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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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-25312
STARTECH ENVIRONMENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
Colorado 84-1286576
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
15 Old Danbury Road, Suite 203
Wilton, Connecticut 06897-2525
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(Address of principal executive offices) (Zip Code)
(203) 762-2499
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of January 22, 2003 10,376,479 shares of no par value common stock were
outstanding. The aggregate market value of shares held by non-affiliates as of
January 22, 2003 was $9,805,422 based on the closing price of the common stock
on that date.
Documents incorporated by reference and the Part of the Form 10-K into which the
document is incorporated are as follows: Items 10,11,12, and 13 of Part III of
this report are incorporated by reference to Registrant's definitive proxy
statement for its 2003 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission on or before February 28, 2003.
PART I
Cautionary Note Regarding Forward Looking Statements
This Annual Report on Form 10K contains forward looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports, and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies can be identified as
forward-looking statements. As a result, there can be no assurance that the
Company's future results will not be materially different from those described
herein as "believed," "anticipated," "estimated" or "expected," which reflect
the current views of the Company with respect to future events. We caution
readers that these forward-looking statements speak only as of the date hereof.
The Company hereby expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such statements to reflect any change
in the Company's expectations or any change in events, conditions or
circumstances on which such statement is based.
ITEM 1 - BUSINESS:
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The Company's activities during the four fiscal years, November 1, 1992 to
October 31, 1995, when it was known as Kapalua Acquisitions, Inc., consisted
primarily of investigating possible business opportunities. On November 17,
1995, the Company completed the acquisition of all of the issued and outstanding
shares of the common stock of Startech Corporation, a Connecticut corporation,
and then changed its name to Startech Environmental Corp. Startech designs
machinery to recover, recycle, reduce and remediate hazardous and nonhazardous
waste materials.
On November 18, 1995, the Board of Directors of the Company unanimously approved
a change of business purpose of the Company from one seeking an acquisition
candidate to one engaged in the business of manufacturing equipment to recover,
recycle, reduce and remediate hazardous and nonhazardous waste materials. From
that time to the date of this filing, the Company has maintained only this
focus.
Background
We are a manufacturing solutions company that manufactures, markets and sells a
recycling system called the Plasma Converter for the global marketplace. Until
January 2002 we were solely engaged in the manufacture and sale of equipment for
use by others. Thereafter, we have attempted to broaden the scope of our
available revenue opportunities. This change was brought about by management's
decision to expand its market penetration strategies and opportunities. Rather
than only market and sell our products for use by others we are now seeking
opportunities to become directly involved in the operation and use of our
products. We believe there is no entity that knows more about the utility and
capability of our products than we do. We reconsidered our stated philosophy of
not engaging in the processing of feedstock materials and/or waste and decided
that it was timely to seek out and include all possible market penetration
strategies, including build own operate, build own transfer of ownership, and
joint development projects.
By concentrating on re-positioning our company for long-term growth, we have not
achieved the sales goals we had anticipated would occur in the 2002 fiscal year.
The situation has been further exacerbated by the general economic climate
throughout the world. We believe this new way of approaching the market will
help achieve maximum penetration in the shortest timeframe.
Significant events are driving demand for our Plasma Converter. They include:
o Increases in waste, and in particular hazardous wastes, due to rising
consumer/industrial consumption and population growth in most nations.
o Current waste disposal and remediation techniques such as landfills
and incineration becoming regulatory, socially and environmentally
unacceptable.
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o A need for critical resources such as power and water to sustain local
economies.
o The emphasis being placed upon the production of distributed power and
the need to provide alternatives to fossil fuels.
Our core Plasma technology addresses these waste and resource issues by offering
remediation solutions that are integrated with a range of equipment solutions
and services. These products add value to our customers' business so they can
now realize revenue streams from disposal or processing fees, a reduction in
material disposal costs, as well as from the sale of resulting commodity
products and services. Alternatively, this will allow them to generate the
product they need while at the same time using a zero cost basis, or revenue
generating source of raw material (waste). The costs of hazardous waste
treatment and disposal methods continue to rise, and now range from
approximately $900 to more than $2,000 per ton. This does not include the
additional processing, handling, packaging, insurance and management costs
sustained by the hazardous waste generator within its facility prior to final
disposal.
