UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended September 30, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
Commission File Number: 0-17963
(DEL) U. S. ENVIRONMENTAL, INC.
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(Exact name of Registrant as specified in Charter)
Delaware 11-2906904
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
8200 State Avenue
Kansas City, Kansas 66112
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(Address of principal (Zip Code)
executive office)
201 E. Kennedy Blvd.
Suite 1900
Tampa, Florida 33602
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(Previous Address of principal (Previous Zip Code)
executive office)
Registrant's telephone number,
Including area code (913) 788-5200
(Previous telephone number) (813) 228-0285
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
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(Title of Class)
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 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 ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of September 30, 1998 was approximately $16,898 (after being
adjusted for 100 for 1 reverse split in March 1999) based on the average bid
and asked prices for such Common Stock as appearing on NASD OTC Bulletin Board
under the symbol "USEV." This price does not reflect inter-dealer markdowns,
commissions, or actual sales.
The number of shares of Common Stock outstanding as of September 30, 1998 was
1,849,542, (adjusted for 100 for 1 reverse split IN March 199.)
Documents incorporated by reference: Various exhibits from 1933 Act and
1934 Act filings. See "Exhibits and Reports on Form 8-K."
<PAGE>
PART I
FORWARD LOOKING STATEMENTS
Certain Statements included in this Annual Report are not based on historical
facts, but are forward looking statements. These statements can be identified
by the use of forward-looking terminology such as "believes, "expects", "may",
"will", "should", or "anticipates" or the negative thereof or variations
thereof or comparable terminology, or by discussions of strategy. These
statements reflect the Company's reasonable judgments with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those in the forward looking statements.
Such risks and uncertainties include, but are not limited to the
implementation and completion of an economically viable "vitrification" system
based on the Company's licensed "Melt All Electric Fusion Process, Plant and
Equipment" and the development marketing of additional systems. The company
must also generate additional financial resources to enable it to continue the
implementation of its commercial vitrification system under the current
license. Such additional resources may be generated through the sale of
additional equity securities, the sale of sublicenses, joint ventures or other
business transactions or alliances which would generate the resources
required. Other factors such as changes in business conditions and/or changes
in regulations and laws may also impact the outcome as it relates to forward
looking statements.
ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
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(DEL) U.S. Environmental, Inc. (hereinafter referred to as "USE" or "The
Registrant" or "The Company"), is a development stage company with its
principal activity being the marketing of a proprietary, licensed solid and
hazardous waste treatment technology for commercial application. The Company
was incorporated in the State of Delaware on February 18, 1988 as Windfall
Capital Corporation.
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 the acquisition 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.
USE is an environmental services company which, on October 13,
1989,<PAGE>
acquired a twenty (20) year exclusive, worldwide license of a proprietary
"Solid Waste Melt-All Electric Fusion Process and Plant Equipment" (the
"Process") technology, developed by Geotech Development Corporation
("Geotech"), an Ohio Corporation. This process is an adaptation of a
technology previously utilized by Geotech in Europe and Japan for induced
electrical melting of minerals to create either dense glass-rock like
materials in the form of aggregate or block, or ceramic and mineral wool
fibers after the application of a spinning process.
On January 15, 1999, the Company entered into an agreement with Virtual
Empowerment Network, Inc. (VEN) a Kansas corporation, wherein VEN agreed to
purchase shares equaling 83% of the outstanding shares of USE after the
purchase. In consideration for the issuance of the shares, VEN agreed to
negotiate, secure and assign to USE, with full rights, contracts in the
aggregate amount of $5,000,000, whereby USE would receive not less than
$5,000,000 in gross revenues during a five year period after the closing date
of the VEN Agreement. The assignment of such contracts is to occur within one
year of the Company's ability to perform under such contracts. Additionally,
VEN agreed to loan funds for payment of outstanding accounts payable and
working capital for the next year.
The Company has established a marketing program to provide integrated
services to industrial, commercial and public entities for processing ash/
residues of various types resulting from the combustion of "Municipal Solid
Waste" (MSW), biomass, coal and other fossil fuels, remediation of
contaminated soils and the permanent disposal of other wastes of concern by
utilizing Geotech's licensed melting technology to convert such wastes into
environmentally benign and beneficially reusable products.
The Company intends to design, engineer, finance and construct
vitrification facilities either as owner/operator or as general contractor and
to market the end products to the public or private sector through its own
staff or by retaining the services of various experts in engineering,
industrial and commercial waste disposal as well as sales and marketing
experts.
The Company also intends to sell sublicenses to other entities and may
serve these sublicensees as Project Manager and/or Construction Manager as
well as providing program development, engineering and other support services.
The Company and the sublicensees will be subject to all federal, state
and local environmental regulations in the United States and similar laws in
foreign countries.
(B) BUSINESS OF ISSUER
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Overview
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USE is a Kansas City, Kansas based company which intends to provide
environmental engineered disposal, remediation and operational services by use
of "Vitrification" (the melting and conversion of mineral waste streams) of
combustion ash/residues and other wastes of concern as listed by the U.S.
Environmental Protection Agency (USEPA).
USE owns the exclusive worldwide license to the proprietary
"Melt-All"<PAGE>
Electric Fusion Process(tm) developed by Geotech Development Corporation which
operates at high temperature, melting and vitrifying MSW combustion
ash/residue, contaminated soils, utility coal combustor fly ash/residue,
asbestos containing materials and other EPA listed industrial mineral waste
residues of concern into a rock-like, basaltic, durable and environmentally
sound products not unlike the rock produced from volcanic action.
The Company intends to offer its vitrification plant equipment and
operational services mainly to the public sector (federal and state
governments, counties, municipalities, etc.) as well as heavy industry in the
U.S. and internationally.
USE intends to accept its customers waste stream for a fee (tipping fee)
on a "Put or Pay" basis and convert the waste into reusable, value added
products. These products can be utilized for road construction (curb stone,
aggregate, retention walls, acoustical walls etc.), general construction
(mineral wool for insulation, wallboard, ceiling tiles, etc.), the prevention
of shore erosion (block and other retainer systems) or as intermediary
materials and components for other products.
USE views its mission as providing communities and the private sector
with cost effective, alternative waste disposal services by converting waste,
having no current use, into valuable, environmentally benign and reusable
products. The potential conversion of these waste materials diminishes the
necessity to place the such waste in landfills and thus reduce the potential
financial and environmental long-term liabilities of the communities and the
private sector alike.
Additionally, the Company believes the permanence of vitrification of
such waste theoretically eliminates potential health risks arising from
exposure to constituents considered harmful. The vitreous glass-rock material
is expected to be in compliance with the various federal, state, and local
laws regulating the public's exposure to such substances.
Technology License
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On October 20, 1989, the Company obtained a twenty (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") from Geotech.
The license includes the 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. These shares were subsequently retransferred to
Geotech's five shareholders.
As additional consideration, the Company is required 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
from sublicensees, 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 sublicensees 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 and in conjunction with its ownership
interests, the Company has the right to utilize, with not less than ten days
prior notice, the "Research and Demonstration Plant" located in Niagara Falls,
New York. The commercial size "Research and Demonstration Plant", while fully
operational, is used only as a demonstration model for the Process in treating
solid waste, and is operated only as a marketing tool to demonstrate to
potential sublicensees, joint venture partners and prospective customers of
the Process, 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.
On October 18, 1991, the Company entered into a Third Amendment to the
License Agreement that allows Geotech on a non-exclusive basis to build plants
utilizing the Process as owner/operator or joint venture partner for their own
account in a specified territory as long as Geotech does not compete on any
project USE is working on or solicit any prospective customers of USE that
have been identified as such in writing by the Company to Geotech. 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").
<PAGE>
Effective September 30, 1995, the company and Geotech entered into a
Fourth Amendment by which Geotech agreed that any order or contract it
receives, to furnish equipment for an environmental related mineral melting
and conversion plant installation, will be turned over to or offered to USE on
a right of first refusal basis for a period of twenty (20) working days.
Technology
- ----------
To date, six melting systems have been supplied by Geotech at locations
in Europe and Japan utilizing the Geotech process. In most instances, the
feedstock utilized is high-grade mineral material, rather than combustion
ash/residue, which is melted and spun into ceramic fibers (high temperature
insulation) for use in the refractory industry. These high-grade mineral
applications are not covered by the Company's license agreement. Two of the
systems were built for research and development and are located in Wiesbaden,
Germany (1983) and Nagoya, Japan (1992). The four systems that are producing
insulation fibers are located in Teplice, Czech Republic (1981), Lorette,
France (1984), Altella (Potenza), Italy (1985) and Nagano, Japan (1986).
USE believes that the primary advantages of the Company's Process are as
follows:
the ability to render inert, inorganic solid waste, such as MSW
ash/residue, coal flyash etc.;
substantial reduction (60%-75%) in volume of waste matter;
capability to yield beneficially useful products, such as glass-rock
like blocks and mineral wool fibers; and
avoidance of the potential long-term liability of landfill disposal.
The only materials introduced to the electric melting process are the
granular inorganic materials to be converted. The molten mass, surrounded by
the feedstock, is located immediately over the tapping orifice and is drained
as a continuous stream, which can be cast either into blocks or granulated
when rapidly quenched in a flume of cold water. By feeding the melting
crucible with granular inorganic material at the same rate as the molten mass
is tapped on a continuous basis, the energy is used very efficiently in the
conversion of the waste materials.
The Company's melting process utilizes electrodes focused just above the
tapping orifice and can develop temperatures of up to 5200 F. As inorganic
waste melts and flows into the tapping orifice, it must first pass through the
highly turbulent arc zone at the electrode's tips. This deters possible
stratification and provides a very homogeneous molten stream resulting in a
high-density vitreous product (approximately 185 lbs./cu.ft.). The collected
molten mass is essentially inert, non-leachable and non-biodegradable.
Since only mineral, inorganic waste materials are introduced to the
electric melting process, there is no additional tonnage added to the mass
produced. If there are any organic materials present in the material, there
will be a reduction by that amount since the organic materials will be
consumed in the melting process. Although the tonnage of material tapped
maybe equal to the tonnage of material fed into the melting crucible, there is
a dramatic volumetric reduction. The high-density vitrified products will
usually be 1/4 to 1/3 the volume that was originally fed into the melting
crucible.
Business Strategy
- -----------------
USE is advocating the "Merchant Plant" concept, whereby a third party
(either USE or an independent owner/operator) will finance, build, own and
operate a vitrification facility at their own cost in order to provide the
handling and conversion services of certain waste streams on behalf of the
waste generator. Such third party financing and ownership allows the Company's
prospective customers to adopt USE's technology at no capital investment or
additional disposal costs to them other than the tipping fee. Depending on the
economics of an individual project USE's services can be competitive in price
with current landfill disposal methods.
Third party financing for the implementation of a vitrification plant is
an important aspect of public sector projects. The public sector, which in the
last two decades has been faced with a growing need for permanent,
environmentally benign and cost-effective disposal of its ever expanding
supply of waste material, is not always in a position to assume additional
financial expenditures and indebtedness to implement such a facility.
Additionally, public entities generally are not in the business of marketing
products but are trying to provide the most efficient and cost effective waste
disposal services to its citizens.
The vitrification of the inorganic residues is expected to produce road
construction materials of better quality and longer durability at an equal if
not lower price than conventional materials. The vitrified products can be
purchased by the public works departments at all levels of government. Such
entities may achieve a direct long-term reduction of cost by defraying some of
the expenditure involved in road maintenance as a result of having to replace
conventional materials more frequently.
Additionally, vitrification offers the communities as well as the
private sector a viable alternative to the disposal of certain waste of
concern into landfills, and assists the waste generators in limiting their
"Cradle to Grave" liability.
USE can also 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:
municipalities, corporations, asbestos abatement contractors, landfill
owners, owners of Waste-to-Energy (WTE) and other Resource Recovery
facilities, 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.);
<PAGE>
Sale by the Company of the right to use "the Process" to joint ventures
by and between the Company and third parties; and
Lease of "the Process" to customers or users, whereby the Company and/or
others are the owner and/or plant operators.
Marketing and Sales
- -------------------
The primary targeted initial customers are entities responsible and
liable for the disposal of the following solid waste material:
Municipal Solid Waste ("MSW") combustion ash/residue;
flyash/residue derived from coal fired electric generating plants;
asbestos containing materials ("ACM");
soils contaminated with volatile metals; and
other ash/residue derived from the combustion of mixed waste.
