U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997
-----------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission File Number 0-17963
U.S. ENVIRONMENTAL, INC.
-----------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 11-2906904
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8130 66th Street North, Suite 6, Pinellas Park, Florida 33781
----------------------------------------
(Address of Principal Executive Offices)
(727) 548-4300
--------------
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such a
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 No X
--- ---
The number of shares outstanding of the Issuer's Common Stock, $.0001 Par
Value, as of March 31, 1997 was 46,001,909.
Transitional Small Business Disclosure Format:
Yes No X
--- ---
<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
Index
Page
----
Part I - Financial Information
- ------------------------------
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and September 30, 1996..................... 1
Consolidated Statements of Operations -
Three months and six months ended March 31, 1997 and 1996. 2
Notes to Consolidated Financial Statements.................. 3
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings............................................ 4
Signatures.................................................. 4
i
<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
---------------- -----------------
---------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 967 $ 351,713
Accounts receivable 5,000 -
Prepaid expenses 55,500 5,500
---------------- -----------------
---------------- -----------------
Total current assets 61,467 357,213
---------------- -----------------
---------------- -----------------
Property and equipment 252,319 478
Less accumulated depreciation 10,224 372
---------------- -----------------
---------------- -----------------
242,095 106
---------------- -----------------
---------------- -----------------
Other assets
Marketable securities - at lower of aggregate cost or market 1,530 1,530
License, net of accumulated amortization 1,538,815 1,538,815
Patent, net of accumulated amortization 669,083 669,083
Prepaid rent and other assets - -
---------------- -----------------
---------------- -----------------
2,209,428 2,209,428
---------------- -----------------
---------------- -----------------
Total assets 2,512,990 2,566,747
================ =================
================ =================
Liabilities and Stockholders' Equity
Current liabilities
Notes payable:
Shareholders 82,833 92,833
Others 12,223 148,000
Accounts payable & accrued expenses 123,793 370,210
Current portion of notes payable and long-term debt 24,000 -
Accrued interest - -
---------------- -----------------
---------------- -----------------
Total current liabilities 242,849 611,043
---------------- -----------------
---------------- -----------------
Long-term debt, net of current maturities
Notes payable, net of current maturities 120,000 -
Stock payable - -
---------------- -----------------
---------------- -----------------
Total long-term debt, net of current maturities 120,000 -
---------------- -----------------
---------------- -----------------
Total Liabilities 362,849 611,043
---------------- -----------------
---------------- -----------------
Stockholders' equity
Common stock, par value $.0001
Authorized 100,000,000 shares,
46,001,909 and 43,891,909 issued and outstanding, respectively 4,600 4,389
Additional paid-in capital 5,391,197 5,225,568
Deficit accumulated during the development stage (3,245,656) (3,274,253)
---------------- -----------------
---------------- -----------------
Total stockholders' equity 2,150,141 1,955,704
---------------- -----------------
---------------- -----------------
Total liabilities and stockholders' equity $ 2,512,990 $ 2,566,747
================ =================
================ =================
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
February 18, 1988
For the Three Months Ended For the Six Months Ended (Inception) to
--------------------------- --------------------------- ---------------
March 31, March 31, March 31, March 31, March 31,
1997 1996 1997 1996 1997
---------------- --------------- ---------------- -------------------------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue from demonstration fees $ 5,000 $ - $ 5,000 $ - $ 280,000
------------ ---------- ------------ ---------- ---------------
Development stage expenses
Research and development - - - - 169,020
General and administrative 67,872 2,500 160,587 19,900 2,177,194
Depreciation and amortization 4,253 (4,505) 9,851 84,640 1,408,594
------------ ---------- ------------ ---------- ---------------
Total development stage expenses 72,125 (2,005) 170,438 104,540 3,754,808
------------ ---------- ------------ ---------- ---------------
Net development stage expenses 67,125 (2,005) 165,438 104,540 3,474,808
------------ ---------- ------------ ---------- ---------------
Other income (expense)
