1995 which is
incorporated herein by reference.
2.4 Divestiture Agreement between Pan Environmental Corporation and
Advantage Parking Lot Service, Inc. Reference is made to Exhibit 2.4
of the Company's 10-K for the year ended December 31, 1995 which
is incorporated herein by reference.
2.5 Divestiture Agreement between Pan Environmental Corporation and
MRR Construction Services, Inc. Reference is made to Exhibit 2.5 of
the Company's 10-K for the year ended December 31, 1995 which is
incorporated herein by reference.
3.1 Articles of Incorporation of Aster Development Enterprises.
Reference is made to Exhibit 3.1 of the Company's January 31,
1993 10-K which is incorporated herein by reference.
3.2 Articles of Incorporation of Pan Environmental Services, Inc.
Reference is made to Exhibit 3.2 of the Company's January 31,
1993 10-K and to Exhibit 3.1 of the Company's December 31,
1993 10-K which are incorporated herein by reference.
3.3 Fiscal year change from January 31, 1993 to December 31, 1993.
Reference is made to the Company's form 8-K filed March 2, 1994
which is incorporated herein by reference.
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.4 Restated Certificate of Incorporation of P.A.N. Environmental
Services Corporation changing name to PAN Environmental
Corporation filed with the State of Delaware on February 22,
1994. Reference is made to Exhibit 3.2 of the Company's Form
8-K filed March 2, 1994 which is incorporated herein by
reference.
3.5 Bylaws of P.A.N. Environmental Services Corporation. Reference
is made to Exhibit 3.2 of the Company's January 31, 1993 10-K
and to Exhibit 3.2 of the Company's December 31, 1993 10-K
which are incorporated herein by reference.
3.6 Amended and Restated Bylaws of PAN Environmental Corporation.
Reference is made to Exhibit 3.4 of the Company's Form 8-K
filed March 2, 1994 which is incorporated herein by reference.
10.1 The 1994 Employee Benefit Stock Plan. Reference is made to Exhibit
10.1 of the Company's December 31, 1994 10-K which is
incorporated herein by reference.
10.2 The December 7, 1995 Settlement Agreement. Reference is made to
Exhibit 10.2 of the Company's December 31, 1995 10-K which is
incorporated herein by reference.
10.3 The December 7, 1995 Settlement and Option Agreement with
Stephen M. Roake IRA, a shareholder of the Company. Reference is
made to Exhibit 10.3 of the Company's December 31, 1995 10-K
which is incorporated herein by reference.
10.4 December 1, 1997 Extension of Settlement and Option Agreement
dated December 7, 1995 and Addendum to Agreements dated
December 7, 1995 and December 1, 1997 with Stephen M. Roake
IRA.
10.5 February 25, 1997 Settlement Agreement with Kenneth J. Williams.
10.6 March 26, 1997 Settlement Agreement with John Douthwaite.
16.1 Consent of previous auditor, Terrence J. Dunne, CPA.
27 Financial Data Schedule
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K Report for the Year ended December 31, 1997, has been signed
below by the following persons on behalf of the Registrant and in the capacity
and on the date indicated.
December 31, 1997
PAN ENVIRONMENTAL CORPORATION
A DELAWARE CORPORATION
by
<TABLE>
<S> <C>
/s/ Jerry Cornwell /s/ Jerry Cornwell
- -------------------------------- -------------------------------
Jerry Cornwell Jerry Cornwell
Agent on behalf of the Company President, CEO
/s/ Roaul L. Wheeler /s/ Jerry Cornwell
- -------------------------------- ------------------------------
Roaul L. Wheeler Jerry Cornwell, Director
Secretary/Treasurer
/s/ Roaul L. Wheeler
-------------------------------
Roaul L. Wheeler, Director
</TABLE>
26
<PAGE> 27
PAN ENVIRONMENTAL CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, DECEMBER 31, 1996, AND DECEMBER 31, 1995
<PAGE> 28
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report 1
Statement of Financial Position at
December 31, 1997, December 31, 1996,
and December 31, 1995 2
Statement of Operations for the Years Ended
December 31, 1997, December 31, 1996,
and December 31, 1995 3
Statement of Changes in Stockholders'
Equity for the Years Ended December 31, 1997,
December 31, 1996, and December 31, 1995 4
Statement of Cash Flows for the Years Ended
December 31, 1997, December 31, 1996, and
December 31, 1995 6
Notes to Consolidated Financial Statements 7-9
</TABLE>
<PAGE> 29
[WILLIAM L. BUTCHER, CPA P.S. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors of
PAN Environmental Corporation
I have audited the accompanying consolidated statement of financial position of
PAN Environmental Corporation (formerly known as Aster Development Enterprises,
Ltd.) and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PAN
Environmental Corporation and the consolidated results of operations, changes
in stockholders' equity and cash flows for the years ended December 31, 1997,
December 31, 1996, and December 31, 1995 and 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. As is shown in the
consolidated financial statements, the Company has incurred continued operating
losses and has a working capital deficiency. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding those matters are described in note 5 to the
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ WILLIAM L. BUTCHER, CPA P.S.
