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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
--------------------- ---------------
Commission file number 0-25312
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
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 29, 1999 was $6,881,760.
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, 1997.
5. Form 10-Q for the period ended April 30, 1997.
6. Form 10-Q for the period ended July 31, 1997.
7. Form 8-K dated January 28, 1997.
8. Form 10-Q for the period ended January 31, 1998.
9. Form 10-Q for the period ended April 30, 1998.
10. Form 10-Q for the period ended July 31, 1998.
2
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
Incorporated ("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 manufacturing equipment to recover,
recycle, reduce and remediate hazardous and nonhazardous waste materials. From
that time to the date of this filing, the Company has maintained only this
focus.
General
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.
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. Any one system will allow the customer to
dispose of between four tons and fifty tons of waste per day. However, multiple
systems may be installed in a facility, thus processing greater than fifty tons
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 entered into agreements with Burns & Roe to produce PWC systems
for the U. S. Army, also, the Company has entered into letters of intent to
manufacture PWCs for several additional customers and is manufacturing against
those letters of intent.
The Company has a manufacturing agreement with Bauer Howden Inc., in Avon,
Connecticut - see also Notes To The Financial Statements - Note 4 for further
explanation to these agreements.
3
ITEM 1 - BUSINESS: (CONTINUED)
- ------------------
Employees
The Company has ten employees. Management of the Company expects to hire
additional employees throughout 1999.
Competition
The Company regards potential competitors as Aerospecial, Mitsubishi and Retech.
Those companies have more assets and are larger than Startech and, therefore,
could offer, should they choose, substantial competition to Startech.
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, Email Startech@netaxis.com and its web site is www.startech.net.
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 was primarily owned by Joseph F. Longo and Leonard V. Knap and was
subsequently assigned to the Company. The lease provides for monthly payments of
$2,109 to September 1999, when the lease expires.
ITEM 3 - LEGAL PROCEEDINGS:
- ---------------------------
The Company was a defendant in litigation brought in Denver, Colorado District
Court by Delphina, Ltd. in January 1997. The complaint demanded the removal of a
restrictive legend on shares purchased by Delphina, Ltd. in 1995 and 1996. The
proceedings have been concluded without any net financial outlay by the Company.
As a result of the successful conclusion of the litigation, 202,131 shares of
the Company's stock was returned and retired. The conclusion of this litigation
occured in January of 1998.
The Company and its officers, individually and personally, except Leonard V.
Knap, are defendants in litigation brought in Bridgeport, Connecticut, USA
Federal Court, in February 1998 by John Easton of Canada. The complaint demands
payment for commissions and/or fees for services rendered to acquire the funds
needed to consummate the reverse acquisition, that occurred on November 17,
1995, of Startech Corporation by Kapalua Acquisitions, Incorporated (since
renamed to Startech Environmental Corporation). 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. The Company will file a counter claim
against Mr. Easton.
The Company is a defendant in litigation brought in the Ontario Court of
Justice, Ontario, Canada, and was served notification of the complaint in August
1997. The complaint is a result of a third party action against one of the
Company's shareholders. The third party, a stock brokerage firm, failed to
follow standard practice to verify a restrictive legend on the shareholder's
stock certificate; thus, sold the shares and had to purchase them back at a
loss. The brokerage firm is seeking retribution for the loss from the
shareholder and the shareholder is seeking indemnification and/or contribution
from the Company. The Company does not believe there is any merit to the claim
and will vigorously contest the matter.
No legal proceedings are currently or known to be contemplated by governmental
authorities.
4
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.
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 ( OTCBB: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
$19.80 (in 1997) and the low bid has been $0.83 (in 1995).
Bid
---
Quarter Ended High Low Average
------------- ------------------------- ---------
October 31, 1998 $ 7.75 $ 3.25 $ 5.32
July 31, 1998 $ 11.25 $ 5.00 $ 8.35
April 30, 1998 $ 11.75 $ 5.00 $ 7.82
January 31, 1998 $ 9.75 $ 4.84 $ 7.68
October 31, 1997 $ 11.25 $ 7.25 $ 9.51
July 31, 1997 $ 13.69 $ 7.50 $ 11.24
April 30, 1997 $ 18.25 $ 7.50 $ 13.77
January 31, 1997 $ 12.50 $ 2.86 $ 4.85
(b) Holders
-------
As of January 29, 1999, there were approximately 300 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. Future dividends, if any, will depend
on earnings, financing requirements and other factors.
