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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIE
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25312
STARTECH ENVIRONMENTAL CORPORATION
formerly Kapalua Acquisitions, Inc.
(Exact name of registrant as specified in its charter)
Colorado 84-1286576
- ------------------------------ ------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
79 Old Ridgefield Road
Wilton, Connecticut 06897
(Address of principal executive offices) Zip Code
(203) 762-2499
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock
Securities registered pursuant to Section 15(d) of the Act:
Title of each class
None
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. [ ]
The number of shares outstanding each of the Registrant's classes of
Common Stock, as of January 23, 1997 was 5,850,374.
Documents Incorporated by Reference
1. Form S-8 Registration Statement, which became effective by operation of law
on November 20, 1995, SEC File #33-99790.
2. Form 8-K dated November 29, 1995.
3. Form 8-K dated January 30, 1996.
4. Form 10-Q for the period ended January 31, 1996.
5. Form 10-Q for the period ended April 30, 1996.
6. Form 10-Q for the period ended July 31, 1996.
7. Form 8-K dated January 28, 1997.
PART I
ITEM 1. BUSINESS.
Background
- ----------
The Registrant's activities during the four fiscal years, November 1, 1992 to
October 31, 1995, consisted primarily of investigating possible business
opportunities. On November 17, 1995, the Company completed the acquisition of
all of the issued and outstanding shares of the common stock of Startech
Corporation ("Startech"), a corporation incorporated and organized under the
laws of the State of Connecticut. Startech designs and manufactures 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 recovering, recycling, reduction and
remediation of hazardous and nonhazardous waste materials. From that time to the
date of this filing the Company has maintained only this focus.
General
- -------
Startech is an environmental technology corporation engaged in the
commercialization and continued development of its Plasma Waste ConverterTM
("PWC") systems for the recycling, resource recovery, reduction and remediation
of hazardous and nonhazardous organic and inorganic materials and wastes
including low level radioactive wastes.
The Startech Plasma Waste Converter is a closed-loop recycling system that
converts materials formerly regarded as hazardous wastes into useful commodity
products. The hazardous waste can be organic and inorganic, in the form of a
gas, liquid, and solids or any combination thereof. Waste volume reductions
higher than 300 to 1 have been experienced. Depending on the waste processed,
the principal commodities produced by the system are a synthetic gas called PCG
(Plasma Converted Gas)TM, metals, and an obsidian like inert silicate stone. The
PCG can be used as a chemical feed stock to produce polymers and other common
industrial products, as a fuel to produce electricity, as a heating plant fuel
to reduce the cost and reliance on fossil fuels, and in desalinization
applications to produce fresh water for irrigation and drinking. The metals can
be employed in the metallurgical industry. The stone silicates can be employed
in the abrasives industry, and as an aggregate material for construction
industry applications.
3
Marketing and Manufacturing
- ---------------------------
The Company is targeting the hazardous waste industry as its initial market. The
Company anticipates it will initially manufacture on-site, factory packaged,
transportable, and skid mounted PWCs. The systems will allow the customer to
dispose of between one ton and fifty tons of waste per day. As of the date of
this filing, a four hundred (400) pound per hour industrial size PWC is
available for demonstration.
The Company does not intend to operate PWCs. The Company intends to manufacture
its PWCs and sell or rent/lease the PWCs to customers. As of the date hereof,
the Company has not entered into any agreements with anyone to purchase PWC
systems, however, the Company has entered into letters of intent to manufacture
PWCs for several customers and is manufacturing against those letters of intent.
The Company has a manufacturing agreement with Trican Industrial Limited
("Trican") a facility located in Brantford, Ontario, Canada. Leonard V. Knap,
one of the Company's officers and a director, is the controlling shareholder of
Trican. The manufacturing agreement between the Company and Trican is an arms
length agreement and provides favorable economic benefit to the Company. The
Company also has a manufacturing agreement with Bauer Howden Inc., in Avon,
Connecticut - see also Notes To The Financial Statements - Note 8 for further
explanation to these agreements.
Employees
- ---------
The Company is a development stage company and currently has eight employees.
Management of the Company expects to hire additional employees as needed.
Competition
- -----------
The Company will encounter competition from firms manufacturing similar
products.
Offices
- -------
The Company's offices are located at 79 Old Ridgefield Road, Wilton,
Connecticut, 06897, the telephone number is 203/762-2499, facsimile
203/761-0839.
4
ITEM 2. PROPERTIES.
