Registration No. 333-35786
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Amendment No. 1
To
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
STARTECH ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
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Colorado 84-1286576
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification
Number)
(Primary Standard Industrial
Classification Code Number)
3559
15 Old Danbury Road, Suite 203, Wilton, Connecticut 06897-2525
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(Address of principal executive offices including zip code)
(203) 762-2499
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(Registrant's telephone number, including area code)
Joseph F. Longo, President
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(Name of Agent for Service)
Copies to:
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Peter Landau, Esq. Kevin M. Black, Esq.
Foreht Last Landau Miller & Katz, LLP Sr. Vice President &
415 Madison Ave General Counsel
New York, NY 10017 Phone (203) 762-2499
Phone (212) 935-8880 Fax (203) 761-0839
Fax (212) 935-5554
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of the registration statement, as determined by market
conditions.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
................................................................................................................
Proposed Maximum
Title of Each Class Amount Aggregate Offering Proposed Maximum
Of securities To Be Price Per Aggregate Offering Amount of
Registered Registered (1) Share Price Registration Fee
................................................................................................................
<S> <C> <C> <C> <C>
Series A Convertible 284,250 $10.00 $2,842,500 $750.42
Preferred Stock Shares
................................................................................................................
Common Stock
Issuable upon
Conversion of
Series A
Convertible Preferred 710,625 $6.00(2) $4,263,750 $1,126.69
Stock Shares
................................................................................................................
Common Stock
Issued upon
Conversion of
Series A
Convertible Preferred 143,878 $13.50(3) $1,942,353 $512.78
Stock Shares
................................................................................................................
Warrants 396,464 NIL NIL NIL
CDA warrants 433,268 NIL NIL NIL
................................................................................................................
Common Stock
Issuable upon
Exercise of Warrants 396,464(5) $15.00(4) $5,946,960 $1,569.99
................................................................................................................
Common Stock
Issuable upon Exercise
of CDA Warrants 433,268(5) $7.00(4) $3,032,876 $800.38
................................................................................................................
Total $4,760.26
................................................................................................................
</TABLE>
(1) Represents the maximum number of securities that could be issued in the
transactions described in the registration statement.
(2) Based on the maximum conversion price of the Preferred Stock.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the high and low
closing sale price on June 29, 2000, as reported on the National
Association of securities Dealers' Over-The-Counter Bulletin Board a date
within five business days of the date of filing of the registration
statement.
(4) Based on the exercise price of the Warrants
(5) An indeterminate number of shares of Common and Preferred Stock that may
become issuable pursuant to the anti-dilution provisions of the Preferred
Stock and Warrants are also being registered pursuant to Rule 416.
The registrant hereby amends the registration statement on this date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1993 or until the registration statement shall become
effective on this date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this Preliminary prospectus is not complete and may be
changed. We cannot sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and it is not soliciting an offer to buy
these securities in any state where an offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED July 7, 2000
PROSPECTUS
STARTECH ENVIRONMENTAL CORPORATION
1,684,235 Shares of Common Stock
284,250 Shares of Series A Convertible Preferred Stock
396,464 Warrants
433,268 CDA Warrants
All of the shares of common stock and preferred stock and all of the
warrants being sold in this offering are for the accounts of selling security
holders. We will not receive any of the proceeds from the sale of shares of
common stock, preferred stock or warrants by the selling security holders. We
will receive the exercise prices with respect to the exercise of any warrants.
If all of the warrants and CDA warrants were exercised we could receive net
proceeds of approximately $8,979,836. See "Selling Security Holders".
The selling security holders may sell the shares of common stock, preferred
stock and warrants to or through underwriters, and also may sell them directly
to other purchasers or through agents from time to time in the over-the-counter
market. Sales may be made at fixed prices, which may be changed, negotiated
prices, or at market prices prevailing at the time of sale.
Our common stock is quoted on the National Association of Securities
Dealers Over-the-Counter Bulletin Board under the symbol STHK. At present, there
is no market for the preferred stock or the warrants and there is no assurance
that any market will develop.
On June 29, 2000 the average of the last bid and asked prices of our common
stock in the Over-the-Counter market as reported by the NASD was $9.50.
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Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 10"
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense. July , 2000
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Table Of Contents
Prospectus Summary .................................................... 5
Risk Factors .......................................................... 10
Forward-Looking Statements ............................................ 18
How We Intend to Use any Proceeds from this Offering .................. 18
Price Range of Common Stock ........................................... 18
Dividend Policy ....................................................... 19
Capitalization ........................................................ 20
Dilution .............................................................. 21
Selected Financial Data ............................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 23
Business .............................................................. 27
Management ............................................................ 38
Certain Transactions .................................................. 42
Principal Stockholder ................................................. 43
Selling Security Holders .............................................. 45
Plan of Distribution .................................................. 48
Description of Securities ............................................. 49
Shares Eligible for Future Sale ....................................... 52
Legal Matters ......................................................... 52
Experts ............................................................... 52
Where Can You Find More Information About Us .......................... 52
Index To Financial Statements ......................................... 54
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our company. You should read the entire prospectus
carefully, including risk factors, and our financial statements, before making
an investment decision.
Our Business
Startech Environmental Corporation manufactures and sells Plasma Waste
Converters. The Plasma Waste Converter is a system comprised of equipment used
to destroy all types of materials processed through the system. Material put
into the system can be either hazardous or nonhazardous. Our system is an
alternative to other forms of material and waste disposal systems currently
being used by government and industry. Our initial sales concentration is on
government agencies and private sector industries that have or produce, toxic or
hazardous wastes. Toxic or hazardous material placed into our system leaves the
system as a non-toxic or non-hazardous gas, silicate or metal end product. We
believe our system processes these materials in a safer and more economic way
than other available technologies. All end products exiting our system have the
potential for re-use or re-sale.
Customers will use our system for the processing and disposal of materials
and wastes. We sell the Plasma Waste Converter system and train the customer to
use it properly. We do not treat, store, dispose of, or transport waste.
Our Markets
Our primary target markets are government agencies and industrial
facilities, who are producing or are in possession of hazardous and
non-hazardous waste.
Our Strategy
Sales to government facilities and agencies are made principally by our
executives. Sales to industrial and non-governmental customers are made by
independent distributors and commissioned representatives. Our distributors
operate within a geographic area or a market segment. Our representatives are
not restricted to a geographic area or market segment.
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Our Company
We were incorporated in Colorado on May 1, 1991, as Kapalua Acquisitions,
Inc. At the time of our incorporation, we had no specified business plan, but
were instead a blind pool where by our common stock was sold to the public to
provide us with capital to be used to investigate and acquire an interest in one
or more business opportunities.
On November 17, 1995, we acquired all of the capital stock of Startech
Corporation, a private Connecticut company founded in 1994. The principal
shareholders of Startech Corporation were Joseph F. Longo our Chairman and
President and Leonard V. Knap. We purchased all the outstanding stock in
Startech Corporation for 4,000,000 shares of Kapalua common stock, which
represented 80.5% of the outstanding capital stock of Kapalua after the
acquisition. In January 1996, we changed our name to Startech Environmental
Corporation.
Our principal office is located at 15 Old Danbury Road, Suite 203, Wilton,
Connecticut 06897-2525. Our telephone number at this office is (203) 762-2499,
and our website is located at http//:www.startech.net. Information contained at
our website is not part of this prospectus.
The Offering
Securities Offered ................. 1,684,235 Shares of common stock;
284,250 shares of preferred stock;
396,464 warrants, and 433,268 CDA
warrants.
Of the 1,684,235 shares of common stock
being offered, 710,625 shares are to be
issued from time to time upon conversion
of preferred stock; 396,464 shares are
to be issued from time to time upon
exercise of 396,464 warrants; 433,268
shares are to be issued from time to
time upon exercise of 433,268 CDA
warrants, and 143,878 common shares
which represents 50% of the shares that
have already been issued in connection
with prior conversion of shares of
preferred stock.
Common stock outstanding prior
to this offering ................ 7,715,292 shares
Common stock to be outstanding
after the offering .............. 9,492,524 shares assuming the conversion
of 568,500 shares of preferred stock
(including 284,250 preferred shares
being offered) into 910,625 shares of
common stock at the current conversion
rate of $6.00 per share, and assuming
the exercise of 396,464 warrants at
$15.00 per share, and 433,268 CDA
warrants at $7.00 per share. The common
stock issued upon conversion of all
preferred stock and the exercise of all
warrants would represent 23% of our
outstanding common shares.
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Preferred stock outstanding
prior to the offering ............. 604,006 shares
In the period April through October 20,
1999, 696,978 shares of preferred stock
were issued at $10.00 per share in
connection with a private placement
under Section 4(2) of the Securities Act
of 1933 as amended. We agreed to file a
registration statement with respect to
one half of the remaining preferred
shares, and the underlying common
shares. As of the date hereof 143,878
preferred shares were previously
converted into common stock, and 284,250
preferred shares are being registered,
and 319,756 outstanding preferred shares
are not being registered.
Preferred stock to be
outstanding after the offering .... 319,756 shares, assuming the conversion
of the 284,250 shares of preferred stock
being offered.
Outstanding warrants prior
to the offering ................... 396,464 warrants 433,268 CDA warrants
106,816 other warrants
Warrants exercisable
after the offering ................ 829,732; we agreed to file a
registration statement with respect to
the 396,464 warrants and 433,268 CDA
warrants, and the underlying common
shares being offered.
Anti dilution provisions ......... The conversion rate of the preferred
stock and the exercise price per share
and number of shares of common stock
issuable upon exercise of the warrants
are subject to adjustment in the event
of a common stock dividend, a
subdivision or combination of
outstanding shares of common stock or in
the event of any recapitalization,
reclassification, consolidation, merger
or similar event.
Use of proceeds..................... This offering is being made by selling
security holders and we will not receive
any of the proceeds of these sales. We
may receive cash proceeds to extent any
of the warrants are exercised.
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NASD OTC
Bulletin Board Symbol STHK
The number of shares of common stock to be outstanding after this offering
is based upon the number of shares outstanding as of June 12, 2000 and does not
include the following:
o 1,639,411 shares of common stock subject to options issued at a
weighted average exercise price of $3.61 per share under our 1995
Stock Option Plans
o 360,589 shares of common stock reserved for issuance under our 1995
stock option plan and 1,000,000 shares of common stock reserved for
issuance under our 2000 stock options plans.
o Other warrants to purchase 106,816 shares at a exercise price of $9.00
per share.
o Warrants to purchase 47,975 shares of preferred stock.
Please see capitalization, shares eligible for future sales, and
description of securities for a more complete discussion regarding the
outstanding shares of common stock, preferred stock, warrants, and options to
purchase common stock and related matters.
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Summary financial data
The following summary financial data information should be read in
conjunction with our financial statements and their related notes and
Managements Discussion and Analysis of Financial Condition and Results of
Operations included in this prospectus. The statement of operations data for the
years ended October 31, 1997, 1998 and 1999 is derived from, and is incorporated
by reference to, the audited financial statements included in this prospectus.
The statement of operations date for the years ended October 31, 1995 and 1996
have been derived from audited financial statements not included in this
prospectus. The statement of operations data for the six months periods ended
April 30, 1999 and 2000 and the balance sheet data at April 30, 2000 labeled
actual are derived from, and incorporated by reference to, our unaudited interim
financial statements included in this prospectus.
<TABLE>
<CAPTION>
Six
Months
Statement of Operations Data: Year Ended October 31 Ended April 30,
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1995 1996 1997 1998 1999 1999 2000
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(In thousands, except for per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ........................... $ 0 $ 26 $ 10 $ 1,088 $ 2,269 $ 1,646 $ 848
Gross Profit ...................... 0 26 10 642 131 332 439
(loss) from operations ............ (36) (664) (898) (474) (1,346) (284) (1,148)
Net income (loss) ................. (36) (670) (878) (463) (1,289) (259) (995)
Net income (loss) per share ....... (.04) (.12) (.12) (.07) (.19) (.04) (.40)
Weight average shares
outstanding basic ................. 996 5,482 6,695 6,887 6,875 6,881 7,341
April 30, 2000
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(in thousands)
(unaudited)
As
Balance Sheet Data: Actual Adjusted(1)
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Cash and cash equivalents............................................................. $6,014 $14,944
Working capital....................................................................... 6,758 15,688
Total assets.......................................................................... 7,692 16,622
Total stockholders' equity............................................................ 7,091 16,021
</TABLE>
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(1) The as adjusted column assumes the exercise of 396,464 warrants at $15.00
per share, and 433,268 CDA warrants at $7.00 per share, after deducting
estimated expenses of $50,000 payable by us.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. You should
consider the following risk factors, together with the other information in this
prospectus, when evaluating an investment in our common stock. If any of
following risks occur, our business, operations or financial condition would
likely suffer. If that happens, the trading price of our common stock could
decline and you may lose all or part of your investment. The risks and
uncertainties described below are not the only ones facing us. Additional risks
not presently known to us or that we currently deem immaterial may also impair
our business operations.
We have only been an operating business for a short time and your basis for
evaluating us is limited
While we were organized in May, 1991, we are subject to all of the business
risks associated with a new enterprise, including, but not limited to, risks of
unforeseen capital requirements, failure of market acceptance, failure to
establish business relationships, and competitive disadvantages as against
larger and more established companies. The effect of any or all of these risks
could affect the trading price of our common stock and you may lose all or part
of your investment. We were considered a development stage company for
accounting purposes until 1998 because we had not generated any material
revenues to that date. Revenues from shipments and services began to be
recognized in calendar 1998. Failure to obtain greater market acceptance for our
technology will limit our ability to continue to grow our business, which will
adversely affect the value of an investment in our company.
We have incurred losses and anticipate continued losses
If our revenues do not increase significantly or if the increase in our
expenses is greater than expected, we will not achieve or sustain profitability
or generate positive cash flow in the future. We are currently designing and
building 5 Plasma Waste Converters. We expect to deliver 2 systems by the end of
calendar year 2000. We had revenues of $1,088,782, $2,268,694, and $848,000 for
each of the fiscal years ended October 31, 1998 and 1999, and the six months
ended April 30, 2000 and our net loss for each of these periods was $463,051,
$1,289,192 and $994,662 respectively. We do not expect to generate any material
revenues until after we successfully complete the manufacture and installation
of a significant number of Plasma Waste Converters for on-site customer
applications. Our accumulated deficit at the end of these periods was
$2,048,150, $3,353,358 and $6,343,089, respectively. We do expect losses to
increase as we expand our marketing efforts and demonstrate our technology to
potential customers. We expect our expenses to increase by approximately one
million dollars over the next 12 months because of costs associated with the
construction of a testing and training facility for the Plasma Waste Converter.
If we are unable to increase revenues and continue to operate at a loss the
market price of our common stock will likely decline and decrease the value of
your investment.
We have no experience on a large - scale commercial basis
Our Plasma Waste Converter has never been utilized on a large-scale
commercial basis. While we have demonstrated the Plasma Waste Converter's
ability to process and dissociate waste feedstocks and recover resources in
pilot scale and industrial-sized Plasma Waste Converters, this does not assume
that the same or similar results could be obtained on a large-scale continuing
commercial basis or on any specific project. We have never utilized the Plasma
Waste Converter under the conditions and in the volumes that will be required to
be profitable. The only Plasma Waste Converter we have built and sold can
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process less than ten tons of material per day. It has not been used on a
continuous basis in an ongoing commercial application. Our success will depend
in part upon our ability to design and build systems that handle more than ten
tons of material per day and operate continuously. Our data and research to date
support success in both of these areas and we are quoting systems for sale of up
to 100 tons per day, but an inability to build larger systems will significantly
limit sales and revenue, which in turn will lower the value of our common stock.
If further research and development cost is required to design, build and test
these larger Plasma Waste Converters that will also adversely affect our
profitability, which will also reduce the value of your investment.
We are dependent on third parties for manufacturing and key components
We do not have our own manufacturing facility. Our products and systems are
assembled and partially manufactured by Bauer Howden Inc., pursuant to our
engineering drawings and specifications. Bauer Howden is an experienced
manufacturing company and also a strategic partner. As a strategic partner,
Bauer Howden has committed to provide the capacity to manufacture our systems on
a large-scale basis when and as needed.
There are limited sources of supply for some Plasma Waste Converter
components. Business disruptions, financial difficulties of the manufacturer or
suppliers, or raw material shortages could increase the cost of goods sold or
reduce the availability of these components. In our development to date, we have
been able to obtain adequate supplies of these key components. We expect to
experience a rapid and substantial increase in our need for components if sales
accelerate as expected. If we were unable to obtain a sufficient supply of
required components, we could experience significant delays in manufacturing.
This delay could result in the loss of orders and customers, and could affect
our business, financial condition and results of operations. Although we plan to
purchase inventories of these strategic components, we may still require
alternative sources if we experience delays in obtaining them. If the cost of
finished components were to increase, we may not be able to pass on price
increases to our customers if we are to remain competitively priced. Increased
costs without price increases would reduce profit, which in turn would reduce
the value of your investment.
We cannot guarantee the market acceptance of the Plasma Waste Converter
Many prospective users of the Plasma Waste Converter have committed
substantial resources to other forms of process stream treatments or
technologies. Our growth and future financial performance will depend on our
ability to demonstrate to prospective users the technical and economic
advantages of the Plasma Waste Converter over these alternatives. We may not be
successful in this effort. Furthermore, it is possible that competing
alternatives may actually have advantages over the Plasma Waste Converter for
certain industries or applications. The failure to achieve market acceptance for
our Plasma Waste Converter could affect the profitability, future revenues, the
market price of our common stock, and the success our business.
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We may require additional financing
Financing for all of our activities have been provided by private sales of
our securities. We believe our cash reserves, anticipated cash generated from
operations and other existing sources of capital will be adequate to fund our
operations over the next two years. We may need additional funds to accelerate
our manufacturing and marketing plans. Our inability to obtain necessary capital
or financing to fund these needs could adversely affect our business, results of
operations and financial condition. Additional financing may not be available
when needed or may not be available on terms acceptable to us. If additional
funds are raised by issuing equity securities, stockholders may incur dilution.
If adequate funds are not available, we may be required to delay, scale back or
eliminate one or more of our development programs or otherwise limit the
development, manufacture or sale of Plasma Waste Converters, which may affect
our business, results of operations and financial condition and reduce the value
of your investment.
We have been dependent on one customer for our revenues
For the two fiscal years ending October 31, 1998 and 1999 approximately 98%
of our revenues were derived from a sub contract with the U.S. Army. The failure
to diversify our customer base and continued reliance on one customer makes us
vulnerable to a substantial decline in revenues if we did not continue to
receive contracts from that customer. Such an event could cause a material and
adverse effect on our business, operations and financial condition and the value
of our common stock would decline substantially.
We face risks associated with our plans to market and distribute our Plasma
Waste Converter internationally
We are marketing the Plasma Waste Converter in international markets,
including both industrialized and developing countries, and expect a significant
portion of our future revenue to come from these sales. If we are unable to
expand our international marketing efforts beyond current levels our future
expected profitability would be seriously reduced. Substantial risks still
remain for us to market our product effectively in international markets. These
risks include:
o Political and economic instability. Many of our international
initiatives involve local governments support or funding. Sales to
government may have a long sales cycle. Any change in the political or
economic climate during this sales cycle may prevent us from making an
anticipated sale.
o Difficulties in collecting accounts receivable. We are a small company
with limited cash resources. It will be difficult for us to recover
monies owed from an international customer if we are forced to take
legal action.
o Protecting intellectual property. The laws of other countries
governing intellectual property may afford little or no effective
protection for our intellectual property. Even if protected,
international litigation may result in substantial costs and diversion
of resources.
Any of these risks will reduce expected revenue and may prevent us from
achieving or sustaining profitability. An inability to increase revenues or
become profitable may reduce the market price of our common stock and the value
of your investment.