ITEM 6 - SELECTED FINANCIAL DATA:
- ---------------------------------
The selected financial data set forth below for the years ended October 31, 1998
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.
5
ITEM 6 - SELECTED FINANCIAL DATA: (CONTINUED)
- ---------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net sales $1,088,782 $ 10,000 $ 26,000 $ 0 $ 0
Loss from operations 473,733 897,855 664,424 36,698 0
Other income (expense) 14,664 20,497 (5,569) 0 0
Net loss 463,051 877,908 670,493 36,698 0
Earnings per share of weighted
average shares of common
stock outstanding (0.07) (0.12) (0.12) (0.04) N/A
Weighted-average number of
shares of common stock
outstanding 6,887,736 6,695,316 5,482,268 996,500 996,500
Total assets 1,824,448 1,201,870 391,610 85,025 0
Total liabilities 1,163,774 188,063 444,667 121,423 0
Long-term obligations 0 0 0 0 0
Cash dividends per share
of common stock 0 0 0 0 0
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
- --------------------------------------------------------------------------------
Results of Operations
1998 vs 1997
During 1998, the Company earned $1,088,782 in revenues for professional
services, consulting and customer system design and $23,664 in offset billings,
compared to $10,000 and $29,497, respectively, in the prior period.
Approximately 91 percent of the 1998 revenues were derived from one major
customer, Burns and Roe Enterprises, Inc. Operating expenses of $1,116,293 in
1998 consisted of outlays for outside consulting services, selling,
demonstration and general and administrative purposes compared to $907,855 in
the prior period. The Company is no longer considered to be in the development
stage, as revenues from shipments and services performed have begun to be
recognized in calendar year 1998.
1997 vs 1996
During 1997, the Company earned $10,000 in revenues for professional services
and $29,497 in offset billings. Operating expenses of $907,855 in 1997 consisted
primarily of outlays for selling, demonstration and general and administrative
purposes compared to $690,424 in the prior period.
6
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
- --------------------------------------------------------------------------------
Results of Operations (Continued)
1996 vs 1995
During 1996, the Company earned $26,000 in revenues for professional services.
Operating expenses of $690,424 in 1996 consisted primarily of outlays for
selling, demonstration and general and administrative purposes compared to
$36,698 in the prior period.
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 consisted of initial administration and expenses of $36,698.
There were no expenses incurred during 1994 and before.
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 Incorporated which culminated in the acquisition
of Startech on November 17, 1995. In January 1996, the Registrant changed its
name from Kapalua Acquisitions, Inc. to Startech Environmental Corporation.
Liquidity and Financial Resources
Liquidity has been provided primarily by fees earned from its Alliance Partner,
Burns & Roe, stock sales and consulting fees. The Registrant is and will
continue to be dependent upon the deposits from the sale of equipment, equipment
sales, 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
normal business activity .
Operating capital for the year ended October 31, 1998, was primarily a result of
the fees for services to its Alliance Partner, Burns & Roe. Additional revenue
was provided from fees for testing and customer research and from expense offset
from billing to a company for services which were not in the Registrant's main
product line. The Company anticipates that cash generated from operations in the
form of customer deposits, equipment sales, 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 foreseeable 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.
On December 29, 1998, the Company entered into a short-term loan agreement for
$750,000 with the Connecticut Development Authority (CDA). The note has an
interest rate of 6.55% and is due and payable within one year or the completion
of a public offering, whichever comes first. The collateral for the loan is a
first lien on all the assets of the Company, a personal guarantee of 28% of the
outstanding balance of the loan, at default, if any, by the Company President,
Joseph F. Longo, and the pledge of 100,000 personal shares from a Director and
Sr. Vice President, Leonard V. Knap.
In 1996 and 1997, 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".
7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS: (CONTINUED)
- --------------------------------------------------------------------------------
Liquidity and Financial Resources (Continued)
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 $958,375.
The Company offered, as a continuation of the above Offering, 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 $7.00. For each share purchased, the
Company granted one Warrant exercisable at $12.00 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 April 1, 1997, and terminated on June 30, 1997. The
total shares subscribed were 119,359 at $7.00 per share, for an aggregate amount
of $835,513.
