SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 (Fee Required) for the fiscal year ended
September 30, 1996.
Commission File Number: 0-17963
(DE) U. S. ENVIRONMENTAL, INC.
(Exact name of Registrant as specified in Charter)
Delaware 11-2906904
- ------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
630 Parkview Tower
First Avenue
King of Prussia, Pennsylvania 19406
- ------------------------------- ------------------
(Address of principal (Zip Code)
executive office)
300 Woodcleft Avenue
Freeport, New York 11520
- ------------------------------- ------------------
(Previous Address of principal (Previous Zip Code)
executive office)
Registrant's telephone number,
Including area code (610) 337-4935
(Previous telephone number) (516) 546-1500
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ X ] NO
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The aggregate market value of the voting stock of the registrant held by non-
affiliates as of September 30, 1996 was approximately $5,999,327 based on the
average bid and asked prices for such Common Stock as appearing on NASD
Electronic Bulletin Board under the symbol "USEV." This price does not
reflect inter-dealer mark downs, commissions, or actual sales.
The number of shares of Common Stock outstanding as of
September 30, 1996 was 43,891,909.
Documents incorporated by reference: Various exhibits from 1933 Act and 1934
Act filings. See "Exhibits."
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The Company (previously known as Windfall Capital Corporation) was
incorporated in the State of Delaware on February 18, 1988.
The Company became a Public Company by filing and registering with the
Securities and Exchange Commission under Form S-18, certain Units consisting
of one share of common stock and five redeemable common stock purchase
warrants. Its registration statement became effective on February 10, 1989,
closing was held in August, 1989. A total of 1,000,000 Units were sold at
the offering price of $.05 per Unit for gross total proceeds of $50,000. The
net total proceeds after deducting the various costs of the offering was
$40,200.
On August 28, 1989, Windfall Capital Corporation acquired all of the
outstanding common stock of U.S. Environmental, Inc., a Delaware Corporation,
which became a wholly owned subsidiary of Windfall Capital Corporation.
Pursuant to said Agreement, Windfall Capital Corporation amended its
Certificate of Incorporation to change its name to U.S. Environmental, Inc.
and the wholly owned subsidiary changed its name to U.S. Waste Conversion
International, Inc.
(DE) U.S. Environmental, Inc. (hereinafter referred to as "USE" or "The
Registrant" or "The Company"), is an environmental services company which,
effective December 2, 1988, obtained a twenty (20) year worldwide license of
a proprietary Solid Waste Melt-All Electric Fusion Process and Plant
Equipment (the "Process"), developed by Geotech Development Corporation
("Geotech"), an Ohio Corporation. The Process is an adaptation of a
technology previously utilized by Geotech in Europe and Japan for induced
electrical fusion of minerals to create either dense glass or, upon
application of a spinning process, ceramic and mineral wool fibers. The
Company intends to establish a marketing program to sublicense the Process to
industrial, commercial and public
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sector customers through its own staff or by retaining the services of various
experts in industrial waste disposal, and assisting in the engineering,
construction and installation of the Process. The Company may serve as
Project Manager or Construction Manager and provide engineering design and
support services. The Company and the sublicensees of the Process will be
subject to significant federal, state and local environmental regulations in
the United States and similar laws in foreign countries.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
None.
(C) NARRATIVE DESCRIPTION BUSINESS
Overview
(DE) U.S. Environmental, Inc. is an environmental services company which,
under the said Technology License from Geotech, and with its own patented
magnetic separation and raw material processing technology, intends to market
sublicenses to utilize the Processes for destruction and conversion of various
solid mineral waste streams such as MSW incinerator ash residue, contaminated
soils, utility coal combustor fly ash residue, asbestos containing materials,
and industrial mineral waste residues with a view towards (i) conversion of
solid waste into non-toxic materials usable by and salable to industrial,
commercial and public sector customers and (ii) elimination of significant
health risks arising from exposure to harmful wastes in compliance with
various federal, state, and local laws regulating public exposure to
environmentally harmful waste materials. In addition, the Company intends to
develop a marketing and licensing plan where the Company is a participant in
the ongoing operation of the electric fusion and conversion plants either
through royalties or joint venture ownership arrangements.
Use of the Company's Process could eliminate the necessity of disposal at
regulated landfills and, in addition, the conversion would create an inert non-
toxic molten glass which can be poured into glass blocks, broken into pellets
and/or spun into fibers for potential reuse in product sales subject to
marketability and pricing.
Technology License
Effective December 2, 1988, as amended on September 17, 1989, and other
subsequent dates, the Company obtained from Geotech a 20 year worldwide
license of rights (renewable in successive 20 year periods), to develop,
explore, market, sell, lease, engineer, design, install, build, operate and
maintain the proprietary process known as the "Solid Waste Melt-All Electric
Fusion Process and Plant Equipment" (the "Process"). The license includes the
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right to sublicense the Process to others and to utilize any improvements
or enhancements to the Process made by Geotech during the term of its
license. As consideration for the license, Geotech was issued 2,370,249
shares of common stock of the Company (subsequently said stock was
retransferred to their five shareholders). As additional consideration, if
any, the Company has to pay Geotech a license fee of 5% of all process use
fees received by the Company from sublicensees; 5% of all output or by-product
income received by the Company which results from the processing of any
recovered material; and a technology fee of 5% of any technology fees received
by the Company from any sublicensee for the construction by such third party
of a plant; and if the Company uses Geotech for architecture or engineering
services, then the Company would pay Geotech 4% of the construction costs of
the plant, but in no event more than $200,000 per site. In addition to the
grant of rights, the Company has the right to utilize, with not less than ten
days prior notice, the "Research and Development Plant" located in Niagara
Falls, New York. The "Research and Development Plant", while fully opera-
tional, is used only as a demonstration model for the use of the Process in
treating solid waste, and is operated only as a marketing tool to demonstrate
to potential sublicensees and joint venturers the use of the Process. Geotech
has also warranted to the Company that the waste conversion, and the by-
products thereof, will be neither hazardous nor toxic and has agreed to
indemnify the Company and its sublicensees for claims or losses arising from
use of the Process of its products or by-products. The Company, however, has
no assurance of Geotech's ability to indemnify either the Company or its
sublicensees, either now or in the future.
On October 18, 1991, the Company entered into a Fourth Amendment to the
License Agreement that allows Geotech to build plants utilizing the Process
for their own account throughout the world. Under the terms of this
Amendment, Geotech would be obligated to pay the Company a license fee, as
well as a royalty of 5% of the material that is actually processed through
the Plant ("throughput").
To date, six plants (not involving the Company or its license) have been
built by Geotech in Europe and Japan utilizing the Geotech process, except
the feed stock (input) in most instances was not applicable to the Company's
license and in many instances is high grade minerals (rather than waste),
which is melted (fused) and spun into ceramic fibers (high temperature
insulation) for use in the refractory industry. Two of the plants were built
for research and development located in Wiesbaden, West Germany (1983) and
Lorette, France (1984). Four of the plants are operating and producing
insulation fibers located in Teplice, Czechoslovakia (1981), Atella (Potenza),
Italy (1985) Nagano, Japan (1986) and Nagoya, Japan (1992).
(page 4)
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The Company believes that the primary advantages of the Process are its
ability (1) to render solid waste, such as MSW incinerator ash, inert; (2) to
reduce substantially the volume of waste matter from 60% to 90%; (3) to yield
useful by-products for recovery, such as glass blocks and mineral wool fibers;
and (4) to reduce the liability of others in possession of solid waste (which
normally is disposed of in regulated landfills) by mineral fusion and thus
breaking the chain of liability.
The only materials introduced to the Electric Fusion process are solid
materials to be destroyed. All of the electric power used is consumed in
producing the molten core of the material. The molten core is located
immediately over the pouring orifice and is poured in a continuous stream that
is collected either in large blocks or shattered by pouring into a water
cooling trough. The only heat or energy that leaves the furnace is the
temperature of the molten stream. By charging the tonnage of waste materials
at the exact rate of the tonnage poured on a continuous basis, all of the
energy used is very efficiently used in the destruction of the materials.
The fusion process is capable of generating temperatures up to 5,200
degrees fahrenheit. The complete destruction of any crystalline structure of
any mineral or waste is accomplished since only the molten stream can be
poured through the orifice, resulting in a very high density amorphous
glass-like material. The mass collected is totally inert, non-leachable and
non-biodegradable.
Since only mineral or waste materials are introduced to the Electric
Fusion process, there is no additional tonnage added to the mass produced.
If there are any organics present in the material, there will be a reduction
in tonnage of that amount. Even if the tonnage of material poured may equal
the tonnage of material charged to the furnace, there is a dramatic volumetric
reduction in cubic feet. The high density amorphous product produced (185
pounds cu. ft.) will usually be one-eighth of the cubic ft. volume of the
material initially charged to the unit.
Business Strategy/Marketing and Sales
Management intends to derive revenue from its rights to the Process
through the following methods:
Sale by the Company directly or through the use of sales agents of the
right to use "the Process." Potential sublicensees may include: municipal-
ities, corporations, asbestos abatement contractors, landfill owners, resource
recovery (waste to energy) owners, waste generators, environmental cleanup
companies, Superfund site owners/agents, governmental agencies, power
utilities and waste removal companies; sale by the Company of the territorial
right to use "the Process" to entities through License Agreements (state,
county, etc.); sale by the Company of the right
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to use "the Process" to joint venturers by and between the Company and third
parties; lease of "the Process" to clients whereby the Company and/or others
are the owner and/or plant operators.