-----------------------------
William L. Butcher, CPA P.S.
Everett, Washington
January 6, 1998
- --------------------------------------------------------------------------------
<PAGE> 30
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF FINANCIAL POSITION AT
DECEMBER 31, 1997, DECEMBER 31, 1996, and DECEMBER 31, 1995
- ------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS
----------- ----------- -----------
Total current assets -0- -0- -0-
OTHER ASSETS
Settlement agreement - principals 360,000 360,000 -0-
Escrowed shares for debt, Millard account 225,000 225,000 -0-
----------- ----------- -----------
Total other assets 585,000 585,000 -0-
----------- ----------- -----------
TOTAL ASSETS $ 585,000 $ 585,000 $ -0-
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 4) $ 448,245 $ 451,633 $ 505,752
Accrued wages -0- -0- 58,000
Taxes payable 18,795 18,795 10,092
Judgment payable (Note 3) 200,909 200,909 200,909
Accrued judgment interest (Note 3) 94,902 47,451 -0-
Loans from officer -0- -0- 84,218
Notes payable -0- -0- 17,800
----------- ----------- -----------
Total current liabilities 762,851 718,788 876,771
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
50,000,000 shares authorized;
1,126,809 shares issued and
outstanding at December 31, 1995,
2,848,163 issued and outstanding
at December 31, 1996, and
3,188,163 issued and outstanding
at December 31, 1997 3,188 2,848 1,127
Additional paid-in capital 1,417,635 1,343,976 485,019
Accumulated deficit (1,598,674) (1,480,612) (1,362,917)
---------- ---------- ----------
Total stockholders' equity (177,851) (133,788) (876,771)
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 585,000 $ 585,000 $ -0-
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 31
<TABLE>
<CAPTION>
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS FOR THE YEAS ENDED
DECEMBER 31, 1997, DECEMBER 31, 1996, AND DECEMBER 31, 1995
DECEMBER 31 DECEMBER 31 DECEMBER 31
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ -0- $ -0- $ -0-
COST OF SALES -0- -0- -0-
---------- ---------- -----------
GROSS PROFIT (LOSS) -0- -0- -0-
---------- ---------- -----------
OPERATING EXPENSES
Salaries and wages -0- -0- (68,152)
Professional fees 58,690 61,541 149,152
Dues and subscriptions -0- -0- 2,950
Interest 47,451 47,451 (6,959)
Travel -0- -0- 3,007
Bank charges -0- -0- (200)
Taxes and licenses 10,918 8,703 -0-
Rent -0- -0- 6,586
Utilities -0- -0- 489
Office 3,238 -0- -0-
Postage and delivery 154 -0- 501
---------- ---------- -----------
Total operating expenses 120,451 117,695 81,191
---------- ---------- -----------
(LOSS) FROM OPERATIONS (120,451) (117,695) (81,191)
---------- ---------- -----------
OTHER EXPENSE (Note 3) -0- -0- (769,989)
OTHER INCOME 2,389 -0- -0-
PROVISION FOR INCOME TAX
NET INCOME (LOSS) $(118,062) $(117,695) $(851,180)
========== ========== ===========
NET INCOME (LOSS) PER SHARE $ (.037) $ (.041) $ (.653)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 32
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-In Accumulated
Shares Amount Capital Deficit Totals
--------- ------ ---------- ----------- --------
<S> <C>
Balances at December 31, 1994 1,263,142 1,263 642,497 (1,496,487) (852,727)
Divestiture of three subsidiaries
on January 2, 1995 (186,433) (186) (175,428) 984,750 809,136
Common stock issued for cash at
$0.25 per share 28,000 28 6,972 7,000
Common stock issued for services
at $0.50 per share 22,000 22 10,978 11,000
Net (loss) for the year ended
December 31, 1995 (851,180) (851,180)
--------- ----- --------- ---------- --------
Balances at December 31, 1995 1,126,809 1,127 485,019 (1,362,917) (876,771)
Common stock issued at $0.50 per
share for services 116,000 116 57,884 58,000
Common stock issued at $0.50 per
share for services 31,318 31 15,629 15,660
Common stock issued at $0.50 per
shares in settlement of
promissory note representing a
cash loan 168,436 168 84,050 84,218
Common stock issued at $0.50 per
share for: settlement of a
$17,800 promissory note
representing a cash loan, and
$60,000 for services 155,600 156 77,644 77,800
Common stock issued at $0.50 per
share into escrow for settling
the Company's debt 450,000 450 224,550 225,000
Common stock issued at $0.50 per
share for: 80,000 shares for
services, 720,000 shares for
settlement with Company
principals and affiliates 800,000 800 339,200 400,000
Net (loss) for the period ended
December 31, 1996 (117,695) (117,695)
--------- ----- --------- ---------- --------
Balances at December 31, 1996 2,848,163 2,848 1,343,976 (1,480,612) (133,788)
Common stock issued at $0.50 per
share to C.M. Johnston for
consulting services
re: Williams and Bickel 50,000 50 24,950 25,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 33
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
MARCH 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid-In Accumulated
