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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, 1996
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
(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, 1996.
As of December 31, 1996, the aggregate number of shares of Common Stock held by
non-affiliates was 975,883 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, 1996, the aggregate number of shares outstanding of the
registrant's Common Stock was 2,848,163.
Documents incorporated by reference: None.
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote Security Holders 11
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters 12
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7. Financial Statements 16
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Matters 16
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons Compliance with 16(a) of the Exchange Act 17
Item 10. Executive Compensation 18
Item 11. Security Ownership of Certain Beneficial Owners and
Management 19
Item 12. Certain Relationships and Related Transactions 20
Item 13. Exhibits 21
</TABLE>
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PART I
ITEM 1. BUSINESS
General
PAN Environmental Corporation, a Delaware corporation (the "Company"),
up until December 31, 1994, 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.
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 in
January 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 litigation, and a lack of working capital, MRR suspended its operations
in the third
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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 has substantially reduced
its overall debt load and its operating expenses, a primary impediment to any
financing activities. The Company has focused its attention during 1995 and 1996
upon the acquisition of a company or companies which have sufficient capital for
their current operations, so as to improve its business prospects before
returning actively to the equity markets. During 1995 and 1996, 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."
Other Common Share Issuances for Debt or Services
Other than the 720,000 common shares issued above, an additional 80,000
common shares were issued to Valhalla Financial Group, L.L.C. for services
rendered incident to the December 5, 1995 Settlement Agreement.
The Company issued 116,000 shares of restricted Rule 144 common stock in
settlement of a promissory note for $58,000 payable to Jerry Cornwell, President
and CEO, for past services rendered.
The Company issued 31,318 shares for $ 15,659 of services rendered by a
consultant of the Company, Valhalla Financial Group, L.L.C.
The Company issued 168,436 shares of restricted Rule 144 common stock to
settle out an $84,218 promissory note payable to Jerry Cornwell, President and
CEO, for a cash loan.
The Company issued 155,600 shares of restricted Rule 144 common stock to
settle out a $77,800 debt to Bristol Ltd. for a $17,800 cash loan and $60,000
for past services rendered.
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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.
ADDITIONAL RISK FACTORS AFFECTING FUTURE PERFORMANCE
Absence of Revenue-Producing Operations
The Company has produced no revenues during the last two 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 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.
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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
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.
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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 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.
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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
Kenneth Williams and Robert Bickel, claiming to be consultants to the
Company, sued MRR, a former subsidiary of the Company, and the Company for
alleged consulting fees owed for 1993 and 1994 and obtained default judgments of
$121,809 and $122,709 respectively. The Company will seek to have such judgments
vacated or set aside.
The Company has been notified of a threatened legal proceeding against
the company in the amount of $53,000 for non-payment of rent and legal fees and
expenses to its former landlord, which was also its legal counsel. Litigation
was started during 1996 which resulted in a default judgment against the Company
of $38,279.
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 is attempting to work out
a settlement of this matter for $225,000 through a sale of the 150,000 shares
owned by Roake which underlie the share repurchase agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to the shareholders during 1996.
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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 1995 and 1996. 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, 1996 there were approximately 325
holders of record of the Company's Common Stock.
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<CAPTION>
Quarter Year High Low
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Jan-Mar 1995 .313 .188
Apr-Jun 1995 .313 .125
Jul-Sep 1995 .281 .125
Oct-Dec 1995 .125 .094
Jan-Mar 1996 .125 .125
Apr-Jun 1996 .125 .063
Jul-Sep 1996 .063 .063
Oct-Dec 1996 .063 .063
</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
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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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The results of operations for the year ending December 31, 1996 reflect
an operating loss of $117,695 as compared to a loss of $851,180 for the year
ending December 31, 1995. Included in the $117,695 loss 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.
Included in the $851,180 loss were the losses recorded due to the
divestiture of the three subsidiary companies in the amount of $324,563. Also
included in the $851,180 loss was the default by the Company in a share
repurchase agreement with a stockholder of the Company resulting in a default
judgment in the amount of $200,909. In addition, Kenneth Williams and Robert
Bickel sued MRR, a former subsidiary of the Company, and the Company for alleged
consulting fees owed for 1993 and 1994 and obtained default judgments against
the Company in the amounts of $121,809 and $122,709 respectively, which is also
included in the $851,180 loss.