Marketing and Sales
The primary targeted initial clients are those organizations liable and
responsible for the disposal of the following solid waste material:
(i) Municipal Solid Waste ("MSW") incineration ash residue, (ii) coal fly ash
residue derived from coal fired electric generating plants, (iii) asbestos
containing materials ("ACM"), (iv) contaminated (volatile metals) soils, and
(v) other mixed waste ash residues derived from incineration.
The Company recommends that plants utilizing the Process should be a
minimum of 100 tons per day capacity for solid waste. The Company estimates
that the startup cost for a minimum 100 ton per day plant is approximately
$7,000,000 including cost of plant, equipment and construction, permits,
technology fees, ancillary buildings, electric utility hookups or tie-ins,
and miscellaneous startup costs. For increased capacity the engineering
design of these plants is modular in nature and additional tonnage capacity
can be added in parallel in increments of from 50 to 100 tons per day.
The choice by an entity to dispose of its asbestos waste by deposit in a
regulated landfill versus disposal through conversion by the Company's Process
will depend, all or in part, on the cost to such entity of the various methods
of disposal. Landfills designated for hazardous material disposal currently
charge fees typically in excess of $70 a ton for MSW combustion ash residue
and in excess of $150 a ton in the northeastern part of the country to dispose
of asbestos in EPA regulated landfills, whereas the Company currently intends
to charge approximately the same or less price as that of the EPA regulated
landfills. The number of permitted landfills has significantly decreased due
to recent environmental regulatory constraints in their design and use for
disposal of waste. However, in the event of a drop in landfill
disposal prices (tipping fees), the Company would have to rely on its
advantage of eliminating "cradle to grave" owners liability by the use of the
Process in order to justify higher prices. However, there is no assurance that
the company can obtain sufficient sales to operate profitably in such event.
The Company has developed a substantial data base of potential clients
who face exposure to significant potential liability through their ownership
of significant quantities of other solid waste material. The Company has
also acquired a comprehensive profile of municipal landfills with their
projected closing dates, and a national ranking of utilities by coal
consumption, the location of Resource Recovery Plants (waste to energy) both
currently on line and proposed, asbestos abatement contractors,
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waste generators, Superfund sites, environmental cleanup companies and waste
disposal firms. The Company intends to initiate contact with these concerns
through referrals, cold calls, advertising, mailings, personal visits and
attending appropriate industry conferences, and by utilizing commissioned
sales agents.
The Company intends that the basic sales approach should include:
1. Introduction to the Process and its advantages, which include cost
effectiveness, conversion to inert salable products, detoxification,
destruction/reduction in volume and recovery of marketable products and the
elimination of the necessity of conventional landfill disposal and its
inherent cradle to grave environmental liability.
2. Economic feasibility studies performed by Company staff.
3. Test demonstration to be conducted by Company officers and employees
at Niagara Falls Research and Development facility with solid waste material
supplied by client. The cost of any demonstrations will be covered by the
client, and generally all costs are deducted from the license technology fee
when the client elects to build a plant.
Construction/Operations
Upon securing a commitment to purchase or build a plant, management
intends to serve as overall project coordinator and owner representative by
assisting in locating and identifying an appropriate constructor
(design/builder), and operator/maintenance organization.
Financing
There are three principal means to finance plant construction: (1) the
user provides capital; (ii) the Company arranges off balance sheet financing
through vehicles such as turn-key contracts, long term supply contracts, and
syndications; (iii) joint ownership of plants between the Company and other
entities.
The choice of the financing of plant construction to use the Process will
be negotiated separately with each client.
Competition
Increasing public and governmental attention to MSW resource recovery
combustion ash residue; mass burn incineration combustion ash residue; coal
fly ash residue, declining landfill space, environmental liability and
regulatory compliance have encouraged research efforts and exploration of
alternatives to waste landfill disposal. Numerous companies, research
centers and universities are actively pursuing Research and Development
activities, for the
(page 7)
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detoxification, conversion and reduction of solid waste to non-toxic salable
products.
It is widely recognized that the total destruction and elimination of
waste substances is the ideal solution to the owner disposal related liability
issues. The efficient conversion and recovery of waste material into useful
products is also seen as an attractive solution to overcoming landfill
limitations. Management believes that the Melt All Cold Top Process is
capable of addressing these problems in a technologically superior and cost
effective manner. However, there are other approaches in varying stages of
development using hot gas-off atmospheres including electric fusion, that are
potential competitors to each of these pressing issues. While no attempt has
been made to assess the potential impact of all of these competitors and alter-
native technologies to U.S. Environmental's efforts, the major elements of
known potentially competitive systems are profiled below:
I. High Grade Mineral Electric Fusion Conversion Process
Management believes there are at present three companies in the United
States operating their own proprietary design high grade mineral electric
fusion furnaces exclusively for the production of ceramic and high temperature
ceramic fibers, utilized primarily in the refractory industry.
While management believes that none of these companies has currently
adapted or intends to market their furnaces for fusion of waste, such electric
fusion processes may be adapted for such purposes provided considerable plant
modifications, equipment replacement, time, materials and costs are employed.
However, the production rate for high grade ceramics for utilization in the
refractory industry is a low volume process (less than ten tons per day)
versus high volume production (from 100 to 600 tons per day) for the treatment
of waste. Therefore, a facility can only be designed and built both cost
effectively and efficiently for the treatment of waste or the production of
high grade ceramic fibers, and not both.
II. Ash Residue Conversion Process
Studies have shown that MSW combustor ash residue presently disposed of
in sanitary landfills may leach toxic metals, primarily cadmium and lead, at
levels that potentially could contaminate the groundwater and thereby endanger
human health and the environment.
Various technologies are in the development stage designed to reduce the
toxicity of these combustor ash residues, and reduce the volume and/or
mobility, and recover for resale the converted material. Management believes
that to date there are not any commercially accepted cost effective production
plants in full scale operation treating ash residue. However, Management has
not
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uncovered any proposed vitrification, fusion or thermal process that is cost
competitive with the Company's licensed fusion process.
Waste solidification, although not comparable to the Company's electric
fusion technology, is a physical and chemical engineered process in which the
beneficial results of hazardous waste treatment are obtained primarily through
the production of a monolithic end product that has high structural integrity
and low surface area. The hazardous ash residue, both top ash and bottom ash
are blended. The wastes' contamination does not necessarily interact
chemically with any added solidification agents (lime-silica pozylan, portland
cement, kiln dust), but are mechanically locked (encapsulated) within the
solidified matrix when mixed with water. The recovered material is a hardened
substitute aggregate that may be used in bituminous concrete paving.
The major difference between the Company's technology and the
solidification process are twofold. First, waste solidification increases
volume while the Company's technology produces a substantial (in excess of
50%) decrease in volume. Secondly, the Company's process produces a very
secure and proven micro-encapsulation of the heavy metals which eliminates
any possible leaching of these toxic substances.
III. Asbestos Destruction Vitrification Process
The Company only knows of one other research and development technique
than its own resistance melting for the destruction of asbestos containing
materials.
The other vitrification process is based on adding the asbestos waste
materials to an existing large bath of molten glass and the large mass of
molten glass absorbs the asbestos fibers and converts them into a molecular
part of the glass.
There are four major drawbacks to this technology:
1. The high cost of power required to maintain the large pool of molten
glass to receive the ACM makes this technology too expensive for commercial
consideration.
2. Introducing the ACM waste into the very hot atmosphere of the mass
of molten glass immediately creates a gas-off of any volatile agents such as
lead, cadmium, mercury, etc. into the exhaust system to atmosphere.
3. By introducing the cold waste directly into a hot molten mass, there
is a potential that a significant volume of the waste material will be
encapsulated rather than molecularly fused and, therefore could become
available to the environment if there is a break in the encasing material
shell.
4. By adding the ACM wastes to a large existing pool of molten glass,
there is an increase in the volume of material that
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requires disposal. This volumetric increase is two to three times the
original cubic feet of waste material.
With the Company's electric resistance Melt All Fusion technology, all of
the above mentioned drawbacks are eliminated. The only use of power is
applied to the waste material being destroyed by melting and pouring a
continuous stream of molten glass material. This results in a very efficient
use of electric power (approximately .23 kWh per lb melted and poured).
The Company's technology only generates heat in a small molten pool
immediately above the pouring orifice thereby maintaining a cold top low
temperature furnace atmosphere. The cool (130oF) furnace atmosphere above
the raw material creates very little or no off-gas to the pollution control
equipment.
We do not add mixing materials to the waste being destroyed, therefore
we accomplish a volumetric reduction of the waste material by a factor of as
much as 8 to 1.
Government Regulations
Solid Waste Regulation:
Federal, state and local environmental laws govern discharges of
pollutants to air and water and the generation, transportation, storage,
treatment and disposal of solid waste. These laws (i) establish standards
governing most aspects of the construction and operation of the Company's
Electric Fusion facilities and (ii) often require multiple governmental
permits before these facilities can be constructed, modified or operated.
There can be no assurance that all required permits will be issued with
respect to the Company's Electric Fusion projects. The process of obtaining
such permits can often cause delays, including delays caused by third party
appeals challenging permit issuance.
