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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002
Commission File Number 0-25312
STARTECH ENVIRONMENTAL CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Colorado 84-1286576
15 Old Danbury Road, Suite 203
Wilton, Connecticut 06897
(Address of principal executive offices) Zip Code
(203) 762-2499
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO ____
The number of shares outstanding for each of Registrant's classes of Common
Stock are as follows:
Title of each class Outstanding at September 10, 2002
------------------- ---------------------------------
Common Stock - No Par Value 10,282,343
STARTECH ENVIRONMENTAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Financial Statements
Consolidated Balance sheets - July 31, 2002 (unaudited)
and October 31, 2001 3
Consolidated Statements of operations for the three months
and nine months ended July 31, 2002 and 2001 (unaudited) 4
Consolidated Statements of cash flows for the nine months
ended July 31, 2002 and 2001 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceeding 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
STARTECH ENVIRONMENTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited) (audited)
July 31, October 31,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and Cash Equivalents ............................................. $ 1,399,766 $ 2,207,328
Accounts receivable ................................................... 300,000 300,000
Inventory ............................................................. 283,506 279,502
Other current assets .................................................. 42,295 6,861
------------ ------------
Total current assets ......................................... 2,025,567 2,793,691
Property and equipment, net ........................................... 1,816,601 1,791,863
Other assets .......................................................... 76,251 77,451
------------ ------------
Total assets ................................................. $ 3,918,419 $ 4,663,005
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable ...................................................... $ 61,619 $ 115,489
Capital lease, current portion ........................................ 45,335 38,920
Customer Deposits ..................................................... 257,500 120,000
Other accrued expenses ................................................ 407,048 423,249
------------ ------------
Total Current liabilities .................................... 771,502 697,658
Long-term liability:
Capital lease payable, net of current portion ......................... 28,731 43,299
------------ ------------
Total liabilities ............................................ 800,233 740,957
------------ ------------
Stockholders' (deficit) equity:
Preferred stock, no par value 10,000,000 shares authorized; Shares
issued and outstanding: 35,699 at July 31, 2002, (aggregate liquidation
preference of $356,990); 47,511 (aggregate liquidation preference of
475,110) at October 31, 2001 .......................................... 356,990 475,110
Common stock, no par value, 800,000,000 shares authorized;
Shares issued and outstanding: 10,282,343 July 31, 2002
and 9,282,880 at October 31, 2001 ..................................... 14,769,803 12,265,072
Additional paid-in capital ............................................ 1,742,745 1,742,745
Accumulated deficit ................................................... (13,751,352) (10,560,879)
------------ ------------
Total stockholders' equity ............................................ 3,118,186 3,922,048
------------ ------------
Total liabilities and stockholders' equity ................... $ 3,918,419 $ 4,663,005
============ ============
See accompanying notes to consolidated financial statements
3
STARTECH ENVIRONMENTAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
July 31, 2002 July 31, 2001 July 31, 2002 July 31, 2001
------------- ------------- ------------- -------------
Revenue ............................................ $ 0 $ 0 $ 136,471 $ 0
Cost of sales ...................................... 165,257 0 321,575 0
------------ ------------ ------------ ------------
Gross loss ......................................... (165,257) 0 (185,104) 0
------------ ------------ ------------ ------------
Operating expenses
Selling expense ........................... 257,017 237,279 714,664 651,726
Research and Development .................. 60,428 26,167 143,695 83,421
General and administrative expense ........ 738,775 561,800 2,137,662 1,624,071
------------ ------------ ------------ ------------
Total operating expense ............................ 1,056,220 825,246 2,996,021 2,359,218
------------ ------------ ------------ ------------
Loss from operations ............................... (1,221,477) (825,246) (3,181,125) (2,359,218)
------------ ------------ ------------ ------------
Interest income .................................... 9,432 34,678 23,148 164,013
------------ ------------ ------------ ------------
Loss before Income Taxes ........................... (1,212,045) (790,568) (3,157,977) (2,195,205)
------------ ------------ ------------ ------------
Income tax expense ................................. 1,988 16,928 10,598 27,788
------------ ------------ ------------ ------------
Net loss ........................................... $ (1,214,033) $ (807,496) $ (3,168,575) $ (2,222,993)
============ ============ ============ ============
Net loss ........................................... $ (1,214,033) $ (807,496) $ (3,168,575) $ (2,222,993)
Less: preferred dividends .......................... 6,990 63,200 22,307 214,669
