<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .............. TO................
COMMISSION FILE NUMBER 0-23402
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2863244
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification no.)
1335 GREG STREET, UNIT 104, SPARKS, NEVADA 89431
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (702) 331-5524
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS: COMMON STOCK, $0.005 PAR VALUE
- --------------- ------------------------------
Check whether issuer (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of regulation S-B
is not contained herein and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]
Issuer's revenue for its most current fiscal year: $1,017,071
The aggregate market value of the common stock held by non-affiliates of the
registrant as of January 21, 1997 was approximately $8,994,000 (9,776,000
shares at $.92 per share).
As of January 21, 1997 there were 18,035,966 shares of common stock
outstanding, par value $.005 per share.
Documents Incorporated By Reference: None
1
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
-----------------------
The discussions contained in this 10-KSB contain various "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
which represents the Company's expectations or beliefs concerning future events,
including the ability of the Company to secure additional debt and/or equity
financing to fund future expansion and operations. In addition, statements
containing expressions such as "believes," "anticipates," "plans" or "expects"
used in the Company's periodic reports filed with the SEC are intended to
identify forward-looking statements. The Company cautions that these and similar
statements included in this and in previously filed periodic reports are further
qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statement, including, without
limitation, the following: political and economic instability in international
markets; the effect of economic conditions; the effect of regulatory and
governmental actions; fluctuations in prices, exchange rates, tariffs and other
barriers.
HISTORY OF THE COMPANY
- ----------------------
Vector Environmental Technologies, Inc. ("VETI" or the "Company", which term
shall include, unless the context so requires, its subsidiaries). was originally
incorporated under the laws of the State of Delaware on April 3, 1987, as Arnex
Investment Group, Ltd.
On August 24, 1993, Amyn Dahya acquired approximately 72%, or 640,000 shares, of
the issued and outstanding common stock of the Company from an unrelated
company. At that time, Mr. Dahya was elected President and Chief Executive
Officer of the Company. On August 3, 1993, the name of the Company was
changed to Vector Environmental Technologies, Inc.
The Company operates through the following active subsidiaries:
<TABLE>
<CAPTION>
JURISDICTION OF
ENTITY ORGANIZATION BUSINESS PURPOSE
------ --------------- ----------------
<S> <C> <C>
Vector Vietnam, Ltd. "VVL" Vietnam Holds and manages Vietnamese operations
Vector Venture Corp. "VVC" Canada Holds certain technologies and licenses
Vector India Nevada Business development in India
Vector Environmental Technologies India Hold and manage Indian operations
(India) Private Limited
Vector Manufacturing Corp. Nevada Provides purchasing and manufacturing services
STOX Systems, Inc. Canada Holds certain technologies
Vector Water Technologies U.A.E. Business development in the United Arab Emirates
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
CGL Technologies, Inc. Nevada Research and development water purification
Alpine Water Purification, Inc. Colorado Holds patent on water purification cartridge
</TABLE>
Other than VVC, all of the above named corporations are wholly owned by the
Company. The Company owns approximately 95% of the outstanding shares of VVC .
BUSINESS - GENERAL
- ------------------
The Company's principal business is to develop or acquire environmental
technologies in the areas of water treatment, purification and depollution. VETI
has organized its business activities in four areas, all related to the
development and sale of water purification systems, safe water and related
technologies: sales of personal and household water purification systems to
retail and wholesale markets; the sale of purified water and water products
through retail water stores; the development and operation of water bottling
plants and related sales of bottled water; and the design, development and
utilization of technologies to address water treatment facilities which will
provide rural and semi-urban communities with a reliable supply of clean, safe
water. A description of the Company's products follows:
The Company's Diamond Rain(TM) water purification systems are designed to purify
water from rivers, lakes and other sources using a combination of filtration,
adsorption and microbial destruction processes to produce safe and healthy
drinking water, with technical and economic efficiency that is required for
conditions which exist in developing nations. The MCV process, used in selected
Diamond Rain(TM) systems, was the recipient of the NASA Invention of the Year
and Commercial Invention of the Year Awards in April, 1994.
During 1996, the Company's primary market focus was in Vietnam. However, the
Company is in the process of developing programs in other countries and regions
including: India, Ghana, South Africa and North America.
In Vietnam, the Company is actively marketing the full range of its water
related products and services.
In India, the Company is currently in negotiations with one of the largest
manufacturers of home appliances in India, which has several thousand
distribution outlets across India. The Company's products have passed the
testing and certification requirements for distribution in India. The Company
has formed a wholly owned subsidiary in India and expects to develop programs to
begin marketing selected products and services during 1997.
CONSUMER AND INSTITUTIONAL PRODUCTS
- -----------------------------------
The Company has developed a product line of personal and household water
purification systems. In the North American market, the Company has developed a
line of products that enhance the quality of water provided by their respective
municipalities. In the international markets, the need for disinfection requires
the use of additional technologies such as various resins and ozonization. The
Company has used such technologies in the design of its product line. These
products include water purification systems sold or leased to schools and
hospitals in Vietnam, countertop and under counter systems, and plastic sports
water bottles that contain taste enhancing filtration systems which are also
marketed by the Company in North America. The Company anticipates that marketing
efforts for the North American products will continue. The Company, however,
plans to de-emphasize the international sale and leasing of consumer and
institutional products during 1997 due to marginal profitability and the
Company's desire to concentrate on its more profitable water bottling and
community water products described below.
BULK WATER SYSTEMS AND SALES
- ----------------------------
The Company currently sells purified water and water products through company
and third party operator owned retail water stores in Vietnam. This product line
uses the Company's water purification equipment and technologies to purify water
sold through stores on a point of sale basis. The purified water is dispensed in
containers provided by either the Company or the consumer. Under this product
category, the Company has installed Diamond Rain(TM) water purification systems
under a contract with Vietnam Airlines at the Hanoi Noi Bai International
Airport. These systems supply purified water to all of Vietnam Airlines' local
and international flights as well as for use within the airport terminal.
3
<PAGE>
BOTTLED WATER
- -------------
The Company's strategy in this product line is to utilize its technologies to
establish bottling plants in close proximity to target markets. The Company's
Diamond Rain(TM) technology enables purification of water from municipal sources
rather than requiring a pristine natural water source from a remote location
necessitating excessive transportation requirements. Plants will be operated
both by the Company and under license by the Company.
During 1996, the Company installed and commissioned its first bottling plant
utilizing Diamond Rain(TM) water purification systems in the Nam Ha Province of
Vietnam. This plant has an initial annual capacity of 6 million liters per year.
The capacity of the plant can be increased, on a modular basis, up to 16 million
liters per year to meet increases in demand.
The Company is presently studying opportunities for additional water bottling
plants and distribution of bottled water in Vietnam and is considering other
countries and markets where it determines its bottling plant concept is
appropriate. Identifying owner operators and/or distribution partners with
access to markets and access to financing are the critical factors to the
success of this product line.
COMMUNITY WATER SYSTEMS
- -----------------------
The primary product in the Community Water System product line is the Company's
Hi-Rate(TM) system. These systems are designed to meet the needs of small to
medium sized communities and can supply safe water to populations of up to
100,000 persons. Systems are modular in design and configured to meet specific
site and operating requirements. They can also be installed quickly and
modified to meet changes in input water quality and increased demand as
communities grow. The systems utilize a number of technologies depending on
input water quality including a variety of filtration and media options,
alternative tank configurations and a range of control options.
During fiscal 1996, the Company installed its first Hi-Rate(TM) system in Huong
Son, a Vietnamese community of approximately 10,000 people. The Huong Son
installation serves as the first in a series of systems planned to be installed
during fiscal 1997. The Company has received letters of intent along with cash
deposits from various Vietnamese communities for the purchase and installation
of water treatment facilities. Should these installations take place, it will
be the responsibility of the community to operate and maintain the systems on a
day to day basis, while the Company will provide periodic maintenance and repair
services under a separate maintenance contract. The Community Water Program in
Vietnam will serve as the model for the Company's future expansion into
additional countries.
The Company intends to concentrate its efforts on this product line in the
Vietnamese market during fiscal 1997. Success of the program however, depends
upon the Company being able to implement a financing program that is supported
by acceptable bank guarantees. This financing program anticipates VETI's ability
to finance between 40% and 60% of the capital cost of the program through
international financial sources. However, there is no assurance that such funds
will be available in the amounts necessary or under acceptable terms.
See Notes to Consolidated Financial Statements for information regarding the
Company's operations by geographic region.
4
<PAGE>
OTHER TRANSACTIONS
- ------------------
On June 19, 1995, the Company completed the acquisition of 8,670,618 shares of
VVC common stock (approximately 95%) through the issuance of the same number of
shares of Company common stock. VVC is related to the Company through the
existence of certain common officers, directors and significant stockholders.
Accordingly, the investment in VVC was accounted for as a combination of
entities under common control, which is a method similar to a pooling of
interests. Accordingly, the accompanying consolidated financial statements
include assets and liabilities of VVC at their historical cost and operations of
VVC for all periods presented.
During 1995, Casmyn Corp. ("Casmyn"), a company related through certain common
officers, directors and significant stockholders acquired a controlling interest
in the Company through the purchase of 3,000,000 of the Company's convertible
preferred shares, in exchange for approximately $2,400,000 in liabilities owing
to Casmyn. On September 29, 1995, Casmyn purchased an additional 1,000,000
preferred shares of the Company at $2.00 per share. On September 30, 1996,
Casmyn elected to convert its preferred shares into common shares of the
Company, resulting in Casmyn owning approximately 24.3% of the Company.
During the fourth quarter of 1996, the Company issued 1,532,700 of its
restricted common shares to Casmyn in exchange for 425,750 shares of Auromar
Development Corporation ("Auromar") common stock. Also, during the fourth
quarter of 1996, Casmyn exchanged 425,750 shares of Auromar Development
Corporation common stock for 1,532,700 shares of the Company's restricted common
stock, resulting in Casmyn increasing its percentage ownership in the Company to
approximately 31.2%. The Company recorded these shares at a value of $1,532,700
or $1.00 per share. This value reflects a discount from the price at which VETI
common shares were trading on the NASD Bulletin Board on the date of the
transaction. These shares were subsequently exchanged for 163,750 common shares
of Casmyn resulting from the merger of Casmyn and Auromar. The current market
value of the Casmyn shares trading on the NASD Bulletin Board approximates the
carrying value of those shares.
5
<PAGE>
INDUSTRY OVERVIEW AND CERTAIN FACTORS RELATING TO THE COMPANY'S PROPERTIES
- --------------------------------------------------------------------------
Marketing
- ---------
The Company's marketing strategy for water purification systems is to utilize
exclusive agreements with individuals, corporations, or organizations which
management believes provide contacts and expertise necessary to penetrate target
markets. Initial market focus has been directed primarily to developing
nations where the need for purified drinking water is most critical and where
the Company's technology and its commitment to developing the infrastructure
necessary to assure long term water quality has an advantage over competitive
systems.
Competition
- -----------
With the exception of large infrastructure projects involving municipal systems
for large cities, competition relating to water treatment equipment and services
in developing countries is weak and fragmented with most competitors offering
only a limited capacity in terms of technology and product diversification. The
Company maintains a product line which utilizes a wide variety of technologies
with a strategy of matching the right product utilizing the most effective
technology to meet consumer needs. All of the Company's products are
competitively priced in all of its target markets.
Purchasing and Principal Suppliers
- ----------------------------------
The raw materials used in the Company's products include primarily filters,
filter housings, treatment media, treatment chemicals, tanks, control systems,
valves and various other plumbing supplies. Most of these components are of a
standard nature and widely available.
The Company maintains relationships with several principal suppliers and
subcontractors due to quality considerations and in order to avail itself of
volume pricing. No supplier is currently considered a sole source. Alternative
suppliers with acceptable technology and quality have been identified for all
critical components.
Patents, Copyrights and Licenses
- --------------------------------
The Company holds a patent relating to the design of one of its countertop water
purification cartridges.
Technologies relating to water purification and treatment and hazardous material
storage, while proprietary, are based on know how and trade secrets and are not
generally patented. The Company does not intend to patent these technologies due
to the nature of the technologies and the level of public disclosure involved in
the patent process.
Need for Additional Financing
- -----------------------------
To fully develop markets for its products, the Company will require substantial
additional financing, there is no assurance that the Company will be able to
secure such financing on acceptable terms.
Certain Tax Considerations
- --------------------------
The Company is predominantly invested in foreign subsidiaries. Those
subsidiaries are subjected to taxes imposed on them in the foreign jurisdictions
in which they operate and in which they are organized. Further, their income is
subject to US federal and state income taxes when distributed, deemed
distributed or otherwise attributed to, the Company, which is a US corporation.
Complex US tax rules apply for purposes of determining the calculation of those
US taxes, the availability of a credit for any foreign taxes imposed on the
foreign subsidiaries or the Company and the timing of the imposition of US tax.
Normally, all foreign income earned by a US multinational Company eventually
will be subject to US tax. Income earned by a foreign branch of a US company is
taxable currently in the United States, and income earned by a foreign
subsidiary could be subject to US tax either in the year distributed to the US
as a dividend or in the year earned by means of Subpart F, foreign personal
holding company or other federal tax rules requiring current recognition of
certain income earned by foreign subsidiaries.
Income earned in foreign countries often is subject to foreign income taxes. In
order to relieve double taxation, the US federal tax law generally allows US
corporations a credit against their US tax liability in the year the foreign
earnings become subject to US tax in the amount of the foreign taxes paid on
those earnings. The credit is limited, however, under complex limitation
rules, to, in general, the US (pre-credit) tax imposed on the US corporation's
foreign source income. Further, complex rules exist for allocating and
apportioning interest, research and development expenses and certain other
expense deductions between US and foreign sources. Limiting provisions of the
source rules decrease the amount of foreign source income many US multinationals
can generate. Reduced foreign source income results in a smaller foreign tax
credit limitation, as the limitation is based on the ratio of foreign source
net income to total net income.
These rules can prevent US multinationals from crediting all of the foreign
taxes they pay. To the extent that foreign taxes are not creditable, foreign
source income bears a tax burden higher than the US tax rate.
General Political Risks
- -----------------------
The Company is actively engaged in business activities in Vietnam and
anticipates conducting business in various other countries in the future. The
political situation in these countries introduces a certain degree of risk. The
governments exercise control over licensing, importing and exporting, which may
impact on the Company's ability to carry out its business activities.
Government Approval/Regulations
- -------------------------------
6
<PAGE>
The operations of the Company are not subject to specific governmental approval
or regulation. The products of the Company are, however, significantly impacted
by environmental, health and import/export related government regulations and
programs. In many instances these regulations and programs provide strength to
the Company's marketing efforts. The Diamond Rain(TM) water purification systems
help rural communities in developing countries, as well as others, meet World
Health Organization and governmental standards for drinking water quality.
Anticipated costs relating to government approval regulation, other than those
encountered in the normal course of business, are considered minimal.