Liquidity and Capital Resources; Plan of Operation
As of December 31, 1996, 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, 1996, the Company had no current assets
and current liabilities of $718,788, resulting in a working capital deficiency
of $718,788. This can be compared to no current assets and current liabilities
of $876,771 at December 31, 1995, and a working capital deficiency of $876,771.
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 1996 financial statements which indicated
substantial doubt about the Company's ability to continue as a going concern.
Due 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
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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
15
<PAGE> 16
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 AND SUPPLEMENTARY DATA
Attached hereto and incorporated herein by this reference are
consolidated audited financial statements for the year ending December 31, 1996.
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 chose not 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.
Registrant has no disagreements and has never had any disagreements with
Mr. Dunne or any other auditor about how to treat any aspect of any audit or
financial statement.
William L. Butcher, CPA, P. O. Box 1035, Lynnwood, Washington 98046-
1035, has been retained recently as auditor for the corporation for 1994 and
succeeding years.
16
<PAGE> 17
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 were as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jerry Cornwell 59 President, Chief Executive Officer and Director
Roaul L. Wheeler 69 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.
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, 1996, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with; except that Roaul L. Wheeler
failed to timely file 1 monthly report covering 1 transaction on Form 4, but did
report the transaction on his 1997 year end report on Form 5; and that Orland L.
Howard failed to timely file 1 monthly report covering 1 transaction on Form 4,
but did
17
<PAGE> 18
report the transaction on his 1997 year end report on Form 5; and that Jerry
Cornwell failed to timely file 1 monthly report covering 9 transactions on Form
4, but did report the transaction on his 1997 year end report on Form 5; and
that Dennis Brewer failed to timely file 1 monthly report covering 1 transaction
on Form 4; and that George White failed to timely file 1 monthly report covering
1 transaction on Form 4, but did report the transaction on his 1997 year end
report on Form 5; and that Douglas Millard, Escrow Agent failed to timely file 1
monthly report covering 1 transaction on Form 4, but did report the transaction
on his 1997 year end report on Form 5; and that Valhalla Financial Group, L.L.C.
failed to timely file 1 monthly report covering 2 transactions on Form 4, but
did report the transaction on its 1997 year end report on Form 5.
ITEM 10. EXECUTIVE COMPENSATION
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.
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 1994 Stock
Option Plan cancelled in 1995 in exchange for the principals of PAN 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. Jerry Cornwell received 120,709 shares from this
issue; Roaul L.
Wheeler received 36,857 shares.
Executive Compensation Agreement
No 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, 1996. 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 1996.
Directors received no cash compensation for serving on the Board of
Directors or its committees during the year ended December 31, 1996.
18
<PAGE> 19
The Company had no obligations under any executive compensation
agreements as of December 31, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1996, 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.
<TABLE>
<CAPTION>
Name and Address Amount / Nature Percent
of Beneficial Owner of Ownership (1) of Class
- ------------------- ------------ --------
<S> <C> <C>
Jerry Cornwell (2) 901,613 31.66%
14424 SE 78th Way
Newcastle, WA 98059
Orland L. Howard 204,255 7.17%
P. O. Box 206A
Rochert, MN 56578
Roaul L. Wheeler 149,746 5.26%
P. O. Box 1423
Chino, CA 91708
Stephen M. Roake IRA 166,666 5.85%
10650 Riviera Place NW
Seattle, WA 98125
Douglas Millard, Escrow Agent 450,000 15.80%
for debt settlement
3818 South Court Street
Seattle, WA 98144
All officers and directors
as a group 1,051,359 36.91%
</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.
19
<PAGE> 20
(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 155,600 shares owned by Bristol Media, Ltd.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The 1994 Stock Option 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 principals of PAN 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. Jerry
Cornwell, President and CEO, received 120,709 shares and Roaul L. Wheeler,
Secretary/Treasurer, received 36,857 shares out of the 720,000 share issuance.
Other than the 720,000 common shares issued above, an additional 80,000
common shares were issued to Valhalla Financial Group, L.L.C. for services
rendered incident to the December 5, 1995 Settlement Agreement.