Year 2000 Readiness
Management has made verbal inquiries to its vendors, banks, stockbroker and
Alliance Partners regarding their efforts to avoid any potential Y2K problem as
it would effect Startech. Their unanimous response was that they have or will be
taking the proper steps to avoid any system failure(s) and the implementation of
any safeguards will be fully installed by mid 1999. However, Startech's
management cannot ensure that there will not be any failures in this regard nor
can it guarantee that there will not be an interruption of business and possible
loss of revenue should such failure occur. Management has taken percautionary
measures to avoid any internal problems as a result of this event. Also, the
Startech manufactured systems (PWCs) are not date sensitive and, therefore, will
not have any operational problems as a result of the year 2000.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
- -----------------------------------------------------
Financial statements and supplementary data begin on the following page.
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 principles or practices or financial
statements disclosure and none are contemplated.
8
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Financial Statements
October 31, 1998, 1997 and 1996
9
STARTECH ENVIRONMENTAL CORPORATION
Table of Contents
For The Years Ended October 31, 1998, 1997 and 1996
Independent Auditors' Report...................................... 11
Consolidated Balance Sheets....................................... 12
Consolidated Statements of Operations............................. 13
Consolidated Statements of Changes in Stockholders' Equity........ 14
Consolidated Statements of Cash Flows............................. 15
Notes to the Consolidated Financial Statements.................... 16
10
KOSTIN, RUFFKESS & COMPANY, LLC
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Startech Environmental Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Startech
Environmental Corporation as of October 31, 1998 and 1997, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Startech
Environmental Corporation as of October 31, 1998 and 1997, and the results of
its operations, changes in stockholders' equity and its cash flows for each of
the three years in the period ended October 31, 1998, in conformity with
generally accepted accounting principles.
/S/ KOSTIN, RUFFKESS & COMPANY, LLC
West Hartford, Connecticut
January 28, 1999
11
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Balance Sheets
October 31, 1998 and 1997
1998 1997
Assets ----------- -----------
Current assets:
Cash $ 156,468 $ 988,040
Accounts receivable 892,473 --
Inventory 652,454 100,000
Prepaid expenses -- 65,333
Other current assets 1,366 --
----------- -----------
Total current assets 1,702,761 1,153,373
Equipment, at cost, net of
accumulated depreciation 19,573 --
Other assets 102,114 48,497
----------- -----------
$ 1,824,448 $ 1,201,870
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 692,130 $ 67,168
Note payable - short-term 100,000 100,000
Other accrued expenses 371,644 20,895
----------- -----------
Total current liabilities 1,163,774 188,063
----------- -----------
Stockholders' equity:
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: 6,845,965 at October 31,
1998 and 7,013,552 at October 31, 1997 2,708,524 2,598,606
Additional paid-in capital 300 300
Deficit (2,048,150) (1,585,099)
----------- -----------
Total stockholders' equity 660,674 1,013,800
----------- -----------
$ 1,824,448 $ 1,201,870
=========== ===========
The accompanying notes are an integral part of the financial statements
12
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Operations
For The Years Ended October 31, 1998, 1997 and 1996
Year Ended October 31
-----------------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenues $ 1,088,782 $ 10,000 $ 26,000
Cost of goods sold 446,222 -- --
----------- ----------- -----------
Gross profit 642,560 10,000 26,000
----------- ----------- -----------
Operating expenses:
Selling expense 451,056 225,976 66,211
General and administrative
expenses 665,237 681,879 624,213
----------- ----------- -----------
Total operating expenses 1,116,293 907,855 690,424
----------- ----------- -----------
Loss from operations (473,733) (897,855) (664,424)
----------- ----------- -----------
Other income (expense):
Interest income 23,664 29,497 3,431
Interest expense (9,000) (9,000) (9,000)
----------- ----------- -----------
Total other income (expense) 14,664 20,497 (5,569)
----------- ----------- -----------
Income tax expense 3,982 550 500
----------- ----------- -----------
Net loss $ (463,051) $ (877,908) $ (670,493)
=========== =========== ===========
Net loss per share $ (0.07) $ (0.12) $ (0.12)
=========== =========== ===========
Average common
shares outstanding 6,887,736 6,695,316 482,268
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
13
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 1998, 1997 and 1996
Additional
Common Stock Paid-In
Shares Amount Capital Deficit
---------- ----------- ------------ -----------
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)
Shares issued for cash 820,151 1,843,206 -- --
Stock dividends issued 309,027 -- -- --
Shares issued during the year
for services rendered 39,000 103,844 -- --
Shares issued for the
purchase of inventory 45,000 97,722 -- --
Shares redeemed for
Trican note receivable (50,000) (100,000) -- --
Net loss during the year