The Registrant's offices are located at 79 Old Ridgefield Road, Wilton,
Connecticut 06897. The Registrant leases 1,236 square feet of office space from
MCL Ventures, Inc. The lease agreement was originally entered into by another
company which is primarily owned by Joseph F. Longo and Leonard V. Knap and was
subsequently assigned to the Company. The lease provides for payments of monthly
payments of $1,972. to August 1997, when the lease expires.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in litigation brought in Denver, Colorado District
Court by Delphina, Ltd. in January 1997. The complaint demands the removal of a
restrictive legend on shares purchased by Delphina, Ltd. in 1995 and 1996. The
Company has moved the matter to the Federal Courts from the District of Colorado
and Delphina, Ltd. has moved to remand. The proceedings are in their preliminary
stages. The Company does not believe there is any merit to the claim and will
vigorously contest the matter. No legal proceedings are known to be contemplated
by governmental authorities.
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.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
(a) Market Information.
The Registrant's securities are traded over-the-counter on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. under the
symbol STHK. The table shows the high and low bid of Registrant's Common Stock
during the last two fiscal years. Quotations reflect interdealer prices without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions. The Registrant's securities began trading actively in
November 1995. Since the foregoing date, the high bid has been $9.12 and the low
bid has been $0.83.
Bid
Quarter Ended High Low Average
- ------------- ---------------- -------
October 31, 1996 $3.22 $1.55 $2.39
July 31, 1996 $3.81 $2.03 $2.71
April 30, 1996 $4.54 $0.95 $2.46
January 31, 1996 $7.63 $0.95 $4.99
October 31, 1995 $0.00 $0.00 N/A
July 31, 1995 $0.00 $0.00 N/A
April 30, 1995 $0.00 $0.00 N/A
January 31, 1995 $0.00 $0.00 N/A
(b) Holders.
As of January 23, 1997, there were approximately 260 holders of the Registrant's
Common Stock. This number does not include those beneficial owners whose
securities are held in street name.
(c) Dividends.
The Registrant 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 Registrant intends to retain any earnings which it may
realize in the future to finance its operations. The Company paid a five percent
(5%) stock dividend in November of 1996 - see Notes To The Financial Statements
- - Note 5. Future dividends, if any, will depend on earnings, financing
requirements and other factors.
6
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below for the years ended October 31, 1996
is derived from the Registrant'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.
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
Net sales $ 26,000 0 0 0 0
Loss from operations $673,924 36,698 0 0 0
Other income (expense) $ 3,431 0 0 0 0
Net loss $670,493 36,698 0 0 0
Earnings per share of weighted
average shares of common
stock outstanding $ (0.12) N/A N/A N/A N/A
Weighted-average number of
shares of common stock
outstanding 5,482,268 996,500 996,500 996,500 996,500
Total assets $ 391,610 85,025 0 0 0
Total liabilities $ 444,667 121,423 0 0 0
Long-term obligations $ 0 0 0 0 0
Cash dividends per share
of common stock $ 0 0 0 0 0
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
- ---------------------
1996 vs 1995
- ------------
During 1996 the Company earned $26,000 in revenues for professional services.
Operating expenses of $680,424 in 1996 consisted primarily of outlays for
selling, demonstration and general and administrative purposes compared to
$36,698 in the prior period.
The Registrant was incorporated under the laws of the State of Colorado in May
1991 and has been dormant since 1991. During fiscal 1995, the Registrant entered
into negotiations with Startech which culminated in the acquisition of Startech
on November 17, 1995. In January 1996 the Registrant changed it's name from
Kapalua Acquisitions, Inc. to Startech Environmental Corporation.
1995 vs 1994
- ------------
Due to the prior dormancy of the Registrant, no revenues were realized and only
nominal operating expenses, principally filing fees, bank service charges and
legal services, have been incurred through October 31, 1995.
These trends have changed due to the Startech acquisition.
Activity for 1995 consists of initial administration and expenses of $36,698.
There were no expenses incurred during 1994 and before.
Liquidity and Financial Resources
- ---------------------------------
Liquidity has been provided by stock sales, loans from investors and accounts
receivable. The Registrant is and will continue to be dependent upon the
deposits from the sale of equipment, the sale of stock, loans and/or capital
contributions from majority shareholders or outside investors. It is anticipated
that the Registrant's capital resource requirements for future periods will
increase and future needs are anticipated to be met from the above and from
operations of the Registrant's business activity .
Operating capital for the year ended October 31, 1996 was primarily a result of
the sale of stock. Additional revenue was provided from fees for testing and
customer research.
8
Liquidity and Financial Resources (continued)
- ---------------------------------------------
The Company anticipates that cash generated from operations in the form of
customer deposits, further sale of capital stock and the utilization of a loan
facility will be more than sufficient to satisfy working capital and capital
expenditure requirements for the forseeable future. This will provide the
Company 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.
The Company offered, to a limited number of investors, the right to purchase up
to 1,000,000 two year restricted voting common shares at a purchase price of
$1.50. For each share purchased, the Company granted one warrant exercisable at
$4.00 per share. The warrant shares also have a two year restriction from the
date the warrant is exercised. The Offering was subject to the terms and
conditions of the "Subscription Agreement".