Since 1995 we have been actively educating and promoting to our customers the
benefits of plasma over other forms of waste remediation technologies. Ongoing
education of the public and government is continuing. Like most new technologies
we have been met with varying degrees of resistance. In 2001, recognizing the
increasing importance of alternative energy and power sources in general, and
hydrogen in particular, we expanded our product line to include StarCell(TM), a
hydrogen separation technology. Working in conjunction with our core product,
the Plasma Converter(TM), StarCell provides a green and renewable source of
hydrogen. A rising comfort level with plasma based technologies resulting in
part from our educational and informational efforts has created a much more
receptive marketplace. We have taken steps to transform our business model from
being solely a seller of equipment to a total solutions provider, including
facility ownership or management.
Our business model and its market development strategies arise from our mission,
which is to change the way the world views and employs discarded materials; what
many would now call waste. We expect to achieve this objective by strategically
marketing a series of products and services emanating from the core Plasma
Converter (TM) technology, resulting in saleable fossil fuel alternatives while
providing a safer and healthier environment. This strategy will be implemented
through build own operate/build own transfer of ownership facilities, joint
development projects, engineering services and Plasma Converter sales with after
sales support and service.
Markets
We view the future of our business as divided into three key market segments;
power/energy, waste remediation, and engineering services. Projects are
generally categorized according to the specific or stated objective of the
customer, waste remediation or power generation. A customer may have a need to
remediate a particularly onerous waste such as PCB's but has no need to produce
commodity products. The goal is to simply get rid of waste. That would be
considered a waste remediation project. Conversely, a customer in an area with
limited or high cost power may want to select a waste stream to give the
greatest amount of Plasma Converted Gas (TM) with which to produce power to run
his system or for other power uses. The production of power is the desired
benefit and the feedstock (waste material) selected is chosen for the highest
quality commodity product produced, in this case electric power.
Power/Energy
This segment includes projects that incorporate equipment that create
power/energy products to work in conjunction with our core plasma technology. We
have established a strategic alliance with Hydro-Chem, a division of Linde,
located in Canton, Georgia to promote the production of hydrogen and methanol
created by using our Plasma Converter. Hydro-Chem is a leading U.S. based
manufacturer of methanol plants and will be scaling its units to match the
Plasma Converted Gas output of our Plasma Converters. Similar alliances in this
segment will be pursued with other significant power/energy equipment and/or
generation companies.
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Waste Remediation
This part of our business includes projects where the emphasis of the customer
is to dispose of its waste material in an environmentally responsible, and cost
effective, manner. Waste material disposal costs vary greatly depending on the
composition of the waste. We will be specifically targeting customers that will
receive the most economic gain form using our technology. Examples of such waste
streams are:
o Medical waste
o Pharmaceutical waste
o PCBs
o Incinerator ash
o Biological contaminants
o Sewer and power-plant-scrubber sludge
o Paints and solvents
o Electronic industry waste
o Contaminated soils
o Asbestos and other hazardous waste streams
We further delineate these markets into the following categories:
o Onsite Treatment
- Hospitals and medical centers
- Industrial hazardous waste generators such as petrochemical,
chemical, refining, and metals companies.
- Government agencies such as Department of Defense, Department of
Energy.
o Offsite Treatment (at an integrated waste management facility) - Waste
management and/or transport companies
o Mobile Treatment - All of the above who value the ability to move
quickly from site to site
We believe that the primary factors that will create demand for our Plasma
Converters include the need for customers to:
o Reduce the costs for hazardous and toxic waste disposal;
o Eliminate personal and organizational liability associated with
hazardous and toxic waste disposal;
o Comply with present and anticipated environmental regulations in a
cost-effective manner;
o Recover products for use or sale; and
o Destroy wastes completely, safely and irreversibly.
We believe our Plasma Converter will meet customers' needs because our system:
o Reduces the cost and risk associated with hazardous waste generation
and disposal;
o Performs safer than prevailing environmental standards;
o Converts wastes into products for use or for sale;
o Destroys wastes safely and irreversibly; and
o Comes in small and large system capacities, in stationary and mobile
configurations.
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Engineering Services
This segment relates to a wide range of bundled and unbundled services that we
can provide for our customers including material testing, waste analysis,
environmental processing solutions, pro-forma test analysis, and application
engineering services. We expect to grow the contract testing and services areas
of our business as demand for testing and analysis of specialized waste streams
from customers' increases.
Sales Strategy
Central to our growth strategy is maximizing market penetration and reducing the
barriers of entry while optimizing our revenue sources. To achieve that
objective, we have identified four key marketing strategies that make up the
overall model. They are:
1. Build Own Operate/Transfer Of Ownership Projects: We are actively
seeking to develop opportunities to own and operate Plasma Converter
facilities in various markets. These projects are attractive where
long-term agreements with guaranteed waste streams and high value
processing and or disposal fees are contracted for and significantly
increase ongoing revenue streams. The revenue generated by these types
of projects has been shown to be up to ten times that realized from a
straight equipment sale over the life of the project.