Research and Development
- ------------------------
The Company is committed to ongoing research and development. The nature of
environmental issues provides a constant supply of challenges and opportunities
for technology based solutions. The Company spent $675,891, $185,053 and
$484,520 on research and development activities during fiscal years ended
September 30, 1996, 1995 and 1994, respectively. During the past year, the
Company devoted substantially all of its research and development efforts toward
the review and development of water purification systems and technologies. While
a broad line of water purification systems has been developed, continued
research and development in this area is ongoing. This research is expected to
produce additional product offerings, address new problem areas, reduce the
capital cost and maintenance of equipment and improve efficiency. Research and
development is conducted or coordinated in part through contracts with Casmyn.
Casmyn employs qualified scientists and engineers experienced in the fields of
environmental protection, water purification, treatment of effluents from
mineral processing operations, and pollution control of water. Casmyn provides
research and development services to the Company to develop commercial
applications for water purification technologies. In addition, Casmyn provides
technical staff to the Company as required. Casmyn bills the Company for these
at rates approximating cost recovery.
ITEM 2: DESCRIPTION OF PROPERTY
-----------------------
Nam Ha, Vietnam, Bottling Plant
- -------------------------------
VVL's bottling plant is located on approximately 0.5 acres, in the city of Nam
Dinh, in the Nam Ha province of Vietnam which is approximately 180 kilometers
south of the capital city of Hanoi. The building, a 7,800 square foot masonry
structure, houses the plant which was completed in April 1996. A 4,000 gallon
underground tank serves as a buffer for the plant's feed water. Various smaller
buildings are located on the property that house support equipment and supplies.
These facilities are under a lease agreement at a cost of approximately $6,900
per year expiring in 2014.
The bottling and office activities are contained in a climate controlled area
which is partitioned from warehouse operations. The bottling area is
approximately 1,800 square feet and contains all process equipment for filling
operations. Included in this area are Diamond Rain(TM) filtration and
purification equipment, purified water storage tanks, a bottle rinser and the
bottle fill line. The portion of the line where bottles are filled and capped is
further segregated into a "clean room." In this critical area, filtered air is
injected to maintain a positive air pressure so as to prevent contamination of
the finished product.
7
<PAGE>
The plant is equipped with a laboratory where trained quality assurance
personnel monitor water quality. In the lab, various tests are conducted
including tests for microbiological contamination. Water samples and testing
records are also maintained in this area. Another portion of the warehouse
contains blow molding operations.
Other
- -----
The Company headquarters are located in Sparks, Nevada in office space leased by
Casmyn. These operations occupy a portion of a 6,500 square foot unit which
includes office and laboratory facilities which are shared with Casmyn. The
Company reimburses Casmyn approximately $2,300 per month for a portion of the
monthly rent. These facilities are adequate for the current level of operations
and sufficient office and laboratory space is conveniently located to support
future growth.
VVL occupies office space in Ho Chi Minh City under a lease at an approximate
cost of $5,000 per month. This facility includes offices, temporary living
quarters and product show rooms. VVL also operates five retail water stores in
Ho Chi Minh City and Ha Noi.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation, whether pending or
threatened, to which it is or may become a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly traded in the over-the-counter market and
is listed on the Bulletin Board maintained by members of the National
Association of Securities Dealers, Inc. under the symbol "VETI". For the six
fiscal quarters prior to April 1994, there was no established public trading
market for the Company's common stock. The following table sets forth the range
of approximate high and low bid quotations since March 31, 1994, which represent
prices between dealers, do not include retail markups, markdowns or commissions
and may not represent actual transactions. The prices are based upon
information obtained from the National Daily Quotation Service published by the
National Daily Quotation Bureau, Inc.
<TABLE>
<CAPTION>
---------------------------------------------------------------
High Low
---------------------------------------------------------------
<S> <C> <C>
Quarter from April 1, 1994 $ 6.00 $ 2.75
to June 30, 1994
---------------------------------------------------------------
Quarter from July 1, 1994 $2.375 $ 2.09
to September 30, 1994
---------------------------------------------------------------
Quarter from October 1, 1994 $ 3.25 $ 2.00
to December 31, 1994
---------------------------------------------------------------
Quarter from January 1, 1995 $ 2.39 $ 1.25
to March 31, 1995
---------------------------------------------------------------
Quarter from April 1, 1995 $ 2.50 $ 1.00
to June 30, 1995
---------------------------------------------------------------
Quarter from July 1, 1995 $ 3.00 $1.625
to September 30, 1995
---------------------------------------------------------------
Quarter from October 1, 1995 $ 3.50 $ 1.94
to December 31, 1995
---------------------------------------------------------------
Quarter from January 1, 1996 $ 2.50 $ 1.69
to March 31, 1996
---------------------------------------------------------------
Quarter from April 1, 1996 $ 2.75 $ 1.44
to June 30, 1996
---------------------------------------------------------------
Quarter from July 1, 1996 $ 1.88 $ 1.13
to September 30, 1996
---------------------------------------------------------------
</TABLE>
On January 21, 1997, the closing bid quotation for the Company's common stock
was $.92 per share. However, there is no assurance that a market in the
Company's securities will continue. As of September 30, 1996, there were 503
shareholders of record of the Company's common stock (including brokerage firms
and/or other nominees who may hold shares for multiple investors).
Holders of common stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available subject to the
dividend and liquidation rights of any preferred stock that may be issued.
9
<PAGE>
The Company has never paid cash dividends on its common stock and does not
anticipate doing so in the foreseeable future. Rather, the Company has
determined to utilize any earnings in the expansion of its business. Such policy
is subject to change, based on current industry and market conditions, as well
as other factors beyond the control of the Company.
10
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
During the years ended September 30, 1996, 1995 and 1994, the Company operated
in one business segment, water purification systems ("water purification"). See
Note 2 of Notes to the Consolidated Financial Statements.
Due to the operating losses of the Company or the availability of net operating
loss carryforwards, there were no provisions for income taxes recorded in the
consolidated financial statements for the years ended September 30, 1996, 1995
and 1994.
Results of Operations
- ---------------------
Year Ended September 30, 1996 Compared to the Year Ended September 30, 1995
Sales for the year ended September 30, 1996 were $1,017,071 compared to $382,158
for the year ended September 30, 1995. The $634,913 increase was due to higher
sales volume of water purification products in Vietnam ($195,659) and the United
Arab Emirates ($215,564), and sales of bottled water in Vietnam from the
Company's water bottling plant ($261,658) which commenced operations in June
1996. These amounts were offset by lower sales volume in North America of water
purification products in 1996 compared to 1995 ($37,968). The gross profit for
the year ended September 30, 1996 was $160,521 (approximately 16%) compared to a
loss of $107,471 in the period ended September 30, 1995. The gross loss in the
fiscal year ended September 30, 1995 was due mainly to writing off obsolete
water purification inventory items.
Costs and expenses were $4,252,238 for the year ended September 30, 1996,
compared to $3,161,994 for the year ended September 30, 1995, an increase of
$1,090,244. Selling, general and administrative expenses increased $495,589 to
$3,440,258. Compensation and benefits increased $343,525 for the year ended
September 30, 1996 compared to the year ended September 30, 1995 due primarily
to higher staff levels primarily in Vietnam staff and support personnel.
Advertising and marketing costs increased $24,341 for the year ended September
30, 1996 compared to the year ended September 30, 1995 due principally to
increased costs relating to development of the Company's new water purification
product line which was introduced in North American market in the current fiscal
year. Travel related expenses increased by $191,331 in the fiscal year ended
September 30, 1996 as compared to the year ended September 30, 1995 due to
market development activities in India, and travel to Vietnam and the United
Arab Emirates required for on-going business in those countries. Other general
and administrative expenses decreased $63,608 for the year ended September 30,
1996 compared to the year ended September 30, 1995 due primarily to decreased
professional and consulting expenses. Research and development expenses for the
year ended September 30, 1996 were $675,891 compared to $185,053 for the year
ended September 30, 1995 and increase of $490,838 due to increased research,
product design, testing and product certification costs relating to the
Company's new North American product line which was introduced in the current
fiscal year, the commissioning of the Vietnam bottling plant and the Huong Son
Community water system. Depreciation expense increased $103,817 for the year
ended September 30, 1996 due to increased fixed assets in the Company's water
bottling plant in Vietnam.
Other income was $129,371 in the year ended September 30, 1996 compared to other
expense of $128,805 in the year ended September 30, 1995, due mainly to the
Company receiving interest income on investments in the current year and lower
interest expense on amounts due to Casmyn Corp. in fiscal 1996 compared to 1995.
Year Ended September 30, 1995 Compared to the Year Ended September 30, 1994
11
<PAGE>
Sales for the year ended September 30, 1995 were $382,158 compared to $566,331
for the year ended September 30, 1994. The $184,173 decrease was due to lower
sales volume on water purification products resulting from sales efforts being
directed to market analysis, new product design and testing, thereby reducing
sales volume. The gross loss for the year ended September 30, 1995 was $107,431
compared to a gross loss of $36,347 for the year ended September 30, 1994. The
increased loss was due mainly to writing off obsolete water purification
inventory items.
Costs and expenses were $3,161,994 for the year ended September 30, 1995,
compared to $4,065,702 for the year ended September 30, 1994, a decrease of
$903,708. Selling, general and administrative expenses increased $130,790 to
$2,944,669. Compensation and benefits increased $467,642 for the year ended
September 30, 1995, compared to the year ended September 30, 1994, due primarily
to higher staff levels in the U.S. and Vietnam and to the Company recording
$99,500 in compensation expense related to the granting of non-qualified stock
options. Advertising and marketing costs decreased $117,766 for the year ended
September 30, 1995 compared to the year ended September 30, 1994 due to a lower
level of advertising expense being incurred as efforts were being directed at
new product design and testing. Other general and administrative expenses
decreased $219,086 for the year ended September 30, 1995 compared to the year
ended September 30, 1994 due primarily to decreased professional and consulting
expenses. Research and development expenses for the year ended September 30,
1995 were $185,053 compared to $484,520 for the year ended September 30, 1994
due to fewer basic research projects related to the development of water
purification technologies. The increase in costs and expenses in 1995 was offset
by a write down of assets of $758,059 because no such transaction occurred in
1995.
Other income decreased by $157,327 in the fiscal year ended September 30, 1995,
compared to the fiscal year ended September 30, 1994, due mainly to interest
accrued on the note payable to Casmyn Corp.
The Company discontinued its metal fabrication business segment in fiscal 1995
recognizing a loss from discontinued operations in the year ended September 30,
1995 of $77,354 compared to a loss of $643,767 for the year ended September 30,
1994. A gain of $109,783 was recognized on the disposal of certain metal
fabrication equipment during 1995.
Capital Resources and Liquidity
- -------------------------------
At September 30, 1996, the Company had negative working capital of $13,818,
including $327,553 in cash and and restricted investments. In addition, the
Company received cash of $4,375,000 in October 1995 which was classified as
stock subscriptions receivable at September 30, 1995. The Company has continued
its sales and marketing programs in Vietnam, the United Arab Emirates and North
America.
12
<PAGE>
During the year ended September 30, 1995, the Company completed private
placements of 500,000 common shares and 1,000,000 units for total net proceeds
of $3,375,000 (including $2,375,000 in subscriptions receivable collected in
October 1995). There were also 221,210 shares issued in connection with the
exercise of VVC warrants for net proceeds of $325,660 during the year ended
September 30, 1995. In addition, the Company issued 4,000,000 preferred shares
in exchange for $2,378,475 in debt owing to Casmyn and net cash of $2,000,000
(included in subscriptions receivable collected in October 1995).
The following is a discussion of the principal sources and uses of cash and cash
equivalents for the Company in fiscal 1996.
Net Cash Used in Operating Activities. Net cash used in operating activities was
$4,109,494 in 1996 compared to $2,015,209 in 1995. The increase in the net cash
used in operations in 1995 was due principally to the increase in inventory
levels and accounts receivable related to Vietnam and North American sales
activities and the net loss due to increased costs and expenses relating to
sales of water purification systems as discussed above. Net cash used in
operating activities was $3,294.475 for the year ended September 30, 1994, due
primarily to net losses related to sales of water purification systems.
Net Cash Provided by (Used in) Investing Activities. During 1996, the Company
used $916,160 net cash in investing activities compared to net cash provided by
investing activities of $100,999 in the fiscal year ended September 30, 1995.
The $1,107,159 increase in cash used in investing activities was mainly due to
an increase in the purchase of property and equipment ($577,847) and an increase
in restricted investments ($250,000). In 1995 the Company received $191,709
from the sale of assets, there were no similar sales in the year ended September
30, 1996. In 1994, investments in and advances to affiliate of $508,343 and
purchase of equipment and improvements and increase in other assets of $151,944,
offset by proceeds from the sale of assets of $2,000 accounted for cash used in
investing activities of $657,687.
Net Cash Provided by Financing Activities. As discussed above, during 1996 the
Company received $4,375,000 from the issuance of preferred and common stock in
private placements. In addition, the Company received $235,000 from borrowings
under a line of credit and $33,500 from the exercise of stock options. These
activities resulted in net cash provided by financing activities of $4,643,500
in the year ended September 30, 1996. During 1995, the Company received
$1,325,660 from the issuance of common stock of the Company and VVC in private
placements. During 1994 the Company received $3,080,820 from the issuance of
common stock of the Company and VVC, $1,100,000 from the proceeds of a note
payable to Casmyn, offset by repurchase of treasury stock of $55,000, resulting
in net cash provided by financing activities of $4,125,820.
Management anticipates that the net use of cash by operations will increase
during the foreseeable future due to expenditures on development of various
markets for VETI's water purification technologies, particularily in the United
States and Vietnam. The Company will use proceeds from private placements of its
common and preferred stock to fund the on-going projects in the short term and
anticipates that it will be able to secure a debt financing source to fund
longer term projects. As evidence of the Company's ability to secure debt and/or
equity financing, on September 11, 1995, in an exempt private transaction the
Company sold 500,000 shares of its restricted common stock for $1,000,000. On
September 29, 1995, in an exempt private transaction the Company sold 1,000,000
units to Societe Generale for $2,375,000 ($2.50 per share, net of an investment
banking fee of $125,000). Each unit including one common share and one-half
warrant to purchase an additional 500,000 shares of common stock at $3.00 per
share. Also on September 29, 1995, in an exempt private
13
<PAGE>
transaction the Company sold 1,000,000 shares of preferred stock to Casmyn for
$2,000,000. The Company used the proceeds from the private placements to fund
production and marketing activities as well as for general corporate purposes.
The Company is currently in a negative cash flow position and is funding current
operations through a combination of collection of accounts receivable from sale
of inventory and interest bearing loans from Casmyn Corp. The Company is
currently discussing potential debt and/or equity financing opportunities with
an investment banking firm. The Company is also discussing financing programs
with several banks to fund the Community Water Program discussed above. There is
no assurance, however, that such funds will be available in the future in
amounts, or on terms, acceptable to the Company.
