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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended - October 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-25312
STARTECH ENVIRONMENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-1286576
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
15 Old Danbury Road, Suite 203
Wilton, Connecticut 06897-2525
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(Address of principal executive offices) Zip Code
(203) 762-2499
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of January 24, 2001 8,153,456 shares of no par value common stock were
outstanding. The aggregate market value of shares held by non-affiliates as of
January 24, 2001 was $30,616,951 based on the closing bid price of the common
stock on that date.
Documents incorporated by reference and the Part of the Form 10-K into which the
document is incorporated are as follows: Items 10,11,12, and 13 of Part III of
this report are incorporated by reference to Registrant's definitive proxy
statement for its 2001 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission on or before February 28, 2001.
PART I
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10K contains forward looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports, and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies can be identified as forward
looking statements. As a result, there can be no assurance that the Company's
future results will not be materially different from those described herein as
"believed," "anticipated," "estimated" or "expected," which reflect the current
views of the Company with respect to future events. We caution readers that
these forward-looking statements speak only as of the date hereof. The Company
hereby expressly disclaims any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change in the
Company's expectations or any change in events, conditions or circumstances on
which such statement is based.
ITEM 1 - BUSINESS:
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Background
The Company's activities during the four fiscal years, November 1, 1992 to
October 31, 1995, when it was known as Kapalua Acquisitions, Inc., consisted
primarily of investigating possible business opportunities. On November 17,
1995, the Company completed the acquisition of all of the issued and outstanding
shares of the common stock of Startech Corporation, a Connecticut corporation,
and then changed its name to Startech Environmental Corp. Startech designs
machinery to recover, recycle, reduce and remediate hazardous and nonhazardous
waste materials.
On November 18, 1995, the Board of Directors of the Company unanimously approved
a change of business purpose of the Company from one seeking an acquisition
candidate to one engaged in the business of manufacturing equipment to recover,
recycle, reduce and remediate hazardous and nonhazardous waste materials. From
that time to the date of this filing, the Company has maintained only this
focus.
General
We develop, manufacture, market and sell an electro-chemical closed loop
elemental recycling system called the Plasma Waste Converter for the global
marketplace. A closed loop elemental system is a process whereby the waste
materials put into the system by the user are reformed and recovered.
Our goal is to produce and market a low cost waste processing system which
processes all forms of hazardous and nonhazardous organic and inorganic waste
and by-products, and converts most of these into a re usable synthesis gas. Our
system operates a performance level that far exceeds the environmental standards
of the United States Environmental Protection Agency, and other comparable
international environmental regulatory agencies.
Our system provides significant benefits over other forms of treatment and
disposal of hazardous and non hazardous wastes. The most common methods include
incineration, land filling, deep-well injection, wet chemistry processes,
neutralization and bio-remediation, industrial lagoons, and direct release to
the environment. These methods have transportation, treatment, environmental or
safety risks. In addition, most of these treatment and disposal methods
themselves generate large volumes of waste, which may require further treatment
prior to final disposal. As a result, we believe these methods are being met
with increasing public resistance and more stringent regulations, which lead to
an increased cost of compliance, and in some cases a prohibition. We believe the
reason many of these methods continue to be used is a lack of alternatives. We
intend to aggressively market our system as a proven, cost effective and
environmentally safe alternative.
We believe that the primary factors, which will create demand for our
Plasma Waste Converters, include the need:
o for customers to reduce the costs for hazardous and toxic waste
disposal;
o to comply with present and anticipated environmental regulations
in a cost-effective manner;
o to eliminate the liabilities associated with hazardous and toxic
waste disposal, and;
o to economically process hazardous and non-hazardous waste and
industrial by-products while recovering products for re-use or
re-sale.
Compared to other treatment methods, we believe the Plasma Waste Converter
minimizes or eliminates the creation of residual waste and significantly reduces
the costs and risks associated with residual waste disposal. We believe
increasingly stringent environmental regulations anticipated throughout the
world will create demand for systems with a high degree of environmental
performance. While our core technology is plasma, each customer will require
special system configurations for the specific material they are processing.
The Plasma Waste Converter system consists of:
o specially designed plasma vessel
o in-feed system
o gas polisher
o power requirement
o waste storage facility
o on-site waste handling equipment
o plant layout and design in the case of large systems
The expected exponential population growth in the United States will bring
the number of people in the country to well over a half a billion in sixty
years. The U.S. infrastructure will have to double, meaning its ability to
safely manage its waste problems will also have to double. The great challenge
is sustaining economic growth in the face of exponential population growth
without destroying quality of life. We believe our technology is positioned to
meet the waste-related challenge of a sustainable development. In addition to
environmental benefits, our system recycles wastes into valuable energy products
and commodity products. We regard all wastes as valuable renewable resources.
Hazardous waste, based upon data obtained from the United States
Environmental Protection Agency is produced at the rate of more than 200 million
tons annually in the United States alone. All of it is classified as hazardous
or toxic under the Resource Conservation Recovery Act or the Toxic Substance
Control Act . The costs of the hazardous waste treatment and disposal methods
continue to rise, and now range from approximately $900 to more than $2,000 per
ton. This does not include the additional processing, handling, packaging and
management costs sustained by the hazardous waste generator within its facility
prior to final disposal. We believe these costs will continue to escalate due to
the expanding pressure being placed upon government and industry to dispose of
their waste in an environmentally safe manner. We believe this to be especially
true in light of the increased regulation of, and moratoriums on, incineration
and landfilling. Our processing cost, including capital cost, labor and energy,
is estimated to be about 8 - 12 cents per pound, or about $160 - $240 per ton
for industrial sized systems, such as our five (5) ton and ten (10) ton per day
systems. The cost per pound to the end user of the Plasma Waste Converter system
will decrease as the scale of the system increases.
Other categories of industrial waste, including special wastes; industrial
waste by-products, non-hazardous waste and municipal solid waste create a total
market of approximately 13 billion tons annually. Materials classified as
special wastes are generated primarily by the mining, oil and gas industries,
manufacturing industries, cement kilns and coal-fired electric utilities.
Special wastes, while not currently categorized as hazardous, are not generally
environmentally benign and do pose a risk to the public health and safety. They
are regulated separately under state law and these wastes are materials that can
be safely and economically processed and remediated using our system.
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Primary Markets
Our system, in the process of converting the molecules of hazardous wastes
into valuable commodity products, destroys wastes totally and irreversibly. This
capability is critical in most hazardous waste applications.
We have identified our two primary markets:
o government facilities and agencies producing or in possession of
hazardous and toxic wastes;
o institutional and industrial facilities producing or in
possession of hazardous and toxic wastes
The government markets include but not limited to, the Departments of
Defense, Energy, Agriculture, Justice, Treasury and the National Institutes of
Health, all of which control or produce hazardous products.
The industrial markets include the chemical, petrochemical industries,
metal processing, manufacturing industries; hazardous and non-hazardous waste
process treatment facilities, hospital and other infectious and hazardous waste
generators; pharmaceutical, and applications involving mixed and contaminated
post-consumer plastics.
The Plasma Waste Converter can significantly minimize the volume of wastes.
Demonstrations of our system on low-level radioactive surrogate waste streams
have shown volume reductions of approximately 300 to 1. Other present methods of
volume reduction include compaction and incineration that produce overall volume
reductions of about 8 to 1. Our system will not reduce the radioactivity of the
low level radioactive waste nor do we believe it can be done by any other
system, but the volume of that waste may be reduced. Industries that may benefit
from this process are utilities, labs and hospitals which store the reduced low
level radioactive waste material on-site. We believe our system can increase a
site's storage capacity. A site that has only 2 years of low level radioactive
waste storage capacity remaining will have 200 or more years of storage capacity
by using our system.
While not the initial focus of our business we have produced preliminary
designs for municipal solid waste facilities as large as 3,000 tons per day.
Currently our largest immediate market is for skid-mounted systems that
range from 300 to 600 pounds per hour of through-put. These systems will be
manufactured in production quantities that favor fast, reliable delivery
commitments.
The smaller systems can be truck mounted, and larger systems barge mounted.
Two ton per day systems can be air lifted by C-130s for quick deployment to
tropical, arctic and desert environments. A two-ton per day system will process
all of the wastes generated by a 1,000 person military base.
Primary Customer
For the fiscal year ended October 31, 2000 87% of our revenue was derived
from three primary customers, while for the fiscal year ended October 31, 1999,
98% of our revenues was provided to us from a U.S. Army sub-contract. The
sub-contract was for the delivery of a Plasma Waste Converter for the
demonstration phase of the U.S. Army's Assembled Chemical Weapons Assessment
program and was completed in April 1999.
Plasma Waste Converter(TM) development and technology
Individual members of our management team have been issued patents in and
have been designing, manufacturing, and marketing engineered solid-waste capital
equipment to the waste industry worldwide since 1969. None of the patents have
been assigned to the company nor are they being used for our Plasma Waste
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Converter. Their experience includes the development and marketing of equipment
for hazardous, non-hazardous, and radioactive wastes, industrial by-products and
recycled processes. The Plasma Waste Converter is the culmination of that
experience over the past 30 years in the waste equipment industry.
Our management has also been involved for many years in product development
and innovations in waste industry technologies, and has extensive knowledge of
the waste industry in North America and internationally. Their interest in the
application of plasma technology to the waste industry arose as a result of a
technical article written in the 1970's which stated that two Atomic Energy
Commission fusion scientists, Mr. Bernard Eastlund and Mr. William Gough
speculated that plasma might be used to blast waste back into its constituent
atoms, and that the atoms could be reclaimed for total reuse. The scientists
also speculated that the technology would not be commercially developed until
the year 2000. Through publicly available information and research and
development conducted by Mr. Longo and Mr. Knap with various configurations and
various waste streams, it was decided that the Plasma Waste Converter was ready
for commercial adaptation and scale.