Interest expense (3,512) - (3,512) - (3,512)
Interest income - - - - 1,429
Miscellaneous income - - - - 5
Loss on impairment of assets - - - - (2,388)
------------ ---------- ------------ ---------- ---------------
Total other income (expense) (3,512) - (3,512) - (4,466)
------------ ---------- ------------ ---------- ---------------
Net loss before income taxes and
extraordinary gain (70,637) 2,005 (168,950) (104,540) (3,479,274)
Income taxes
Deferred income tax benefit - - - - -
------------ ---------- ------------ ---------- ---------------
Net loss before extraordinary gain (70,637) 2,005 (168,950) (104,540) (3,479,274)
Extraordinary gains
Extraordinary gain on forgiveness of debt 197,548 - 197,548 - 233,619
------------ ---------- ------------ ---------- ---------------
Net income (loss) $ 126,910 $ 2,005 $ 28,598 $(104,540) $ (3,245,655)
============ ========== ============ ========== ===============
Loss per common share
Loss before extraordinary gain (0.002) 0.000 (0.004) 0.000 (0.137)
Extraordinary gain on forgiveness of debt 0.004 0.000 0.004 0.000 0.009
Net income (loss) per common share 0.003 0.000 0.001 (0.003) $ (0.128)
============ ========== ============ ========== ===============
Weighted average number of
common shares outstanding 45,909,021 34,435,163 45,344,909 34,435,163 25,411,477
============ ========== ============ ========== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited financial statements should
be read in conjunction with the financial statements and the footnotes thereto
contained in Form 10-KSB for the fiscal period ended September 30, 1996 of U.S
Environmental, Inc. (the "Company"), as filed with the Securities and Exchange
Commission.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (which are of a normal and recurring nature) necessary
for a fair presentation of the financial statements. The results of operations
for the three months and six months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
Note 2 - Per share calculations
Per share data was computed by dividing net loss by the weighted average number
of shares outstanding during the respective periods.
Note 3 - Subsequent events
On February 1, 1997, The Company entered into a "Financing Agreement" with Swiss
American Capital Management, Inc. (SwissAm) of Tampa, Florida, an affiliated
company.
Pursuant to the financing agreement, the Company grants SwissAm the right of
first refusal for any vitrification plant project requiring financing. Prior to
the Company submitting an offer, responding to an RFP or other bids and offers
for the development of a vitrification facility and the relating service
agreements, the Company will provide SwissAm with all relevant project related
information and allow SwissAm a 90-day period for evaluation as to whether it is
willing to undertake the project financing.
In the event that SwissAm accepts the terms and conditions of the offer, RFP
bid, tender etc., SwissAm shall have the right and the obligation to finance the
respective project. In exchange for financing, the Company assigns all its
interests in the project including the related service contracts and other
agreements to SwissAm, its Special Purpose Vehicle (SPV) or its assigns.
Should SwissAm not accept the Company's proposal during the 90-day evaluation
period, then company then has the right to explore alternative financing
options.
Upon successful financing of a vitrification project, the Company will receive
40 of the project development contract value as down payment. The remainder
shall be made available to the company in increments of 10@ of the development
contract value every 60 days thereafter. During the development and construction
phase of any vitrification facility, the Company shall receive a management fee.
The Board of Directors of SwissAm and its executive officers, Mr. Max P. Schmid,
Chairman & CEO, Mr. Thomas P. Dolan, President and Director, and Mr. Robert W.
Lewis, Jr., CFO and Director, are the same as the Board of Directors and the
executive officers of the Company. The Company and SwissAm are currently sharing
office space at the same facilities in Tampa, FL.
3
<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 5. Other Information
Item 6. Exhibits and reports on Form 8K
Form 8k, dated February 20, 1997 is incorporated herein by reference.
Exhibit 1. Financing Representation Agreement is incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant had
duly caused the report to be signed on its behalf by the undersigned thereunto
duly authorized.
U.S Environmental, Inc.
Dated : 9/2/98 /s/ Robert W. Lewis
-------------------
Robert W. Lewis
Chief Financial Officer
4
<PAGE>
Exhibit 1
FINANCING REPRESENTATION AGREEMENT
This Financing Representation Agreement ("Agreement") is entered into as of
February __, 1997 between Swiss American Capital Management, Inc., a Florida
corporation ("Representative") and (DE) U.S. Environmental, Inc., a Delaware
corporation and any of its assigns or joint venture partners ("Company").