------------ ------------ ------------ ------------
Loss attributable to common shareholders ........... $ (1,221,023) $ (870,696) $ (3,190,882) $ (2,437,662)
============ ============ ============ ============
Net loss per share ................................. $ (0.12) $ (0.10) $ (0.33) $ (0.30)
============ ============ ============ ============
Weighted average common
shares outstanding ................................. 10,271,306 8,445,738 9,623,297 8,263,134
============ ============ ============ ============
See accompanying notes to these consolidated financial statements
4
STARTECH ENVIRONMENTAL CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Nine Months Ended
July 31, 2002 July 31, 2001
------------- -------------
Cash flows from operating activities:
Net loss ................................................... $(3,168,575) $(2,222,993)
Adjustments to reconcile net loss to net cash provided
By operating activities:
Depreciation ............................................... 142,814 104,566
401K plan match made by the issuance of shares ............. 64,974 50,736
Expenses paid through the issuance of common stock ......... 15,624 20,961
(Increase) decrease in accounts receivable ................. 0 0
(Increase) decrease in inventory ........................... (4,004) (1,544,110)
(Increase) decrease in other current assets ................ (35,434) (47,828)
(Increase) decrease in other assets ........................ 1,200 (4,256)
Increase (decrease) in accounts payable .................... (53,870) 430,948
Increase (decrease) in customer deposits ................... 137,500 1,764,966
Increase (decrease) in accrued expense ..................... (16,201) 65,524
----------- -----------
Net cash used in operating activities ...................... (2,915,972) (1,381,486)
----------- -----------
Cash flows used in investing activities:
Capital expenditures ....................................... (142,013) (621,804)
----------- -----------
Cash flows from financing activities:
Payment for capital leases ................................. (33,691) (33,465)
Proceeds from common stock issuance ........................ 2,284,114 210,000
----------- -----------
Net cash provided by financing activities .................. 2,250,423 176,535
----------- -----------
Net increase (decrease) in cash ............................ (807,562) (1,826,755)
Cash at beginning of period ................................ 2,207,328 5,221,154
----------- -----------
Cash and cash equivalents at end of period ................. $ 1,399,766 $ 3,394,399
=========== ===========
Supplemental Disclosure- Taxes Paid ........................ 10,598 27,788
=========== ===========
See accompanying notes to consolidated financial statements
5
STARTECH ENVIRONMENTAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of Startech Environmental Corporation
(referred to herein as the "Company", unless the context indicates otherwise)
presented herein are unaudited. In the opinion of management, these financial
statements include all adjustments necessary for a fair presentation of the
financial position. Results for the nine months ended and three months ended
July 31, 2002 are not necessarily indicative of results for the entire year. The
accompanying financial statements should be read in conjunction with the
Company's financial statements and related footnotes for the year ended October
31, 2001 which are included in the Company's annual report on form 10-K for the
period ended October 31, 2001.
Note 1. Capital Lease Obligation:
The Company has entered into capital lease obligations for computer, telephone,
and capital equipment. The term of the leases range from 24 to 48 months, with
principal and interest due in aggregate monthly installments of $4,905 at
interest rates ranging from 0.0% to 25.9%. The equipment was capitalized at
$142,622 and is being depreciated over five to fifteen years. Depreciation
expense for the nine months ended July 31, 2002 was $11,877.
Note 2. Equity Transactions
For the three months ended July 31, 2002 the Company declared and paid a stock
dividend on its Series A convertible preferred in the amount of $6,990, which
represented 699 preferred shares. For the nine months ended July 31, 2002 the
Company declared and paid a stock dividend on its Series A convertible preferred
in the amount of $22,307, which represented 2,232 preferred shares (includes the
699 preferred shares referred to above).
The following reconciles the number of common shares outstanding to the weighted
average number of common shares outstanding and the weighted average number of
common and dilutive potential common shares outstanding for the purposes of
calculating basic and diluted earnings per common share at July 31 of each
period indicated (shares in millions):
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
2002 2001 2002 2001
---- ---- ---- ----
Number of common shares outstanding at
end of period............................... 10.3 8.5 10.3 8.5
Effect of using weighted average common
shares outstanding.............. ........... 0 0 (0.7) (0.2)
Basic common shares outstanding............. 10.3 8.5 9.6 8.3
Dilutive effect of common stock options
and warrants................................ .0 1.0 .1 1.0
---- ---- ---- ----
Diluted common shares outstanding........... 10.3 9.5 9.7 9.3
For the three and nine months ended July 31, 2002 and July 31, 2001, the effect
of the Company's common stock options and warrants and convertible preferred
stock are excluded from the diluted earnings per share calculation since the
inclusion of such items would be anti-dilutive.