Shares Amount Capital Deficit Totals
--------- ------ ---------- ----------- --------
<S> <C>
Common stock issued to Bristol
Media, Ltd. re: Douthwaite
settlement 130,000 130 8,870 9,000
Common stock issued to
Stephen M. Roake IRA for
payment of accounting, audit
and transfer agent fees 60,000 60 14,940 15,000
Common stock issued to Bristol
Media, Ltd. for payment of
accounts payable, audit and
legal 100,000 100 24,900 25,000
Net (loss for the period ended
September 30, 1997) (118,062) (118,062)
--------- ----- --------- ---------- --------
Balances at December 31, 1997 3,188,163 3,188 1,417,635 (1,598,674) (177,851)
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE> 34
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1997, DECEMBER 31, 1996, and DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 December 31 December 31
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(118,062) $(117,695) $ (851,180)
Add (deduct) items not requiring use of cash
Depreciation and amortization -0- -0- (499,093)
(Increase) decrease in accounts receivable -0- -0- 244,917
(Increase) decrease in inventories -0- -0- 8,149
(Increase) in advances to employees -0- -0- 23,577
(Increase) in deferred and prepaid expenses -0- -0- 15,011
Increase (decrease) in accounts payable (3,388) (54,119) (332,631)
Increase in taxes payable, accrued wages, and accrued interest 47,451 (1,846) (339,753)
--------- --------- ----------
Net cash provided (used) from operating activities (73,999) (173,660) 1,731,003
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment -0- -0- 1,027,412
Increase in other assets -0- 585,000 (9,601)
Increase in notes receivable -0- -0- 200
Increase in deposits -0- -0- 7,996
Divestiture of subsidiaries -0- -0- 809,322
--------- --------- ----------
Net cash used from investing activities -0- 585,000 1,854,531
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock 340 1,721 (136)
Capital contribution from shareholders 73,659 858,957 17,950
Loans from officers -0- (84,218) (96,252)
Proceeds from loans and notes payable -0- -0- -0-
Judgment payable -0- -0- 209,004
Payments on loans and notes payable -0- (17,800) (235,004)
--------- --------- ----------
Net cash provided (used) from financing activities 73,999 758,060 (112,533)
--------- --------- ----------
NET (DECREASE) IN CASH -0- -0- 10,995
CASH BALANCE AT BEGINNING OF YEAR -0- -0- (10,995)
--------- --------- ----------
CASH BALANCE AT END OF YEAR -0- -0- $ -0-
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE> 35
PAN ENVIRONMENTAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING
------------------------------------
The Company was organized as Jilly Bear & Company, Inc., under the laws
of the State of Delaware on February 13, 1986, for the primary purpose of
merchandising a line of plush soft sculpture teddy bears, penguins, ducks
and related motif items. The Company closed its retail store, liquidated
its remaining inventory and ceased operations in March, 1988. On June 30,
1991, Nutec Transmission, Ltd., and Jilly Bear merged into a resulting
Texas corporation. Aster Development Enterprises, Ltd., was organized as
a private Texas corporation on August 6, 1992. Following the rescission
of the merger between Nutec and Jilly Bear on June 1, 1992, Aster
Development became the successor of Jilly Bear and the vehicle for the
continued corporate existence in Delaware of the former Jilly Bear.
Aster Development had been inactive from June 1, 1992, until March, 1993.
On March 4, 1993, the name of the Company was changed from Aster
Development Enterprises, Ltd. to PAN Environmental Corporation and the
Company acquired all of the outstanding common stock of Northwest
Specialties, Inc., a Minnesota corporation; Advantage Parking Lot
Service, Inc., a California corporation; and MRR construction Services,
Inc., a California corporation. The Company issued a total of 2,650,000
shares of common stock for the acquisition of these three corporations
in a reorganization accounted for as a reverse acquisition, whereby the
shareholders of a privately owned corporation or corporations obtained
controlling ownership interest in a previously inactive or dormant
public "shell" corporation. On October 11, 1993, the directors of PAN
Environmental Corporation and its three affiliated companies agreed to
reduce by 50% the number of shares of common stock which was originally
issued for the acquisition. The net result of the shares of common stock
issued in the business combination was 1,325,000 shares. PAN
Environmental Corporation changed its fiscal year from January 31st to
December 31st and reincorporated in the State of Delaware.
PAN Environmental Corporation (PAN) was in the business of acquiring and
supervising the operations of businesses engaged in the reclamation,
remediation and recycling of industrial waste materials and by-products.