Plasma torches have been used in the metallurgical industry for many years,
with the first plasma torches being employed in the nineteenth century. The
Plasma Waste Converter is an electrically driven system that produces an intense
field of radiant energy that causes the dissociation of the molecular bonds of
solid, liquid, and gaseous compounds or materials of both hazardous and
non-hazardous wastes. This is often referred to as molecular dissociation.
The molecules of the waste material are separated into their elemental
atomic components, and reformed into recoverable non-hazardous commodity
products by the Startech system. The process is not a combustion or burning
process, and the system should not be confused with an incinerator or a
vitrification process. The intense energy field produced by the plasma torch,
which is operating within the Plasma Waste Converter chamber, causes the
dissociation process.
Plasma is a gas that has been ionized so that the gas becomes an effective
electrical conductor. The plasma gas is discharged within the chamber in a
continuous arc of lightning-like energy that can produce temperatures up to the
range of 40,000 degrees Fahrenheit, although the overall chamber temperature is
much lower. When the waste materials are confronted with the intensity of the
energy within the chamber, the excitation of the molecular bonds is so great
that the waste material's molecules break apart into their elemental atomic
components. Our Plasma Waste Converter chamber operates at normal atmospheric
pressure quietly and safely. Our Plasma Waste Converter consists of many process
components currently used in the metallurgical and chemical industries. Solid
wastes being fed to our system ordinarily do not have to be preconditioned or
shredded. The wastes can be fed to the system in bulk form. They are
automatically fed to the system through an air-locked infeed port, and the
feeding is ordinarily on a continuous basis. Liquids, gases and sludges can also
be fed or pumped directly into the chamber through a pipe port, and it is also
able to feed-in liquids, gases and sludge along with bulk solids at the same
time.
The synthesis gas recovered from our system after dissociation occurs is
drawn out of the top of the chamber and put through a conventional gas-polishing
unit. The silicates, inorganics and metals are removed at the lower side of the
Plasma Waste Converter chamber through a trap.
These recovered products can be used or sold as commodities for use in
various manufacturing processes. It is expected that most of the Plasma
Converted Gas will be used as a fuel gas and to a lesser degree, as a chemical
feed stock; silicate materials recovered will be used in the ceramics, abrasives
or the construction industries; the metallic components can be used or be
readily available for sale with little or no additional processing. The economic
justification for the use of our systems in hazardous waste applications does
not depend on any revenues from the use or sale of the recovered commodity
products.
In November of 1998 we completed the manufacture of our first industrial
sized Plasma Waste Converter which was delivered to the US Army Base at Aberdeen
Proving Ground, Maryland. The Plasma Waste Converter was put through a rigorous
and diversified four-month test program. Our Plasma Waste Converter processed
every material provided by the Army at a level far safer than the current U.S.
government environmental standards and well within the guidelines promulgated by
the Army Program testing the technology. The proprietary test report data from
the program included the results from thousands of samples analyzed by various
independent agencies approved by the environmental protection agency.
4
As of October 31, 2000 we had nearly completed work on our next generation
Plasma Waste Converter that is intended for use as a demonstration and training
unit in our Bristol, Connecticut facility. That facility is expected to be
available in the first quarter of 2001. Based upon our experience in the Army
Program, important design adjustments were engineered for ease of use and
enhanced commercial operability.
StarCell(TM) development and technology
StarCell is the Company's patented hydrogen selective membrane device that
separates the hydrogen from Plasma Converted Gas (PCG)(TM), a synthesis-fuel gas
mixture produced from processing material through the Plasma Waste Converter.
The application and development of the design for the StarCell unit was driven
by the increasing importance of developing alternative energy sources. Hydrogen
is clearly recognized as a very real alternative to our always-depleting
reservoir of fossil fuel. Although energy production is not our main objective,
the ability to separate this highly sought after gas from an already valuable
synthesis gas is another step forward in our mission to achieve broad market
acceptance for our primary product, the Plasma Waste Converter.
The Company has a patented filtration system in fabrication that will
extract hydrogen from its PCG. The system is called StarCell(TM). StarCell is
not a fuel cell; it is a ceramic membrane filtration system that extracts
hydrogen from PCG.
PCG is produced from wastes, which is a gas mixture containing a large of
quantity of hydrogen. Hydrogen is a valuable commodity with many commercial
applications and the material that powers fuel cells. Hydrogen is a pristine
fuel that produces no carbon by-products. Pound-for-pound, hydrogen contains
more energy punch than all the other fuels; and, when used in fuel cells or
engines produces only clean water vapor.
The Plasma Waste Converter irreversibly destroys all feedstock by its
process of molecular dissociation and forms PCG, a synthesis-fuel gas, rich in
hydrogen and carbon-fuel species. PCG is a valuable commodity as it is, but
StarCell increases it's value by its ability to pull out the hydrogen. StarCell
sends the hydrogen out through a pipe in one direction for use, and the
carbon-fuel species out through another pipe for commercial use. Hydrogen is a
valuable commodity that is used directly in fuel cells, but more importantly,
for many other commercial purposes. The remaining carbon-based synthesis gas
from the StarCell unit may be used as a valuable fuel or even as a chemical
feedstock.
StarCell Hydrogen(TM) can feed fuel cells and hydrogen engines. The
combination of the PWC with StarCell can produce hydrogen on a large scale from
the wastes of the world, and at a very low cost. Our customers who use PWCs with
StarCells will get paid for processing the incoming waste at the front end, and
paid for the hydrogen at the back end. People sometimes forget that waste, even
hazardous waste, is an ever-present, and much overlooked, valuable and renewable
resource.
Hydrogen is a very valuable commercial gas that is produced by various
thermo chemical industrial methods. Hydrogen gas is used in many industrial
processes to make products that we use every day. These products include cooking
oils, peanut butter, soap, insulation, metals, drugs, vitamins, adhesives,
cosmetics, ammonia, fuels, plastics and so on. Hydrogen is also used extensively
to propel spacecraft because it is very light and has a very high energy
content. Hydrogen is used as a fuel to produce pollution-free electricity in
fuel cells.
The paradox is, that while hydrogen is the most abundant material in the
universe, it is not readily accessible. Expensive and sophisticated
chemical-industry processes must extract it. Nearly all of the hydrogen produced
today is made from fossil fuels. These fuels consist primarily of molecules made
up of carbon and hydrogen. These molecules are "reformed" with steam and/or
oxygen in a complex thermo chemical process consisting of many steps. The
products of reformation are hydrogen gas and carbon-gas species.
Parenthetically, it is important to know, this expensive reformation process is
exactly what our PWC does in the process of destroying most feedstock. The
traditional industrial process further purifies and separates the hydrogen from
the rest of the stream by various methods.
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Sales strategy
Our long-term strategy is to achieve broad market acceptance of the Plasma
Waste Converter as an advantageous process of relieving waste generating
problems of the private sector and government. We are initially manufacturing
transportable, and skid mounted Plasma Waste Converters. We believe that once
there is a broad installed base of our product in these markets, waste
generators in other market segments will be attracted to our Plasma Waste
Converter. Any one system will allow the customer to dispose of between four
tons and one hundred tons of waste per day. Multiple systems may be installed in
a facility processing greater than one hundred tons per day.
An important step in implementing this strategy was to provide our
Distributors and Representatives with a fully designed and operational Plasma
Waste Converter for display and demonstrations. Our initial business plan called
for the Distributors to purchase their own demonstration system as part of their
Distributor Agreement. Due to delays in the execution of these contractual
responsibilities by our Distributors we decided to move forward and build such a
demonstration system. While the use of the Plasma Waste Converter purchased by
the Army was available for display and demonstrations for a period of time it
was a sometimes difficult and time consuming process that was not feasible as a
long-term strategy. The system that we expect to be completed in the first
quarter of 2001 should be a significant step in shortening the sales cycle with
future customers, and in finalizing sales contracts with existing customers.
We intend to manufacture our system and sell or lease them to our
customers. Leasing will be used on a case-by-case basis. We do not intend to
finance any leases. We entered into agreements with two customers for the sale
of Plasma Waste Converters in the fiscal year ended October 31, 2000.
Future sales revenues will be produced by the combination of the purchase
price for the system supplemented by ongoing usage fees. The usage fees will
vary depending on use, subject to minimum monthly usage fees embodied in the
sales agreements. Depending on the customer's application, usage fees may range
between two and five cents per pound, and will be compiled by electrically
metered watt-per-hour consumption.
Our sales strategy includes the use of independent distributors and
commissioned representatives. This sales strategy can achieve the most rapid
market penetration at the lowest cost. Sales to most domestic government
agencies will be made by our executives and will be house accounts. We will
assist distributors and representatives in all other sales.
Our distributors pay an upfront fee and commit to purchasing a
demonstration system for their ongoing sales initiatives. The distributor
operates a specific geographic area or market segment. Distributors are most
important for penetration of international markets. We believe a local presence
and knowledge of local customs and practice will give us the best penetration in
the sale of our systems. Our distributors are required to provide sales
installation and service support. All distributors are required to meet minimum
sales volumes to maintain their distributorship. Our distributors purchase the
system from us for re-sale to the end-user. Commissions are not paid to the
distributor.
Our representatives are appointed to act as sales intermediaries. They are
paid commissions on sales they initiate. We contract the sale directly with the
customer. We provide the representative with sales information and training.
We believe that the market for our systems internationally is larger than
the United States market, and in many respects has economic and environmental
imperatives for the purchase of our systems in newly industrialized countries
that are more compelling than those in the United States. According to the World
Bank, each year the world's population increases by thirty-three million people.