Environmental laws may also subject the Company to strict, joint and
several liability for the costs of remediating contamination associated with
sites, including landfills which the Company may use on a limited basis, in
connection with their Electric Fusion facilities, or at which residue or other
waste handled or processed by the Company may be disposed. Some such state
and local laws may create liabilities for injury to persons or property caused
by site contamination. In some cases the Company's contracts with its clients
may provide for indemnification of the Company for certain of these liabilities.
Some of the environmental laws that govern the Company's business include
but are not limited to federal laws, such as the Clean Air Act and Clean Water
Act and their state counterparts govern discharges of pollutants from such
facilities to air and water, and other federal, state and local laws such as
Resource
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Conservation and Recovery Act of 1976, as amended (RCRA) comprehensively
govern the generation, transportation, storage, treatment and disposal of
solid waste. The Environmental Regulatory Laws and other federal, state and
local laws, such as Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA/Superfund) make the Company
potentially liable for environmental contamination associated with its
activities or properties.
Pending Legislation:
Recent and proposed federal legislation should benefit the utilization of
the Company's electric fusion facilities use and acceptance by building owners
(waste generators) and others by informing owners that there is an alternative
to landfill disposal.
The National Emission Standards for Hazardous Air Pollutants (NESHAP)
revision, as it relates to hazardous waste disposal would require the EPA
administrator to approve alternative waste treatment methods that destroy or
transform asbestos containing waste into non-asbestos material (40 CFR 61.155),
rather than double bagging the waste, hauling and transporting the waste to
regulated landfills for disposal (burial).
Subsequent Events
New Jersey Institute of Technology under contract to NJ DEPE have
scheduled a pilot plant test run for the fusion and conversion
of contaminated soil to be in January 1997. Several tons of soil containing
hexavalent chrome contamination from several sites will be processed with the
Company's licensed Melt All mineral fusion technology and converted to inert
amorphous glass block and aggregate. The conversion of the hexavalent chrome
into non-toxic trivalent chrome or possibly chrome metal as an integral part
of the glass will allow the material to be used as material with a commercial
value such as road paving aggregate and as glass-like construction block.
This project will be performed in association with the U.S. Environmental
Protection Agency, Superfund innovative technology evaluation (SITE) program.
The Company has offered a formal answer to the Town of Hempstead, New
York's request for Proposal (RFP) on beneficiation of the combined ash residue
generated at their waste to energy MSW incinerator operation. The Company has
formed a 50/50 joint venture with Tully Construction Company, Inc. to
participate in the Hempstead RFP. Tully is a large construction contractor in
the New York area that purchases thousands of tons of the proposed products of
the RFP mineral fusion plant. Tully's annual product needs are far in excess
of the capacity of the
(page 11)
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proposed plant. Financing requirements for the full Hempstead project are in
excess of $25 million.
The Company has entered into a Financing Representation Agreement with
Swiss American Capital Management, Inc. to arrange the financing of a mineral
fusion plant if we are the successful proposer at Hempstead, NY. The result
of the Financing Agreement will have Swiss American Capital as the owner of
the plant and the Tully/USE Joint Venture company will be the plant operators.
The Company has entered into a major stock purchase agreement with
Kilgarven Investment & Holding Company, Ltd. The Agreement commits Kilgarven
to a stock purchase to equal 40.47 percent of the Company's issued and
outstanding shares for an aggregate amount of $4.0 million. The purchase is
being done in stages based on specified events including periods of time. The
Agreement gives Kilgarven the option to purchase an additional 12,000,000
shares of Company stock with a fourth funding at a share price not to exceed
$2.00 per share. The operating capital from the equity purchases by Kilgarven
will enable the Company to expand the sales effort to develop plant
construction contracts utilizing the Melt All and other Company technologies.
Two vacancies on the Board of Directors were filled with Max Schmid, a
representative for Kilgarven Investment Holding Company, Ltd., and Thomas R.
Tate who has been president of the Company since 1992. The Board of Directors
voted unanimously to invite both gentlemen to become Board members and both
officially accepted the invitation. Details and personal information
regarding both Mr. Schmid and Mr. Tate can be found in Part III of this report.
An annual shareholders meeting has been held December 4, 1996 at our
office building attached to the Valley Forge Sheraton Hotel, King of Prussia,
PA 19406. Announcements were sent to everyone on the shareholder list.
Attendance at the meeting represented 28,404,689 shares of common stock which
is 57% of the Company's eligible voting shares.
The company purchased a 50% ownership of the Pilot Plant facility located
in Niagara Falls, NY which represents Energy Fibers International,
Corporation's total interest in the plant. The Company also has prepaid a
three year lease for the exclusive use of the building housing the equipment.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES
Not applicable.
ITEM 2. PROPERTIES
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The Company offices are currently located in 2,500 square feet of leased
office space in a first class office building in King of Prussia, PA. The
space is leased on a month to month basis and furnished to the Company under
the Management Services Agreement.
ITEM 3. LEGAL PROCEEDINGS
As of September 30, 1996 there was a legal proceeding pending
involving the company and the pilot plant. This matter has
subsequently been resolved with the 50% purchase of the pilot
plant.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET PRICE FOR THE COMPANY'S COMMON EQUITY
AND RELATED SECURITY HOLDER MATTERS
COMMON STOCK
High Bid (1) Low Bid (1)
________ _______
1994
- ----
1st Quarter 1/8 1/16
2nd Quarter 1/8 1/16
3rd Quarter 1/8 1/16
4th Quarter 1/8 1/16
1995
- ----
1st Quarter 1/8 1/16
2nd Quarter 1/8 1/16
3rd Quarter 1/4 1/8
4th Quarter 1/4 1/8
1996
- ----
1st Quarter 1/8 1/16
2nd Quarter 1/4 1/8
3rd Quarter 1/8 1/16
4th Quarter 1/4 1/8
______________________
The Company has been advised that there were at least three marketmakers
trading the Company's common stock in the Over-The-Counter (O-T-C) market.
These quotes have been based on actual sales transactions reported by Castle
Securities Corp. After July, 1990, the quotes were determined from NASDAQ
Electronic
(page 13)
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Bulletin Board under symbol "USEV." Such quotes reflect inter-dealer prices
without retail markup, markdown or commission and are not necessarily
representative of actual transactions and of the true value of the common
stock.
As of September 30, 1996, the Company had 1242 shareholders of record of
its Common Stock.
The Company has never declared a dividend and does not plan to do so in
the near future.
ITEM 6. SELECTED FINANCIAL DATA FOR YEARS ENDED
SEPTEMBER 30, 1996 and 1995
The following data has been extracted from the annual financial
statements attached hereto as an exhibit:
Operations Data Years ended September 30,
1995 1996
______ ______
Revenue from operations $150,000 $ 95,000
Net development stage expenses 68,542 490,233
Net loss (68,542) (490,233)
Earnings Per Share Net Loss (.002) (.014)
Balance Sheet Data Years ended September 30,
1995 1996
______ ______
Current assets $ 11,419 $ 357,213
Total assets 2,408,525 2,566,747
Current liabilities 558,278 611,043
Notes payable - long-term 154,000 148,000
Shareholders' equity 1,805,247 1,955,704
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(A) Liquidity and Capital Resources
The Company's primary sources of funds to date have been proceeds from
the sales of its securities, nominal interest income on such proceeds,
convertible debenture loans, loans from Licensor Geotech and its principals,
and from customer demonstration research runs at the Niagara Falls, NY pilot
plant. The Company completed a private placement of 750,000 shares of its
restricted common stock at $.1667 per share for a total of $125,000 on
December 18, 1991. The additional 750,000 shares for the same price was
purchased September 22, 1992 by its Licensor, Geotech. In February 1994, the
Company completed a Reg S foreign investor private placement of 300,000
restricted shares of Company stock for $49,500. This same foreign investor
made a subsequent private
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Reg S purchase of Company restricted stock in the amount of 500,000 shares
for $42,500 in August 1996. The Company has generated revenues of $275,000 on
customer payments for pilot plant demonstration run fees. The Company signed
a Stock Purchase Agreement with Kilgarven Investment and Holding Company, Ltd.
on September 10, 1996. It is agreed Kilgarven will make a staged equity
placement in USE, Inc. of $4.0 million for purchase of 24 million shares.
There is a fourth purchase option for an additional 12 million shares at
market prices, not to exceed a cap of $2.00 per share.
(B) Results of Operations
The Company's net development stage expenses for 1995 were $68,542 which
includes $187,589 of depreciation as compared to the Company's net development
stage expenses for 1996 which were 490,233 which includes $187,572 of
depreciation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See annexed financial statements.
ITEM 9. DISAGREEMENTS OR ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company during fiscal 1996
are as follows:
Name Age Position With the Company
_________ ___ ________________________________
Thomas B. West 67 Chief Executive Officer and
Director (Chairman of the Board)
Thomas R. Tate 61 President and Director
Philomena Dietrich 58 Secretary, Treasurer and
Chief Financial Officer
Karl G. Fassnacht 46 Director
Karen von Dreusche 41 Director
Jack B. Dietrich 61 Director
Maurice Spatt 48 Director
Thomas W. West 42 Vice President Design Engineering,
Purchasing Manager
Max Schmid 37 Director
(1) All directors hold office until the next annual meeting of stockholders
of the Company and thereafter until their successors
(page 15)
<PAGE>
are chosen and qualified. All officers hold office at the selection and
choice of the Board of Directors of the Company.