6
At July 31, 2002, there were approximately 13.2 million shares of common stock
potentially issuable with respect to stock options, warrants and convertible
preferred, which could dilute basic earnings per share in the future.
Note 3. Cash Flow
During the nine months ended July 31, 2002 the Company had non-cash
transactions. The following is a listing of these transactions and the dollar
value of the stock associated with these transactions.
Nine months ended July 31, 2002 and 2001 July 31, 2002 July 31, 2001
- ---------------------------------------- ------------- -------------
Common shares for services rendered $ 15,624 $ 20,961
Preferred stock dividend 22,307 214,669
Series A convertible preferred shares converted
to common shares 140,426 1,531,620
Accrued Preferred Dividends 2,761 33,485
401k Plan Match 64,974 50,736
Fixed assets financed through capital leases 25,539 77,580
Note 4. Interim Financial Information (Unaudited)
The interim financial statements of the Company for the nine months ended July
31, 2002 and 2001, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the SEC. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principals generally accepted in the United States of
America have been condensed or omitted pursuant to the rules and regulations
relating to interim financial statements.
Note 5. Revenue Recognition
The Company recognizes revenue on the sale of its manufactured products at the
date of shipment. Revenues earned from consulting and design services are
recognized when the services are completed.
Note 6. Employee Benefit Plan
Contributions for the nine months ended July 31, 2002 were $64,974, which
represents the issuance of approximately 29,131 shares of our common stock.
7
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q 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 registrations 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 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 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Our core Plasma Converter Technology addresses wastes and resource issues by
offering remediation solutions that are integrated with a range of equipment
solutions and services. Our products add value to our customers' business so
they can now realize revenue streams from tipping fees, as well as from the sale
of resulting commodity products and services.
Since 1995 we have been actively discussing the superiority of plasma over other
waste remediation technologies. This ongoing education of the public and
government is continuing today. Similar to other new technologies we have been
met with varying degrees of resistance. In 2000, recognizing the increasing
importance of alternative energy and power sources in general, and hydrogen in
particular, we expanded our product line to include a StarCell (TM) hydrogen
separation technology. Working in conjunction with our core product, the Plasma
Converter(TM), StarCell will provide a green and renewable source of hydrogen
for power and processing applications. In 2002 this brings significant change
and, due to the factors mentioned above, as well as the rising comfort level
with plasma based technologies through our educational and informational efforts
we are now being greeted by a much more receptive marketplace. We have taken
steps to transform our business model from being solely a seller of equipment to
a total solutions provider, including waste facility ownership or management.
This change was dictated by the needs of our customers and the demands of the
marketplace. This change began in January 2002 and continues to be integrated on
a daily basis.
Our business model and its market development strategies arise from our goal,
which is to change the way the world views and employs discarded materials
commonly referred to as waste. We expect to achieve this objective by
strategically marketing a series of products and services emanating from our
core Plasma Converter (TM) technology, resulting in saleable fossil fuel
alternatives while providing a safer and healthier environment. This shifting
strategy will be implemented through the use of our enhanced business model that
provides for build, own operate/build own and waste processing transfer
projects, joint development projects, engineering services and direct equipment
sales with after sales support and service.
8
Recent Developments
- -------------------
Sales and Project Update
Sales and project activities have continued to progress during the third quarter
of 2002.
We have received written confirmation from two private companies in Poland
announcing that we have been selected to provide each company a 10-ton-per- day
Plasma Converter System. As reported earlier this year we were invited to Poland
to make in depth presentations to local government officials and chemical
industry executives. Based upon the successful conclusion of those presentations
many of these same individuals visited our facility in Bristol, CT. This visit
was supported by the US Trade Development Authority. The purpose of this visit
was to witness an operating facility and discuss various projects throughout
Poland. A short time after their visit they requested that we submit proposals
for two 10 tons-per-day systems for identified waste streams. Based upon on
reports from our representative in Poland, we expect a selection decision to be
made on two additional systems by the end of our fiscal year 2002.