PAN provided its affiliated operating companies with financing and
management services including accounting, planning, budgeting, computer
information systems, human resources management, contract bonding and
liability insurance. The Company also provided technical environmental
management support to its operating companies. PAN's principal offices
are in Shoreline, Washington.
Advantage Parking Lot Service, Inc. (incorporated in the State of
California on February 19, 1986) was engaged in the manufacturing and
sale of asphalt-based slurry sealants. Advantage applied the slurry
sealants to asphalt surfaces, primarily parking lots. Advantage also
had a tank cleaning operation which decontaminated portable commercial
lubricant tanks. The slurry-sealer manufacturing plant is located in
Fontana, California. Advantage had ten employees.
Northwest Specialties, Inc. (incorporated in 1993) reclaimed timber
(poles, ties, etc.) and commodity metals, primarily from obsolete
railroad telecommunications and signaling systems. The company operated
in the Midwest and Rocky Mountain regions of the United States, and
worked on active and inactive railroad right-of-ways. The poles, other
wood products, and wiring were then sorted, graded and processed for
resale.
MRR Construction Services, Inc. (incorporated in 1992, but inactive
until 1993) performed environmental construction management and related
construction activities, as well as soil remediation, in Southern
California. The Company employed its president and a project
manager/superintendent. The majority of the contract work was performed
by subcontractors. Daily administrative support work was provided by
personnel at Advantage Parking Lot Services, Inc.
- 7 -
<PAGE> 36
PAN ENVIRONMENTAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND BASIS OF ACCOUNTING - continued
Pan divested itself of its three subsidiaries, Advantage Parking Lot
Service, Inc., Northwest Specialties, Inc. and MRR Construction Services,
Inc., effective January 2, 1995.
In November and December 1995, the Company attempted to acquire oil and gas
properties in a business combination agreement with Maximum Resources,
Inc., a Vancouver Stock Exchange company, and two other companies, NP
Energy Corporation, a U.S. over the counter electronic bulletin board
(OTCBB) company, and Polaris Equities, Inc., a U. S. private company.
The form of business combination agreement would have taken the following
form: each of the above three oil and gas companies would set up a U. S.
subsidiary into which they would vend in selected oil and gas properties.
These three subsidiaries would then be acquired in a reverse takeover
transaction wherein the Company would issue 4,000,000 new restricted Rule
144 common shares each to Maximum, NP and Polaris in exchange for acquiring
one hundred percent (100%) of the issued and outstanding common shares of
their three U. S. subsidiaries.
Since the Company did not have the necessary funds to do its accounting,
audits, 10-Q's, 10-K's and legal work, Maximum, NP and Polaris agreed to
advance the necessary funds to complete the work. In March and April 1996,
Maximum, NP and Polaris defaulted on their obligations to advance the
necessary funds and the proposed business combination agreements were never
consummated.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Earning (loss) per share were calculated on the number of shares
outstanding at the end of the year.
NOTE 3 - OTHER EXPENSE
The Company incurred other expenses in 1995 as a result of recording losses
due to the divestiture of its three subsidiary companies in the amount of
$324,563. The Company also defaulted in a share repurchase agreement with a
stockholder of the Company, resulting in a default judgment in 1995 in the
amount of $200,909. The judgment bears interest at the rate of 25% per
annum on $161,250 (principal portion) and 18% per annum on $39,659
(interest, attorney fee and costs portion). In addition, Kenneth Williams
and Robert Bickel sued MRR, a former subsidiary of the Company, and the
Company in 1995 for alleged consulting fees owned for 1993 and 1994 and
obtained default judgments against the Company in the amounts of $121,809
and $122,709 respectively.
NOTE 4 - ISSUANCE/SALES OF STOCK
The Company issued 50,000 shares of restricted Rule 144 common stock at
$0.50 per share to Clifford M. Johnston for consulting services rendered in
connection with the Kenneth Williams and Robert Bickel default judgments in
Note 3 above.
The Company issued 130,000 shares of restricted Rule 144 common stock to
Bristol Media, Ltd. for the purpose of settling out the $9,000 judgment
from John Douthwaite for printing expense.
The Company issued 60,000 shares of restricted Rule 144 common stock to
Stephen M. Roake IRA for payment of $15,000 in accounts payable, accounting
fees and audit fees.
The Company issued 100,000 shares of restricted Rule 144 common stock to
Bristol Media, Ltd. for payment of $25,000 in accounting fees, audit fees,
and legal fees.
- 8 -
<PAGE> 37
PAN ENVIRONMENTAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - GOING CONCERN
Because of a deficiency in working capital and significant operating
losses, there is doubt about the ability of the Company to continue in
existence unless additional working capital is obtained. The Company
currently has plans to raise sufficient working capital through equity
financing and through the acquisition of companies having sufficient assets
and cash flow to enable the Company to be self-sufficient and profitable.