The Offering commenced on August 28, 1996 and terminated on December 31, 1996.
The total shares subscribed were 638,917 at $1.50 per share, for an aggregate
amount of $958,376.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and Supplementary Data begin on the following page.
9
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
----------
For The Years Ended October 31, 1996, 1995
and 1994 and the Cumulative Period May 1, 1991
(Inception) Through October 31, 1996
------
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
Table of Contents
For The Years Ended October 31, 1996, 1995
and 1994 and the Cumulative Period May 1, 1991
(Inception) Through October 31, 1996
Independent Auditors' Report....................................... 3
Balance Sheets..................................................... 4
Statements of Operations........................................... 5
Statements of Changes in Stockholders' Deficit..................... 6
Statements of Cash Flows........................................... 7
Notes to the Financial Statements.................................. 8
KOSTIN, RUFFKESS & COMPANY, LLC
Certified Public Accountants
To the Board of Directors
Startech Environmental Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Startech Environmental
Corporation (A Development Stage Company) as of October 31, 1996 and the related
statement of operations, changes in stockholders' deficit and cash flows for the
year then ended. 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 audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Startech Environmental
Corporation (A Development Stage Company) as of October 31, 1996 and the results
of its operations, changes in stockholders' deficit and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The financial statements for the year ended October 31, 1995 were audited by
Robert Moe & Associates, P.S., and they expressed an unqualified opinion on them
in their report dated January 26, 1996. They have not performed any auditing
procedures on the financial statements since January 26, 1996. The financial
statements for the year ended October 31, 1994 were audited by Doran Peck, CPA,
P.C., and they expressed an unqualified opinion on them in their report dated
November 28, 1994. They have not performed any auditing procedures on the
financial statements since November 28, 1994.
/S/ KOSTIN, RUFFKESS & COMPANY, LLC
- ------------------------------------
West Hartford, Connecticut
January 23, 1997
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Balance Sheets
October 31, 1996 and 1995
------
1996 1995
Assets
Cash $ 280,759 $ 83,202
Other current assets 10,851 1,823
--------- ---------
Total current assets 291,610 85,025
Other assets 100,000 --
--------- ---------
$ 391,610 $ 85,025
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 27,405 $ 19,923
Investor deposits 280,000 --
Note payable - short-term 100,000 100,000
Other accrued expenses 37,262 1,500
--------- ---------
Total current liabilities 444,667 121,423
--------- ---------
Stockholders' deficit:
Preferred stock, no par value, 10,000,000
shares authorized, no shares issued
or outstanding -- --
Common stock, no par value, 800,000,000
shares authorized; shares issued and
outstanding: 5,850,374 at October 31,
1996 and 996,500 at October 31, 1995 653,834 --
Additional paid-in capital 300 300
Deficit accumulated during the
development stage ( 707,191) ( 36,698)
--------- ---------
Total stockholders' deficit ( 53,057) ( 36,398)
--------- ---------
$ 391,610 $ 85,025
========= =========
The accompanying notes are an integral part of the financial statements
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Statements of Operations
For The Years Ended October 31, 1996, 1995 and 1994
and the Cumulative Period May 1,1991 (Inception) Through October 31, 1996
------
Cumulative During
Development Stage
Year Ended October 31 From Inception
------------------------------------------- (May 1, 1991)
Through
1996 1995 1994 October 31, 1996
Revenue $ 26,000 $ -- $ -- $ 26,000
----------- ----------- ----------- -----------
Operating expenses:
Selling expense 66,211 -- -- 66,211
General and administrative
expenses 624,213 36,698 -- 660,911
----------- ----------- ----------- -----------
Total operating expenses 690,424 36,698 -- 727,122
----------- ----------- ----------- -----------
Loss from operations ( 664,424) ( 36,698) -- ( 701,122)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 3,431 -- -- 3,431
Interest expense ( 9,000) -- -- ( 9,000)
----------- ----------- ----------- -----------
Total other income (expense) ( 5,569) -- -- ( 5,569)
----------- ----------- ----------- -----------
Income tax expense 500 -- -- 500
----------- ----------- ----------- -----------
Net loss $( 670,493) $ (36,698) $ -- $ (707,191)
=========== =========== =========== ===========
Net loss per share $( $ 0.12) N/A N/A
===========
Average common
shares outstanding 5,482,268 996,500 996,500
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders'
Equity for the Cumulative Period from May 1, 1991
(Inception) Trough October 31, 1996
Additional Accumulated
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit)
Balance, Inception May 1, 1991 -- $ -- $ -- $ --
Shares issued during May 1991
for services rendered 900,000 -- -- --
Shares issued during May 1991 96,500 -- -- --
--------------- -------------- -------------- -----------
Balance, October 31, 1992, 1993,
and 1994 996,500 -- -- --
Capital contribution during the
year ended October 31, 1995 -- -- 300 --
Net loss during the year ended
October 31, 1995 -- -- -- ( 36,698)
--------------- -------------- -------------- -----------
Balance, October 31, 1995 996,500 -- 300 ( 36,698)
