SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the nine month period ended - July 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------------- ------------------
Commission file number 0-25312
STARTECH ENVIRONMENTAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1286576
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
79 Old Ridgefield Road
Wilton, Connecticut 06897
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(Address of principal executive offices) Zip Code
203/762-2499
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------- -------
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Outstanding at September 10, 1998
------------------- ---------------------------------
Common Stock - No Par 6,846,465
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Unaudited Financial Statements
Balance Sheet - July 31, 1998 (unaudited)
and October 31, 1997 (audited) 3
Statement of Operations for the quarters and nine months
ended July 31, 1998 and 1997 ( unaudited) 4
Statement of Cash Flows for the nine months ended
July 31, 1998 and 1997 (unaudited) 5
Statement of Cash Flows for the three months ended
July 31, 1998 and 1997 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a
Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 11
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2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STARTECH ENVIRONMENTAL CORPORATION
BALANCE SHEET
July 31, October 31,
ASSETS 1998 1997
---------- -----------
Current Assets:
Cash and cash equivalents $ 282,957 $ 1,195,703
Accounts receivable 399,469
Inventory 165,353
Other current assets 96,599 37,961
----------- -----------
Total Current Assets 944,378 1,233,664
Fixed Assets:
Equipment 18,276
Accumulated depreciation (2,345)
-----------
Fixed assets - net 15,930
-----------
Other Assets 100,000
-----------
Total assets $ 960,308 $ 1,333,664
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 319,913 $ 20,393
Investor deposits 805,102
Notes payable - short term 100,000 100,000
Other accrued expenses 28,000 43,262
----------- -----------
Total Current Liabilities 447,913 968,757
----------- -----------
Stockholders' equity:
Preferred stock, no par value
10,000,000 shares authorized,
no shares issued or outstanding
Common stock, no par value,
800,000,000 shares authorized;
shares issued and outstanding:
6,844,465 at July 31, 1998 and
6,889,193 at July 31, 1997 2,598,606 1,634,962
Additional paid-in capital 300 300
Deficit accumulated during the
development stage (2,086,512) (1,270,355)
----------- -----------
Total Stockholders' Equity 512,394 364,907
----------- -----------
Total liabilities and
stockholder's equity $ 960,308 $ 1,333,664
=========== ===========
See notes to financial statements
3
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
July 31, 1998 July 31, 1997 July 31, 1998 July 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 448,972 $ 0 $ 485,972 $ 10,000
Cost of sales 208,997 0 208,997 0
----------- ----------- ----------- -----------
Gross profit 239,975 0 276,975 10,000
----------- ----------- ----------- -----------
Operating expenses:
Selling expense 5,807 26,406 126,646 83,542
General and administrative expense 236,146 188,982 665,566 506,106
----------- ----------- ----------- -----------
Total operating expense 241,953 215,388 792,212 589,648
----------- ----------- ----------- -----------
Loss from operations (1,978) (215,388) (515,237) (579,648)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 5,985 9,574 21,325 22,734
Interest expense (2,250) (1,500) (7,500) (6,000)
----------- ----------- ----------- -----------
Total other income (expense) 3,735 8,074 13,825 16,734
----------- ----------- ----------- -----------
Income tax expense 0 0 0 550
----------- ----------- ----------- -----------
Net income (loss) $ 1,757 ($ 207,314) ($ 501,412) ($ 563,464)
=========== =========== =========== ===========
Net income (loss) per share $ 0.00 ($ 0.03) ($ 0.07) ($ 0.09)
=========== =========== =========== ===========
Weighted average common
shares outstanding 6,846,465 6,889,193 6,903,994 6,859,256
=========== =========== =========== ===========
See notes to financial statements
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS (unaudited)
Nine Months Nine Months
Quarter Ended Quarter Ended Ended Ended
July 31, 1998 July 31, 1997 July 31, 1998 July 31, 1997
------------- ------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $ 1,757 ($ 207,314) ($ 501,412) ($ 563,464)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 1,226 0 2,345 0
(Increase) decrease in accounts receivable (362,469) 0 (399,469) 0
Increase in inventory (65,353) 0 (65,353) 0
(Increase) decrease in other current assets (15,408) (5,300) (31,266) (27,110)
Decrease in other assets 48,497 0 48,497 0
Increase (decrease) in current liabilities:
Accounts payable 224,889 11,193 252,746 (7,012)