We may acquire other companies, product lines or technology
As part of our growth strategy we may pursue acquisitions and investments
that could provide complementary and competitive new technologies, products, or
businesses. Future acquisitions or investments would involve the use of
significant amounts of cash, potentially dilutive issuance of equity securities,
incurrence of debt or amortization of expenses related to goodwill and other
intangible assets.
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In addition, acquisitions involve numerous risks, including:
o difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company
o the diversion of management's attention from other business concerns
o risks of entering markets in which we have no or limited prior
experience
We currently have no commitments with respect to any acquisition or
investment. If an acquisition or investment does occur and we cannot
successfully integrate the business, product, technology, or personnel that we
acquire, it would have a material adverse affect on our business, results of
operations and financial condition. Any event that adversely affects our
financial condition is likely to reduce the market price of our common stock.
Certain current stockholders own a large portion of our voting stock
Our officers, directors, and affiliates beneficially own approximately
52.44% of our outstanding common stock. Joseph F. Longo, Chairman and President
and Leonard V. Knap each own 24.36% of the common stock outstanding, and
Paradigm Group LLC owns 9.52%. If all the preferred shares are converted to
common stock and all the outstanding warrants are exercised these percentages
would change to 44.32%, and 7.32%, respectively. These stockholders may be able
to influence matters requiring stockholder approval and thereby, our management
and affairs. Matters that typically require stockholder approval include:
o election of directors
o mergers or consolidations
o sales of all or substantially all of our assets
This concentration of ownership could delay or prevent another person or persons
from acquiring control or causing a change in control, even if such change would
increase the price of our common stock or the value of the company. Preventing a
change in control in favorable circumstances may affect your ability to sell
your securities at a higher price.
You will experience immediate and substantial dilution and may experience
further dilution
The prices of the securities in this offering will be substantially higher
than the net tangible book value per share of the common stock immediately after
this offering. Therefore, if you exercise your warrants or convert your
preferred stock, you will incur immediate and substantial dilution of $9.00 per
share in net tangible book value per share of common stock from the price you
paid or the conversion of your preferred stock assuming a weighted average
exercise price of $10.76 per share for the warrants and a conversion rate of
$6.00 for the preferred shares.
We do not expect to pay cash dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for use in the operation and
expansion of our business. The terms of our preferred stock agreements prohibits
us from paying cash dividends on the common stock unless and until all
accumulated and unpaid dividends on the preferred stock have been paid. We do
not expect to pay any cash dividends in the foreseeable future.
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Our future operating results are likely to fluctuate
Our quarterly and annual operating revenues, expenses, and operating
results may fluctuate. They have varied widely in the past, and we expect they
will continue to fluctuate in the future. Fluctuations in quarterly and annual
results will also adversely impact management's ability to accurately project
the available revenue necessary for growing our sales and revenue through
internal funding. Because we have a limited operating history our future
operating results are may be below the expectations of securities analysts and
investors the market price of our common stock may decline.
We may be unable to find appropriate strategic alliances
We may be unable to find appropriate future strategic alliances in markets
in which we have little experience, which could prevent us from bringing our
products to these markets in a timely manner, or at all. If we do not enter into
effective alliances, our products may not achieve this significant market
penetration, which could lower the demand for and reduce market acceptance for
the Plasma Waste Converter, reducing our revenues and profitability.
We have leveraged and plan to continue leverage of our resources in
manufacturing technology, marketing and sales of our Plasma Waste Converter
systems through collaborative agreements with corporate and business partners.
These strategic alliances may include cooperative agreements for sharing of
information, cooperative marketing agreements, or other business relationships
such as equity investments or joint ventures. We currently have several
strategic alliances to assist in commercializing and manufacturing our Plasma
Waste Converter.
Our current alliances are intended to facilitate our entry into the market
place and accelerate the development and commercialization of our products.
The terms of these alliances may require us and our partners to share
revenues and expenses from joint activities or for us to grant our partners
licenses to manufacture, market, and sell our products. While the leveraging of
our resources through these alliances may have a favorable effect on our
financial condition the sharing of revenues may have a negative effect on our
results of operations.
We have the potential risk of product liability
Our Plasma Waste Converter systems will be utilized in a variety of
industrial and other settings, and will be used to handle materials resulting
from the user's generation of hazardous waste. The equipment will therefore be
subject to risks of breakdowns and malfunctions, and it is possible that claims
for personal injury and business losses arising out of these breakdowns and
malfunctions will be made against us. Our product liability insurance may be
insufficient to provide coverage against all claims, and claims may be made
against us even if covered by our insurance policy for amounts substantially in
excess of applicable policy limits. Such an event could have a material adverse
effect on our business, financial condition and results of operations.
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There has been no prior public market for our convertible preferred stock or
our warrants
There is no public market for our convertible preferred stock and our
warrants, and there is little likelihood that an active trading market will
develop. The primary purpose of this offering are to comply with registration
rights and other contractual obligations incurred by us in connection with the
original issuance of the preferred stock and warrants as well as to encourage
the exercise of warrants by being able to issue shares of common stock which
will be freely tradable.
Future sales of our common stock may have an adverse effect on the market place
Future sales of our common stock by stockholders under Rule 144 of the
Securities Act of 1933, as amended or through the conversion of preferred stock
into common stock or exercise of warrants to purchase our common stock pursuant
to outstanding registration rights granted to the purchasers of our convertible
preferred stock or the holders of the warrants in this offering could effect the
market price of the stock. Sales of substantial amounts of common stock or the
perception that these sales might occur could affect prevailing market prices
for the shares of common stock issuable upon conversion of the preferred stock
or the exercise of warrants. Restrictions under the securities laws and certain
lock-up agreements limit the number of shares of common stock available for sale
in the public market.
There are risks associated with our use of hazardous materials
We use, generate and discharge toxic, volatile or otherwise hazardous
chemicals and wastes in our research and development and manufacturing
activities. Therefore, we are subject to a variety of federal, state and local
government regulations related to the storage, use and disposal of those
materials. Failure to comply with present or future regulations could result in
an imposition of fines on us, suspension of production or a cessation of
operations. We are not aware of any environmental investigation, proceeding or
action by federal or state agencies involving any of our facilities. However,
under federal and state statutes and regulations, a government agency may seek
recovery and response costs from both operators and owners of property where
releases of hazardous substances were committed by previous occupants of the
property or have occurred or are ongoing. If we fail to control the use of, or
to restrict adequately the discharge of, hazardous substances, we could be
subject to substantial financial liabilities. Our business, financial condition
and operating results could suffer a material adverse effect if costs resulting
from these liabilities are not covered by insurance or exceed our coverage.
Our customers and we may be subject to government regulations.
Our customers may be required to comply with a number of federal, state and
local laws and regulations in the areas of safety, health and environmental
controls, including without limitation, the Resource Conservation and Recovery
Act, and the Occupational Safety and Health Act of 1970, which may require our
prospective working partners or our customers to obtain permits or approvals to
utilize the Plasma Waste Converter and related equipment on job sites. In as
much as we intend to market the Plasma Waste Converter internationally, we will
be required to comply with laws and regulations and, when applicable, obtain
permits in those other countries.
We cannot be certain that:
o required permits and approvals will be obtained
o new environmental regulations will not be enacted or that if they are
we and our customers can meet stricter standards of operation or
obtain additional operating permits or approvals.
15
<PAGE>
Failure to obtain operating permits, or otherwise to comply with federal
and state regulatory requirements, could affect our abilities to market and sell
the Plasma Waste Converter and could substantially reduce the value of your
investment and the market price of our common stock.
Our success depends on protection of our intellectual property
The success and competitiveness of our product depends in part upon our
ability to protect our current and future technology and manufacturing processes
through a combination of patent, trademark, trade secret and unfair competition
laws.
Patent applications in the United States are maintained in secrecy until
patents issue, and the publication of discoveries in the scientific literature
tends to lag behind actual discoveries. Therefore, we cannot be guarantee that
we will be the first creator of future inventions for which we seek patents or
the first to file patent applications on any of our inventions. Patent
applications filed in foreign countries are subject to laws, rules and
procedures, which differ from those of the United States. We cannot be certain
that:
o patents will be issued from future applications
o any future patents will be sufficient in scope or strength to provide
meaningful protection or any commercial advantage to us
o foreign intellectual property laws will protect our intellectual
property
o others will not independently develop similar products, duplicate our
products or design around any patents which may be issued to us
We enter into confidentiality and non-disclosure of intellectual property
agreements with our employees, consultants and many of our vendors and generally
control access to and distribution of our proprietary information.
Notwithstanding these precautions, it may be possible for a third party to copy
or otherwise obtain and use our proprietary information without authorization or
to develop similar information independently.
Policing unauthorized use of intellectual property is difficult. The laws
of other countries may afford little or no effective protection of our
technology. We cannot assure you that the steps taken by us will prevent
misappropriation of our technology or that agreements entered into for that
purpose will be enforceable. In addition, litigation may be necessary in the
future to enforce our intellectual property rights, to protect our trade secrets
and to determine the validity and scope of the proprietary rights of others.
Litigation may result in substantial costs and diversion of resources, either of
which could affect on our business, results of operations and financial
condition.
We must keep pace with technological changes.
Our primary target markets will be government agencies and private sector
industrial and institutional facilities and agencies that produce or are in
possession of hazardous and toxic wastes. Other participants in both the private
and public sectors include several large domestic and international companies
and numerous small companies, many of who have substantially greater financial
and other resources and more manufacturing marketing and sales experience than
we do. As other technology evolves, the Plasma Waste Converter may be rendered
obsolete by one or more competing technologies. Any one or more competitors, or
one or more other enterprises not presently known to us, may develop
technologies which are superior to the Plasma Waste Converter or other
technologies utilized by us. To the extent that our competitors are able to
offer more cost-effective technology alternatives, our ability to compete and
sell our Plasma Waste Converters could be materially and adversely affected and
could cause a decline in the market price of our common stock.
16
<PAGE>
Contracts with federal and state governments subject us to risks including
termination and audit.
We intend to continue our policy of participating in selective research and
sales opportunities involving federal and state governments. Contracts with the
United States government are subject to various risks, including the risk of
termination at the convenience of the government. Revenues from these potential
relationships are subject to time-consuming audit procedures under various
federal statutes.
We are dependent on key personnel.
Due to the nature of our business, we are highly dependent on the continued
service of, and on the ability to attract and retain, qualified engineering,
technical, manufacturing, sales, marketing and senior management personnel. The
loss of any key employees or principal members of management could have a
material adverse effect on our business and operating results. In addition, if
we are unable to hire additional qualified personnel as needed, we may not be
able to adequately manage and implement our plans for expansion and growth. We
may not be able to continue to attract and retain the qualified personnel
necessary for the development of our business.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties, which may include statements about our:
o business strategy
o expansion of our manufacturing capabilities
o plans for hiring additional personnel
o plans for entering into collaborative agreements
o anticipated sources of funds, to fund our operations following the
date of this prospectus
o plans, objectives, expectations and intentions contained in this
prospectus that are not historical fact
When used in this prospectus, the words "expects," "anticipate," "intends,"
'plans," 'believes," "seeks," "estimates," and similar expressions are generally
intended to identify forward-looking statements. Because these forward-looking
statements involve risks, actual results could differ materially from those
expressed or implied by these forward-looking statements for a number of
reasons, including those discussed under "risks factors" and elsewhere in this
prospectus. We assume no obligation to update any forward-looking statements.
HOW WE INTEND TO USE ANY PROCEEDS FROM THIS OFFERING
Selling security holders are making this offering and we will not receive
any of the proceeds of these sales. We may receive cash proceeds to the extent
any warrants are exercised. If all of the warrants were exercised we could
receive net proceeds of approximately $8,979,836. Any proceeds will be used for
working capital and general corporate purposes. Pending the use of any proceeds
they will be invested in short term investment grade, interest-bearing
securities. We estimate our expenses in connection with this offering will be
$50,000.
PRICE RANGE OF COMMON STOCK
Our common stock has traded on the NASD OTC Bulletin Board under the symbol
STHK since November 1995. Prior to that time, there had been no active trading
in our common stock.
The table below sets forth the high and low bid range of quotations for our
common Stock for the quarters indicated as reported by the NASD:
High Low
---- ---
1998
Quarter ending January 31, 1998 $ 9.75 $ 4.84
Quarter ending April 30, 1998 11.75 5.00
Quarter ending July 31, 1998 11.25 5.00
Quarter ending October 31, 1998 7.75 3.25
1999
Quarter ending January 31, 1999 $ 8.62 $ 4.62
Quarter ending April 30, 1999 7.12 5.00
Quarter ending July 31, 1999 9.71 6.00
Quarter ending October 31, 1999 8.56 5.25
2000
Quarter ending January 31, 2000 $ 8.12 $ 5.12
Quarter ending April 30, 2000 18.75 8.87
Quarter ending July 31, 2000
(thru June 29, 2000) 14.00 7.00
18
<PAGE>
Such over-the-counter market quotations reflect inter dealer prices without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
On June 29, 2000 the last bid price reported on the NASD OTC Bulletin Board
for our common stock was $9.50 per share. On June 12, 2000, we had 7,715,292
shares of common stock outstanding. We had approximately 1,591 stockholders of
record.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. The
current policy of the Board of Directors is to retain any earnings to provide
for the development and growth. Consequently, no cash dividends are expected to
be paid in the foreseeable future on shares of common stock. The holders of the
preferred stock are entitled to receive if, when as declared by the Board of
Directors a quarterly preferred dividend at the rate of 8% per year, payable in
additional shares of preferred stock. No dividends may be paid on any shares of
common stock unless and until all accumulated and unpaid dividends on the
preferred stock have been declared and paid in full. The current policy of the
Board of Directors is to retain any earnings for our operations, and there is no
intention of paying cash dividends on the outstanding preferred shares.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of April 30, 2000.
Our capitalization is presented:
o on an actual basis; and
o as adjusted to reflect the exercise of all of the warrants at $15.00
per share and the CDA warrants at $7.00 per share which would result
in net proceeds of approximately $8,979,836.
<TABLE>
<CAPTION>
April 30, 2000
--------------
Actual As Adjusted
---------- -----------
<S> <C> <C>
Long-term debt $21,488 $21,488
Short-term debt 16,454 16,454
---------- ----------
37,942 37,942
========== ==========
Stockholders' equity
Preferred Stock; Authorized 10,000,000 (no par value)
shares of which 2,500,000 are designated as
Cumulative Convertible Redeemable Preferred Stock 5,340,658 5,340,658
643,709 shares issued and outstanding at 04/30/00
Common stock; 800,000,000 (no par value) shares authorized
7,587,689 shares issued and outstanding at 04/30/00 6,350,439 15,280,275
Additional paid-in capital 1,742,745 1,742,745
Accumulated deficit (6,343,089) (6,343,089)
---------- ------------
Total stockholders' equity $7,090,753 $ 16,020,589
--------- ----------
Total capitalization $7,052,811 $15,982,647
========== ===========
</TABLE>
The number of shares of common stock reflected as issued in the table above,
both on an actual basis and on an adjusted basis does not reflect the following:
o 1,639,411 shares of common stock subject to options issued at a
weighted average exercise price of $3.61 per share under our 1995
Stock Option Plans
o 360,589 shares of common stock reserved for issuance under our 1995
stock option plan and 1,000,000 shares of common stock reserved for
issuance under our 2000 stock options plans.
o Other warrants to purchase 106,816 shares.
o Warrants to purchase 47,975 shares of preferred stock
20
<PAGE>
DILUTION
If you exercise your warrants or convert your preferred shares into common stock
in this offering, you will incur immediate and substantial dilution of $9.00 per
share in net tangible book value per share of common stock from the price you
paid. Net tangible book value per share is determined by dividing the total
number of shares outstanding of common stock into the difference between total
tangible assets less total liabilities. This dilution will reduce the value of
your investment.
At April 30, 2000, our net tangible book value was $7,090,753 or $.92 per
share on an actual basis. After giving effect to the conversion of all of the
preferred shares at $6.00 per share and the exercise of all of the warrants and
CDA warrants at$15.00 per share and $7.00 per share respectively, and after
deducting offering expenses, as if this offering had been completed as of April
30, 2000, our pro forma net tangible book value on April 30, 2000 would be
approximately $16,020,589 or $1.76 per share.
This represents an immediate increase in the net tangible book value of
approximately $.84 per share to our existing shareholders, and an immediate and
substantial dilution of $9.00 per share to new investors. The following table
illustrates this per-share dilution:
Weighted Average price of warrants and CDA warrants ......... $10.76
Net tangible book value as of April 30, 2000......... .92
Increase attributable to new investors............... .84
Pro forma net tangible book value after this offering ........ 1.76
Dilution to new investors..................................... $9.00
21
<PAGE>
SELECTED FINANCIAL DATA
The following summary financial information should be read in conjunction
with our financial statements and their related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Financial Statements and Supplementary Data" which are incorporated herein by
reference. The acquisition of Startech Corporation by the Registrant occurred on
November 17, 1995. The financial information reflects the operations of both
companies combined for all the periods presented. The statement of operations
data for the years ended October 31, 1997, 1998, and 1999, and the balance sheet
data as of October 31, 1997, 1998, and 1999 have been derived from audited
financial statements included in this prospectus. The statement of operations
data for the years ended October 31, 1995, and 1996 and the balance sheet data
as of October 31, 1995 and 1996 have been derived from audited financial
statements some of which are not included in this prospectus. The statement of
operations data for the six months ended April 30, 2000 and 1999 and the balance
sheet data at April 30, 2000 and 1999 are derived from, and incorporated by
reference to, our unaudited interim financial statements included in this
prospectus.
<TABLE>
<CAPTION>
Six Months
Year Ended October 31, Ended April 30,
------------------------------------------------------- ------------------
Statement of operations data: 1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ------------------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ....................................... $ 0 $ 26 $ 10 $ 1,089 $ 2,269 $ 1,646 $ 848
Cost of revenues ............................... 0 0 0 446 2,138 1,314 409
------- ------- ------- ------- ------- ------- -------
Gross profit ................................... 0 26 10 642 131 332 439
Operating expenses:
General and administrative expenses ............ 36 624 681 665 1,156 557 1,246
Selling expenses ............................... 0 66 226 451 321 58 341
------- ------- ------- ------- ------- ------- -------
Total operating expenses ....................... 36 690 907 1,116 1,477 615 1,587
------- ------- ------- ------- ------- ------- -------
Loss from operations .......................... (36) (664) (898) (474) (1,346) (283) (1,148)
Other expense (income):
Interest expense ............................... 0 9 9 9 33 0 0
Other expense (income) ......................... 0 (3) (29) (24) (101) (24) (160)
....... ....... ....... ....... .......
Loss before income taxes ....................... (36) (669) (877) (459) (1,278) (259) (988)
Income tax expense ............................. 0 1 1 4 11 0 7
------- ------- ------- ------- ------- ------- -------
Net income (loss) .............................. $ (36) $ (670) $ (878) $ (463) $(1,289) $ (259) $ (995)
Net income (loss) per share -basic ............. (0.04) (0.12) (0.12) (0.07) (0.19) (0.04) (.40)
Weighted-average shares
outstanding - basic ............................ 997 5,482 6,695 6,888 6,876 6,882 7,341
Six Months
Year Ended October 31, Ended April 30,
------------------------------------------------------- -------------------
Balance Sheet Data: 1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ----- ---- -------------------
(in thousands)
Cash and cash equivalents ...................... $ 83 $ 281 $ 988 $ 156 $ 5,496 $ 639 $ 6,013
Working capital ................................ (36) (153) 965 539 5,665 314 6,758
Total assets ................................... 85 392 1,202 1,824 6,374 1,661 7,692
Total stockholders' equity ..................... (36) (53) 1,103 661 6,015 467 7,091
Long-term obligations .......................... 0 0 0 0 7 0 21
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with our financial
statements and the related notes appearing at the end of this prospectus. Our
discussion contains forward-looking statements our based upon current
expectations that involve risks, and our plans, objectives, expectations and
intentions. Actual results and the timing of events could differ materially from
those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under risk factors, business and elsewhere in
this prospectus.