The Company recommends that plants utilizing the Process should have a
minimum of 100-200 tons per day capacity for combustion ash/residue. For
increased capacity, the design of these plants is modular in nature and
additional processing tonnage can be added in parallel increments of 100 tons
per day (tpd).
The Company has developed a substantial database of potential public
entity customers which own, financially guarantee and/or operate WTE
facilities of various types in the U.S. There are currently 112 such
facilities operating throughout the U.S. generating approximately 7 million
tons of combustion ash/residue per annum of which approximately 6.5 million
tons are discarded into regulated landfills. A significant number of public
entities are currently evaluating alternative disposal methods as well as
refinement technologies for MSW combustion ash/residue.
Another important sector of targeted markets is the fossil-fueled power
generation facilities. It is estimated that approximately 59 million tons of
coal flyash and about 4 million tons of oil ash are generated annually in the
U.S. About 28% of the coal flyash is used commercially in construction as
cement and concrete additives. The remaining 42.5 million tons are disposed
into landfills.
In addition, test runs at USE's demonstration facility in Niagara Falls,
NY, have shown that the melting system is suitable for the remediation of
contaminated soils as part of cleanup programs of designated "Superfund"
sites.
Other emerging markets for the application of the Company's technology,
would be the hot purged residuals from energy generating facilities such as
fluidized bed systems combusting biomass, mixed fossil fuels and other
combustible waste materials which produce vast quantities of ash/residue. It
is estimated that 80 such plants are in operation throughout the U.S.
<PAGE>
Other potential customers are asbestos abatement contractors, waste
generators, environmental cleanup companies and waste disposal firms.
The Company intends to initiate contact with these concerns through
referrals, cold calls, advertising, mailings, personal visits, attending
appropriate industry conferences and by utilizing commissioned sales agents.
The Company intends that the basic sales approach should include:
Introduction to the Process and its advantages, which include cost
effectiveness, conversion to inert salable products, detoxification,
reduction in volume and recovery of marketable products as well as the
elimination of the need for conventional landfill disposal and its
inherent "Cradle to Grave" and long-term environmental and financial
liability.
Economic feasibility studies performed by Company staff.
Commercial vitrification test and demonstration runs to be conducted by
Company officers, employees and affiliated entities at the Niagara Falls
demonstration facility with solid, inorganic, non-combustible waste
material supplied by the customer. The customer or the Company depending
on the nature of the project will cover the cost of demonstrations.
Construction/Operations
- -----------------------
Upon securing a commitment to purchase or build a plant, the Company
intends to serve as overall project coordinator either as owner/operator for
its own account or as representative of a third party, i.e. sublicensee, joint
venture partner, purchaser etc. The company will be assisting in locating and
identifying an appropriate constructor (design/builder), and
operator/maintenance organization.
Wherever applicable, the Company intends to enter into joint ventures
with current operators of either WTE facilities, fossil fueled power
generation plants and operators of other residue generating facilities in
order to contract for the actual operation of the vitrification facility.
Financing
- ---------
There are three principal means to finance plant construction:
the user provides capital;
the Company arranges off balance sheet financing for its own account or
on behalf of customers through Special Purpose Vehicles (SPV) based on
long-term, turn-key service contracts with the waste generator, long
term supply contracts, and syndication; and
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 customer. The Company will emphasize
the implementation of "Merchant Plants" as described above where it will
either own the plants through a SPV (wholly owned subsidiary) or will have a
residual interest in the overall service agreement between the waste generator
and the third party owner/operator.
Research and Development
- -----------------------
For the years ended September 30, 1997, and September 30, 1998, the
Company incurred no research and development expense.
On February 1, 1997, and March 11, 1997, Geotech, under contract to the
New Jersey Department of Environmental Protection, conducted a test run on
behalf of the New Jersey Institute of Technology (NJIT) for the melting and
conversion of contaminated soil using the Company's licensed technology at the
demonstration facility in Niagara Falls, NY. USE performed no tests on these
dates.
USE management anticipates that the Company will conduct a test using
ash/residue from the Babylon, New York, Waste-to-Energy facility to produce
and analyze additional construction materials to be added to Department of
Transportation specifications and to expand the company's "Beneficial Use
Determination" with the New York State Department of Environmental
Conservation.
Suppliers
- ----------
As the Company's current projects are in the demonstration stages, USE
has no specific suppliers at this time.
Competition
- -----------
Environmental liability/regulatory compliance issues have stimulated
research efforts and exploration of alternatives to landfill disposal.
Specifically, public and governmental attention has been directed toward the
disposal of Municipal Solid Waste and Refuse Derived Fuel (RDF) combustion ash
residue, mass burn combustion ash residue, and biomass and coal flyash
residue. Many companies, research centers and universities are actively
pursuing research and development activities, for the detoxification,
conversion and reduction of solid waste to non-toxic, value added and
beneficially reusable products.
Accordingly, there are at least six basic technologies and multiple
variations of these technologies offered by more than 40 systems suppliers and
developers worldwide. Some utilize electric energy, while others use oil, gas
or coal/coke to supply the heat to melt ash/residue and other inorganic waste
streams.
While no attempt has been made to assess the potential impact of all of
these competitors and alternative technologies to U.S. Environmental's
efforts, the major elements of known potentially competitive systems and
methods are profiled below: <PAGE>
Mineral Electrode Conversion Process
Management is presently aware of three insulating material supply
companies in the United States operating their own proprietary design of
electrode melting furnaces, using select mineral feedstock which is processed
exclusively for the production of high-grade, high temperature ceramic fibers
which are utilized primarily in the refractory industry.
The Company believes that none of these companies have currently adapted
their furnaces for melting waste. However, such electrode melting processes
may be adapted for such purposes.
Ash/Residue Solidification/Fixation Processes
Studies have shown that in some specific cases, Municipal Solid Waste
combustor ash residue, presently disposed of in regulated landfills, may leach
toxic heavy metals such as cadmium and lead at levels that potentially could
contaminate the groundwater and thereby endanger human health and the
environment.
Various fixation technologies under development are designed to reduce
the toxicity and mobility of the leachate from these combustor ash residues
with the expectation that treated materials may be recovered for resale. USE
believes that to date there are few if any commercial, cost effective
production plants in full-scale operation treating ash/residue and completely
avoiding landfill disposal. USE's management has not encountered any
vitrification, fusion or thermal process that is as cost effective as the
Company's licensed melting process.
Waste solidification, although not comparable to the Company's electric
melting 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 product that has some structural integrity. The
Municipal Solid Waste ash/residue, both flyash and bottom ashes are blended
together. The wastes' contaminants do not necessarily interact chemically with
any added solidification agents (lime-silica, pozzalan, portland cement, kiln
dust), instead they are mechanically locked (encapsulated) within the
solidified matrix when mixed with water. The recovered material, when
hardened, is used as substitute concrete which may be used selectively for
paving.
There are two major differences between these processes and the
Company's licensed process. First, the significant quantity of additives
required for waste solidification increases the volume of the final product
while the Company's technology produces a substantial decrease in volume of
more than 50%. Secondly, the Company's process produces permanent absorption
of the heavy metals which eliminates the leaching of substances of
environmental concern.
Customers
- ------------------------
While a number of potential customers have expressed interest in the
Company's technology, USE has no customers under contract for services at
present. Please see "Current Projects" for more information regarding the
status of ongoing initiatives.
Government Regulations
- ----------------------
Solid Waste Disposal Regulation:
Federal, state and local environmental laws govern discharges of
pollutants to air and water and the transportation, storage, treatment and
disposal of solid waste.
These laws establish standards governing most aspects of the scope and
operation of the Company's electric melting facilities and often require an
array of regulatory permits before these facilities can be constructed,
modified or operated. The efforts to obtain such permits can be time consuming
and expensive and often can cause delays, including delays caused by third-
party appeals challenging permit issuance.
Environmental Compliance
- -----------------------
Some of the environmental laws that the Company must abide by are the
USEPA's "Clean Air Act and Clean Water Act" and their state equivalents which
govern discharges of pollutants to air as well as the "Resource Conservation
and Recovery Act" of 1976, as amended (RCRA) comprehensively governing the
transportation, storage, treatment and disposal of solid waste. The
"Comprehensive Environmental Response, Compensation and Liability Act" of
1980, as amended (CERCLA/Superfund) make the Company potentially liable for
environmental contamination of land associated with its activities or
properties.
Pending Legislation
- -------------------
Management of USE has no knowledge of pending legislation that could
impact the Company's business either positively or negatively.
Current Projects
- ----------------
New Jersey Department of Environmental Protection (NJDEP)
- ---------------------------------------------------------
On February 1, 1997, and March 11, 1997, Geotech, on behalf of the New
Jersey Institute of Technology (NJIT) and under contract to the NJDEP,
conducted a test run for the melting and conversion of contaminated soil at
the demonstration facility in Niagara Falls, NY. Several tons of soil
contaminated with hexavalent chrome from two sites in New Jersey, representing
residue from two types of chromate-ore processing, have been processed with
the Company's licensed technology and converted to inert, amorphous glass
block and aggregate.
The sites from which the contaminated soils were obtained had been
selected by the NJDEP as part of an ongoing program to clean up over 150
hexavalent-chromium-contaminated sites throughout the state. The test run was
<PAGE>
performed in association with the USEPA's "Superfund Innovative Technology
Evaluation" (SITE) program. The test run procedures and some preliminary
findings were documented by the USEPA in their "Demonstration Bulletin" in
August of 1997 and a final report was expected to be published by the middle
of 1999.
Town of Hempstead, Long Island, New York
- ----------------------------------------
In May of 1996, USE responded to a "Request for Proposal" (RFP) by the
Town of Hempstead, Long Island, NY, in which the town was inviting vendors to
submit proposals for the "Beneficial Reuse and Management" of combustion
ash/residue from the American Ref-Fuel Waste-to-Energy (WTE) 2,500 tons per
day plant at Westbury, Hempstead.
According to the RFP's tentative schedule, the town was due to award a
contract to the selected bidder on August 22, 1996, or within 30 days after
completing its evaluation process.
After several extensions of its own deadline and before the evaluation
process was completed, the Town of Hempstead was legally challenged by the
Town of Brookhaven as to whether Hempstead has the right to end an existing
"Inter Municipal Agreement" (IMA), commonly known as the "Ash for Trash"
agreement.
It is management's understanding, that subsequent to the legal
challenge, the case was submitted to an independent arbitrator and such matter
is still pending.
Town of Babylon, Long Island, New York
- --------------------------------------
The Town of Babylon, Long Island, NY, owns a Waste-to-Energy facility
with a capacity of handling up to 750 tons of Municipal Solid Waste a day
which produces approximately 200 tons of combustion ash/residue a
day. Additionally, the town is under contract with other municipalities on the
island to receive another 400 tons of combustion ash/residue from other Waste-
to-Energy facilities in its landfill.
In March of 1997, a proposal was submitted to the town for the
implementation of a vitrification system that would initially be capable of
converting 400 tons per day of combustion ash/residue into potentially useful
products. The proposed vitrification facility would allow the town to
preserve capacity within its landfill.
Babylon officially expressed its favorable consideration of the project
in a letter of interest and during a follow-up meeting at the end of October
1997, several issues were identified which needed to be resolved in order to
move the project forward.
The Company intends to conduct a test run utilizing Babylon ash/residue
in order to provide the regulatory authorities with new data and to produce an
array of end products.
<PAGE>
Management expects that such new data will allow the company to obtain a
supplement to its existing "Beneficial Use Determination" from the New York
State Department of Environmental Conservation (NYDEC) allowing it to market
within the State of New York a wider range of products made from converted WTE
combustion ash/residue.<PAGE>
ITEM 2. PROPERTIES
The Company headquarters are currently located in 750 square feet of
office space in a class "A" office building in Kansas City, Kansas. The space
is allocated by Virtual Empowerment Network, Inc. A regional office is
currently located in 150 square feet of leased office space in a class "A"
office building in St. Petersburg, Florida.
The Company has a three year prepaid lease on the building which houses
the commercial size demonstration facility located at 201 13th Street, Niagara
Falls, New York ending November,1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is plaintiff in a pending litigation identified as (DEL)
U.S. Environmental, Inc. v. Geotech Development Corporation (Geotech), Thomas
B. West, Thomas R. Tate, Thomas W. West, Philomena A. Dietrich and Marion B.
West, Civil Action 97-6339, in the United States District Court for the
Eastern District of Pennsylvania.