Shares issued for the acquisition of
Startech Corporation 4,000,000 -- -- --
Shares issued to Trican for a note payable 50,000 100,000 -- --
Shares issued during the year
for services rendered 539,700 152,131 -- --
Shares issued for cash 264,174 401,703 -- --
Net loss during the year
ended October 31, 1996 -- -- -- ( 670,493)
--------------- -------------- -------------- -----------
Balance, October 31, 1996 5,850,374 $ 653,834 $ 300 $( 707,191)
=============== ============== ============== ===========
The accompanying notes are an integral part of the financial statements
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Statements of Cash Flows
for the Cumulative Period From Inception ( May 1, 1991) Through October 31,1996
------
Cumulative During
Development Stage
Year Year Year From Inception
Ended Ended Ended (May 1, 1991)
October 31, October 31, October 31, Through
1996 1995 1994 October 31, 1996
Cash flows from operating activities:
Net loss $( 670,493) $( 36,698) $ -- $( 707,191)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 152,131 -- -- 152,131
(Increase) decrease in:
Other current assets ( 9,028) ( 1,823) -- ( 10,851)
Increase (decrease) in:
Accounts payable 7,482 19,923 -- 27,405
Accrued expenses 35,762 1,500 -- 37,262
--------------- --------------- ------------- ------------
Net cash used in operating activities ( 484,146) ( 17,098) -- ( 501,244)
--------------- --------------- ------------- ------------
Cash flows from financing activities:
Subscription of common stock 280,000 -- -- 280,000
Increase in note payable -- 100,000 -- 100,000
Advance to vendor
Proceeds from common stock sale 401,703 300 -- 402,003
--------------- --------------- ------------- ------------
Net cash provided by financing activities 681,703 100,300 -- 782,003
--------------- --------------- ------------- ------------
Net increase in cash and cash equivalents 197,557 83,202 280,759
Cash and cash equivalents, beginning 83,202 -- -- --
--------------- --------------- ------------- ------------
Cash and cash equivalents, ending $ 280,759 $ 83,202 $ -- $ 280,759
=============== =============== ============= ============
The accompanying notes are an integral part of the financial statements
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
---
Note 1 Summary of Significant Accounting Policies:
- ---------------------------------------------------
Company's Activities
- --------------------
The Company is an environmental technology corporation that develops systems for
recycling, resource recovery, reduction and remediation of hazardous and
non-hazardous organic and inorganic materials and wastes. The Company is
considered to be in the development stage as defined in Statement of Financial
Accounting Standards No. 7. There have been no significant revenues since
incorporation. However, the Company has completed significant research and
development and anticipates delivery of its first system during fiscal year
1997.
Basis of Presentation
- ---------------------
On November 17,1995, Startech Environmental Corporation (A Development Stage
Company), formerly Kapalua Acquisitions, Inc., acquired all the issued and
outstanding shares of common stock of Startech Corporation in exchange for
4,000,000 shares of Kapalua Acquisitions, Inc. 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 (A Development Stage Company) include all of the accounts of
Startech Corporation. This acquisition has been accounted for as a
pooling-of-interests in the accompanying financial statements. The fiscal year
end for both companies prior to the acquisition was October 31st and the
financial statements for all periods presented have been restated to reflect the
combination of the two companies
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, 1996, 1995
and 1994 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.
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. Regarding supplementary
cash flows information, there have been no income taxes or interest expenses
paid for the years ended October 31, 1996, 1995 and 1994. Included in cash is
the Company's escrow account used to segregate subscriptions received through
its private placement offering. See the subsequent event footnote following for
additional detail.
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
----------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
---
Note 1 Summary of Significant Accounting Policies: (Continued)
- --------------------------------------------------- -----------
Other Assets
- ------------
Other current assets represents travel advances for the Company's President.
Non-current assets of $100,000 represents an advance to Trican Systems and is
further described in Note 8.
Income Taxes
- ------------
Income taxes consist of minimum state income taxes. The Company has a net
operating loss carryforward of approximately $670,000 which expires in the year
2011.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share is based on the weighted average number of shares of
common stock outstanding during the year.
Off Balance Sheet Risk
- ----------------------
The Company had in excess of $100,000 in a single bank during the year. Amounts
over $100,000 are not covered by the Federal Deposit Insurance Corporation.
However, management does monitor the financial condition of the institution
where these funds are invested.
Note 2 Operating Lease:
- ------ ----------------
The Company leases its office under an operating lease which expires August 1,
1997. Minimum future rental payments under this noncancelable lease are $17,748.
Rental expense, including real estate taxes for the year ended October 31, 1996,
was $23,050.