For the six months ended April 30, 2000, approximately 100% of our revenue
was generated by sales to customers located outside the United States. We
believe that international sales will continue to account for a significant
portion of our sales for the foreseeable future. Current sales are denominated
in U.S. dollars and foreign exchange rate fluctuations have not had an impact on
our results of operations. All of the revenues reported are from contracts to
purchase our Plasma Waste Converters, consulting and demonstration fees, and
distributorship revenues, at this time our revenues do not reflect any tolling
fees.
Substantially all of our revenue and costs from government contracts are
subject to audit under various federal statutes. In December 1999 an audit was
conducted with the Defense Contract Audit Agency in conjunction with the US Army
Chemical and Biological Defense Command. With the completion of this audit we
are currently awaiting final payment from our prime contractor Burns & Roe for
our final two invoices totaling $483,189 and we expect to be receiving payment
from Burns and Roe in the near future.
On April 10, 2000 we issued a news release announcing that the U.S. Army's
Non-Stockpile Program had contracted with UXB International, Inc., with Startech
as a subcontractor to perform certain work on the Plasma Waste Converter located
at Aberdeen Proving Ground, Maryland. The news release was made for the purpose
of reporting what we believed was a newsworthy event and also contained
explanatory material relating to the Non-Stock Pile Program and Stock Pile
Program.
On April 28, 2000 the U.S. Army Program Manager for Chemical
Demilitarization issued a response to our news release indicating it contained
misleading statements. Among those items with which the Program Manager
disagreed was our description of the work to be performed by us on the Plasma
Waste Converter; that we had previously demonstrated "successful testing" of our
equipment, and the inference that our technology had already been chosen for the
disposal of secondary wastes, when in fact, the program is studying alternates
to the incineration of secondary waste, including plasma technology. We do not
agree with the Program Manager's view that our news release contained misleading
statements. In particular, every material we were allowed to test was
irreversibly destroyed well beyond the Army's stated safety standards.
Additionally, the Program Manager claims that the news release was unauthorized.
At no time were we advised that prior approval from the Program Manager was
required for us to issue a news release. Our subcontract was terminated for the
convenience of the government on or about April 28, 2000.
Our anticipated revenue for this subcontract was approximately $150,000 and
approximately one half of the contract was completed for which we expect to be
paid on a timely basis by UXB, International who continues to be our strategic
partner. Furthermore we do not believe this will materially affect our ability
to quote on U.S. Army contracts or to participate in other U.S. Army programs.
23
<PAGE>
Comparison of six months ended April 30, 1999 and 2000
Revenues. Our total revenues were $848,000 for the six months ended April
30, 2000, as compared to $1,646,000 for the same period in 1999, a decrease of
$798,000, or 48.0%. Our decrease in revenue was due to the fact that in the 1999
period we completed an Army sub contract, which represented 98% of our revenue
in that period, whereas we had no Army sub contract revenue for the six months
ended April 30, 2000.
Gross Profit. Our gross profit was $ 439,000 for the six months ended April
31, 2000, an increase of $107,000, or 32% from the same period in 1999. Our
gross margins on revenue were 52% for the six months ended April 30, 2000. In
the similar period for 1999 the gross margins on revenues was 20%. The gross
margins on revenue for the 2000 period was attributable to revenues earned and
associated costs from distributorship fees and consulting agreements, while the
lower gross margins for the six months ended April 30,1999 resulted mainly from
higher than expected actual costs related to the Assembled Chemical Weapons
Assessment Army (ACWA) project.
General and administrative expenses. Our general and administrative
expenses for the six months ended April 30, 2000 were $1,246,000, an increase of
$689,000, or 124%, from the same period in 1999. The increase is due to a higher
level of salaries as a result hiring of additional personnel to support our
growth, occupancy expenses, professional services fees and insurance expenses.
Selling Expenses. Our selling expenses for the six months ended April 30,
2000 were $341,000, an increase of $283,000, or 488%, from the similar period
1999. The increase is due to higher consulting fees, higher travel costs,
printing and material costs relating to marketing of the Plasma Waste Converter,
plus customer demonstrations and marketing relating to efforts at the Aberdeen
Proving Grounds.
Interest expense. Our interest expense for the six months ended April 30,
2000 was 0 as compared to 0 in the similar 1999 period.
Interest income. Our interest income for the six months ended April 30,
2000 was $160,000, as compared to $24,000 in the similar period 1999, an
increase of 566%. The increase is due to higher cash balances as a result of the
recently completed preferred stock private placement on October 20, 1999, and
higher interest rates earned on these investments.
Income taxes. Income taxes for the six months ended Aril 30, 2000 were
$7,000 as compared with $250 in the similar period 1999. Our tax obligations are
minimal due to the fact that we have not had profit. We have tax loss carry
forwards of $4.2 million to offset against future profits, if any.
Comparison of Years Ended 1999 and 1998
Revenues. Our total revenues for the year ended October 31, 1999 were $2.3
million, an increase of $1.2 million, or 108%, from the year ended October 31,
1998. Our increase in revenue was due to the award of the ACWA Army sub
contract, which we demonstrated at the Aberdeen Proving Grounds. This Army sub
contract represented 98% of revenues for both years ended October 31, 1999 and
1998.
Gross Profit. Our gross profit was $131,000 for the year ended October 31,
1999 a decrease of $511,000, or 80% from the year ended October 31, 1998. Our
gross margins on revenue was 5% for the year ended October 31, 1999 compared to
gross margins on revenue of 59% for the year ended October 31, 1998. The 1999
decrease in gross profit margin resulted mainly from the completion of the
demonstrations for the Army ACWA program at Aberdeen Proving Grounds.
24
<PAGE>
General and administrative expenses. Our general and administrative
expenses for the year ended October 31, 1999 were $1.2 million, an increase of
$491,000, or 74%, from the year ended October 31, 1998. The increase is due to a
higher level of salaries as a result of the hiring additional personnel to
support our growth, professional fees, insurance, stockholder relations.
Selling Expenses. Our selling expenses for the year ended October 31, 1999
were $321,000, an decrease of $130,000, or 29%, from $451,000 for the year ended
October 31, 1998. The decrease is due to lower customer demonstration activity
at Aberdeen Proving Grounds.
Interest expense. Our interest expense for the year ended October 31, 1999
was $33,000, an increase of $24,000, or 266%, from $9,000 for the year ended
October 31, 1998. The increase is due to interest expenses relating to a note
payable to Connecticut Development Authority.
Interest income. Our interest income for the year ended October 31, 1999
was $101,000, an increase of $78,000, or 339%, from $23,000 for the year ended
October 31, 1998. The increase is due to higher cash balances as a result of a
private placement completed on October 20, 1999.
Income taxes. Income taxes for the year ended October 31, 1999 were $11,000
as compared with $4,000 in the similar period 1998.
Comparison of Years Ended 1998 and 1997
Revenues. Our total revenues for the year ended October 31, 1998 were $1.1
million an increase of $1.1 million, or 11,000.% over the $10,000 in revenues
for the year ended October 31, 1997. Our increase in revenue was due to the
award of the ACWA Army sub contract. This Army sub contract represented 98% of
revenues in the year ended October 31, 1998 compared to 0% of revenue in the
year ended October 31, 1997.
Gross Profit. Our gross profit was $643,000 for the year ended October 31,
1998 an increase of $633,000 or 6,300% from the year ended in October 31, 1997.
Our gross margins on revenue were 59% for the year ended October 31, 1998, our
first year that we were not classified as a development stage company. Our gross
margins were derived from the Army in 1998. In 1997 we had $10,000 in consulting
fees.
General and administrative expenses. Our general and administrative
expenses for the year ended October 31, 1998 were $665,000, a decrease of
$17,000, or 2%, from the year ended October 31, 1997. The decrease was due
primarily to lower legal fees and automobile expense.
Selling Expenses. Our selling expenses for the year ended October 31, 1998
were $451,000, an increase of $225,000, or 99%, from $226,000 for the year ended
October 31, 1997. The increase is due to higher salary costs, higher travel
costs, and higher printing and material costs.
Interest expense. Our interest expense for the year ended October 31, 1998
and 1997 was $9,000.
Interest income. Our interest income for the year ended October 31, 1998
was $24,000, a decrease of $6,000, or 20%, from $30,000 for the year ended
October 31, 1997. The decline in interest income was attributable to a reduction
in our cash balances for the funding of working capital, and design work.
Income taxes. Income taxes for the year ended October 31, 1998 were $4,000
as compared with $550 in the similar period for 1997.
25
<PAGE>
Liquidity and Capital Resources
As of April 30, 2000, we had cash of $6,013,967 and working capital of
$6,758,049. During the six months ended April 30, 2000, our cash increased by
$517,687. This was primarily due to the proceeds from the issuance of additional
common stock upon the exercise of warrants and options, offset by purchases of
fixed assets and cash utilized in operating activities of approximately
$1,288,128.
Our investing activities have consisted primarily of short-term high
quality liquid investments, with maturity with three months or less when
purchased, which are considered cash equivalents. The primary investments are
high quality commercial paper, U.S. Treasury notes and U.S. Treasury bills.
We believe that cash generated from operations, our current cash balances,
and other sources of capital, will be sufficient to satisfy our projected
working capital and planned capital expenditures for at least 24 months.
26
<PAGE>
BUSINESS
We develop, manufacture, market and sell a closed loop elemental recycling
system called the Plasma Waste Converter for the global marketplace. A closed
loop elemental system is a process whereby the waste materials put into the
system by the user are reformed and recovered.
Our goal is to produce and market a low cost waste processing system which
processes all forms of hazardous and nonhazardous organic and inorganic waste
and by-products, and converts most of these into a reusable synthesis gas. Our
system operates a performance level that far exceeds the environmental standards
of the United States Environmental Protection Agency, and other comparable
international environmental regulatory agencies.
Our system provides significant benefits over other forms of treatment and
disposal of hazardous and non hazardous wastes. The most common methods include
incineration, land filling, deep-well injection, wet chemistry processes,
neutralization and bio-remediation, industrial lagoons, and direct release to
the environment. These methods have transportation, treatment, environmental or
safety risks. In addition, most of these treatment and disposal methods
themselves generate large volumes of waste, which may require further treatment
prior to final disposal. As a result, we believe these methods are being met
with increasing public resistance and more stringent regulations, which lead to
an increased cost of compliance, and in some cases a prohibition. We believe the
reason many of these methods continue to be used is a lack of alternatives. We
intend to aggressively market our system as a proven, cost effective and
environmentally safe alternative.
We believe that the primary factors, which will create demand for our
Plasma Waste Converters, include the need:
o for customers to reduce the costs for hazardous and toxic waste
disposal;
o to comply with present and anticipated environmental regulations in a
cost-effective manner;
o to eliminate the liabilities associated with hazardous and toxic
waste disposal, and;
o to economically process hazardous and non-hazardous waste and
industrial by-products while recovering products for re-use or
re-sale.
Compared to other treatment methods we believe the Plasma Waste Converter
minimizes or eliminates the creation of residual waste and significantly reduces
the costs and risks associated with residual waste disposal. We believe
increasingly stringent environmental regulations anticipated throughout the
world will create demand for systems with a high degree of environmental
performance. While the core technology is plasma, each customer will require
special system configurations for the specific material they are processing.
The Plasma Waste Converter system consists of:
o specially designed plasma vessel
o in-feed system
o gas polisher
o power requirement
o waste storage facility
o on-site waste handling equipment
o plant layout and design in the case of large systems
The expected exponential population growth in the United States will bring
the number of people in the country to well over a half a billion in sixty
years. The U.S. infrastructure will have to double, meaning its ability to
safely manage its waste problems will also have to double. The great challenge
is sustaining economic growth in the face of exponential population growth
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without destroying quality of life. We believe our technology is positioned to
meet the waste-related challenge of a sustainable development. In addition to
environmental benefits, our system recycles wastes to valuable energy products
and commodity products. We regard all wastes as valuable renewable resources.
Hazardous waste, based upon data obtained from the United States
Environmental Protection Agency is produced at the rate of more than 200 million
tons annually in the United States alone. All of it is classified as hazardous
or toxic under the Resource Conservation Recovery Act or the Toxic Substance
Control Act . The costs of the hazardous waste treatment and disposal methods
continue to rise, and now range from approximately $900 to more than $2,000 per
ton. This does not include the additional processing, handling, packaging and
management costs sustained by the hazardous waste generator within its facility
prior to final disposal. We believe these costs will continue to escalate due to
the expanding pressure being placed upon government and industry to dispose of
their waste in an environmentally safe manner. We believe this to be especially
true in light of the increased regulation of, and moratoriums on, incineration
and landfilling. Our processing cost, including capital cost, labor and energy,
is estimated to be about 8 - 12 cents per pound, or about $160 - $240 per ton
for industrial sized systems, such as our five (5) ton and ten (10) ton per day
systems. The cost per pound to the end user of the plasma waste converter will
decrease as the scale of the system increases.
Other categories of industrial waste, including special wastes; industrial
waste by-products, non-hazardous waste and municipal solid waste create a total
market of approximately 13 billion tons annually. Materials classified as
special wastes are generated primarily by the mining and oil and gas industries,
manufacturing industries, cement kilns and coal-fired electric utilities.
Special wastes, while not currently categorized as hazardous, are not generally
environmentally benign and do pose a risk to the public health and safety. They
are regulated separately under state law and these wastes are materials that can
be safely and economically processed and remediated using our system.
Primary Markets
Our system, in the process of converting the molecules of hazardous wastes
into valuable commodity products, destroys wastes totally and irreversibly. This
capability is critical in most hazardous waste applications.
We have identified our two primary markets:
o government facilities and agencies producing or in possession of
hazardous and toxic wastes;
o institutional and industrial facilities producing or in possession of
hazardous and toxic wastes
The government markets include but not limited to, the Departments of
Defense, Energy, Agriculture, Justice, Treasury and the National Institutes of
Health, all of which control or produce hazardous products.
The industrial markets include the chemical, petrochemical industries,
metal processing, manufacturing industries; hazardous and non-hazardous waste
process treatment facilities, hospital and other infectious and hazardous waste
generators; pharmaceutical, and applications involving mixed and contaminated
post-consumer plastics.
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The Plasma Waste Converter can significantly minimize the volume of wastes.
Demonstrations of our system on low-level radioactive surrogate waste streams
have shown volume reductions of approximately 300 to 1. Other present methods of
volume reduction include compaction and incineration that produce overall volume
reductions of about 8 to 1. Our system will not reduce the radioactivity of the
low level radioactive waste nor do we believe it can be done by any other
system, but the volume of that waste may be reduced. Industries that may benefit
from this process are utilities, labs and hospitals which store the reduced low
level radioactive waste material on-site. We believe our system can increase a
site's storage capacity. A site that has only 2 years of low level radioactive
waste storage capacity remaining will have 200 or more years of storage capacity
by using our system.
While not the initial focus of our business we have produced preliminary
designs for municipal solid waste facilities as large as 3,000 tons per day.
Currenlty our largest immediate market is for skid-mounted systems that
range from 300 to 600 pounds per hour of throughput. These systems will be
manufactured in production quantities that favor fast, reliable delivery
commitments.
The smaller systems can be truck mounted, and larger systems barge mounted.
Two ton per day systems can be air lifted by C-130s for quick deployment to
tropical, arctic and desert environments. A two-ton per day system will process
all of the wastes generated by a 1,000 person military base.
Primary Customer
For the two fiscal years ended October 31, 1999 and 1998, a U.S. Army sub
contract provided us with 98% of our revenues.
Plasma waste converter development and technology
Individual members of our management team have been issued patents in and
have been designing, manufacturing, and marketing engineered solid-waste capital
equipment to the waste industry worldwide since 1969. None of the patents have
been assigned to the company nor are they being used for our Plasma Waste
Converter. Their experience includes the development and marketing of equipment
for hazardous, non-hazardous, and radioactive wastes, industrial by-products and
recycled processes. The Plasma Waste Converter is the culmination of that
experience over the past 30 years in the waste equipment industry.
Our management has also been involved for many years in product development
and innovations in waste industry technologies, and has extensive knowledge of
the waste industry in North America and internationally. Their interest in the
application of plasma technology to the waste industry arose as a result of a
technical article written in the 1970's which stated that two Atomic Energy
Commission fusion scientists, Mr. Bernard Eastlund and Mr. William Gough
speculated that plasma might be used to blast waste back into its constituent
atoms, and that the atoms could be reclaimed for total reuse. The scientists
also speculated that the technology would not be commercially developed until
the year 2000. Through publicly available information and research and
development conducted by Mr. Longo and Mr. Knap with various configurations and
various waste streams, it was decided that the Plasma Waste Converter was ready
for commercial adaptation and scale.
Plasma torches have been used in the metallurgical industry for many years,
with the first plasma torches being employed in the nineteenth century. The
Plasma Waste Converter is an electrically driven system that produces an intense
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field of radiant energy that causes the dissociation of the molecular bonds of
solid, liquid, and gaseous compounds or materials of both hazardous and
non-hazardous wastes. This is often referred to as molecular dissociation.
The molecules of the waste material are separated into their elemental
atomic components, and reformed into recoverable non-hazardous commodity
products by the Startech system. The process is not a combustion or burning
process, and the system should not be confused with an incinerator or a
vitrification process. The intense energy field produced by the plasma torch,
which is operating within the Plasma Waste Converter chamber, causes the
dissociation process.
Plasma is a gas that has been ionized so that the gas becomes an effective
electrical conductor. The plasma gas is discharged within the chamber in a
continuous arc of lightning-like energy that can produce temperatures up to the
range of 40,000 degrees Fahrenheit, although the overall chamber temperature is
much lower. When the waste materials are confronted with the intensity of the
energy within the chamber, the excitation of the molecular bonds is so great
that the waste material's molecules break apart into their elemental atomic
components. Our Plasma Waste Converter chamber operates at normal atmospheric
pressure quietly and safely. Our Plasma Waste Converter consists of many process
components currently used in the metallurgical and chemical industries. Solid
wastes being fed to our system ordinarily do not have to be preconditioned or
shredded. The wastes can be fed to the system in bulk form. They are
automatically fed to the system through an air-locked infeed port, and the
feeding is ordinarily on a continuous basis. Liquids, gases and sludges can also
be fed or pumped directly into the chamber through a pipe port, and it is also
able to feed-in liquids, gases and sludge along with bulk solids at the same
time.
The synthesis gas recovered from our system after dissociation occurs is
drawn out of the top of the chamber and put through a conventional gas-polishing
unit. The silicates, inorganics and metals are removed at the lower side of the
Plasma Waste Converter chamber through a trap.
These recovered products can be used or sold as commodities for use in
various manufacturing processes. It is expected that most of the Plasma
Converted Gas will be used as a fuel gas and to a lesser degree, as a chemical
feed stock; silicate materials recovered will be used in the ceramics, abrasives
or the construction industries; the metallic components can be used or be
readily available for sale with little or no additional processing. The economic
justification for the use of our systems in hazardous waste applications does
not depend on any revenues from the use or sale of the recovered commodity
products.
In November of 1998 we completed the manufacture of our first industrial
sized Plasma Waste Converter which was delivered to the US Army Base at Aberdeen
Proving Ground, Maryland. The Plasma Waste Converter was put through a rigorous
and diversified four-month test program. Our Plasma Waste Converter processed
every material provided by the Army at a level far safer than the current U.S.
government environmental standards and well within the guidelines promulgated by
the Army Program testing the technology. The proprietary test report data from
the program included the results from thousands of samples analyzed by various
independent approved by the environmental protection agency.