2. Joint-Development Projects: In a joint development project we will
assume an equity position in return for a reduced purchase price on
our equipment and associated engineering and management services. An
additional advantage is that we receive the certainty of revenue from
a direct sale along with the ability to realize future ongoing revenue
from the operations of the sole source joint development company.
3. Equipment Sales: We will continue to be a direct seller of our
products to customers who prefer to purchase and operate our
equipment. We will sell our Plasma Converter and associated equipment
to a customer with no equity position in the project. However, we will
offer Long Term Service Agreements to create residual or ongoing
revenue in this area.
4. Engineering Services: This area will include testing and application
engineering services for outside companies other than Plasma Converter
customers, as well as material testing, waste analysis, and
environmental processing solutions for Plasma Converter system
customers.
Key to our development of world markets is our sales network. We sell systems
through independent representatives and distributors, which helps to keep sales
costs variable and low. Representatives are paid a commission on sales.
Distributors purchase systems, mark them up, and re-sell them to customers.
Distributors are also responsible for supplying after sales parts and service.
Our senior management also sells directly customers, in addition to seeking out
projects for build, own, operate and build, own, transfer of ownership
facilities. Such customers and projects might include large corporations with
activities in many states or countries, or sovereign governments where the
complexity of the bidding process on projects requires a large degree of company
time and attention.
We manufacture modular, skid-mounted systems that are easy to transport in
standard tri-modal containers for shipment to any market in the world. An
exception to this arrangement is where we would be shipping systems for a wholly
owned build own operate project or build own transfer of ownership project.
The Company requires down payments and progress payments to be scheduled (for
direct sales and co-venture projects) so that cash flow in the manufacturing
process will be positive. Startech will obtain project financing against
guaranteed waste streams/ tipping fees for BOO projects to fund manufacturing,
shipping, and installation costs before facility startup. As well, the Company
will incorporate performance insurance for BOO projects to guarantee performance
on the specific waste stream to be processed as well as the obtaining of
necessary local permits to begin operation.
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Primary Customer
For the fiscal year ended October 31, 2002, 85% of our revenue was derived from
Eico Systems Corporation, while all of our revenue for the fiscal year ended
October 31, 2001 was derived from the same customer.
Plasma Converter(TM) Development and Technology
We believe that the primary factors that will create demand for our Plasma
Converters include the need for customers to:
o Reduce the costs for hazardous and toxic waste disposal;
o Eliminate personal and organizational liability associated with
hazardous and toxic waste disposal;
o Comply with present and anticipated environmental regulations in a
cost-effective manner;
o Recover products for use or sale; and
o Destroy wastes completely, safely and irreversibly.
We believe our Plasma Converter will meet customers' needs because our system:
o Reduces the cost and risk associated with hazardous waste generation
and disposal;
o Performs safer than prevailing environmental standards;
o Converts wastes into products for use or for sale;
o Destroys wastes safely and irreversibly; and
o Comes in small and large system capacities, in stationary and mobile
configurations.
A device generally referred to as a plasma torch, although there is no fire
involved in the device, produces the Plasma lightening-like arc in the Plasma
Converter vessel to produce a plume of radiant energy. The Plasma Converter
therefore is an electrically driven system that produces this intense field of
radiant energy within the Plasma vessel that causes the dissociation of the
molecular bonds of solid, liquid, and gaseous compounds or materials of both
hazardous and non-hazardous wastes. We refer to this destruction process as
"molecular dissociation."
Dissociation causes the molecules of the waste material to be separated into
their elemental components (atoms), and reformed by the Startech System into
special recoverable, commodity products. The process is not combustion or
burning process, and the system should not be confused with an incinerator or a
vitrification process. It is the intense energy field produced by the plasma
plume within the Plasma Converter vessel that drives the dissociation process.
The Plasma Converter vessel operates at normal atmospheric pressure quietly and
safely. While the interior temperature of the plume is about 30,000 degrees
Fahrenheit, the temperature of the refractory walls inside the vessel is
maintained at about 3,000 degrees Fahrenheit and is the lowest temperature
experienced within the vessel. On the average most waste material will be
dissociated or melted at temperatures exceeding 6,000 degrees Fahrenheit.