The Company is organized with a relatively small, highly trained management and
professional staff and anticipates that the overall staff level will remain low
in the foreseeable future. The Company utilizes research, technical and
management services provided by Casmyn to develop commercial applications for
water purification technologies. Casmyn bills the Company for these services at
rates approximating cost recovery. Casmyn billed the Company $285,730, 223,677
and $930,093 for these services for the years ended September 30, 1996, 1995 and
1994, respectively. The Company believes that this arrangement will not require
a significant investment by the Company in either personnel or facilities.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed as part of this Report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.................................... 16
Consolidated Balance Sheets as of September 30, 1996 and 1995... 17
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1995 and 1994............................... 18
Consolidated Statements of Stockholders' Equity (Deficiency)
for the Years Ended September 30, 1996, 1995 and 1994........... 19
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1996, 1995 and 1994......................... 20
Notes to the Consolidated Financial Statements.................. 21
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Vector Environmental Technologies,
Inc.
We have audited the accompanying consolidated balance sheets of Vector
Environmental Technologies, Inc. and subsidiaries (collectively, the "Company")
as of September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficiency), and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company'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, such consolidated financial statements present fairly, in all
material respects, the financial position of Vector Environmental Technologies,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Reno, Nevada
December 21, 1996
16
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 77,553 $ 459,707
Restricted investments 250,000 -
Stock subscriptions receivable - 4,375,000
Accounts receivable 232,802 17,452
Inventories 2,026,141 312,069
Other assets 58,962 102,652
------------ ------------
Total current assets 2,645,458 5,266,880
INVESTMENT IN AFFILIATES 1,715,950 -
PROPERTY AND EQUIPMENT, NET 674,157 141,689
OTHER ASSETS 42,243 77,890
------------ ------------
TOTAL ASSETS $ 5,077,808 $ 5,486,459
============ ============
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 437,977 $ 228,202
Accrued liabilities 213,447 161,034
Due to related parties, net 1,772,852 220,045
Line of credit 235,000 -
------------ ------------
Total current liabilities 2,659,276 609,281
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
5% Cumulative convertible preferred stock, $.00001 par value;
10,000,000 shares authorized; 0 and 4,000,000 shares
issued and outstanding, liquidation preference
$0 and $4,037,500 - 40
Common stock, $.005 par value; 25,000,000 shares
authorized; 18,035,966 and 12,444,766 shares issued and
outstanding 90,180 62,224
Additional paid-in capital 17,962,534 16,249,250
Accumulated deficit (15,643,692) (11,443,846)
Foreign currency translation adjustment 9,510 9,510
------------ ------------
Total stockholders' equity 2,418,532 4,877,178
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,077,808 $ 5,486,459
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
17
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
===============================================================================================================
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 1,017,071 $ 382,158 $ 566,331
COST OF GOODS SOLD 856,550 489,589 602,678
----------------------------------------------
GROSS PROFIT (LOSS) 160,521 (107,431) (36,347)
----------------------------------------------
COSTS AND EXPENSES:
Selling, general and administrative expense 3,440,258 2,944,669 2,813,879
Depreciation and amortization 136,089 32,272 9,244
Research and development 675,891 185,053 484,520
Write down of assets - - 758,059
----------------------------------------------
Total cost and expenses 4,252,238 3,161,994 4,065,702
----------------------------------------------
LOSS FROM OPERATIONS (4,091,717) (3,269,425) (4,102,049)
OTHER INCOME (EXPENSE) 129,371 (128,805) 28,522
----------------------------------------------
LOSS FROM CONTINUING OPERATIONS (3,962,346) (3,398,230) (4,073,527)
----------------------------------------------
DISCONTINUED OPERATIONS:
Loss from discontinued operations - (77,354) (643,767)
Gain on disposal of discontinued operations - 109,783 -
----------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - 32,429 (643,767)
-----------------------------------------------
NET LOSS $(3,962,346) $(3,365,801) $(4,717,294)
==============================================
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE:
Net loss from continuing operations $(3,962,346) $(3,398,230) $(4,073,527)
Dividends on cumulative preferred stock (200,000) (37,500) -
----------------------------------------------
Net loss from continuing operations applicable to common
shares $(4,162,346) $(3,435,730) $(4,073,527)
==============================================
Loss per common share from continuing operations $ (0.33) $ (0.31) $(0.41)
Loss per common share from discontinued operations - - (0.06)
----------------------------------------------
NET LOSS PER COMMON SHARE $ (0.33) $ (0.31) $(0.47)
==============================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 12,480,178 11,032,179 10,044,907
==============================================
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Foreign Total
Number Number Additional Currency Stockholders'
of Common of Preferred Common Preferred Paid-in Accumulated Translation Equity
Shares Shares Stock Stock Capital Deficit Adjustment (Deficiency)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT SEPTEMBER 30,
1993 9,376,400 - $46,882 $ - $ 4,599,661 $ (3,360,751) $(4,118) $ 1,281,674
--------------------------------------------------------------------------------------------------------
VETI private placement 404,135 - 2,021 - 1,060,422 - - 1,062,443
VVC private placement 391,396 - 1,957 - 1,704,170 - - 1,706,127
VVC warrant exercise 166,625 - 833 - 311,417 - - 312,250
Issuance of shares for
acquisition of assets 325,000 - 1,625 - 248,891 - - 250,516
Issuance of shares for
services 600,000 - 3,000 - 7,000 - - 10,000
Purchase of treasury shares (640,000) - (3,200) - (51,800) - - (55,000)
Foreign currency
translation adjustment - - - - - - 12,842 12,842
Net loss - - - - - (4,717,294) - (4,717,294)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1994 10,623,556 - 53,118 - 7,879,761 (8,078,045) 8,724 (136,442)
--------------------------------------------------------------------------------------------------------
Private placement 500,000 - 2,500 - 997,500 - - 1,000,000
Private placement of
units 1,000,000 - 5,000 - 2,370,000 - - 2,375,000
Issuance of shares for
services 100,000 - 500 - 199,500 - - 200,000
Exercise of VVC warrants 221,210 - 1,106 - 324,554 - - 325,660
Issuance of compensatory
stock options - - - - 99,500 - - 99,500
Preferred stock:
Issued for retirement
of debt - 3,000,000 - 30 2,378,445 - - 2,378,475
Issued for cash - 1,000,000 - 10 1,999,990 - - 2,000,000
Foreign currency
translation adjustment - - - - - - 786 786
Net loss - - - - - (3,365,801) - (3,365,801)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1995 12,444,766 4,000,000 62,224 40 16,249,250 (11,443,846) 9,510 4,877,178
--------------------------------------------------------------------------------------------------------
Issuance of shares for
services 25,000 - 125 - 24,875 - - 25,000
Exercise of stock options 33,500 - 167 - 33,333 - - 33,500
Conversion to common 4,000,000 (4,000,000) 20,000 (40) (19,960) - - -
Shares issued in exchange
for investment in
affiliated company 1,532,700 - 7,664 - 1,525,036 - - 1,532,700
Collection of subscription
receivable - - - - 150,000 - - 150,000
Net loss - - - - - (3,962,346) - (3,962,346)
Dividend declared on
convertible preferred
stock - - - - - (237,500) - (237,500)
--------------------------------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30,
1996 18,035,966 - $90,180 $ - $17,962,534 $(15,643,692) $9,510 $ 2,418,532
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
19
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(3,962,346) $(3,365,801) $(4,717,294)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation and amortization 136,089 35,022 41,971
(Gain) loss on sale of assets - (109,783) 2,617
Write down of assets - - 758,059
Other non-cash expense 25,000 299,658 10,000
(Increase) decrease in accounts receivable (215,350) 110,334 (54,309)
(Increase) decrease in inventories (1,714,072) 140,460 58,349
(Increase) decrease in prepaid expenses and other assets 43,690 (74,043) 122,316
Increase (decrease) in accounts payable and accrued liabilities 262,188 (36,664) 189,262
Increase in amounts due to related parties 1,315,307 985,608 294,554
-------------------------------------------------------
Net cash used in operating activities (4,109,494) (2,015,209) (3,294,475)
-------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment in affiliate (33,250) - -
Proceeds from sale of assets - 191,709 2,000
Increase in restricted investments (250,000) - -
Investment in and advances to affiliate - - (508,343)
(Increase) decrease in other assets 35,647 - (55,533)
Purchase of property and equipment (668,557) (90,710) (95,811)
-------------------------------------------------------
Net cash provided by (used in) investing activities (916,160) 100,999 (657,687)
-------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,375,000 1,000,000 1,062,443
Issuance of preferred stock 2,000,000 - -
Issuance of VVC common stock - 325,660 2,018,377
Issuance of common stock for exercise of stock options 33,500 - -
Proceeds from note payable to related party - - 1,100,000
Purchase of treasury stock - - (55,000)
Increase in line of credit 235,000 - -
-------------------------------------------------------
Net cash provided by financing activities 4,643,500 1,325,660 4,125,820
-------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents - 786 12,842
-------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (382,154) (587,764) 186,500
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 459,707 1,047,471 860,971
-------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,553 $ 459,707 $ 1,047,471
=======================================================
CASH PAID FOR INTEREST $ 41,037 $ - $ -
=======================================================
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for subscription receivable $ - $ 2,375,000 $ -
Issuance of preferred stock for repayment
of debt to related party - 2,378,475 -
Issuance of preferred stock for subscriptions receivable - 2,000,000 -
Issuance of common stock for services 25,000 200,000 10,000
Issuance of common stock to acquire assets - - 250,516
Issuance of common stock for investment in affiliate 1,532,700 - -
Receipt of investment in affiliate for repayment of
subscription receivable 150,000 - -
Increase in due to related party for dividends on preferred stock 237,500 - -
Conversion of preferred stock to common stock 20,000 - -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
20
<PAGE>
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Vector Environmental Technologies, Inc. ("VETI" or the "Company") was
incorporated in Delaware on April 3, 1987. The Company operates through its 95%
owned subsidiary, Vector Venture Corp. ("VVC"), and various wholly owned
subsidiaries: Vector Venture Corp. which holds certain technologies and
licenses; Vector Manufacturing Corp. ("VMC") which provides purchasing and
manufacturing services; Vector Vietnam, Ltd., which holds and manages Vietnamese
operations; Alpine Water Purification, Inc., which markets consumer water
treatment equipment; STOX Systems, Inc., which markets hazardous materials
storage systems; CGL Technologies, Inc., which performs research and development
of water purification technologies; Vector India which was formed to develop
business in India; Vector Environmental Technologies (India) Private Limited
which was formed to hold and manage business in India; and Vector Water
Technologies which markets water purification systems in the United Arab
Emirates.
On June 19, 1995, the Company completed the acquisition of 8,670,618 shares of
VVC common stock (approximately 95%) through the issuance of the same number of
shares of Company common stock. VVC is related to the Company through the
existence of certain common officers, directors and significant stockholders.
Therefore, the investment in VVC has been accounted for as a combination of
entities under common control, which is a method similar to a pooling of
interests. The accompanying consolidated financial statements include assets and
liabilities of VVC at their historical cost and operations of VVC for all
periods presented.
On June 29, 1995, VETI issued 3,000,000 5%, cumulative, convertible, voting
preferred shares ("Preferred Shares") in exchange for approximately $2,400,000
in debts owed by VETI to Casmyn Corp. ("Casmyn"). On September 29, 1995, Casmyn
purchased an additional 1,000,000 Preferred Shares of VETI preferred stock at
$2.00 per share. VETI is related to Casmyn through the existence of certain
officers, directors and significant stockholders. Each Preferred Share was
convertible, at Casmyn's option, into one share of VETI common stock. The
provisions of the Preferred Shares gave Casmyn effective voting control of VETI
with a 56.25% voting majority. Effective September 30, 1996, Casmyn converted
these Preferred Shares into common shares thereby relinquishing voting control
over VETI. The conversion of the preferred shares into common shares resulted in
Casmyn holding a 24.3% equity interest in the Company. During the fourth quarter
of 1996, VETI issued 1,532,700 of its restricted common shares to Casmyn in
exchange for 425,750 shares of Auromar Development Corporation ("Auromar")
common stock, held as an investment by Casmyn, thereby increasing Casmyn's
percentage ownership in the Company to approximately 31.2% at September 30,
1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of VETI and its
wholly or majority owned subsidiaries (collectively, the "Company"). All
intercompany transactions and balances have been eliminated in consolidation.
DISCONTINUED OPERATIONS
In 1995, VMC discontinued its metal fabrication business segment. The results of
the metal fabrication segment have been reported separately as discontinued
operations in the accompanying consolidated statements of operations for the
years ended September 30, 1995 and 1994. Sales for the metal fabrication segment
were $12,379 and $519,167 for the
21
<PAGE>
years ended September 30, 1995 and 1994, respectively. After discontinuing its
metal fabrication segment, the Company has operated principally in one business
segment, the development and sale of environmental technologies, principally
water purification.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all short-term investments with a maturity of three months or less at the date
of purchase to be cash equivalents. As of September 30, 1996 and 1995, bank
balances held in excess of Federally insured limits were $99,217 and $267,895,
respectively.
RESTRICTED INVESTMENTS
At September 30, 1996, the Company had $250,000 of cash invested in short term
money market funds that represents collateral for outstanding borrowings under a
line of credit (see Note 5). The investments are stated at cost which
approximates market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated or amortized on
a straight-line basis over their estimated useful lives of three to seven years.
INVESTMENT IN AFFILIATES
The investment in affiliates consists principally of the Company's investment in
the common stock of Casmyn Corp. Such common shares were acquired when the
Auromar shares owned by the Company were exchanged for Casmyn common shares in
the merger between Auromar and Casmyn. Other shares were obtained from
collection of a $150,000 stock subscription receivable.
REVENUE RECOGNITION
Revenues from sale of water purification equipment are recognized when goods are
shipped to customers.
INCOME (LOSS) PER SHARE
Income (loss) per common share is computed on the basis of the weighted average
number of shares outstanding and common stock equivalents when dilutive.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method. Cost includes material, labor and manufacturing
overhead costs. Inventories at September 30, were composed of the
following:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Raw materials $1,081,054 $ 77,989
Finished Goods 945,087 234,080
---------- --------
Total $2,026,141 $312,069
========== ========
</TABLE>
FOREIGN CURRENCY TRANSLATION
22
<PAGE>
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries are translated at the exchange rate
in effect at each year end. Income statement accounts are translated at the
average rate of exchange prevailing during the year. Translation adjustments
arising from differences in exchange rates from period to period are included in
the accumulated foreign currency translation adjustments account in
stockholders' equity.
USE OF 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 the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements and notes
have been reclassified to conform with the 1996 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes, based upon current information, that the carrying value of
the Company's cash and cash equivalents, restricted investments, accounts
receivable and accounts payable approximates fair value due to the short
maturity of those instruments. The fair value of amounts due to related parties
is not determinable because of the related party nature of the amounts. The
Company estimates the fair value of its line of credit approximates its carrying
value because interest rates on the line of credit approximate market rates.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in March 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management believes the
adoption of SFAS No. 121 will not have a significant effect on the financial
position or results of operations of the Company.
The FASB issued SFAS No. 123 "Accounting for Awards of Stock-Based Compensation
to Employees" in October, 1995. This statement, effective for the Company's
fiscal year ending September 30, 1997, establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions where equity securities are issued for goods and services. This
Statement defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Management's
current intention is to continue to follow APB Opinion No. 25 and therefore
believes that if SFAS No. 123 had been adopted at September 30, 1996, it would
not have had a significant effect on the financial position or results of
operations of the Company.