The Company issued 116,000 shares of restricted Rule 144 common stock in
settlement of a promissory note for $58,000 payable to Jerry Cornwell, President
and CEO, for past services rendered.
The Company issued 31,318 shares for $ 15,659 of services rendered by a
consultant of the Company, Valhalla Financial Group, L.L.C.
The Company issued 168,436 shares of restricted Rule 144 common stock to
settle out an $84,218 promissory note payable to Jerry Cornwell, President and
CEO, for a cash loan.
The Company issued 155,600 shares of restricted Rule 144 common stock to
settle out a $77,800 debt to Bristol Ltd. for a $17,800 cash loan and $60,000
for past services rendered.
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.
20
<PAGE> 21
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 22 and 23.
(2) Audited Financial Statements for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.
21
<PAGE> 22
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 are 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>
22
<PAGE> 23
<TABLE>
<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.
16.1 Consent of previous auditor, Terrence J. Dunne, CPA.
27 Financial Data Schedule
</TABLE>
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K Report for the Year ended December 31, 1996, has been signed
below by the following persons on behalf of the Registrant and in the capacity
and on the date indicated.
December 31, 1996
PAN ENVIRONMENTAL CORPORATION
A DELAWARE CORPORATION
by
/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
24
<PAGE> 25
PAN ENVIRONMENTAL CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996, DECEMBER 31, 1995, and DECEMBER 31, 1994
<PAGE> 26
CONTENTS
Page
----
Independent Auditor's Report 1
Statement of Financial Position at
December 31, 1996, December 31, 1995,
and December 31, 1994 2-3
Statement of Operations for the Years Ended
December 31, 1996, December 31, 1995,
and December 31, 1994 4
Statement of Changes in Stockholders'
Equity the Years Ended December 31, 1996,
December 31, 1995, and December 31, 1994 5
Statement of Cash Flows for the Years Ended
December 31, 1996, December 31, 1995, and
December 31, 1994 6
Notes to Consolidated Financial Statements 7-9
<PAGE> 27
[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, 1996,
December 31, 1995 and December 31, 1994. 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 by 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, 1996,
December 31, 1995, and December 31, 1994 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 6 to the financial
statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
/s/ W. L. Butcher, CPA P.S.
- ----------------------------
WILLIAM L. BUTCHER, CPA P.S.
Everett, Washington
January 6, 1998
<PAGE> 28
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF FINANCIAL POSITION AT
DECEMBER 31, 1996, DECEMBER 31, 1995, and DECEMBER 31, 1994
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
December 31 December 31 December 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ -0- $-0- $ 682
Accounts receivable, net of allowance
for doubtful accounts of $34,353 and
$25,808, respectively -0- -0- 244,917
Inventory -0- -0- 8,149
Employee advances -0- -0- 293,577
Notes receivable -0- -0- 200
Deferred and prepaid expenses -0- -0- 15,011
----------- ----------- -----------
Total current assets -0- -0- 292,536
PROPERTY, PLANT AND EQUIPMENT
Land -0- -0- 110,499
Plant and equipment -0- -0- 916,913
Less accumulated depreciation -0- -0- (499,093)
----------- ----------- -----------
Net property, plant and equipment -0- -0- 528,319
OTHER ASSETS
Settlement agreement -- principals 360,000 -0- -0-
Escrowed shares for debt, Millard account 225,000 -0- -0-
Loan fees, net of accumulated amortization -0- -0- 3,621
Deposits -0- -0- 7,996
Deferred interest on lease -0- -0- 5,980
----------- ----------- -----------
Total other assets 585,000 -0- (17,597)
----------- ----------- -----------
TOTAL ASSETS $585,000 $-0- $ 838,452
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 29
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF FINANCIAL POSITION AT
DECEMBER 31, 1996, DECEMBER 31, 1995, and DECEMBER 31, 1994
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31 December 31 December 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 5) $ 451,633 $ 505,752 $ 838,383
Bank overdraft -0- -0- 11,677
Accrued wages -0- 58,000 243,118
Accrued interest -0- -0- 10,783
Taxes payable 18,795 10,092 152,173
Judgment payable (Note 4) 200,909 200,909 -0-
Accrued judgment interest (Note 4) 47,451 -0- -0-
Equipment contracts payable -0- -0- -0-
Loans from officer (Note 5) -0- 84,218 180,470
Notes payable (Note 5) -0- 17,800 30,000
Current portion of
long-term debt -0- -0- 77,590
Suspense -0- -0- 1,771
----------- ----------- -----------
Total current liabilities 718,788 876,771 1,545,965
----------- ----------- -----------
LONG-TERM DEBT, Net of current
portion -0- -0- 145,214
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
50,000,000 shares authorized;