The Company seeks adjudication with respect to whether Geotech has a
partial ownership interest in the Niagara Falls demonstration facility, the
validity of certain cash and stock payments to certain former controlling
persons of the company between 1990 and 1997 and certain infringements of
various articles of the "Technology License Agreement" of October 13, 1989 and
its subsequent amendments. Geotech has a counterclaim pending to be
adjudicated owner of fifty percent of the facility.
The litigation is currently in the discovery state.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 26, 1998, a majority of the shareholders approved by
consent, an amendment to the Certificate of Incorporation to increase the
authorized shares from 100,000,000 to 200,000,000.
On December 16, 1998, a majority of the shareholders approved by consent
a resolution to enter into the VEN agreement and an amendment to the
Certificate of Incorporation to (i) effect a one share for one hundred shares
reverse stock split and (ii) set the authorized shares to 100,000,000. The
amendment was filed on March 10, 1999.
<PAGE>
PART II
ITEM 5. MARKET COMMON EQUITY AND RELATED STOCKHOLDER HOLDER MATTERS
Common Stock
- ------------
The Company has been advised that there were at least three market
makers trading the Company's common stock in the Over-The-Counter (OTC)
market. After July 1990, the quotes were determined from the NASDAQ OTC
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.
The following high and low bid quotes were obtained from the electronic
"Bloomberg Financial Information System".
Low Bid High Bid
------- --------
1997
- ----
1st Quarter $0.05 $0.10
2nd Quarter $0.02 $0.05
3rd Quarter $0.125 $0.03
4th Quarter $0.03125 $0.14
1998
- ----
1st Quarter $0.035 $0.125
2nd Quarter $0.01 $0.05
3rd Quarter $0.015 $0.05
4th Quarter $0.015 $0.04
Shareholders
- ------------
As of September 30, 1998, the Company had 1620 shareholders of record of
its Common Stock.
Dividend Policy
- ---------------
The Company has never declared a dividend and does not intend to pay
cash dividends on its common stock in the foreseeable future. The Company
intends to follow a policy of retaining earnings, if any, to finance the
development and expansion of its business.
Transfer Agent
- --------------
American Stock Transfer & Trust Company of New York, NY is acting as the
Company's Transfer Agent.<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
------------------------------------------------------------
(A) General
-------
The Company has had significant operating losses since inception
resulting in an accumulated deficit of approximately $6,010,200. <PAGE>
The previous management's strategies of marketing the Company's licensed
technology, foremost as a vendor of vitrification systems and as a provider of
limited operational and support services, could have resulted in substantial
additional losses due to the lack of appropriate funding for the adaptation
and implementation of the proprietary technology by its prospective customers
as well as the limited financial incentives and benefits for the same.
Since the change in management control of the Company on April 18, 1997,
management has been actively promoting "turnkey" solutions in the form of
"Merchant Plants". Such Merchant Plants offer the Company's prospective
customers a range of comprehensive environmental and waste treatment services
including the appropriate funding for such projects.
This present strategy anticipates a more systematic introduction of the
Company's technology and its commercial application providing its customers
the necessary financial benefits and incentives to implement the technology.
FORWARD LOOKING PLAN OF OPERATIONS
Although the Company has not yet generated sufficient revenues from its
operations to be profitable, management believes that its new strategy of
marketing "Merchant Plants" could yield profitable results and could lead to
the implementation of its first vitrification system for a municipal client in
the U.S. if appropriate funding can be secured.
If additional working capital can be obtained is expected initially to
be used for the further development of the Company's marketing efforts,
improvement of its current technology and to continue its current projects.
Additional funds will also be needed for future test runs to comply with
implementation protocols such as permitting, environmental impact studies,
Beneficial Use Determinations (BUD etc. which are set forth by federal, state
and local regulatory authorities.) Particularly at state and local government
level, such implementation protocols can vary significantly which potentially
will require multiple test runs for projects in different regions.
For certain end products, new markets will have to be developed which
will require adequate funding for research, marketing and to establish sales
support services.
(B) Liquidity and Capital Resources
-------------------------------
Operating Activities
- --------------------
The Company's cash position at fiscal year end September 30, 1998,
decreased to $73 from $18,179 at year end September 30, 1997. The reduction in
cash can be attributed to operating expenses including legal, accounting and
management fees, travel and promotional costs and debt service.
Investment Activities
- ---------------------
None
Financing Activities
- --------------------
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 affiliated and non-affiliated third
parties, and from customer demonstration and research runs at the
demonstration facility in Niagara Falls, NY.
The operating and investment activities for fiscal year ended September
30, 1998 were financed through the issuance of Company common stock which
raised a total of $62,500.
In the opinion of management, the Company does not have sufficient
working capital to be able to implement its current "Merchant Plant"
philosophy unless it is able to raise the necessary funds during fiscal year
1998/1999. The company entered into a letter of intent with Virtual
Empowerment Network, Inc. on July 10, 1998 concerning an equity acquisition.
On January 15, 1999, the Company entered into an agreement with Virtual
Empowerment Network, Inc. (VEN) a Kansas corporation, wherein VEN agreed to
purchase shares equaling 83% of the outstanding shares of USE after the
purchase. In consideration for the issuance of the shares, VEN agreed to
negotiate, secure and assign to USE, with full rights, contracts in the
aggregate amount of $5,000,000, whereby USE would receive not less than
$5,000,000 in gross revenues during a five year period after the closing date
of the VEN Agreement. The assignment of such contracts is to occur within one
year of the Company's ability to perform under such contracts. Additionally,
VEN agreed to loan funds for payment of outstanding accounts payable and
working capital for the next year.
Management is seeking capital from the sale of equity by means of
private placements or other equity related private financing such as fixed
income debentures with equity warrants attached and/or convertible notes,
bridge loans and other borrowing.
(C) Results of Operations
---------------------
SELECTED FINANCIAL DATA FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
The following presents selected financial information of the Company as
of and for the periods ended September 30, 1998, September 30, 1997, and
September 30, 1996. The information set below is qualified by, and should be
read in conjunction with, the consolidated statements and related notes in
their entirety.
Operations Data Years ended September 30, 1997 1996 1998
---- ---- ----
Revenue from operations $ 5,000 $95,000 -0-
Net development stage expenses 708,591 467,778 801,159
Net loss (1,371,188) (490,233)(1,364,775)
Earnings/(Net loss per share) (2.36) (1.36) (1.31)
Adjusted for reverse stock split of 100:1
Balance Sheet Data Years ended September 30, 1997 1996 1998
---- ---- ----
Current assets $ 34,846 $ 357,213 18,129
Total assets 1,518,785 2,566,747 817,715
Current Liabilities 260,602 611,043 417,607
Long term liabilities 167,127 148,000 18,000
Shareholders' equity $1,091,056 $1,955,704 382,108
There were no revenues from operations in 1998, as the Company did not conduct
any test runs.
The Company's Net development stage expenses for 1997 were $708,591 which
includes $201,721 of depreciation as compared to the Company's Net development
stage expenses for 1998 which were $801,159 which includes $119,184 of
depreciation. The increase in Net development stage expenses is due to the
increase in General and administrative expenses.
General and administrative expenses increased primarily due to an increase in
Professional Fees primarily related to the Company's continuing efforts to
raise additional capital and it's lawsuit with Geotech.
A significant change in the Company's balance sheet is represented by a
decrease in total assets from $1,518,785 to $817,715, or slightly over
$701,000. A corresponding impact is noted with respect to shareholder's
equity.
The primary reason for this change is compliance with FASB 121 which relates
to the valuation of the Licensing Agreement with respect to it's ability to
generate future revenues in the context of the Company's financial condition
at year end. The valuation calculation resulted in a Loss on impaired assets
of just over $547,100 and represents the bulk of the change from year end 1997
to 1998.
Other factors directly related to the decrease in total assets include:
$102,200 amortization of the Licensing Agreement and Patents; $33,100 in
depreciation of the Pilot Plant and the Pre-paid lease on the building housing
the plant; write off of the Company's investment in ERI common stock in the
amount of $1,530; expensing of equipment previously capitalized in the amount
of $1,840 and an $18,000 decrease in cash as a result of operating expenses.
The Company continues to carry substantial income tax benefit in the
amount of $5,911,900 as loss carry forward. (See Consolidated Financial
Statements note #8)
Current liabilities increased due to increased accounts payable resulting from
the Company's continued cash flow difficulties and unpaid current portion of
notes payable and long term debt.
Long-term liabilities decreased significantly primarily due to the issuance of
stock payable and reallocation of the current portion of long term liabilities
to current liabilities.
The lease on the building which houses the Pilot Plant is owned by the
Company. Prepaid rent on this lease is accounted for in the Consolidated
Financial Statement Balance Sheet as a current asset. The rent is prepaid to
November 22, 1999 and represents a value of $18,056.
Inflation has not proven to be a factor in the Company's business since
its inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
Y2K Statement
The Company's State of Readiness
- --------------------------------
The Company has reviewed its critical information systems for Year 2000
compliance. The compliance review revealed that the Company's critical
information systems are Year 2000 compliant due to the fact that the Company's
hardware and operating system are "off-the-shelf" products from third parties
with Year 2000 compliant versions. The Company does not rely on to any
significant degree on any other computerized information systems.
As part of the Company's Year 2000 compliance review, the Company is in the
process of contacting its primary vendors to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their Year
2000 compliance issues.
The Cost to Address the Company's Year 2000 Issues
- --------------------------------------------------
The Company estimates that the cost of its Year 2000 compliance issues will be
less than $1,000 and is not expected to be material to the Company's financial
position, cash flow, or results of operations.
The Risks Associated with the Company's Year 2000 Issues
- --------------------------------------------------------
The Company believes that the risks associated with Year 2000 issues primarily
relate to the failure of third parties, particularly banks and utilities, upon
whom the Company's business relies to timely remediate their Year 2000 issues.
Failure by third parties to timely remediate their Year 2000 issues could
result in disruptions in the Company's supply of parts and materials, late,
missed, or unapplied payments, temporary disruptions, and other general
problems related to the Company's daily operations. While the Company
believes its Year 2000 compliance review procedures will adequately address
the Company's internal Year 2000 issues, until the Company receives responses
from its significant vendors, the overall risks associated with the Year 2000
issue will remain difficult to accurately describe and quantify, and there can
be no guarantee that the Year 2000 issue will not have a material adverse
effect on the Company's business, operating results and financial position.
The Company's Contingency Plan
- ------------------------------
The Company has implemented a Year 2000 contingency plan. The Company is
prepared to run manually and without automated systems in the event of a Year
2000 system failure. The Company is however dependent on certain suppliers,
particularly a bank where the Company maintains its operating accounts, and
suppliers of utilities. Except for utilities, the Company has arranged for
the use of multiple suppliers, including banks, to provide alternatives should
one or more suppliers experience difficulties.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Consolidated Financial Statements
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998
Independent Auditors' Report
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998
Contents
Independent Auditors' Report on Consolidated Financial Statements 1-2
Consolidated Financial Statements:
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders' Equity 5-7
Consolidated Statements of Cash Flows 8-9
Notes to Consolidated Financial Statements 10-25
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of (DEL) U.S.
Environmental, Inc. and Subsidiary (a development stage enterprise) as of
September 30, 1998 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years ended September
30, 1998 and 1997. These consolidated financial statements are the
responsibility of the management of (DEL) U.S. Environmental, Inc. and
Subsidiary. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully discussed
in Notes 1 and 2, the Company is in the development stage with its principal
activities being the negotiating, obtaining, and marketing of solid and
hazardous waste treatment technology for the purpose of future commercial
application. The Company has sustained substantial losses in prior years.
Its current liabilities exceed current assets by approximately $400,000 and
it has no significant revenues. In addition, as indicated in Note 6 to the
consolidated financial statements, approximately $144,000 of convertible
notes payable are past due. These issues raise substantial doubt about the
Company's ability to continue as a going concern. Its major asset is a
license agreement stated at approximately $580,157. Realization of this and
substantially all of the Company's assets is dependent upon the Company's
ability to resolve liquidity problems, future sales of technology, and the
ability of the Company to generate revenues sufficient to result in future
profitable operations. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
<PAGE>
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of (DEL)
U.S. Environmental, Inc. and Subsidiary (a development stage enterprise) as
of September 30, 1998 and the results of its operations and its cash flows for
the years ended September 30, 1998 and 1997 in conformity with generally
accepted accounting principles.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of (DEL)
U.S. Environmental, Inc. and Subsidiary (a development stage enterprise) as
of September 30, 1998 and the results of its operations and its cash flows for
the years ended September 30, 1998 and 1997 in conformity with generally
accepted accounting principles.