WHEREAS, the Company has certain rights to the technology for the development
and construction of recycling virtritication plants and desires to retain the
Representative to assist it in securing the financing necessary for the
development and construction of virtrification plants using the Company's
technology; and
WHEREAS, the Representative has facilitated equity financings of the Company and
this Financing Representation Agreement is a material and fundamental condition
of such equity financings of the Company; and
WHEREAS, the Representative is agreeable to and financially capable of providing
financial services on the terms and conditions set forth below; and
WHEREAS, the parties desire to set forth their understandings in writing.
NOW, THEREFORE, consideration of the mutual agreements and covenants set forth
in this Agreement, the sum of Ten Dollars ($10.00) and other good and valuable
consideration, the parties agree as follows:
1. Engagement of Representative. The Company engages the Representative as its
non- exclusive representative worldwide, with the rights described in Section 2
below, to arrange for and provide financing for virtrification plants including
but not limited to equipment cost, site preparation, construction costs,
permitting, utility hook-up, legal costs, land acquisition or site lease and
other project related costs. These costs shall constitute the project
development contract amount as referred to hereinafter. The Company understands
the Representative intends to utilize Special Purpose Vehicles ("SPV") to
facilitate the financing for such projects. The Company is agreeable to
assigning its rights to its interests in the assets, service and other contracts
relating to such virtrification plant development, operation and construction to
the SPV so that the SPV may collateralize and secure its fund raising efforts
with the property, plant, equipment, service contracts and other assets relating
to specific virtrification plant projects financed through the SPV.
2. Right of First Refusal. The Company hereby grants the Representative the
primary and initial notification for a right of first refusal for any
vitrification plant projects requiring financing. Prior to the Company
submitting a bid, Request for Proposal (RFP) response or other offer for
development of a vitrification plant and the relating service agreement, the
Company will provide the Representative with the relevant documentation setting
forth the pricing structure for the bid. The Representative shall have, whenever
possible, a 90-day period to evaluate the schedules of construction costs,
operating expenses and their respective budgets to determine whether, at that
pricing, it is willing to undertake the related project financing. If the
Representative accepts the pricing structure set forth in the RFP bid or tender
and so notifies the Company in writing within said (whenever possible) 90-day
right of first refusal period, then the Representative shall have the right and
obligation to facilitate the financing for the respective project. In turn, the
Company agrees to assign the assets relating to that project and the related
service and other contracts to the Representative or its SPV in order to
facilitate the financing.
During the 90-day evaluation period (whenever possible) by the Representative,
the Company shall have the right to explore alternative financing options,
should the Representative not accept the bid.
3. Role of the SPV. The Representative through its SPV's (operating under a
trust indenture), will be responsible for the necessary funding for the entire
project including: the disbursement of all funds relating to the construction
(payment schedules to be agreed between the Company and the Representative for
<PAGE>
each individual project, which include and incorporate the interests of the
Company described in Paragraph 4 below), which include but are not limited to
operating expenses, maintenance expenses, plant management, transportation
(where applicable) and other related expenses. The SPV will have ninety (90)
days from the date of executing a final project award contract to secure a
funding commitment for the project. Any extension shall require the mutual
consent of all parties to this agreement.
4. Interest of Company. The parties understand that the SPV will only have
rights to the project and related service and other contracts to the extent the
SPV is able to facilitate funding as outlined herein for a specific project. The
SPV will use its best efforts and endeavor, subject to economic feasibility and
the consent of the other parties necessary to consummate the funding structured
by the SPV, including but not limited to the trustee, letter of credit or other
credit enhancement provider, bonding company or rating agency to provide the
Company with the following rights as it relates to a specific project funding:
The Company will receive 40% of the project development contract amount upon
closing of the funding arranged by the SPV for that project. Thereafter, 10% of
the project contract amount shall be paid to the Company every 60 days.
The Company will receive a management fee. This fee will be solely for the
purpose of reimbursing the Company for its expertise in the overall management
of the facility. it will not include operation, maintenance or any other
expenses associated with the facility. During the first year of operation, the
Company will receive a management fee as follows. The fee paid shall not exceed
$100,000 per month for a standard 60OTPD plant as contemplated in the Town of
Hempstead RFP. The monthly fee will be a minimum of $80,000 per month for a
standard 600 TPD plant as contemplated in the Hempstead RFP. After the first
year of operation, the Company will receive a management fee based on a
percentage of actual operating costs and include an incentive for meeting or
coming in under budget projections. The specific project management fee will be
outlined and attached hereto as an addenda. The specific project management fee
addenda will be negotiated prior to final commitment of the parties to the
project.