We believe this population growth will further increase the need for our
systems.
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We do not intend to share with customers in the offsets or revenues that
may be generated from any commodity products produced by the system. We believe
this is an additional financial incentive to acquire our systems.
Competition
We believe we are the industry leader in the use of plasma technology for
waste processing. There are other non-plasma based technologies in various
stages of development that claim to achieve some, but not all, of the objectives
achieved by our plasma based system. There also may be other plasma technologies
being developed. We believe we are positioned to take advantage of the
acceptance of plasma technology as an alternative to conventional forms of waste
disposal. We have spent substantial money, time and effort educating the public
and private sector on the benefits of our technology and believe we will reap
the rewards of that effort. The factors we believe will make us the industry
leaders are:
o advanced design and operating performance of our complete system;
o documented operating performance of our system by independent
laboratories;
o management's more than 30 years experience in the international
waste industry market;
o greater access to capital markets as a public company over
private concerns;
o depth and breath of manufacturing experience;
o fully trained international distributors and representatives; and
o engineering and scientific strengths.
We believe the following are our competitive disadvantages:
o tolerance in some communities for the continued use of
incineration;
o tolerance in some communities for the continued use of landfills;
o lack of extensive patent protection for our system;
o our cash position relative to other multi-national companies who
may enter this field as it grows; and
o resistance to new technologies when dealing with the public
health and safety.
We believe many potentially competitive technologies are limited to a
narrow number of waste feed-streams. If the system does not receive exactly what
it expects, even something as benign as water or metals, the process may be
ineffective and possibly dangerous. It is difficult to specify an exact waste
stream in a real world application. By their very nature, waste streams are
sometimes made up of unknown and unpredictable materials. For any processing
device to be commercially successful it must be able to safely and effectively
process unpredictable waste streams. Our system can handle great deviations in
the waste stream content. We believe many of the potentially competitive
technologies have yet to demonstrate capabilities beyond small laboratory or
bench scale devices that use precisely controlled waste streams. They may also
produce undesirable and hazardous by-products. Some have not yet sold their
product on a commercial scale. We have designed and manufactured and delivered a
fully automatic commercial system for use by the U.S. Army.
We believe the following technologies may be the potential competition to plasma
- -based technology:
Bio-remediation: a method that uses microorganisms for the
decontamination of soil or ground water. Usually involves injecting
organisms and oxygen into contaminated zones primarily for organic
pollutants;
Super Critical Water Oxidation: the process which exhibits by water
above 705 degrees F and above 3,208 pounds per square inch of
pressure.
Wet Air Oxidation: a mature thermal technology that processes the
treatment of wastewater sludge. The process itself generates about 20
pounds of wastewater effluent for every pound of solid contained in
the sludge that it treats. Depending on the waste to be processed,
secondary treatment may be required.
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Neutralization also called hydrolysis: a mature technology that treats
a limited number of organic materials. The process employs hot water,
enzymes and chemicals, and may produce hazardous byproducts that may
require further remediation. The process produces a large amount of
wastewater requiring secondary treatment.
Most cannot process many of the materials found in common waste streams.
Our system has no such limitations and can process all materials simultaneously
regardless of composition.
We believe there are a few other companies working on waste processing
technologies that utilize plasma based technology that may be competitors; the
exact state of their development is unknown to us.
In addition to the above, we believe that other waste disposal methods may
be considered as competition. These methods are summarized as follows:
o landfill dumping: the least expensive, in the short term, and one
of the most environmentally dangerous of all waste disposal
methods.
o Incineration: even though the permitting of new incinerator
installations is being dramatically reduced, and the technology
has fallen into great disfavor both in the U.S. and
internationally, this rather primitive method of disposal is
still presently accepted by many although the emissions produced
are regarded as pollutants, and large quantities of toxic bottom
ash and fly ash are produced and are eventually deposited into
landfills in the community.
Strategic Alliances
The strategic alliances we have entered to help further develop our market
scope and penetration are set forth below. The agreements entered into with each
strategic partner provide that we mutually seek opportunities that utilize our
proprietary process and the particular expertise and know-how of the other
strategic partner. The agreements also provides for the formation of mutually
agreeable business arrangements concerning the commercialization of our system,
and the termination by either company upon written notice, except for survival
of confidentiality, and intellectual property provisions. The principal benefit
each of these alliances bring to us is the ability to have expertise available
to us on an as needed basis as we move forward and attempt to expand our
business in areas which require our system and our strategic partner's
expertise. Each represents a potentially significant revenue source. None of the
alliances have any specific financial requirements on part of either party. Such
requirements, if any, will be determined if and when a business opportunity
materializes. Accordingly we do not give any effect to our strategic alliances
in our financial statements, as there is no financial impact at this time. The
benefit to each of our strategic alliance partners is the possibility of future
revenue opportunities through the need for their specific area of expertise
required by contracts with our customers.
Skidmore Owings & Merrill, LLP
Skidmore Owings & Merrill is a privately held partnership that offers
architectural and engineering services. The firm has offices in Chicago, New
York, San Francisco, Los Angeles, Washington D.C., with affiliates in Hong Kong,
London and Sao Paolo. Our agreement provides for Skidmore Owings & Merrill's
participation, on a case-by-case basis, with the design and construction of
facilities for Plasma Waste Converter resource recovery centers. The term of the
Agreement is for three years expiring March 14, 2003, with a three-year
renewable option. This alliance enables us to provide architectural design,
plant engineering design, and construction management capabilities and support
for large projects. The use of the Plasma Waste Converter configured for use in
large-scale facilities represent a potential significant revenue source.
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UXB International, Inc.
UXB International, Inc., is a privately owned company, located in Ashburn,
Virginia. UXB is one of the largest explosive ordnance disposal companies in the
world. Unexploded ordnance and explosive ordnance refers to munitions and
weapons such as landmines, rockets, bomblets, mortars, propellants and chemical
warfare materiel that are found on military bases, firing and bombing ranges,
and former war zones scattered throughout the world. Our agreement requires the
parties to seek out sales opportunities employing the Plasma Waste Converter
systems in both stationary and mobile configurations. We will supply the
equipment and UXB will supply the knowledge and expertise in the highly
technical and sensitive field of unexploded ordnance. Unexploded ordnance
opportunities are a potential significant revenue source. The term of the
agreement is five years and will expire on September 30, 2004. The agreement
calls for automatic five-year renewals unless one party provides notice to the
contrary to the other sixty days prior to the expiration date.
Ensign-Bickford Company
Ensign-Bickford, founded in 1836, is a preeminent privately owned
explosives manufacturing, engineering and services company with extensive
experience and expertise in the field of advanced explosives, detonation and
ordnance science and technologies for both private and government sector
markets. Our agreement provides for us to work together to obtain contracts to
sell equipment, products and services of both companies to process and destroy
various forms of chemical weapons, demilitarization wastes and unexploded
ordnance worldwide. We have been working together on non-incineration systems
for the destruction of the U.S. Chemical Weapons Stockpile, and expect to work
together to secure contracts using our Plasma Waste Converter and
Ensign-Bickford's products and services for the remediation of munitions and
radioactive waste. Ensign-Bickford provides us extensive experience in the area
of advanced explosives, detonation, blasting and other ordnance science
technologies. Sales for these markets represent a potential significant revenue
source. Our agreement expires on March 28, 2001, with an automatic three-year
renewal absent 60 days written notification by either party to the contrary.
Chase Environmental Corporation
Chase Environmental is a privately owned company headquartered in
Louisville, Kentucky comprised of engineers and scientists with extensive
expertise in operating, siting, and obtaining permits for radioactive waste
processing facilities. Chase has agreed to assist us in obtaining sales of our
systems to customers generating radioactive wastes. Disposing of radioactive
wastes require highly specialized knowledge. Chase's experience and reputation
in this field adds a significant component to our ability to sell equipment in
this sensitive and specialized market. The ability to penetrate this market
could be a significant potential revenue source. This agreement expires on
November 17, 2002, subject to an automatic five-year renewal absent 60 days
written notification by either party to the contrary.
Bauer Howden Inc.
Bauer Howden is currently manufacturing our systems in the U.S. in a
modern, fully integrated, 80,000 square foot manufacturing and engineering
facility in Bristol, Connecticut. This facility is also fully qualified as a
production facility in manufacturing compliance with military and government
specifications of the U.S. and other nations. As a strategic partner, Bauer
Howden has committed to having the capacity to manufacture our systems on a
large-scale basis if the need arises. This alliance has allowed us to use our
resources for sales and marketing by eliminating the need for owning a
manufacturing facility. Bauer Howden completed the design for, manufacture and
assembly of the first Plasma Waste Converter and shipped it to the US Army at
Aberdeen Proving Ground, Maryland. Our agreement expires on July 22, 2001.
Calumet Coach Company
Calumet Coach of Calumet City, Illinois is a privately owned Company that
has been building mobile units in both semi-trailer, and self-propelled
configurations for the past fifty years, serving special health care, military
and industrial applications throughout the world. Our agreement provides for
incorporating Plasma Waste Converter into various semi-trailer and
self-propelled mobile configurations for use in processing hazardous wastes in
9
remote locations. The ability to design, market and sell Plasma Waste Converters
in a vehicle mounted mobile configuration adds greater functionality and
desirability to our system and creates a significant sales opportunity. The
initial 3-year agreement ended on October 22, 1999. It has continued pursuant to
automatic one-year extensions absent 60 days written notification by either
party to the contrary. The current term expired on October 22, 2000, and we
expect it to be renewed.