Certified Public Accountants
Tampa, Florida
April 5, 1999
<PAGE><PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheet
September 30, 1998
Assets
Current assets:
Cash $ 73
Prepaid rent 18,056
-------
Total current assets 18,129
Property and equipment, net of accumulated depreciation 219,429
Other assets:
License, net of accumulated amortization 580,157
-------
$ 817,715
=======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, including related party of $13,500 $ 126,408
Current portion of notes payable and long-term debt 199,619
Accrued interest 91,580
-------
Total current liabilities 417,607
-------
Long-term liabilities:
Notes payable, net of current maturities 18,000
-------
Stockholders' equity:
Common stock; $.0001 par value; 200,000,000 shares
authorized; 1,849,542 shares issued and outstanding 185
Additional paid-in capital 6,392,139
Deficit accumulated during the development stage (6,010,216)
---------
Total stockholders' equity 382,108
-------
$ 817,715
=======
Read independent auditors' report. The accompanying notes are an integral
part of the consolidated financial statements.
3<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<S> <C> <C> <C>
February 18, 1988
Year Ended September 30, (Inception) to
1998 1997 September 30, 1998
(Unaudited)
Revenue from demonstration fees $ 0 $ 5,000 $ 280,000
-------- ---------- ------------
Development stage expenses:
Research and development 169,020
General and administrative 681,975 511,870 3,187,992
Depreciation and amortization 119,184 201,721 1,719,648
-------- ---------- ------------
Total development stage expenses 801,159 713,591 5,076,660
-------- ---------- ------------
Net development stage expenses 801,159 708,591 4,796,660
-------- ---------- ------------
Other income (expenses):
Interest expense (16,501) (122,341) (161,297)
Interest income 733 2,162
Miscellaneous income 2,500
Loss on impairment of assets (547,115) (793,770) (1,345,773)
-------- ---------- ------------
Total other income (expenses) (563,616) (915,378) (1,502,408)
-------- ---------- ------------
Net loss before income taxes and
extraordinary gain (1,364,775) (1,623,969) (6,299,068)
Income tax expense 98,600 112,700
-------- ---------- ------------
Net loss before extraordinary gain (1,364,775) (1,525,369) (6,186,368)
Extraordinary gain on forgiveness of
debt (net of income tax of $98,600) 154,181 176,152
-------- ---------- ------------
Net loss $ (1,364,775) $(1,371,188) $ (6,010,216)
=========== ========== ============
Loss per common share:
Loss before extraordinary gain $(1.31) $(2.63) $(21.39)
Extraordinary gain on
forgiveness of debt .27 .61
-------- ---------- ------------
Net loss per common share $(1.31) $(2.36) $(20.78)
======== ========== ============
Weighted average common shares
outstanding 1,040,429 579,523 289,243
=========== ========== ============
Read independent auditors' report. The accompanying notes are an integral
part of the consolidated financial statements. 4
</TABLE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
For the Periods February 18, 1988 (Inception) to September 30, 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the Total
Common Stock Paid-in Development Treasury Subscriptions Stockholder's
Shares Amount Capital Stage Stock Receivable Equity
Initial
Issuance of
Common Stock
February 18,
1988
(inception)
through
July 31, 1988* 2,025,000 $203 $5,097 $5,300
Sale of
common stock
with
redeemable
warrants
in August
1989* 1,000,000 100 40,100 40,200
Shares issued
by U.S.
Environmental,
Inc. in
connection
with pooling
of interest,
1989* 20,000,000 2,000 359,608 ($25,000) 336,608
Shares
donated, 1990* (1,000,000) (100) 100
Shares
issued in
exchange for
warrants, 1990* 1,000,000 100 (100)
Issuance of
stock to be
held as
treasury stock
1990* 3,000,000 300 ($300)
Shares
issued in
exchange for
securities
(subject to
mandatory
redemption,
1990*) 500,000
Shares
issued for
patent rights
1990* 300,000 30 1,124,970 1,125,000
Shares
issued for
plant and
equipment,
1990* 200,000 20 999,980 1,000,000
Shares
issued for
license
agreement,
1990* 400,000 40 1,999,960 2,000,000
Shares
issued for
services, 1990* 58,700 6 994 1,000
Shares
issued for
cash, 1990* 1,000 500 500
Collection for
subscriptions
receivable, 1990* 1,500 25,000 26,500
Issuance of
stock to be
held as
treasury stock
1991* 13,000,000 1,300 (1,300)
Shares
issued for
services, 1991* 2,775,000 277 82,913 83,190
Shares
issued for
license
agreement,
1991* 1,500,000 150 299,850 300,000
Conversion
of note
payable, 1991* 35,166 4 4,996 5,000
Shares
issued for
cash, 1991* 20,000 2 4,998 5,000
Cancellation
of treasury
stock, 1991* (10,000,000)(1,000) 1,000
Acquisition
of treasury
stock in
exchange for
plant and
equipment
(200,0000
shares), 1991* (866,667) (866,667)
Other, 1991* 300
Cancellation
of treasury
stock, 1992* (6,000,000) (600) 600
Return of
shares for
executive
signing bonus,
1992* (250,000) (25) (25)
Shares
issued for
cash, 1992* 1,700,000 170 269,830 270,000
Conversion
of notes
payable, 1992* 273,997 27 44,973 45,000
Costs incurred
with issuance
of common
stock, 1992* (50,000) (50,000)
Shares
issued for
services, 1992* 250,000 25 25
Retirement of
treasury
stock, 1992* (200,000) (20) (866,647) 866,667
Cancellation
of redeemable
shares issued
for securities,
1992* (500,000)
Shares issued
for termination
of intermediary
agreement, 1992* 3,000,000 300 239,700 240,000
</TABLE>
*Unaudited
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
For the Periods February 18, 1988 (Inception) to September 30, 1998
(Continued)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the Total
Common Stock Paid-in Development Treasury Subscriptions Stockholder's
Shares Amount Capital Stage Stock Receivable Equity
Shares
issued for
cash, 1993* 200,000 20 19,980 20,000
Conversion
of note
payable, 1993* 25,000 2 4,998 5,000
Costs incurred
with issuance
of common
stock, 1993* (17,022) (17,022)
Shares issued
for management
services, 1993* 550,000 55 55
Shares
issued for
services, 1993* 100,000 10 9,990 10,000
Shares
issued for
cash, 1994* 300,000 30 49,470 49,500
Shares
issued for
services, 1995* 1,026,000 103 103
Shares
issued for
services, 1996* 1,468,000 147 117,293 117,400
Conversion
of note
payable, 1996* 500,000 50 42,450 42,500
Shares
issued for
cash, 1996* 6,333,746 633 499,367 500,000
Costs incurred
with issuance
of common
stock, 1996* 300,000 30 (64,280) (64,280)
Net loss for
periods
February 18,
1988 (inception)
to September
30, 1996 ($3,274,253) (3,274,253)
--------- ---- --------- ----------- ---------- -------------- ------------
Balance,
September 30,
1996 43,891,909 4,389 5,225,568 ( 3,274,253) 0 0 1,955,704
<PAGE>
Shares
issued for
cash, 1997* 32,447,394 3,245 472,755 476,000
Shares
issued for
services, 1997* 354,000 35 30,505 30,540
Shares issued
pursuant to
anti-dilution
contract,
1997 4,760,091 476 (476)
Net loss for
year ended
September
30, 1997 ($1,371,188) (1,371,188)
--------- ---- --------- ----------- ---------- -------------- ------------
Balance,
September 30,
1997 81,453,394 8,145 5,728,352 ( 4,645,441) 0 0 1,091,056
Shares
issued for
cash, 1998 6,250,000 625 61,875 62,500
Shares
issued for
services, 1998 86,690,000 8,669 459,531 468,200
Shares
issued for
retirement of
debt, 1998 1,100,000 110 125,017 125,127
Shares issued
pursuant to
anti-dilution
contract,
1998 9,460,769 946 (946)
Reverse
stock split
1-for-100
subsequent to
September 30,
1998 (183,104,621)(18,310) 18,310
Net loss for
year ended
September
30, 1998 ($1,364,775) (1,364,775)
--------- ---- --------- ----------- ---------- -------------- ------------
Balance,
September 30,
1998 1,849,542 $ 185 $6,392,139 $( 6,010,216) $ 0 $ 0 $ 382,108
========= ==== ========= =========== ========== ============== ============
</TABLE>
*Unaudited
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
February 18, 1988
Year Ended September 30, (Inception) to
1998 1997 September 30, 1998
(Unaudited)
Operating activities
Net loss $ (1,364,775) $ (1,371,188) $ (6,010,216)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 119,184 201,721 1,719,648
Extraordinary gain on forgiveness
of debt (154,181) (176,152)
Income tax benefit (98,600) (112,700)
Loss on impairment of assets 547,115 793,770 1,345,773
Issuance of common stock for
services 468,200 30,540 816,558
Issuance of common stock for
termination of intermediary
agreement 240,000
(Increase) decrease in prepaid
expenses 16,665 (29,223) (15,916)
Increase in accounts payable and
accrued expenses 135,386 79,926 619,956
----------- ----------- -----------
Total adjustments 1,286,550 823,953 4,437,167
----------- ----------- -----------
Net cash used by operating activities (78,225) (547,235) (1,573,049)
----------- ----------- -----------
Investing activities
Acquisition of property and equipment (251,841) (260,786)
Acquisition of license agreement (44,327)
Acquisition of marketable securities (1,530)
----------- ----------- -----------
Net cash used by investing activities 0 (251,841) (306,643)
Financing activities
Proceeds from loans 6,619 125,219
Repayment on loans (9,000) (10,458) (41,225)
Issuance of common stock, net of
offering costs 62,500 476,000 1,596,771
Proceeds from issuance of convertible
notes 199,000
----------- ----------- -----------
Net cash provided by financing activities 60,119 465,542 1,879,765
----------- ----------- -----------
</TABLE>
Read independent auditors' report. The accompanying notes are an integral
part of the consolidated financial statements. 8
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
February 18, 1988
Year Ended September 30, (Inception) to
1998 1997 September 30, 1998
(Unaudited)
Net (decrease) increase in cash (18,106) (333,534) 73
Cash, beginning of year 18,179 351,713
----------- ----------- -----------
Cash, end of year $ 73 $ 18,179 $ 73
=========== =========== ===========
</TABLE>
Supplemental disclosures of cash flow information
and noncash investing and financing activities
The following amounts of common stock were issued for noncash consideration:
<TABLE>
<S> <C> <C> <C>
February 18, 1988
Year Ended September 30, (Inception) to
1998 1997 September 30, 1998
(Unaudited)
Amendment to financial agreement
and payment on debt owed $ 404,000 $ 404,000
Compensation and consulting
services 49,200 $ 23,040 226,585
Professional fees 15,000 173,473
Termination of intermediary
agreement 240,000
Rent 5,000
Promotion expense 7,500 7,500
----------- ----------- -----------
$ 468,200 $ 30,540 $ 1,056,558
=========== =========== ===========
</TABLE>
On September 29, 1997, the Company entered into an agreement to
issue 100,000 shares of common stock as payment in full on a stockholder note
and interest payable totaling approximately $33,000. Additionally, the
Company agreed to issue 1,000,000 shares of stock to another stockholder as
payment of accrued interest totaling approximately $92,000. These shares were
issued on November 10, 1997.
See Note 7 - Stockholders' Equity, which discloses all significant
noncash transactions associated with stockholders' equity for the period
February 18, 1988 (inception) to September 30, 1998.
Read independent auditors' report. The accompanying notes are an integral
part of the consolidated financial statements. 9
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
1. Background Information and Subsequent Events
(DEL) U.S. Environmental, Inc., formerly Windfall Capital Corp., (the
"Company") was incorporated in the state of Delaware on February 18, 1988.
Its principal activity has been to negotiate, obtain, and market a solid and
hazardous waste treatment technology. No income has been earned from this
activity to date. Consequently, the consolidated financial statements have
been presented as those of a development stage enterprise.
The Company's headquarters is located in St. Petersburg, Florida.
Subsequent to September 30, 1998, the Company entered into an agreement to
issue shares of common stock to an outside investor who will control
approximately 83 percent of the Company's common stock. This agreement calls
for a payment of approximately $109,000 toward the outstanding liabilities of
the Company and an advance of funds totaling $204,000. During a 12-month
period immediately following the advance of funds, the investor will endeavor
to negotiate, secure, and assign contracts to the Company. In the event that
the investor does not generate contracts that generate $5,000,000 in gross
revenue, the outstanding loan from the investor to the Company will be
forgiven.