Sales strategy
Our long-term strategy is to achieve broad market acceptance of the Plasma
Waste Converter as an advantageous process of relieving waste generating
problems of the private sector and government. We are initially manufacturing
transportable, and skid mounted Plasma Waste Converters. We believe that once
there is a broad installed base of our product in these markets, waste
generators in other market segments will be attracted to our Plasma Waste
Converter. Any one system will allow the customer to dispose of between four
tons and one hundred tons of waste per day. Multiple systems may be installed in
a facility processing greater than one hundred tons per day.
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We intend to manufacture our system and sell or lease them to our
customers. Leasing will be used on a case-by-case basis. We do not intend to
finance any leases. We entered into agreements with two customers for the sale
of Plasma Waste Converters in the first six months ended June 2000.
Future sales revenues will be produced by the combination of the purchase
price for the system supplemented by ongoing usage fees. The usage fees will
vary depending on use subject to minimum monthly usage fees embodied in the
sales agreements. Depending on the customer's application, usage fees may range
between two and five cents per pound, and will be compiled by electrically
metered watt-hour consumption.
Our sales strategy includes the use of independent distributors and
commissioned representatives. This sales strategy can achieve the most rapid
market penetration at the lowest cost. Sales to most domestic government
agencies will be made by our executives and will be house accounts. We will
assist distributors and representatives in all other sales.
Our distributors pay an upfront fee and commit to purchasing a
demonstration system for their ongoing sales initiatives. The distributor
operates a specific geographic are or market segment. Distributors are most
important for penetration of international markets. We believe a local presence
and knowledge of local customs and practice will give us the best penetration in
the sale of our systems. Our distributors are required to provide sales
installation and service support. All distributors are required to meet minimum
sales volumes to maintain their distributorship. Our distributors purchase the
system from us for re-sale to the end-user. Commissions are not paid to the
distributor.
Our representatives are appointed to act as sales intermediaries. They are
paid commissions on sales they initiate. We contract the sale directly with the
customer. We provide the representative with sales information and training.
We believe that the market for our systems internationally is larger than
the United States market, and in many respects has economic and environmental
imperatives for the purchase of our systems in newly industrialized countries
that are more compelling than those in the United States. According to the World
Bank, each year the world's population increases by thirty-three million people.
We believe this population growth will further increase the need for our
systems.
We do not intend to share with customers in the offsets or revenues that
may be generated from any commodity products produced by the system. We believe
this is an additional financial incentive to acquire our systems.
Competition
We believe we are the industry leader in the use of plasma technology for
waste processing. There are other non-plasma based technologies in various
stages of development that claim to achieve some, but not all, of the objectives
achieved by our plasma based system. There also may be other plasma technologies
being developed. We believe we are positioned to take advantage of the
acceptance of plasma technology as an alternative to conventional forms of waste
disposal. We have spent substantial money, time and effort educating the public
and private sector on the benefits of our technology and believe we will reap
the rewards of that effort. The factors we believe will make us the industry
leaders are:
o advanced design and operating performance of our complete system;
o documented operating performance of our system by independent
laboratories;
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o management's more than 30 years experience in the international waste
industry market;
o greater access to capitol markets as a public company over private
concerns;
o depth and breath of manufacturing experience;
o fully trained international distributors and representative; and
o engineering and scientific strengths.
We believe the following are our competitive disadvantages:
o tolerance in some communities for the continued use of incineration;
o tolerance in some communities for the continued use of landfills;
o lack of extensive patent protection for our system;
o our cash position relative to other multi-national companies who may
enter this field as it grows; and
o resistance to new technologies when dealing with the public health and
safety.
We believe many potentially competitive technologies are limited to a
narrow number of waste feed-streams. If the system does not receive exactly what
it expects, even something as benign as water or metals, the process may be
ineffective and possibly dangerous. It is difficult to specify an exact waste
stream in a real world application. By their very nature, waste streams are
sometimes made up of unknown and unpredictable materials. For any processing
device to be commercially successful it must be able to safely and effectively
process unpredictable waste streams. Our system can handle great deviations in
the waste stream content. We believe many of the potentially competitive
technologies have yet to demonstrate capabilities beyond small laboratory or
bench scale devices that use precisely controlled waste streams. They may also
produce undesirable and hazardous by-products. Some have not yet sold their
product on a commercial scale. We have designed and manufactured and delivered a
fully automatic commercial system for use by the U.S. Army.
We believe the following technologies may be the potential competition to plasma
-based technology:
Bio-remediation: a method that uses microorganisms for the
decontamination of soil or ground water. Usually involves injecting
organisms and oxygen into contaminated zones primarily for organic
pollutants;
Super Critical Water Oxidation: the process which exhibits by water
above 705 degrees F and above 3,208 pounds per square inch of
pressure.
Wet Air Oxidation: a mature thermal technology that processes the
treatment of wastewater sludge. The process itself generates about 20
pounds of wastewater effluent for every pound of solid contained in
the sludge that it treats. Depending on the waste to be processed,
secondary treatment may be required.
Neutralization also called hydrolysis: a mature technology that treats
a limited number of organic materials. The process employs hot water,
enzymes and chemicals, and may produce hazardous byproducts that may
require further remediation. The process produces a large amount of
wastewater requiring secondary treatment.
Most cannot process many of the materials found in common waste streams.
Our system has no such limitations and can process all materials simultaneously
regardless of composition.
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We believe the following companies are working on waste processing
technologies that may be competitors; the exact state of their development is
unknown to us:
o AEA Technology Ltd
o Teledyne-Commodore Corporation
o General Atomics Corporation
o Aerosptiale Ltd.
o Retech Incorporated
o Resorption Canada Limited
o Plasma Environmental Technologies
o Plasma Environmental Applied Technologies
In addition to the above, we believe that other waste disposal methods may
be considered as competition. These methods are summarized as follows:
o landfill dumping: the least expensive, in the short term, and one of
the most environmentally dangerous of all waste disposal methods.
o Incineration: even though the permitting of new incinerator
installations is being dramatically reduced, and the technology has
fallen into great disfavor both in the U.S. and internationally, this
rather primitive method of disposal is still presently accepted by
many although the emissions produced are regarded as pollutants, and
large quantities of toxic bottom ash and fly ash are produced and are
eventually deposited into landfills in the community.
Strategic Alliances
The strategic alliances we have entered to help further develop our market
scope and penetration are set forth below. The agreements entered into with each
strategic partner provide that we mutually seek opportunities that utilize our
proprietary process and the particular expertise and know-how of the other
strategic partner. The agreements also provides for the formation of mutually
agreeable business arrangements concerning the commercialization of our system,
and the termination by either company upon written notice, except for survival
of confidentiality, and intellectual property provisions. The principal benefit
each of these alliances bring to us is the ability to have expertise available
to us on an as needed basis as we move forward and attempt to expand our
business in areas which require our system and our strategic partner's
expertise. Each represents a potentially significant revenue source. None of the
alliances have any specific financial requirements on part of either party. Such
requirements, if any, will be determined if and when a business opportunity
materializes. Accordingly we do not give any effect to our strategic alliances
in our financial statements as there is no financial impact at this time.
Skidmore Owings & Merrill, LLP
Skidmore Owings & Merrill is a privately held partnership that offers
architectural and engineering services. The firm has offices in Chicago, New
York, San Francisco, Los Angeles, Washington D.C., with affiliates in Hong Kong,
London and Sao Paolo. Our agreement provides for Skidmore Owings & Merrill's
participation, on a case-by-case basis, with the design and construction of
facilities for Plasma Waste Converter resource recovery centers. The term of the
Agreement is for three years expiring March 14, 2003, with a three-year
renewable option. This alliance enables us to provide architectural design,
plant engineering design, and construction management capabilities and support
for large projects. The use of the Plasma Waste Converter configured for use in
large-scale facilities represent a potential significant revenue source.
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UXB International, Inc.
UXB International, Inc., is a privately owned company, located in Ashburn,
Virginia. UXB is one of the largest explosive ordnance disposal companies in the
world. Unexploded ordnance and explosive ordnance refers to munitions and
weapons such as landmines, rockets, bomblets, mortars, propellants and chemical
warfare materiel that are found on military bases, firing and bombing ranges,
and former war zones scattered throughout the world. Our agreement requires the
parties to seek out sales opportunities employing the Plasma Waste Converter
systems in both stationary and mobile configurations. We will supply the
equipment and UXB will supply the knowledge and expertise in the highly
technical and sensitive field of unexploded ordnance. Unexploded ordnance
opportunities are a potential significant revenue source. The term of the
agreement is five years and will expire on September 30, 2004. The agreement
calls for automatic five-year renewals unless one party provides notice to the
contrary to the other sixty days prior to the expiration date.
Ensign-Bickford Company
Ensign-Bickford, founded in 1836, is a preeminent privately owned
explosives manufacturing, engineering and services company with extensive
experience and expertise in the field of advanced explosives, detonation and
ordnance science and technologies for both private and government sector
markets. Our agreement provides for us to work together to obtain contracts to
sell equipment, products and services of both companies to process and destroy
various forms of chemical weapons, demilitarization wastes and unexploded
ordnance worldwide. We have been working together on non-incineration systems
for the destruction of the U.S. Chemical Weapons Stockpile, and expect to work
together to secure contracts using our Plasma Waste Converter and
Ensign-Bickford's products and services for the remediation of munitions and
radioactive waste. Ensign-Bickford provides us extensive experience in the area
of advanced explosives, detonation, blasting and other ordnance science
technologies. Sales for these markets represent a potential significant revenue
source. Our agreement expires on March 28, 2001, with an automatic three-year
renewal absent 60 days written notification by either party to the contrary.
Chase Environmental Corporation
Chase Environmental is a privately owned company headquartered in
Louisville, Kentucky comprised of engineers and scientists with extensive
expertise in operating, siting, and obtaining permits for radioactive waste
processing facilities. Chase has agreed to assist us in obtaining sales of our
systems to customers generating radioactive wastes. Disposing of radioactive
wastes require highly specialized knowledge. Chase's experience and reputation
in this field adds a significant component to our ability to sell equipment in
this sensitive and specialized market. The ability to penetrate this market
could be a significant potential revenue source. This agreement expires on
November 17, 2002, subject to an automatic five-year renewal absent 60 days
written notification by either party to the contrary.
Bauer Howden Inc.
Bauer Howden is currently manufacturing our systems in the U.S. in a
modern, fully integrated, 80,000 square foot manufacturing and engineering
facility in Bristol, Connecticut. This facility is also fully qualified as a
production facility in manufacturing compliance with military and government
specifications of the U.S. and other nations. As a strategic partner, Bauer
Howden has committed to having the capacity to manufacture our systems on a
large-scale basis if the need arises. This alliance has allowed us to use our
resources for sales and marketing by eliminating the need for owning a
manufacturing facility. Bauer Howden, completed the design for, manufacture and
assembly of the first Plasma Waste Converter and shipped it to the US Army at
Aberdeen Proving Ground, Maryland. Our agreement expires on July 22, 2001.
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Calumet Coach Company
Calumet Coach of Calumet City, Illinois is a privately owned Company that
has been building mobile units in both semi-trailer, and self-propelled
configurations for the past fifty years, serving special health care, military
and industrial applications throughout the world. Our agreement provides for
incorporating Plasma Waste Converter into various semi-trailer and
self-propelled mobile configurations for use in processing hazardous wastes in
remote locations. The ability to design, market and sell Plasma Waste Converters
in a vehicle mounted mobile configuration adds greater functionality and
desirability to our system and creates a significant sales opportunity. The
initial 3-year agreement ended on October 22, 1999. It has continued pursuant to
automatic one-year extensions absent 60 days written notification by either
party to the contrary. The current term expires on October 22, 2000, and we
expect it to be renewed.
Intellectual property
To date, we have not applied for and have not been issued any patents
surrounding our proprietary plasma technology. We intend to file applications
for United States patents with respect to equipment invention disclosures and
process invention disclosures in the next three to six month period and we may
in the future file foreign applications for these patents. Our success depends,
in part, on our ability to obtain patents, maintain trade secrecy, and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that the patents of others will not have an adverse effect on our
ability to conduct business or that we will develop additional proprietary
technology which is patentable or that any patents issued to us will provide
competitive advantages or will not be challenged by third parties. Furthermore,
there can be no assurance that others will not independently develop similar or
superior technologies, duplicate any of our technologies or design around
processes and devices developed by us. We are currently the licensee of 3
existing U.S. patents: U.S. Patent 5516742, issued May 14, 1996, U.S. Patent
5710087, issued January 20, 1998, and U.S. Patent 5415891, issued May 16, 1995.
The license agreement for Patent numbers 5516742 and 5710087 remains in effect
until the last patent expires presently estimated at November 14, 2014 or upon
the expiration of any future patent based upon either patent. The agreement for
Patent number 5415891 expires on November 29, 2014. The inventions covered by
these patents and the related know how relate to increasing the commercial
importance of Plasma Converted Gas, a synthesis gas produced when wastes are
processed in the Plasma Waste Converter system. It is possible we may need to
acquire licenses for, or to contest the validity of, issued or pending patents
of third parties relating to our technology. There can be no assurance that any
license under these patents would be made available to us on acceptable terms,
if at all, or that we would prevail in any contest. In addition, we could incur
substantial costs in defending ourself in suits brought against us or in
bringing suits against other parties. We also protect our trade secrets and
proprietary know-how and technology by non-disclosure agreement and non-compete
agreements with its collaborators, employees and consultants. However, there can
be no assurance that these agreements will not be breached, that we would have
adequate remedies for any breach, and that our trade secrets and proprietary
know-how will not otherwise become known or be independently discovered by
others.
Government regulation
Our customers are required to comply with a number of federal, state and
local laws and regulations in the areas of safety, health and environmental
controls, including without limitation, the Resource Conservation and Recovery
Act, as amended and the Occupational Safety and Health Act of 1970, which may
require us, our prospective working partners or its customers to obtain permits
or approvals to utilize the Plasma Waste Converter and related equipment on job
sites. In addition, because we are marketing the Plasma Waste Converter
internationally and expect those sales to represent a significant portion of our
revenues, our customers will be required to comply with laws and regulations
and, when applicable, obtain permits or approvals in those other countries.
There is no assurance that these required permits and approvals would be
obtained. Furthermore, particularly in the environmental remediation market, we
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may be required to conduct performance and operating studies to assure
government agencies that the Plasma Waste Converter and its by-products do not
prove to be environmental risks. There is no assurance that these studies, if
successful, will not be more costly or time-consuming than anticipated. Further,
if new environmental legislation or regulations are enacted or existing
legislation or regulations are amended or are interpreted or enforced
differently, our prospective working partners and/or its customers may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals. There can be no assurance that our system's
performance will satisfy all of the applicable regulatory requirements.
Environmental matters
Our customers operations are subject to numerous federal, states and local
regulations relating to the storage, handling and transportation of regulated
materials. Although our role is generally limited to the sale or leasing of its
specialized technical equipment for use by our customers, there is always the
risk that equipment failures could result in significant claims against us. Any
claims against us could materially adversely affect our business, financial
condition and results of operations as well as the price of our common stock.
Manufacturing operations
Our products and systems are presently being manufactured pursuant to a
manufacturing agreement with Bauer Howden based on our engineering drawings,
specifications and production methods. Bauer Howden is an experienced
manufacturing company and also a strategic alliance partner. Bauer Howden is
manufacturing our systems in the United States in a modern, fully integrated,
80,000 square foot manufacturing and engineering facility in Bristol,
Connecticut. This facility is also fully qualified as a production facility in
manufacturing, in compliance with the military and government specifications of
the United States and many nations of the world.
Research and development
While the principal research and development to produce commercial Plasma
Waste Converters has been completed, we will continue to perform research and
development activities with respect to product improvement and new product
development, utilizing internal technical staff as well as independent
consultants. These activities have to date been entirely paid for and sponsored
by the company. No further research and development is required for Plasma Waste
Converters currently being marketed and sold. We will continue to develop and
design operational improvements which will be primarily in the area of the use
of the Plasma Converted Gas produced by the Plasma Waste Converter.
The company has not separately categorized or accounted for research and
development expenditures on its financial statements. All such expenditures have
been expensed as incurred. Until the fiscal year ended October 31, 1998 we were
considered a development stage company and virtually all expenditures were for
research and development. We expect to separately account for future research
and development activities.
We intend to expand our research and development efforts. In addition to
conducting ongoing tests, demonstrations and enhancements of the Plasma Waste
Converter, our efforts are expected to focus on the development of patentable
proprietary inventions in the field of high temperature thermochemistry.
Employees
As of June 12, 2000, we had 14 full-time employees, including seven with
engineering degrees. From time to time, we hire contract engineers for
particular projects and for a limited time. We believe that we have been
successful in attracting experienced and capable personnel. All officers and
directors have entered into agreements requiring them not to disclose any
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proprietary information, assigning all rights to inventions made during their
employment, and prohibiting them from competing with us. Our employees are not
represented by any labor union, and we believe that our relations with our
employees are satisfactory.
Properties
Our offices are located at 15 Old Danbury Road, Suite 203, Wilton,
Connecticut 06897-2525 where we lease 5,800 square feet of office space from CD
Station, LLC as landlord. The lease provides for monthly payments of $ 14,017,
increasing annually to December 2004, when the lease expires. There is an option
for us to extend the lease for a five (5) year term with the Landlord having the
right to cancel the lease after two (2) years of the extended term if the
buildings main tenant, The Common Fund, requires the additional space for their
corporate offices.
Legal proceedings
We, Joseph Longo, President, John Watts our former Executive Vice
President, and Chief Financial Officer, and Kevin Black, Senior Vice President
and General Counsel, both in their capacity as officers and personally, are
defendants in a lawsuit filed in the U.S. District Court for the District of
Connecticut, in Bridgeport, Connecticut. The court has dismissed the claims
against Mr. Black. The lawsuit was filed by John Easton of Oakville, Canada. The
complaint demands payment of 475,000 shares of our common stock, for commissions
and/or fees for services rendered to us in connection with raising funds needed
to consummate the reverse acquisition on November 17, 1995, of Startech
Corporation by Kapalua Acquisitions, Incorporated, subsequently renamed Startech
Environmental Corporation. Shortly after the above action was filed, Mr.
Easton's two sons, Dexter Easton and Spencer Easton, commenced an additional
action against us for our refusal to lift a restrictive legend on stock issued
to them at the time of the reverse acquisition. They demanded we remove the
restrictive legend from 28,882 shares. The two actions were joined as they arise
from the same fact pattern and transaction. The parties at a mandatory
settlement conference agreed to an oral settlement in principal on May 26, 2000
at the U.S. District Court in Bridgeport, Connecticut before a magistrate. The
principal terms of the settlement call for the removal of the restrictive legend
from 28,882 shares of common stock held by Spencer and Dexter Easton and the
issuance of 171,118 shares of common stock that previously been paid for by John
Easton. John Easton will also receive an option to purchase 25,000 unregistered
shares of our common stock at $10.00 per share exercisable after three years
from the date the agreement is executed. The sale of all of the shares subject
to this agreement, excluding the stock options, will be governed by a
restrictive liquidation clause limiting the number of shares that may be sold
during specific time periods. It will take a minimum of 20 months for all the
shares to be sold assuming they are sold at the maximum allowable rate. While
the principal terms of the settlement have been agreed upon, the parties must
still negotiate and agree upon the remaining details and execute a complete
settlement agreement.