THOMAS B. WEST, Chairman of the Board of Directors and Chief Executive
Officer, founded Geotech Development Corporation in 1979. He graduated from
Duquesne University in 1948 (B.S., Business Administration) and from the
Harvard Graduate School of Business, in 1977 (Advanced Management Program).
From 1953 to 1979, Mr. West was employed by Ramtite Corporation, which became
part of Combustion Engineering, where his last position with such company was
Vice President and General manager, Ceramics Group. Mr. West is a member of
the American Institute of Mining, Metallurgical and Petroleum Engineers (AIME).
THOMAS R. TATE, President and a Director, has been employed in various
executive capacities with Geotech Development Corporation since 1984. He
graduated from Ohio State University in 1959 (B.S., Mineralogy and Geology)
and has conducted post graduate studies in Advanced Behavioral Science at
Michigan State University and in Business Administration at New York
University. He was employed as a research and development manager,
developmental engineer and general sales manager by Carborundum Co. from 1959
to 1970; as a general sales manager and general manager with Babcock & Wilcox
from 1970 to 1975; and in similar positions with A.P. Green Refractories
Company Division of U.S. Gypsum from 1978 to 1984.
PHILOMENA A. DIETRICH, Secretary and Treasurer, has been with Geotech
Development Corporation since its inception in 1979 as office manager and
bookkeeping supervisor.
KARL G. FASSNACHT, CPA, a Director, graduated from Drexel University earning
a bachelor's degree in accounting in 1972 and a masters degree in financial
management in 1985. He is Director of the Technical Review Department and
Director of Education for the professional staff of Glickman, Berkovitz,
Levinson and Weiner, a certified public accounting firm. Mr. Fassnacht serves
clients whose stock is publicly traded as well as those that are in the
process of preparing initial public offerings of their stock. He has
experience in performing audit work for not-for-profit organizations and the
manufacturing and wholesale-distribution industries. Mr. Fassnacht began his
career in 1972 working for an international CPA firm for four years. He then
joined another international firm and served as an audit manager until 1982.
From 1982 to 1986 he was an accounting manager for a local CPA firm, which
merged with Glickman, Berkovitz, Levinson and Weiner in 1986.
(page 16)
<PAGE>
KAREN VON DREUSCHE, ESQUIRE a Director, graduated Denison University in 1976
(B.A., Economics and Political Science) and Dickinson School of Law in 1979.
After several years in private practice, Ms. von Dreusche became employed in
1982 as an associate attorney with the law firm of Busch & Schramm, where she
became a partner in 1984. Ms. von Dreusche left the firm to become full time
corporate counsel to AAMCO Transmissions, Inc., where she is now Associate
General Counsel.
JACK B. DIETRICH, a Director, began his career in 1959 as an insurance
adjuster with General Adjustment Bureau. He joined William J. Miller, Jr.
Associates, an independent insurance adjustment firm, in 1967 as a partner,
where he worked until forming his own firm, Jack Dietrich Associates, in 1990.
MAURICE SPATT, a Director, is a native of Australia. He graduated from Monash
University in 1973 with a Bachelor of Jurisprudence and a LL.B. Degree. He
has held senior management positions in a number of Australian companies and
currently is a Director of several companies including Waste Management Pty
Ltd, Capital Credit Company Pty Ltd, and Capital Finance Pty Ltd.
MAX SCHMID, a Director, is a native of Switzerland/Italy. He graduated from
Neve Sprachund Handelschule, Basle with a degree in Business Finance and
received his advanced Graduate degree at EFZ-Diplomkaufmann in Business
Administration/Finance. He has extensive experience in the international
banking and financial community both as an independent consultant and as bank
officer with such establishments as Credit Suisse, First Boston, London and
Bank Leu A.G., Zurich. He is a direct representative of the investor
Kilgarven, Ltd.
ITEM 11. EXECUTIVE COMPENSATION
(A) Cash Compensation
Since September 22, 1992 through September 30, 1996, the Company has had
no employees receiving compensation. There were no employment contracts with
any officers or employees. There were no monetary directors' fees paid during
this period.
(page 17)
<PAGE>
CASH COMPENSATION TABLE
_________________________________________________________________
(A) (B) (C)
_________________________________________________________________
Name of Individual Capacity Served In Cash Compensation
__________________ __________________ _________________
None -0-
All Executive Officers
as a group (4 in number) -0-
(B) Compensation Pursuant to Plans
The following non-qualified options were granted to a sales agent
representative by the Company on the following date:
Capacity in Exercise
Name of Individual Which Served Options Date Granted Price
__________________ ____________ _______ ____________ _______
Richard Varker Sales Agent 200,000 9/20/92 $.085
Said option holder has five years from the date of grant to exercise any or
all of his options.
(C) Other Compensation
See Financial Report (attached), page F-17
(D) Monetary Compensation of Directors
None
(E) Termination of Employment and Change of Control
Arrangement
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(A) (B) The following table sets forth as of September 30, 1996 certain
information with regard to the record and beneficial ownership of the
company's Common Stock by (i) each shareholders owning of record or
beneficially 5% or more of the Company's Common Stock (ii) each Director
individually, and (iii) all Officers and Directors of the Company as a group:
(page 18)
<PAGE>
Title of Name and Address of Beneficial Percent
Class Beneficial Owner Shares Owned of Class
_______ _______________________ ____________ ________
Common Thomas B. West (1) 1,905,212* 4.4%
RD #5, 351
Malvern, PA 19355
Common Thomas R. Tate 471,842 1.1%
474 Walker Road
Wayne, PA 19807
Common Philomena A. Dietrich 448,875 1.1%
Box 151, RD 3
Phoenixville, PA 19460
Common Maurice Spatt (2) 2,508,000 5.7%
411 Conestoga Rd.
Devon, PA 19333
All officers and Directors as a group (8 persons) 28.2%
and old Directors (5 persons)
________________________________________
(1) The above named individual includes Geotech Development Corporation
(an Ohio corporation) of which Mr. West is president.
(2) The above named individual includes Waste Management Pty Ltd
(an Australian corporation) of which Mr. Spatt is president.
(C) Change in Control
During fiscal year 1996, there was no change in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 22, 1992 the Company entered into an agreement with Geotech
Development Corporation whereby Geotech exercised the Noel Drago Associates
option for the purchase of 750,000 restricted shares of the Company's common
stock at the option price of $0.l6-2/3 per share. As part of this
transaction, management resigned in favor of a new management team assembled
by Thomas B. West, Chairman of the Board and C.E.O. (See Part III, Item 10,
Directors and Executive Officers of the Company).
(page 19)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 10-K
(A) The following documents are filed as a part of this
Form 10-K at the page indicated.
Auditors Report..................................... F-l
Consolidated Balance Sheets......................... F-2 & F-3
September 30, 1995 and 1996
Consolidated Statements of Operations............... F-4
Years Ended September 30, 1995 and 1996 and the
Period from February 18, 1988 (Inception)
to September 30, 1996
Consolidated Statements of Shareholders Equity...... F-5 through
Period from February 18, 1988 ( Inception F-7
to September 30, 1996
Consolidated Statements of Cash Flows............... F-8
Years Ended September 30, 1995 and 1996 and the
Period from February 18, 1988 (Inception)
to September 30, 1996
Notes to Consolidated Financial Statements.......... F-9 through
F-20
Consolidated Schedules of General and Administrative
Expenses......................................... F-21
Years Ended September 30, 1995 and 1996 and the
Period from February 18, 1988 (Inception)
to September 30, 1996
(a) (2) Schedules - None
(a) (3) Exhibits
(pages)
(l) 3.a Certificate of Incorporation of Company
(l) 3.b Amended Certificate of Incorporation
(l) 3.c By-Laws of the Company
(l) 10.c Acquisition Agreement between the Company and U.S.
Environmental, Inc. dated August 28, 1989
(l) 10.d Amended and Restated Technology License Agreement
between the Company and Geotech Development
Corporation, et al, dated October 13, 1989
(amending various Amendments thereafter)
(page 20)
<PAGE>
(pages) Exhibits
(l) 10.e First Supplement to Amended and Restated Technology
License Agreement between the Company and Geotech
Development Corporation, et al, dated
October 16, 1989
(2) 10.f The acquisition of U.S. Waste Conversion
International Inc. by U.S. Environmental, Inc.
(formerly Windfall Capital Corp.)
(3) 10.g Agreement of Sale between Registrant and Frank
Franza (Metal Separation Patent)
(4) 10.h Second Supplement to Amended and Restated License
Agreement between the Registrant and Geotech
Development Corporation.
(8) 10.i Third Supplement to the License Agreement
(6) 10.j Carl Massara Agreement
(9) 10.k Agreement dated December 9, 199l by and between the
Registrant and Noel Drago and Associates
10.l September 22, 1992 change of control transaction
that modified the December 9, 1991 agreement
(page 21)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, U.S. Environmental, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
U.S. ENVIRONMENTAL, INC.
Dated:December 16, 1996 By: (signed)
THOMAS B. WEST
Chief Executive Officer
Dated: 12/17 , 1996 By: (signed)
THOMAS R. TATE
President
Dated: 12/17 , 1996 By: (signed)
PHILOMENA A. DIETRICH
Secretary, Treasurer & principal
Financial Officer
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, this report has been signed on behalf of U.S.