Intellectual property
To date, we have not applied for and have not been issued any patents
surrounding our proprietary plasma technology. We have released a number of
invention disclosures to the law firm who advises us on matters involving our
intellectual property. They are currently drafting applications for United
States patents with respect to equipment invention disclosures and process
invention disclosures and we may in the future file foreign applications for
these patents. Our success depends, in part, on our ability to obtain patents,
maintain trade secrecy for our proprietary information that is not patented, and
operate without infringing on the proprietary rights of third parties. There can
be no assurance that the patents of others will not have an adverse effect on
our ability to conduct business or that we will develop additional proprietary
technology which is patentable or that any patents issued to us will provide
competitive advantages or will not be challenged by third parties. We are
currently the licensee of 3 existing U.S. patents: U.S. Patent 5516742, issued
May 14, 1996, U.S. Patent 5710087, issued January 20, 1998, and U.S. Patent
5415891, issued May 16, 1995. The license agreement for Patent numbers 5516742
and 5710087 remains in effect until the last patent expires, presently estimated
at November 14, 2014, or upon the expiration of any future patent based upon
either patent. The agreement for Patent number 5415891 expires on November 29,
2014. The inventions covered by these patents and the related know how relate to
increasing the commercial importance of Plasma Converted Gas, a synthesis gas
produced when wastes are processed in the Plasma Waste Converter system. It is
possible we may need to acquire licenses for, or to contest the validity of,
issued or pending patents of third parties relating to our technology. There can
be no assurance that any license under these patents would be made available to
us on acceptable terms, if at all, or that we would prevail in any contest. In
addition, we could incur substantial costs in defending ourselves in suits
brought against us or in bringing suits against other parties. We also protect
our trade secrets and proprietary know-how and technology by non-disclosure
agreements and non-compete agreements with our collaborators, employees and
consultants. However, there can be no assurance that these agreements will not
be breached, that we would have adequate remedies for any breach, and that our
trade secrets and proprietary know-how will not otherwise become known or be
independently discovered by others.
The Company has released four invention disclosures related to its Plasma
Waste Converter and StarCell technologies for the submission to the U.S. Patent
and Trademark Office. In addition to the patent submissions, we have also filed
registrations for our pre-existing Trademarks, Trade names and Copyrights.
Government regulation
Our customers are required to comply with a number of federal, state and
local laws and regulations in the areas of safety, health and environmental
controls, including without limitation, the Resource Conservation and Recovery
Act, as amended and the Occupational Safety and Health Act of 1970, which may
require us, our prospective working partners or its customers to obtain permits
or approvals to utilize the Plasma Waste Converter and related equipment on job
sites. In addition, because we are marketing the Plasma Waste Converter
internationally and expect those sales to represent a significant portion of our
revenues, our customers will be required to comply with laws and regulations
and, when applicable, obtain permits or approvals in those other countries.
There is no assurance that these required permits and approvals would be
obtained. Furthermore, particularly in the environmental remediation market, we
may be required to conduct performance and operating studies to assure
government agencies that the Plasma Waste Converter and its by-products do not
prove to be environmental risks. There is no assurance that these studies, if
successful, will not be more costly or time-consuming than anticipated. Further,
if new environmental legislation or regulations are enacted or existing
legislation or regulations are amended or are interpreted or enforced
differently, our prospective working partners and/or its customers may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals. There can be no assurance that our system's
performance will satisfy all of the applicable regulatory requirements.
10
Environmental matters
Our customers operations are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of regulated
materials. Although our role is generally limited to the sale or leasing of its
specialized technical equipment for use by our customers, there is always the
risk that equipment failures could result in significant claims against us. Any
claims against us could materially adversely affect our business, financial
condition and results of operations as well as the price of our common stock.
Manufacturing operations
Our products and systems are presently being manufactured pursuant to a
manufacturing agreement with Bauer Howden based on our engineering drawings,
specifications and production methods. Bauer Howden is an experienced
manufacturing company and also a strategic alliance partner. Bauer Howden is
manufacturing our systems in the United States in a modern, fully integrated,
80,000 square foot manufacturing and engineering facility in Bristol,
Connecticut. This facility is also fully qualified as a production facility in
manufacturing, in compliance with the military and government specifications of
the United States and many nations of the world.
Research and development
While the principal research and development to produce commercial Plasma
Waste Converters has been completed, we will continue to perform research and
development activities with respect to product improvement and new product
development, utilizing internal technical staff as well as independent
consultants. These activities have not been significant and have to date been
entirely paid for and sponsored by the company. We will continue to develop and
design operational improvements that will be primarily in the area of the use of
the Plasma Converted Gas produced by the Plasma Waste Converter. The
expenditures for research and development would be significantly increased if
our current design and configuration of our larger Plasma Waste Converters does
not operate in a manner consistent with our smaller unit and we were required to
redesign the system.
The company has not separately categorized or accounted for research and
development expenditures on its financial statements through the period ending
April 30, 2000. All such expenditures have been expensed as incurred. Until the
fiscal year ended October 31, 1998 we were considered a development stage
company. There were no material expenditures associated with research and
development costs for the periods covering fiscal years 1997, 1998, 1999. In the
twelve months ending October 31, 2000 we expensed $74,534 for research and
development.
We intend to expand our research and development efforts. In addition to
conducting ongoing tests, demonstrations and enhancements of the Plasma Waste
Converter, our efforts are expected to focus on the development of patentable
proprietary inventions in the field of high temperature thermo-chemistry and the
production of low cost hydrogen.
Employees
As of October 31, 2000, we had thirteen full-time employees, including six
with engineering degrees. From time to time, we hire contract engineers for
particular projects and for a limited time. We believe that we have been
successful in attracting experienced and capable personnel. All officers and
directors have entered into agreements requiring them not to disclose any
proprietary information, assigning all rights to inventions made during their
employment, and prohibiting them from competing with us. Our employees are not
represented by any labor union, and we believe that our relations with our
employees are satisfactory.
11
ITEM 2 - PROPERTIES:
- -------------------
Our corporate headquarters is located at 15 Old Danbury Road, Suite 203,
Wilton, Connecticut 06897-2525 where we lease 5,800 square feet of office space
from CD Station, LLC as landlord. The lease provides for monthly payments of $
14,017, increasing annually from December 2002 to December 2004, when the lease
expires. There is an option for us to extend the lease for a five (5) year term
with the Landlord having the right to cancel the lease after two (2) years of
the extended term if the buildings main tenant, The Common Fund, requires the
additional space for their corporate offices.
Our Product Showroom is located at 190 Century Drive, Bristol, Connecticut,
06010, where we lease 5,400 square feet of office space from Tunxis Management
as landlord. The lease provides for monthly payments of $2,250 increasing
annually to December 2005, when the lease expires.
The following table listed below is the annual rent expense for the
corporate headquarters at Wilton, Connecticut, and the Product showroom in
Bristol, Connecticut:
Year Annual Rent
---- -----------
2001 $195,313
2002 201,980
2003 214,446
2004 219,421
2005 45,408
ITEM 3 - LEGAL PROCEEDINGS:
- --------------------------
As of the date of this report there are no outstanding legal proceedings.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth (4th)
quarter of the year covered by this report.
12
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
- -----------------------------------------------------------------------
MATTERS:
- --------
(a) Market Information
------------------
From November 1995 through November 1, 2000 our common stock was traded on the
OTC Bulletin Board under the ticker STHK. On November 2, 2000 our common stock
began trading on the Nasdaq Small Cap Market under the symbol STHK. The table
below shows the high and low bid of our Common Stock during the last quarters
indicated.
Bid
Quarter Ended High Low
------------- ---- ---
January 31, 2001 (through January 24, 2001) $ 9.88 $ 5.38
October 31, 2000 $ 10.82 $ 7.52
July 31, 2000 $ 14.00 $ 7.00
April 30, 2000 $ 18.75 $ 8.88
January 31, 2000 $ 8.12 $ 5.12
October 31, 1999 $ 8.56 $ 5.25
July 31, 1999 $ 9.71 $ 6.00
April 30, 1999 $ 7.12 $ 5.00
January 31, 1999 $ 8.62 $ 4.62
(b) Holders
-------
As of January 24, 2001, there were 628 holders of the Company's Common Stock.
This number does not include those beneficial owners whose securities are held
in street name.
(c) Dividends
---------
The Company has never paid a cash dividend on its Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings, which it may
realize in the future to finance its operations. During the fiscal year 2000 the
Company paid $491,316 in preferred dividends payable in additional shares of
Series A Convertible Preferred Stock. On October 31, 2000 the Company had an
accrued preferred dividend of $33,485 on its Series A Convertible Preferred
Stock.
13
ITEM 6 - SELECTED FINANCIAL DATA:
- --------------------------------
The selected financial data set forth below for the five years ended October 31,
2000 is derived from the Company's audited financial statements. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7
and "Financial Statements And Supplementary Data" included in Item 8 which are
incorporated herein by reference. The acquisition of Startech Corporation by the
Registrant occurred on November 17, 1995. The financial information reflects the
operations of both companies combined for all the periods presented.