On December 19, 1997 we brought suit in Federal Court, District of
Connecticut, seeking a preliminary injunction to enforce a Non-disclosure and
Non-compete provisions with respect to four distributorship agreements executed
by David Ivey in his personal capacity and in his capacity as a corporate
officer for these four companies. The Federal District Court entered a
Stipulation of Judgment of Dismissal with Prejudice in this suit on March 15,
2000. The Stipulation was entered into without costs to either party.
37
<PAGE>
MANAGEMENT
The names and ages of the Directors and Executive Officers of Startech
and their positions are as follows:
Name Age Position
---- --- --------
Joseph F. Longo 68 Chairman, CEO, President, Chief Financial
Officer, and Director
Joseph S. Klimek 63 Executive Vice President, Chief Operating
Officer
Kevin M. Black 38 Senior Vice President, General Counsel
Secretary, and Director
Robert L. DeRochie 35 Vice-President, Investor Relation
Peter J Scanlon 51 Vice President and Director of Finance
John R. Celentano 52 Director
Joseph F. Longo
Prior to founding Startech Corporation, Mr. Longo was employed by
Consolidated Defense Corp. where he served as president of the company from 1990
- 1994. Consolidated Defense Corp. was incorporated to develop and manufacture
shipboard waste compacting equipment for the U.S. Navy, Prior thereto; Mr. Longo
was founder and Chief Operating Officer of the International Dynetics Corp., a
waste industry capital equipment manufacturing company with multinational
customers from 1969 to 1990. Prior thereto, he was Manager of New Product and
Business Development for AMF from 1959 to 1969. He has been awarded many waste
industry equipment patents, all of which have been successfully commercialized.
He is a mechanical engineer and operating business executive, with more than 25
years of waste industry management experience. Mr. Longo has been our Chairman,
President and a Director since November 1995.
Joseph S. Klimek
For the ten years prior to joining us in December 1998, Mr. Klimek was a
Program Director and Vice President for Burns and Roe Services Company where he
was also a member of its Board of Directors. Burns and Roe are an architectural
& Engineering firm that designs, builds and operates facilities mainly in the
energy and power sector. He was responsible for its Telecommunications programs,
and the Defense and Aerospace Programs. Prior to joining Burns and Roe, Mr.
Klimek was the Director of Business Operations for the Grumman Aerospace Company
where he led many major programs that include the Apollo Space Mission Module,
the Space Shuttle, the F-14, A6 and other combat aircraft. In addition, under
his leadership, his division secured the contract and was responsible for Launch
Operations of the NASA Kennedy Space Center.
Mr. Klimek is an internationally recognized expert in the safe destruction of
lethal chemical weapons and other dangerous materials. He has presented
technical papers to the National Research Council, the Russian Academy of
38
<PAGE>
Sciences, the Military Institute of Chemistry and Radiometry, the Air Force
Institute of Technology and Management and to other academic and environmental
organizations.
Kevin M. Black
Mr. Black has been Secretary and a member of our Board of Directors since
November 1995. In October 1999 he joined us on a full time basis as Senior
Vice-President and General Counsel. From October 1994 to October 1999 Mr. Black
was an Assistant States Attorney with the State of Connecticut, Division of
Criminal Justice. From January 1993 to October 1994, Mr. Black was associated
with the law firm of Reid, Corsello and Cafero, Norwalk, Connecticut, in the
general practice of corporate and criminal law. From January 1991 to October
1992, Mr. Black was associated with the law firm Feinstein & Hermann, P.C.
Norwalk, Connecticut. Prior to 1991, Mr. Black was an insurance industry
executive with the Heffner Insurance Agency, Inc.
Robert L. DeRochie
Mr. DeRochie was appointed to his present position as Vice President of
Investor Relations in June of 1999. From February 1999 to June 1999 Mr. DeRochie
was seeking employment. Prior to joining us, Mr. DeRochie was Vice President of
Queensway Investment Counsel, a Canadian company, from March 1997 through
February 1999. At Queensway, he was responsible for managing the investment
portfolios of 14 U.S. financial companies. Prior to Queensway, from June 1987
through December 1996, Mr. DeRochie was an officer at National Reinsurance
Corporation, where he was responsible for portfolio management as well as
communications with analysts and institutional traders.
Peter J. Scanlon
Mr. Scanlon joined us as Controller in December 1998 and was appointed to
his present position in September 1999. Prior to joining us, Mr. Scanlon was
Director of Financial Services for Vivax Medical Corporation, a publicly traded
manufacturing company located in Bristol, Connecticut, from November 1996 to
December 1998. Prior to Vivax, Mr. Scanlon's extensive corporate financial and
systems background includes 18 years with the IBM Corporation in the accounting,
finance and financial systems areas. As Manager of International Finance Systems
Development, Mr. Scanlon was successful in the development and installation of
the reporting system being used by IBM's six largest international subsidiaries.
While on a three-year assignment in London, England, he also developed and
implemented financial procedures and controls for IBM's European manufacturing
headquarters in Brentford, England.
John R. Celentano
Mr. Celentano was elected a Director of our Company on February 25, 2000.
Mr. Celentano has been involved with us as a paid consultant and a commissioned
representative of our products since 1996. He is currently the President of
Global Ventures Group, Inc., a position he has held since 1990. Global is a
consulting company that provides client companies with services that include
international market development, intellectual property licensing, alliances and
partnering, and mergers and acquisitions. Prior to forming Global Ventures
Group, Inc., Mr. Celentano was Vice President - International at United Media in
New York City where he directed the company's business growth in more than 50
countries. During his nine years at United Media, Mr. Celentano established a
worldwide network of sales agents covering Europe, Latin America, and Asia, and
set up regional sales offices in the European Union and the Pacific Rim. Before
United Media, he was an international marketing executive at Fisher-Pric Toys,
Aerospatiale, and Mack Trucks.
39
<PAGE>
Mr. Celentano is a graduate of Monmouth College, Illinois, and holds a
M.B.A. from Lehigh University, Bethlehem, PA. He serves on the Advisory Board of
the Business Development Center at the University of Connecticut's Graduate
School of Business, and is a member of the Licensing Executives Society.
All Directors are elected for a period of one year at Startech's Annual
Meeting of Shareholders and serve until their successor is duly elected and
qualified. Officers are appointed and serve at the pleasure of the Board of
Directors.
The entire Board of Directors acts on compensation matters concerning
salaries and incentive compensation for our executive officers and administers
our employee stock option plans. In addition to the foregoing, our directors
discharge their responsibilities throughout the year through personal meetings
and other communications, including considerable telephone contact with the
Chairman and others regarding matters of interest and concern.
Directors, who are currently officers and employees of Startech, receive no
additional compensation for acting as a director. Outside Directors will receive
compensation of $10,000 per year and the reimbursement for out-of-pocket
expenses.
Executive compensation
Summary compensation table
The following table sets forth information concerning the compensation of
our Chief Executive Officer and those other executive officers whose total
salary, bonus and other compensation earned for fiscal years ending October 31,
1997, 1998 or 1999 exceeded $100,000:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Annual Compensation
# Shares
Name and Fiscal Other Annual Underlying All
Principal Position Year Salary Bonus Compensation (1) Options other
------------------ ---- ------ ----- ---------------- -------------- -----
<S> <C> <C> <C>
Joseph F. Longo, 1999 $151,170 - 3,353 - -
Chairman, CEO 1998 $100,000 - 1,770 - -
1997 $105,564 - - - -
Joseph S. Klimek, 1999 $127,606 - - - -
Chief Operating
Officer
</TABLE>
(1) Mr. Longo has full time use of an automobile, which is paid for by
Startech.
Employment Agreements. There are no employment agreements between Startech and
any officers or directors.
40
<PAGE>
Employee Benefit Plans
1995 Stock Option Plan
We adopted a Stock Option Plan in November 1995 under which a total of
2,000,000 shares are currently reserved for issuance to employees (including
officers and directors who are employees) and other persons associated with us
whose services have benefited us. Options granted pursuant to the plan are
non-qualified stock options. The Plan is administered by the compensation
committee of the board of directors which selects the employees to whom the
options are granted, determines the number of shares subject to each option,
sets the time or times when the options will be granted, determines the time
when the options may be exercised and establishes the exercise date and price.
The board determines the term of each option granted under the Plan, but in no
event may the option grant exceed ten years. As of April 31, 2000, options to
purchase an aggregate of 1,664,411 shares were issued at a weighted average
exercise price of $3.77 per share and 325,589 shares remained available for
future option grants under the Plan.
2000 Stock Option Plan
Our 2000 Stock Option Plan was adopted by our board of directors in January
2000 and was approved by our stockholders in February 2000. The 2000 plan
authorizes the issuance of up to 1,000,000 shares of our common stock. No
options have been granted to date.
The 2000 plan provides for the grant of incentive stock options intended to
qualify under section 422 of the Internal Revenue Code and nonstatutory stock
options. Our officers, directors, employees and consultants, and employees and
consultants of our majority-owned affiliated companies, are eligible to receive
awards under the 2000 plan.
Optionees receive the rights to purchase a specified number of shares of
common stock at a specified option price and subject to other terms and
conditions as are specified in connection with the option grant. Generally, no
portion of an incentive stock option may vest within twelve months of the grant.
We may grant options at an exercise price greater than or equal to the fair
market value of our common stock on the date of grant or not less than 110% of
the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the company. Fair market
value for purposes of the 2000 plan is the closing market price of our common
stock as reported on the OTC Bulletin Board on the relevant date.
Our compensation committee administers the 2000 plan. The committee has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. Our compensation
committee selects the recipients of awards and determines the number of shares
of common stock covered by the options and the dates upon which the options
become exercisable and terminate, subject to provisions of the 2000 plan.
Incentive stock options must terminate within ten years of the grant.
Nonstatutory options must terminate within fifteen years of the date of grant.
The compensation committee has right to alter the terms of any option when
granted or while outstanding pursuant to the terms of the 2000 plan except the
option price.
All options automatically become excisable in full in the event of a change
in control (as defined in the 2000 plan), death or disability of the optionee or
as decided by the compensation committee. Upon retirement options held at least
one year become exercisable in full. If an optionee's employment with us is
terminated for any reason, except death, disability or retirement, the optionee
has three months in which to exercise an option (but only to the extent
exercisable immediately after termination) unless the option by its terms
expires earlier. Termination or other changes in employment status may affect
the exercise period.
41
<PAGE>
Elimination of monetary liability for directors and officers
Our Articles of Incorporation contains provisions permitted under the
General Corporation Laws of Colorado relating to the liability of directors. The
provisions eliminate a director's liability for monetary damages for a breach of
fiduciary duty, including gross negligence, except in circumstances involving
wrongful acts. The breach of a director's duty of loyalty or acts or omissions
involve intentional misconduct or a knowing violation of the law. These
provisions do not eliminate a director's duty of care nor do they prevent
recourse against directors through equitable remedies and injunctive relief.
Moreover, the provisions do not apply to claims against a director for
violations of securities law, including federal securities laws. There are also
agreements indemnifying the officers of Startech to the same extent that the
directors are indemnified by the Articles of Incorporation
Indemnification of officers and directors
Our Articles of Incorporation contains provisions to indemnify the
directors to the fullest extent permitted by the General Corporation Law of
Colorado. These provisions may have the practical effect in cases of eliminating
the ability of shareholders to collect monetary damages from directors. We
believe that these provisions will assist us in attracting or retaining
qualified individuals to serve as directors. There are also agreements
indemnifying the officers of Startech to the same extent that the directors are
indemnified by the Articles of Incorporation
Compensation committee interlocks and insider participation
The Board of Directors acted as the Compensation Committee for fiscal 1999.
Except with respect to their compensation arrangements, Mr. Longo, Chairman and
President of Startech and Mr. Klimek, Executive Vice President and Chief
Operating Officer participated in executive compensation deliberations and
recommendations of the Board of Directors. During the fiscal year ended October
31, 1999, no executive officer served on the board of directors or compensation
committee of another company that had an executive officer serving on our Board
of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. John R. Celentano, who became a director of Startech on February 25,
2000, performed various paid consulting projects for Startech for the fiscal
year ended October 31, 1999 and continues his involvement as a commissioned
representative for our products. His total compensation for consulting services
in fiscal 1999 was $52,322. Rosario Celentano a stockholder of ours and the
father of John R Celentano our director loaned us $100,000 pursuant to a demand
note dated September 1, 1995 with interest payable at 9.00% per year. The loan
was repaid in 1999 by issuing Mr. Celentano 10,000 shares of our preferred
stock. Accrued interest was forgiven.
On December 29, 1998 we entered into a short-term loan agreement for $750,000
with the Connecticut Development Authority. The note bore interest at 6.55% per
year, and was due within one year or the completion of a public offering,
whichever occurred first. Our assets collateralized the note. In addition Joseph
F Longo our President personally guaranteed up to 28% of the loan and Leonard
Knap a shareholder and former officer pledged 100,000 shares of our common stock
as collateral. This note was paid in September 22, 1999 with proceeds from the
issuance of the preferred stock in a private placement. Paradigm Group LLC the
beneficial owners of 9.52% of our common stock acted as an agent for the Company
in connection with the private placement of our preferred stock for which they
received $ 509,725 in cash compensation plus warrants to purchase 35, 819 shares
of preferred stock.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 12, 2000 by (1) each Shareholder who
owns beneficially 5% or more of the outstanding shares of common stock, (2) each
of Startech's directors, (3) each named executive officer and (4) all directors
and executive officers of Startech as a group. Except as otherwise indicated we
believe that the beneficial owners of the common stock listed below, based on
information furnished by these owners, have sole investment and voting power
with respect to their shares, subject to community property laws where
applicable.
No. of Percent of
Name and Address of Beneficial Owner Shares Total
------------------------------------ ------ -----
Joseph F. Longo (1) 1,879,898 24.36%
Leonard V. Knap 1,878,898 24.36%
140 West 3rd Street
Hamilton, Ontario L9C-3K7
Canada
John R. Celentano (5) 196,958 2.55%
Kevin M. Black(1) 41,404 *
Joseph S. Klimek (1) 3,000 *
Peter J. Scanlon(1) (3) 2,000 *
Robert L. DeRochie (1) (2) 42,575 *
Paradigm Group LLC (4) 734,588 9.52%
3000 Dundee Road, Suite 105
Northbrook, IL 60062
Connecticut Development Authority (6) 433,268 5.61%
999West Street, Rocky Hill, CT 06067
All Officers and Directors
as a Group (6 persons) 4,044,773 52.44%
*Less than one (1%) percent
Applicable percentage of ownership is based on 7,715,292 common shares
outstanding as of June 12, 2000 and treats as outstanding all shares issuable
upon conversion of preferred stock and exercise of warrants held by beneficial
owners that are included in the first column. Presently convertible preferred
shares and presently exercisable warrants and those convertible or exercisable
within 60 days of the date of this prospectus held by beneficial owners that are
included in the first column.
(1) Unless otherwise noted the addresses all of persons listed above are in
care of Startech at 15 Old Danbury Road, Suite 203, Wilton, Connecticut,
06897-2525.
43
<PAGE>
(2) Includes 41,155 shares held directly by Mr. DeRochie and 1,420 shares held
in the name of his children, as to which he disclaims beneficial ownership.
(3) Includes 1,000 shares held directly by Mr. Scanlon and 1,000 shares held in
name of his spouse, as to which he disclaims beneficial ownership.
(4) Paradigm Group LLC is a privately held company whose controlling persons
and beneficial owners are Sheldon Drobny, Aaron J. Fischer, Reuben
Rosenberg, and Randy Goulding. Includes 297,648 shares of preferred stock
and 214,462 warrants that are respectively presently convertible and
exercisable.
(5) Includes 196,958 shares held directly by Mr. Celentano and 10,013 shares
held directly by Mrs. Celentano, as to which he disclaims beneficial
ownership.
(6) Includes 433,268 currently exercisable warrants to purchase shares of our
common stock at $7.00 per share issued to the Connecticut Development
Authority. Connecticut Development Authority is an agency of the State of
Connecticut. These warrants will expire on December 31, 2001.
44
<PAGE>
SELLING SECURITY HOLDERS
An aggregate of up to 1,684,235 shares of our common stock may be offered
by holders of warrants who upon exercise of their warrants will be entitled to
receive 829,732 shares, by holders of preferred stock who upon conversion of
their preferred stock will be entitled to receive 710,625 shares, and by of
additional 143,878 shares being offered hereby by persons who have already
converted their shares of preferred stock into shares of our common stock. All
of these securities were acquired by the holders in a private placement which
granted registration rights with respect to 50% of the preferred stock purchased
and the common stock issuable upon conversion of the preferred stock and for all
the warrants issued to the purchasers of the preferred stock. In addition this
includes 433,268 shares issuable upon exercise of the warrants acquired by
Connecticut Development Authority. None of the sellers of securities has, or has
had within the past three years any position, office or other material
relationship with us or any of our predecessors or affiliates, except as noted.
The following tables reflect these persons or entities ownership of preferred
stock, warrants to purchase common stock and common stock previously issued upon
conversion of preferred stock.
<TABLE>
<CAPTION>
Convertible Preferred Stock
Shares Beneficially
Owned After the Offering
Shares Beneficially Maximum ------------------------
Name of Beneficial Owner Owned Before the Offering No. of Shares to be sold Number Percentage(4)
------------------------ ------------------------- ------------------------ ------ -------------
Number(1) Percentage Preferred Common(2) Preferred Common(3) Preferred Common
--------- ---------- --------- --------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Joseph A. McGee 1000 * 500 1250 500 1250 * *
Sam & Mary Papa 1000 * 500 1250 500 1250 * *
Fred Cohen 1250 * 625 1563 625 1563 * *
Walter & Mary Goss 1250 * 625 1563 625 1563 * *
Pat Ciampi 1250 * 625 1563 625 1563 * *
Sebastin J & Marie D. Filippone 1500 * 750 1875 750 1875 * *
Roy Toppel & Marianne Toppel 1500 * 750 1875 750 1875 * *
Peter Reilly 1502 * 751 1876 750 1876 * *
Joseph R Rindler Jr. 2500 * 1250 3125 1250 3125 * *
Russell E. Wagner 2500 * 1250 3125 1250 3125 * *
Thomas Canning & Mary Canning 2500 * 1250 3125 1250 3125 * *
Alfred G Faller 2500 * 1250 3125 1250 3125 * *
James Wingard 2500 * 1250 3125 1250 3125 * *
Pierre A Rochat & Valerie T. Rochat 2500 * 1250 3125 1250 3125 * *
David Downs 2500 * 1250 3125 1250 3125 * *
Jeanne Johnston 2500 * 1250 3125 1250 3125 * *
Meta C. Mergott Foundation 2500 * 1250 3125 1250 3125 * *
Noel & Catherine Groeschel 2500 * 1250 3125 1250 3125 * *
Stephen & Kathy Schwab 2500 * 1250 3125 1250 3125 * *
William Van Syckle 2500 * 1250 3125 1250 3125 * *
Robert & Jeannette Salerno 3000 * 1500 3750 1500 3750 * *
Steve J. Lamb 3000 * 1500 3750 1500 3750 * *
Richard Dunham 3500 * 1750 4375 1750 4375 * *
In-x-Excess 3500 * 1750 4375 1750 4375 * *
Robert & Susan Egan 5000 * 2500 6250 2500 6250 * *
Charles F. Lubeck 5000 * 2500 6250 2500 6250 * *
Jeanne Turner 5000 * 2500 6250 2500 6250 * *
Norman & Geraldine Jaffe 5000 * 2500 6250 2500 6250 * *
Ann Ritson 7500 1.0% 3750 9375 3750 9375 * *
Rosetta & Rosario Celentano 10,000 1.4% 5000 12500 5000 12500 * *
John & Jennifer Hamlet 10,000 1.4% 5000 12500 5000 12500 * *
Scott Edwards & Kara Edwards 20,000 2.9% 10000 25000 10000 25000 1.5% *
Circle Group Internet, INC 50,000 7.1% 25000 62500 25000 62500 3.6% *
Larry Lacerte 100,000 14.3% 50000 125000 50000 125000 7.2% 1.6%
Paradigm Group LLC 297,748 42.7% 148874 372185 148874 372185 21.4% 4.8%
</TABLE>
* Represent less than one percent.