On January 15, 1999, the Company authorized a 1-for-100 reverse stock split
for its $.0001 par value common stock. The reverse split reduced the total
shares outstanding at September 30, 1998 from 184,954,163 to 1,849,542. The
accompanying consolidated financial statements were adjusted to reflect this
change.
2. 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 approximately $6,000,000.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has sustained
substantial losses since inception. Current liabilities exceed current
assets by approximately $400,000 at September 30, 1998. In addition,
approximately $144,000 of convertible notes payable are in default as of
September 30, 1998. Presently, the Company's ability to complete the
research and development activities and its
Read independent auditors' report. 10
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
2. Going Concern and Realization of Assets (continued)
transition to attaining profitable operations is dependent upon obtaining
adequate financing and achieving a level of sales adequate to support the
Company's cost structure. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue
in existence.
The Company's 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 upon day-to-day operations, thus, contributing to continued operating
losses.
3. Significant Accounting Policies
The significant accounting policies followed are:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, U.S. Waste Conversion
International, Inc. (formerly U.S. Environmental, Inc.). U.S. Waste
Conversion International, Inc. is an inactive subsidiary and all transactions
are posted to the Company. All intercompany transactions and accounts have
been eliminated in consolidation.
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Read independent auditors' report. 11
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
3. Significant Accounting Policies (continued)
Property and equipment are stated at cost. Additions and improvements to
property and equipment 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 straight-line method over the estimated useful lives of the assets
ranging from 7 to 15 years.
The cost of the license agreements are being amortized utilizing a
straight-line method over a period of 20 years. Amortization expense charged
to operations was $102,217 and $187,529 for the years ended September 30,
1998 and 1997, respectively, and $919,945 for the period February 18, 1988
(inception) to September 30, 1998.
The Company follows SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of these assets
may not be recoverable. In performing the review for recoverability, the
Company estimates the future cash flows are expected to result from the use
of the assets and their eventual disposition.
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their
respective income tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized as income in the period that included the enactment
date.
The Company will recognize revenue upon the sale of its technology to end
users as well as through sub-license agreements.
Read independent auditors' report. 12
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
3. Significant Accounting Policies (continued)
Basic loss per share (EPS) is computed by dividing loss available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
the exercise or conversion of securities into common stock. Diluted EPS is
not presented because they are anti- dilutive.
4. Property and Equipment
Property and equipment consist of the following:
Plant $ 250,000
Furniture and equipment 478
-----------
250,478
Less accumulated depreciation 31,049
-----------
$ 219,429
===========
The Company was a defendant in a lawsuit filed in the United States Bankruptcy
Court for the Western District of New York. On November 22, 1996, the
lawsuit was settled with the Company paying $250,000 to purchase an interest
in a melt-all process pilot plant located in Niagara Falls. As described in
Note 10, the Company is the plaintiff in a lawsuit to determine whether the
Company has a 100 percent or a 50 percent ownership in the plant.
5. License Agreements and Patent
The Company entered into a 20-year license agreement, which was subsequently
amended, 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 20-year periods at the option of the licensee. As
consideration for the licenses, Geotech was paid $14,000 and an additional
$30,327 was paid to consultants, on Geotech's behalf, to transfer the
technology.
Read independent auditors' report. 13
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
5. License Agreements and Patent (continued)
On May 31, 1990, the Company amended its license agreement with Geotech
whereby the Company issued to Geotech 400,000 shares of common stock valued
at $5 per share as consideration for the reduction of royalty fees from 20
percent to 5 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 Company/Geotech 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 five percent of all
royalties collected.
On September 22, 1992, Geotech acquired an additional 750,000 shares through a
cash purchase of $125,000. As an incentive for capital investment,
responsibilities of the Company were transferred to the Geotech management
team.
During 1998, the management of the Company deemed the license agreement to be
impaired. This decision was based on continuing operating losses and
negative cash flow from operations. Subsequent to September 30, 1998, the
Company entered into an agreement to issue shares of stock to an outside
investor. These shares were issued for approximately $313,000 and amounted
to 83 percent of the issued and outstanding common stock. Based on this new
funding and future cash flow projection, the new management deemed that they
had the ability to generate future cash flows from the license agreement.
The fair value of the license agreement was determined to be based on the
amount paid to the Company for 83 percent of the Company stock. The Company
has recorded, pursuant to FASB 121 "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of," an impairment loss of
approximately $547,000 to write the license agreement and related patent down
to approximately $1,500,000.
At September 30, 1998, the license agreement consisted of the following:
License agreement $ 1,500,101
Less accumulated amortization 919,944
-------------
$ 580,157
=============
Read independent auditors' report. 14
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
5. License Agreements and Patent (continued)
On December 17, 1990, the Company entered into a license agreement with a
joint venture whose partners include Asbestoguard Australia PTY Limited and
Asbestoguard Limited. Under this license agreement, the Company acquired an
exclusive license for the marketing, distribution, and sale in the United
States of the Asbestoguard process, package, and related property developed
by the joint venture. The proprietary system, which consisted 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 20-year license, with a 20-year
renewal option, by the issuance of 1.5 million of its unregistered common
shares valued by management at $300,000. In addition, the Company is
obligated to pay, in the form of a royalty, for the cost of any Asbestoguard
liquid sealant product provided (10 percent premium above cost up to a
maximum of $1,500,000).
The Company has rights to a patent for the alignment of magnets in a process
through which metals are extracted from ash. The Company issued 300,000
shares of stock for the rights to the patent.
As of September 30, 1997, management believed that they did not have the
resources to generate any further cash flows from the Asbestoguard license
agreement and the patent for alignment of magnets and, therefore, pursuant to
FASB 121, "Accounting for the Impairment of Long-Lived Assets and for Assets
to be Disposed Of," have recorded an impairment loss of approximately
$794,000 to write the license and the patent down to zero.
6. Notes Payable
Notes payable consist of:
Convertible notes payable; interest at 11.0%;
principal plus interest is past due; unsecured $ 144,000
Notes payable, stockholders; non-interest
bearing; due on demand; unsecured 10,000
Read independent auditors' report.
15<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
6. Notes Payable (continued)
Note payable, stockholder; non-interest bearing;
31 monthly principal payments of $2,000;
unsecured 62,000
Line of credit, related party; no interest; unsecured;
due on demand 1,619
------------
217,619
Less amounts due currently 199,619
------------
$ 18,000
============
The following is a schedule of the principal payments required on these notes:
1999 $ 199,619
============
2000 $ 18,000
============
During 1991, the Company issued $199,000 of 11 percent convertible notes
payable, due two years from the date of issuance (December 31, 1992). At any
time prior to the due date, the investors may convert their note for
unregistered shares of common stock of the Company at the conversion price of
25 percent below the bid price of the Company's common stock at that date.
Notes totaling $55,000 were converted by the due date. Due to the Company's
financial position, the remaining notes have not been repaid and are now in
default.
Interest associated with these notes is included on the balance sheet as
accrued interest in the amount of approximately $92,000 as of September 30,
1998.
Notes payable, stockholders include two notes which totaled approximately
$83,000 and were due on May 13, 1992. These notes were unsecured and accrued
interest at 18 percent. The former management disputed these loans and did
not record any interest on the Company's books. During the year ended
September 30, 1997, the Company's then new management recorded an adjustment
to accrue interest on these notes. On September 29, 1997, the Company agreed
to issue 100,000 shares of common stock as payment in full on one of these
stockholder's notes payable. The principal and interest on this note was
approximately $33,000. Additionally, the Company agreed to issue 1,000,000
shares of stock to the second stockholder as payment of accrued interest
totaling approximately $92,000. The shares of stock were issued in 1998.
Read independent auditors' report.
16<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
6. Notes Payable (continued)
The Company has two credit cards in its name with a total balance of
approximately $26,000. This balance was accumulated by prior management and
is personally guaranteed by prior management. Management has determined that
the balance relates to personal expenditures and has not included this
balance on the consolidated financial statements.
7. Stockholders' Equity
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 stockholder to
purchase one share of common stock at the price of $.10 per share. The
warrants expired on February 9, 1991. The costs incurred in connection with
the offering were $9,800. The net proceeds amounted to $40,200. On August
28, 1989, the Company acquired all of the outstanding common stock of the
Subsidiary (formerly U.S. Environmental, Inc.), which totaled 13,500,000
shares, in exchange for 20,000,000 shares of the Company. Under the terms of
the acquisition agreement, Windfall Capital Corp. changed its name to (DEL)
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 30th to conform to that of the subsidiary.
This transaction was accounted for as a pooling of interests, whereby the
transaction was a recapitalization of the Subsidiary. In effect, the
transaction was the acquisition of the Parent by the Subsidiary since the
stockholders of the Subsidiary held 20,000,000 (86.86 percent) of the
23,025,000 shares outstanding of the Parent after the acquisition. The
operations of the Parent prior to the merger was significant to the combined
operations. Goodwill was not recognized in the transaction and the
consolidated financial statements reflect the assets at their historical cost
basis.
During May 1990, various officers, directors, and stockholders of the Company
contributed 1,000,000 shares of stock to the Company. The Company then
redeemed the outstanding 5,000,000 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.
On September 27, 1990, the Company issued 3,000,000 shares of common stock to
the Company to be held as treasury stock.
Read independent auditors' report. 17
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
7. Stockholders' Equity (continued)
The Company exchanged 500,000 shares of its common stock for 500,000 shares of
Waste Technology Corp.'s 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 Corp. if a plant is not built by Waste Technology Corp. or
an affiliate by March 16, 1992. As of March 16, 1992, no plant was built
and, consequently, the shares were redeemed and cancelled.
On February 27, 1990, the Company acquired the rights to a patent for a metal
separation system for incinerators in exchange for 300,000 shares of the
Company's common stock. The transaction has been valued by management at
$1,125,000. The patent, which was 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. This asset was deemed impaired in the fiscal year
ended September 30, 1997 and is included in the impairment of assets of
$793,770.
On May 31, 1990, the Company acquired a 50 percent interest in the plant and
equipment of Geotech comprising of an electric fusion metal-all demonstration
pilot plant for 200,000 shares of common stock of U.S. Environmental, Inc.
valued at $5 per share, or $1,000,000. The Company depreciated this plant
and equipment over ten years on a straight-line basis through September 30,
1991. At September 30, 1991, the Company 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 $866,667 of the plant and
equipment exchanged.
On March 31, 1990, the Company amended its license agreement with Geotech,
whereby the Company issued to Geotech 400,000 shares of common stock valued
at $5 per share as consideration for the reduction of royalty fees from 20
percent to 5 percent. The transaction has been valued at $2,000,000.
On May 8, 1990, the Company issued 58,700 shares of common stock for
consulting services valued at $1,000 ($.017 per share).
On May 3, 1990, the Company issued 1,000 shares of common stock for $500 ($.50
per share).
Read independent auditors' report. 18
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
7. Stockholders' Equity (continued)
On December 17, 1990, the Company obtained a 20-year license for Asbestoguard
products. The Company issued 1,500,000 shares of its unregistered common
stock valued by management at $300,000.
During the year ended September 30, 1991, the Company issued 2,775,000 shares
of common stock for services. Those services were valued at $83,190. The
Company also issued 20,000 shares of common stock for cash of $5,000.
On September 15, 1990, the Company issued a private placement memorandum on a
best efforts basis 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 percent per annum paid semiannually and are convertible into common stock
of the Company at 25 percent 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.
As of September 30, 1991, a note holder converted his note in the amount of
$5,000 for 35,166 shares of restricted common stock.
During the quarter ended December 31, 1991, the Company cancelled 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 250,000 shares to the Company that he received as a signing
bonus.
In October 1991, the Company sold 200,000 shares of its restricted common
stock for $20,000. It used the money to hold a demonstration of its melt-all
process in a pilot plant located in Niagara Falls, New York.
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 Company's
management resigned in favor of a management team assembled by Noel Drago
Associates, whereby Noel Drago was appointed President.
Read independent auditors' report. 19
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
7. Stockholders' Equity (continued)
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 1992, a note holder with a value of $25,000 exchanged his
convertible note for 133,333 restrictive shares.
During the year ended September 30, 1992, the Company issued 250,000 shares of
common stock for services. Management placed no value on those services.
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 Company's management resigned in favor of a management team
assembled by Geotech, whereby Thomas R. Tate was appointed president.