1,263,142 shares issued and
outstanding at December 31, 1994,
1,126,809 issued and outstanding
at December 31, 1995, and
2,848,163 issued and outstanding
at December 31, 1996 2,848 1,127 1,263
Additional paid-in capital 1,343,976 485,019 642,497
Accumulated deficit (1,480,612) (1,362,917) (1,496,487)
----------- ----------- -----------
Total stockholders' equity (133,788) (876,771) (852,727)
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 585,000 $ -0- $ 838,452
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 30
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, DECEMBER 31, 1995, and DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31 December 31 December 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ -0- $ -0- $1,163,120
COST OF SALES -0- -0- 996,392
----------- ----------- ----------
GROSS PROFIT (LOSS) -0- -0- 166,728
----------- ----------- ----------
OPERATING EXPENSES
Salaries and wages -0- (68,152) 185,514
Professional fees 61,541 149,512 63,626
Depreciation and amortization -0- -0- 42,428
Dues and subscriptions -0- 2,950 -0-
Interest 47,451 (6,959) 46,357
Travel -0- 3,007 119,442
Bad debts -0- -0- 83,374
Bank charges -0- (200) -0-
Insurance -0- -0- 26,109
Taxes and licenses 8,703 -0- 39,343
Rent -0- 6,586 39,724
Repairs and maintenance -0- -0- 18,969
Utilities -0- 489 62,132
Office -0- -0- 19,029
Postage and delivery -0- 501 -0-
Consulting and commissions -0- -0- 23,383
Miscellaneous -0- -0- 2,539
----------- ----------- ----------
Total operating expenses 117,695 87,734 771,969
----------- ----------- ----------
(LOSS) FROM OPERATIONS (117,695) (87,734) (605,241)
----------- ----------- ----------
OTHER INCOME
Gain on sale of equipment -0- -0- 30,354
Interest income -0- -0- 76
----------- ----------- ----------
Total other income -0- -0- 30,430
----------- ----------- ----------
OTHER EXPENSE (Note 4) -0- (769,989) -0-
PROVISION FOR INCOME TAX
NET INCOME (LOSS) $ (117,695) $ (851,180) $ (574,811)
=========== =========== ==========
NET INCOME (LOSS) PER SHARE $ (.041) $ (.755) $ (.455)
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 31
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1996, DECEMBER 31, 1995 and DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accum.
Shares Amount Capital Deficit Totals
---------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 3,789,427 3,790 639,970 (921,676) (277,916)
Reverse stock split of one
for three on June 8, 1994 (2,526,285) (2,527) 2,527
Net (loss) for the year
ended December 31, 1994 (574,811) (574,811)
---------- ------ --------- ---------- --------
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 share 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)
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 32
PAN ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, DECEMBER 31, 1995, AND DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(117,695) $(851,180) $(574,811)
Add (deduct) items not requiring use of cash -0- (499,093) 12,196
Depreciation and amortization -0- 244,917 (46,796)
(Increase) decrease in accounts receivable -0- 8,149 7,350
(Increase) in advances to employees -0- 23,577 (23,227)
(Increase) in deferred and prepaid expenses -0- 15,011 (4,979)
Increase (decrease) in accounts payable (54,119) (332,631) 455,499
Increase in taxes payable, accrued wages,
and accrued interest (1,846) (339,753) 230,073
--------- ----------- ---------
Net cash provided (used) from operating activities (173,660) (1,731,003) 55,305
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment -0- 1,027,412 (142,611)
Increase in other assets 585,000 (9,601) (5,144)
Increase in notes receivable -0- 200 (200)
Increase in deposits -0- 7,996 385
Divestiture of subsidiaries -0- 809,322 -0-
--------- ----------- ---------
Net cash used from investing activities 585,000 1,854,531 (147,570)
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock 1,721 (136) -0-
Capital contribution from the sale of common stock 858,957 17,950 149,763
Loans from officers (84,218) (96,252) 5,222
Proceeds from loans and notes payable -0- -0- -0-
Judgment payable -0- 200,909 -0-
Payments on loans and notes payable (17,800) (235,004) (7,791)
--------- ---------- ---------
Net cash flow provided (used) from
financing activities 758,060 (112,533) 147,194
--------- ---------- ---------
NET (DECREASE) IN CASH -0- 10,995 54,929
CASH BALANCE AT BEGINNING OF YEAR -0- (10,995) (65,924)
--------- ---------- ---------
CASH BALANCE AT END OF YEAR $ -0- $ -0- $ (10,995)
========= ========== =========
</TABLE>
<PAGE> 33
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED 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 Specialities, 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> 34
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND BASIS OF ACCOUNTING -- continued
Pan divested itself of its three subsidiaries, Advantage Parking Lot
Services, 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 or 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.