(1) Represents number of preferred shares purchased in private placement
(2) Represents number of shares of common stock issuable upon conversion of
preferred stock at $4.00 per share.
(3) Does not include any shares of common stock acquired other than by
conversion of the preferred stock which in each case is less that 1%.
45
<PAGE>
(4) Applicable percentage of ownership is based on 7,715,292 common shares
outstanding as of June 12, 2000 and treats as outstanding all shares
issuable upon conversion of preferred stock are included in the first
column. Presently convertible preferred shares and presently exercisable
warrants are those convertible or exercisable within 60 days of the date of
this prospectus held by beneficial owners that are included in the first
column.
<TABLE>
<CAPTION>
Warrants
Warrants/Shares Beneficially
Owned After the Offering
Warrants Beneficially Maximum No. of ------------------------
Name of Beneficial Owner Owned Before the Offering Warrants/Shares to be sold Number Percentage
------------------------ -------------------------- -------------------------- ------ ----------
Number(1) Percentage Warrants/Common(2) Warrants Common
--------- ---------- ------------------ -------- ------
<S> <C> <C> <C> <C>
Joseph A. McGee 500 * 500 0 0
Sam & Mary Papa 500 * 500 0 0
Fred Cohen 625 * 625 0 0
Walter & Mary Goss 625 * 625 0 0
Pat Ciampi 625 * 625 0 0
Sebastin J & Marie D. Filippone 750 * 750 0 0
Roy Toppel & Marianne Toppel 750 * 750 0 0
Peter Reilly 751 * 751 0 0
Joseph R Rindler Jr. 1250 * 1250 0 0
Russell E. Wagner 1250 * 1250 0 0
Thomas Canning & Mary Canning 1250 * 1250 0 0
Alfred G Faller 1250 * 1250 0 0
James Wingard 1250 * 1250 0 0
Pierre A Rochat & Valerie T. Rochat 1250 * 1250 0 0
David Downs 1250 * 1250 0 0
Jeanne Johnston 1250 * 1250 0 0
Meta C. Mergott Foundation 1250 (3) * 1250 0 0
Noel & Catherine Groeschel 1250 * 1250 0 0
Stephen & Kathy Schwab 1250 * 1250 0 0
William Van Syckle 1250 * 1250 0 0
Robert & Jeannette Salerno 1500 * 1500 0 0
Steve J. Lamb 1500 * 1500 0 0
Richard Dunham 1750 * 1750 0 0
In-x-Excess 1750 (4) * 1750 0 0
Robert & Susan Egan 2500 * 2500 0 0
Charles F. Lubeck 2500 * 2500 0 0
Jeanne Turner 2500 * 2500 0 0
Norman & Geraldine Jaffe 2500 * 2500 0 0
Ann Ritson 3750 * 3750 0 0
Rosetta & Rosario Celentano 5000 1.2% 5000 0 0
John & Jennifer Hamlet 5000 1.2% 5000 0 0
Scott Edwards & Kara Edwards 10,000 2.5% 10000 0 0
Circle Group Internet, INC 25,000 (5) 6.3% 25000 0 0
Larry Lacerte 50,000 12.6% 50000 0 0
Paradigm Group LLC 148874 37.5% 148874 0 0
A Richard Cierpik 1250 *0 1250 0 0
Alan Parks 1250 * 1250 0 0
Ann Ritson 8000 2.0% 8000 0 0
Charles Schwab FBO F. J. Arkfeld/ 21740 (6) 5.5% 21740 0 0
Charles Schwab FBO F. J. Arkfeld/ 3750 (6) * 3750 0 0
David L. Addazio & Greg Bergholtz 1250 * 1250 0 0
Francis J. & Theresa M. Arkfeld 2500 * 2500 0 0
Francis J. Arkfeld Trust 2500 (7) * 2500 0 0
Fred & Mary Beth Marinelli 1250 * 1250 0 0
Greater Syracuse Moving & Storage 2500 * 2500 0 0
Jennifer & Paul Amrose 900 * 900 0 0
Josall Syracuse Inc. 2500 (9) * 2500 0 0
Judith Landa 1250 * 1250 0 0
Mark Schmitz 1250 * 1250 0 0
Odisseas Lex Mirianthepoulos 1650 * 1650 0 0
Pru Sec John P. Cavanaugh IRA 500 * 500 0 0
Pru Sec Ray Holtman IRA 1000 * 1000 0 0
S.S.M. INC 750 (10) * 750 0 0
Salvator Vigiotti Mary Ellen Vigiotti 750 * 750 0 0
Scott Fleming 5000 1.3% 5000 0 0
Stephen Firmender 1250 * 1250 0 0
Steven Franklin 1250 * 1250 0 0
Theresa M. Arkfeld Trust 200 (7) * 200 0 0
Connecticut Development Authority 433,268 (11) 5.0 433,268 0 0
</TABLE>
* Represent less than one percent.
46
<PAGE>
(1) Represents number of warrants acquired in private placement
(2) Represents number of shares of common stock issuable upon exercise of
warrants at $15.00 per share.
(3) The Meta C. Mergott Foundation is a private charitable foundation,
which is controlled by Nelson G. Mergott, Roxanne W. Mergott, Mae R.
Smith, and Robert R. Thomson, trustees.
(4) In-X-Cess is a privately owned LLC controlled by Richard Cierpik
(5) Circle Group Internet is a privately owned company in the web site
development business. CGI Capital a wholly owned subsidiary is a
broker dealer controlled by Circle Group Internet Inc. Frank Menon is
President of and controls Circle Group Internet, Inc.
(6) Charles Schwab is a publicly owned broker-dealer holding the
securities for its customer F.J. Arkfeld.
(7) The Francis J Arkfeld trust and Theresa M. Arkfeld trust are private
trusts for the benefit of Francis J. Arkfeld and Theresa M. Arkfeld.
(8) Greater Syracuse Moving and Storage is a privately owned company held
by Sean Cleland and his brother John Cleland.
(9) Josall Syracuse Inc. is a privately owned company held by Salvator J.
Vigliotti and his brother John Vigliotti.
(10) S.S.M. Inc. is a privately owned company controlled by Mike Maselli.
(11) Represents number of shares of common stock issuable upon exercise of
warrants at $7.00 per share issued to the Connecticut Development
Authority.
<TABLE>
<CAPTION>
Common Stock
Shares Beneficially
Owned After the Offering
Shares Beneficially Maximum ------------------------
Name of Beneficial Owner Owned Before the Offering No. of Shares to be sold Number Percentage
------------------------ ------------------------- ------------------------ ------------------------
Number(1) Percentage Common(2) Common Common
--------- ---------- ------ ------
<S> <C> <C> <C>
A Richard Cierpik 6020 * 3010 3010 *
Alan Parks 5608 * 2804 2804 *
Ann Ritson 39452 * 19726 19726 *
Charles Schwab Francis J. Arkfeld/ 105944 1.2% 52972 52972 *
Charles Schwab Francis J. Arkfeld/ 18474 * 9237 9237 *
David Addazio Mr. Bergholtz 6004 * 3002 3002 *
Francis J. & Theresa M. Arkfeld 10340 * 5170 5170 *
Francis J. Arkfeld Trust 10340 * 5170 5170 *
Fred & Mary Beth Marinelli 5192 * 2596 2596 *
Greater Syracuse Moving Co. 8714 * 4357 4357 *
Jennifer & Paul Amrose 3752 * 1876 1876 *
Josall Syracuse Inc. 8714 * 4357 4357 *
Judith Landa 5608 * 2804 2804 *
Mark Schmitz 6116 * 3058 3058 *
Odisseas Lex Mirianthepoulos 5752 * 2876 2876 *
Pru Securities C/O Ray Holtman IRA 3576 * 1788 1788 *
S.S.M. INC 2614 * 1307 1307 *
Salvator J. Vigiotti Mary Vigiotti 2614 * 1307 1307 *
Scott Fleming 17430 * 8715 8715 *
Stephen Firmender 6180 * 3090 3090 *
Steven Franklin 6116 * 3058 3058 *
Theresa M. Arkfeld Trust 824 * 412 412 *
</TABLE>
------------------
* Represent less than one percent.
(1) Represents number of shares issued upon conversion of preferred stock
purchased in private placement
(2) Does not include any shares of common stock acquired other than by
conversion of the preferred stock which in each case is less that 1%
47
<PAGE>
PLAN OF DISTRIBUTION
The sales of securities may sell the shares and warrants being offered
hereby: (1) through dealers or in ordinary broker transactions, in the
over-the-counter market or otherwise, (2) at the market, or through market
makers or into an existing market for the securities, (3) in other ways not
involving market makers, or established trading markets, including direct sales
to purchasers or effected through agents, or (4) in combinations of any methods
of sale. Sales may be made at fixed prices, which may be changed, at market
prices prevailing at the time or sale or at negotiated prices.
If a dealer is utilized in the sale of the securities in respect of which
the prospectus is delivered, the sales of securities will sell their securities
to the dealer, as principal. The dealer may then resell these securities to the
public at varying prices to be determined by the dealer at the time of resale.
Sales of securities at the market and not at a fixed price, which are made
into an existing market for the securities, will be made by the sales of
securities to or through a market maker, acting as principal or as agent. Other
sales may be made, directly or through an agent, to purchasers outside existing
trading markets.
A selling broker may act as agent or may acquire the securities or
interests therein as principal or pledgee and may, from time to time, effect
distributions of these securities.
The sales of securities and broker-dealers, if any, acting in connection
with the sale of the securities might be deemed to be underwriters within the
meaning of Section 2 (11) of the securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Isolated and unsolicited sales of securities being offended are eligible
for sale in all jurisdiction of the United States. Registered broker-dealers can
make solicited trades of the securities being offered in the following states:
Alabama Iowa New York
Arizona Kentucky North Carolina
Arkansas Louisiana Oklahoma
California Maine Pennsylvania
District of Columbia Massachusetts Rhode Island
Florida Missouri South Dakota
Georgia Nevada Tennessee
Illinois New Mexico Washington
Indiana
With respect to all other states, solicited sales may only be purchased by
institutional investors.
The CDA warrants provide that the holder will not sell, during any five
business day period, a number of shares of common stock representing greater
than 7% of the average weekly reported trading volume of the common stock during
the four calendar weeks preceding the date of sale. This provision terminates
upon the earlier of (1) July 1, 2002 or (2) the date that any director or
officer of the company named in this prospectus sells, during any five business
day period shares of common stock representing greater that 7% of the average
weekly reported trading volume of the common stock during the four calendar
weeks preceding the date of such sale.
No sales or distributions other than as described herein may be effected
until after this prospectus shall have been appropriately amended or
supplemented.
DESCRIPTION OF SECURITIES
General
We are authorized by our Certificate of Incorporation to issue an aggregate
of 800,000,000 shares of common stock, no par value per share, and 10,000,000
shares of preferred stock no par value per share. Upon consummation of this
offering, 319,756 shares of preferred stock and 9,125,590 shares of commons
stock will be outstanding. The following description of our capital stock is
based upon, and is qualified in its entirety by reference to our articles of
incorporation, as amended and our by-laws as amended.
48
<PAGE>
Common stock
As of June 12, 2000 there were 7,715,292 shares of common stock outstanding
that were held of record by approximately 1,591 stockholders. Holders of our
common stock are entitled to one vote per share for each share held on all
matters submitted to a vote of the stockholders. We do not have cumulative
voting rights in the election of directors, and accordingly holders of a
majority of the shares entitled to vote in any election of directors may elect
all of the directors standing for election. Subject to preferential rights with
respect to any outstanding preferred stock, holders of our common stock are
entitled to receive proportionately dividends as may be declared by our board of
directors out of funds legally available. In the event of our liquidation,
dissolution or winding up, holders of our common stock are entitled to share
proportionately in our available assets after payments of all debts and other
liabilities. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. Our outstanding shares of our common stock are,
and the shares of our common stock offered hereby, will upon completion of the
offering, be, validly issued, fully paid and non-assessable. The rights,
preferences and privileges of holders of our common stock are subject to and may
be adversely affected by rights of the holders of shares of currently issued and
outstanding preferred shares and any series of preferred stock, which we may
designate and issue in the future.
Preferred stock
Under the terms of our articles of incorporation as amended, our board of
directors is authorized to issue shares of preferred stock in one or more series
without stockholder approval. Our Board of Directors has the discretion to
determine the rights, preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with raising capital as well as
for possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or could discourage a
third party from acquiring a majority of our outstanding voting stock. We have
no present plans to issue any additional shares of preferred stock.
In the fiscal year ended October 31, 1999 our board of directors authorized
the issuance of up to 2,500,000 shares of Series 8% cumulative convertible,
redeemable preferred stock of which 696,978 shares were issued and sold in a
private placement at $10.00 per share for aggregate proceeds of $6,969,780, less
commissions of $550,725.
For every two shares of preferred stock purchased, we granted one common
stock warrant exercisable at $15.00 per share. As of February 25, 2000 shares of
preferred stock converted into common stock, at a rate determined by dividing
the purchase price per share ($10) by eighty percent of the market price per
share of our common stock for the five trading days prior to conversion. In no
event shall the conversion price be less than $4 per share, or more than $6 per
share. On September 15, 2002, the preferred stock may be redeemed at the option
of Startech $10 per share, plus all accumulated and unpaid dividends. If we do
not redeem the shares of preferred stock they will automatically be converted to
shares of our common stock at the rate of $5 per share, or the closing market
price of the common stock on September 15, 2002, which ever is higher. We are
required to pay dividends on the shares of preferred stock at the rate of 8.00%
per year based on the $10 purchase price. The dividends are payable in
additional shares of preferred stock on the last business day of March, June,
September, and December.
49
<PAGE>
The holders of the preferred stock will not be entitled to vote, except
that the affirmative vote of at least a majority of the outstanding shares of
preferred stock, voting as a class, shall be required to authorize, the creation
and issuance of any class or series of securities ranking senior to, or on
parity with, the preferred stock or any matter with respect to the declaration
and payment of dividends or distribution of assets on liquidation, dissolution,
or winding up of our company.
In the event of any voluntary liquidation, dissolution, or winding up of
our company, before payment or distribution of our assets may be set apart to
the holders of common stock or any stock ranking junior to the preferred stock,
the holders of the preferred stock will be entitled to receive, out of our
assets legally available therefore, a liquidating distribution per share equal
to the redemption price on the date of the liquidation, plus any accumulated and
unpaid dividends. If, upon any voluntary or involuntary liquidation, dissolution
or winding up of our company, our assets are insufficient to make full payment
of a liquidating distribution per share plus all accumulated and unpaid
dividends to the holders of the preferred stock, and similar payments on any
other class of stock ranking on a parity with the preferred stock upon
liquidation, then the holders of the preferred stock and other shares shall
share ratably in any distribution of our assets in proportion to the full
respective distributable amounts to which they are entitled.
There is no restriction on the repurchase or redemption of our common stock
while there is any arrearage in the payment of dividends on the preferred stock.
No dividends may be paid on any shares of common stock unless and until all
accumulated and unpaid dividends on the preferred stock have been declared and
paid in full.
Warrants
In conjunction with our issuance of the preferred stock we issued warrants
to purchase 348,489 shares of our common stock at a price of $15.00 per share.
We also granted a total of 47,975 broker warrants to brokers who participated in
the private placement. The broker was entitled to additional warrants equal to
10 percent of the total dollars raised divided by the preferred stock price of
$10.00 per share. These warrants expire on August 31, 2001 provided the average
closing bid prices of our common stock for the previous thirty trading days is
$16.50 or higher. In the event the average closing bid price for our common
stock is lower than $16.50 per share, the exercise period of the warrants will
be extended until our common stock exceeds $16.50 per share for ten consecutive
trading days. At that point we can give the warrant holders thirty days notice
that the warrants will expire. Should we choose not to cause the expiration of
the warrants sooner, they will expire on August 31, 2004.
In June, 2000 we issued to the Connecticut Development Authority warrants
to purchase 433,268 shares of our common stock at $7.00 per share. The CDA
warrants are exercisable at any and from time to time through December 31, 2001.
The CDA warrants provide for a limit on the shares of common stock that can be
sold upon exercise of the CDA warrants during any five day period equal to 7.0%
of the average weekly reported trading volume of the common stock during the
four calendar weeks preceding the date of sale. In addition if on or before July
1, 2002 the holder publicly sells any shares of our common stock at a price per
share less than $7.00 we shall pay the holder an amount equal to his realized
loss in cash or in our discretion in shares of our common stock valued at the
current market price at the time of payment or in any combination of cash and
shares. If we have paid the holder on account of a realized loss and later, but
not later than July 1, 2002, the publicly sells additional shares at a price per
share greater than $7.00, the holder shall promptly repay to us an amount equal
to the lesser of (1) the amount by which the aggregate proceeds from such sale
exceeds $7.00 and (2) the total realized loss previously paid by us to the
holder. The repayment to us may be made in cash or in shares of common stock
valued at the current market price at the time of repayment or in any
combination of cash and shares.
50
<PAGE>
The registration statement of which this prospectus is a part includes
284,250 shares of the 696,978 share of preferred stock, 396,464 warrants and
433,268 CDA warrants and 1,684,235 shares of our common stock which may be
issued upon the conversion of the preferred stock or the exercise of all the
warrants, and 143,878 shares of our common stock into which these shares have
been converted to date, pursuant to registration rights granted to the
purchasers of the preferred stock and to warrant holders.
The preferred stock, warrant and CDA warrants contain anti dilution
provisions whereby the conversion rate of the preferred stock and the exercise
price per share and number of shares of commons stock issuable upon exercise of
the warrants are subject to adjustment in the event of a common stock dividend,
a subdivision or combination of our outstanding shares of common stock or in the
event of any recapitalization, reclassification, consolidation, merger or
similar event.
Colorado law and our charter and by-law provisions
Our Articles of Incorporation as amended contains provisions permitted in
the Colorado Business Corporation Act relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, including gross negligence, except in circumstances
involving wrongful acts. The breach of a director's duty of loyalty or acts of
omissions which involve intentional misconduct or a knowing violation of law.
These provisions do not eliminate a director's duty of care nor do they prevent
recourse against directors through equitable remedies or through an injunctive
relief. Moreover, the provisions do not apply to claims against a director for
violations of securities laws, including federal securities laws.
Our Articles of Incorporation as amended also contains provisions to
indemnify the directors, officers, employees, or other agents to the fullest
extent permitted by the Colorado Business Corporation Act. These provisions may
have the practical effect in cases of eliminating the ability of our
stockholders to collect monetary damages from directors. We believe that these
provisions will assist us in attracting or retaining qualified individuals to
serve as directors.
Transfer agent and registrar
The transfer agent and registrar for our preferred stock and our common
stock is Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite
430, Denver, CO 80209, and its telephone number is (303) 282-4800.
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 2,276,681 total shares and warrants covered by this
prospectus, an aggregate of 900,000 shares issuable upon the exercise of
employee and other stock options at price ranging from $5.00 to $9.00 per share
and an aggregate of approximately 561,241 shares from previously issued private
placements, and 106,816 shares of other warrants not included in this
registration statement are restricted securities, as that term is defined under
Rule 144 promulgated under the Securities Act. In addition, 4,044,773 shares
held by management, employees, and the directors may be control securities as
that term is define under Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of conditions of Rule 144, a person,
including an affiliate of Startech (or persons whose shares are aggregated), who
has owned restricted securities of Startech beneficially for a least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of our company for at least the three months
51
<PAGE>
immediately preceding the sale and who has beneficially owned restricted shares
of common stock for at least two years is entitled to sell these shares under
Rule 144 without regard to any of the limitations described above. As noted
above 354,000 shares included in this prospectus may be publicly sold without
regard to the limitations set forth in Rule 144. Market sales of a substantial
number of shares of common stock, or the availability of these shares for sale
in the public market, could adversely affect prevailing market prices of the
common stock.