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
---
Note 3 Commitments:
- ------ ------------
The Company sells under written agreements through representatives and
distributors. The Company also maintains, as house accounts, such organizations
as the Department of Defense and other government agencies, US and foreign, and
a limited number of commercial enterprises. As of October 31, 1996, the Company
had entered into agreements with seven distributors to sell its commercial
systems. Under these agreements, which have a term of 10 years, the distributors
typically agree to sell approximately $3,000,000 in the first year and
$5,000,000 in each year thereafter. The Company's systems are manufactured in
Brantford , Ontario and in Avon, Connecticut.
Note 4 Note Payable:
- ---------------------
The $100,000 note payable is a demand note dated September 1, 1995 with 9%
interest payable to Mr. John Celantano. Mr. Celantano is a stockholder of the
Company and provides both sales and professional consulting services to the
Company. Interest expense on the above note amounted to $9,000 for the year
ended October 31, 1996. Repayment of the note payable will be through the
issuance of common stock for the equivalent of 100,000 at the offering price per
share of the next stock offering.
Note 5 Stockholders' Equity:
- ------------------------------
The Company has 10,000,000 shares of preferred stock, no par value, authorized.
However, none have been issued. The following table sets forth the number of
common shares of the Company issued and outstanding as of October 31, 1996 and
the number of common shares reserved for issuance to investors.
Authorized 800,000,000
Issued and outstanding 5,850,374 1
Reserved for issuance to investors 1,000,000
Common stock subscribed 186,667
Reserved warrants 1,000,000
Warrants subscribed 186,667
- ----------
1 Does not include 900,000 class A Warrants and 900,000 class B Warrants to
purchase up to 1,800,000 of common stock at an average price of $1.25 per
share, which expire on May 10, 1997. These unregistered Warrants are not
exercisable until, and if, the Company chooses to register the Warrants
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
Note 5 Stockholders' Equity: (Continued)
- -----------------------------------------
Stock Dividend
- --------------
On October 22, 1996, the company declared a 5% stock dividend to shareholders of
record of Startech Environmental Corporation common stock on November 11,1996.
The stock dividend was paid on November 29, 1996. These stock dividend shares
are restricted from being sold for a period of two years.
Note 6 Nonqualifying 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 Nonqualifying
Stock Option Plan (the Plan) for employees, directors and other persons
associated with the Company whose services have benefited the Company. Options
must be issued within 10 years from November 20,1995. Determination of the
option price per share and exercise date is at the sole discretion of the
Compensation Committee.
During the year ended October 31, 1996, the Company issued 539,700 stock options
for services rendered. All options were immediately exercised for one share of
common stock. The exercise price ranged from $.25 to $5.00 per share. The
aggregate value of these services ($152,131) is reflected as an increase in
common stock . As of October 31,1996, there were no stock options outstanding.
Note 7 Subsequent Events:
- --------------------------
The Company offered to a limited number of investors the right to purchase up to
1,000,000 voting common shares at a purchase price of $1.50. The Offering is
subject to the terms and conditions of the "Subscription Agreement" that was
entered into by each investor and the Company.
One Warrant will be issued for each common share subscribed. The Warrants will
not be registered, and the subscriber will have the right to purchase one share
of common stock for each Warrant at a price of $4.00 per share immediately
following the closing date and for a period of up to two years. Once the
Warrants are exercised, the shares will be restricted for a two year period. The
Company reserves the right to cancel or extend the Warrants once the restriction
period has been satisfied, and the exercised period fulfilled. The Warrants may
be exercised in lots of 100 common shares or more up to the total amount of
Warrants for which each investor had originally subscribed.
Purchasers of the shares entered into a Subscription Agreement in conjunction
with the transaction. Investors were notified of the acceptance of their
subscription by the return of an executed copy of the Subscription Agreement.
The Offering began on August 28, 1996 and terminated on December 31, 1996. As of
October 31, 1996, the minimum subscription of $250,000 had been met and
exceeded. Investor deposits as of the balance sheet date were $280,000 and were
segregated in a separate escrow account. As of December 31, 1996, the total
shares subscribed were 638,917, at $1.50 per share, for an aggregate amount of $
958,376.
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
---
Note 8 Strategic Alliances:
- -----------------------------
Burns and Roe Enterprises, Inc.
Burns and Roe is one of the world's leading engineering and construction firms
and is a leader in the field of engineering, design, construction for electric
utilities, waste to energy, nuclear utilities, wind power, cogeneration,
industrial, chemical and research facilities, both domestic and international.
Burns and Roe has more than 700 technical and 300 administrative and office
personnel in its Oradell, New Jersey headquarters. It has offices in six
countries around the world. Startech and Burns and Roe Enterprises, Inc. will
jointly undertake projects that require sales, engineering, construction and
financing of Startech based facilities.