Accrued expenses 2,250 (4,500) 7,105 6,000
----------- ----------- ----------- -----------
Net cash used in operating activities (164,611) (205,921) (686,807) (591,586)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of equipment (4,851) 0 (18,276) 0
----------- ----------- ----------- -----------
Net cash used by investing activities (4,851) 0 (18,276) 0
----------- ----------- ----------- -----------
Cash flows from financing activities:
Subscription of common stock 0 105,000 0 525,102
Proceeds from issuance of common stock, net 0 7,990 0 981,418
----------- ----------- ----------- -----------
Net cash provided from financing activities 0 112,990 0 1,506,520
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (169,462) (92,931) (705,083) 914,934
Cash and cash equivalents at beginning of period 452,419 1,288,634 988,040 280,769
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 282,957 $ 1,195,703 $ 282,957 $ 1,195,703
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
Cash paid during the period for income taxes $ 2,650 $ 0 $ 4,442 $ 0
=========== =========== =========== ===========
See notes to financial statements
5
</TABLE>
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
STARTECH Environmental Coloration (the "Company") is engaged in the
commercialization and continued development of an innovative processing
technology for recycling industrial wastes.
Net profit (loss) per share is determined by dividing net loss by the average
number of common shares outstanding during the period. Common share equivalents,
which consist of stock which may be issuable upon exercise of outstanding stock
options or warrants, have been excluded from the average number of common shares
since their effect is anti-dilutive.
Certain reclassifications have been made for consistent presentation. The
reclassifications have no effect on the net profit (loss) for the period ended
July 31, 1998.
The information furnished is unaudited and reflects all adjustments (consisting
of only normal recurring and insignificant adjustments) which, in the opinion of
management, are necessary for a fair presentation of the financial position and
results of operations for the interim periods. The accompanying financial
statements should be read in conjunction with the Company's financial statements
and related footnotes for the year ended October 31, 1997 which are included in
the Company's annual report on form 10-K. The results of operations for the nine
months ended July 31, 1998 do not necessarily indicate the results to be
expected for the full year.
Note 2. Equity Transactions
During the quarter ended July 31, 1998, there were a total of 2,000 shares of
S-8 stock issued to vendors for services rendered.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
- ---------------------
1998 vs 1997
- ------------
For the first nine months of 1998 the Company earned $485,972 and for the same
period in 1997 the Company earned $10,000 in revenue. Operating expenses were
$241,953 in the quarter ended July 31, 1998 and $792,212 for nine months ended
July 31, 1998 compared with $215,388 in the quarter and $589,648 for the nine
months a year ago. The nature of the operating expenses continue to be primarily
for selling, demonstration and general and administrative purposes.
The Registrant was incorporated under the laws of the State of Colorado in May
1991. During fiscal 1996, the Registrant entered into negotiations with Startech
Corporation ("Startech")which culminated in the acquisition of Startech on
November 17, 1995.
Liquidity and Capital Resources
- -------------------------------
The Registrant is and will continue to be dependent upon capital contributions
from shareholders or outside investors for its operating capital. The
Registrant's capital resource requirements for future periods will increase due
to increased manufacturing, marketing and administrative demands. These needs
are anticipated to be met from operations of the Registrant's normal business
activity and the sales backlog
Background
- ----------
The Registrant's activities during the past three fiscal years (November 1, 1992
to November 16, 1995) consisted primarily of investigating possible business
opportunities.
On November 17, 1995, the Company completed the acquisition of all of the issued
and outstanding shares of common stock of Startech Corporation, a corporation
organized under the laws of the State of Connecticut which engineers,
manufacturers and markets Plasma Waste ConverterTM ("PWC") systems to recover,
recycle, reduce and remediate hazardous and nonhazardous waste materials.
On November 17, 1995, the Board of Directors of the Company unanimously approved
a change of business purpose of the Company from one seeking an acquisition
candidate to one engaged in the business of manufacturing equipment that
recovers, recycles, reduces and remediates hazardous and nonhazardous waste
materials.