The statements of operations, changes in stockholders' equity and cash
flows the year ended December 31, 1994 included the financial
statements of PAN Environmental Corporation, Advantage Parking Lot
Services, Inc., Northwest Specialties,Inc., and MRR Construction
Services, Inc. The financial statements at December 31, 1995 and
December 31, 1996 include only the financial statements of PAN
Environmental Corporation with no subsidiaries.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Inventories were recorded at the lower of cost or market on a first-in,
first out basis.
Plant and equipment items were recorded at cost and were depreciated on
a straight-line basis over their estimated useful lives.
Earnings (loss) per share were calculated on the number of shares
outstanding at the end of the year.
NOTE 3 -- LONG-TERM DEBT
The Company had a long-term contract payable for the construction of a
batch plant for the production of various asphalt slurries. The original
balance of the contract payable was $31,620 and monthly payments were
$510.
On March 27, 1989, Advantage Parking Lot Services, Inc. borrowed
$300,000 from Frontier Bank in La Palma, California, under a Small
Business Administration guaranty. The loan required a monthly payment of
$4,524 including interest at two and three-fourths percent above the low
New York prime rate as published in the Money Rate Section of the West
Coast Edition of the Wall Street Journal. The loan was scheduled to be
paid in full in March 1999 and was collateralized by a first lien on
land and improvements owned by the Company and located at 14388 Santa
Ana Avenue, Fontana, California, plus all equipment, furniture and
fixtures, accounts receivable and inventory.
-8-
<PAGE> 35
PAN ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - OTHER EXPENSES
--------------
The Company incurred other expenses 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 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 for alleged consulting fees owed for 1993 and 1994 and obtained
default judgments against the Company in the amounts of $121,809 and
$122,709 respectively.
NOTE 5 - ISSUANCE/SALES OF STOCK
-----------------------
The Company issued 116,000 shares of restricted Rule 144 common stock in
settlement of a promissory note for $58,000 payable to Jerry Cornwell for
past services rendered.
The Company issued 31,318 shares for $15,659 of services rendered by a
consultant of the Company, Valhalla Financial Group, L.L.C.
The Company issued 168,436 shares of restricted Rule 144 common stock to
settle out an $84,218 promissory note payable to Jerry Cornwell for a
cash loan.
The Company issued 155,600 shares of restricted Rule 144 common stock to
settle out a $77,800 debt to Bristol Ltd. for a $17,800 cash loan and
$60,000 for past services rendered.
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.
The Company issued 800,000 shares of restricted Rule 144 common stock to:
80,000 shares to a consultant of the Company, Valhalla Financial Group,
L.L.C. for services rendered incident to the Settlement Agreement, and
720,000 shares to former or current PAN principals or affiliates pursuant
to a December 5, 1995 Settlement Agreement wherein the shares will be
issued pro rata to the participants in the Stock Option Plan in exchange
for 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,
agreement or any other relationship due from or with the Company.
All such shares issued during the first quarter of 1996 were issued for a
stated value of $0.50 per share.
NOTE 6 - 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.
<PAGE> 1
Exhibit 16.1
[TERRENCE J. DUNNE, MBA, MST 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
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
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0
0
<COMMON> 2,848
<OTHER-SE> 1,343,976
<TOTAL-LIABILITY-AND-EQUITY> 585,000
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<OTHER-EXPENSES> 117,695
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