Energy Research Corporation (ERC)
ERC is a public company whose stock is traded on NASDAQ and it is preeminent in
the field of the development, manufacturing and the marketing of Molten
Carbonate Fuel Cells. Fuel Cells are battery-like systems that convert hydrogen
gas directly into DC electricity. The PCG (Plasma Converted Gas) produced by the
Startech Plasma Waste Converter can be used directly in ERC's fuel cells.
Startech and ERC will cooperate in the technical development and sales of
systems that convert wastes into fuel cell gas to produce electricity. In June
1996, ERC put the world's largest MC fuel cell on line in California.
Trican Systems
Trican is a manufacturing firm (85,000 square foot facility) experienced in
manufacturing waste processing capital equipment, operated by one of the
principal stockholders of Startech. A written manufacturing agreement to produce
Startech systems with Trican exists wherein Trican will produce the systems
based upon predetermined standard costs established by Startech at a
manufacturing cost rate that is favorable to Startech.
As of October 31,1996, the Company advanced to Trican $100,000. This amount is
included in other non-current assets. The advance is non-interest bearing to be
repaid by April 1, 2001. Repayment shall be made via either one or a combination
of (a) deductions from the cost of manufacturing Startech systems, (b) cash
payments, or (c) the return of like shares of the Company's common stock.
Bauer Howden Inc.
Bauer Howden will be manufacturing (in addition to Trican) Startech systems in
the U.S. in a modern, fully integrated, 90,000 square foot manufacturing and
engineering facility in Avon, Connecticut. This facility is also fully qualified
as a production facility in manufacturing in compliance with the military and
government specifications of the U.S. and many nations of the world. The
agreement also provides for the financing by Bauer Howden of Startech's
inventory requirements. Bauer Howden has a team of its own technical service
people strategically located in various market areas outside of the U.S., and
these service people will assist in the installation, maintenance and training
that may be required by Startech customers.
STARTECH ENVIRONMENTAL CORPORATION
(A Development Stage Company)
--------
Notes To The Financial Statements
For The Years Ended October 31, 1996, 1995 and 1994
---
Note 8 Strategic Alliances: (Continued)
- -----------------------------------------
Calumet Coach Company
The Company has signed a strategic alliance agreement with Calumet Coach Company
for the incorporation of Plasma Waste Converters to various semi-trailers and
self-propelled configurations. This alliance will allow Startech to better
address the numerous applications for Plasma Waste Converters that requite the
processing of waste residing in remote locations or in locations where a
preeminent installation is not needed.
The Calumet Coach Company of Calumet City, Illinois is a privately held company
that has been building mobile units in both semi-trailer and self-propelled
configurations for the past fifty years serving special healthcare, military and
industrial applications throughout the world.
Note 9 - Fair Value of Financial Instruments:
- ---------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:
Cash and other current assets are carried in the accompanying balance sheet at
cost which are reasonable estimates of their fair value. Accounts payable,
investor deposits, notes payable and accrued expenses are also carried at costs
which are reasonable estimates of their fair value.
Carrying Estimated
Amount Fair Value
-------- ----------
ASSETS:
Cash 280,759 280,759
Other current assets 10,851 10,851
LIABILITIES:
Accounts payable 27,405 27,485
Investor deposits 280,000 280,000
Note payable 100,000 100,000
Accrued expenses 37,262 37,262
Note 10 Litigation:
- -------------------
The Company is a defendant in litigation regarding the removal of a restrictive
legend on shares of common stock purchased in 1995 and 1996. The proceedings are
in the preliminary phases and the Company believes it is with out merit and will
vigorously contest the matter.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
As of December 1996, the Company changed its accountant from Robert Moe &
Associates, P.S. to Kostin, Ruffkess & Company, LLC. The Company has filed a
Form 8-K with the Commission reflecting the change in accountants. There are no
disagreements on any matters of accounting principals or practices or financial
statements disclosure and none are contemplated.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the directors and
executive officers of the Registrant and its subsidiaries:
Name Age Position
- ----------------------------------------------------------------------------------------------------
Joseph F. Longo 64 President, Treasurer, member of the Board of Directors
Leonard V. Knap 65 Vice President, member of the Board of Directors
Kevin M. Black 34 Vice President, Secretary, member of the Board of Directors
John D. Watts 53 Vice President, Chief Financial Officer, Principal Accounting Officer
All directors hold office until the next annual meeting of shareholders and
until their successors have been elected and qualified. The Registrant's
officers are elected by the Board of Directors at the annual meeting, after each
annual meeting of the Registrant's shareholders, and hold office until their
death, or until they resign or have been removed from office.