The Tri County Alliance for the economic development of Bamberg County, South
Carolina, has orally agreed in principal to provide the land, a building and its
infrastructure, and for necessary installation of the utilities required to
operate the initial 10-ton-per-day Plasma Converter System for the joint
development project with Vitech Enterprises, Inc. In return for this support
Vitech will commit to leasing or purchasing the site after two years of
operations, securing the balance of funding to move the project forward, and
commit to achieving certain economic benefits that would support the region.
Vitech and the County will continue to negotiating the final terms of the
commitment. Vitech is encouraged by the support of the state and county
officials and, as a result of this support and the strength of its business plan
a number of funding groups have expressed interest in the project. Our
previously announced project in Rhode Island has been delayed as a result of
funding difficulties on part of the customer however; we have revitalized
activities in Rhode Island with a new group whose goal is to close on a
hazardous waste project within 2002.
We have continuing negotiations with a US based municipality for the use of our
system to process household hazardous waste. The project has recently received a
favorable independent engineering assessment of the efficacy of our system. The
assessment, which was funded by the municipality was based in part upon an
extended site visit to conduct an in depth technical review at our Bristol
Connecticut facility that houses a commercial Plasma Converter System. This was
a necessary step before a purchase decision could be made. We are now discussing
a funded test to validate the systems performance; once the tests are completed
we have been advised a decision will be made based upon the outcome of the
tests.
Our long overdue project in the Philippines has received encouraging news. Our
customer reports that the funding obstacles that he has encountered are close to
being resolved. A site-specific Environmental Impact Assessment (EIA) is still
underway in South Africa. In support of the Environmental Impact Assessment
(EIA) we recently delivered the results of an independent third party test
program that examined emission gas compositions for processing surrogate medical
waste. These results were superior to both European Union Standards and US
Standards. This data was necessary to proceed with the EIA.
9
The Eico/Startech Team in Mifune-Machi, in Japan had been operating the Eico
Plasma Converter System continuously to bring it up to a full production rate.
These operations have included brief process runs at feed rates that would
exceed the 5 tons per day design rating for this system. Furthermore, the plasma
system has demonstrated reliable continuous operation for more than 36 hours at
a time at a reduced feed-rate. We have identified during operations necessary
adjustments that are needed for the feed control, melt handling and gas
filtration subsystems. Operational adjustments such as these are not unusual and
are to be expected when initiating system field operations when the composition
feed material differs from that which was projected. The feed system issues have
been resolved and we are now implementing the plan to modify the melt handling
and gas filtration subsystems. We expect these modifications will ensure the
long term operability at full production rate and provide targeted operating
efficiencies. Startech's plan implementation activities now include fabrication
of Gas Polisher components and feed system upgrades. When these components are
ready, we will ship them to Japan and proceed with the final system integration
and full-production operation. Eico and Startech together are fully committed to
the success of the Mifune-Machi project and to the continued development of
other plasma converter system opportunities in Japan.
In addition to the specific projects and countries referred to above we continue
to pursue and/or support international opportunities in Canada, China, UK,
Australia, Ireland, Italy, Malta, Japan, Greece, New Zealand and others.
Domestically we continue to move forward on various projects. These applications
include medical waste, chemicals, tires, sludge's, silt and landfill mining
sectors. To support these efforts we have demonstrated our system for local,
state and federal environmental officials including representatives from the
Environmental Protection Agency and the Department of Energy. We have been
encouraged by the feedback we have received.
We continue to develop a new suite of sales and marketing tools that have been
distributed to the Company's network of distributors and representatives as well
as for internal marketing activities. Early reports from the field confirm that
our new technical video has been well received by customers and that it has had
a positive impact on representative's ability to explain the features and
benefits of the Plasma Converter.
We have performed Research & Development activities during the third quarter.
Independent third party emissions testing were performed to examine product gas
composition when processing surrogate medical waste. The tests results were
superior to US and international environmental emissions standards. Work is now
being done on various uses for the plasma converted gas and is currently
undergoing tests to document the efficacy of our Plasma Converted Gas with
motor/electrical power generators.
On July 22, 2002 the Company filed a Registration Statement with the Security
and Exchange Commission with respect to 927,969 shares of common stock and
927,969 warrants to purchase additional shares of common stock. These securities
were sold to investors in a private placement and became eligible for sale by
these investors on August 19, 2002, the effective date of the Registration
Statement.