23
<PAGE>
2. BUSINESS SEGMENTS
The Company operates in one business segment, the development and sale of
environmental technologies, principally water purification systems. The Company
has operations based in North America, Asia and the Middle East. The table below
presents information as to the Company's operations by geographic region.
<TABLE>
<CAPTION>
Year ended Year ended Year ended
September 30, September 30, September 30,
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
SALES
North America $ 198,565 $ 236,533 $ 566,331
Asia 602,942 145,625 -
Middle East 215,564 - -
----------- ----------- -----------
Total $ 1,017,071 $ 382,158 $ 566,331
=========== =========== ===========
LOSS FROM OPERATIONS
North America $(2,897,854) $(3,147,141) $(4,043,123)
Asia (1,151,063) (122,284) (58,926)
Middle East (42,800) - -
----------- ----------- -----------
Total $ 4,091,717 $(3,269,425) $(4,102,049)
=========== =========== ===========
IDENTIFIABLE ASSETS
North America $ 3,062,382 $ 5,182,077 $ 1,891,853
Asia 1,783,994 304,382 10,359
Middle East 231,432 - -
----------- ----------- -----------
Total $ 5,077,808 $ 5,486,459 $ 1,902,212
=========== =========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1996:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Equipment $797,694 $119,237
Leasehold improvements 10,812 10,812
-------- --------
Total 808,506 130,049
Accumulated depreciation and amortization (134,349) (40,817)
-------- --------
Net property and equipment 674,157 89,232
Construction in progress - 52,457
-------- --------
Total Property and Equipment $674,157 $141,689
======== ========
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company conducts business with various companies that are related through
the existence of certain common officers, directors and significant
stockholders. These related parties include Casmyn, Dahya Holdings, Inc. and
Casmyn Research and Engineering, Ltd. ("CRE").
The Company utilizes research, technical and management services provided by
Casmyn to develop commercial applications for water purification technologies.
Casmyn bills the Company for these services at rates
24
<PAGE>
approximating cost recovery. Casmyn billed the Company $285,730, $223,677 and
$930,093 for these services for the years ended September 30, 1996, 1995 and
1994.
The Company incurred interest expense to Casmyn of $39,536, $131,629 and $32,907
for the years ended September 30, 1996, 1995 and 1994 respectively.
As a result of these related party transactions, cash advances from and to the
Company and other transactions, the Company had a net amount due to related
parties at September 30, 1996 of $1,772,852, including $1,712,421 at September
30, 1996, due to Casmyn which bears interest at 9% per annum and is due one year
from the date of the advance.
5. LINE OF CREDIT
In June 1996, the Company entered into a $250,000 revolving credit agreement
with a bank. Under the terms of the agreement, the interest rate on funds
borrowed is determined based upon an index that varies with the bank's prime
lending rate, 8.25% at September 30, 1996. Borrowings under the line of credit
are collateralized by the Company's money market funds (restricted investments)
which are invested with the banking institution. The amounts borrowed are due
upon demand by the financial institution and require monthly payment of accrued
interest.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In October 1993, VVC issued 165,000 shares of its common stock for 100% of the
issued and outstanding shares of P.E.R.M. Pelican Inc. ("PERM" see Note 8).
In January 1994, in connection with the private placement of 404,135 shares of
common stock, the Company's Chief Executive Officer ("CEO") agreed with certain
private investors to decrease his ownership of the Company's common stock.
Accordingly, as an inducement for private investment in the Company, the Company
acquired 640,000 shares of common stock from the CEO for $55,000, the price paid
by the CEO.
On June 6, 1994, the Company exchanged 160,000 shares of its common stock for
all the issued and outstanding capital stock of Alpine Water Purification, Inc.
("Alpine") in a transaction accounted for as a purchase. Alpine is involved
in the design, development and marketing of technologically advanced household
water purification systems internationally and holds a patent pending on a water
disinfection device.
During the year ended September 30, 1995, the Company completed a private
placement for 500,000 shares of common stock for net proceeds of $1,000,000.
VVC issued 221,210 shares of common stock for the exercise of warrants for net
proceeds of $325,660.
On September 29, 1995, the Company completed a private placement of 1,000,000
units for net proceeds of $2,375,000. Each unit consists of one common share of
the Company plus one warrant; two warrants plus $3.00 will entitle the holder to
purchase one share of the Company's common stock. All warrants expire on October
1, 1997. At September 30, 1995 these amounts were included in stock subscription
receivable. The subscription receivable were collected subsequent to September
30, 1995.
During the fourth quarter of 1996, VETI issued 1,532,700 of its restricted
common shares to Casmyn in exchange for 425,750 shares of Auromar Development
Corporation ("Auromar") common stock. The Company recorded these shares at a
value of $1,532,700 or $1.00 per share. This value reflects a discount from the
price at which
25
<PAGE>
VETI common shares were trading on the NASD Bulletin Board on the date of the
transaction. This transaction along with the conversion by Casmyn of preferred
stock (see below) resulted in Casmyn increasing its percentage ownership of the
Company to approximately 31.2% at September 30, 1996.
PREFERRED STOCK
The Company's Series A preferred stock may be converted at the option of the
holder to common stock on a one-for-one basis (subject to adjustment pursuant to
certain common stock transactions), has a $.05 per share cumulative dividend
rate, and has a liquidation preference equal to $1.00 per share plus all unpaid
dividends. Holders of a share of Series A preferred stock are entitled to the
equivalent of four (4) common share votes.
On June 29, 1995, the Company sold a voting controlling interest to Casmyn, a
company related through certain common officers, directors and significant
stockholders through the issuance of 3,000,000 Series A preferred shares of the
Company, in exchange for $2,378,475 in debts owed by the Company. On September
29, 1995, the Company sold Casmyn an additional 1,000,000 Series A preferred
shares at $2.00 per share for net proceeds of $2,000,000. At September 30, 1995
the $2,000,000 was included in subscriptions receivable and was collected
subsequent to September 30, 1995. At September 30, 1995, Casmyn had effective
voting control of the Company with a 56.25% voting interest.
Pursuant to the terms of the preferred stock, effective September 30, 1996,
Casmyn converted 4,000,000 shares of preferred stock into common stock of the
Company. Upon conversion of preferred stock to common stock, preferred stock
dividends in arrears payable to Casmyn were $237,500. The Company recorded the
dividend and increased the amounts payable to Casmyn by $237,500 (see Note 4).
STOCK OPTIONS
During 1995, the Company adopted a qualified Incentive Stock Option Plan (ISOP)
which provides that a maximum of 700,000 options to purchase the Company's
common stock may be granted to officers, employees and advisors of the Company.
Options granted under the ISOP are intended to qualify as incentive stock
options under the Economic Recovery Tax Act of 1981 (the "1981 Act") as amended
by the Tax Reform Act of 1986.
In 1995, options to purchase 606,000 shares of common stock were granted under
the ISOP with an exercise price of $1.00 per share which represents the market
price per share on the date of grant. In 1996, options to purchase 10,000 shares
of common stock were granted under the ISOP with an exercise price of $1.00
per share which represents the market price per share on the date of the grant.
All options granted are exercisable for a period of ten (10) years and vest over
a three year period.
The Company also adopted a non-qualified Stock Option Plan (SOP), which grants
options to purchase a maximum of 875,000 shares of the Company's common stock to
officers, key employees and advisors of the Company. Options granted under the
SOP are not intended to qualify as incentive stock options under the 1981 Act.
In 1995, options to purchase 480,000 shares of common stock at a price of $.01
to $3.00 per share were granted under the SOP. In 1996, options to purchase
25,000 shares of common stock at prices ranging from $1.00 to $2.00 per share
were granted under the SOP. With the exception of 150,000 options that
completely vested on the date of grant, the options vest on varying terms of
periods up to three years. Certain of these options are compensatory in nature
and resulted in total compensation expense of $99,500 during the year ended
September 30, 1995. During the year ended September 30, 1996, 267,000 options
were canceled.
26
<PAGE>
Prior to September 30, 1994, the Company had granted options to purchase up to a
total of 1,350,000 shares of its common stock. These options are not intended
to qualify as incentive stock options under the 1981 Act. Included in these
options are options to purchase up to 1,000,000 shares at $1.00 granted to the
Chief Executive Officer of the Company, under an employment agreement. This
agreement provides that 25% of such options were vested immediately with the
remaining 75% to vest based on the achievement of defined sales goals.
A summary of stock option activity under Company plans follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- -------------
<S> <C> <C>
Outstanding at September 30, 1994 1,350,000 $1.00
Granted (vested and non-vested) 1,086,000 $.01 to $3.00
Canceled 0 0
Exercised 0 0
--------- -------------
Outstanding at September 30, 1995 2,436,000 $.01 to $3.00
Granted (vested and non-vested) 35,000 $1.00 to $2.00
Canceled (267,000) $1.00
Exercised (33,500) $1.00
--------- -------------
Balance at September 30, 1996 2,170,500 $.01 to $3.00
========= =============
Exercisable at September 30, 1996 1,162,420 $.01 to $3.00
========= =============
</TABLE>
7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ("FAS 109") during its fiscal year ended
September 30, 1994. The statement requires that deferred income taxes reflect
the tax consequences on future years of differences between the tax bases of
assets and liabilities and their bases for financial reporting purposes. In
addition, FAS 109 requires the recognition of future tax benefits, such as net
operating loss carryforwards, to the extent that realization of such benefits
are more likely than not. There was no cumulative effect of this accounting
change at the time of adoption.
A reconciliation of the income tax benefit (provision) with amounts determined
by applying the statutory U.S. Federal income tax rate to the consolidated
income (loss) before income taxes is as follows for the year ended September 30:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 1,390,000 $ 1,180,000 $ 1,650,000
Operating losses with no current tax benefit (1,390,000) (1,180,000) (1,650,000)
----------- ----------- -----------
Total $ - $ - $ -
=========== =========== ===========
</TABLE>
The Company's deferred tax items as of September 30 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 3,051,000 $ 2,140,000
Other 28,000 10,000
----------- -----------
Total deferred tax assets 3,079,000 2,150,000
Deferred tax liabilities - -
Valuation allowance (3,079,000) (2,150,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
27
<PAGE>
As of September 30, 1996 the Company has net domestic operating loss
carryfowards for income tax purposes of approximately $8,700,000 expiring in
years through 2011. These losses may not qualify for use under the current
Internal Revenue Code due to tax rules concerning ownership changes. Because the
future benefits of these loss carryforwards are not considered to be more likely
than not, such benefits are fully offset by a valuation allowance.
8. OPERATING LEASES
The Company has obligations under operating leases for offices and facilities.
Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1997 $ 170,458
1998 85,842
1999 6,900
2000 6,900
2001 6,900
Thereafter 89,700
</TABLE>
Related rental expense was $156,857, $60,685 and $62,906 for the years ended
September 30, 1996, 1995 and 1994, respectively.
9. WRITE DOWN OF ASSETS
The Company through its subsidiary, VVC, sought to acquire PERM Pelican, Inc.
("PERM") under an agreement dated March 10, 1993, however VVC's relationship
with the seller of PERM deteriorated to the point where VVC was unable to
complete the acquisition. Consequently, on August 25, 1994 VVC commenced legal
proceedings against PERM, the seller and certain principals of PERM. Due to the
uncertainty regarding the ability of the Company to recover its investment in
and advances to PERM, VETI wrote off $758,059 in the fiscal year ended September
30, 1994.
28
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company's independent accountant is Deloitte & Touche LLP, who has been the
Company's independent public accountant since December 23, 1994. Effective
December 23, 1994, the Company dismissed its prior certifying accountants,
Albright, Persing & Associates, Ltd. The decision to change accountants was
approved by the Company's Board of Directors.
None of the "reportable events" described in Item 304(a)(1)(ii) or (iv)
occurred with respect to the Company within the last two fiscal years, or the
subsequent interim period to date hereof.
29
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
Certain information about the directors and executive officers of the Company is
contained in the following table:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Amyn S. Dahya 40 Chief Executive Officer and Chairman of the Board
Sandro Kunzle 42 Director
Mehdi C. Nimjee 48 Director
Douglas C. Washburn 51 Vice President, Treasurer and Secretary
Dennis E. Welling 50 Controller
</TABLE>
All directors hold office until the next annual meeting of the
shareholders of the Company or until their successors have been elected and
qualified. Officers serve at the discretion of the Board of Directors.
AMYN S. DAHYA. Mr. Dahya has extensive international experience in project
development, engineering, joint ventures, and finance. Prior to joining the
Company in 1993, he held senior positions with Davy McKee, an international
engineering firm and in 1987 he founded Casmyn Group of Companies specializing
in mineral and environmental engineering, which he has developed for the last
nine (9) years. Mr. Dahya serves on the Board of Directors of several companies,
including Casmyn Corp. Diamond Fontein International, Vector Venture Corp., and
VETI where he also holds executive management positions.
SANDRO KUNZLE. Mr. Kunzle has over 23 years of international banking and
finance experience. During his career, Mr. Kunzle has held senior positions with
several Swiss banks and financial institutions. He currently holds the position
of Managing Director of Witra Inc., an investment firm based in Switzerland. His
expertise in international finance and venture capital adds significant
experience to the Company's international business development efforts.
MEHDI C. NIMJEE. Mr. Nimjee brings to the Company twenty-one years of project
management experience in the field of analytical chemistry and its applications
to exploration, mining, agriculture, hazardous materials handling and the
environment. He has also had experience in designing and setting up project
specific laboratories internationally.
DOUGLAS C. WASHBURN. Mr. Washburn holds a MBA/CPA and brings twenty-four (24)
years of financial management experience to the Company. Prior to joining the
Company in 1993 he was a principal at Washburn Partners, a Financial Consulting
firm, from 1990 to 1993. Between 1980 and 1990, he was Vice President and
Controller of Armco Financial Corporation, a $1 billion multinational merchant
bank and its successor Glenfed Financial Corporation. Through his
30
<PAGE>
background he brings to the Company expertise in areas of international finance,
planning, taxation, accounting and management information systems.
DENNIS E. WELLING. Mr. Welling, a CPA, currently serves as Controller. He has
twenty-four (24) years internal and external audit and controlling experience,
including positions with Deloitte & Touche, Armco Steel Corporation and Glenfed
Financial Corporation. He has significant management information systems
experience in the mining, manufacturing and financial services sectors.
31
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the annual remuneration during the fiscal year
ended September 30, 1996, which was paid to or accrued for the account of each
of the most highly compensated Executive Officers or directors of the Company
whose total cash and cash equivalent remuneration exceeded $100,000. No
compensation is currently paid to non-employee directors. The following includes
compensation information relating to the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
VETI
Securities
Underlying
Name / Options Other
Position Year Salary ($) (#) Comp.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amyn Dahya 1996 $150,000 1,000,000 -0-
President, CEO and 1995 $150,000 1,000,000 -0-
Chairman of 1994 $150,000 1,000,000 -0-
the Board
</TABLE>
No compensation is currently paid to non-employee directors.