10
Joseph F. Longo - President, Treasurer and a member of the Board of Directors
- -----------------------------------------------------------------------------
Mr. Longo has been President, Treasurer and a member of the Board of
Directors since November 17, 1995. Since September 1994, Mr. Longo has been
President of STARTECH Corporation. From August 1991 to August 1994, Mr. Longo
was President of Consolidated Defense Corp. of Wilton, Connecticut. Consolidated
Defense is a company that designs, manufactures, and markets waste processing
equipment for stationary and shipboard waste applications. From October 1987 to
August 1991, Mr. Longo was Executive Vice President of Toronita Company of York,
Pennsylvania. Toronita develops waste processing equipment for hazardous and
nonhazardous waste.
Leonard V. Knap - Vice President and a member of the Board of Directors
- -----------------------------------------------------------------------
Mr. Knap has been Vice President and a member of the Board of Directors of
the Company, since November 17, 1995. From October 1978 to the present, Mr. Knap
has been the president of Trican Group of Companies. Trican is a Canadian
company, located in Brantford, Ontario. Trican is involved in the refuse
management industry. Trican activities range from engineering and consulting, to
manufacturing services.
Kevin M. Black - Vice President, Secretary and a member of the
Board of Directors
- --------------------------------------------------------------
Mr. Black has been Secretary and a member of the Board of Directors of the
Company since November 17, 1995. From October 1994 to the present, Mr. Black is
a Deputy Assistant States Attorney with the State of Connecticut, Division of
Criminal Justice. From January 1993 to October 1994, Mr. Black was associated
with the law firm of Reid, Coredlo & Cafero, Norwalk, Connecticut, in the
general practice of corporate and criminal law. From January 1991 to October
1992, Mr. Black was associated with the law firm Feinstein & Hermann, P.C.,
Norwalk, Connecticut.
John D. Watts - Vice President, Chief Financial Officer and Principal
Accounting Officer
- ---------------------------------------------------------------------
Mr. Watts has been Chief Financial Officer and Principal Accounting Officer
of the Company since November 17, 1995. From December 1988 to August 1995, Mr.
Watts was Vice President of Finance and Administration of Fulflex, Inc., a
subsidiary/division of the Moore Company, Westerly, Rhode Island. Fulflex is a
multinational company and is the world's largest manufacturer of specialty
elastics which are sold to producers of clothing, diapers, golf balls and many
other products requiring elastication.
11
ITEM 11. EXECUTIVE COMPENSATION.
(a) Cash Compensation.
The following table sets forth certain information concerning the directors and
executive officers of the Registrant and its subsidiaries:
Compensation Current
Name during FY 96 Annual Salary Position
- -------------------------------------------------------------------------------
Joseph F. Longo $100,000. $100,000. President & Treasurer
Leonard V. Knap $ 16,000. $ 52,000. Vice President
Kevin M. Black $ 11,700. $ 26,000. Vice President &
Secretary
John D. Watts $ 63,750. $ 85,000. Vice President,Chief
Chief Financial
Officer & Principal
Accounting Officer
The Registrant does not anticipate entering into employment agreements with any
of its officers or directors in the near future. Directors do not receive
compensation for their services as directors, but are reimbursed for travel
expenses incurred in attending board meetings.
Other than consulting fees and finder's fees which may be paid to unaffiliated
third parties, no other individuals will receive any salaries or fees from the
Registrant. The Registrant's officers and directors will not receive finder's
fees, or consulting fees. Officers, directors and/or principal shareholders may
receive cash or stock from the sale of their shares of the Registrant's stock to
the Registrant's merger candidate or principals of the merger candidate, should
that event occur.
(b) Compensation Pursuant to Plans
The Registrant has no retirement, pension or profit sharing plans covering its
Officers or Directors other than a Non Qualified Incentive Stock Option Plan
which has been filed with the Securities and Exchange Commission on Form S-8
(Commission File No. 33-95264) and which became effective on November 20, 1995.
(c) Other Compensation.
No Officers and Directors of the Registrant received any other compensation
during the fiscal year ended October 31, 1996.
12
(d) Compensation of Directors.
The Registrant's Directors receive no compensation for their services, however,
they are reimbursed for travel expenses incurred in serving on the Board of
Directors.
(e) Termination of Employment and Change of Control Arrangements.
No compensatory plan or arrangement exists between the Registrant and any
Director or Officer, except as discussed herein.
13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of the
Registrant's Common Stock as of January 23, 1997, by each Officer and Director,
all Officers and Directors as a group and each beneficial owner of more than
five percent of the outstanding shares of the Registrant's Common Stock:
Name and address Number of Percent
of owner Shares Position of Class
- --------------------------------------------------------------------------------
Joseph F. Longo 1,903,898 President, Treasurer 32.5%
444 Thayer Pond Rd. and Director
Wilton, CT 06897
Leonard V. Knap 1,903,898 Vice President 32.5%
140 West 3rd Street and Director
Hamilton, Ontario L9C-3K7
Canada
Kevin M. Black 49,489 Vice President, Secretary 0.8%
62 Buckingham Ridge Rd. and Director
Wilton, CT 06897
John D. Watts 196,101 Vice President, 3.4%
340 Mirey Dam Rd. and Chief Financial Officer
Middlebury, CT 06762
-----
All officers and 69.2%
directors as a
group (4 People)
14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transaction with Management and Others.