10
Results of Operations
- ---------------------
Comparison of three months ended July 31, 2002 and 2001
Revenues. Our total revenues were $ 0 for the three months ended July 31, 2002,
as compared to $ 0 for the same period in 2001. Until our product matures and is
readily accepted in the marketplace we will continue to experience volatility in
our revenues.
Gross Loss. Our gross loss was $165,257 for the three months ended July 31,
2002, an increase of $165,257 from the same period in 2001. Our gross margins
continue to be negatively impacted as a result of additional expenses related to
the systemization and optimization of the Eico system in Japan.
General and Administrative Expenses. Our general and administrative expenses for
the three months ended July 31, 2002 were $738,775, an increase of $176,975, or
31.5%, from the same period in 2001. This increase is substantially related to
increased salary expense and employee benefits required to hire and train
additional personnel in our expanded marketing and engineering effort. In
addition, we experienced higher outside consulting fees and higher depreciation
expenses.
Research and Development Expenses. Our research and development expenses for the
three months ended July 31, 2002 were $60,428 an increase of 130.9%, from the
same period in 2001. This increase is related to an independent third party test
program for several potential customers that examined emission gas composition
for processing surrogate medical waste.
Selling Expenses. Our selling expenses for the three months ended July 31, 2002
were $257,017 an increase of $19,738 or 8.3%, for the same period in 2001.
Selling expenses increased as a result of increased marketing activity, and the
completion of a full scale micro plasma converter model.
Interest Income. Our interest income for the three months ended July 31, 2002
was $9,432, as compared to $34,678 in the same period in 2001 a decrease of
72.8%. The decrease is due to lower average cash balances, and lower interest
rates earned on our investments as a result of the Federal Reserve's lowering
short-term interest rates.
Income Taxes. During the three months ended July 31, 2002 corporate income taxes
paid were $1,988 as compared to tax payments of $16,928 in the same period 2001.
This payment was related to an estimated tax payment to the State of
Connecticut. We have minimal tax obligations due to the fact that we have not as
yet had any profitability. We have loss carry forwards of $11.0 million to
offset against any future profits.
Comparison of nine months ended July 31, 2002 and 2001
Revenues. Our total revenues were $ 136,471 for the nine months ended July 31,
2002, as compared to $ 0 for the same period in 2001, an increase of $ 136,471.
The increase is due to an extension of the original contract with Eico Systems
Corporation to include an order for an additional sub-system, as well as payment
for related packing and shipping charges for the entire Eico shipment to Japan
as well as from a test program that was performed for a major petroleum company.
Until our product matures and is readily accepted in the marketplace we will
continue to experience volatility in our revenues.
11
Gross Loss. Our gross loss was $185,104 for the nine months ended July 31, 2002,
an increase of $185,104 from the same period in 2001. Our gross margins
decreased as a result of continuing costs associated with the systemization and
optimization of the Eico system in Japan.
General and Administrative Expenses. Our general and administrative expenses for
the nine months ended July 31, 2002 were $2,137,662 an increase of $513,591, or
31.6%, from the same period in 2001. This increase in substantially related to
increased salary expense and employee benefits required to hire and train
additional personnel in marketing and engineering, increased depreciation
expenses, and higher office expenses as well as higher supply expenses related
to our Bristol facility.
Research and Development Expenses. Our research and development expenses for the
nine months ended July 31, 2002 were $143,695, an increase of 72.3%, from the
same period in 2001. The increase is related to various research and development
projects as well as an independent third party test program for several
potential customers that examined emission gas composition for processing of
surrogate medical waste.
Selling Expenses. Our selling expenses for the nine months ended July 31, 2002
were $714,664, an increase of $62,938 or 9.7%, for the similar period in 2001.
The costs related to selling expenses increased as a result of increased
marketing activities and newly created marketing materials.
Interest Income. Our interest income for the nine months ended July 31, 2002 was
$23,148, as compared to $164,013 in the similar period 2001, a decrease of
85.9%. The decrease is due to lower average cash balances, and lower interest
rates earned on our investments as a result of the Federal Reserve's lowering
short-term interest rates.
Income Taxes. During the nine months ended July 31, 2002 income taxes paid were
$10,598 as compared to tax payments of $27,788 in the same 2001 period. This
payment was related to a estimated tax payment to the State of Connecticut. We
have minimal tax obligations due to the fact that we have not as yet had any
profitability. We have loss carry forwards of $11.0 million to offset against
any future profits.