ended October 31, 1997 -- -- -- (877,908)
----------- ----------- ----------- -----------
Balance, October 31, 1997 7,013,552 2,598,606 300 (1,585,099)
Shares issued during the year
for services rendered 34,544 109,918 -- --
Shares returned and cancelled
as the result of a lawsuit (202,131) -- -- --
Net loss during the year
ended October 31, 1998 -- -- -- (463,051)
----------- ----------- ----------- -----------
Balance, October 31, 1998 6,845,965 $ 2,708,524 $ 300 $(2,048,150)
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
14
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended October 31, 1998, 1997 and 1996
Year Ended October 31,
----------------------
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (463,051) $ (877,908) $ (670,493)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 109,918 38,844 152,131
Depreciation 1,396 -- --
(Increase) decrease in:
Accounts receivable (892,473) -- --
Prepaid expense 65,333 (333) --
Inventory (552,454) (2,278) --
Other current assets (1,366) 10,851 (9,028)
Other assets (53,617) (48,497) --
Increase (decrease) in:
Accounts payable 624,962 39,763 7,482
Accrued expenses 350,749 (16,367) 35,762
----------- ----------- -----------
Net cash used in operating activities (810,603) (855,925) (484,146)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (20,969) -- --
----------- ----------- -----------
Cash flows from financing activities:
Subscription of common stock -- -- 280,000
Proceeds from common stock sale -- 1,563,206 401,703
----------- ----------- -----------
Net cash provided by financing activities -- 1,563,206 681,703
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (831,572) 707,281 197,557
Cash and cash equivalents, beginning 988,040 280,759 83,202
----------- ----------- -----------
Cash and cash equivalents, ending $ 156,468 $ 988,040 $ 280,759
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
15
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies:
- ----------------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Startech Environmental Corporation
include the accounts of Startech Incorporated, its wholly-owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
Company's Activities
- --------------------
The Company is an environmental technology corporation dedicated to the
development, production and marketing of low cost waste minimization, resource
recovery, and pollution prevention systems that convert waste into valuable
commodities. The Company is no longer considered to be in the development stage
as revenues from shipments and services performed have begun to be recognized in
calendar year 1998.
Basis of Presentation
- ---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., acquired all the issued and outstanding shares of common
stock of Startech Incorporated in exchange for 4,000,000 shares of Kapalua
Acquisitions, Inc.'s common stock. After the acquisition and exchange of stock,
the former shareholders of Startech Incorporated owned 80.5% of the common stock
of Kapalua Acquisitions, Inc. Subsequent to November 17, 1995, Kapalua
Acquisitions, Inc. filed registration statements with the Securities and
Exchange Commission to register certain securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Incorporated. This
acquisition has been accounted for as a pooling-of-interests in the accompanying
financial statements. The fiscal year end for both companies before the
acquisition was October 31, and the financial statements for all periods
presented have been restated to reflect the combination of the two companies.
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, 1998, 1997
and 1996, 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.
16
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. Regarding supplementary
cash flows information, income taxes paid were $3,982 for the year ended October
31, 1998, $550 for 1997 and $-0- for 1996. No interest was paid for the years
ended October 31, 1998, 1997 and 1996.
The Company also had the following noncash stock transactions:
1998
----
Shares Amount
Issued shares for services rendered in 1998 34,544 $ 109,918
Shares returned and cancelled in 1998 ( 202,131) --
1997
----
Shares Amount
Issued shares for services rendered in 1997 39,000 $ 103,844
Issued shares for inventory in 1997 45,000 97,722
Issued shares for which cash was received in 1996 161,000 280,000
Shares redeemed in the collection of a note receivable in 1997 50,000 100,000
Inventory
- ---------
Inventory consists of work in process, and is stated at lower of cost or market.
Cost is determined by the first-in, first-out method.
Equipment
Depreciation of equipment is provided using the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments which extend the useful lives of the equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Other Assets
- ------------
Other assets consist entirely of deferred stock offering costs for 1998.
Startech Environmental Corporation is planning to offer a number of Series A 8%
Cumulative Convertible Redeemable Preferred Stock and a number of Convertible
Preferred Stock during the first half of calendar year 1999 at a price that has
yet to be determined. At October 31, 1997, other assets of $48,497 represents
amounts due from a company owned by two of the stockholders. This amount
represents the amount due for services rendered in connection with a government
contract settlement, and helped the Company defray some of its overhead
expenses.