The Plasma Converter consists of many well-proven process components currently
used in the metallurgical and chemical industries. Solid wastes being fed to our
system are automatically fed to the system through an air-locked infeed port,
and the feeding is ordinarily on a continuous basis. Liquids, gases and sludges
can also be fed or pumped directly into the vessel through a pipe port. Bulk
solids, liquids, gases and sludge may be fed in and processed simultaneously.
The Plasma Converted Gas (PCG)(TM) synthesis gas recovered from our system,
after dissociation, is drawn out of the top of the vessel and put through our
gas-polishing unit. The molten silicates, inorganics and metals, if any, are
removed at the lower side of the Plasma Converter vessel through a melt
discharge port and recovery procedure.
Recovered products can be used or sold as commodities for use in various
manufacturing processes. It is expected that most of the Plasma Converted Gas
will be used as a fuel gas and to a lesser degree, as a chemical feed stock;
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silicate materials recovered will be used in the ceramics, abrasives or the
construction industries; the metallic components can be used or be readily
available for sale with little or no additional processing. There is a newly
developing interest in PCG(TM) to produce hydrogen by use of our patented
StarCell(TM) system. The economic justification for the use of our systems in
hazardous waste applications does not depend on any revenues from the use or
sale of the recovered commodity products, but the emergence of StarCell Hydrogen
may modify that attitude.
Recovered Commodity Products
The Plasma Converter processes the wastes (matter) in such a way that the
elemental components of the feedstock can be recovered in from one to three
distinct phases:
(1) synthesis gas (PCG(TM), Plasma Converted Gas) that exits the chamber;
(2) inorganic, glass-like (obsidian-like) silicates which form a separate
layer above the liquid metal (if there is a sufficient quantity of
metal in the feed stock, with small quantities of metal encapsulated
in the silicate stone); and
(3) liquid metallic elements, if in sufficient quantities, which collect
and are automatically discharged at the base of the vessel.
Depending on the composition of the feedstock, any one phase may be produced,
any two phases may be produced, or all three may be produced. However, the
Company's experience indicates that the most likely commodity-product
recover-phase will be in two parts:
(1) the PCG(TM) GAS-PHASE; and
(2) the SOLID-PHASE in which the inorganic silicate, containing metals,
will be produced.
Energy Produced and Volume Reduced
Carbon is abundantly present in the products and the wastes of the industrial
world. Such materials are inherently rich in latent chemical energy such as one
would find in fuel. When carbonaceous waste feedstocks of many industrial
wastes, infectious hospital waste, municipal solid waste, shipboard waste, and
such are processed, the Startech system will consume 1 unit of electrical energy
while producing about 4 units of energy residing in the PCG(TM). With the
improved efficiencies of electrical generating units, the 4 units of energy
residing in the PCG(TM) can be used to create 2 units of electrical energy.
Materials such as scrap tires, for example, will produce recovered commodity
products in two phases: the PCG(TM) gas phase and the metal phase, if metal
exists. Because materials such as plastics, solvents, and tires are so rich in
energy, they will produce a relatively large amount of PCG(TM) with a
high-energy content that will result in approximately 6-8 units of recovered
PCG(TM) energy for each unit of electrical energy used in the process.
In some applications, the Converter will produce enough energy for its own
needs, and produce a surplus that can be sold to the local electrical grid, or
used in the customer's facility to reduce the need for purchased power or
purchased fuel. Not all wastes produce PCG(TM). For example, processing
contaminated soil will produce no appreciable amount of PCG(TM).
The volume reduction of these solid wastes, when processed in the Plasma
Converter, is approximately 300 to 1. Waste streams composed primarily of
hazardous or non-hazardous paper, cloth, plastic, food, pharmaceutical,
explosives, paints, solvents, PCBs, confiscated drugs, filters, oils, and so on
will result in so few solids as to produce volume reductions approaching
infinity. Materials such as this are also very rich in elements such as carbon,
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oxygen, and hydrogen and the processing results almost entirely in the PCG(TM)
commodity synthesis gas. In addition to the volume reduction, none of the
remaining materials, if any, are hazardous in nature.
Waste feedstocks that have a relatively high metal content will produce a
separate liquid metal phase that can be recovered directly from the system for
resale or reuse in the metallurgical industry.
Our system may also achieve volume reductions on low-level radioactive surrogate
waste of approximately 300 to 1. Other present methods of volume reduction
include compaction and incineration that produce overall volume reductions of
about 8 to 1. Our system will not reduce the radioactivity of the low-level
radioactive waste nor do we believe that can be done by any other system, but
the volume of that waste may be significantly reduced. Industries that may
benefit from this process are utilities, research laboratories and hospitals
that store the reduced low-level radioactive waste material on-site until it can
be shipped off site to a special repository. The cost for that method can be
many thousands of dollars per ton. The continued availability of the few
repository sites that exist, are problematic and uncertain. We believe our
system can increase a site's storage capacity.