In October 1992, the Company received $20,000 for 200,000 restrictive shares
of stock from an outside investor.
Also in October 1992, a note holder with a value of $5,000 exchanged his
convertible note for 25,000 restrictive shares.
In April 1993, the Company issued 550,000 restrictive shares to the then
current management team. The Company valued the stock at $.0001 per share.
The stock was to be returned if the individual resigned prior to September
22, 1994.
In September 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.
Read independent auditors' report. 20
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
7. Stockholders' Equity (continued)
In February 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
percent of bid price, but not less than $.165 per share. This option expired
August 10, 1994 with no additional shares being purchased.
In August 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 1996, the Company issued 1,468,000 shares to management
and the then 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 1996. The actual shares
have not been issued, however, the shares are included with the issued and
outstanding shares at September 30, 1996.
In September 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.
The Company amended this agreement prior to the completion of the second and
third phase. Therefore, no additional stock was issued under the original
stock purchase agreement dated September 1996. A new stock purchase
agreement dated April 1997 increased the ownership of the outside investor to
51 percent. The Company issued 30,447,394 shares to the investor for $326,000
on May 9, 1997. The agreement also has an anti-dilution clause that requires
the Company to issue new shares to the outside investor any time its
ownership falls below 51 percent. In September 1997, an additional 4,760,091
shares were issued pursuant to this clause.
The Company issued 2,000,000 shares of common stock in November 1996 for
$150,000 in cash.
Read independent auditors' report. 21
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
7. Stockholders' Equity (continued)
During 1997, the Company issued 254,000 shares to the Board of Directors. The
Company recorded $23,040 as compensation expense as a result of these
services. Additionally, the Company issued 100,000 shares of stock to a
related company for consulting services. These services were valued at
$7,500.
In November 1997, the Company issued 1,100,000 shares of stock in lieu of
principle and interest owed on notes totaling $125,127.
During 1998, the Company issued 6,690,000 shares of stock for legal and
consulting services valued at $64,200.
On March 6, 1998, the Company issued 4,200,000 shares of stock for $42,000.
Of this amount, 200,000 shares were issued to current management. Management
valued these shares at $.01 per share.
On March 16, 1998, the Company issued 700,000 shares of stock for $7,000.
These shares were valued at $.01 per share.
On May 5, 1998, the Company issued 1,350,000 shares of stock for $13,500.
These shares were valued at $.01 per share.
During the year ended September 30, 1998, 9,460,769 shares of stock were
issued to an outside investor in accordance with the anti-dilution clause for
the stock purchase agreement dated April 1997.
On April 1, 1998, 10,000,000 shares of common stock were issued to a related
company. Also on August 26, 1998, an additional 10,000,000 shares of common
stock were issued to this related company. These shares were issued as
compensation for assigning the ownership rights of the first five projects to
the Company. These shares were valued at $2,000.
On August 26, 1998, the Company agreed to issue 60,000,000 shares to a related
company in exchange for any rights fees for structuring project finances and
canceling a $402,000 debt owed by the Company.
Read independent auditors' report. 22
<PAGE>
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
8. Income Taxes
The Company has tax loss carryforwards of approximately $5,911,900 that may be
applied against future taxable income through the year 2013. During 1997, a
substantial change of ownership of the Company occurred. Under federal tax
law, this change in ownership of the Company will significantly restrict
future utilization of the $5,911,900 net operating loss carryforwards. Other
than the net operating losses which have been limited because of the change
in ownership as described above, any other net operating losses will expire
if not utilized within 15 years of the year they were incurred. This loss
gives rise to deferred tax assets at September 30, 1998 and are as follows:
$ 5,911,900
Effective tax rate 39.0%
--------------
Deferred tax asset 2,305,600
Less valuation allowance 2,305,600
--------------
Net deferred tax assets $ 0
==============
The loss carryforwards expire as follows:
Year of
Expiration
----------
2004 $ 195,500
2005 482,000
2006 624,600
2007 508,100
2008 675,300
2009 223,000
2010 68,500
2011 489,700
2017 1,280,400
2018 1,364,800
--------------
$ 5,911,900
==============
Read independent auditors' report. 23
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
8. Income Taxes (continued)
The reasons for the differences between the effective tax rate and the U.S.
statutory rate on continuing operations are as follows:
February 18,
1988
Year Ended (Inception) to
September 30, September 30,
1998 1997 1998
Tax benefit at U.S. statutory rate $ 532,300 $ 633,400 $2,456,700
Valuation allowance for deferred
tax asset 532,300 534,800 2,341,000
Other 3,000
---------- ----------- -----------
Income tax benefit $ 0 $ 98,600 $ 112,700
9. Related Party Transactions/Commitments
The Company signed a management fee agreement with Swiss American Capital
Management on April 18, 1997. Swiss American Capital Management provides
support for general management, regulatory compliance, and sales and
marketing. They also provide office space to the Company as part of the
management fee. The Company paid $416,530 and $352,172 in management fees to
this related company in 1998 and 1997, respectively.
The Company issued 100,000 shares of common stock to Basle Holding
Corporation, a related company, for the year ended September 30, 1997. The
related company provided services as a financial consultant and assisted the
Company in obtaining funding for the Company's vitrification projects. These
services were valued at $7,500 for the year ended September 30, 1997.
The Company signed a $20,000 revolving line of credit agreement with Swiss
American Capital Management in October 1997. The line of credit is interest
free and due on demand. As of September 30, 1998, the balance due on this
line of credit was $1,619.
Read independent auditors' report. 24
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1998 and 1997 and
Periods February 18, 1988 (Inception) to September 30, 1998 (Unaudited)
10. Contingency
The Company is the plaintiff in pending litigation identified as (DEL) U.S.
Environmental, Inc. v. Geotech Development Corporation and four former
directors of the Company, Civil Action 97-6339, in the United States District
Court for the Eastern District of Pennsylvania. The Company seeks
adjudication with respect to whether Geotech Development Corporation has a
partial ownership interest in the Niagara Falls plant and real estate, and the
validity of certain cash and stock payments to certain former controlling
persons of the Company between 1990 and 1997.
Read independent auditors' report. 25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure with the
Company's current principal accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
As of April 18, 1997, the directors and officers of the Company were as
follows:
Name Age Position with the Company
- ------ --- -------------------------
Max P. Schmid 39 President and Director (Chairman of the Board)
Thomas P. Dolan 44 Secretary, Director
Robert W. Lewis Jr. 44 Chief Financial Officer, Treasurer, Director
After the closing of the Company's January 15, 1999, agreement with VEN,
Max P. Schmid, President and Director, and Robert W. Lewis, Chief Financial
Officer and Director, resigned from their positions. Dr. Hyman L. Jarrett Sr.
and Donald W. Jarrett were elected as directors, and Thomas P. Dolan will
continue serving as a director. The Board elected Dr. Hyman L. Jarrett Sr. to
serve as Chairman of the Board.
The Board of Directors appointed Donald W. Jarrett as Acting President,
Thomas P. Dolan, Executive Vice President, and Belinda J. Jarrett as
Secretary/ Treasurer. It is the board's intention to appoint a president in
the near future the has extensive background in engineering as well as
management.
As of April 23, 1999, the directors and officers of the Company were as
follows:
Name Age Position with the Company
- ----- --- -------------------------
Donald W. Jarrett 52 President and Director
Hyman L. Jarrett Sr. 60 Director (Chairman of the Board)
Thomas P. Dolan 46 Executive Vice President, Director
Belinda J. Jarrett 42 Secretary, Treasurer
DONALD W. JARRETT, President and Director. Donald W. Jarrett is a
retired Federal Bureau of Investigation (FBI) agent has a Master of Science in
Criminal Justice Administration from Central Missouri State University,
Warrensburg, Missouri. Mr. Jarrett was with the FBI for twenty-one (21) years
and was instrumental in planning and completing investigations for violation
of matters within the jurisdiction of the FBI. Because of his leadership
ability Mr. Jarrett was requested to specialize and concentrate these
abilities in the area of Domestic Terrorist Groups in the United States. Mr.
Jarrett was responsible for developing and establishing the Phoenix, Arizona
FBI's Counter Terrorism Task Force. Mr. Jarrett begin his career in
criminology as a Special Agent for the United States Army Criminal
Investigation Division. Donald W. Jarrett is the brother of Dr. Hyman L.
Jarrett, Sr., and Belinda J. Jarrett.
DR. HYMAN L. JARRETT Sr., Chairman of the Board. Dr. Hyman L. Jarrett
is founder and organizer of Virtual Empowerment Network, Inc. (VEN). VEN was
organized in 1997 with the vision of Dr. Jarrett to promote economic
empowerment, business development and financial resources in urban communities
throughout America. Dr. Jarrett organized VEN as a holding company to
facilitate ownership and management in the areas of environmental services,
and products, telecommunications, financial services, Electronic Commerce and
technology.
Dr. Jarrett's experience includes the founding of HLJ Management Group,
Inc., in 1979, to perform Total Base Operations for predominantly military
bases. As President and owner of HLJ for over 18 years, he led this firm from
virtually a one-person operation to employ and manage over 500 personnel.
Dr. Jarrett's experience also includes providing international subcontracting
operations in Kuwait for the Log Cap Program with Brown and Root
International. Dr. Jarrett's educational background includes a Doctorate of
Ministry for the University of Central America, Doctorate of Divinity, from
the Springhill Theological Seminary, Hartford Connecticut and a Doctorate of
Humane Letters from Shaw University, Raleigh, North Carolina. Dr. Jarrett is
the brother of Donald W. Jarrett and Belinda J. Jarrett.
THOMAS P. DOLAN, Executive Vice President and Director. Mr. Dolan has
over 16 years of experience in investment banking and was employed with
various responsibilities by investment and commercial banks such as First
Boston Corp., New York, and Banque Nationale de Paris, London and Paris. His
professional background includes structured bond trading, structured
proprietary risk arbitrage trading, risk management, strategic investment
management for internal trust departments. Mr. Dolan has over 10 years of
international experience overseas and worked in major financial centers
including, New York, London, Paris and Chicago.
Mr. Dolan has served as a director of USE from April 18, 1997, to
present. He served as Secretary of the Company from April 18, 1997, to April
20, 1999. Mr. Dolan has served as Executive Vice President since October 1998
and Chief Operating Officer since April 20, 1999.
BELINDA J. JARRETT, Secretary/Treasurer. Ms. Belinda J. Jarrett served
as President of Applied Management and Services, Inc. for over 12 years. Ms.
Jarrett has a Master's degree in Business Administration and Management from
Webster University. Ms. Jarrett formed a contracting firm and led it to gross
revenues of $6,000,000 during her tenure. This firm was rated for over three
years among the top twenty-five minority businesses in the Kansas City
Metropolitan area. In November 1992, Ms. Jarrett was awarded Kansas City's
Businesswoman of the Year for her outstanding accomplishments.
Ms Jarrett served as the Director of Data
Processing and Management Information Systems for HLJ Management Group,
Inc., during the period 1980 to
1984. Ms. Jarrett is the sister of Donald W. Jarrett and Dr. Hyman L.
Jarrett, Sr.
All directors hold office until the next annual meeting of stockholders
of the Company and thereafter until their successors are chosen and qualified.
All officers hold office at the selection and choice of the Board of
Directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
As April 18, 1997, based upon a review of Forms 3,4 and 5 and amendments
thereto, the company has
ascertained that Kilgarvan Investment & Holding Company which at that time
held 51% of the outstanding
shares of the Company common stock had not filed the requisite disclosure forms.
Subsequently, after the change of control on April 23, 1999, based upon a
review of Forms 3,4 and 5
and amendments thereto, the company has ascertained that the Virtual
Empowerment Network, Inc. which
currently holds 83% of the outstanding shares of the Company common stock has
not filed the requisite disclosure forms.
ITEM 10. EXECUTIVE COMPENSATION
(A) General
-------
During the fiscal years ended September 30, 1995-1998 the Company had no
employment contracts with employees or management. Members of the Board of
Directors were compensated for their efforts with shares of the Company's
common stock as outlined in the following table:
(b) Summary Compensation Table
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S> <S>
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Other Securities All
and Annual Annual Restricted Underlying LTIP Other
Principal Compen- Compen- Stock Options/SARs Payouts Compen-
Position Salary Bonus sation sation Award(s) (#) ($) sation
($) ($) ($) ($) ($)
0 0 0 0 0 0 0 0 0
- ---------- ------ ----- ------- ------- ---------- ------------ -------- ----------
</TABLE>
<PAGE>
(c) Option/SAR Grants Table - not applicable
(d) Aggregated Option/SAR Exercise and FY-End Options/SAR Values -
not applicable
(e) Long-Term Incentive Plan ("LTIP") Awards Table - not applicable
(f) Compensation of Directors
Company Directors did not receive any cash compensation for their
services during the fiscal years ending September 30, 1995-1997.