17
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Income Taxes
- ------------
Income taxes consist of state taxes on capital. The Company has net operating
loss carryforwards of approximately $2,048,000 expiring in various years through
2012.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the year. The Company has 758,276 potential
common shares that were not used in the computation of diluted earnings per
share because they would have been anti-dilutive for each of the three years
ended October 31, 1998, 1997 and 1996. Subsequent to October 31, 1998, the
Company had issued 35,795 additional common shares.
Off Balance Sheet Risk
- ----------------------
The Company had more than $100,000 in a single bank during the year. Amounts
over $100,000 are not insured by the Federal Deposit Insurance Corporation.
However, management does monitor the financial condition of the institution
where these funds are invested.
Note 2 - Property, Plant and Equipment:
- ---------------------------------------
Equipment is summarized by major classifications as follows:
1998 1997
Computer equipment $ 6,248 $ --
Demonstration equipment 14,721 --
------------- ------------
20,969 --
Less: accumulated depreciation 1,396 --
------------- ------------
$ 19,573 $ --
============= ============
Note 3 - Operating Lease:
- -------------------------
The Company leases its office under a lease agreement that expires in September,
1999. The monthly rental payments are $2,109. Rental expense, including real
estate taxes for the years ended October 31, 1998 and 1997, were $24,531 and
$23,644, respectively.
Note 4 - Commitments:
- ---------------------
The Company sells its product 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, U.S.
and foreign, and a limited number of commercial enterprises. As of October 31,
1998, 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 Avon, Connecticut.
18
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 5 - 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 each of the
years ended October 31, 1998, 1997 and 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 from the next public stock offering.
Note 6 - 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 the Company had issued and outstanding as of October 31, 1998, and
the number of common shares reserved for issuance to investors.
Authorized 800,000,000
Issued and outstanding 6,845,965
Reserved for issuance to investors 1,000,000
Reserved warrants 1,000,000
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
were restricted from being sold for a period of two years. There were 309,027
shares issued as a result of the stock dividend.
Warrants
- --------
In conjunction with the August 28, 1996, stock offering, the Company has
unregistered Warrants to purchase 758,276 shares of common stock; 638,917 of the
Warrants are exerciseable at a price of $4 per share and 119,359 of the Warrants
are exerciseable at a price of $12 per share. The Warrants are exerciseable for
a period of two years from the date of issuance. 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.
19
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 7 - 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.
The options must be issued within 10 years from November 20,1995. Determination
of the option price per share and exercise date is at the sole discretion of the
Compensation Committee. During the year ended October 31, 1997, the Company
issued 145,167 stock options with an additional 34,544 stock options being
issued during the year ended October 31, 1998, for services rendered. All
options were immediately exercised for one share of common stock. The exercise
price ranged from $.25 to $10 per share. The aggregate value of these services
is reflected as an increase in common stock. As of October 31, 1998, there were
no stock options outstanding.
Note 8 - Fair Value of Financial Instruments:
- ---------------------------------------------
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value:
Cash and other current assets are carried in the accompanying balance sheet at
cost which is a reasonable estimate of their fair value. Accounts payable, notes
payable and accrued expenses are also carried at cost which is a reasonable
estimate of their fair value.
Carrying Estimated
Amount Fair Value
----------- -----------
ASSETS:
Cash $ 156,468 $ 156,468
Accounts Receivable 892,473 892,473
LIABILITIES:
Accounts payable 692,130 692,130
Note payable 100,000 100,000
Accrued expenses 371,644 371,644
Note 9 - Litigation:
- --------------------
The Company was a defendant in litigation regarding the removal of a restrictive
legend on shares of common stock purchased in 1995 and 1996. The proceedings
have been concluded without any net financial outlay by the Company. As a result
of the successful conclusion of the litigation, 202,131 of the Company's stock
was returned and retired.
20
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 1998, 1997 and 1996
Note 10 - Major Customer:
- -------------------------
Approximately 91 percent of the 1998 revenues were derived from one major
customer.