Environmental, Inc. and in the capacities and on the dates indicated.
Dated: December 16, 1996 By: (signed)
THOMAS B. WEST
Chief Executive Officer and
Chairman of the Board
Dated: December 19, 1996 By: (signed)
KARL G. FASSNACHT
Director
Dated: December 19, 1996 By: (signed)
KAREN VON DREUSCHE
Director
Dated: 12/18 , 1996 By: (signed)
JACK B. DIETRICH
Director
Dated: December 19, 1996 By: (signed)
Maurice Spatt
Director
Dated: 12/17 , 1996 By: (signed)
Thomas R. Tate
Director
Dated: December 19, 1996 By: (signed)
Max Schmid
Director
(page 22)
<PAGE>
FINANCIAL REPORT SUBMITTED WITH FORM 10K
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL REPORT (page)
ACCOUNTANTS REPORT F-1
CONSOLIDATED BALANCE SHEETS F-2 and F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY F-5 through F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 through F-20
CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES F-21
<PAGE>
(letterhead)
STAN A. METTER
CERTIFIED PUBLIC ACCOUNTANT
831 DeKalb Pike
Center Square, PA 19422
Telephone (610) 278-9444
Fax (610) 278-9298
INDEPENDENT AUDITORS REPORT
Board of Directors and Shareholders
U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
I have audited the accompanying consolidated balance sheets of U.S.
Environmental, Inc. and Subsidiary (A Development Stage Enterprise) as of
September 30, 1996 and 1995 and the related consolidated statements of
operations, shareholders equity, cash flows and schedules of general and
administrative expenses for the years then ended. These financial statements
are the responsibility of the Companys management. My responsibility is to
express an opinion on these statements based on my audit.
I conducted an 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 of 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 financial position of U.S.
Environmental, Inc. and Subsidiary (A Development Stage Enterprise) as of
September 30, 1996 and 1995 and the consolidated results of operations,
stockholders equity, and cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully discussed in Notes 1,
2, and 4, the Company is in the development stage with its principle activity
being negotiating, obtaining and marketing a solid and hazardous waste
treatment technology for the purpose of future commercial application.
(page F-1a)
<PAGE>
Accountants report, Page Two
As more fully discussed in Note 7, the accompanying financial statements at
September 30, 1996 include intangible assets stated at $2,207,898.
Realization of these assets and substantially all of the Companys assets is
dependent upon its ability to resolve liquidity problems, completion of the
Company's development stage, future sale of technology and the ability of the
Company to generate revenues sufficient to result in future profitable
operations.
There is no certainty that the licensed technology and the patents are
commercially applicable. In addition, the Company has suffered recurring
losses from operations and has a net capital deficiency that raises
substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
(signed)
Stan A. Metter
Certified Public Accountant
October 30, 1996, except for
Note 12 as to which the date
is November 22, 1996
(page F-1b)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
ASSETS
<CAPTION>
(Restated)
1996 1995
_________ _________
<S> <C> <C>
CURRENT ASSETS:
Cash $ 351,713 $ 919
Prepaid expenses 5,500 10,500
_________ _________
TOTAL CURRENT ASSETS 357,213 11,419
_________ _________
PROPERTY AND EQUIPMENT - AT COST:
Furniture and equipment 478 478
Less accumulated depreciation 372 329
_________ _________
PROPERTY AND EQUIPMENT - NET 106 149
_________ _________
OTHER ASSETS:
Marketable securities - at lower of
aggregate cost or market 1,530 1,530
License agreements (net of accumulated
amortization of $805,512 in 1996 and
$688,296 in 1995) 1,538,815 1,656,031
Patent (net of accumulated amortization
of $455,917 in 1996 and $385,604 in
1995) 669,083 739,396
_________ _________
TOTAL OTHER ASSETS 2,209,428 2,396,957
_________ _________
TOTAL ASSETS $2,566,747 $2,408,525
========= =========
</TABLE>
(page F-2)
<PAGE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
(Restated)
1996 1995
__________ __________
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable:
Shareholders $ 92,833 $ 92,833
Others 148,000 144,000
Accounts payable and accrued expenses 370,210 321,445
__________ __________
TOTAL CURRENT LIABILITIES 611,043 558,278
__________ __________
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common stock, .0001 par value; 100,000,000
shares authorized; 43,891,909 shares issued
and outstanding in 1996 and 35,290,163
shares issued and outstanding in 1995 4,389 3,529
Capital in excess of par value 5,225,568 4,630,738
Deficit accumulated during the development stage ( 3,274,253) ( 2,784,020)
__________ __________
TOTAL SHAREHOLDERS' EQUITY 1,955,704 1,850,247
__________ __________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,566,747 $ 2,408,525
========== ==========
<FN>
See notes to financial statements
</TABLE>
(page F-3)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
February 18, 1988
(Inception) to
September 30,
1996 1995 1996
__________ __________ __________
<S> <C> <C> <C>
DEVELOPMENT STAGE EXPENSES:
Research and development $ 112,512 $ 169,020
General and administrative 285,149 $ 30,953 2,016,607
Depreciation and amortization 187,572 187,589 1,398,743
__________ __________ __________
TOTAL DEVELOPMENT
STAGE EXPENSES 585,233 218,542 3,584,370
LESS REVENUE FROM
DEMONSTRATION FEES 95,000 150,000 275,000
__________ __________ __________
NET DEVELOPMENT STAGE EXPENSES 490,233 68,542 3,309,370
__________ __________ __________
OTHER INCOME (EXPENSES):
Interest income 1,429
Forgiveness of indebtedness 36,071
Loss on abandonment of assets ( 2,388)
Miscellaneous income 5
__________ __________ __________
TOTAL OTHER INCOME
(EXPENSES) 35,117
__________ __________ __________
NET LOSS ($ 490,233) ($ 68,542) ($3,274,253)
__________ __________ __________
NET LOSS PER SHARE ($ .014) ($ .002) ($ .129)
__________ __________ __________
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 36,193,892 34,435,163 25,326,022
========== ========== ==========
<FN>
See notes to financial statements
</TABLE>
(page F-4)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
Common Stock Deficit
______________________ Accumulated
Shares $.0001 Capital in During the Subscrip-
Issued and Par Excess of Development Treasury tions
Outstanding Value Par Value Stage Stock Receivable Total
___________ ________ ___________ ___________ ________ __________ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Initial issuance of common stock
February 18, 1988 (inception)
through July 31, 1988 2,025,000 $ 203 $ 5,097 $ 5,300
Net loss - February 18, 1988
(inception) to
September 30, 1988 (*)
___________ ________ ___________ ________ __________
Balances - September 30, 1988 2,025,000 203 5,097 5,300
Sale of common stock with redeemable
warrants in August, 1989 1,000,000 100 49,900 50,000
Costs incurred in connection with
issuance of common stock ( 9,800) ( 9,800)
Shares issued by U.S. Environmental,
Inc. in connection with pooling of
interest 20,000,000 2,000 359,608 ($ 25,000) 336,608
Net loss - year ended September 30, 1989 ($ 195,462) ( 195,462)
___________ ________ ___________ __________ ________ __________
Balances - September 30, 1989 23,025,000 2,303 404,805 ( 195,462) ( 25,000) 186,646
Shares donated ( 1,000,000) ( 100) 100
Shares issued in exchange for warrants 1,000,000 100 ( 100)
Issuance of treasury stock 3,000,000 300 ($ 300)
Shares issued in exchange for securitie
(subject to mandatory redemption) 500,000
Shares issued for patent rights 300,000 30 1,124,970 1,125,000
Shares issued for plant and equipment 200,000 20 999,980 1,000,000
Shares issued for license agreement 400,000 40 1,999,960 2,000,000
Shares issued for services 58,700 6 994 1,000
Shares issued for cash 1,000 500 500
Collection for subscriptions receivable 1,500 25,000 26,500
Net loss - year ended September 30, 1990 ( 481,972) ( 481,972)
___________ ________ ___________ __________ _______ ________ __________
Balances - September 30, 1990 27,484,700 2,699 4,532,709 ( 677,434) ( 300) $ 0 3,857,674
========
(continued)
<FN>
See notes to financial statements
(*) There were no results of operations for the period February 18, 1988 (inception) to September 30, 1988.