The accompanying notes are an integral part of these financial statements.
- 9 -
<PAGE> 1
EXHIBIT 10.4
[VALHALLA FINANCIAL GROUP, L.L.C. LETTERHEAD]
December 1, 1997
Stephen M. Roake PAN Environmental Corporation
Stephen M. Roake, I.R.A. c/o Jerry Cornwell
10650 Riviera Place NE 19239 Aurora Avenue North
Seattle, WA 98125 Shoreline, WA 98133
RE: Extension of Settlement and Option Agreement dated December 7, 1995 and
Joint Escrow Instructions dated December 7,1995 (copies attached) and
additional proposals
Dear Steve:
PAN Environmental Corporation has proven to be a very difficult company to
clean up and resurrect.
Maximum Resources, Inc. pulled out of the deal because of time delays and its
lack of resources to adequately finance the PAN project.
Valhalla Financial Group, L.L.C. has continued to work for PAN to locate a
suitable merger candidate; however, this has proved to be a difficult task as
PAN has a considerable amount of debt to clean up and a substantial amount of
accounting to do in order to obtain certified audits for 1994, 1995, 1996 and
1997.
In addition, we estimate that PAN will require $40-50,000 in cash for
transfer agent fees, accounting fees, certified audit fees, legal fees and
other similar business expenses between now and December 31, 1997, which is our
target date to complete the work of bringing PAN into compliance as a
reporting company, so that we can complete the merger we are working on in the
first week of January 1998.
Accordingly, we propose that you consider the following proposal:
1. That you extend the subject Settlement and Option Agreements to December
31, 1998.
2. That you, for your part in assisting us in generating immediate cash to
complete all tasks to bring PAN into compliance by December 31, 1997,
contribute $15,000.00 in exchange for new issue Rule 144 common shares at
$0.25 per share, or 60,000 shares.
3. That PAN, through its escrow agent, Douglas Millard, will assign to a
separate escrow 189,805 of the 450,000 common shares that it had
authorized for issuance to cover PAN's debt. PAN and/or Millard will
negotiate with PAN's creditors to settle out debt as cheaply as possible
and will only sell enough stock to cover such settlements and will return
any stock remaining to PAN'S treasury. A portion of PAN's debt is the
accrued interest on your judgment from March 12, 1996 to March 12, 1998
(the interest from March 12, 1995 to March 12, 1996 having been covered by
the Settlement and Option
<PAGE> 2
Stephen M. Roake
December 1, 1997
Page 2 of 2
Agreement dated December 7, 1995). This two-year amount of accrued interest
is as follows:
$161,250.00 $ 39,659.10
Principal Amount Interest, Attorney
@ 25% per annum Fees and Costs
@18% per annum
---------------- ------------------
March 12, 1996 to March 12, 1997 $40,312.50 $ 7,138.64
March 12, 1997 to March 12, 1998 40,312.50 7,138.64
---------- ----------
Total $80,625.00 $ 14,277.28
TOTAL INTEREST $94,902.28
----------
Unlike PAN's other creditors where PAN and Millard are going to negotiate
settlements, PAN intends to fully pay the above accrued interest through
this separate agreement.
4. The terms and conditions of the separate escrow agreement to be set up will
be as follows: That we form a separate escrow to pay off the $94,902.28
with 189,805 common shares of PAN assigned to the separate escrow by PAN
and Douglas Millard and that TCKTS, L.L.C. dba Bristol Media, Ltd.
("Bristol") be granted an option at $0.50 per share on the escrow shares,
good until December 31, 1998. Bristol will be handling investor relations
duties for PAN and this option will serve as an additional incentive to
Bristol to get this debt paid off as soon as possible. If Bristol does not
exercise its option by December 31, 1998, all such shares will become the
sole and separate property of Stephen M. Roake/Stephen M. Roake, I.R.A.
(The judgment will not accrue any additional interest until December 31,
1998, the expiration of the option agreement to Bristol.)
If you agree to this proposal, please sign and date below.
Sincerely,
VALHALLA FINANCIAL GROUP, L.L.C.
Clifford M. Johnston, Managing Member
AGREED: AGREED:
STEPHEN M. ROAKE PAN ENVIRONMENTAL
STEPHEN M. ROAKE, I.R.A. CORPORATION
- ---------------------------- -------------------------
Jerry Cornwell, President
<PAGE> 3
PAN Environmental Corporation
Schedule of Disbursements ($15,000)
<TABLE>
<CAPTION>
Pay Now Deferred
---------- --------
<S> <C> <C>
Terry Dunne, CPA $ 3,000.00
William Butcher, CPA 3,750.00 $6,250.00
Transfer Agent (estimated) 2,000.00
Quality Tax Service
accounting and preparation of
10-K's, 10-Q's, and certified
audits for 1994, 1995, 1996 and
1997 6,250.00
---------- ---------
TOTAL $15,000.00 $7,860.00
========== =========
</TABLE>
<PAGE> 4
ADDENDUM TO AGREEMENTS DATED
DECEMBER 7, 1995 AND DECEMBER 1, 1997
1. It is hereby agreed that all funds received from the initial sale of PAN
Environmental stock controlled by TCKTS, L.L.C. dba Bristol Media,
Ltd., Jerry Cornwell and Clifford M. Johnston, Managing Members, or its
representatives shall go first to pay off Roake's $95,000 interest and
$225,000 principal before any other obligations are paid, with the
exception of the $75,000 settlement payments in paragraph 2 below.