The Company has a manufacturing agreement with Trican Industrial Limited
("Trican") a facility located in Brantford, Ontario, Canada. Leonard V. Knap,
one of the Company's officers and a director, is the controlling shareholder of
Trican. The manufacturing agreement between the Company and Trican is an arms
length agreement and provides favorable economic benefit to the Company.
On October 31, 1996, the Company advanced to Trican $100,000. This amount is
included in other non-current assets. The advance is non-interest bearing and is
to repaid by April 1, 2001. Repayment shall be made via either one or a
combination of (a) deductions from the cost of manufacturing Startech systems,
(b) cash payments, or (c) the return of shares of the Company's common stock.
(b) Certain Business Relationships.
The Registrant does not have any relationship between any nominee or director
and the Registrant that is substantially similar in nature and scope to those
relationships entered into by virtue of "Strategic Alliances" - see Notes To The
Financial Statements - Note 8.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements.
---------------------
The financial statements listed below and included under Item 8, are filed
as part of this report.
:Report of Independent Auditors
:Consolidated balance sheet at October 31, 1996 and
October 31, 1995
:Consolidated statement of operations for
each of the three years in the period
ended October 31, 1996
:Consolidatd statement of changes in stockholders'
deficit equity for each of the three years in the
period ended October 31, 1996
:Consolidated statement of cash flows for each of
the three years in the period ended October 31, 1996
:Notes to consolidated financial statements
(2) Financial Statement Schedules
-----------------------------
All schedules have been omitted since the required information is not
present or not present in amouints sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements and the notes thereto.
16
(3) Exhibits.
Exhibit
No. Description Page
3.(i) Articles of Incorporation of the Company. *
(incorporated by reference as Exhibit 1.1
to the Registrant's Registration Statement
3.(ii) Bylaws of the Company. *
----------------------
(incorporated by reference to Exhibit 1.7
to the Registrant's Registration Statement
on Form 10, SEC File No. 0-25312).
4. Instruments defining the rights of security
holders, including indents
NONE
9. Voting Trust Ageement
---------------------
NONE
10. Material Contracts
------------------
Acquisition Agreement between the *
Registrant and Startech.
(incorporated by reference to Exhibit
10.3 to the Registrant's Form 8-K dated
August 25, 1995, SEC File No. 0-25312).
* By reference
17
11. Statement re computation of per share earnings.
-----------------------------------------------
Not applicable.
12. Statement re computation of ratios.
-----------------------------------
None.
13. Annual report to security holders.
----------------------------------
Not applicable.
16. Letter re change in certifying accountant.
------------------------------------------
Letter from former independent accountant
18. Letter re change in accounting principles.
------------------------------------------
None.
19. Report furnished to security holders.
-------------------------------------
None.
21. Subsidiaries of the registrant.
-------------------------------
None.
22. Published report regarding matters submitted to
vote of security holders.
------------------------------------------------
Not applicable.
23. Consent of experts and counsel.
-------------------------------
Consent of Kostin, Ruffkess & Company, LLC
24. Power of attorney.
------------------
Not applicable.
27. Financial Date Schedule.
------------------------
Filed herein.
28. Information from reports furnished to state
insurance regulatory agencies.
--------------------------------------------
None.
* By reference
18
99. Additional Exhibits.
--------------------
Nonqualifying Stock Option Plan *
(incorporated by reference as Exhibit 10.1
to the Registrant's Registration Statement
on Form S-8, SEC File No. 33-99790).
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
On January 28, 1997, the Company filed a report on Form 8-K to
announce that it replaced the accounting firm of Robert Moe & Associates, P.S.
as a result of engaging Kostin Ruffkess & Company, LLC.
* By reference
19
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 29th day of
January, 1997.
STARTECH ENVIRONMENTAL CORPORATION
(Registrant)
BY: /S/ Joseph F. Longo
-------------------------------------
Joseph F. Longo
President
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 Registrant
and in the capacities and on this 29 day of January 1997.
SIGNATURES TITLE DATE
/S/ Joseph F. Longo Member of the Board of Directors, January 29, 1997
- -------------------------- President and Treasurer
Joseph F. Longo
/S/ Leonard V. Knap Member of the Board of Directors, January 29, 1997
- -------------------------- Vice President
Leonard V. Knap
/S/ Kevin M. Black Member of the Board of Directors, January 29, 1997
- -------------------------- Secretary
Kevin M. Black
/S/ John D. Watts Vice President, Chief Financial January 29, 1997
- -------------------------- Officer and Principal Account
John D. Watts Officer