LEGAL MATTERS
The validity of the securities stock offered hereby is being passed upon
for us by Foreht Last Landau Miller & Katz, L.L.P., New York, New York.
EXPERTS
Our financial statements as of October 31, 1998 and 1999 and for each of
the years in the three-year period ended October 31, 1999 have been included
herein and in the registration statement in reliance upon the report of Kostin,
Ruffkess & Company, LLC independent certified public accountants appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE CAN YOU FIND MORE INFORMTAION ABOUT US
We have filed with the Securities and Exchange Commission in Washington,
D.C. a registration statement on Form S-1 under the Securities Act with respect
to the securities offered in this prospectus. This prospectus does not contain
all the information set forth in the registration statement and exhibits and
schedules thereto. For further information about our securities, and us we refer
you to the registration statement and to the exhibits and schedules filed with
it. Statements contained in this prospectus as to the contents of any contract
or other document referred to are not necessarily complete; we refer you to
those copies of contracts or other documents that have been filed as exhibits to
the registration statement. Anyone may inspect a copy of the registration
statement without charge at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain copies of all or any portion of the
registration statement by writing to the SEC's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549, and paying prescribed fees. You may obtain
information on the operation, of the Public Reference Room by calling the SEC at
1-800-SEC-0300. In addition, the SEC maintains a Web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding our statements that we electronically file with the SEC.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and therefore we file reports, proxy statements and
other information with the SEC. You can inspect and copy the reports, proxy
statements and other information that we file at the public reference facilities
maintained by the SEC at the Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain copies of these
materials from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also makes electronic
filings publicly available on its Web site within 24 hours of acceptance.
52
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Index to Financial Statements
Financial Statements For the Six Months Ended April 30, 2000 and 1999
Condensed consolidated balance sheets (unaudited)
as of April 30, 2000 and1999 ......................................F-2
Condensed consolidated statement of operations (unaudited)
for the six months ended April 30, 2000 and 1999...................F-3
Condensed consolidated statement of cash flows (unaudited)
for the six months ended April 30, 2000 and 1999...................F-4
Notes to consolidated financial statements (unaudited).............F-5
Financial Statements For the Three Years Ended October 31, 1999, 1998 and 1997
Report of Independent Auditors.....................................F-7
Consolidated balance sheets as of October 31, 1999 and 1998........F-8
Consolidated statement of operations for the years
ended October 31, 1999, 1998 and 1997 .............................F-9
Consolidated statement of changes in stockholders
equity for the years ended October 31, 1999,
1998, 1997 and 1996................................................F-10
Consolidated statement of cash flow for the
years ended October 31, 1999, 1998 and 1997 .......................F-11
Notes to consolidated financial statements.........................F-12
<PAGE>
<TABLE>
<CAPTION>
STARTECH ENVIRONMENTAL CORPORATION
BALANCE SHEET
(unaudited) (audited)
April 30, October 31,
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 6,013,967 $ 5,496,280
Accounts receivable ........................................ 835,066 512,066
Inventory .................................................. 423,706 --
Other current assets ....................................... 64,978 8,903
----------- -----------
Total current assets .............................. 7,337,717 6,017,249
Property & equipment, net ............................. 307,067 135,383
Other assets ............................................... 47,125 222,186
----------- -----------
Total assets ...................................... $ 7,691,909 $ 6,374,818
=========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable ........................................... $ 110,927 $ 245,574
Capital Lease .............................................. 16,454 8,057
Other accrued expenses ..................................... 452,287 98,109
----------- -----------
Total Current liabilities ........................................... 579,668 351,740
Long-term liability:
Capital lease payable ...................................... 21,488 7,718
----------- -----------
Total liabilities ................................. 601,156 359,458
----------- -----------
Stockholders' (deficit) equity:
Preferred stock, no par value
10,000,000 shares authorized;
Shares issued and outstanding:
643,709 at April 30, 2000 and
696,978 (aggregate liquidation preference of
$6,969,780) at October 31, 1999 ............................ 5,340,658 6,384,199
Common stock, no par value,
800,000,000 shares authorized;
Shares issued and outstanding:
7,587,689 at April 30, 2000 and
6,905,257 at October 31, 1999 .............................. 6,350,439 2,984,219
Additional paid-in capital ................................. 1,742,745 300
Accumulated deficit ........................................ (6,343,089) (3,353,358)
----------- -----------
Total stockholders' equity .......................... 7,090,753 6,015,360
----------- -----------
Total liabilities and stockholders' equity ............ $ 7,691,909 $ 6,374,818
=========== ===========
F-2
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF OPERATIONS
(UNAUDITED)
Quarter Ended Quarter Ended Six Months Ended Six Months Ended
April 30, 2000 April 30, 1999 April 30, 2000 April 30, 1999
-------------- -------------- -------------- --------------
Revenue ......................................... $ 250,000 $ 597,533 $ 848,000 $ 1,645,780
Cost of sales ................................... 69,879 528,057 408,886 1,313,626
----------- ----------- ----------- -----------
Gross profit .................................... 80,121 69,476 439,114 332,154
----------- ----------- ----------- -----------
Operating expenses
Selling expense ............................ 218,463 18,662 341,577 58,247
General and administrative expense ......... 679,068 323,004 1,245,966 557,413
----------- ----------- ----------- -----------
Total operating expense ......................... 897,531 341,666 1,587,543 615,660
----------- ----------- ----------- -----------
Loss from operations ............................ (817,410) (272,190) (1,148,429) (283,506)
----------- ----------- ----------- -----------
Other income (expense):
Interest income ........................ 109,402 7,698 160,537 24,654
----------- ----------- ----------- -----------
Loss before Income Taxes ........................ (708,008) (264,492) (987,892) (258,852)
----------- ----------- ----------- -----------
Income tax expense .............................. 5,020 0 6,770 250
----------- ----------- ----------- -----------
Net loss ........................................ $ (713,028) $ (264,492) $ (994,662) $ (259,102)
=========== =========== =========== ===========
Net loss ........................................ $ (713,028) $ (264,492) $ (994,662) $ (259,102)
Less: Preferred Dividends ....................... 540,130 0 1,995,069 0
----------- ----------- ----------- -----------
Loss attributable to common shareholders ........ $(1,253,158) $ (264,492) $(2,989,731) $ (259,102)
=========== =========== =========== ===========
Net loss per share............................... $ (0.17) $ (0.04) $ (0.41) $ (0.04)
=========== =========== =========== ===========
Weighted average common
shares outstanding .............................. 7,560,655 6,881,760 7,341,373 6,881,760
=========== =========== =========== ===========
F-3
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended Six Months Ended
April 30, 2000 April 30, 1999
-------------- --------------
Cash flows from operating activities:
Net income (Loss) ............................................................. $ (994,662) $ (259,102)
Adjustments to reconcile net income to net cash provided
By operating activities:
Depreciation .................................................................. 24,193 2,453
Expenses paid through the issuance of common stock ............................ 90,530 0
(Increase) decrease in accts. receivable ...................................... (323,000) 294,312
(Increase) decrease in inventory .............................................. (248,646) 424,166
(Increase) decrease in other current assets ................................... (56,073) (73,662)
Increase(decrease) in accounts payable ........................................ (134,647) (381,717)
Increase (decrease) in accrued expense ........................................ 354,178 (338,644)
----------- -----------
Net cash used in operating activities ......................................... (1,288,128) (332,194)
----------- -----------
Cash flows used in investing activities:
Capital expenditures .......................................................... (165,701) 0
Stock offering cost ........................................................... 0 65,010
----------- -----------
Net cash used by investing activities ......................................... (165,701) 65,010
----------- -----------
Cash flows from financing activities:
Increase(decrease) in capital leases .......................................... (8,009) 0
Increase(decrease) in notes payable-short term ................................ 0 750,000
Proceeds from common stock issuance ........................................... 1,979,525 0
----------- -----------
Net cash provided by financing activities ..................................... 1,971,516 750,000
----------- -----------
Net increase (decrease) in cash ............................................... 517,687 482,816
Cash at beginning of period ................................................... 5,496,280 156,467
----------- -----------
Cash and cash equivalents at end of period .................................... $ 6,013,967 $ 639,283
=========== ===========
F-4
</TABLE>
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
The consolidated financial statements of Startech Environmental Corporation
(collectively referred to herein as the "Company", unless the context indicates
otherwise) presented herein are unaudited. In the opinion of management, these
financial statements include all adjustments necessary for a fair presentation
of the financial position, results for the six month ended April 30, 2000 are
not necessarily indicative of results for the entire year. The accompanying
financial statements should be read in conjunction with the Company's financial
statements and related footnotes for the year ended October 31, 1999 which are
included in the Company's annual report on form 10-K for the period ended
October 31, 1999.
Note 1. Basis of Presentation
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., was acquired in a reverse acquisition, in which all the then
issued and outstanding shares of common stock of Startech Corporation were
exchanged for 4,000,000 shares of Kapalua Acquisitions, Inc.'s common stock.
After the acquisition and exchange of stock, the former shareholders of Startech
Corporation owned 80.5% of the common stock of Kapalua Acquisitions, Inc.
Subsequent to November 17, 1995, Kapalua Acquisitions, Inc. filed registration
statements with the Securities and Exchange Commission to register certain
securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Corporation. This
acquisition has been accounted for under the purchase method in the accompanying
financial statements. The fiscal year end for both companies before the
acquisition was October 31, and the financial statements for all periods
presented have been restated to reflect the combination of the two companies.
STARTECH Environmental Corporation (the "Company") is engaged in the
commercialization and continued development of an innovative processing
technology for the recovery, recycling, reduction and remediation of hazardous
and nonhazardous waste materials.
Net profit (loss) per share is determined by dividing net loss by the weighted
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 and warrants, have been excluded from the weighted
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 three month
and six month period ending April 30, 2000.
Note 2 - Capital Lease Obligation:
The Company has entered into capital lease obligations for computer and
telephone equipment. The term of the leases range from 36 to 39 months, with
principal and interest due in aggregate monthly installments of $ 2,943 at
interest rates ranging from 10.6% to 16.3%. The equipment was capitalized at $
47,178 and is being depreciated over five years. Depreciation expense for the
six months ended April 30, 2000 was $ 3,829 and accumulated depreciation for the
six months ended was $ 4,254.
F-5
<PAGE>
Note 3. Equity Transactions
For the three months ended April 30, 2000, a consultant for the Company
exercised 10,000 options at $5.00 per share. The company received $50,000 in
cash and the consultant has 10,000 options remaining to exercise at $5.00 per
share these options are set to expire on March 9, 2001.
For the three months ended April 30, 2000, the Company issued 12,543 additional
common stock shares relating to warrants being exercised at $9.00 per share.
Total proceeds received were $112,887. These warrants are related to a previous
private placement dated June 30, 1997. These warrants are set to expire on June
30, 2000.
For the three months ended April 30, 2000 the Company declared and paid a stock
dividend on its Series A convertible preferred in the amount of $104,519 which
represented 10,451 preferred shares. For the six months ended April 30, 2000 the
Company declared and paid a stock dividend on its Series A convertible preferred
in the amount of $252,624 which represented 25,261 preferred shares.
Note 4. Cash Flow
During the six months ended April 30, 2000 the Company had non-cash
transactions. The following is a listing of these transactions and the dollar
value of the stock associated with these transactions.
Six months ended April 30, 2000 and 1999
----------------------------------------
April 30, April 30,
2000 1999
--------- ---------
Common shares for services rendered $ 90,530 0
Preferred stock dividend 252,624 0
Fixed assets financed through capital leases 30,176 0
Series A convertible preferred
shares converted to common shares 1,043,542 0
Accretion of dividends associated with the
issuance of the convertible preferred shares 1,742,445 0
Note 5. Interim Financial Information (Unaudited)
The interim financial statements of the Company for the six months ended April
30, 1999 and 2000, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the SEC. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principals have been condensed or
omitted pursuant to the rules and regulations relating to interim financial
statements.
F-6
<PAGE>
KOSTIN, RUFFKESS & COMPANY, LLCSS
CERTIFIED PUBLIC ACCOUNTANTS
345 North Main Street
West Hartford, CT 06117-2521
(860) 236-1975
Toll Free: (800) 286-5726
FAX: (860) 236-1783
Internet: http://www.kostin.com
400 Bayonet Street, Suite 306
New London, CT 06320-2600
(860) 442-4373
Toll Free: (888) 666-5726
FAX: (860) 442-1124
Members of the Firm:
Jerrold M. Gold, CPA
Lawrence Marziale, CPA
Joseph W. Sparveri, Jr., CPA
Peter K. Askham, CPA
Richard V. Kretz, CPA
Edmund S. Kindelan, CPA
Michael T. Novosel, CPA
John S. Pavlik, CPA
Kimberly O. Nardone, CPA
Daniel Donofrio, CPA
Brian J. Newman, CPA
John P. Lanza, CPA
Michael D. Smith, CPA
Ronald W. Nossek, CPA
To the Board of Directors
Startech Environmental Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Startech
Environmental Corporation as of October 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1999. These
financial statements are the responsibility of Startech's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Startech
Environmental Corporation as of October 31, 1999 and 1998, and the results of
its operations, changes in stockholders' equity and its cash flows for each of
the three years in the period ended October 31, 1999, in conformity with
generally accepted accounting principles.
West Hartford, Connecticut
December 22, 1999
Members of:
American Institute of
Certified Public Accountants
Private Companies Practice Section
SEC Practice Section
Connecticut Society of
Certified Public Accountants
Kreston International
A worldwide network of
independent accountants
An Equal Opportunity Employer
F-7
<PAGE>
<TABLE>
<CAPTION>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Balance Sheets
October 31, 1999 and 1998
1999 1998
Assets
Current assets:
<S> <C> <C>
Cash $ 5,496,280 $ 156,468
Accounts receivable 512,066 892,473
Inventory -- 652,454
Other current assets 8,903 1,366
----------- -----------
Total current assets 6,017,249 1,702,761
Equipment, at cost, net of accumulated depreciation 135,383 19,573
Other assets 222,186 102,114
----------- -----------
$ 6,374,818 $ 1,824,448
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 245,574 $ 692,130
Capital lease - short-term 8,057 --
Note payable - short-term -- 100,000
Other accrued expenses 98,109 371,644
----------- -----------
Total current liabilities 351,740 1,163,774
Long-term liability:
Capital lease payable 7,718 --
----------- -----------
Total liabilities 359,458 1,163,774
----------- -----------
Stockholders' equity:
Preferred stock; no par value; 10,000,000 shares authorized;
696,978 shares issued and outstanding (aggregate
liquidation preference of $6,969,780) at October 31, 1999 6,384,199 --
Common stock; no par value; 800,000,000 shares authorized;
shares issued and outstanding: 6,905,257 at October 31,
1999 and 6,845,965 at October 31, 1998 2,984,219 2,708,524
Additional paid-in capital 300 300
Deficit (3,353,358) (2,048,150)
----------- -----------
Total stockholders' equity 6,015,360 660,674
----------- -----------
$ 6,374,818 $ 1,824,448
=========== ===========
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Operations
For The Years Ended October 31, 1999, 1998 and 1997
Year Ended October 31,
----------------------
1999 1998 1997
Revenues $ 2,268,964 $ 1,088,782 $ 10,000
Cost of goods sold 2,138,259 446,222 --
----------- ----------- -----------
Gross profit 130,705 642,560 10,000
Selling, general and administrative
expenses 1,477,104 1,116,293 907,855
----------- ----------- -----------
Loss from operations (1,346,399) (473,733) (897,855)
----------- ----------- -----------
Other income (expense):
Interest income 101,521 23,664 29,497
Interest expense (33,450) (9,000) (9,000)
----------- ----------- -----------
Total other income 68,071 14,664 20,497
----------- ----------- -----------
Income tax expense 10,864 3,982 550
----------- ----------- -----------
Net loss $(1,289,192) $ (463,051) $ (877,908)
=========== =========== ===========
Net loss per share $ (0.19) $ (0.07) $ (0.12)
=========== =========== ===========
Average common
shares outstanding 6,875,999 6,887,736 6,695,316
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-9
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 1999, 1998 and 1997
Additional
Common Preferred Paid-In
Shares Amount Shares Amount Capital Deficit
Balance, October 31, 1996 5,850,374 $ 653,834 -- $ -- $ 300 $ (707,191)
Shares issued for cash 820,151 1,843,206 -- -- -- --
Stock dividends issued 309,027 -- -- -- -- --
Shares issued during the year
for services rendered 39,000 103,844 -- -- -- --
Shares issued for the
purchase of inventory 45,000 97,722 -- -- -- --
Shares redeemed for
Trican note receivable (50,000) (100,000) -- -- -- --
Net loss during the year
ended October 31, 1997 -- -- -- -- -- (877,908)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1997 7,013,552 2,598,606 -- -- 300 (1,585,099)
Shares issued during the year
for services rendered 34,544 109,918 -- -- -- --
Shares returned and cancelled
as the result of a lawsuit (202,131) -- -- -- -- --
Net loss during the year
ended October 31, 1998 -- -- -- -- -- (463,051)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1998 6,845,965 2,708,524 -- -- 300 (2,048,150)
Shares issued during the year
for services rendered 45,792 226,445 -- -- --
Shares issued for cash 13,500 49,250 696,978 6,384,199 -- --
Net loss during the year
ended October 31, 1999 -- -- -- -- -- (1,289,192)
Dividends -- -- -- -- -- (16,016)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1999 6,905,257 $ 2,984,219 696,978 $ 6,384,199 $ 300 $(3,353,358)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-10
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended October 31, 1999, 1998 and 1997
Year Ended October 31,
----------------------
1999 1998 1997
Cash flows from operating activities:
Net loss $(1,289,192) $ (463,051) $ (877,908)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 226,445 109,918 38,844
Depreciation 16,847 1,396 --
(Increase) decrease in:
Accounts receivable 380,407 (892,473) --
Prepaid expense -- 65,333 (333)
Inventory 552,454 (552,454) (2,278)
Other current assets (7,537) (1,366) 10,851
Other assets (120,072) (53,617) (48,497)
Increase (decrease) in:
Accounts payable (446,556) 624,962 39,763
Accrued expenses (289,551) 350,749 (16,367)
----------- ----------- -----------
Net cash used in operating activities (976,755) (810,603) (855,925)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (15,655) (20,969) --
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from preferred stock issuance 6,284,199 -- --
Proceeds from common stock issuance 49,250 -- 1,563,206
Proceeds from notes payable 750,000 -- --
Repayment of notes payable (750,000) -- --
Repayment of capital lease payable (1,227) -- --
----------- ----------- -----------
Net cash provided by financing activities 6,332,222 -- 1,563,206
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 5,339,812 (831,572) 707,281
Cash and cash equivalents, beginning 156,468 988,040 280,759
----------- ----------- -----------
Cash and cash equivalents, ending $ 5,496,280 $ 156,468 $ 988,040
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-11
</TABLE>
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies:
----------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements of Startech Environmental Corporation
include the accounts of Startech Corporation, its wholly owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
Company's Activities
--------------------
Startech is an environmental technology corporation dedicated to the
development, production and marketing of low cost waste minimization, resource
recovery, and pollution prevention systems that convert waste into valuable
commodities. Startech is no longer considered to be in the development stage as
revenues from shipments and services performed have begun to be recognized in
calendar year 1998.
Basis of Presentation
---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., was acquired in a reverse acquisition, in which all the then
issued and outstanding shares of common stock of Startech Corporation were
exchanged for 4,000,000 shares of Kapalua Acquisitions, Inc.'s common stock.