All other executive officers of the Company listed above received a combined
annual cash compensation of $100,000 for the fiscal year ended September 30,
1996. In addition, the Company pays a portion of each employee's health
insurance premium.
The Company has entered in to a ten (10) year employment contract with Amyn
Dahya. Pursuant to the terms of this agreement, Mr. Dahya will earn an annual
base salary of $150,000, which increases by no less than 10% per year if such an
increase is approved by the Board of Directors. Under this contract, Mr. Dahya
receives reimbursement for business expenses and normal group benefits available
to other of the Company's executives. This contract will also provide Mr. Dahya
with the grant of 5 year non-qualified stock options to purchase shares of the
Company's common stock at an exercise price of $1.00 per share pursuant to the
following schedule:
<TABLE>
<CAPTION>
No. of Shares Time of Vesting
------------- ---------------
<S> <C>
250,000 Immediately upon execution of the Employment Agreement
250,000 When gross sales of the Company reach $2,500,000
250,000 When gross sales of the Company reach $5,000,000
250,000 When gross sales of the Company reach $7,500,000
</TABLE>
With the exception of Amyn Dahya, there are no employment contracts, proposed
termination of employment or change-in-control arrangements between Company and
any of its directors or executive officers.
32
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Securities the-Money options
Underlying Unexercised at Sept. 30, 1996
Shares Value options at Sept. 30, 1996 Exercisable / Unexercisable
Name Acquired Realized Exercisable / Unexercisable ($000's)
========================================================================================================================
<S> <C> <C> <C> <C>
Amyn S. Dahya 0 0 250,000/750,000 $125/$375
========================================================================================================================
</TABLE>
During 1995 the Company adopted a qualified Incentive Stock Option Plan (ISOP)
which provides that a maximum of 700,000 options to purchase the Company's
common stock may be granted to officers and employees and advisors of the
Company. Options granted under the ISOP are intended to qualify as incentive
stock options under the Economic Recovery Tax Act of 1981 (the "1981 Act") as
amended by the Tax Reform Act of 1986.
The ISOP is administered by the Board of Directors through a committee presently
consisting of two members of the Board (Committee). The Committee determines
which persons receive options, the number of shares that may be purchased under
each option, vesting provisions, option terms and exercise price. Options
granted under the ISOP are require to have an exercise price equal to or greater
than the market price of the Company's common shares at the grant date. In the
event an optionee voluntarily terminates his relationship with the Company, he
has the right to exercise his accrued options within 3 months of such
termination. However, the Company may redeem any accrued options held by an
optionee by paying the difference between the option price and the then fair
market value. If an optionee's relationship is involuntarily terminated, other
than because of death, he also has the right to exercise the accrued options
within thirty (30) days of such termination. Upon death, his estate or heirs
have one year to exercise his accrued options.
Options granted under the ISOP are not transferable other than by will or by the
laws of descent and distribution. The ISOP provides that the number of shares
and the option price will be adjusted on a pro-rata basis for stock splits and
stock dividends.
In 1995, options to purchase 606,000 shares of common stock were granted under
the ISOP with an exercise price of $1.00 per share which represents the market
price per share on the date of grant. In 1996, options to purchase 10,000 shares
of common stock were granted under the ISOP with an exercise price of $1.00 per
share which represents the market price per share on the date of the grant. All
options granted are exercisable for a period of ten (10) years and vest over a
three year period.
The Company also adopted a non-qualified Stock Option Plan (SOP), which grants
options to purchase a maximum of 875,000 shares of the Company's common stock to
officers, key employees and advisors of the Company. Options granted under the
Plan are not intended to qualify as incentive stock options under the 1981 Act.
33
<PAGE>
The SOP is administered by the Board of Directors through a committee presently
consisting of all three members of the Board which determines which persons
receive options under the SOP, the number of shares that may be purchased under
each option and the vesting period. The term of all options is five (5) years
and all options must be granted within five (5) years from the effective date of
the SOP.
Options granted under the SOP are not transferable other than by will or by the
laws of descent and distribution. The SOP provides that the number of shares and
the option price will be adjusted on a pro-rata basis for stock splits and stock
dividends.
In 1995, options to purchase 480,000 shares of VETI's common stock at a price of
$.01 to $3.00 per share were granted under the SOP. In 1996, options to purchase
25,000 shares of common stock at prices ranging from $1.00 to $2.00 per share
were granted under the SOP. These options vest on varying terms of periods up to
three years. Certain of these options are compensatory in nature and resulted in
total compensation expense of $99,500 during the year ended September 30, 1995.
During the year ended September 30, 1996, 267,000 options were canceled.
Prior to September 30, 1994, the Company had granted options to purchase a total
of up to 1,350,000 shares of its common stock. These options are not-intended to
qualify as incentive stock options under the 1981 Act. Included in these options
are options to purchase up to 1,000,000 shares at $1.00 granted to the Chief
Executive Officer of the Company under an employment agreement. This agreement
provides that 25% of such options were vested immediately with the remaining 75%
to vest based on the achievement of defined sales goals.
34
<PAGE>
The only other benefit plan offered at the present or during 1996 involves a
major medical plan which is made available to all employees on a non-
discriminatory basis, the Company currently maintains no other stock option
plans, no plan which would termed a "Long-Term Incentive Plan" as explained in
Item 402 (a)(6)(iii) of the U.S. Securities and Exchange Act, nor any benefit
plan which would give rise to "Long Term Compensation" as defined in Item
402(b)(iv) of the U.S. Securities and Exchange Act, except as described above.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its most recent fiscal year and certain written
presentations, no person who was a director, officer, or beneficial owner of
more than 10% of the Company's common stock failed to file on a timely basis
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year.
35
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information table sets forth certain information regarding the
Company's common stock owned on January 21, 1997 by (1) any person (including
any "group") who is known by the Company to own beneficially more than 5% of its
outstanding common stock, (2) each director and officer, and (3) all officers
and directors as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Shares of Common Percent of Common
Owner Stock Owned Stock Outstanding**
- ------------------------------ ---------------- -------------------
<S> <C> <C>
Dahya Holdings
1335 Greg St. #104 2,798,698(1) 15.3%
Sparks, NV 89431
- ------------------------------------------------------------------------------------
Sandro Kunzle
Tenuta Via Vecchia 16,750(2) nil
58029 Sassofortino (GR)
Italy
- ------------------------------------------------------------------------------------
Mehdi C. Nimjee
1800-1500 West Georgia St. 33,500(2) nil
Vancouver, British Columbia
Canada V6G 2Z6
- ------------------------------------------------------------------------------------
Casmyn Corp.
1335 Greg St. #104 5,634,756 31.2%
Sparks, NV 89431
- ------------------------------------------------------------------------------------
Societe Generale
17 Cours Valny
La Defense 1,500,000(3) 8.1%
Cedex
Paris, France
- ------------------------------------------------------------------------------------
All Officers and Directors of the
Company as a Group (5 persons) 2,974,548 16.1%
- ------------------------------------------------------------------------------------
</TABLE>
** Based upon 18,035,966 common shares outstanding at January 21, 1997.
(1) At December 31, 1996, Dahya Holdings, Inc., a foreign corporation, of which
Mr. Amyn Dahya is an officer and director, held 2,548,698 common shares of the
Company. Mr. Mansoor Dahya, an uncle to Mr. Amyn Dahya, is the majority
shareholder of Dahya Holdings, Inc. and holds 91% of the outstanding voting
stock of Dahya Holdings, Inc. As indirect shareholders, Messrs, Amyn Dahya and
Mansoor Dahya have shared voting and investment power in and to these shares.
Also at December 31, 1996, Mr. Dahya had a total of 250,000 exercisable options
to purchase common stock of the Company at $1.00 per share.
(2) Represents exercisable options to purchase common stock of the Company at
$1.00 per share.
(3) Represents 1,000,000 common shares of the Company and 500,000 exercisable
warrants to purchase common stock of the Company at $3.00 per share.
36
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Casmyn Corp. and Subsidiaries
- -----------------------------
The Company utilizes certain facilities and employees and officers of Casmyn in
conducting its business activities. Casmyn employs several qualified
scientists, technologists and engineers experienced in the fields of
environmental protection, water purification, treatment of effluents from
mineral processing operations, and pollution control of water. The Company is
utilizing Casmyn's infrastructure in order to develop commercial applications
for water purification technologies developed by Casmyn. Casmyn provides
research and development services to the Company as required. In addition,
Casmyn provides technical staff to the Company as required. Casmyn bills the
Company for the services of its technical staff at a rate which approximates
cost recovery.
As of 1/31/97 Casmyn owns approximately 31.2% of the outstanding common stock of
the Company. At September 30, 1996, the Company owned Casmyn $1,712,421. This
amount is due within one year and bears interest at 9% per annum.
During the fourth quarter of 1996, the Company issued 1,532,700 of its
restricted common shares to Casmyn in exchange for 425,750 shares of Auromar
Development Corporation ("Auromar") common stock. These shares were
subsequently exchanged for 163,750 common shares of Casmyn resulting from the
merger of Casmyn and Auromar.
37
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 3. Exhibits
--------
3.1 Company's amended and restated articles of incorporation*
3.2 Company's By-Laws*
10. Material Contracts
------------------
10.1 Stock Subscription Offer for Vector Environmental Technologies,
Inc.**
10.2 Preferences and rights of Series A Preferred Stock - VETI**
10.3 Vector Environmental Technologies, Inc. 1995 Incentive Stock
option Plan**
10.4 Societe Generale $2.5 million Subscription Agreement VETI**
10.5 Employment Agreement with Amyn Dahya ***
10.6 Distribution Agreement with Bristol WorldSource, Inc.
11 Statement re: computation of per share earnings (computation can be
determined from the material contained in this report)
21 Subsidiaries of the Company (see Item 1 - Description of Business)
27 Financial Data Schedule
________________________________________________________________________________
* Previously filed with the Commission on Form 10-K for fiscal year
ended September 30, 1994
** Previously filed with the Commission on Form 10-KSB for the fiscal year
ended September 30, 1995
*** Previously filed with the Commission on Form 10
(b) Reports on Form 8-K
-------------------
None
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
/s/ Amyn S. Dahya 1/31/97
By: _________________________________ ____________________
Amyn S. Dahya, Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Amyn S. Dahya
_____________________________ Chairman of the Board and 1/31/97
Amyn S. Dahya Chief Executive Officer _______________
(Principal Executive Officer)
/s/ Sandro Kunzle 1/31/97
_____________________________ Director _______________
Sandro Kunzle
/s/ Mehdi C. Nimjee 1/31/97
_____________________________ Director _______________
Mehdi C. Nimjee
/s/ Douglas C. Washburn 1/31/97
_____________________________ Vice President & Treasurer _______________
Douglas C. Washburn (Principal Financial Officer)
/s/ Dennis E. Welling 1/31/97
_____________________________ Director _______________
Dennis E. Welling (Principal Accounting Officer)
</TABLE>
39
<PAGE>
EXHIBIT 10.6
DISTRIBUTION AGREEMENT
BETWEEN
-------
BRISTOL WORLDSOURCE, INC.
-------------------------
AND
---
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.
---------------------------------------
DATED
-----
SEPTEMBER 6,1996
----------------
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. INTERPRETATION.................................................. 4
1.1. Interpretation........................................... 4
1.2. Schedules................................................ 4
2. APPOINTMENT OF REPRESENTATIVE................................... 5
2.1. Appointment.............................................. 5
2.2. Distributor's Market Obligations......................... 5
2.3. Sub-Distributors and Agents.............................. 6
2.4. Marketing Effort......................................... 6
2.5. Marketing Tools.......................................... 6
2.6. Sales Support/Training................................... 6
2.7. Distributor's Indemnity.................................. 6
3. PRICING......................................................... 6
3.1. Price.................................................... 6
3.2. Price Changes............................................ 7
3.3. Price Changes Not Applicable............................. 7
3.4. Re-Sale Prices........................................... 7
4. PURCHASE ORDERS AND SHIPPING SCHEDULES.......................... 7
4.1. Minimum Volumes.......................................... 7
4.2. Purchase Orders.......................................... 7
4.3. Amendments to Purchase Orders............................ 7
4.4. Communication of Information............................. 8
4.5. Shipping................................................. 8
4.6. Additional Procedures.................................... 8
5. MANUFACTURING BY MANUFACTURER................................... 8
5.1. Specifications........................................... 8
5.2. Manufacturer's Limited Warranty.......................... 8
5.3. Manufacturer's Indemnity................................. 8
5.4. Installation............................................. 9
6. PACKAGING AND INSPECTION........................................ 9
6.1. Packaging................................................ 9
6.2. Marking.................................................. 9
7. PAYMENT......................................................... 9
8. REPRESENTATIONS AND WARRANTIES.................................. 10
8.1. Manufacturer's Representations and Warranties............ 10
8.2. Distributor's Representations and Warranties............. 10
9. TERM AND TERMINATION............................................ 11
9.1. Term..................................................... 11
9.2. Option to Renew.......................................... 11
9.3. Termination by Either Party.............................. 11
9.4. Liabilities.............................................. 12
9.5. Force Majeure............................................ 12
9.6. Survival of Covenants.................................... 12
</TABLE>
- --------------------------------------------------------------------------------
Page 2 of 24
INI___
INI___
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
9.7. Survival of Representations, Warranties and Indemnities. 12
10. MANUFACTURER'S PROPRIETARY RIGHTS AND ADDITIONAL COVENANTS
OF DISTRIBUTOR.................................................... 12
11. DISTRIBUTOR'S PROPRIETARY RIGHTS.............................. 13
12. GENERAL PROVISIONS............................................ 14
12.1. Entire Agreement....................................... 14
12.2. Severability........................................... 14
12.3. Amendments............................................. 14
12.4. Assignment............................................. 14
12.5. Waiver and Consent..................................... 15
12.6. Governing Law.......................................... 15
12.7. Venue and Jurisdiction................................. 15
12.8. WAIVER OF TRIAL BY JURY................................ 15
12.9. Attorney's Fees and Costs.............................. 16
12.10. Notice................................................ 16
12.11. Binding Effect........................................ 17
12.12. Time of Essence....................................... 17
12.13. No Partnership........................................ 17
12.14. Counterparts.......................................... 17
13. SCHEDULES..................................................... 18
SCHEDULE "A": MANUFACTURER'S PRODUCTS AND PRICES............. 19
SCHEDULE "B": MINIMUM VOLUMES................................ 20
SCHEDULE "C": MARKET......................................... 21
SCHEDULE "D": PATENTS AND TRADEMARKS......................... 22
SCHEDULE "E": PROFIT DISTRIBUTION RATIO...................... 23
SCHEDULE "F": CONSUMER PRODUCTS NOT IN DIRECT COMPETITION.... 24
13. EXHIBITS......................................................
EXHIBIT "1": SALES REPRESENTATIVE AGREEMENT, MARCH 3, 1996...
EXHIBIT "2": MARKETING PLAN..................................