7
<PAGE>
General
- -------
Startech is an environmental technology corporation engaged in the
commercialization and continued development of its Plasma Waste ConverterTM
("PWC") systems for the recycling, resource recovery, reduction and remediation
of hazardous and nonhazardous organic and inorganic materials and wastes
including radioactive wastes.
The Startech Plasma Waste Converter is a closed-loop recycling system that
converts materials formerly regarded as hazardous wastes into useful commodity
products. The hazardous waste can be organic and inorganic, in the form of a
gas, liquid, and solids or any combination thereof. Waste volume reductions
higher than 300 to 1 have been demonstrated. Depending on the waste processed,
the principal commodities produced by the system are a synthetic gas called PCG
(Plasma Converted Gas)TM, metals, and an obsidian-like inert silicate stone. The
PCG can be used as a chemical feed stock to produce polymers and other common
industrial products, as a fuel to produce electricity, as a fuel source for fuel
cells, as a heating plant fuel to reduce the cost and reliance on fossil fuels,
and in desalinization applications to produce fresh water for irrigation and
drinking. The metals can be employed in the metallurgical industry. The stone
silicates can be employed in the abrasives industry, and as an aggregate
material for construction industry applications.
8
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
The company and it's Officers, individually and personally, except Leonard V.
Knap, are defendants in litigation brought in Bridgeport, Connecticut, USA
Federal Court, in February 1998 by John Easton of Canada. The complaint demands
payment for commissions and/or fees for services rendered to acquire the funds
needed to consummate the reverse acquisition, that occurred on November 17,
1995, of Startech Corporation by Kapalua Acquisitions, Incorporated (since
renamed to Startech Environmental Corporation). The proceedings are in their
preliminary stages. The company does not believe there is any merit to the claim
and will vigorously contest the matter. The company will file a counter claim
against Mr. Easton.
The company is a defendant in litigation brought in the Ontario Court of
Justice, Ontario, Canada, and was served notification of the complaint in August
1997. The complaint is a result of a third party action against one of the
company's shareholders. The third party, a stock brokerage, failed to follow
standard practice to verify a restrictive legend on the shareholder's stock
certificate; thus sold the shares and had to purchase them back at a loss. The
brokerage firm is seeking retribution for the loss from the shareholder and the
shareholder is seeking indemnification and/or contribution from the company. The
company does not believe there is any merit to the claim and will vigorously
contest the matter.
No legal proceedings are known to be contemplated by governmental authorities.
ITEM 2. CHANGE IN SECURITIES.
No constituent instruments defining the rights of the holders of any class of
registered securities of the Registrant have been materially modified. No rights
evidenced by any class of registered securities have been materially limited or
qualified by the issuance or modification of any other class of securities.
There are no working capital restrictions or other limitations upon the payment
of dividends except as reported in the Registrant's FORM 10.
9
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults in the payment of principal interest, a sinking or
purchase fund installments, or any other default not cured within thirty days,
with respect to any indebtedness of the Registrant or any of its significant
subsidiaries exceeding five percent (5%) of the total assets of the Registrant
and its consolidated subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the first nine months of the fiscal year
covered by this report to a vote of security holders.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports.
No reports on Form 8-K were filed for the quarter ended July 31, 1998.
10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1933, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARTECH ENVIRONMENTAL CORPORATION
Date: September 15, 1998 By: /S/ John D. Watts
------------------ ------------------------------------
John D. Watts
Executive Vice President of Finance
and Administration
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 282,957
<SECURITIES> 0
<RECEIVABLES> 399,469
<ALLOWANCES> 0
<INVENTORY> 165,353
<CURRENT-ASSETS> 944,378
<PP&E> 18,276
<DEPRECIATION> (2,345)
<TOTAL-ASSETS> 960,308
<CURRENT-LIABILITIES> 447,913
<BONDS> 0
0
0
<COMMON> 2,598,606
<OTHER-SE> 512,394
<TOTAL-LIABILITY-AND-EQUITY> 960,308
<SALES> 485,972
<TOTAL-REVENUES> 485,972
<CGS> 208,997
<TOTAL-COSTS> 792,212
<OTHER-EXPENSES> (21,325)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,500
<INCOME-PRETAX> (501,412)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (501,412)
<EPS-PRIMARY> 0.0
<EPS-DILUTED> 0.0
</TABLE>