</TABLE>
(page F-5)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
Common Stock Deficit
____________________ Accumulated
Shares $.0001 Capital in During the Subscrip-
Issued and Par Excess of Development Treasury tions
Outstanding Value Par Value Stage Stock Receivable Total
___________ _______ _________ __________ ________ __________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances - September 30, 1990 27,484,700 2,699 4,532,709 ( 677,434) ( 300) $ 0 3,857,674
=========
Issuance of treasury stock 13,000,000 1,300 ( 1,300)
Shares issued for services 2,775,000 277 82,913 83,190
Shares issued for license agreement 1,500,000 150 299,850 300,000
Conversion of note payable 35,166 4 4,996 5,000
Shares issued for cash 20,000 2 4,998 5,000
Cancellation of treasury stock (10,000,000) ( 1,000) 1,000
Acquisition of treasury stock in exchange
for plant and equipment (200,000 shares) (866,667) ( 866,667)
Other 300
Net loss - year ended September 30, 1991 ( 624,085) ( 624,085)
___________ _______ _________ __________ ________ __________
Balances - September 30, 1991 34,815,166 3,432 4,925,466 ( 1,301,519) (867,267) 2,760,112
Cancellation of treasury stock ( 6,000,000) ( 600) 600
Return of shares issued for executive
signing bonus ( 250,000) ( 25) ( 25)
Shares issued for cash 1,700,000 170 269,830 270,000
Conversion of notes payable 273,997 27 44,973 45,000
Costs incurred in connection with
issuance of common stock ( 50,000) ( 50,000)
Shares issued for services 250,000 25 25
Retirement of treasury stock ( 200,000) ( 20) ( 866,647) 866,667
Cancellation of redeemable shares
issued for securities ( 500,000)
Shares issued for termination of
intermediary agreement 3,000,000 300 239,700 240,000
Net loss - year ended September 30, 1992 ( 508,589) ( 508,589)
___________ _______ _________ __________ ________ __________
Balances - September 30, 1992 33,089,163 3,309 4,563,322 ( 1,810,108) $ 0 2,756,523
========
(continued)
<FN>
See notes to financial statements
</TABLE>
(page F-6)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
Common Stock Deficit
____________________ Accumulated
Shares $.0001 Capital in During the Subscrip-
Issued and Par Excess of Development Treasury tions
Outstanding Value Par Value Stage Stock Receivable Total
___________ ________ __________ ___________ _________ __________ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances - September 30, 1992 33,089,163 3,309 4,563,322 ( 1,810,108) $ 0 2,756,523
=======
Shares issued for cash 200,000 20 19,980 20,000
Conversion of note payable 25,000 2 4,998 5,000
Costs incurred in connection with
issuance of common stock ( 17,022) ( 17,022)
Shares issued for management service 550,000 55 55
Shares issued for services 100,000 10 9,990 10,000
Net loss - year ended September 30, 1993 ( 682,402) ( 682,402)
___________ ________ __________ ___________ ____________
Balances - September 30, 1993 33,964,163 3,396 4,581,268 ( 2,492,510) 2,092,154
Shares issued for cash 300,000 30 49,470 49,500
Net loss - year ended September 30, 1994 ( 222,968) ( 222,968)
___________ ________ __________ ___________ ____________
Balances - September 30, 1994 34,264,163 3,426 4,630,738 ( 2,715,478) 1,918,686
Shares issued for services 1,026,000 103 103
Net loss - year ended September 30, 1995 ( 68,542) ( 68,542)
___________ ________ __________ ___________ ____________
Balances - September 30, 1995 35,290,163 3,529 4,630,738 ( 2,784,020) 1,850,247
Shares issued for services 1,468,000 147 117,293 117,440
Conversion of note payable 500,000 50 42,450 42,500
Shares issued for cash 6,333,746 633 499,367 500,000
Costs incurred in connection with
issuance of common stock 300,000 30 ( 64,280) ( 64,250)
Net loss - year ended September 30, 1996 ( 490,233) ( 490,233)
___________ ________ __________ ___________ ____________
Balances - September 30, 1996 43,891,909 $ 4,389 $5,225,568 ($3,274,253) $1,955,704
========== ======== ========== ========== ==========
(concluded)
<FN>
See notes to financial statements
</TABLE>
(page F-7)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 AND
FOR THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
February 18, 1988
(Inception) to
September 30,
1996 1995 1996
________ ________ __________
<S> <C> <C> <C>
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES:
Net loss ($490,233) ($ 68,542) ($3,274,253)
Items not requiring cash:
Depreciation and amortization 187,572 187,589 1,398,743
Loss on abandonment of assets 4,888
Issuance of common stock
for services 117,440 103 316,206
Return of common stock issued
for executive signing bonus ( 25)
Issuance of common stock for
termination of intermediary agreement 240,000
Changes in:
Prepaid expenses 5,000 ( 3,358)
Accounts payable and accrued expenses 48,765 ( 118,439) 370,210
________ ________ __________
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES ( 131,456) 711 ( 947,589)
________ ________ __________
CASH USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment ( 8,945)
Purchase of license agreement ( 44,327)
Purchase of marketable securities ( 1,530)
________ ________ __________
NET CASH USED FOR INVESTING ACTIVITIES ( 54,802)
________ ________ __________
CASH PROVIDED FROM (USED FOR)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings 4,000 118,600
Repayment of short-term borrowings ( 21,767)
Issuance of common stock,
net of offering costs 478,250 1,058,271
Proceeds from issuance of convertible notes 199,000
________ ________ __________
NET CASH PROVIDED FROM (USED FOR)
FINANCING ACTIVITIES 482,250 1,354,104
________ ________ __________
NET INCREASE IN CASH 350,794 711 351,713
CASH - BEGINNING OF PERIOD 919 208 0
________ ________ __________
CASH - END OF PERIOD $351,713 $ 919 $ 351,713
======== ======== ==========
<FN>
See notes to financial statements
</TABLE>
(page F-8)
<PAGE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation, basis of presentation and business activity
________________________________________________________________________
The accompanying financial statements include the accounts of U.S.
Environmental, Inc., formerly Windfall Capital Corp. (the Parent) and
its wholly-owned subsidiary, U.S. Waste Conversion International, Inc.,
formerly U.S. Environmental, Inc., (Subsidiary). All inter-company
transactions and accounts have been eliminated in consolidation.
The Companys principle activity has been to negotiate, obtain and
market a solid and hazardous waste treatment technology. No income has
been earned from this activity to this date, consequently, the financial
statements have been presented as those of a development stage
enterprise.
Property, plant and equipment
_____________________________
Property and equipment are stated at cost. Additions and improvements
to property are capitalized; maintenance and repairs are expensed as
incurred. When property is retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in operations. Depreciation is
computed on the accelerated and straight-line methods over the estimated
useful lives of the assets.
Research and development costs
______________________________
All research and development costs have been expensed.
Revenue recognition
___________________
The Company will recognize revenue upon the sale of its technology to
end users as well as through sub-license agreements.
Net loss per share
__________________
Net loss per share is computed based on the average number of common
shares outstanding during each period. Fully diluted loss per share
amounts are not presented for each period because they would be anti-
dilutive.
Patent
______
The cost of a patent (Note 7) is being amortized utilizing a straight-
line method over the remaining estimated economic life of sixteen years.
Amortization expense charged to operations was $70,313 for the years
ended September 30, 1996 and 1995.
(page F-9)
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
License agreements
__________________
The cost of the license agreements (Note 4) are being amortized
utilizing a straight-line method over a period of twenty years.
Amortization expense charged to operations was $117,216 for the years
ended September 30, 1996 and 1995.
Statement of cash flows
_______________________
For purposes of the statement of cash flows, the Company considers all
time deposits with maturities of three months or less as cash
equivalents.
Use of estimates
________________
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
2. UNCERTAINTY
Going concern and realization of assets
_______________________________________
The Company is in the development stage with its principal activity
being the negotiation, obtaining and marketing of a solid and hazardous
waste treatment technology for the purpose of future commercial
application. The Company has had losses since inception of $3,274,253
and at September 30, 1996 had a net tangible shareholders deficiency of
$207,867 as defined by shareholders equity less intangible acquired by
issuance of common stock.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Companys ability to
complete the research and development activities and its transition to
attaining profitable operations is dependent upon obtaining adequate
financing and achieving a level of sales adequate to support the
Companys cost structure. Realization of substantially all of the
Companys assets is dependent upon these factors. The financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
(page F-10)
<PAGE>
2. UNCERTAINTY (Continued)
The Companys continued existence is dependent upon its ability to
resolve its liquidity problems, principally by obtaining additional debt
financing and equity capital. While pursuing additional debt and equity
funding, the Company must continue to operate on limited cash flow
generated internally.
The Company will have to minimize its requirements for working capital
by implementing cost reduction efforts. Working capital limitations
continue to impinge on day-to-day operations, thus contributing to
continued operating losses.
3. CASH
The Company maintains a cash balance in one bank. Accounts at this
institution are insured by the Federal Deposit Insurance Corporation up
to $100,000.
4. LICENSE AGREEMENTS
The Company entered into a twenty year amended and restated license
agreement with Geotech Development Corporation (Geotech) on October 13,
1989 for the sole use of their technology regarding a solid waste melt-
all fusion process. The agreement is renewable at the end of the
initial period in perpetuity for successive twenty year periods at the
licensees option. As consideration for the licenses, Geotech was paid
$14,000 and an additional $30,327 was paid to consultants, on Geotechs
behalf, to transfer the technology. In addition, there were 2,370,249
shares of common stock issued by the Parent to Geotech in the fiscal
year ended September 30, 1990.
The Company, on May 31, 1990, amended its license agreement with
Geotech, whereby the Company issued to Geotech 400,000 shares of common
stock, valued at $5.00 per share, as consideration for the reduction of
royalty fees from twenty percent to five percent. Under the terms of
the agreement, royalty fees due the licenser will be five percent of
total receipts, as defined in the agreement.
On October 18, 1991, the Company amended its 1989 license agreement with
Geotech. This amendment to the license agreement allows Geotech on a
restricted basis to build plants utilizing the US/Geo Technology for
their own account. Under the terms of this amendment, Geotech would be
obligated to pay the Company a license fee, as well as 5% of all
royalties collected.