2. TCKTS, L.L.C. dba Bristol Media, Ltd., through Douglas Millard, Escrow
Agent, agrees to retire Roake's $95,000 interest payment and an
estimated $75,000 of settlement payments to retire debt on a pro-rata
basis from the initial sale of 450,000 shares of PAN common stock
issued to cover PAN's debt before Bristol Media, Ltd. receives any
of the excess proceeds above Bristol's exercise price of $0.50 per
share.
3. It is also agreed that Clifford M. Johnston, Jerry Cornwell, and Bristol
Media, Ltd. will provide the additional funds required to bring PAN
into compliance as a reporting company through 1997 if Roake (Commerce
Bank) contributed $15,000.
DATED this 19th day of December 1997.
STEPHEN M. ROAKE TCKTS, L.L.C.
STEPHEN M. ROAKE, IRA dba BRISTOL MEDIA, LTD.
By: /s/ STEPHEN M. ROAKE By: /s/ CLIFFORD M. JOHNSTON
------------------------------ ----------------------------
Stephen M. Roake Clifford M. Johnston
Managing Member
CLIFFORD M. JOHNSTON JERRY CORNWELL
/s/ CLIFFORD M. JOHNSTON /s/ JERRY CORNWELL
- --------------------------------- -------------------------------
Clifford M. Johnston, individually Jerry Cornwell, individually
<PAGE> 5
RECITALS AND AGREEMENT
WHEREAS, REB and KJW obtained a default judgment against defendants PAN,
Cornwell, Advantage, MRR, Roaul and Ron on July 12, 1995 in the amounts
respectively of $122,708.00 plus costs of $287.40 and $121,809.00 plus costs of
$287.40, and
WHEREAS, PAN had a total indebtedness of approximately $700,000.00, and
WHEREAS, PAN, to survive, needs to obtain settlements on its debts, and
specifically a settlement on the debts to REB and KJW, and
WHEREAS, Johnston is employed as a consultant by Cornwell to settle out
PAN's debts,
NOW, THEREFORE, the parties agree as follows:
1. REB and KJW each agree to accept 25,000 restricted Rule 144 common
shares of PAN from Johnston at an agreed value of $2.00 per share as payment in
full for their assignment to Johnston of such judgments.
2. Johnston agrees to assign 25,000 shares of his restricted Rule 144
common stock each to REB and KJW as full and final payment for assignment to
Johnston the judgments obtained by REB and KJW.
3. Johnston agrees to cancel or declare satisfied the REB and KJW
judgments against Advantage, MRR, Roaul, Ron and Cornwell and to look only to
PAN for payment of such judgements.
4. REB and KJW agree to give Cornwell an option to purchase the 50,000
shares of PAN Rule 144 common stock at $2.00 per share for 120 days and at
$2.25 per share for 60 additional days.
5. REB and KJW and Cornwell agree that the 50,000 shares of PAN Rule 144
common stock shall be held in escrow by an escrow agent an agreed upon by REB,
KJW and Cornwell.
6. In the event that the 50,000 shares of Rule 144 Common Stock is not
assigned by Johnston to REB and KJW by no other than six (6) weeks from the
date hereof, Johnston agrees to return the assignments of judgement to REB and
KJW.
PAN ENVIRONMENTAL CORPORATION M.R.R. CONSTRUCTION
By /s/ JERRY CORNWELL By /s/ ROAUL WHEELER
----------------------------------- ---------------------------------
Jerry Cornwell, President Roaul Wheeler
<PAGE> 6
JERRY CORNWELL, INDIVIDUALLY ADVANTAGE PARKING LOT SERVICES
/s/ JERRY CORNWELL By /s/ RON WILLIAMS
- --------------------------------- ---------------------------------------
Ron Williams
ROAUL WHEELER, INDIVIDUALLY RON WILLIAMS, INDIVIDUALLY
/s/ ROAUL WHEELER /s/ RON WILLIAMS
- --------------------------------- ---------------------------------------
ROBERT E. BICKEL, INDIVIDUALLY KENNETH J. WILLIAMS, INDIVIDUALLY
/s/ KENNETH J. WILLIAMS
- --------------------------------- ---------------------------------------
/s/ CLIFFORD M. JOHNSTON
---------------------------------------
Clifford M. Johnston
<PAGE> 7
ASSIGNMENT OF JUDGMENT
FOR VALUE RECEIVED, the undersigned Assignor hereby assigns, transfers and
sets over to CLIFFORD M. JOHNSTON (Assignee) all right, title and interest in
and to the following described judgment:
Case No.: NC15529
JUDGMENT: $122,708.00 plus costs of $287.40
Date: May 22, 1995
Time: 8:30 a.m.