What is Plasma?
Plasma is simply a gas (air) that the Plasma Converter ionizes so it becomes an
effective electrical conductor and produces a lightning-like arc of electricity
that is the source of the intense energy transferred to the waste material as
radiant energy. The arc in the plasma plume within the vessel can be as high as
30,000 degrees Fahrenheit ... three times hotter than the surface of the Sun.
When waste materials are subjected to the intensity of the energy transfer
within the vessel, the excitation of the wastes' molecular bonds is so great
that the waste materials' molecules break apart into their elemental components
(atoms). It is the absorption of this energy by the waste material that forces
the waste destruction and elemental dissociation.
How The System Works
The basic Plasma Converter system consists of the following:
In-feed System
Plasma Vessel
Gas Polisher
Computer Control Station
Power Supply
Figure 1. Process Overview of PCS
(GRAPIC OMITTED)
Feed System
The feed mechanism can simultaneously accommodate any proportion or combination
of solid, liquid and gaseous feedstocks. Solid wastes, depending upon their
composition, can be pumped, screw fed, or ram fed into the plasma vessel. A
shredder ahead of the feed system may be appropriate to achieve size reduction
or object separation prior to direct system feed.
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Liquid wastes, including sludges, can be pumped directly into the PCS through
the wall of the plasma vessel through a special infeed nozzle. The liquid feed
system is designed to also accommodate any entrained solids that may be present.
Similarly, gaseous feedstocks may also be introduced into the plasma vessel
through a specially designed nozzle.
Plasma Vessel
The plasma vessel is a cylindrical two-part container made of stainless steel
with an opening in the roof through which the plasma torch is inserted. The
vessel is lined with insulation and refractory to allow both maximum retention
of internal energy and to protect the stainless steel container from the intense
heat inside the vessel. The plasma vessel is equipped with inspection ports
(including a video camera so the operator can see real time images inside the
vessel to assist in PCS operation), openings for introduction of feedstocks, and
an exit port for removal of excess molten material. The smaller vessels are
designed to remove molten material periodically through an automated tipping
mechanism during which time the vessel may or may not remain in continuous
operation. A design enhancement incorporated into the most recently constructed
system is a continuous melt extraction feature which maintains the level of
molten material in the plasma vessel at or below a preset limit without
interrupting the operation of the system. This melt extraction system can be
deployed with all sizes of Plasma Converters.
The plasma vessel is specially designed to ensure that no feedstock material is
able to reach the exit port without first passing through the plasma energy
field and undergoing complete molecular dissociation. The method by which this
is accomplished forms a part of Startech's intellectual property. In addition,
the plasma vessel is maintained at a slight negative pressure to ensure that no
gases can escape to atmosphere.
The plasma torch system is a commercially available product that Startech can
purchase from any number of reputable vendors. Comparable plasma systems have
been used extensively in the metallurgical industry for decades. The most
maintenance-intensive aspect of the PCS is the need to periodically replace
electrodes, which occurs approximately every 300 to 500 hours of operation.
Electrode replacement can be accomplished in approximately 30 minutes thus
ensuring minimum downtime of the PCS.
The PCS is also equipped with a torch positioner system that allows the operator
to aim the torch at different points within the plasma vessel. This aspect of
the PCS allows the operator to quickly and efficiently treat feedstocks as they
enter the vessel and move around inside the vessel to avoid any build-up of
solidified melt that may occur on the vessel walls.
Gas Treatment System
The gas treatment system is comprised of six stages:
o High temperature cyclone separator to remove particulates
o Quench stage (with heat recovery, if desired)
o Cartridge dust collector to remove particulates
o Selective catalytic reduction to remove NOx
o Packed column scrubber to remove acids and volatized metals
o Final polishing
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High Temperature Cyclone Separator
The initial step of the gas treating process is a pre-quench in which the PCG is
cooled from approximately 1000(degree)C down to 650(degree)C by direct water
injection with a conventional spray dryer arrangement. The PCG port then flows
through a refractory lined pipe into a conventional, insulated cyclone
fabricated with high temperature alloy and designed to operate at high
temperatures. The purpose of the cyclone is to remove particulate matter, which
is then collected and batch-fed back into the plasma vessel.