Year Ended October 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 1,069,441 $2,268,964 $ 1,088,782 $ 10,000 $ 26,000
Loss from operations 2,731,336 1,346,399 473,733 897,855 664,424
Other income (expense) 319,093 68,071 14,664 20,497 (5,569)
Net loss $ 2,430,576 $ 1,289,192 $ 463,051 $ 877,908 $ 670,493
=========== =========== =========== =========== ===========
Earnings per share of weighted
average shares of common
stock outstanding (0.63) (0.19) (0.07) (0.12) (0.12)
Weighted-average number of
shares of common stock
outstanding 7,430,838 6,875,999 6,887,736 6,695,316 5,482,268
Total assets $ 7,077,881 $ 6,374,818 $ 1,824,448 $ 1,201,870 $ 391,610
Total liabilities 1,196,596 359,458 1,163,774 188,063 444,667
Long-term obligations 13,225 7,718 0 0 0
Cash dividends per share
for common stock 0 0 0 0 0
14
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS:
- -------------
Results of Operations
Comparison of Years Ended 2000 and 1999
Revenues. Our total revenues were $ 1,069,441 for the year ended October 31,
2000, as compared to $ 2,268,964 for the same period in 1999, a decrease of $
1,199,523 or 52.9%. Our decrease in revenue was due to the fact that in the 1999
period we were working on the Army sub-contract, whereas for the year ended
October 31, 2000, we were receiving no additional revenue from the Army
sub-contract as we had completed the Assembled Chemical Weapons Assessment Army
(ACWA) Project. In addition to the above, revenues were lower than expected due
to delays in progress payment for the three systems we had contracted to build
during that period for Taiwan, South Africa and Japan. While initial deposits of
varying amounts have been received for these systems, and preliminary design
work was completed, their manufacture has been delayed at the request of the
purchasers for reasons unrelated to our ability to manufacture and ship as
contracted.
Gross Profit. Our gross profit was $266,814 for the fiscal year ended October
31, 2000 an increase of $136,109 or 104.0% from the same period in 1999. Our
gross margins on revenue were 24.9% for the year ended October 31, 2000. The
improved gross profit margins for the year ended October 31, 2000 were
attributable to revenues earned from the final payment fee from the US Army for
the Assembled Chemical Weapons Assessment Army (ACWA) Project, improved profit
margins associated with our strategic agreement with UXB International, and
lower associated costs related to our distributors. For the year ended October
31, 1999 lower gross profit margins resulted mainly from the higher than
expected initial costs relating to the Assembled Chemical Weapons Assessment
Army (ACWA) project.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 2000 were $2,068,236 an increase of $591,133, or
40.1%, from the same period in 1999. The significant acceleration in expenses is
due to substantial increases in the following areas: hiring additional
professional and administrative personnel to support our operations,
international and domestic travel, printing expenses related to required SEC
filings, office rental expenses, professional services fees and insurance
expenses.
Research and development expenses. Our research and development expenses for the
year ended October 31, 2000 were $74,534 up 100.0%, from the same period in 1999
during which no research and development expenses were reported. The increase is
due to costs related to improved design and engineering of our Plasma Waste
Converter, and the development of StarCell.
Selling Expenses. Our selling expenses for the year ended October 31, 2000 were
$855,380, an increase of $788,522, or 1,179%, from the similar period 1999. The
increase is due to salaries for existing personnel, higher marketing and
demonstration cost.
Interest income. Our interest income for the year ended October 31, 2000 was
$324,221, as compared to $101,520 in the similar period 1999 and increase of
219.0%. The increase is due to higher cash balances as a result of the completed
preferred private placement dated October 20, 1999, and warrants that were
exercised during the year 2000.
Income taxes. Income taxes for the year ended October 31, 2000 were $18,333 as
compared with $10,864 in the similar period 1999. We have minimal tax
obligations due to the fact that we have not had meaningful profitability to
this point. We have loss carry forwards of $5.6 million to offset against future
profits.
15
Comparison of Years Ended 1999 and 1998
Revenues. Our total revenues for the year ended October 31, 1999 were $2.3
million, an increase of $1.2 million, or 108%, from the year ended October 31,
1998. Our increase in revenue was due to the award of the ACWA Army sub
contract, which we demonstrated at the Aberdeen Proving Grounds. This Army sub
contract represented 98% of revenues for both years ended October 31, 1999 and
1998.
Gross Profit. Our gross profit was $131,000 for the year ended October 31, 1999
a decrease of $511,000, or 80% from the year ended October 31, 1998. Our gross
margins on revenue was 5% for the year ended October 31, 1999 compared to gross
margins on revenue of 59% for the year ended October 31, 1998. The 1999 decrease
in gross profit margin resulted mainly from the completion of the demonstrations
for the Army ACWA program at Aberdeen Proving Grounds.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 1999 were $1.2 million, an increase of $491,000, or
74%, from the year ended October 31, 1998. The increase is due to a higher level
of salaries as a result of the hiring additional personnel to support our
growth, professional fees, insurance, stockholder relations.
Selling Expenses. Our selling expenses for the year ended October 31, 1999 were
$321,000, an decrease of $130,000, or 29%, from $451,000 for the year ended
October 31, 1998. The decrease is due to lower customer demonstration activity
at Aberdeen Proving Grounds.
Interest expense. Our interest expense for the year ended October 31, 1999 was
$33,000, an increase of $24,000, or 266%, from $9,000 for the year ended October
31, 1998. The increase is due to interest expenses relating to a note payable to
Connecticut Development Authority.
Interest income. Our interest income for the year ended October 31, 1999 was
$101,000, an increase of $78,000, or 339%, from $23,000 for the year ended
October 31, 1998. The increase is due to higher cash balances as a result of a
private placement completed on October 20, 1999.
Income taxes. Income taxes for the year ended October 31, 1999 were $11,000 as
compared with $4,000 in the similar period 1998.
Comparison of Years Ended 1998 and 1997
Revenues. Our total revenues for the year ended October 31, 1998 were $1.1
million an increase of $1.1 million, or 11,000% over the $10,000 in revenues for
the year ended October 31, 1997. Our increase in revenue was due to the award of
the ACWA Army sub contract. This Army sub contract represented 98% of revenues
in the year ended October 31, 1998 compared to 0% of revenue in the year ended
October 31, 1997.
Gross Profit. Our gross profit was $643,000 for the year ended October 31, 1998
an increase of $633,000 or 6,300% from the year ended in October 31, 1997. Our
gross margins on revenue were 59% for the year ended October 31, 1998, our first
year that we were not classified as a development stage company. Our gross
margins were derived from the Army in 1998. In 1997 we had $10,000 in consulting
fees.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 1998 were $665,000 a decrease of $17,000, or 2%, from
the year ended October 31, 1997. The decrease was due primarily to lower legal
fees and automobile expense.
Selling Expenses. Our selling expenses for the year ended October 31, 1998 were
$451,000, an increase of $225,000, or 99%, from $226,000 for the year ended
October 31, 1997. The increase is due to higher salary costs, higher travel
costs, and higher printing and material costs.
Interest expense. Our interest expense for the year ended October 31, 1998 and
1997 was $9,000.
16
Interest income. Our interest income for the year ended October 31, 1998 was
$24,000, a decrease of $6,000, or 20%, from $30,000 for the year ended October
31, 1997. The decline in interest income was attributable to a reduction in our
cash balances for the funding of working capital, and design work.
Income taxes. Income taxes for the year ended October 31, 1998 were $4,000 as
compared with $550 in the similar period
for 1997.
Liquidity and Capital Resources
The Company had working capital of $4,663,365 as of October 31, 2000 and had
cash and cash equivalents of $5,221,154 as of that date.
Working capital was provided primarily by fees earned on ordered PWC systems,
exercising of warrants/options, and consulting fees. We have and will continue
to be dependent upon the deposits from the sale of equipment, equipment sales,
and public or private sale of securities. It is anticipated that our capital
requirements for future periods will increase and future needs are anticipated
from the above sources and from cash generated from the operations of our
business.
Working capital for the year ended October 31, 2000, was primarily a result of
fees for services. Additional revenue was provided from Burns and Roe's final
fee payment related to the ACWA program, billings for consulting services, and
distributorship revenue. We believe that cash generated from operations, our
current cash balances, and other sources of capital, will be sufficient to
satisfy our projected working capital and planned capital expenditures for at
least 24 months. This will provide us with the financial flexibility to respond
quickly to business opportunities, including opportunities for growth through
internal development, research and development, strategic alliances and ventures
and/or acquisitions.
In the period November 1, 1999 thru October 31, 2000 we received proceeds of
$1,800,463 from 514,418 warrants that were exercised at $3.50 per share. During
the same period we received proceeds of $198,702 from 22,078 warrants that were
exercised at $9.00 per share. On October 24, 2000 the Connecticut Development
Authority Development exercised 15,000 warrants at $7.00 per share for total
proceeds of $105,000. We also received $50,000 in proceeds relating to 10,000
options that were exercised at $5.00 per share.
Our investing activities have consisted primarily of short-term high quality
liquid investments, with maturity with three months or less when purchased,
which are considered cash equivalents. The primary investments are high quality
commercial paper, U.S. Treasury notes and U.S. Treasury bills.
For the year ended October 31, 2000 we declared four quarterly dividends on our
Series A Convertible Preferred stock in the aggregate amount of $491,316, which
was paid by the issuance of 49,132 shares of Series A Convertible Preferred
stock.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
- ----------------------------------------------------
Financial Statements and Supplementary data and the Independent Auditors Report
thereon are listed and included Part IV, Item 14 of this Form 10-K..
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE:
- --------------------
None
17
PART III
Directors and Executive Officers of the Registrant
Note: The information pursuant to Items 10, 11, 12 and 13 is omitted from this
report (in accordance with Instruction G for Form 10-K) since the Company is
filing with the Commission (by no later than February 28, 2001), a definitive
proxy statement pursuant to Regulation 14A, which involves the election of
Directors at the annual shareholders' meeting of the Company, expected to be
held on or about March 8, 2001.