DEPT.: SOUTH G
ROBERT E. BICKEL, Plaintiff v. PAN ENVIRONMENTAL
CORPORATION, et al. (copy attached hereto)
The Assignor warrants and represents that said judgment is in full force
and effect and is fully assignable.
The Assignee hereby assumes and agrees to perform all the obligations of
the Assignor under the judgment and guarantees to hold the Assignor harmless
from any claim or demand made thereunder.
SIGNED UNDER SEAL this 25th day of February, 1997.
ASSIGNOR ASSIGNEE
- ----------------------------- -------------------------------
Robert E. Bickel Clifford M. Johnston
<PAGE> 8
ASSIGNMENT OF JUDGMENT
FOR VALUE RECEIVED, the undersigned Assignor hereby assigns, transfers and
sets over to CLIFFORD M. JOHNSTON (Assignee) all right, title and interest in
and to the following described judgment:
Case No.: NC15530
JUDGMENT: $122,809.00 plus costs of $287.40
Date: May 22, 1995
Time: 8:30 a.m.
DEPT.: SOUTH G
KENNETH J. WILLIAMS, Plaintiff v. PAN ENVIRONMENTAL
CORPORATION, et al (copy attached hereto)
The Assignor warrants and represents that said judgment is in full force
and effect and is fully assignable.
The Assignee hereby assumes and agrees to perform all the obligations of
the Assignor under the judgment and guarantees to hold the Assignor harmless
from any claim or demand made thereunder.
SIGNED UNDER SEAL this 25th day of February, 1997.
ASSIGNOR ASSIGNEE
- ----------------------------- -------------------------------
Kenneth J. Williams Clifford M. Johnston
<PAGE> 1
Exhibit 10.5
SETTLEMENT AGREEMENT
DATE: February 25, 1997
PARTIES: 1. Robert E. Bickel ("REB"), Plaintiff
c/o Kenneth J. Williams
5739 Ashworth
Lakewood, CA 90713
2. Kenneth J. Williams ("KJW"), Plaintiff
5739 Ashworth
Lakewood, CA 90713
3. PAN Environmental Corporation ("PAN"), Defendant
6912 - 2220th St. SW, Suite 102
Mountlake Terrace, WA 98043
4. Jerry Cornwell ("Cornwell"), Defendant
14424 SE 78th Way
Newcastle, WA 98059
5. Advantage Parking Lot ("Advantage"), Defendant
14388 Santa Ana Avenue
Fontana, CA 92355
6. M.R.R. Construction ("MRR"), Defendant
14388 Santa Ana Avenue
Fontana, CA 92355
7. Roaul Wheeler ("Roaul"), Defendant
4400/131 Philadelphia
Chino, CA 91710
8. Ron E. Williams ("Ron"), Defendant
14388 Santa Ana Avenue
Fontana, CA 92355
9. Clifford M. Johnston ("Johnston")
19111 - 3rd Ave NW
Shoreline, WA 98177
SUBJECT: Settlement of Cases No. NC15529 and NC15530 and Default Judgments on
such cases of $122,708.00 plus costs of $287.40 and $121,809.00 plus
costs of $287.40 respectively.
<PAGE> 1
EXHIBIT 10.6
March 26, 1997
This agreement is made by and between Clifford Johnston and John Douthwaite this
26 day of March, 1997.
Whereas John Douthwaite has a judgment against PAN Environmental and Jerry
Cornwell; and
Whereas John Douthwaite has the right to enforce said judgment to the
fullest extent permitted by law;
Now therefore, in consideration of the mutual promises and benefits by and
between the parties hereto, it is agreed as follows:
1. Clifford Johnston shall execute the attached Promissory Note in favor of
John Douthwaite;
2. John Douthwaite shall execute the attached March 17, 1997 stock
agreement;
3. John Douthwaite agrees not to seek enforcement of his judgment against
Jerry Cornwell provided that he receives a minimum of $9,000 on or before
September 26, 1997. In the event that $9,000 is not paid to John Douthwaite by
September 26, 1997, he may enforce his judgments against Jerry Cornwell and PAN
Environmental and may seek collection on the attached Promissory Note. In the
event that John Douthwaite receives $9,000 on or before September 26, 1997,
Douthwaite will assign to Clifford Johnston all Douthwaites rights reflected in
the March 17, 1997 letter agreement attached.