Quench
PCG then flows to a spray dryer designed to rapidly reduce the gas temperature
from approximately 650(degree)C down to 120(degree)C. The importance of this
temperature reduction is to ensure that dioxins and furans, troublesome
by-products of incineration, do not form. In order for dioxins and furans to
form, the gas would need to remain in a specific temperature zone (e.g.,
190(degree)C to 330(degree)C) for some period of time - conditions which are
precluded by the quench.
Cartridge Dust Collector
PCG then flows to a commercial pulsejet cartridge dust collector with
high-temperature cartridges and heating elements to prevent condensation. This
unit is capable of automatically "blowing back" collected solids that are
collected and batch-fed back into the plasma vessel.
Selective Catalytic Reduction (SCR)
Upon exiting the dust collector, the PCG is reheated to approximately
310(degree)C for selective catalytic reduction of NOx in a standard unit
designed for this application where hydrogen present in the PCG reacts with NOx
to form atmospheric nitrogen and water. During periods where there is no
hydrogen in the PCG (e.g. during start-up, with processing materials that do not
contain carbon), urea is added to reduce the NOx.
Packed Column Scrubber
Upon exiting the SCR, PCG undergoes a final quench with direct water injection
to reduce the temperature below 50(degree)C. This prepares the PCG for acid gas
removal, which is accomplished in a standard horizontal packed column scrubber.
Other inorganic species dissolve into the scrubbing liquid as common ions
including chloride, fluoride, sulphate, phosphate, sodium and calcium. To manage
the build-up of salts, the scrubbing solution is removed and replenished with
fresh water. The wastewater typically requires no further treatment prior to
discharge to sewer, except in the event there is a high concentration of heavy
metals entering the system as feedstock. Approximately 75% of metals go into the
melt with the remainder being volatilized and entrained in the PCG where they
are captured in the scrubber and carbon filter. The wastewater also contains
particulates below one micron.
Final Polishing
Final polishing of the PCG is then accomplished by passing the gas through a
mesh mist eliminator, a standard HEPA filter and granular activated carbon
filter.
Finally, a standard variable speed fan at the exit of the gas treatment train
pulls PCG through the entire system and maintains a constant, slight negative
pressure within the plasma vessel.
The system has been designed so that it is comfortable, intuitive, and easy to
use. The skill level of the operator need not be any higher than one having a
reasonable technical aptitude.
Our Plasma Converter that is being used for our demonstration and training unit
in our Bristol, Connecticut facility continues to be a very active marketing
tool in showcasing our technology to potential customers, investors, and
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governmental agencies. We have been proactive in utilizing this facility for
training such as Eico Systems Corp. and also running some surrogate testing for
specific customers. We expect testing activity to increase in 2002 as more and
more companies and governmental agencies look to validate our technology for
their specific applications.
StarCell(TM) development and technology
On March 7, 2001, we announced the unveiling of our StarCell(TM) system.
StarCell is the Company's patented hydrogen selective membrane device that
separates hydrogen from Plasma Converted Gas (PCG(TM)). PCG(TM) is a
synthesis-fuel gas mixture produced from processing material through the Plasma
Converter. The increasing importance of the need for alternative energy sources
and the emergence of the "Hydrogen Economy" drove our development of StarCell.
There are essentially two principal uses of energy:
o first, stationary energy for electrical power generation and heating;
o second, mobile energy such as that used for transportation propulsion
systems ... the energy you can put in a fuel tank and take with you.
Any discussion on energy-related issues, such as air pollution, dependable
energy supplies, and global climate change, further illuminates the need for
alternative fuels. Hydrogen offers very large benefits by eliminating polluting
emissions and greenhouse gases, and, with the Plasma Converter-StarCell
technology, hydrogen can become a more readily and cheaply available alternate
primary energy fuel. Hydrogen, like electricity, is a premium-quality energy
carrier. It can be used with high efficiency, and with zero tailpipe and zero
stack emissions.
Besides producing the Plasma Converter, we are also developing equipment that
can recover hydrogen from a variety of feedstocks including coal and the wastes
of the world. This capability will help make it possible to have a large-scale
dependable energy system with essentially no pollutants and with no
climate-changing gases.
Hydrogen is clearly recognized as a very real alternative to our
always-depleting reservoir of fossil fuel. But more than that, hydrogen is the
pristine fuel. When used as a fuel, it produces only water vapor (fresh water)
as the by-product. Although energy production is not our main objective, the
ability to separate this highly sought after gas from an already valuable
synthesis gas will be another step forward in our mission to achieve broad
market acceptance of our primary product, the Plasma Converter.