</TABLE>
- --------------------------------------------------------------------------------
Page 3 of 24
INI___
INI___
<PAGE>
MASTER DISTRIBUTION AGREEMENT
-----------------------------
THIS AGREEMENT made as of September __, 1996, Supersedes all agreements related
to the subject matter hereof
BETWEEN:
BRISTOL WORLDSOURCE, INC.
-------------------------
a Texas corporation having an office at 7557 Rambler Road Suite 750
Dallas, Texas 75231 and any subsidiaries and/or affiliates
(the "Distributor")
AND:
VECTOR ENVIRONMENTAL TECHNOLOGIES, INC.,
----------------------------------------
a Delaware corporation having an office at 1335 Greg Street, #104,
Sparks, NV 89431 and any subsidiaries and/or affiliates
(the "Manufacturer")
WHEREAS:
A) The Distributor wishes to engage in the consumer and commercial water
filtration and purification products market described in Schedule "C" (the
"Market") and is interested in selling in the Market the products of the
Manufacturer as defined in Schedule "A" to this Agreement (the "Products")
under the Manufacturer's trademarks, "Diamond Rain(TM)" and "Filtura(TM)"
and to engage the Manufacturer to produce similar products on a private
label basis.
B) The Manufacturer has expressed its desire to produce and sell the Products
to the Distributor for exclusive distribution in the Market, and
C) The Manufacturer has agreed to license the Distributor to use the trademarks
"Diamond Rain(TM)", "Filtura(TM), and all other marks and distinctive
designs described in Schedule "D" to this Agreement and any future
trademarks or trade names which the Manufacturer may develop and agree to
license to the Distributor (collectively referred to as the "Trademarks")
for the sole purpose of permitting the Distributor to market and sell the
Products in the Market; and
D) The Manufacturer has agreed to, subject to the terms of this Agreement,
license the Distributor with the right to utilize Product covered by certain
Patents or Trademarks described in Schedule "D" to this Agreement, and any
future patents which the Manufacturer may obtain in connection with the
Products, for the sole purpose of permitting the Distributor to market and
sell the Manufacturer's Products in the Market. The Distributor specifically
acknowledges and agrees with the Manufacturer that the Distributor has no
proprietary rights in and to the Trademarks and Patents.
E) THIS AGREEMENT WITNESSES that, in consideration of the covenants contained
herein, the parties mutually agree as follows:
- --------------------------------------------------------------------------------
Page 4 of 24
INI___
INI___
<PAGE>
1. INTERPRETATION
- -- --------------
1.1. INTERPRETATION
For all purposes of this Agreement, except as otherwise expressly provided or
unless the content otherwise requires:
a) "this Agreement" means this Distribution Agreement as from time to
time supplemented or amended by one or more agreements entered into
pursuant to its provisions ;
b) the headings are for convenience only and do not form a part of this
Agreement nor are they intended to interpret, define or limit the
scope, extent or intent of this Agreement or any portion thereof;
c) the word "including", when following any general statement, term or
matter, is not to be construed as limiting such general statement,
term or matter to the specific items or matters set forth immediately
following such words or to similar items or matters;
d) all accounting terms not otherwise defined have the meanings assigned
to them and all calculations to be made hereunder are to be made in
accordance with United States generally accepted accounting principles
applied on a consistent basis;
e) all references to currency means lawful money of the United States of
America and all amounts to be calculated or paid pursuant to this
Agreement are to be calculated in lawful money of the United States of
America;
f) a reference to a statute includes all regulations made under that
statute, all amendments to such statute or regulations in force from
time to time, and any statute or regulation which supplements or
supersedes such statute or regulations;
g) words imparting the masculine gender include the feminine or neuter,
words in the singular include the plural, and vice versa;
h) a reference to "approval", "authorization" or "consent" means written
approval, authorization or consent;
i) all references in this Agreement to a designated "Part", "Section" or
to a Schedule is to the designated part, section or schedule to this
Agreement, and followed by a number, letter or some combination of
numbers and letters refers to the provision of this Agreement so
designated; and
j) "person" means an individual, corporation, body corporate,
partnership, joint venture, limited liability company, association,
trust or unincorporated organization or any trustee, executor,
administrator or other legal representative.
1.2. SCHEDULES
The following schedules constitute an integral part of and are deemed to be
incorporated by reference into this Agreement:
<TABLE>
<S> <C>
Schedule "A" Manufacturer's Products and Prices
Schedule "B" Minimum Volumes
Schedule "C" The Market
Schedule "D" Patents and Trademarks
Schedule "E" Profit Distribution Ratio
Schedule "F" Products not in Direct Competition
</TABLE>
- --------------------------------------------------------------------------------
Page 5 of 24
INI___
INI___
<PAGE>
2. APPOINTMENT OF REPRESENTATIVE
- -- -----------------------------
2.1. APPOINTMENT
The Manufacturer hereby appoints the Distributor as its Exclusive Distributor
for the Products for resale within the Market as listed in Schedule "C" on an
independent contractor basis and not as an employee. The distributor hereby
accepts its appointment as the Manufacturer's Master Distributor of the Products
in the Market, under the Manufacturer's trademarks, for the Term of this
Agreement set out in Part 9. The Manufacturer shall not market, distribute,
sell or lease the Products in or for sale or distribution in the Market for the
term of this Agreement, provided, however, that the Manufacturer shall be
entitled to take any such action if (a) the Distributor shall have breached any
material term hereof or shall have failed to comply with any material condition
set forth herein, and (b) Distributor has not remedied or cured any such breach
or failure to comply within sixty (60) days following receipt by Distributor of
written notice from Manufacturer setting forth in reasonable detail the
provisions which have been breached or where there has been a failure to comply.
Distributor shall not be entitled to such sixty (60) day notice if (i)
Distributor shall fail materially to comply with the provisions of Part 10
requiring Distributor to keep certain proprietary information confidential, or
(ii) Distributor shall fail to make payments required to be made by it hereunder
when due.
All Purchase orders received after the date of this Agreement will be forwarded
to the Distributor for review and approval and will be accounted for as sales of
the Distributor. Manufacturer agrees to assign and Distributor agrees to assume
all rights and obligations under the Sales Representative Agreement with Eagle
Associates, Inc. (which includes Maverick Sales), dated March 3, 1996 (Exhibit
1), upon the signing of this Agreement. Distributor further agrees to provide
direction to Manufacturer's Sales Manager following the signing of this
Agreement and continuing until the earlier of December 31, 1996 or the
termination of the employment relationship between the Sales Manager and the
Manufacturer. Manufacturer, agrees to continue the employment of the Sales
Manager until December 31,1996, subject to the continuing levels of performance
which are mutually acceptable to both the Manufacturer and Distributor. The cost
of employing the Sales Manager, excluding travel and entertainment expense, for
the first two month period following the signing of this Agreement will be to
the account of the Manufacturer. All costs after the initial two month period up
to and including December 31, 1996, relating to the Sales Manager, will be
reimbursed to the Manufacturer by the Distributor on a semi-monthly basis. The
Manufacturer will have the option to extend the employment of the Sales Manger
for an additional period of up to 60 days following December 31,1996, under the
then existing terms, if the Distributor has not achieved the Minimum Purchase
level for the period as defined in Schedule B. The Manufacturer will have no
obligation to replace the Sales Manager in the case of a voluntary or
involuntary termination. Manufacturer agrees to release and Distributor agrees
to offer employment to the Sales Manager at the end of the two month period. It
is understood that the Distributor's obligation to offer employment to the Sales
Manager is subject in all respects to the Sales Manager's demonstrated
performance during this period.
2.2. DISTRIBUTOR'S MARKET OBLIGATIONS
During the Term of this Agreement, the Distributor will use its reasonable
efforts to promote the sale of the Products in the Market and will maintain a
trained and competent sales force and provide such training at the Distributor's
expense. Training at the Manufacturer's place of business for Distributor's
personnel who will train other Distributor personnel may be scheduled from time
to time by the parties.
The Distributor agrees that during the term of this agreement that it will not
represent, promote or sell any products that are in direct competition to those
offered by the Manufacturer as outlined in Schedule "A". However, the
Distributor may represent, promote or sell products that are complementary and /
or
- --------------------------------------------------------------------------------
Page 6 of 24
INI___
INI___
<PAGE>
which will provide the Distributor with a full product line of water
purification and treatment products. Products which are specifically agreed as
not in direct competition include, but not limited to items listed on Schedule
"F.
2.3. SUB-DISTRIBUTORS AND AGENTS
The Distributor may appoint by contract one or more sub-distributors or agents
of the Products in the Market, provided that the Manufacturer will have no
obligation to, or responsibility for, such sub-distributors or agents. Such
sub-distributors or agents will be made subject to the limitations and
restrictions as are imposed upon the Distributor under this Agreement including
but not limited to Sections 9 and 10 of the Agreement. Termination of this
Agreement with the Distributor will at the option of the Manufacturer terminate
any sub-distributors or agents.
2.4. MARKETING EFFORT
Any costs of marketing efforts by the Distributor on behalf of the Products are
to be borne by the Distributor unless other prior specific agreement is provided
in writing by the Manufacturer.
2.5. MARKETING TOOLS
The Manufacturer acknowledges that the Distributor will require access to
Manufacturer's technical and promotional materials for the Products and agrees
that it will provide at no cost to the Distributor technical information,
operating manuals, mechanical artwork and design work for reproduction by
Distributor at Distributor's expense. However, Manufacturer is under no
obligation to prepare or develop new mechanical artwork, design work,
promotional or advertising material. The Manufacturer will have the right, and
will be provided the opportunity, to review all advertising and promotional
material relating to the Manufacturer's Products to assure technical accuracy as
to the performance of the Products and to assure that the Manufacturer's name,
products and trademarks are not improperly represented.
Manufacturer agrees to provide all reasonably requested technical support by
telephone or in writing. Any on-site support by Manufacturer's personnel (on-
site support shall be defined to mean any support provided outside of
Manufacturer's offices in Nevada), requested by the Distributor, shall be
provided at Distributor's expense.
2.6. SALES SUPPORT/TRAINING
The Manufacturer will provide to the Distributor and the Distributor and its
sub-Distributors will obtain the necessary product information, training and
expertise at locations to be designated by Distributor in order to equip
Distributor and sub-Distributors to complete successful sales. This Agreement
is not a franchise agreement and shall not be construed as such.
2.7. DISTRIBUTOR'S INDEMNITY
Distributor will indemnify and save harmless the Manufacturer of and from all
claims, damages, losses or expenses (including attorneys' fees) for or relating
to missrepresentations made by the Distributor or the Distributor's agents or
representatives as to the Manufacturer or Products.
3. PRICING
- -- -------
3.1. PRICE
Subject to Section 3.2, during the Term of this Agreement, the Manufacturer will
sell the Products to the Distributor, complete for sale in the Market, at the
Distributor prices set out in Schedule "A" to this Agreement.
- --------------------------------------------------------------------------------
Page 7 of 24
INI___
INI___
<PAGE>
3.2. PRICE CHANGES
The prices of Products will be established and adjusted in accordance with
Schedule A of this Agreement, provided, however, that the prices set out in
Schedule "A" shall remain in effect for a period of one year from the date of
this Agreement and represent a floor for future price adjustments. Distributor
may request quotations of prices from Manufacturer, and the quotations made
shall remain in effect for the period of time agreed between Manufacturer and
Distributor from time to time. Manufacturer understands that Distributor may be
required to supply over a long period of time systems utilizing Manufacturer's
Products, and the parties shall work together to determine a method of obtaining
quotes and establishing prices in such circumstances.
3.3. PRICE CHANGES NOT APPLICABLE
Notwithstanding the provision for increasing or decreasing the prices of the
Products, the parties agree that no price change will affect any Products for
which a Purchase Order (as defined in Part 4) has been issued and accepted.
3.4. RE-SALE PRICES
Subject to all applicable laws, the Distributor may, in its sole discretion,
determine the prices of the Products which it sells to its customers or sub-
Distributors in the Market, while receiving suggested retail pricing from the
Manufacturer as a guideline to follow.
4. PURCHASE ORDERS AND SHIPPING SCHEDULES
- -- --------------------------------------
4.1. MINIMUM VOLUMES
Subject to Section 9.5, the Distributor will, in the ordinary course, order in
each year of this Agreement, and pay for, the minimum volumes of Products set
out in Schedule "B" and the Manufacturer will deliver such minimum volumes of
Products in accordance with the other terms and conditions of this Agreement.
4.2. PURCHASE ORDERS
Manufacturer agrees to supply the Products to the Distributor in the quantities
requested and at prices provided for herein. If a Purchase Order (hereinafter
defined) conflicts with the provisions hereof, the provisions of this Agreement
shall govern. The Distributor will prepare Purchase Orders (the "Purchase
Orders") for all Products and each such order will specify the type of Products,
the quantity of each model number ordered, delivery schedules and any other
information which the Distributor or Manufacturer considers necessary. All
Purchase Orders must specify the requested shipping date, which must be agreed
to in writing by Manufacturer. The obligations of Manufacturer to deliver the
Products in accordance with the accepted Purchase Orders are subject to the
force majeure conditions set forth in Section 9.5 of this Agreement. The
Manufacturer will make all reasonable efforts to provide for timely deliveries
of Produces, however, under no circumstances will the Manufacturer be subject to
penalties for late deliveries unless specifically agreed to in writing by the
Manufacturer.
4.3. AMENDMENTS TO PURCHASE ORDERS
The parties acknowledge that Purchase Orders may need to be modified depending
upon the specifications developed through feasibility studies conducted or
through information obtained by or on behalf of Distributor in the Market. If
the Distributor requires a modification of a Purchase Order, Distributor shall
submit a change order, and Manufacturer promptly shall respond to such proposed
change. Manufacturer shall acknowledge its acceptance or rejection of a
proposed change order within seven (7) business days of receipt of the
Distributor's proposed change in the Purchase Order.
- --------------------------------------------------------------------------------
Page 8 of 24
INI___
INI___
<PAGE>
4.4. COMMUNICATION OF INFORMATION
The parties agree that all Purchase Orders, amended Purchase Orders, changes to
shipping schedules and amended shipping schedules will be communicated by
facsimile or such other method of communication as the parties may agree to from
time to time. The Manufacturer agrees that it will acknowledge receipt,
approval or disapproval of all Purchase Orders by a facsimile sent within three
business days of receipt of the Distributor's Purchase Order.
4.5. SHIPPING
All sales shall be Free on Board (FOB) at Manufacturer's designated shipping
location in the State of Nevada, as provided in the Purchase Order, unless
otherwise agreed by the parties in writing. Cartage, insurance and freight are
to be paid by Distributor.
4.6. ADDITIONAL PROCEDURES
The parties recognize that additional procedures may be necessary from time to
time during the term of this Agreement and each agrees to cooperate with each
other to formulate and implement new policies and procedures.
5. MANUFACTURING BY MANUFACTURER
- -- -----------------------------
5.1. SPECIFICATIONS
The Manufacturer will produce all Products to the technical specifications set
forth in Purchase Orders accepted in writing by Manufacturer.
5.2. MANUFACTURER'S LIMITED WARRANTY
The Manufacturer warrants its Products against defects in material or
workmanship and failure to meet agreed specifications for a period of twelve
(12) months from the date of shipment. This warranty extends to the end-user.