4. In the event that PAN shares are traded on or before September 26, 1997,
John Douthwaite, at his sole discretion, shall be entitled to receive the
greater of: the share values under the schemes set forth in the March 17, 1997
letter agreement, attached; the judgments against PAN and Jerry Cornwell; or the
promissory note of Clifford Johnston. In no event shall John Douthwaite receive
less than $9,000.00 from any of all of the foregoing documents.
/s/ CLIFFORD JOHNSTON /s/ JOHN DOUTHWAITE
- ----------------------------- ------------------------------
Clifford Johnston John Douthwaite
/s/ JERRY CORNWELL /s/ ANN MILLER
- ----------------------------- ------------------------------
Jerry Cornwell Ann Miller
<PAGE> 2
PAN Environmental Corporation
6912 - 220th Street SW, Suite 102
Mountlake Terrace, WA 98043
Tel: (206) 774-1433 * Fax: (206) 774-0640
March 17, 1997
J. Gary Nece
705 Second Avenue
Suite 705
Seattle, WA 98104
Re: John Douthwaite dba Marketart
Dear Gary:
Regarding subject account, PAN Environmental Corporation (PAN) is prepared to
offer the following settlement:
130,000 shares at $.10 per share = $13,000 of value subject to the below
one year option agreement.
In the past, PAN shares have traded as high as $9.00 per share. As an incentive
to getting your client paid, TCKTS, L.L.C., a Washington L.L.C. owned by Jerry
Cornwell and Clifford M. Johnston, will agree to sign an option agreement to buy
the PAN stock from you for $.11 per share if paid within 90 days; $.175 per
share if paid within 180 days; $.25 per share if paid within 270 days; and $.325
per share if paid within 365 days, after which time your client gets to keep the
stock.
I think you will agree that this is a very fair deal. Please review with your
client, and if satisfactory, please have him sign below and return. I will then
have Jerry Cornwell authorize the issuance of stock in satisfaction of the debt.
Sincerely, AGREED: /s/ JEFF DOUTHWAITE
---------------------------------
/s/ CLIFFORD M. JOHNSTON Jeff Douthwaite dba Marketart
- ------------------------
Clifford M. Johnston DATE: 3/26/97
Consultant ---------------------------------
<PAGE> 3
PROMISSORY NOTE
(SHORT FROM WITH INSTALLMENT)
$9,000.00** March 26, 1997
For value received, Clifford Johnston promises to pay to John Douthwaite, or
order, at 2819 Elliott Avenue, Ste 205 the sum of $9,000.00** DOLLARS, with
interest thereon, at the rate of -8%- per cent per annum from date hereof;
payable as follows:
$1,000 cash on or before 3/26/97 & 8,000 cash on or before September 26, 1997
($____________) Dollars, or more at Maker's option, on or before the 26th day of
September, 1997, and _______________________________________________________
($____________________) Dollars, or more at Maker's option, on or before the
same day of each then succeeding calendar month until said note is paid in full.
Maker further agrees to pay interest on the balance, and the diminishing amounts
thereof, at the rate of -8%- per annum from which interest shall be deducted
from each monthly installment and the balance applied in reduction of principal.
This Note is secured by N/A of even date.
If any of said installments are not so paid, the whole sum of both
principal and interest shall become due and payable at once without further
notice, at the option of the holder hereof.
This note shall bear interest at the rate of 12% per cent per annum, but
not to exceed the statutory limits, after maturity or after failure to pay any
installment as above specified, and if this note shall be placed in the hands
of an attorney for collection, or if suit shall be brought to collect any of
the principal or interest of this note I promise to pay a reasonable attorney's
fee.
Each maker of this note executes the same as a principal and not as a
surety.
/s/ CLIFFORD JOHNSTON
- ----------------------------------- --------------------------------------
Clifford Johnston
- ----------------------------------- --------------------------------------
[CHICAGO TITLE INSURANCE COMPANY LOGO]
<PAGE> 1
EXHIBIT 16.1
[TERRENCE J. DUNNE LETTERHEAD]
January 21, 1998
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Gentlemen:
I have read the statements made by PAN Environmental Corporation, which I
understand will be filed with the Commission pursuant to Part II, Item 8 of
Form 10-KSB as part of the company's Form 10-KSB for the fiscal years ended
December 31, 1994, 1995, 1996 and 1997, and in the subsequent reports under
the Securities and Exchange Act of 1934, as amended. I agree with the
statement concerning my firm in the Form 10-KSB.
Sincerely,
/s/ TERRENCE J. DUNNE
- ---------------------------
Terrence J. Dunne
Certified Public Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1997 FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1997 FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 585,000
<CURRENT-LIABILITIES> 762,851
<BONDS> 0
0
0
<COMMON> 3,188
<OTHER-SE> 1,417,635
<TOTAL-LIABILITY-AND-EQUITY> 585,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 118,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,451
<INCOME-PRETAX> (118,062)
<INCOME-TAX> 0
<INCOME-CONTINUING> (118,062)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,062)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