StarCell is not a fuel cell; it is a ceramic membrane filtration system that
extracts hydrogen from PCG(TM). Because hydrogen is such a small molecule,
smaller than all the others in the PCG(TM) gas mixture, it can be pushed through
the filtering membrane to allow the hydrogen to be separated from the PCG(TM).
PCG(TM) is produced from wastes; it is a gas mixture containing a large quantity
of hydrogen. Hydrogen is a valuable commodity with many commercial uses. It also
is a pristine fuel that produces no carbon by-products. Pound-for-pound,
hydrogen contains more energy punch than all the other fuels; and, when used in
fuel cells or engines produces only clean water vapor.
StarCell Hydrogen can feed fuel cells and hydrogen engines. StarCell Hydrogen is
a fuel that can produce clean electricity and clean propulsion systems. The
combination of the Plasma Converter with StarCell can produce hydrogen on a
large scale from the wastes of the world, and at a very low cost. Our customers
who use a Plasma Converter with a StarCell will get paid for processing the
incoming waste at the front end, and will be paid for the hydrogen at the back
end. People sometimes forget that waste, even hazardous waste, is an
ever-present, and much overlooked, valuable and renewable resource.
Hydrogen is a very valuable commercial gas that is produced by various
thermo-chemical industrial methods. Hydrogen gas is used in many industrial
processes to make products that we use every day. These products include cooking
oils, peanut butter, soap, insulation, metals, drugs, vitamins, adhesives,
11
cosmetics, ammonia, fuels, plastics and so on. Hydrogen is also used extensively
to propel spacecraft because it is very light and has a very high energy
content. Hydrogen is used as a fuel to produce pollution-free electricity in
fuel cells.
The paradox is, that while hydrogen is the most abundant material in the
universe, it is not readily accessible. Expensive and sophisticated
chemical-industry processes must extract it. Nearly all of the hydrogen produced
today is made from fossil fuels. These fuels consist primarily of molecules made
up of carbon and hydrogen. To produce hydrogen from these fossil fuel molecules,
they must be "reformed" with steam and/or oxygen in a complex thermo-chemical
process consisting of many steps. The products of reformation are hydrogen gas
and carbon-gas species. The traditional industrial process further purifies and
separates the hydrogen from the rest of the stream by various methods. This
expensive reformation process is exactly what our Plasma Converter does in the
process of destroying most feedstock. In other words, we get the reformation
process from the Plasma Converter for no additional costs.
Competition
We believe the following technologies may be the potential competition to
plasma-based technology:
We believe we are the industry leader in the use of plasma technology to rid the
world of its waste problem and/or create valuable alternative power sources and
industrial products. There are other plasma-based technologies in various stages
of development that claim to achieve some, but not all, of the benefits achieved
by our system. However, the fact that the commercial use of plasma for waste
destruction resulting in power and product creation is in its early stages makes
competitive comparisons difficult. We welcome the presence of other plasma
technologies. The market for plasma is huge and the existence of competing
technologies provides credibility to the industry. We are the only plasma
company whose shares are traded on a recognized stock exchange.
We believe we are positioned to take advantage of the recognition of plasma
technology as an alternative to conventional forms of waste disposal. We have
spent substantial money, time and effort educating the public and private
sectors on the benefits of our technology and believe we will reap the rewards
of that effort.
We believe the following are a few of our competitive advantages:
o Low total system cost that allows our customers to make money with our
system
o Operating performance far safer than prevailing environmental
standards
o The ability to process solids, liquids, and gases simultaneously
o Versatile feed systems and vessel openings that allow a wide variety
of feed streams
o Advanced stage of power producing peripheral equipment
o Unmatched advanced design and operating performance of our complete
system
o Management's experience with plasma and its commercial application
o Depth and breath of manufacturing knowledge and experience
o Greater access to capital markets as a public company over private
companies and
o Fully trained distributors and representatives
o Multiple modes of operations
12
We believe the following are our competitive disadvantages;
o Our cash position relative to other multi-national companies who may
enter this field as it grows
o Resistance to new technologies when dealing with the public health and
safety
We believe many potentially competitive technologies are limited to a narrow
number of waste feed-streams. In some of those technologies, if the system does
not receive exactly what it expects, even something as benign as water or
metals, the process may be ineffective and possibly dangerous. In the waste
industry, it is difficult to specify the exact composition of a waste stream in
a real world application. By their very nature, waste streams are sometimes made
up of unknown and unpredictable materials. For any processing system to be
commercially successful it must be able to safely and effectively process
unpredictable waste streams without system upsets. Our Converter can handle
great deviations in the waste stream content. We believe many of the potentially
competitive technologies have yet to demonstrate capabilities beyond small
laboratory or bench scale devices that use precisely controlled waste streams
under precisely controlled conditions. They may also produce undesirable and
hazardous by-products.