12
Liquidity and Capital Resources
- -------------------------------
As of July 31, 2002, we had cash and cash equivalents of $1,399,766 and working
capital of $1,254,065. During the three months ended July 31, 2002, our cash
decreased by $1,122,045.
Our investing activities have consisted primarily of short-term high quality
liquid investments, with maturities 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 Treasury-bills.
For the nine months ended July 31, 2002 the Company declared three quarterly
dividends on its Series A convertible preferred stock in the aggregate amount of
$22,307, which was paid by the issuance of 2,232 shares of Series A preferred
shares.
We believe our cash reserves, anticipated cash generated from operations and
other expected sources of capital should be adequate to fund our operations for
up to a year. To date our principal source of financing for our activities have
been provided by private sales of our securities. We may require additional
financing to fund ongoing operations if our sales and revenue growth are
insufficient to meet our ongoing operating costs. Additional financing may not
be available when needed or may not be available on terms acceptable to us. Our
inability to obtain necessary capital or financing to fund these needs will
adversely affect our ability to fund operations as expected and continue as an
ongoing concern.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Japan, Europe, Asia, Africa, Middle East, South America as well as
other parts of the world. As a result, our financial results could be affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Because a significant portion of our revenues are
currently denominated in U. S. dollars, a strengthening of the dollar could make
our products less competitive in foreign markets. Our interest income is
sensitive to changes in the general level of U.S. interest rates, particularly
since the majority of our investments are in short - term instruments. Due to
the short-term nature of our investments, we believe that there is not a
material risk exposure.
13
Part II - Other Information
ITEM 1. Legal Proceeding
On June 5, 2002, the Company received a Demand for Arbitration filed with the
American Arbitration Association in East Hartford, CT by Peter Francisco and
Fran Environmental, LLC. Fran Environmental has a Representatives Agreement with
the Company. Peter Francisco is the principal member of Fran Environmental. The
claim being made is that Startech has failed to provide proper support to assist
this representative in its effort to market and sell our products in Brazil. The
relief sought is for no less than $150,000. The Company does not believe the
claim is subject to Arbitration under the terms of its agreement with the
representative and has so advised the American Arbitration Association.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit 99.1: Certification by the CEO (annexed hereto)
Exhibit 99.2: Certification by the Principal Financial Officer (annexed
hereto)
Reports on Form 8-K: None
14
SIGNATURE
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 13th day of
September 2002.
STARTECH ENVIRONMENTAL CORPORATION
(Registrant)
BY: /S/ Joseph S. Klimek
------------------------
Joseph S. Klimek
CEO & President
BY: /S/ Robert L. DeRochie
--------------------------
Chief Financial Officer,
Vice President Investor Relations,
(Principal Financial Officer)
15
CERTIFICATIONS
Certification requirements set forth in Section 302(a) of the Sarbanes-Oxley
Act.
I, Joseph S. Klimek certify that:
1. I have reviewed this quarterly report on Form 10-Q of Startech
Environmental Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such internal controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's internal controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the internal controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
I am responsible for preparing the Company's consolidated financial
statements and the other information that appears in this Form 10-Q. I believe
that the consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10-Q is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting its responsibility for the reliability of the consolidated
financial statements, I depend on the Company's system of internal accounting
controls. This system is designed to provide reasonable assurance that assets
are safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: September 13, 2002
/s/ Joseph S. Klimek
- --------------------
Joseph S. Klimek
President and Chief Executive Officer
CERTIFICATIONS
Certification requirements set forth in Section 302(a) of the Sarbanes-Oxley
Act.
I, Robert DeRochie certify that:
1. I have reviewed this quarterly report on Form 10-Q of Startech
Environmental Corp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such internal controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's internal controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the internal controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
I am responsible for preparing the Company's consolidated financial
statements and the other information that appears in this Form 10-Q. I believe
that the consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10-Q is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting its responsibility for the reliability of the consolidated
financial statements, I depend on the Company's system of internal accounting
controls. This system is designed to provide reasonable assurance that assets
are safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: September 13, 2002
/s/ Robert L. DeRochie
- ----------------------
Robert L. DeRochie
Chief Financial Officer &
Vice President, Investor Relations