(1) Standard Arrangement
The members of the Board of Directors received 10,000 shares annually for
serving as directors and 12,000 shares for every attended meeting of the
board.
(g) Employment Contracts and Termination of employment and
Change-in-Control Arrangements
On April 27, 1999, the Company entered into a "Management Agreement"
with Dolan Co., Inc. Under the terms of this agreement, Dolan Co. is providing
support for general management and operations for the St. Petersburg office.
(h) Report on Pricing of Options/SARs - not applicable
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of September 30, 1997 certain
information with regard to the record and beneficial ownership of the
company's Common Stock by (a) each shareholder owning of record or
beneficially 5% or more of the Company's Common Stock:
(a) Security Ownership of Certain Beneficial Owners (September 30, 1997)
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Kilgarvan Investment & 81,379,500 41.290%
Holding, Ltd.
4th Floor, Dollard House
Wellington Quay
Dublin 2
Ireland
Chatsworth Asset Management 14,291,981 7.252%
Oceanic House
100 Duke Street
Grand Turk and Caicos Islands,
B.W.I.
<PAGE>
(b) Security Ownership of Management (September 30, 1997)
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Max Schmid 4,212,000 2.138%
60 Woodglen Court
Oldsmar, FL 34677
Thomas P. Dolan 14,181,519 7.197%
19450 Gulf Blvd.
Apt. 304
Indian Shores, Florida
33785
Robert W. Lewis Jr. 9,441,125 4.791%
204 43rd. Avenue
St. Pete Beach, Florida
33706
All officers and Directors as a group (3 persons) 14.125%
On January 15, 1999 the Company entered into an agreement with Virtual
Empowerment Network, Inc. (VEN) a Kansas corporation wherein VEN agreed to
purchase shares equaling 83% of the outstanding shares of USE after the
purchase. As a condition to closing this agreement, USE undertook a one share
for one hundred shares reverse stock split on March 25, 1999.
The following tables set forth as of April 23, 1999, after the reverse
stock split, closing of the VEN agreement, and election of new directors,
certain information with regard to the record and beneficial ownership of the
company's Common Stock by (a) each shareholder owning of record or
beneficially 5% or more of the Company's Common Stock:
(a) Security Ownership of Certain Beneficial Owners (April 23, 1999)
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Virtual Empowerment Network, 9,620,842 83.000%
Inc.
8200 State Avenue
Kansas City,
Kansas 66112
Kilgarvan Investment & 813,795 7.021%
Holding, Ltd.
4th Floor, Dollard House
Wellington Quay
Dublin 2
Ireland
(b) Security Ownership of Management (April 23, 1999)
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Donald W. Jarrett 9,620,842 (1) 83.000%
Hyman L. Jarrett Sr. 9,620,842 (1) 83.000%
Belinda J. Jarrett 9,620,842 (1) 83.000%
Thomas P. Dolan 141,816 1.223%
6145 Sun Blvd.
Apt. b202
St. Petersburg, Florida
33715
All officers and Directors as a group (4 persons) 84.223%
(1) Beneficially owned by virtue of control of Virtual Empowerment
Network, Inc., located at 8200 State Avenue, Kansas City, Kansas 66112.
(c) Changes in Control
Please see Item 12.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Swiss American Capital Management, Inc., Financing Agreement
- ------------------------------------------------------------
On November 20, 1996, 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 granted 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 provided SwissAm with all relevant
project related information and allowed SwissAm a 90-day period for evaluation
as to whether it was 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.
<PAGE>
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. In April 1998 the company entered into an agreement
to amend the Finance Agreement whereby the ownership rights for the first five
plants were reverted back to the company for 10,000,000 shares of common
stock. In July 1998 a further agreement was entered into reverting all
ownership rights of plants back to the company for an additional 10,000,000
shares of common stock.
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.
Swiss American Capital Management, Inc., Management Agreement
- -------------------------------------------------------------
On April 18, 1997, the Company entered into a "Management Agreement"
with Swiss American Capital Management, Inc. (SwissAm). Under the terms of
this agreement, SwissAm is providing support for general management and
operations including budgeting, accounting and control systems, reporting,
regulatory compliance, sales and marketing efforts and provide specialized
expertise through its duly licensed and competent personnel.
SwissAm also provides the Company with office space and logistics such
as computers, communications equipment etc. The Company owed $402,000 in
management fees to this related company which was settled in an agreement for
60,000,000 shares of common stock. This agreement was terminated on April 23,
1999.
Kilgarvan Investment & Holding Company, Limited
- -------------------------------------------------
On May 7, 1997, Registrant issued 30,447,394 shares of its common stock
to Kilgarvan Investment & Holding Company, Limited ("Kilgarvan") in a private
placement, for $326,000. The purchase of these shares, combined with
Kilgarvan's prior stock purchases was approximately $977,000. Kilgarvan
controlled approximately 52% of the outstanding shares of Registrant's common
stock, and had anti-dilution rights for up to 100,000,000 shares.
Kilgarvan's additional investment was made at a time which Registrant
had no revenues and its debts were in excess of its assets. In connection
with this funding, all members of the prior Board of Directors, as well as all
of the officers of Registrant resigned except Mr. Max Schmid. The Board of
Directors of Registrant now consisted of Max Schmid, Thomas Dolan and Robert
Lewis, each of whom was also affiliated with Swiss American Capital
Management, Inc. The new Board of Directors then elected the following
officers: Max P. Schmid, President; Thomas P. Dolan, Secretary; Robert W.
Lewis, Treasurer and Chief Financial Officer.
Virtual Employment Network, Inc. Agreement
- ------------------------------------------
On January 15, 1999 the Company entered into an agreement with Virtual
Empowerment Network, Inc. (VEN) a Kansas corporation wherein VEN agreed to
purchase shares equaling 83% of the outstanding shares of USE after the
purchase. In consideration for the issuance of the shares, VEN agreed to
negotiate, secure and assign to USE, with full rights, contracts in the
aggregate amount of $5,000,000, whereby USE will receive not less than
$5,000,000 in gross revenues during a five year period after the April 23,
1999 date of the VEN Agreement. The assignment of such contracts is to occur
within one year of the Company's ability to perform under such contracts. As
further payment for the shares being purchased by VEN, it agreed to a series
of loans to provide for payment of the Company's outstanding accounts payable
and to provide working capital for the next year. VEN had loaned $145,237 to
USE as of August 4, 1999.
VEN is a minority-owned, for profit, development stage company with
principal offices in the State of Kansas, organized to promote economic
empowerment, business development and financial resources in urban communities
throughout America. VEN was formed as a holding company to facilitate
ownership and management in the areas of construction, telecommunications,
financial services, insurance, environmental services and products, and
acquisition and development of real estate and businesses. It will conduct
these business activities through several autonomous subsidiaries.
In the event VEN is unable to provide the $5,000,000 in contracts, then
the outstanding loans from VEN to USE will be forgiven.
One of the conditions imposed by VEN with respect to the purchase of the
USE shares was that prior to closing on the VEN Agreement, the Company would
undergo a one share for one hundred shares reverse stock split. On March 25,
1999, each share of Common Stock issued and outstanding was automatically
reclassified and converted into one one-hundredth of a share of Common Stock,
with fractional shares to be rounded up to the next full share. The
authorized shares were then set at 100,000,000.
On April 23, 1999, at closing of the agreement, VEN was issued 9,620,842
shares of common stock, so that the total issued shares of common stock
post-closing was approximately 11,591,376 shares of common stock. Under the
terms of the agreement VEN's shares are being held by an escrow agent to be
released when VEN has fulfilled its responsibilities under the VEN Agreement.
After the closing, Max P. Schmid, Chairman of the Board and President
and Robert W. Lewis Jr., Chief Financial Officer resigned. The Board of
Directors appointed Dr. Hyman L. Jarrett Sr. and Donald W. Jarrett as
directors, along with Thomas P. Dolan who will remain as a director. The
Board elected Dr. Hyman L. Jarrett Sr. as Chairman of the Board. The Board of
Directors appointed Donald W. Jarrett as Acting President, Thomas P. Dolan,
Executive Vice President and Chief Operating Officer, and Belinda J. Jarrett
as Secretary/Treasurer.
<PAGE>
Dolan Co. Management Agreement
- ------------------------------
On April 27, 1999, the Company entered into a "Management Agreement"
with Dolan Co., Inc. Under the terms of this agreement, Dolan Co. is providing
support for general management and operations for the St. Petersburg office.
Thomas P. Dolan, Executive Vice President, Chief Operating Officer and
Director, is the sole owner and employee of Dolan Co., Inc.
The agreement provides that Dolan Co. is to be paid monthly at a rate of
$6,000 for April 1999 and beginning May 1, 1999 at a rate of $7,000 per month,
exclusive of any option or incentive programs.
The current terms and conditions of the agreement are being negotiated
as of the date of filing of this 10-KSB.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
DOCUMENTS FILED AS PART OF THIS REPORT
- --------------------------------------
Financial Information
See Index to Financial Statements on Page F-1
Financial Statement Schedules
Supplemental schedules are omitted because they are not required,
inapplicable or required information is shown in the financial
statements or notes thereto.
Exhibits
--------
3.1* Certificate of Incorporation of Company (Exhibit to Registrant's
Form S-18 Registration Statement, SEC File No. 33-95969NY)
3.2* Amended Certificate of Incorporation of Company (Exhibit to
Registrant's Form S-18 Registration statement, SEC File No.
33-95969NY)
3.3* By-Laws of the Company (Exhibit to Registrant's Form S-18
Registration Statement, SEC File No. 33-95969NY)
3.4* Acquisition Agreement between Windfall Capital Corp. and the
Company (Exhibit to Registrant's Form S-18 Registration Statement,
SEC File No. 33-95969NY)
3.5** Amendment to the Certificate of Incorporation, effective April 3,
1998
3.6** Amendment to the Certificate of Incorporation, dated March 1, 1999
10.1* Amended and Restated Technology License Agreement between the
Company and Geotech Development Corporation, et al, dated October
13, 1989 (Exhibit to Registrant's Form S-18 Registration Statement,
SEC File No. 33-95969NY)
10.2* First Supplement to Amended and Restated Technology License
Agreement between Company and Geotech Development Corporation, et
al, dated October 16, 1989 (Exhibit to Registrant's Form S-18
Registration Statement, SEC File No. 33-95969NY)
10.3* The Acquisition of U.S. Waste Conversion International, Inc.
(formerly Windfall Capital Corp.)(Incorporated by reference on Form
8-K filed on October 18, 1989)
10.4* Agreement of Sale between Registrant and Frank Franza regarding the
"Metal Separation Patent" (Incorporated by reference on Form 10-Q
for quarter ended March 31, 1990)
10.5* Purchase Agreement between the Registrant and Geotech Development
Corporation regarding Niagara Falls Demonstration Plant
Incorporated by reference on Form 8-K on May 31, 1990)
10.6* Second Supplement to "Amended and Restated License Agreement"
between the Registrant and Geotech Development Corporation dated
May 31, 1990 (Incorporated by reference on Form 8-K on May 31,
1990)
10.7* Asbestos Guard International License Agreement dated December 24,
1990 between the Registrant and Asbestos Guard International Joint
Venture (Incorporated by reference on Form 10-Q for quarter ended
December 31, 1990)
10.8* Carl Massara Agreement (Incorporated by reference on Form 10-Q for
quarter ended March 31, 1991)
10.9* Amendment to Purchase Agreement (Incorporated by reference on Form
10-Q for quarter ended June 30, 1991)
10.10* Third supplement to "Amended and Restated License Agreement"
between the Registrant and Geotech Development Corporation dated
October 18, 1991 (Incorporated by reference on Form 10-K for fiscal
year ended September 30, 1991)
10.11* Agreement dated December 9, 1991 between the Registrant and "Noel
Drago and Associates (Incorporated by reference on Form 8-K filed
November 9, 1992)
10.12* Agreement leading to "Change of Control" dated September 22, 1992
modifying the agreement dated December 9, 1991 (Incorporated by
reference on Form 8-K filed on November 9, 1992)
10.13* Agreements for restructuring and/or satisfaction of outstanding
"Convertible Notes" (Incorporated by reference on Form 10-Q for
quarter ended June 30, 1993)
10.14* Fourth Supplement to Amended and Restated License Agreement between
the Registrant and Geotech Development Corporation effective
September 30, 1995.