After the acquisition and exchange of stock, the former shareholders of Startech
Corporation owned 80.5% of the common stock of Kapalua Acquisitions, Inc.
Subsequent to November 17, 1995, Kapalua Acquisitions, Inc. filed registration
statements with the Securities and Exchange Commission to register certain
securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Corporation. This
acquisition has been accounted for under the purchase method in the accompanying
financial statements. The fiscal year end for both companies before the
acquisition was October 31, and the financial statements for all periods
presented have been restated to reflect the combination of the two companies.
Revenue Recognition
-------------------
The Company recognizes revenue on the sale of its manufactured products at the
date of delivery. Revenues earned from consulting and design services are
recognized when the services are completed.
Management Estimates
--------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at October 31, 1999, 1998
and 1997, and revenues and expenses during the years then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.
F-12
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies: (Continued)
Cash and Cash Equivalents
Startech considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The primary investments
will be high quality commercial paper, U.S. Treasury Notes, and T-Bills.
Regarding supplementary cash flows information, income taxes paid were $2,577
for the year ended October 31, 1999, $3,982 for the year ended October 31, 1998
and $550 for the year ended October 31, 1997. Interest paid in 1999 was $33,450.
No interest was paid for the years ended October 31, 1998 and 1997. Startech
also had the following non-cash transactions:
<TABLE>
<CAPTION>
1999
----
Shares Amount
<S> <C> <C>
Common shares issued for services rendered in 1999 45,792 $ 226,445
Preferred stock issued to repay notes payable 10,000 100,000
Demonstration equipment transferred from inventory to equipment -- 100,000
Equipment acquired through capital lease -- 17,002
Accrued dividends on the preferred stock -- 16,016
1998
----
Shares Amount
Issued shares for services rendered in 1998 34,544 $ 109,918
Shares returned and cancelled in 1998 (202,131) --
1997
----
Shares Amount
Issued shares for services rendered in 1997 39,000 $ 103,844
Issued shares for inventory in 1997 45,000 97,722
Issued shares for which cash was received in 1996 161,000 280,000
Shares redeemed in the collection of a note receivable in 1997 50,000 100,000
</TABLE>
Inventory
---------
Inventory consists of work in process, and is stated at lower of cost or market.
Cost is determined by the first-in, first-out method.
F-13
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies: (Continued)
---------------------------------------------------
Equipment
---------
Depreciation of equipment is provided using the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments which extend the useful lives of the equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Other Assets
------------
Other assets consist of deposits on the purchase of office furniture, inventory
and the deposit on the office lease, in 1999. Other assets consist entirely of
deferred stock offering costs for 1998.
Income Taxes
------------
Income taxes consist of State taxes on capital. Startech has net operating loss
carry forwards of approximately $2,771,000 expiring in various years through
2013.
Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the year. Startech has 2,517,839 potential
common shares in 1999, and 758,276 potential common shares in 1998 and 1997 that
were not used in the computation of diluted earnings per share because they
would have been anti-dilutive for each of the three years ended October 31,
1999, 1998 and 1997. Subsequent to October 31, 1999, Startech had issued 569,693
additional common shares.
Off Balance Sheet Risk
----------------------
Startech had more than $100,000 in a single bank during the year. Amounts over
$100,000 are not insured by the Federal Deposit Insurance Corporation. However,
management does monitor the financial condition of the institution where these
funds are invested.
Note 2 - Property, Plant and Equipment:
--------------------------------------
Equipment is summarized by major classifications as follows:
1999 1998
Computer equipment $ 23,250 $ 6,248
Demonstration equipment 114,720 14,721
Furniture and fixtures 1,653 --
Vehicles 14,002 --
----------- ----------
153,625 20,969
Less: accumulated depreciation 18,242 1,396
----------- ----------
$ 135,383 $ 19,573
=========== ==========
F-14
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 3 - Operating Lease:
-------------------------
Startech leases its office under a lease agreement that expired in September
1999. The monthly rental payments were $2,109. Rental expense, including real
estate taxes for the years ended October 31, 1999, 1998 and 1997, were $28,847,
$24,531 and $23,644, respectively. On December 3, 1999, Startech entered into a
five-year lease for its new office space. There is an option for Startech to
extend the lease for a five-year term with the Landlord having the option to
cancel after two years. Annual non-cancelable rent payments for the next five
years are as follows:
October 31,
-----------
2000 $154,183
2001 168,000
2002 173,517
2003 184,633
2004 172,792
Note 4 - Note Payable:
----------------------
The $100,000 note payable is a demand note dated September 1, 1995, with 9%
interest payable to Mr. John Celentano. Mr. Celentano is a stockholder of
Startech and provides both sales and professional consulting services to
Startech. The note was repaid in 1999 through the issuance of 10,000 shares of
convertible preferred stock. All prior accrued interest was forgiven.
On December 29, 1998, Startech entered into a short-term loan agreement for
$750,000 with the Connecticut Development Authority (CDA). The note bore
interest at 6.55% and was due within one year or the completion of a public
offering, whichever comes first. The assets of Startech collateralized the note.
In addition, an officer/shareholder has personally guaranteed up to 28% of the
balance and another officer/shareholder has pledged 100,000 shares of his common
stock of Startech. This note was paid off with proceeds from the issuance of the
preferred stock.
Note 5 - Stockholders' Equity:
------------------------------
Preferred Stock
---------------
During 1999 Startech issued 696,978 shares of its 8% Series A cumulative,
convertible, redeemable, preferred stock. Startech incurred commissions and
issuance costs of $585,581 in connection with issuance. The shares are
convertible into the Startech's common stock, four months after the closing
date, at a rate determined by dividing the purchase price per share ($10) by
eighty percent of the market price per share of common stock from the average
closing price for the previous five trading days. However, in no event shall the
conversion price be less than $4 per share, or more than $6 per share. On
September 15, 2002, the convertible preferred stock may be redeemed at the
option of the Startech for $10 per share, plus all accumulated and unpaid
dividends. If not redeemed, the shares will automatically be converted to common
shares at $5 per share, or the current market price of the common shares. The
dividends shall be paid in additional convertible preferred stock, and are
payable on the last business day of March, June, September, and December. On
September 30, 1999, Startech declared a dividend of $16,016.
F-15
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 5 - Stockholders' Equity: (Continued)
------------------------------
Warrants
--------
In conjunction with the August 28, 1996, stock offering, Startech has
unregistered warrants to purchase 744,774 shares of common stock; of which
625,417 of the Warrants were initially exercisable at a price of $4.00 per share
and were set to expire on December 31, 1998. At the discretion of Startech, the
exercise price of these Warrants was reduced to $3.50 per share and the
expiration date was extended to December 31, 1999. During 1999, 13,500 of these
Warrants were exercised. An additional 119,359 Warrants were initially
exercisable at a price of $12.00 per share, and were set to expire on June 30,
1999. At the discretion of Startech, the exercise price of these Warrants was
reduced to $9.00 per share, and the expiration date was extended to June 30,
2000. Initially, once the Warrants were exercised, the shares were restricted
for a two-year period. They are now restricted for a one year period, in
accordance with rule 144. Startech reserves the right to cancel or extend the
Warrants once the restriction period has been satisfied and the exercised period
fulfilled. The Warrants may be exercised in lots of 100 common shares or more up
to the total amount of Warrants for which each investor had originally
subscribed. In conjunction with the issuance of the preferred stock in 1999,
Startech issued warrants to purchase 589,113 shares of common stock at a price
of $15.00 per share. These Warrants will expire on August 31, 2001, provided the
average closing bid prices of the common stock for the previous thirty trading
days is $16.50 or higher. In the event the common stock is lower than $16.50 per
share, the exercise period of the Warrants will be extended until the common
stock exceeds $16.50 per share for ten consecutive trading days. At that point,
Startech can give the Warrant holders thirty days' notice that the Warrants will
expire. Should Startech choose not to cause the expiration of the Warrants
sooner, they will expire on August 31, 2004.
Note 6 - Non-qualifying Stock Option Plan:
-----------------------------------------
In November 1995, Startech registered 2,000,000 common shares; issuable upon
exercise of stock options issued by Startech under its 1995 Non-qualifying Stock
Option Plan (the Plan) for employees, directors and other persons associated
with Startech whose services have benefited us.
The options must be issued within 10 years from November 20,1995. Determination
of the option price per share and exercise date is at the sole discretion of the
Compensation Committee. During the year ended October 31, 1997, Startech issued
145,167 stock options with an additional 34,544 stock options being issued
during the year ended October 31, 1998, for services rendered. All options were
immediately exercised for one share of common stock. The exercise price ranged
from $.25 to $10.00 per share. The aggregate value of these services is
reflected as an increase in common stock. During the year ended October 31,
1999, Startech issued 20,000 stock options, with an exercise price of $5.00 per
share. On the issuance date, the market value was the same as the exercise
price, therefore, no compensation expense was recorded.
Note 7 - Major Customer:
-----------------------
Approximately 94 and 91 percent of revenues were derived from one major customer
in 1999 and 1998, respectively.
F-16
<PAGE>
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1999, 1998 and 1997
Note 8 - Capital Lease Obligation:
---------------------------------
During 1999, Startech entered into a capital lease obligation for computer
equipment. The term of the lease is for 24 months, with principal and interest
due in monthly installments of $827 at 15.3%. The equipment was capitalized at
$17,002 and is being depreciated over five years. Depreciation expense for 1999
was $850 and accumulated depreciation at October 31, 1999, is $850.
Total remaining lease payments:
2000 $ 9,925
2001 8,270
-----------
18,195
Less: unamortized interest 2,420
-----------
15,775
Less: current portion 8,057
-----------
$ 7,718
===========
Note 9 - Fair Value of Financial Instruments:
--------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:
Cash and other current assets are carried in the accompanying balance sheet at
cost, which is a reasonable estimate of their fair value. Accounts payable,
notes payable and accrued expenses are also carried at cost, which is a
reasonable estimate of their fair value.
Carrying Estimated
Amount Fair Value
ASSETS:
Cash $ 5,496,280 $ 5,496,280
Accounts receivable 512,066 512,066
LIABILITIES:
Accounts payable 245,574 245,574
Capital lease payable 15,775 15,775
Accrued expenses 98,109 98,109
Note 10 - Commitments:
---------------------
Startech has committed to purchase new furniture and equipment and inventory in
the amount of $452,691. At October 31, 1999, Startech made deposits on these
purchases in the amount of $175,061, which is included on the balance sheet
under other assets. In addition, we have an agreement with two individuals for
the use of their patents. The agreement provides for monthly payments of $1,000
and has no expiration date.
F-17
<PAGE>
================================================================================
1,684,235 Shares of Common Stock
284,250 Shares of Series A Convertible Preferred Stock
396,464 Warrants
433,268 CDA Warrants
STARTECH
ENVIRONMENTAL CORP.
----------
PROSPECTUS
----------
STARTECH ENVIRONMENTAL CORPORATION
----------
July , 2000
----------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
================================================================================
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC Registration Fee(degree)................................... $ 4,760.26
Accounting Fees................................................ $ 3,000.00
Legal Fees..................................................... $ 30,000.00
Printing, Engraving and Mailing................................ $ 3,000.00
Transfer agent and registrar's fees............................ $ 2,000.00
Blue Sky fees and expenses..................................... $ 2,000.00
Miscellaneous expenses......................................... $ 5,239.74
-------------
TOTAL................................................. $ 50,000.00
=============
o Actual
Item 14. Indemnification of Directors and Officers
Article VII of Startech Environmental Corp Articles of Incorporation
provides as follow:
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability to the corporation or to its
shareholders for monetary damages for (i) any breach of the directors' duty of
loyalty to the corporation or its shareholders; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) acts specified in Section 7 - 5-114 of the Colorado Corporation code;
or (iv) any transaction from which the director derived an improper benefit.
If the Colorado Corporation Code is hereafter amended to authorize the
further elimination or limitation of the liability of a director, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Colorado Corporation Code, as so amended.
Any repeal or modification of the foregoing provisions of this Article by
the shareholders of Startech shall not affect adversely any right or protection
of a director of the Corporation in respect of any acts or omissions of a
director occurring prior to the time of this repeal or modification.
In addition, by separate agreement, Startech has indemnified its officers
to the same extent as the directors are indemnified in the Articles of
Incorporation.
Insofar as indemnification arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the registrant's Amended articles of Incorporation, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, the indemnification is against public policy as expressed
in the act and is therefore unenforceable. In the event that a claim for
<PAGE>
indemnification against these liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person in connection with the securities being registered), the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
these indemnifications by it is against public policy as expressed in the Act
and will be governed by the final adjudication.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the following securities were sold or issued
by the company without registration under the Securities Act.
In the period April 1, 1997 through June 30, 1997 we issued 119,359 shares
of common stock together with 119,359 warrants to purchase an additional share
of common stock in a private offering, for total proceeds of $835,513, to 36
investors, 27 of whom were accredited and nine of whom were non-accredited
investors, as those terms are defined in Regulations D under the Act.
Commissions of approximately $12,500 were paid in connection with this
transaction.*
In the period April through October 20, 1999 we issued 696,978 shares of
Series A Cumulative Convertible Redeemable Preferred Stock at $10.00 per share
together with one common stock warrant excisable at $15.00 per share for every
two shares of preferred stock purchased, in a private offering to 55 investors,
48 of whom were accredited and seven of whom were non-accredited investors as
those terms are defined in Regulations D under the act. Commissions of $550,725
were paid and 47,975 warrants to purchase shares of preferred stock were issued
as additional compensation in connection with this transaction.*
In the period October 21, 1999 through June 30, 2000 we issued 287,756
shares of our common stock to 24 persons upon conversion of their shares of
preferred stock and 545,314 shares of our common stock to 44 persons upon the
exercise of their warrants for which we received proceeds of $2,002,475. We also
issued 433,268 warrants to purchase shares of our common stock at $7.00 per
share to the Connecticut Development Authority.*
In addition during this period we issued 12,818 shares of common stock to 5
individuals for services rendered during the six months ended April 30, 2000
having a value of $90,530.*
In the period June 1999 thru April 2000 four quarterly dividends in kind
aggregating 38,410 shares of preferred stock were declared and paid to preferred
stockholders.*
The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering. Claims of
these exemptions are based upon the following: (1) all of the purchasers in
these transactions were sophisticated investors with the requisite knowledge and
experience in financial and business matters to evaluate the merits and risk of
an investment in Startech, were able to bear the economic risk of an investment
in Startech, had access to or were furnished with the kinds of information that
registration under the Securities Act would have provided and acquired
securities for their own accounts in transactions not involving any general
solicitations or advertising, and not with a view to the distribution thereof,
and (2) a restrictive legend was placed on each certificate evidencing the
securities; (3) each purchaser acknowledged in writing that he knew the
II-2
<PAGE>
securities were not registered under the Securities Act or any State securities
laws, and are restricted securities as that term is defined in Rule 144 under
the Securities Act, that the securities may not be offered for sale, sold or
otherwise transferred within the United States and except pursuant to an
effective registration statement under the Securities Act and any applicable
State securities laws, or pursuant to any exemption from registration under the
Securities Act, the availability of which is to be established to the
satisfaction of Startech.
Item 16. Exhibits and Financial Statement Schedules
16(a) Exhibits
(2)(a) Agreement and Plan of Reorganization between Company and Kapalua
Acquisitions, Inc. dated November 17, 1995**
(3)(a) Articles of Incorporation of Startech***
(3)(a)i Articles of Amendment to the Articles of Incorporation*
(3)(b) By-Laws of Startech***
(3)(c) Amendment to by-Laws of Startech dated January 24, 2000*
(4)(a) Form of Common Stock Certificate*
(4)(b) Form of Convertible Preferred Stock Certificate*
(4)(c) Form of Warrant Agreement*
(4)(d) Stock Subscription Warrant dated December 29, 1998 between the
Company and the Connecticut Development Authority ("CDA")
(4)(e) Amendment to Stock Subscription Warrant dated March 31, 1999
between the Company and CDA
(4)(f) Second Amendment to Stock Subscription Warrant dated June 15, 2000
between the Company and CDA
(5)(a) Opinion of Foreht Last Landau Miller & Katz, LLP with respect to
the legality of the securities being registered
(10)(a) 2000 Stock Option Plan
(10)(b) 1995 Stock Option Plan
(10)(c) Loan Agreement Dated December 29, 1998 between the Company and CDA
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(10)(d) Term Sheet for Preferred Stock dated August 17, 1999, between the
Company and Paradigm Group, LLC
(10)(e) Strategic Alliance Agreement dated July 22, 1996 between the
Company and Bauer Howden, Inc.
(10)(f) Strategic Alliance Agreement dated October 25, 1996 between the
Company and Calumet Coach Company
(10)(g) Strategic Alliance Agreement dated November 10, 1997 between the
Company and Chase Environmental Group, Inc.
(10)(h) Strategic Alliance Agreement dated April 17, 1998 between the
Company and the Ensign - Bickford Company
(10)(i) Strategic Alliance Agreement dated September 30, 1999 between the
Company and UXB International Inc.
(10)(j) Strategic Alliance Partner Agreement dated March 14, 2000 between
the Company and Skidmore, Owings & Merrill LLP
(10)(k) Lease Agreement dated September 16, 1999 between the Company and
the CD Station, LLC.
(10)(l) Form of Distributor Agreement
(10)(m) Patent License Agreement dated November 9, 1998 between the
Company and Rollan C. Swanson M.D. and Eleonora Swanson.
(10)(n) License of Technology Agreement dated November 29, 1999 between
the Company and Media and Process Technology Inc.
(16)(a) Letter, Re: Changes in Certifying Accountant****
(24)(a) Consent of Kostin, Ruffkess and Company, LLC
(24)(b) Consent of Counsel (to be included in Exhibit 5 (a)
Unless otherwise noted, all of the foregoing exhibits are being
filed this Amendment No. 1 to the Registration Statement on
Form S-1, Commission File No. 333-35786.
* Filed with this Amendment to the Registration Statement on
Form S-1 filed on April 27, 2000, Commission File No. 333-35786
**Incorporated by reference to Exhibit 10.3 to the Company's
Current Report on Form 8-K dated November 17, 1995, File No.
0-25312
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***Incorporated by reference to Registration Statement on Form
10, File No. 0-25312 filed on February 9, 1995
**** Incorporated by reference to Startech's Current Report on
Form 8-K dated January 30,1996 File No. 0-25312
16(b) Financial Statement Schedules
Schedules are omitted because of the absence of conditions under which they
are required or because the required information is given in the financial
statements or notes thereto.
Item 28. Undertakings
The Undersigned Registrant hereby undertakes:
(1) To file, during any the undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(3a) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to the information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933 each post-effective amendment shall be deemed to be a new registration
statement relating to the securities being offered therein, and the offering of
these securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering,
(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the registrant's, Amended Articles of Incorporation by
-Laws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, this indemnifications against public policy
as expressed in the act and its therefore unenforceable. In the event that a
claim for indemnification against liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person in connection with the securities being registered), the Registrant will,
unless in the opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
this indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilton, Connecticut on
July 5, 2000.
STARTECH ENVIRONMENTAL CORPORATION
By: /S/ JOSEPH F. LONGO
------------------------------------------------
Joseph F. Longo
President, Chief Executive Officer, Chief
Financial Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
date indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/S/ Joseph F. Longo President, Treasurer, Chief Executive
------------------- Officer, Chief Financial Officer, July 5, 2000
and Director
/S/ Joseph S. Klimek Executive Vice President and Chief
-------------------- Operating Officer July 5, 2000
/S/ Kevin M. Black Sr. Vice President, General Counsel,
------------------ Secretary and Director July 5, 2000
/S/ John R. Celentano Director July 5, 2000
---------------------
/S/ Peter J. Scanlon Vice President and Director of
-------------------- Finance and Administrative Services,
and Principal Accounting Officer July 5, 2000