5. Term. This Agreement is non-cancelable unless mutually agreed upon in writing
by both parties. The proposed Town of Hempstead project is part of this
Agreement.
6. Confidentiality. The parties will hold, and will cause their respective
officers, directors, employees, agents, consultants, to hold, in strict
confidence, unless compelled to disclose by judicial or administrative process,
other requirements of law, all confidential documents and confidential
information concerning the other party furnished to it by the other party or
such parties, officers, directors, employees, agents, consultants, or
representatives in connection with this agreement or the transactions
contemplated herein. To the extent a party marks any information, documents, or
schedules as "Confidential" it will be treated as confidential for purposes of
this Agreement. It is understood and should be noted that a portion of this
information has been drawn from research sources clearly in the public domain. A
portion of other information remain "common reasoning". Such previous public
knowledge on the part of the parties shall not be allowed as a reason to excuse
the parties from honoring this agreement.
7. Amendment. No amendment to this Agreement shall be valid unless such
amendment is in writing and is signed by authorized representatives of all
parties to this Agreement.
8. Waiver. Any of the terms and conditions of this Agreement may be waived at
any time and from time to time in writing by the party entitled to the benefit
thereof, but a waiver in one instance shall not be deemed to constitute a waiver
in any other instance. A failure to enforce any provision of this Agreement
shall not operate as a waiver of the provision or of any other provision hereof.
9. Severability. In the event that any provision of this Agreement shall be held
to be invalid, illegal or unenforceable in any circumstances, the remaining
provisions shall nevertheless remain in full force and effect and shall be
construed as if the unenforceable portion or portions were deleted.
<PAGE>
10. Governing Law/Dispute Resolution. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
Disputes shall be resolved through AAA arbitration proceedings.
Venue for any arbitration shall be Bermuda.
11. Notices. All notices, requests, payments, instructions, claims or other
communications hereunder shall be in writing and shall be deemed to be given or
made when delivered by first-class, registered or certified mail to the
following address or addresses or such other address or addresses as the parties
may designate in writing in accordance with this Section:
If to Company: U.S. Environmental, Inc.
630 Parkview Tower
First Avenue
King of Prussia, PA 19406
If to Representative: Swiss American Capital Management, Inc.
201 E. Kennedy Boulevard, Suite 1900
Tampa, FL 33602
12. Publicity. All press release or public announcements regarding this
Agreement or future project financings shall be in a form that is mutually
agreeable.
13. Assignment. Except for the Representatives rights to assign rights to the
SPV's this agreement is not assignable by either party without the prior written
consent of the other party which shall not be unreasonably withheld.
14. Execution in Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which when taken together shall constitute
one and the same agreement. This Financing Representation Agreement supersedes
and restates the previous agreement entered into between the parties on or about
November 20, 1996.
DATED as of February 28, 1997
(DE) U.S. ENVIRONMENTAL, INC.
/s/ Maurice Spatt
By: Maurice Spatt
Its: President
SWISS AMERICAN CAPITAL MANAGEMENT, INC.
/s/ Thomas P. Dolan
By: Thomas P. Dolan
Its: President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 967
<SECURITIES> 0
<RECEIVABLES> 5,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,467
<PP&E> 252,319
<DEPRECIATION> 10,224
<TOTAL-ASSETS> 2,512,990
<CURRENT-LIABILITIES> 242,849
<BONDS> 0
0
0
<COMMON> 4,600
<OTHER-SE> 5,391,197
<TOTAL-LIABILITY-AND-EQUITY> 2,512,990
<SALES> 5,000
<TOTAL-REVENUES> 5,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 170,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,512)
<INCOME-PRETAX> (168,950)
<INCOME-TAX> 0
<INCOME-CONTINUING> (168,950)
<DISCONTINUED> 0
<EXTRAORDINARY> 197,548
<CHANGES> 0
<NET-INCOME> 28,598
<EPS-PRIMARY> .001
<EPS-DILUTED> .001
</TABLE>