10.15* "Management and Service Fee Agreement" between Registrant and
Geotech Development Corporation dated October 1, 1995
10.16* "Joint Venture Agreement" between Registrant and Tully Construction
Company dated June 4, 1996
10.17* Subscription Agreement for the purchase of shares of Company Common
Stock between Registrant and Kilgarvan Investment & Holding, Ltd.,
an outside investor, leading to change of control, reorganization
of Board of Directors and appointment of new Executive Officers of
Registrant (Incorporated by reference on Form 8-K filed on May 9,
1997)
10.18* Subscription Agreement for the purchase of Company Common Stock
between Registrant and Commodity Trade, Ltd., an outside investor,
dated November 20, 1996
10.19* "Financing Agreement" between Registrant and Swiss American Capital
Management, Inc. dated February 1, 1997
10.20* "Management Agreement" between Registrant and Swiss American
Capital Management, Inc. date April 18, 1997.
10.21* "Satisfaction and/or conversion of Long-Term Debt" between
Registrant and Ernie Micciche, and Louis and Maria Sepe, both dated
September 29, 1997.
10.22** "Amendment to the Finance Agreement" between Swiss American Capital
Management, Inc and Registrant.
10.23** Agreement between Swiss American Capital Management, Inc and
Registrant concerning settlement of management fees and finance
agreement
16.1* Change of certifying accountant (Incorporated by reference on Form
8-K filed July 29, 1997)
24.1* Irrevocable Proxy between Registrant and Louis Sepe dated September
29, 1997
- --------------------------------------
* - Previously filed
** - Filed herewith
(b) Reports on Form 8-K
-------------------
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
U.S. ENVIRONMENTAL, INC.
(Registrant)
Date: August 11, 1999
/s/ Thomas P. Dolan
--------------------------------
Thomas P. Dolan
Chief Operating Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
U.S. ENVIRONMENTAL, INC.
(Registrant)
Date: August 11, 1999
/s/ Hyman L. Jarrett
-----------------------------
Dr. Hyman L. Jarrett, Director
/s/ Thomas P. Dolan
------------------------------
Thomas P. Dolan, Director
/s/ Donald Jarrett
------------------------------
Donald Jarrett, Director
EXHIBIT 3.5
AMENDED CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
(DEL) U.S. ENVIRONMENTAL, INC.
(DEL) U.S. ENVIRONMENTAL, INC., organized and existing under the General
Corporation Laws of the State of Delaware (the "Corporation"), does hereby
certify:
FIRST: That the Board of Directors of the Corporation, at a meeting
called for such purpose, duly adopted resolutions setting forth the proposed
amendment to the Certificate of Incorporation of the Corporation and calling
for the submission of the proposed amendment to a vote of the stockholders of
the Corporation, for their approval and adoption. The resolution setting
forth the proposed amendment is as follows:
"RESOLVED, that the Corporation amend its certificate of
incorporation so that:
ARTICLE FOURTH of the certificate of incorporation shall read as
follows:
'FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is Two Hundred Million
(200,000,000), and the par value of each of such shares is $.0001.
SECOND: That the holders of a majority of the outstanding shares of
common stock of the Corporation, by written consent dated February 26, 1998,
did duly adopt said amendment proposed by the Board of Directors. Notice,
pursuant to Section 228(d) of the Delaware General Corporation Laws, of the
taking of such corporate action without a meeting was duly provided to the
shareholders who did not consent in writing.
THIRD: This amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Laws.
FOURTH: This amendment shall become effective on April 3, 1998.
IN WITNESS WHEREOF, the undersigned has caused its corporate seal to be
affixed hereto and this Certificate to be executed by its President and
attested by its Secretary, this 9th day of March, 1998.
(DEL) U.S. ENVIRONMENTAL, INC.
/S/ THOMAS P. DOLAN /S/ MAX P. SCHMID
Attest: Thomas P. Dolan, Secretary By: Max P. Schmid, President
C:\ELINK\FILING\0998use.10k
<PAGE>
EXHIBIT 3.6
AMENDED CERTIFICATE OF INCORPORATION
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
(DEL) U.S. ENVIRONMENTAL, INC.
(DEL) U.S. ENVIRONMENTAL, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of the Corporation, at a meeting
called for such purpose, duly adopted resolutions setting forth the proposed
amendment to the Certificate of Incorporation of the Corporation and calling
for the submission of the proposed amendment to a vote on the stockholders of
the Corporation, for their approval and adoption. The resolution setting
forth proposed amendment is as follows:
RESOLVED, that the Corporation amend its Certificate of Incorporation so
that:
ARTICLE 4 of the Certificate of Incorporation shall read as follows:
IV.
Effective March 25, 1999, the outstanding shares of Common Stock shall
be and hereby are combined and reclassified as follows: each share of Common
Stock shall be reclassified as and converted into one one-hundredth of a share
of Common Stock, with fractional shares to be rounded up to the next full
share.
Certificates representing shares combined and reclassified as provided
in this Amendment to the Certificate of Incorporation are hereby canceled,
and, upon presentation of the canceled certificates to the Corporation, the
holders thereof shall be entitled to receive new certificates representing
the shares resulting from such combination and reclassification.
After the above combination and reclassification, the Corporation shall
be authorized to issue one class of shares to be designated as Common Stock.
The total number of shares of stock which the Corporation shall have authority
to issue shall be One-Hundred Million (100,000,000) shares, each having a par
value of $.0001 (the "Common Stock").
SECOND: That the holders of a majority of the outstanding shares of
common stock of the Corporation did duly adopt said amendment proposed by the
Board of Directors, by consent dated December 18, 1998.
THIRD: That these amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Laws.
The undersigned hereby acknowledges that the foregoing Certificate of
Incorporation is his act and deed and that the facts stated herein are true.
/S/ MAX SCHMID
Max Schmid
President and Chief Executive Officer
/S/ THOMAS P. DOLAN
Attest: Thomas P. Dolan, Secretary
Dated: March 1, 1999
<PAGE>
EXHIBIT 10.22
"Amendment to the Finance Agreement" between Swiss American
Capital Management, Inc and Registrant.
AMENDMENT TO FINANCE AGREEMENT, Dated November 20, 1996
-------------------------------------------------------
THIS AGREEMENT, made as of this 27 day of February, 1998, between (DEL)
U.S. Environmental, Inc., a Delaware corporation, hereinafter called
"Company", and Swiss American Capital Management, Inc., a Florida corporation
qualified to do business in Florida ("Financier").
WITNESSETH:
WHEREAS, Company desires to amend Finance Agreement with Financier dated
November 20, 1996.
WHEREAS, Financier shall reassign all ownership rights to the projects to
be financed by Financier as stipulated in the Finance Agreement dated November
20, 1996 for the first five projects to Company, thereafter the ownership
rights shall be 50:50 for all subsequent projects where finance is arranged
under the terms of said agreement;
WHEREAS, Financier shall retain the "right of first refusal' to arrange
financing as stipulated in Finance Agreement;
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, Company and Financier agree as follows:
1. Consideration. Company will issue Financier, or its assigns
10,000,000 shares of Common Stock (Par Value .0001) in the Company for
reassigning the rights under the Finance Agreement dated November 20, 1996 for
the first five projects to Company. The shares shall bear restricted legends
for the period of one year. Upon the signing of a contract for the sale of
the first vitrification plant and/or system the Company will issue a further
10,000,000 shares of Common Stock (Par Value .0001) of the Company to the
Financier.
2. Issuance of Shares. Upon execution of this Agreement, the
Company will issue to Financier or its assigns 10,000,000 shares of Common
Stock of the Company. The Company will reserve a further 10,000,000 shares of
Common Stock of the Company to be issued upon the signing of a contract for
the first the sale of the first vitrification plant and/or system.
3. Governing Law. This Agreement has been executed and delivered and
its terms and provisions are to be governed and construed by the laws of the
State of Florida.
4. Binding Effect. This Agreement shall be binding upon and shall
insure to the benefit of the respective parties hereto and their respective
heirs, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed the day and year first above written.
WITNESSES: COMPANY:
(DEL) U.S. ENVIRONMENTAL, INC., A
Delaware corporation
/s/ Robert W. Lewis, Jr. /s/ illegible
- ----------------------------- By: ------------------------------
Print Name: Robert W. Lewis, Jr. Its: -----------------------------
- -----------------------------
Print Name: ----------------
Financier:
SWISS AMERICAN CAPITAL
MANAGEMENT, INC., a Florida corp.
/s/ Robert W. Lewis, Jr. /s/ Thomas P. Dolan
- ----------------------------- By: ------------------------------
Print Name: Robert W. Lewis, Jr. Its: President
- -----------------------------
Print Name: ----------------
<PAGE>
EXHIBIT 10.23
Agreement between Swiss American Capital Management, Inc and
Registrant concerning settlement of management fees and finance agreement
AGREEMENT
This Agreement is made and entered into on the 7th day of July, 1998, by
and between (DEL) U.S. ENVIRONMENTAL, INC. ("Company"), and Swiss American
Capital Management, INC. ("Manager").
WITNESSETH:
WHEREAS, Manager is owed the principal amount of $402,000 for services
provided during the Fourth Quarter 1997 and the First and Second Quarter of
198 under the Management Agreement dated April 18, 1997.
WHEREAS, the Company wishes to pay the outstanding debt and Manager has
agreed to receive shares in Company to fulfill this obligation.
WHEREAS, Manager is entitled to fees for structuring project finance for
Company.
WHEREAS, the Company wishes to cancel the project finance fees and
Manager has agreed to receive shares in Company to fulfill this obligation.
WHEREAS, the Company agrees to issue Manager 60,000,000 (Sixty Million)
shares of its common stock in to fulfill its obligation to Manager.Issue Price
(Par value $.0001).
NOW THEREFORE, in consideration of the mutual promises herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. Cancellation of Debt and Fees. Upon execution of this Agreement, Manager
will cancel $402,000 in debt and any rights to fees for arranging project
finance.
2. Execution of Agreement. Upon execution of this Agreement the Company will
issue 60,000,000 restricted shares to Manager or its assigns for satisfaction
of debt and services rendered by Manager to the Company.
3. Release. Except for the obligations as set forth in Sections 1 and 2 of
this Agreement, Manager does hereby and by these presents, for itself, its
successors and assigns, fully remise, release, acquit and forever discharge
the Company its successors and assigns, of any and all rights, claims,
demands, actions and causes of action of any nature whatsoever, whether
arising at law or in equity, by reason of any matter, cause, happening or
thing from the beginning of time occurring prior to and including the date of
this Agreement.
July 7, 1998 Agreement between U.S. Environmental and Swiss American Capital
Management, Inc. 1
<PAGE>
4. Governing Law. This Agreement has been executed and delivered and its
term and provisions are to be governed and construed by the laws of the State
of Florida.
5. Binding Effect. This Agreement shall be binding upon and shall insure to
the benefit of the respective parties hereto and their respective heirs,
personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed the day and year first above written.
MANAGER: COMPANY:
SWISS AMERICAL CAPITAL (DEL) U.S. ENVIRONMENTAL, INC.
MANAGEMENT, INC.
/s/ Thomas P. Dolan /s/ Max Schmid Max Schmid
Title: President Title: President
------------------ ---------------------
July 7, 1998 Agreement between U.S. Environmental and Swiss American Capital
Management, Inc. 2
[ARTICLE] 5
[CIK] 0000844010
[NAME] (DEL) U.S. ENVIRONMENTAL, INC.
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] SEP-30-1998
[PERIOD-END] SEP-30-1998
[CASH] 73
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 18,056
[PP&E] 250,478
[DEPRECIATION] 31,049
[TOTAL-ASSETS] 817,715
[CURRENT-LIABILITIES] 417,607
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 185
[OTHER-SE] 381,923
[TOTAL-LIABILITY-AND-EQUITY] 817,715
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 801,159
[OTHER-EXPENSES] 547,115
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 16,501
[INCOME-PRETAX] (1,364,775)
[INCOME-TAX] 0
[INCOME-CONTINUING] (1,364,775)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (1,364,775)
[EPS-BASIC] (1.31)
[EPS-DILUTED] (1.31)
</TABLE>