18
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Financial Statements
October 31, 2000, 1999 and 1998
STARTECH ENVIRONMENTAL CORPORATION
Table of Contents
For The Years Ended October 31, 2000, 1999 and 1998
Independent Auditors' Report................................................F-1
Consolidated Balance Sheets.................................................F-2
Consolidated Statements of Operations.......................................F-3
Consolidated Statements of Changes in Stockholders' Equity..................F-4
Consolidated Statements of Cash Flows.......................................F-5
Notes to the Consolidated Financial Statements.......................F-6 - F-14
KOSTIN 345 North Main Street
RUFFKESS West Hartford, CT 60117
& COMPANT, LLC Main Line: (860)236-1975
Toll Free: (800)236-KRCO
Fax: (860)236-1783
Web: www.kostin.com
West Hartford . New London
Buisness Advisors and Certified Public Accountants
To the Board of Directors
Startech Environmental Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Startech
Environmental Corporation as of October 31, 2000 and 1999, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended October 31, 2000. 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Startech
Environmental Corporation as of October 31, 2000 and 1999, and the results of
its operations, changes in stockholders' equity and its cash flows for each of
the three years in the period ended October 31, 2000, in conformity with
generally accepted accounting principles.
West Hartford, Connecticut
January 8, 2001
F-1
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Balance Sheets
October 31, 2000 and 1999
2000 1999
Assets
Current assets:
Cash $ 5,221,154 $ 5,496,280
Accounts receivable 338,000 512,066
Inventory 273,706 --
Other current assets 13,876 8,903
----------- -----------
Total current assets 5,846,736 6,017,249
Equipment, at cost, net of accumulated depreciation 1,157,950 135,383
Other assets 73,195 222,186
----------- -----------
$ 7,077,881 $ 6,374,818
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 449,216 $ 245,574
Capital lease - short-term 23,907 8,057
Other accrued expenses 710,248 98,109
----------- -----------
Total current liabilities 1,183,371 351,740
Long-term liability:
Capital lease payable 13,225 7,718
----------- -----------
Total liabilities 1,196,596 359,458
----------- -----------
Stockholders' equity:
Preferred stock; no par value; 10,000,000 shares authorized;
502,220, and 696,978 shares issued and outstanding at
October 31, 2000 and 1999, respectively (aggregate
liquidation preference of $5,022,220 and $6,969,780 at
October 31, 2000 and 1999, respectively) 4,641,483 6,384,199
Common stock; no par value; 800,000,000 shares authorized;
shares issued and outstanding: 8,085,660 at October 31,
2000 and 6,905,257 at October 31, 1999 7,532,267 2,984,219
Additional paid-in capital 1,742,745 300
Deficit (8,035,210) (3,353,358)
----------- -----------
Total stockholders' equity 5,881,285 6,015,360
----------- -----------
$ 7,077,881 $ 6,374,818
=========== ===========
The accompanying notes are an integral part of the financial statements
F-2
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Operations
For The Years Ended October 31, 2000, 1999 and 1998
Year Ended October 31,
----------------------
2000 1999 1998
Revenues $ 1,069,441 $ 2,268,964 $ 1,088,782
Cost of goods sold 802,627 2,138,259 446,222
----------- ----------- -----------
Gross profit 266,814 130,705 642,560
Selling, general and administrative
expenses 2,998,150 1,477,104 1,116,293
----------- ----------- -----------
Loss from operations (2,731,336) ( 1,346,399) ( 473,733)
----------- ----------- -----------
Other income (expense):
Interest income 324,221 101,521 23,664
Interest expense ( 5,128) ( 33,450) ( 9,000)
----------- ----------- -----------
Total other income 319,093 68,071 14,664
----------- ----------- -----------
Income tax expense 18,333 10,864 3,982
----------- ----------- -----------
Net loss $(2,430,576) $(1,289,192) $ (463,051)
=========== =========== ===========
Net loss $(2,430,576) $(1,289,192) $ (463,051)
Less preferred dividends 2,251,276 16,016 --
----------- ----------- -----------
Loss attributable to common shareholders $(4,681,852) $(1,273,176) $ (463,051)
=========== =========== ===========
Net loss per share $ (0.63) $ (0.19) $ (0.07)
=========== =========== ===========
Average common
shares outstanding 7,430,838 6,875,999 6,887,736
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-3
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 2000, 1999 and 1998
Additional
Common Preferred Paid-In
Shares Amount Shares Amount Capital Deficit
Balance, October 31, 1997 7,013,552 $ 2,598,606 -- $ -- $ 300 $(1,585,099)
Shares issued during the year
for services rendered 34,544 109,918 -- -- -- --
Shares returned and cancelled
as the result of a lawsuit ( 202,131) -- -- -- -- --
Net loss during the year
ended October 31, 1998 -- -- -- -- -- ( 463,051)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1998 6,845,965 2,708,524 -- -- 300 (2,048,150)
Shares issued during the year
for services rendered 45,792 226,445 -- -- -- --
Shares issued for cash 13,500 49,250 696,978 6,384,199 -- --
Net loss during the year
ended October 31, 1999 -- -- -- -- -- (1,289,192)
Dividends -- -- -- -- -- (16,016)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 1999 6,905,257 2,984,219 696,978 6,384,199 300 (3,353,358)
Preferred shares converted to common shares 430,765 2,234,032 (243,890) (2,234,032) -- --
Shares issued during the year
for services rendered 14,918 136,338 -- -- -- --
Shares issued for cash 561,496 2,154,165 -- -- -- --
Shares issued for 401(k) plan 2,106 23,513 -- -- -- --
Shares issued in lawsuit settlement 171,118 -- -- -- -- --
Net loss during the year
ended October 31, 2000 -- -- -- -- -- (2,430,576)
Accretion of dividend on preferred shares -- -- -- -- 1,742,445 (1,742,445)
Dividends -- -- 49,132 491,316 -- ( 508,831)
----------- ----------- ----------- ----------- ----------- -----------
Balance, October 31, 2000 8,085,660 $ 7,532,267 502,220 $ 4,641,483 $ 1,742,745 $(8,035,210)
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-4
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended October 31, 2000, 1999 and 1998
Year Ended October 31,
----------------------
2000 1999 1998
Cash flows from operating activities:
Net loss $(2,430,576) $(1,289,192) $ (463,051)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 136,338 226,445 109,918
401(k) match through issuance
of common shares 23,513 -- --
Depreciation 51,849 16,847 1,396
(Increase) decrease in:
Accounts receivable 174,066 380,407 ( 892,473)
Prepaid expense -- -- 65,333
Inventory (273,706) 552,454 ( 552,454)
Other current assets (4,973) ( 7,537) ( 1,366)
Other assets 148,991 ( 120,072) ( 53,617)
Increase (decrease) in:
Accounts payable 203,642 ( 446,556) 624,962
Accrued expenses 594,670 ( 289,551) 350,749
----------- ----------- -----------
Net cash used in operating activities (1,376,186) ( 976,755) ( 810,603)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (1,033,298) ( 15,655) ( 20,969)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from preferred stock issuance -- 6,284,199 --
Proceeds from common stock issuance 2,154,165 49,250 --
Proceeds from notes payable -- 750,000 --
Repayment of notes payable -- ( 750,000) --
Repayment of capital lease payable ( 19,761) ( 1,227) --
Dividends on preferred shares ( 46) -- --
----------- ----------- -----------
Net cash provided by financing activities 2,134,358 6,332,222 --
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ( 275,126) 5,339,812 ( 831,572)
Cash and cash equivalents, beginning 5,496,280 156,468 988,040
----------- ----------- -----------
Cash and cash equivalents, ending $ 5,221,154 $ 5,496,280 $ 156,468
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-5
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies:
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Startech Environmental Corporation
include the accounts of Startech Corporation, its wholly-owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
Company's Activities
- --------------------
The Company is an environmental technology corporation dedicated to the
development, production and marketing of low cost waste minimization, resource
recovery, and pollution prevention systems that convert waste into valuable
commodities. The Company is no longer considered to be in the development stage
as revenues from shipments and services performed have begun to be recognized in
calendar year 1999.
Basis of Presentation
- ---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., was acquired in a reverse acquisition, in which all the then
issued and outstanding shares of common stock of Startech Corporation were
exchanged for 4,000,000 shares of Kapalua Acquisitions, Inc.'s common stock.
After the acquisition and exchange of stock, the former shareholders of Startech
Corporation owned 80.5% of the common stock of Kapalua Acquisitions, Inc.
Subsequent to November 17, 1995, Kapalua Acquisitions, Inc. filed registration
statements with the Securities and Exchange Commission to register certain
securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Corporation. This
acquisition has been accounted for under the purchases method in the
accompanying financial statements.
Revenue Recognition
The Company recognizes revenue on the sale of its manufactured products at the
date of delivery. Revenues earned from consulting and design services are
recognized when the services are complete.
Management Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at October 31, 2000, 1999
and 1998, and revenues and expenses during the years then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.
F-6
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The primary investments
will be high quality commercial paper, U.S. Treasury Notes, and T-Bills.
Regarding supplementary cash flows information, income taxes paid were $18,333
for the year ended October 31, 2000, $2,577 for the year ended October 31, 1999
and $3,982 for the year ended October 31, 1998. Interest paid in 2000 was $5,128
and $33,450 in 1999. No interest was paid for the years ended October 31, 1998.
The Company also had the following non-cash transactions:
2000
----
Shares Amount
------ ------
Common shares issued for services rendered in 2000 14,918 $ 136,338
Common shares issued for 401(k) match 2,106 23,513
Series A convertible preferred shares converted to common shares 243,890 2,234,032
Accretion of dividends associated with the issuance of the convertible
preferred shares -- 1,742,445
Equipment acquired through capital lease -- 41,118
Accrued dividends on the preferred stock -- 33,485
1999
----
Shares Amount
------ ------
Common shares issued for services rendered in 1999 45,792 $ 226,445
Preferred stock issued to repay notes payable 10,000 100,000
Demonstration equipment transferred from inventory to equipment -- 100,000
Equipment acquired through capital lease -- 17,002
Accrued dividends on the preferred stock -- 16,016
1998
----
Shares Amount
------ ------
Issued shares for services rendered in 1998 34,544 $ 109,918
Shares returned and cancelled in 1998 ( 202,131) --
Inventory
- ---------
Inventory consists of raw materials and work in process, and is stated at lower
of cost or market. Cost is determined by the first-in, first-out method.