(page F-11)
<PAGE>
4. LICENSE AGREEMENTS (Continued)
On September 22, 1992, Geotech acquired an additional 750,000 shares
through a cash purchase of $125,000. As an incentive to invest capital
in the Company, management agreed to transfer control of the Company to
the Geotech management team. (See Notes 7 and 10).
On December 17, 1990, the Company entered into a license agreement with
a joint venture whose partners are Asbestoguard Australia PTY Limited
and Asbestoguard Limited. Under the license agreement, the Company
acquired an exclusive license for the marketing, distribution and sale
in the United States of America of the Asbestoguard process, package and
related property developed by the joint venture. The proprietary
system, which consists of proprietary equipment and liquid sealant
products, was developed for non-hazardous treatment and rehabilitation
of asbestos, asbestos cement, concrete or cement products. The Company
obtained a twenty-year license with a twenty-year renewal option by the
issuance of 1.5 million of its unregistered common shares valued by
management at $300,000. (See Note 2 regarding net realizable value of
assets). In addition, the Company is obligated to pay for the cost of
any Asbestoguard liquid sealant product provided, in the form of a
royalty (10% premium above cost), up to a maximum of $1,500,000.
5. NOTES PAYABLE
During 1991, the Company issued $199,000 of 11% convertible notes
payable, due two years from the date of purchase (December 31, 1992).
At any time prior to the two years from the purchase, the investor may
have converted or exchanged their note for unregistered shares of common
stock of the Company at the conversion price of 25% below the bid price
of the public trading market for the Companys common stock at the day
of receipt by the Company. $55,000 of notes were converted by the
conversion date.
In December of 1992, the Company offered its remaining convertible note
holders an extension of one year at the same interest rate of 11%,
excluding the conversion option. Four convertible note holders accepted
this offer. The remaining note holders did not accept the offer and
wanted the principle returned. Due to the Companys financial position,
they were unable to repay the notes. These notes are now in default.
Included in notes payable - other as of September 30, 1996 and 1995 are
the following:
(page F-12)
<PAGE>
5. NOTES PAYABLE (Continued)
1996 1995
________ ________
Notes in default $144,000 $144,000
Other short-term notes 4,000
________ ________
$148,000 $144,000
Also included in accounts payable and accrued expenses is $61,160 and
$45,320 in interest owed at September 30, 1996 and 1995.
6. NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders at September 30, 1996 and 1995 consists of
the following:
Interest
Holder Due Date Rate Collateral Amount
____________ ____________ ____ __________ _______
Shareholders May 13, 1992 18% None $82,833
The interest to shareholders of 18% is due only upon default. The loans
became due June 16, 1992. The Company is disputing the remaining loans.
The Company does not intend to pay interest on the disputed loans and
accordingly, no interest has been accrued thereon.
The Company also has four notes totaling $10,000 with other
shareholders. The notes are non-interest bearing with repayment due
when the company sells its technology. The Company has classified these
notes as short-term.
7. SHAREHOLDERS EQUITY
The Parent sold for cash the following shares of common stock from
April, 1988 through July, 1988:
Price
Per
Shares Share Amount
_________ _____ _______
1,800,000 .001 $ 1,800
100,000 .01 1,000
125,000 .02 2,500
_________ _______
2,025,000 $ 5,300
(page F-13)
<PAGE>
7. SHAREHOLDERS EQUITY (Continued)
On August 17, 1989 the Company sold, in a public offering, (Form S-18)
1,000,000 units at $.05 per unit. Each unit consists of one share of
common stock and five redeemable warrants. Each warrant entitles the
holder to purchase one share of common stock at the price of $.10 per
share. The warrants expired February 9, 1991. The costs incurred in
connection with the offering were $9,800. The net proceeds were
$40,200.
On August 28, 1989, the Parent, formerly Windfall Capital Corp.,
acquired all of the outstanding common stock of the Subsidiary, formerly
U.S. Environmental, Inc. (13,500,000 shares), in exchange for 20,000,000
shares of the Parent.
Under the terms of the acquisition agreement, Windfall Capital Corp.
changed its name to U.S. Environmental, Inc. and the wholly-owned
subsidiary changed its name to U.S. Waste Conversion International, Inc.
The Parent also changed its fiscal year end to September 30 to conform
to that of the Subsidiary.
This transaction was accounted for as a pooling of interest, whereby the
transaction was a re-capitalization of the subsidiary. In effect, the
transaction was the acquisition of the Parent by the Subsidiary since
the shareholders of the Subsidiary held 20,000,000 (86.86%) of the
23,025,000 shares outstanding of the Parent after acquisition. Expenses
incurred in connection with this transaction ($46,447) have been charged
to operations in the year ended September 30, 1990. The operations of
the Parent prior to the merger was significant to the combined
operations. Goodwill was not recognized in the transaction and the
financial statements reflect the assets at their historical cost basis.
During May, 1990, various officers, directors and shareholders of the
Company contributed one million shares of stock to the Company. The
Company then redeemed the outstanding five million warrants by offering
one share for every five warrants to each warrant holder. The actual
shares are included with the issued and outstanding shares at September
30, 1990.
The Company issued, on September 27, 1990, 3,000,000 shares of common
stock to the Company to be held as treasury stock.
The Company exchanged 500,000 shares of its common stock for 500,000
shares of Waste Technology Corporations common stock on March 16, 1990.
The shares were valued by the Company at $.50 per share. The shares are
subject to SEC Rule 144 and, accordingly, bear such restrictive legends.
The shares revert to Waste Technology Corporation if a plant is not
built and 75% operating by Waste Technology Corporation or affiliate by
March 16, 1992. As of March 16, 1992, no plant was built consequently
the shares were redeemed and canceled.
(page F-14)
<PAGE>
7. SHAREHOLDERS EQUITY (Continued)
The Company, on February 27, 1990, acquired the rights to a patent for a
metal separation system for incinerators, in exchange for 300,000 shares
of the Companys common stock. The transaction has been valued by
management at $1,125,000. (See Note 2 regarding net realizable value of
assets). The patent, which has been valued at $1,125,000 is included in
other assets and is being amortized over its remaining life on a
straight-line basis. The Company intends to use the patent in
conjunction with its mineral electric fusion process.
The Company, on May 31, 1990, acquired a fifty percent interest in the
plant and equipment of Geotech comprising an electric fusion metal-all
demonstration pilot plant for 200,000 shares of common stock of U.S.
Environmental, Inc. valued at $5.00 per share or $1,000,000. The
Company was depreciating this plant and equipment over ten years on a
straight-line basis through September 30, 1991. At September 30, 1991
the Company has retroactively reflected the reversion of this
transaction which was executed on October 18, 1991. The Company
accounted for the reversion as an acquisition of its own restricted
common shares valued at the net book value of the plant and equipment
exchanged.
The Company, on May 31, 1990, amended its license agreement with
Geotech, whereby the Company issued to Geotech 400,000 shares of common
stock valued at $5.00 per share, as consideration for the reduction of
royalty fees from twenty percent to five percent. The transaction has
been valued at $2,000,000. (See Notes 2 and 4).
The Company, on May 8, 1990, issued 58,700 shares of common stock for
consulting services valued at $1,000 ($.017 per share).
The Company, on May 3, 1990, issued 1,000 shares of common stock for
$500 ($.50 per share).
The Company, on best efforts basis, issued a private placements
memorandum on September 15, 1990 in order to raise the necessary funds
to continue its development stage operations. The securities consist of
150 convertible notes at a price of $5,000 per note. The convertible
notes bear interest at 11% per annum paid semi-annually and are
convertible into common stock of the Company at 25% below the public
trading market value. The maximum gross proceeds to the Company would
have been $750,000. The Company completed this offering on March 31,
1991, after having raised $199,000 (See Note 5).
As of September 30, 1991, a note holder converted their note in the
amount of $5,000 for 35,166 shares of restricted common stock.
(page F-15)
<PAGE>
7. SHAREHOLDERS EQUITY (Continued)
During the quarter ended December 31, 1991, the Company canceled
6,000,000 shares of stock held as treasury stock.
On October 25, 1991, the Company accepted the resignation of Carl
Massara as President, Chairman of the Board, and a Director of the
Company. Mr. Massara agreed to return to the Company 250,000 shares he
received as a signing bonus.
In October of 1991, the Company sold 200,000 shares of its restricted
common stock for $20,000. The Company used the money to hold a
demonstration of its melt-all process in a pilot plant located in
Niagara Falls, NY.
On December 18, 1991, the Company received $125,000 for 750,000 shares,
or a per share price of $0.1667. As part of this transaction, the
Companys management resigned in favor of a management team assembled by
Noel Drago Associates, whereby Noel Drago was appointed president.
During the quarter ended December 31, 1991, four note holders converted
an aggregate of $20,000 of convertible notes for a total of 140,664
restrictive shares.
In February of 1992, a note holder with a value of $25,000 exchanged
their convertible note for 133,333 restrictive shares.
On September 22, 1992, the Company issued 3,000,000 restrictive shares
to Frank Franza, John Drago, and Alfred Franza to terminate their rights
to compensation if they served as intermediaries in connection with the
sale of stock or assets of the Company (intermediary agreement).
Also on September 22, 1992 the Company received $125,000 for 750,000
restrictive shares from Geotech Development Corp. As part of this
transaction, the Companys management resigned in favor of a management
team assembled by Geotech, whereby Thomas R. Tate was appointed
president.
In October of 1992 the Company received $20,000 for 200,000 restrictive
shares of stock from an outside investor.