The Manufacturer agrees to provide, at Manufacturer's cost, a North America
based warranty service via 24-hour phone available to end-users. If
Manufacturer is notified in writing during the warranty period of a defective
Product, and proof of purchase of the Product is provided, the defective Product
will be repaired or replaced (with the same or similar model), at Manufacturer's
option, without charge for either parts or labor or shipping. This limited
warranty shall cover defects arising only from normal usage and does not cover
malfunction or failure resulting from misuse, abuse, neglect, alteration,
modification, abnormal working conditions, or repairs by other than the
Manufacturer. To obtain warranty service for defective Products for which
Manufacturer received written or verbal ( via the warranty phone service) notice
during the applicable warranty period, the Product must be delivered properly
packaged, shipping prepaid, to the Manufacturer along with proof of purchase
documentation.
REPAIR OR REPLACEMENT AS PROVIDED UNDER THIS WARRANTY IS THE EXCLUSIVE REMEDY OF
THE PURCHASER. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, AND THE MANUFACTURER SHALL IN NO EVENT BE LIABLE TO
PURCHASER FOR INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY KIND OR CHARACTER.
5.3. MANUFACTURER'S INDEMNITY
Manufacturer will indemnify and save harmless the Distributor of and from all
claims, damages, losses or expenses (including attorneys' fees) for claimed
infringement of intellectual property rights by any Products.
- --------------------------------------------------------------------------------
Page 9 of 24
INI___
INI___
<PAGE>
5.4. INSTALLATION
The Distributor will assume responsibility for any claims arising as a result of
improper installation of the Products or improper training of purchasers. The
Distributor acknowledges that Manufacturer is not responsible for improper
installation of the Products. Distributor will indemnify and hold Manufacturer
harmless of and from any claims, damages, losses or expenses (including
attorneys' fees) related thereto.
6. PACKAGING AND INSPECTION
- -- ------------------------
6.1. PACKAGING
The Manufacturer will ensure that each shipment conforms to the Purchase Order
or any amendment thereto, and that all Products will be properly packaged for
international shipment in packaging materials supplied by the Manufacturer. The
cost of all custom packaging will be borne by the Distributor and shall be
subject to prior written agreement.
6.2. MARKING
The Manufacturer will ensure that all packaged Products will, at its expense, be
clearly marked in English as to contents and as required pursuant to the Laws of
the United States of America, State of Nevada and those generally required of
international shipping. All translation expenses from English to another
language shall be at the sole expense of the Distributor. Any marking or
labeling expense other than the customary marking and labeling supplied by the
Manufacturer shall be the expense of the Distributor. Information regarding
marking in languages other than English and/or for shipment outside the United
States of America shall be supplied by Distributor and will be affixed to the
packaging by Manufacturer according to instructions provided by Distributor.
7. PAYMENT
- -- -------
Distributor will assign all customer receivables, excluding credit card sales
and customers for which the Manufacturer has declined to approve credit
("Declined Credits"), to Manufacturer with payments to be made by customers to a
"lock-box" account maintained by the Manufacturer at USBank or other mutually
agreed bank. The Manufacturer will have the right to approve or decline any
customer credit, however, approval shall not be unreasonably withheld by the
Manufacturer. All instructions to the bank will be required to be in writing and
signed by both the Manufacturer and the Distributor. The bank will be instructed
to transfer all funds in excess of any minimum balance requirement to separate
accounts maintained by Manufacturer and Distributor on a daily basis in
accordance with an estimated ratio agreed upon from time to time in writing by
the Manufacturer and Distributor (see Schedule "E"). A mutually agreed upon
third party will be engaged to prepare monthly analyses of the account and
settlement statement by the 15th of each month for the prior month with
settlement to be made within five days. The Manufacturer will make records of
the account will be available for audit and inspection by the Distributor during
normal business hours. Neither the Manufacturer or the Distributor will permit
this account to be subject to claim or offset by any third party through pledged
collateralization or otherwise unless agreed to in writing by the other party.
Unless otherwise mutually agreed in writing, all customer terms will be net 30
days. If customer fails to pay within 60 days following the due date, the
Distributor will pay the Manufacturer the amount due the Manufacturer for
products sold to the customer. Upon receipt of payment from the Distributor the
Manufacturer will release its assignment of the receivable from the customer.
Sales to the Distributor, representing cash, credit card sales and Declined
Credits, by the Distributor, will be on a cash basis unless otherwise agreed to
in writing by the Manufacturer.
- --------------------------------------------------------------------------------
Page 10 of 24
INI___
INI___
<PAGE>
At the option of the Distributor, the Distributor may convert to straight 60 day
terms, with no assignment of receivables, by providing the Manufacturer with a
letter of credit(s) equal or greater than the maximum amount of credit that from
time to time may be outstanding. Such letter of credit(s) to be drawn on any US
money center or major regional bank or other bank acceptable to the
Manufacturer. Letter(s) of credit to be payable at sight with presentation of
unpaid invoice supported by purchase order from Distributor, shipping documents
and / or such other documents as may be mutually agreed by the parties.
All payments shall be made in currency of the United States of America unless
otherwise agreed, in writing, by the Manufacturer.
8. REPRESENTATIONS AND WARRANTIES
- -- ------------------------------
8.1. MANUFACTURER'S REPRESENTATIONS AND WARRANTIES
The Manufacturer represents and warrants to the Distributor that:
a) the Manufacturer is a corporation organized, validly existing and in
good standing under the laws of the State of Delaware.
b) the Manufacturer has full and unrestricted power and authority to
execute and deliver this Agreement and perform its obligations under
this Agreement, all necessary corporate action has been taken to
authorize the execution and delivery of this Agreement and the
performance of the Manufacturer's obligations under this Agreement and
no consent of the Manufacturer's shareholders or of any other person
or governmental agency is required to permit the Manufacturer to
execute and deliver this Agreement and perform its obligations;
c) neither the execution or delivery of this Agreement nor the
performance by the Manufacturer of its obligations under this
Agreement conflict with or will result in a default under any
contract, judgment, order, bylaw, charter provision, law, rule,
regulation or arbitration award to which the Manufacturer is a party
or by which the Manufacturer or its property is bound;
d) the sale or use of the Products in the Market do not and will not
infringe any patent or other intellectual property rights of others.
8.2. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES
The Distributor represents and warrants to the Manufacturer that:
a) the Distributor is a corporation organized, validly existing and in
good standing under the laws of Texas;
b) the Distributor has full and unrestricted power and authority to
execute and deliver this Agreement and perform its obligations under
this Agreement, and necessary corporate action has been taken to
authorize the execution and delivery of this Agreement and the
performance of the Distributor's obligations under this Agreement and
no consent of the Distributor's shareholders or of any other person or
governmental agency is required to permit the Distributor to execute
and deliver this Agreement and perform its obligations, except as may
be required by a particular government agency or instrumentality in
respect of importing the Products into a country in the Market;
- --------------------------------------------------------------------------------
Page 11 of 24
INI___
INI___
<PAGE>
c) neither the execution or delivery of this Agreement nor the
performance by the Distributor of its obligations under this Agreement
conflict with or will result in a default under any contract,
judgment, order, bylaw, charter provision or arbitration award to
which the Distributor is a party or by which the Distributor is bound;
and
d) there is no pending or threatened claim, litigation, arbitration,
investigation or other proceeding whatsoever which purports to, or
which may, affect the Distributor's right, power and authority to
enter into this Agreement, or which may result in a materially adverse
change in the Distributor's financial condition or business prospects.
9. TERM AND TERMINATION
- -- --------------------
9.1. TERM
If the Distributor does not purchase, and pay for, the minimum volumes required
under Schedule B, the Manufacturer may terminate the exclusive nature of this
Agreement by written notice if Distributor shall not have cured any failure
within 60 days following receipt of written notice from Manufacturer of
Distributor's failure to make such purchases.
Subject to the other provisions hereof, this Agreement shall have a term of five
(5) years commencing from the date of this Agreement.
9.2. OPTION TO RENEW
Upon the expiration of this agreement the Distributor and Manufacturer agree to
discuss the a renewal of this agreement for a further five (5) year period. Any
renewal will be based on mutually agreed terms and conditions. The Manufacturer
is under no obligation to offer and the Distributor is under obligation to
accept, any specific terms or conditions.
9.3. TERMINATION BY EITHER PARTY
Either party may, at its option, terminate this Agreement upon 60 days' prior
written notice if the other party:
a) is in breach or violates any of the material terms and conditions of
or fails to perform any of its material obligations, including the
achievement of minimum purchase levels, under this Agreement;
b) becomes insolvent, bankrupt, makes an assignment for the benefit of
its creditors or has a receiver, receiver/manager, trustee or
liquidator appointed in respect of its business or its assets.
The Distributor may also terminate his Agreement at the end of any calendar year
(following one full year of this contract period) upon giving sixty (60) days
prior written notice of termination.
The Manufacturer can terminate the agreement at any time upon sixty (60) days
notice by paying a termination fee equal to 10% of each of the remaining Minimum
Purchase Volumes, discounted at 12% for that term and assuming in each year that
the amount is discounted from the end of the year. Upon such termination the
Manufacturer must agree to assume all contractual liabilities of the Distributor
relating directly to the marketing and sale of the Manufacturer's products,
including but not limited to product advertising, promotions and commissions.
- --------------------------------------------------------------------------------
Page 12 of 24
INI___
INI___
<PAGE>
If the Distributor and Manufacturer do not renew the agreement under Section
9.2, or if the agreement is terminated pursuant to Section 9.1, 9.3 or 9.5 of
the Agreement, then the Manufacturer, or it agent, distributor or
representative, the Manufacturer may sell to current and prior customers of the
Distributor without limitation or compensation to the Distributor.
9.4. LIABILITIES
Upon termination of this Agreement, the Manufacturer will be required to
complete any and all accepted Purchase Orders as at the date of termination and
the Distributor will be required to receive and pay for all Products shipped in
connection with such Purchase Orders.
9.5. FORCE MAJEURE
No party will be liable for its failure to perform any of its obligations under
this Agreement as a result of Acts of God (including all natural disasters),
strikes, lockouts, civil disturbances, government or court ordered interruptions
or delays, changes in regulations or public policy, acts of war and riots, or
other such occurrences outside its reasonable control (acts of "force majeure").
Either party to this Agreement may elect to terminate this Agreement upon three
(3) months written notice to the other if the force majeure condition cannot be
remedied by the Manufacturer within three (3) months of the commencement of the
force majeure condition, and this Agreement shall be terminated at the end of
such three (3) months period. A failure to make payments hereunder when due
shall not be subject to any claim by Distributor of force majeure.
9.6. SURVIVAL OF COVENANTS
The terms and conditions of this Agreement which require performance by the
Distributor or the Manufacturer after the expiration or other termination of
this Agreement, are and will remain enforceable notwithstanding such expiration
or other termination of this Agreement for any reason whatsoever.
9.7. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES
All representations, warranties and indemnities made by the Manufacturer and
Distributor hereunder or pursuant hereto will survive the termination of this
Agreement for a period of one year.
10. MANUFACTURER'S PROPRIETARY RIGHTS AND ADDITIONAL COVENANTS OF DISTRIBUTOR
- --- -------------------------------------------------------------------------
The Distributor acknowledges that the Manufacturer has proprietary rights
related to the development and production of the Products, as well as in the
information being provided to Distributor regarding Manufacturer's Products.
The Distributor acknowledges that because of the relationship between these
parties certain proprietary information and other confidential information may
be provided to the Distributor by the Manufacturer. The Distributor agrees not
to use any of the Manufacturer's proprietary information for any purpose other
than to carry out the purposes for which the proprietary information was
disclosed, to wit: the Distributor's acquisition for resale of the
Manufacturer's Products. The Distributor shall not disclose the proprietary
information to any third party except to its sub-distributors and agents, but
only on a "need to know" basis and only so long as the sub-distributor or agent
signs an agreement which includes this provision of non-disclosure. The
Distributor further agrees that after the Agreement is terminated it shall
promptly return all proprietary information to the Manufacturer upon written
request therefore from the Manufacturer.
For purposes of this Agreement, the Manufacturer's proprietary information shall
include, but not be limited to, any of Manufacturer's manuals, records, plans,
specifications, data, know how, training materials, products apparatus,
equipment, processes, manufacturing methods, compositions, designs, and
- --------------------------------------------------------------------------------
Page 13 of 24
INI___
INI___
<PAGE>
all other items belonging to, or relating to the affairs of, the Manufacturer
which the Distributor could not have reasonably obtained but for its
relationship with the Manufacturer, provided that proprietary information shall
not include information in the public domain or obtained from others under
circumstances not involving a breach of this Agreement. Accordingly, at all
times hereafter, except as authorized herein, Distributor agrees not to divulge,
communicate, use to the detriment of the Manufacturer, or for the benefit of any
person or entity for purposes not authorized hereunder or misuse in any way, any
proprietary information of the Manufacturer. Except for information known to
Distributor or its personnel prior to the signing of this Agreement or obtained
from others in circumstances not involving a breach of this Agreement, the
Distributor acknowledges and agrees that any information or data it has acquired
from Manufacturer is received in confidence. The Distributor makes the aforesaid
representations on its behalf as well as on behalf of its officers, directors,
shareholders, employees and agents.
The aforesaid provisions shall remain in effect during the term of this
Agreement and for a period of one (1) year after termination of this Agreement.
The Distributor agrees that in the event of a violation by it of any of the
provisions of this Agreement, Manufacturer will be entitled, if it so elects, to
institute and prosecute proceedings at law or in equity to obtain damages with
respect to such violation or to enforce the specific performance of these terms
by Distributor or to enjoin Distributor from engaging in any activity in
violation thereof. That parties acknowledge that the remedy at law for any
breach or threatened breach by Distributor of the covenants and provisions set
forth in this Agreement may be inadequate, that any such breach or threatened
breach would cause immediate and permanent damage and would be irreparable, and
that the exact amount of money damages may be impossible to ascertain. In
addition to any and all other legal or equitable remedies which may be available
to the Manufacturer, the Manufacturer may obtain temporary and permanent
injunctive relief without the necessity of proving actual damage by reason of
any such breach or threatened breach, and without being required to post any
bond or other security.
11. DISTRIBUTOR'S PROPRIETARY RIGHTS
- --- --------------------------------
The Manufacturer acknowledges that the Distributor has proprietary rights
related to the marketing and sales of the Products, as well as in the
information being provided to the Manufacturer regarding the Market. The
Manufacturer acknowledges that because of the relationship between these parties
certain proprietary information and other confidential information may be
provided to the Manufacturer by the Distributor. The Manufacturer agrees not to
use any of the Distributor's proprietary information for any purpose other than
to carry out the purposes for which the proprietary information was disclosed,
to wit: the Manufacturer's development of Product for sale through the
Distributor. The Manufacturer shall not disclose the proprietary information to
any third party except to its sub-Manufacturers and agents, but only on a "need
to know" basis and only so long as the sub-Manufacturer or agent signs an
agreement which includes this provision of non-disclosure. The Manufacturer
further agrees that after the Agreement is terminated it shall promptly return
all proprietary information to the Distributor upon written request therefore
from the Distributor.