F-7
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Equipment
Depreciation of equipment is provided using the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments which extend the useful lives of the equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Other Assets
- ------------
Other assets consist of security deposits on office leases and utility deposits
in 2000. Other assets consist of deposits on the purchase of office furniture,
inventory and the deposit on the office lease in 1999.
Income Taxes
- ------------
Income taxes consist of State taxes on capital. The Company has net operating
loss carryforwards of approximately $5,600,000 expiring in various years through
2015. The deferred tax asset arising from the carryforwards has been fully
reserved against, since the likelihood of realization cannot be determined.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the year. The Company has 2,799,249 potential
common shares, 2,325,190 potential common shares, and 758,276 potential common
shares in 2000, 1999, and 1998, respectively, that were not used in the
computation of diluted earnings per share because they would have been
anti-dilutive for each of the three years ended October 31, 2000, 1999 and 1998.
The Company has issued 93,217 additional common shares through January 8, 2001.
Off Balance Sheet Risk
- ----------------------
The Company had more than $100,000 in a single bank during the year. Amounts
over $100,000 are not insured by the Federal Deposit Insurance Corporation.
However, management does monitor the financial condition of the institution
where these funds are invested.
Note 2 - Inventory:
- ------------------
Inventory consists of the following at October 31, 2000:
Raw materials $148,616
Work in process 125,090
----------
Total inventory $ 273,706
==========
F-8
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 3 - Property, Plant and Equipment:
- --------------------------------------
Equipment is summarized by major classifications as follows:
2000 1999
2001
Computer equipment $ 79,358 $ 23,250
Demonstration equipment 114,720 114,720
Furniture and fixtures 149,867 1,653
Vehicles 14,002 14,002
Leasehold improvements 78,361 --
----------- ----------
436,308 153,625
Less: accumulated depreciation 70,092 18,242
----------- ----------
366,216 135,383
Cost of demonstration equipment being manufactured 791,734 --
----------- ----------
Total property, plant and equipment $ 1,157,950 $ 135,383
=========== ==========
Note 4 - Operating Lease:
- ------------------------
The Company leases its offices in Wilton and Bristol, Connecticut, under lease
agreements that expire in December 2004 and October 2005. Rental expense for the
years ended October 31, 2000, 1999 and 1998, were $163,042, $28,847, and
$24,531, respectively. There is an option for the Company to extend the Wilton,
Connecticut lease for a five year term with the Landlord having the option to
cancel after two years. Annual non-cancelable rent payments for the next five
years are as follows:
October 31,
-----------
2001 $ 195,313
2002 201,980
2003 214,446
2004 219,421
2005 45,408
Note 5 - Note Payable:
- ---------------------
On December 29, 1998, the Company entered into a short-term loan agreement for
$750,000 with the Connecticut Development Authority (CDA). The note bore
interest at a rate of 6.55% and was due within one year or the completion of a
public offering, whichever came first. The note was collateralized by the assets
of the Company. In addition, an officer/shareholder has personally guaranteed up
to 28% of the balance and another officer/shareholder has pledged 100,000 shares
of his common stock of the Company. This note was paid off with proceeds from
the issuance of the preferred stock.
F-9
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 6 - Stockholders' Equity:
- -----------------------------
Preferred Stock
- ---------------
During 1999 the Company issued 696,978 shares of its 8% Series A cumulative,
convertible, redeemable, preferred stock. The Company incurred commissions and
issuance costs of $585,581 in connection with issuance. The shares are
convertible into the Company's common stock, four months after the closing date,
at a rate determined by dividing the purchase price per share ($10) by eighty
percent of the market price per share of common stock from the average closing
price for the previous five trading days. However, in no event shall the
conversion price be less than $4 per share, or more than $6 per share. On
September 15, 2002, the convertible preferred stock may be redeemed at the
option of the Company for $10 per share, plus all accumulated and unpaid
dividends. If not redeemed, the shares will automatically be converted to common
shares at $5 per share, or the current market price of the common shares. The
dividends shall be paid in additional convertible preferred stock, and are
payable on the last business day of March, June, September, and December. During
the year ended October 31, 2000, 243,890 preferred shares were converted to
common shares.
Warrants
- --------
In conjunction with the issuance of the preferred stock in 2000, the Company
issued Warrants to purchase 396,464 shares of common stock at a price of $15.00
per share. These Warrants will expire on August 31, 2001, provided the average
closing bid prices of the common stock for the previous thirty trading days is
$16.50 or higher. In the event the common stock is lower than $16.50 per share,
the exercise period of the Warrants will be extended until the common stock
exceeds $16.50 per share for ten consecutive trading days. At that point, the
Company can give the Warrant holders thirty days' notice that the Warrants will
expire. Should the Company choose not to cause the expiration of the Warrants
sooner, they will expire on August 31, 2004.
In June 2000 the Company issued to the Connecticut Development Authority (CDA)
Warrants to purchase 433,268 shares of our common stock at $7.00 per share. The
CDA Warrants are exercisable at any time through December 31, 2001. The CDA
Warrants provide for a limit on the shares of common stock that can be sold upon
exercise of the CDA Warrants during any five day period equal to 7.0% of the
average weekly reported trading volume of the common stock during the four
calendar weeks preceding the date of sale. In addition if on or before July 1,
2002 the holder publicly sells any shares of our common stock at a price per
share less than $7.00, we shall pay the holder an amount equal to his realized
loss in cash or, at our discretion, in shares of our common stock valued at the
current market price at the time of payment or in any combination of cash and
shares. If we have paid the holder on account of a realized loss and later, but
not later than July 1, 2002, the holder publicly sells additional shares at a
price per share greater than $7.00, the holder shall promptly repay to us an
amount equal to the lesser of (1) the amount by which the aggregate proceeds
from such sale exceeds $7.00 and (2) the total realized loss previously paid by
us to the holder. The repayment to us may be made in cash or in shares of common
stock valued at the current market price at the time of repayment or in any
combination of cash and shares. As of October 31, 2000, 15,000 CDA Warrants have
been exercised.
F-10
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 7 - Non-qualifying Stock Option Plan:
- -----------------------------------------
1995 Stock Option Plan
- ----------------------
In November 1995, the Company registered 2,000,000 common shares, issuable upon
exercise of stock options issued by the Company under its 1995 Non-qualifying
Stock Option Plan (the Plan) for employees, directors and other persons
associated with the Company whose services have benefited the Company. The
options must be issued within 10 years from November 20,1995. Determination of
the option price per share and exercise date is at the sole discretion of the
Compensation Committee. During the years ended October 31, 2000 and 1999, the
Company issued 895,000 and 20,000 stock options, respectively. The options have
an exercise price of $6.12 and $5.00 per share, respectively. On the issuance
dates, the market value was the same as the exercise price, therefore, no
compensation expense was recorded. As of October 31, 2000, 325,589 options have
not been granted.
Options outstanding - 1995 Plan
Options outstanding, October 31, 1997 --
Options granted in 1998 34,544
Options exercised in 1998 ( 34,544)
---------
Options outstanding, October 31, 1998 --
Options granted in 1999 20,000
---------
Options outstanding, October 31, 1999 20,000
Options granted in 2000 895,000
Options exercised in 2000 ( 10,000)
Options expired in 2000 ( 5000)
---------
Options outstanding, October 31, 2000 900,000
=========
2000 Stock Option Plan
- ----------------------
Our 2000 Stock Option Plan was adopted by our board of directors in January 2000
and was approved by our stockholders in February 2000. The plan authorizes the
issuance of up to 1,000,000 shares of our common stock. No options have been
granted to date.
The plan provides for the grant of incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code and non-statutory stock options.
Our officers, directors, employees and consultants, and employees and
consultants of our majority-owned affiliated companies, are eligible to receive
awards under the plan.
The options may be granted at an exercise price greater than or equal to the
fair market value of our common stock on the date of grant or not less than 110%
of the fair market value in the case of incentive stock options granted to
persons holding more than 10% of the voting power of the Company. Fair market
value for purposes of the plan is the closing market price of our common stock
on the relevant date.
F-11
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 7 - Non-qualifying Stock Option Plan: (Continued)
- -----------------------------------------
The plan is administered by our compensation committee. The committee has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. The committee
selects the recipients of awards and determines the number of shares of common
stock covered by the options and the dates upon which the options become
exercisable and terminate, subject to provisions of the plan. Incentive stock
options must terminate within ten years of the grant. Non-statutory options must
terminate within fifteen years of the date of grant. The committee has the right
to alter the terms of any option when granted or while outstanding pursuant to
the terms of the plan, except the option price.
All options automatically become excisable in full in the event of a change in
control, as defined in the 2000 plan, death or disability of the option holder
or as decided by the compensation committee. Upon retirement, options held at
least one year become exercisable in full. If an option holder's employment with
us is terminated for any reason, except death, disability or retirement, the
option holder has three months in which to exercise an option, but only to the
extent exercisable immediately after termination, unless the option by its terms
expires earlier. Termination or other changes in employment status may affect
the exercise period.
Note 8 - Major Customers:
- ------------------------
Approximately 87 percent of revenues were derived from three major customers in
2000, and approximately 98 percent of revenues were derived from one major
customer in 1999 and 1998, respectively.