Note 11 - Subsequent Event:
- ---------------------------
On December 29, 1998, the Company entered into a short-term loan agreement for
$750,000 with the Connecticut Development Authority (CDA). The note bears
interest at 6.55% and is due within one year or the completion of a public
offering, whichever comes first. The note is collateralized by the assets of the
Company. In addition, an officer/shareholder has personally guaranteed up to 28%
of the balance and another officer/shareholder has pledged 100,000 shares of his
common stock of the Company.
21
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 66 President, Treasurer, and Chairman of the Board
of Directors
Leonard V. Knap 67 Vice President, member of the Board of Directors
Kevin M. Black 36 Vice President, Secretary, member of the Board of
Directors
John D. Watts 55 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.
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 Toronto Company of York,
Pennsylvania. Toronto 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 of 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.
22
ITEM 11. EXECUTIVE COMPENSATION:
- -------- -----------------------
(a) Cash Compensation.
The following table sets forth certain salary information concerning Chief
Executive Officer and each of the most highly compensated officers, to the
extent each earned more than $100,000 in salary and bonus.
Salary Compensation Current
Name during FY 98 Salary Position
- --------------------------------------------------------------------------------
Joseph F. Longo $100,000. $100,000. President & Treasurer
The Registrant does not anticipate entering into employment agreements with any
of its officers or directors in the near future.
The above officer and directors receive an automobile allowance that is less
than $200 per month each. Other than consulting fees and finder's fees and/or
commissions that 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 from
the Registrant during the fiscal year ended October 31, 1998 from the
Registrant.
(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.
23
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 29, 1999, 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
of Owner Shares Position Percent of Class
- ----------------- ---------- ---------------------- ----------------
Joseph F. Longo 1,878,898 President, Treasurer 27.3%
444 Thayer Pond Rd. and Director
Wilton, CT 06897
Leonard V. Knap 1,878,898 Vice President 27.3%
140 West 3rd Street and Director
Hamilton, Ontario L9C-3K7
Canada
Kevin M. Black 39,404 Vice President, Secretary 0.6%
11 Autumn Ridge Drive and Director
Wilton, CT 06897
John D. Watts 190,501 Vice President, 2.8%
340 Mirey Dam Rd. and Chief Financial Officer
Middlebury, CT 06762
------
All officers and 57.9%
directors as a
group (4 People)
24
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
- ---------------------------------------------------------
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.
Bauer Howden Inc.
Bauer Howden will be manufacturing Startech systems in the United States 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 United States 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 United
States, and these service people will assist in the installation, maintenance
and training that may be required by Startech customers.
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
permanent 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.
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
- --------------------------------------------------------------------------
(a) (1) Financial Statements
--------------------
The financial statements are listed below and included under Item
8, are filed as part of this report.
Report of Independent Auditors
Consolidated balance sheet at October 31, 1998 and October 31, 1997
Consolidated statement of operations for each of the three years in
the period ended October 31, 1998
Consolidated statement of changes in stockholder's equity for
each of the three years in the period ended October 31,1998
Consolidated statement of cash flows
Notes to the consolidated financial statements
(2) Financial Statement Schedules
-----------------------------
All schedules have been omitted since the required information is
not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the consolidated financial statements and notes
thereto.
26
(3) Exhibits
---------
Exhibit
No. Description Page
--- ----------- ----
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 indentures
-------------------------------------------
None
9. Voting Trust Agreement
----------------------
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).
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
-----------------------------------------
Incorporated by reference to the Registration
Form 8-K filed on January 28, 1997
18. Letter re change in accounting principles
-----------------------------------------
None
27
(3) Exhibits - continued
---------------------
19. Report furnished to security holders
------------------------------------
None
21. Subsidiaries of the registrant
-------------------------------
Startech Corporation, a wholly owned subsidiary
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 Data Schedule
-----------------------
Filed herein
28. Information from reports furnished to state
insurance agencies
-------------------------------------------
None
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
28
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, 1999.
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 29th day of January 1999.
SIGNATURES TITLE DATE
- ---------- ----- ----
/S/ Joseph F. Longo Chairman of the Board of Directors,
- ------------------------ President and Treasurer
Joseph F. Longo January 29, 1999
/S/ Leonard V. Knap Member of the Board of Directors,
- ------------------------ Vice President
Leonard V. Knap January 29, 1999
/S/ Kevin M. Black Member of the Board of Directors,
- ------------------------ Secretary
Kevin M. Black January 29, 1999
/S/ John D. Watts Vice President, Chief Financial
- ------------------------ Officer and Principal Account
John D. Watts Officer January 29, 1999
29