For purposes of this Agreement, the Distributor's proprietary information shall
include, but not be limited to, any of Distributor's manuals, records, plans,
specifications, data, know how, training materials, selling methods, and all
other items belonging to, or relating to the affairs of, the Distributor,
including confidential information pertaining to the business of customers,
which the Manufacturer could not have reasonably obtained but for its
relationship with the Distributor, provided that proprietary information shall
not include information in the public domain or obtained from others under
circumstances not involving a breach of this Agreement. Accordingly, at all
times hereafter, except as authorized herein,
- --------------------------------------------------------------------------------
Page 14 of 24
INI___
INI___
<PAGE>
Manufacturer agrees not to divulge, communicate, use to the detriment of the
Distributor, or for the benefit of any person or entity for purposes not
authorized hereunder or misuse in any way, any proprietary information of the
Distributor. Except for information known to Manufacturer or its personnel prior
to the signing of this Agreement or obtained from others in circumstances not
involving a breach of this Agreement, the Manufacturer acknowledges and agrees
that any information or data it has acquired from Distributor is received in
confidence. The Manufacturer makes the aforesaid representations on its behalf
as well as on behalf of its officers, directors, shareholders, employees and
agents.
The aforesaid provisions shall remain in effect during the term of this
Agreement and for a period of one (1) year after termination of this Agreement.
The Manufacturer agrees that in the event of a violation by it of any of the
provisions of this Agreement, Distributor will be entitled, if it so elects, to
institute and prosecute proceedings at law or in equity to obtain damages with
respect to such violation or to enforce the specific performance of these terms
by Manufacturer or to enjoin Manufacturer from engaging in any activity in
violation thereof. That parties acknowledge that the remedy at law for any
breach or threatened breach by Manufacturer of the covenants and provisions set
forth in this Agreement may be inadequate, that any such breach or threatened
breach would cause immediate and permanent damage and would be irreparable, and
that the exact amount of money damages may be impossible to ascertain. In
addition to any and all other legal or equitable remedies which may be available
to the Distributor, the Distributor may obtain temporary and permanent
injunctive relief without the necessity of proving actual damage by reason of
any such breach or threatened breach, and without being required to post any
bond or other security.
12. GENERAL PROVISIONS
- --- ------------------
12.1. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes every previous agreement, communication, expectation, negotiation,
representation or understanding, whether oral or written, expressed or implied,
statutory or otherwise, between the parties with respect to the subject matter
of this Agreement.
12.2. SEVERABILITY
If any provision of this Agreement is at any time unenforceable or invalid for
any reason it will be severable from the remainder of this Agreement and, in its
application at that time, this Agreement will be construed as though such
provision was not contained herein and the remainder will continue in full force
and effect and be construed as if the Agreement had been executed without the
invalid or unenforceable provision.
12.3. AMENDMENTS
This Agreement may not be amended except in writing signed by the parties.
12.4. ASSIGNMENT
Neither party may assign any right, benefit or interest in this Agreement
without the written consent of the other party, except that either party may
assign its rights, benefits and interest to a subsidiary, venture, corporation,
partnership or limited partnership in which the assigning party maintains a
controlling interest, and any other purported assignment without such consent
will be void. No
- --------------------------------------------------------------------------------
Page 15 of 24
INI___
INI___
<PAGE>
assignment shall relieve a party of its obligations hereunder without the
written consent of the other party.
Should the Manufacturer desire to sell its Consumer Products Division or any
component of the company containing the Consumer Products Division including the
company as a whole ("Component"), then the Manufacturer must first offer, in
writing, to sell the Component to the Distributor. For the purpose of this
provision the "Consumer Products Division is defined as any component(s) of the
Manufacturer which has direct responsibility for the design, production and
management of products for which the Distributor has exclusive marketing and
distribution rights. Upon receiving a written offer from the Manufacturer, the
Distributor will have up to 30 days in which to accept the offer and to
demonstrate the capacity to complete any proposed purchase. Should the
Distributor not elect to purchase the Component, or fail to adequately
demonstrate the capacity to complete a purchase, then the Manufacturer may sell
the Component to a third party under terms which are no more favorable than
those offered to the Distributor.
Should the Manufacturer elect to sell the Component to a third party then that
party shall agree to assume all of the rights and obligations of the
Manufacturer under this agreement.
12.5. WAIVER AND CONSENT
No consent or waiver, expressed or implied, by any party to or of any breach or
default by any other party of any or all of its obligations under this Agreement
will:
12.5.1. be valid unless it is in writing and stated to be a consent or
waiver pursuant to this section,
12.5.2. be relied upon as a consent to or waiver of any other breach or
default of the same or any other obligation,
12.5.3. constitute a general waiver under this Agreement, or
12.5.4. eliminate or modify the need for a specific consenter waiver
pursuant to this section in any other or subsequent instance.
12.6. GOVERNING LAW
This Agreement is and will be deemed to have been made in Texas and for all
purposes will be governed exclusively by and construed and enforced in
accordance with the domestic laws prevailing in Texas.
12.7. VENUE AND JURISDICTION
The Parties agree that the jurisdiction and sole venue for enforcement of this
Agreement should be a Federal or State court in Dallas County, Texas.
12.8. WAIVER OF TRIAL BY JURY
THE PARTIES AGREE IN THE SPIRIT OF MUTUAL COOPERATION TO INITIALLY SUBMIT ANY
DISPUTES ARISING PURSUANT TO THIS AGREEMENT TO NON-BINDING MEDIATION. THEY WILL
UTILIZE A MEDIATOR FROM EITHER THE AMERICAN ARBITRATION ASSOCIATION OR J.A.M.S.
ENDISPUTE, BOTH LOCATED IN DALLAS, TEXAS.
NOTWITHSTANDING THIS PROVISION, IN THE EVENT THAT SUCH MEDIATION DOES NOT RESULT
IN SUCCESSFUL RESOLUTION OF AN AFFECTED DISPUTE, EACH THE PARTIES
- --------------------------------------------------------------------------------
Page 16 of 24
INI___
INI___
<PAGE>
WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM INVOLVING ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT,
THE RELATIONSHIP OF THE PARTIES AND THE RIGHT TO ANY STATUTORY RELIEF OR REMEDY.
THIS WAIVER IS MADE KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY BY THE PARTIES AND
EACH PARTY FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED BY LEGAL COUNSEL
WHICH HAS BEEN SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL, OR HAS HAD THE OPPORTUNITY TO
BE REPRESENTED AND HAS DECLINED SAME, PRIOR TO THE EXECUTION BY IT OF THIS
AGREEMENT. EACH PARTY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING
AND RAMIFICATIONS OF THIS WAIVER PROVISION.
12.9. ATTORNEY'S FEES AND COSTS
If any legal action or other proceeding is brought for the enforcement of this
Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees, court costs (including, without limitation, all such
fees, costs and expenses incident to appeals), incurred in that action or
proceeding, in addition to any other relief to which such party or parties may
be entitled.
12.10. NOTICE
Each notice, request or direction given pursuant to this Agreement by either
party to the other will be in writing and sent by facsimile to the numbers set
forth below. Either party may, by notice to the other, change its number for
facsimile delivery and the parties may mutually agree to amend the method of
delivery of notice at any time during the term of this Agreement. All notices
sent by facsimile will be deemed to be received on the following day.
To the Manufacturer:
Vector Environmental Technologies, Inc.
1335 Greg Street, Suite 104
Sparks, Nevada 89431
Attention: Douglas C. Washburn, VP, Treasurer and Secretary
Facsimile: (702) 331-5527
Telephone: (702) 331-5524
To the Distributor:
Bristol WorldSource, Inc.
7557 Rambler Road, Suite 750
Dallas, Texas, 75231
Attention: Vijay Fozdar, Managing Director
Facsimile: (214) 265-6501
Telephone: (214) 265-6516
- --------------------------------------------------------------------------------
Page 17 of 24
INI___
INI___
<PAGE>
12.11. BINDING EFFECT
This Agreement will inure to the benefit of and be binding upon the respective
legal representatives, successors and permitted assigns of the parties.
12.12. TIME OF ESSENCE
Time is of the essence in the performance of each obligation under this
Agreement.
12.13. NO PARTNERSHIP
The parties acknowledge and agree that nothing in this Agreement will
constitute, by any means, a partnership between the parties.
12.14. COUNTERPARTS
This Agreement may be executed in any number of counterparts with the same
effect as if all parties to this Agreement had signed the same document and all
counterparts will be construed together and will constitute one and the same
instrument.
"Manufacturer"
Vector Environmental Technologies, Inc.
By: /s/ Douglas C. Washburn
--------------------------------------------
Douglas C. Washburn
Vice President, Secretary and Treasurer
Date executed by Manufacturer: 9/6/96
-------------------------
"Distributor"
Bristol WorldSource, Inc.
By: /s/ Vijay Fozdar
--------------------------------------------
Vijay Fozdar
Managing Director
Date executed by Distributor: 9/6/96
------------------------
- --------------------------------------------------------------------------------
Page 18 of 24
INI___
INI___
<PAGE>
13. SCHEDULES
- --- ---------
- --------------------------------------------------------------------------------
Page 19 of 24
INI___
INI___
<PAGE>
SCHEDULE "A"; MANUFACTURER'S PRODUCTS AND PRICES
------------------------------------------------
Products shall include all current and future consumer products of Vector
Environmental Technologies, Inc. and any successor thereof including, but not
limited to, all products relating to the filtration, purification, processing
and treatment of water for drinking and personal hygiene, but excluding
industrial and community-size applications and food and beverage processing.
With respect to future products, Distributor will have the option but not the
obligation to sell or otherwise represent such products on an exclusive basis.
If Distributor elects to sell or otherwise represent such products on an
exclusive basis, then Distributor must advise Manufacturer within 30 days after
receiving a written request for determination from the Manufacturer. If the
Distributor elects to represent future product on an exclusive basis then the
Distributor will immediately cease the sale or other relationship with products
which are considered as directly competitive. Should the Distributor elect not
to represent a future product on an exclusive basis then the Distributor may
sell and represent such products on a non-exclusive basis unless and until
advised by the Manufacturer that an exclusive distributor has been authorized by
the Manufacturer.
The price of the Products will be equal to 135% of the Manufacturer's direct
manufacturing cost, adjusted once every six months, unless otherwise agreed to
in writing by the Manufacturer, except that the price for the Filtura and
Filtura - Sport shall be fixed at $5.00 each and the ICE100 at $6.25 for the
first year.
- --------------------------------------------------------------------------------
Page 20 of 24
INI___
INI___
<PAGE>
SCHEDULE "B"; MINIMUM VOLUMES
-----------------------------
Purchase Volume
The Manufacturer and Distributor will work closely together to sell and
distribute Products representing the entire Product line of the Manufacturer
meeting the criteria in Schedule "A".
The Minimum Purchase Volumes to be achieved, of which 25% must be from non-US
North American sales, are established as follows:
First Year: The Distributor agrees to purchase, on a take-or-pay basis, a
minimum of $1,000,000 in product from the Manufacturer during the first year
following the date of this Agreement; $250,000 during the first three months;
during the second three months; and $500,000 during the last six months.
condition.
For each subsequent year of this contract, the Distributor will agree to minimum
purchases in the following amounts:
<TABLE>
<CAPTION>
Year Minimum Purchase
<S> <C>
2 $2,000,000
3 $3,000,000
4 $5,000,000
5 $7,500,000
</TABLE>
For purposes of determining "Minimum Purchases", purchased are defined as
occurring as of the date that purchase orders are accepted by the Manufacturer.
Accordingly purchases during a period are equal to the Net Sales during the
period less outstanding accepted purchase orders at the beginning of the period
plus outstanding accepted purchase orders at the end of the period. "Net Sales"
for this calculation being defined as equal to sales by the Manufacturer to the
Distributor, less any returns and allowances. Should the Distributor fail to
achieve minimum purchase level during any year then the Manufacturer has the
option to terminate the exclusive nature of the Distribution Agreement.
- --------------------------------------------------------------------------------
Page 21 of 24
INI___
INI___
<PAGE>
SCHEDULE "C"; MARKET
--------------------
Exclusive Market
- ----------------
The Exclusive Distribution Rights granted to the Distributor include sales to
customers within the North American Market to include the countries and
territories of: Canada, United States, Mexico and territories of the United
States including Puerto Rico and Guam.
Open Market
- -----------
All regions and territories will be deemed open for purposes of this agreement
except for:
The Exclusive Market regions noted above
Vietnam
India
The GCC Countries
- --------------------------------------------------------------------------------
Page 22 of 24
INI___
INI___
<PAGE>
SCHEDULE "D"; PATENTS AND TRADEMARKS
-------------------------------------
Diamond Rain(TM)
Filtura(TM)
- --------------------------------------------------------------------------------
Page 23 of 24
INI___
INI___
<PAGE>
SCHEDULE "E"; PROFIT DISTRIBUTION RATIO
----------------------------------------
The ratio of funds to be distributed by the bank to the Manufacturer and the
Distributor will be determined on a periodic basis at the request of either
party. Determination of the ratio will be as follows:
Based on sales to date:
Distributor sales to customers
Freight billed to customers not included in sales
Other amounts billed to customers not included in sales ____________
Total (a)
------------
Manufacturer's sales to Distributor (b)
------------
Ratio of funds to Manufacturer (b)/(a)
------------
Ratio of funds to Distributor 1-(b)/(a)
------------
- --------------------------------------------------------------------------------
Page 24 of 24
INI___
INI___
<PAGE>
SCHEDULE "F"; CONSUMER PRODUCTS NOT IN DIRECT COMPETITION
---------------------------------------------------------
REVERSE OSMOSIS BASED SYSTEMS
ULTRAVIOLET LIGHT BASED SYSTEMS
FAUCET MOUNTED FILTERS AND/OR PURIFICATION SYSTEMS*
PORTABLE SYSTEMS**
SHOWER MOUNTED FILTRATION AND/OR PURIFICATION SYSTEMS
CARAFE BASED FILTRATION AND/OR PURIFICATION SYSTEMS
* Does not include countertop systems which attach to faucets with diverter
valves and tubing
** Limited to bacteriocidal systems and /or filtration systems capable of less
than 3 micron filtration but not to bacteriostatic or filtration type systems
not capable of less than 3 micron filtration.
- --------------------------------------------------------------------------------
Page 25 of 24
INI___
INI___
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 78
<SECURITIES> 250
<RECEIVABLES> 233
<ALLOWANCES> 0
<INVENTORY> 2,026
<CURRENT-ASSETS> 2,645
<PP&E> 809
<DEPRECIATION> (135)
<TOTAL-ASSETS> 5,079
<CURRENT-LIABILITIES> 2,659
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 2,329
<TOTAL-LIABILITY-AND-EQUITY> 5,078
<SALES> 1,017
<TOTAL-REVENUES> 1,017
<CGS> 857
<TOTAL-COSTS> 4,252
<OTHER-EXPENSES> (129)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (3,962)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,962)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,962)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