Note 9 - Capital Lease Payable:
- ------------------------------
The Company has entered into capital lease obligations for computer and
telephone equipment. The terms of the leases range from 24 to 39 months, with
principal and interest due in monthly installments ranging from $105 to $500 at
rates ranging from zero to 32.3%. The equipment was capitalized at $58,119 and
is being depreciated over five to seven years. Depreciation expense for 2000 was
$8,608 and accumulated depreciation at October 31, 2000, is $9,468.
Total remaining lease payments:
2001 $ 27,614
2002 11,114
2003 3,055
-----------
41,783
Less: unamortized interest 4,651
-----------
37,132
Less: current portion 23,907
-----------
$ 13,225
===========
F-12
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 10 - Fair Value of Financial Instruments:
- ---------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:
Cash and other current assets are carried in the accompanying balance sheets at
cost, which is a reasonable estimate of their fair value. Accounts payable,
capital lease payable and accrued expenses are also carried at cost, which is a
reasonable estimate of their fair value.
Carrying Estimated
Amount Fair Value
------ ----------
ASSETS:
Cash $ 5,221,154 $ 5,221,154
Accounts receivable 338,000 338,000
LIABILITIES:
Accounts payable 449,216 449,216
Capital lease payable 37,132 37,132
Accrued expenses 710,248 710,248
Note 11 - Commitments:
- ---------------------
The Company has an agreement with certain individuals for the use of certain
patents. The agreement provides for monthly payments of $1,000, plus five
percent of sales related to these patents, and has no expiration date. The
Company has also entered into agreements to pay for services through the
issuance of common shares, totaling 14,918 shares with a value of $136,338.
Note 12 - Employee Benefit Plan:
- -------------------------------
On June 1, 2000 The Company implemented an employee savings plan designed to
qualify under Section 401(k) of the Internal Revenue Code. This plan is for all
full-time employees who have completed 30 days of service. Company contributions
are made in the form of common stock at the prevailing current market price and
will vest equally over a three-year period. The Company will match the first 6
percent of the employee contribution on a dollar for dollar basis up to the
maximum contribution allowed under Internal Revenue Code. Contributions for the
year ended October 31, 2000 were $23,513, which was paid through the issuance of
2,106 shares of our common stock
Note 13 - Research and Development Costs:
- ----------------------------------------
Research and development costs are charged to operations when incurred. The
amount charged in 2000 was $74,534. No expenses were incurred in 1999 and 1998.
F-13
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2000, 1999 and 1998
Note 14 - Subsequent Event:
- --------------------------
On November 1, 2000, the Company entered into employment agreements with four of
its executives. Three of the agreements are for a term of four years, and one is
for three years. The agreements provide for salaries ranging from $140,000 to
$195,000. Three of the agreements require the Company to grant each executive no
less than 10,000 common stock options each year. In the event of a change in
control of the Company the agreements provide the executives with severance
benefits that include: a lump sum payment of 150% of the amount the executive
would have earned if he had received his salary payments through the expiration
date of this agreement; an additional lump sum payment of $250,000; an immediate
vesting of all options awarded to the executive as part of this agreement; an
immediate right to sell the shares obtained through the exercise of those
options without restriction as to dates, times or amounts, immediate vesting and
transfer of ownership of all life insurance policies, and life and health
benefits, including supplemental, vision and dental benefits if applicable, in
an equal or better plan than the one currently provided to the executive and his
family by the Company for a period of three years from the date of termination
or constructive termination. In the event any payment or benefit received, or to
be received, by the executive in connection with the termination of his
employment, whether pursuant to his agreement or otherwise, is determined to be
an excess parachute payment as defined in the Internal Revenue Code, and thus
subject to the 20 percent Federal Excise tax, the amount of the benefits payable
under his Agreement will be reduced until they are no longer subject to such
tax.
F-14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
- -------------------------------------------------------------------------
(a) (1) Financial Statements
--------------------
The financial statements are listed below and included under Item
8, are filed as part of this report.
Report of Independent Auditors
Consolidated balance sheet at October 31, 2000 and October 31,
1999
Consolidated statement of operations for each of the three years
in the period ended October 31, 2000
Consolidated statement of changes in stockholder's equity for
each of the three years in the period ended October 31,2000
Consolidated statement of cash flows for each of the three years
ended October 31, 2000
Notes to the consolidated financial statements
(2) Financial Statement Schedules
-----------------------------
All schedules have been omitted since the required information is
not present or not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the consolidated financial statements and notes
thereto.
19
Item 14. Exhibits and Financial Statement Schedules
14(b) Exhibits
2. Plan of Reorganization
----------------------
(2)(a) Agreement and Plan of Reorganization between Company and
Kapalua Acquisitions, Inc. dated November 17, 1995 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed on November 29, 1995, Commission File No. 0-25312)
3. Articles of Incorporation of the Company
----------------------------------------
(3)(a) Articles of Incorporation of Startech (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form 10, filed on February 19, 1995, Commission File No. 0-25312)
(3)(a)i Articles of Amendment to the Articles of Incorporation*
(3)(b) By-Laws of Startech (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form 10, filed on February
19, 1995, Commission File No. 025312)
(3)(c) Amendment to by-Laws of Startech dated January 24, 2000*
4. Instruments defining the rights of security holders, including
--------------------------------------------------------------
indentures
----------
(4)(a) Form of Common Stock Certificate **
(4)(b) Form of Convertible Preferred Stock Certificate *
(4)(c) Form of Warrant Agreement*
(4)(d) Stock Subscription Warrant dated December 29, 1998 between the
Company and the Connecticut Development Authority ("CDA")**
(4)(e) Amendment to Stock Subscription Warrant dated March 31, 1999
between the Company and CDA**
(4)(f) Second Amendment to Stock Subscription Warrant dated June 15,
2000 between the Company and CDA**
10. Material Contracts
------------------
(10)(a) 2000 Stock Option Plan*
(10)(b) 1995 Stock Option Plan (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-8, filed in
November, 1995, Commission File No. 33-99790)
(10)(c) Loan Agreement Dated December 29, 1998 between the Company and
CDA**
(10)(d) Term Sheet for Preferred Stock dated August 17, 1999, between
the Company and Paradigm Group, LLC**
20
(10)(e) Strategic Alliance Agreement dated July 22, 1996 between the
Company and Bauer Howden, Inc.**
(10)(f) Strategic Alliance Agreement dated October 25, 1996 between
the Company and Calumet Coach Company**
(10)(g) Strategic Alliance Agreement dated November 10, 1997 between
the Company and Chase Environmental Group, Inc.**
(10)(h) Strategic Alliance Agreement dated April 17, 1998 between the
Company and the Ensign - Bickford Company**
(10)(i) Strategic Alliance Agreement dated September 30, 1999 between
the Company and UXB International Inc.**
(10)(j) Strategic Alliance Partner Agreement dated March 14, 2000
between the Company and Skidmore, Owings & Merrill LLP**
(10)(k) Lease Agreement dated September 16, 1999 between the Company
and the CD Station, LLC.**
(10)(l) Form of Distributor Agreement**
(10)(m) Patent License Agreement dated November 9, 1998 between the
Company and Rollan C. Swanson M.D. and Eleonora Swanson.**
(10)(n) License of Technology Agreement dated November 29, 1999
between the Company and Media and Process Technology Inc.**
(10)(o) Employment Agreement dated November 1, 2000 between the
Company and Joseph F. Longo ****
(10)(p) Employment Agreement dated November 1, 2000 between the
Company and Joseph F. Klimek ****
(10)(q) Employment Agreement dated November 1, 2000 between the
Company and Kevin M. Black ****
(10)(r) Employment Agreement dated November 1, 2000 between the
Company and Robert L. DeRochie ****
16. Letter re change in certifying accountant
-----------------------------------------
(16)(a) Letter, Re: Changes in Certifying Accountant (Incorporated by
reference to the Company's Current Report on Form 8-K dated January
28,1997 File No. 0-25312)
21. Subsidiaries of the registrant
------------------------------
Startech Corporation, a Colorado corporation doing business under the
name of Startech Corporation ****
23. Consent of experts and counsel
------------------------------
The Consent of Kostin, Ruffkess & Company, LLC ****
21
27. Financial Data Schedule
-----------------------
Filed herewith****
**** Filed herewith
*** Filed with Amendment No. 3 to the Registration Statement on Form S-1,
filed on September 20, 2000, Commission File No. 333-35786.
** Filed with Amendment No 1. to the Registration Statement on Form S-1
filed on July 7, 2000, Commission File No. 333-35786
* Filed with the Registration Statement on Form S-1 on April 27, 2000,
Commission File No. 333-35786
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 25th day of
January, 2001.
STARTECH ENVIRONMENTAL CORPORATION
(Registrant)
BY: /s/ Joseph F. Longo
-------------------------------------
Joseph F. Longo
CEO, President and Treasurer
BY: /s/ Robert L. DeRochie
-------------------------------------
Robert L. DeRochie
Chief Financial Officer and,
Vice President Investor
Relations, and Principal
Financial Officer
BY: /s/ Peter J. Scanlon
-------------------------------------
Peter J. Scanlon
Director of Finance and,
Accounting, and Principal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Company
and in the capacities and on this 25th day of January 2001.
SIGNATURES TITLE DATE
- ---------- ----- ----
By: /s/ Joseph F. Longo President, Chief Executive
------------------------- Officer, and Director January 25, 2001
Joseph F. Longo
By: /s/ Kevin M. Black Sr. Vice President,
------------------------- General Counsel,
Kevin M. Black Secretary and Director January 25, 2001
By: /s/ John R. Celentano Director January 25, 2001
-------------------------
John R. Celentano
By: /s/ Raymond Clark Director January 25, 2001
-------------------------
Raymond Clark
By: /s/ Brendan Kennedy Director January 25, 2001
-------------------------
Brendan Kennedy
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