Also in October of 1992 a note holder with a value of $5,000 exchanged
their convertible note for 25,000 restrictive shares.
The Company incurred legal fees in connection with the purchase of stock
by Geotech Development Corp. in the amount of $17,022 on September 22,
1992. This amount was not recorded until the year ended September 30,
1993.
(page F-16)
<PAGE>
7. SHAREHOLDERS EQUITY (Continued)
In April of 1993, the Company issued 550,000 restrictive shares to the
current management team. The Company valued the stock at $.0001 per
share. The stock must be returned if the individual resigns prior to
September 22, 1994.
In September of 1993, the Company approved the issuance of 100,000
restrictive shares in lieu of payment of legal fees. The actual shares
were not issued by the transfer agent until October, 1993 however the
shares are included with issued and outstanding shares at September 30,
1993.
In February of 1994 the Company received $49,500 for 300,000 shares of
stock from an outside investor, with an additional option to purchase
700,000 shares at $.165 per share until April 4, 1994. At the
expiration of this option, the investor still had an option to purchase
700,000 shares at 80% of bid price, but not less than $.165 per share.
This option expired August 10, 1994 with no additional shares being
purchased.
In August of 1995 the Company issued 322,000 shares to various outside
consultants and 704,000 shares to management and the current board of
directors. The Company valued all of the shares at $.0001 per share.
In March and August of 1996 the Company issued 1,468,000 shares to
management and the current board of directors. The Company valued all
of the shares at $.08 per share.
A holder of a convertible note in the amount of $42,500 exercised an
option and converted the note to 500,000 shares in August of 1996. The
company incurred costs of $4,250 (See Note 10). The actual shares have
not been issued however, the shares are included with the issued and
outstanding shares at September 30, 1996.
In September of 1996, the Company entered into a three phase stock
purchase agreement with an outside investor. The initial purchase was
6,333,746 shares for $500,000. The actual shares were not issued by the
transfer agent until October, 1996 however the shares were included with
the issued and outstanding shares at September 30, 1996. The Company
paid $60,000 in costs and issued 300,000 shares of common stock in
connection with this purchase (See Note 10). The second phase is for
6,331,746 shares for $500,000 if the company is awarded a contract to
construct a vitrification plant for the Town of Hempstead, New York or
the City of Long Beach, New York, or November 22, 1996, whichever event
occurs first. If the Town of Hempstead extends its evaluation period
beyond September 20, 1996, the November 22, 1996 deadline will be
extended for the same time period. The third purchase is for 12,663,363
(page F-17)
<PAGE>
7. SHAREHOLDERS EQUITY (Continued)
shares for $3,000,000. This is scheduled to occur after the funding
agreement is secured for the construction of the vitrification plant for
the Town of Hempstead, New York, or a completion or surety performance
bond is purchased for this project. At this time, the outside investor
will own 40.47% of the outstanding shares of the Company. An option
exists to acquire 12,000,000 additional shares within 90 days after
completion of the Town of Hempstead, New York, vitrification plant at a
price per share equal to the average trading price of the stock over a
period of 30 days, but in no event, more than $2.00 per share. Trading
price shall be the median of the low bid and high ask price of the
inside market for the 30 day period.
Upon exercising the third purchase for $3,000,000, any change in the
Companys capitalization will obligate the Company to adjust the shares
issued to the investor so that a 40.47% share of the outstanding stock
may be maintained. Other restrictive covenants are also included in the
agreement.
8. DISCLOSURE OF CASH FLOW INFORMATION
Supplemental schedule of non-cash financing activities.
The following amounts of common stock were issued for non-cash
consideration:
Period From
February 18, 1988
Years Ended (Inception) to
September 30, September 30,
1996 1995 1996
________ _____ _____________
Compensation and consulting
services $117,440 $ 103 $ 154,345
Professional fees 158,473
Termination of intermediary
agreement 240,000
Rent 5,000
________ _____ ________
$117,440 $ 103 $ 557,818
Supplemental disclosure of cash flows information is as follows:
There were no income taxes paid for any of the periods presented in the
statements of operations.
(page F-18)
<PAGE>
8. DISCLOSURE OF CASH FLOW INFORMATION (Continued)
Interest paid for 1996 was $6,616 and 1995 was $91.
During 1991 a $5,000 convertible note payable was exchanged for 35,166
common shares of the Company.
During 1992, $45,000 in convertible notes payable were exchanged for
273,997 shares of the Companys common stock.
During 1993, $5,000 in convertible notes payable were exchanged for
25,000 shares of the Companys common stock.
During 1996, a $42,500 convertible note was exchanged for 500,000 common
shares of the Company.
In addition, for the year ended September 30, 1991, non-cash investing
activities excluded from the statements of cash flows included the
following asset acquired by the issuance of common stock.
Asset Acquired Valued Assignment
___________________ ___________________
License Agreement $300,000
The shares of common stock issued for other than cash have been assigned
amounts equivalent to the fair market value of the service or assets
received in exchange.
During 1991, the Company acquired its own common shares for a previously
acquired 50% interest in an electric fusion plant with a net book value
of $866,667.
9. INCOME TAXES
At September 30, 1996, the Company had $3,266,685 of net operating loss
carryforwards available to offset future federal taxable income through
the year 2011.
10. RELATED PARTY TRANSACTIONS/COMMITMENTS
The Company conducted its operations in facilities owned by a
shareholder on a month-to-month rent free basis through May of 1991, and
then for the sum of $714 per month through January 15, 1992.
The Company paid $25,186 to certain officers/shareholders for consulting
services and payroll during the year ended September 30, 1991.
(page F-19)
<PAGE>
10. RELATED PARTY TRANSACTIONS/COMMITMENTS (Continued)
The Company issued shares of its restricted common stock to certain
officers/directors for services for the year ended September 30, 1991 in
the amount of $25,095. The number of shares issued was 1,450,000.
Owed to Geotech at September 30, 1996 is $257,548 and at September 30,
1995 was $216,401 for consulting fees, other expenses and monthly
management fees. On March 1, 1993, the Company entered into an
agreement with Geotech for utilization of their personnel, management,
office facilities and other related expenses at a monthly fee of
$55,000. This agreement can be canceled with ninety days notice. The
contract was canceled effective October 1, 1993.
A new contract effective October 1, 1995 was agreed upon whereby a
monthly fee of $10,000 will be charged. The Company also agrees to pay
Geotech 10% of the gross funds received including but not limited to
sales and services, loans, investor funds, private placement stock sales
and the issuance of convertible debentures.
In 1992, included in the statements of shareholders equity are $50,000
in placement fees to Geotech of which $25,000 were unpaid as of
September 30, 1992. The fees represent 20% of any capital invested in
the Company. A $25,000 fee was earned from the Drago Associates
investment in December of 1991 and the remaining $25,000 was for
Geotechs investment on September 22, 1992. Geotech does not intend to
recapture any moneys owed for prior investments.
Placement fees of $4,250 were paid to Geotech relating to the exercise
of the conversion in the convertible note during August, 1996. An
additional $50,000 was paid to Geotech relating to the 6,333,746 shares
sold in September of 1996.
11. MARKETABLE SECURITIES
At September 30, 1996 and 1995, marketable securities are valued at
lower of the aggregate cost or market.
12. SUBSEQUENT EVENTS
The Company was a defendant in a lawsuit filed in the United States
Bankruptcy Court for the Western District of New York. As of November
22, 1996 the lawsuit was settled with the Company obligated to purchase
an interest in a melt-all process pilot plant located in Niagara Falls,
NY for $250,000. In addition, the Company was to pay $50,000 for a
three year exclusive lease for the remainder of the building. On
November 22, 1996 the Company met the terms of the settlement.
(page F-20)
<PAGE>
<TABLE>
U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
AND THE PERIOD FEBRUARY 18, 1988 (INCEPTION) TO SEPTEMBER 30, 1996
<CAPTION>
February 18, 1988
(Inception) to
September 30,
1996 1995 1996
____ ____ ___________
<S> <C> <C> <C>
Interest expense $ 22,456 $ 15,931 $ 106,442
Expenses incurred in connection
with business combinations 46,447
Rent 47,275
Professional and administrative fees 12,513 10,762 454,346
General office - including telephone 3,331 461 190,373
Automobile and travel 2,636 46,212
Consulting services and payroll 117,440 103 316,905
Employee benefits 6,522
Entertainment 1,047 3,490
Management fees 120,000 505,000
Miscellaneous fees 5,726 3,696 23,303
Officers' life insurance 7,040
Insurance 1,276
Selling expense 21,976
Termination of intermediary agreement 240,000
_________ ________ __________
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES $ 285,149 $ 30,953 $2,016,607
<FN>
See notes to financial statements
</TABLE>
(page F-21)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000844010
<NAME> U.S. ENVIRONMENTAL
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 351,713
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 357,213
<PP&E> 478
<DEPRECIATION> 372
<TOTAL-ASSETS> 2,566,747
<CURRENT-LIABILITIES> 611,043
<BONDS> 0
0
0
<COMMON> 4,389
<OTHER-SE> 1,951,315
<TOTAL-LIABILITY-AND-EQUITY> 2,556,747
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (490,233)
<INCOME-TAX> 0
<INCOME-CONTINUING> (490,233)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,233)
<EPS-PRIMARY> (.014)
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</TABLE>