We believe the following companies are our most serious competitors in the
plasma industry:
Integrated Environmental Technologies (IET); and
MSE Technology Applications, Inc.
IET offers a very different system from our technology. IET uses a carbon rod
plasma arc system whereas we use a plasma torch based system. MSE, like
Startech, is a plasma torch based system.
There are difficulties present in comparing technologies in our industry that
are not present in established industries. The commercial nature of any
plasma-based system is based upon the performance data received and the
versatility of the material feedstock that can be processed. Further, in
addition to the performance data and versatility of feedstock, the commercial
uses for the system can be greatly enhanced by the number of peripheral devices
that can be added to the system to make use of the saleable gas, silicate and
metals that the system produces to create a total solution. Because this
industry is just beginning to develop, there is very little empirical evidence
in the public domain regarding the performance data of each competing
technology. Therefore, performance comparisons are not available. However, some
of our competitive advantages are not data related, but are the direct result of
the versatility in the feedstock variations we can accommodate and in the
advanced level of our system design. Additionally, we know of no competitor who
is offering the variety of uses for the gas and silicates that Startech can
offer.
Besides those companies mentioned specifically, there are a number of other
companies that advertise a capability using plasma technology. We have no way of
knowing the status of these companies or if they are even ongoing concerns with
demons ratable systems. Since many of them are small, private companies it is
very difficult to know what, if any, capabilities are ready for the commercial
market. We are not aware of any competitive company that has a commercial site
up and operating other than those we have named above.
In addition, we believe that other waste disposal methods may be considered as
competition. These methods are summarized as follows:
- - landfill dumping: the least expensive in the short term and one of the most
environmentally dangerous of all waste disposal methods.
- - incineration: even though the permitting of new incinerator installations is
being dramatically reduced, and the method has fallen into great disfavor both
in the U.S. and internationally, this rather primitive method of disposal is
still presently accepted by many although the emissions produced are regarded as
pollutants, and large quantities of toxic bottom ash and fly ash are produced
which are eventually deposited into landfills in the community.
13
Intellectual property
We have developed and acquired proprietary technology. Our technologies are
comprised of a variety of overall coordinated system and subsystem concepts,
detailed mechanical engineering calculations, detailed engineering design
features, data compilations and analyses, complex chemical engineering
calculations, business methods and market information. Since our formation, a
substantial amount of intellectual property has been developed.
On or about June 4, 2002 we submitted an application for a patent to the United
States Patent and Trademark Office. The patent involves a torch positioning
apparatus designed and developed by our engineers. This is the only patent we
have applied for to date. We have designed and developed other proprietary
intellectual property that will be protected as trade secrets. We may, in the
future, file foreign applications for these patents. We plan to continue our
development and protection of our intellectual property. We have not authorized
or licensed the use of our proprietary information to any third parties and have
no plans to do so. We retain the exclusive worldwide rights for development and
commercialization of our technologies.
We are the licensee on one patent. The inventions and related know how could
enhance the commercial capability of our core plasma system for certain
applications. The patent relates to a Hydrogen-Selective Ceramic Membrane that
was developed by Media and Process Technology, Inc., and its predecessor, ALCOA
Corporation. This technology provides for the high temperature dehydrogenation
of our Plasma Converted Gas and forms the basis for our StarCell system.
Our success depends, in part, on our ability to maintain trade secrecy for our
proprietary information that is not patented, obtain patents for new inventions
and operate without infringing on the proprietary rights of third parties. There
can be no assurance that the patents of others will not have an adverse effect
on our ability to conduct business or that we will develop additional
proprietary technology which is patentable or that any patents issued to us will
provide competitive advantages or will not be challenged by third parties. We
also protect our trade secrets and proprietary know-how and technology by
non-disclosure agreements and non-compete agreements with our collaborators,
employees and consultants. However, there can be no assurance that these
agreements will not be breached, that we would have adequate remedies for any
breach, and that our trade secrets and proprietary know-how will not otherwise
become known or be independently discovered by others.
Government regulation
Our customers are required to comply with a number of federal, state and local
laws and regulations in the areas of safety, health and environmental controls,
including without limitation, the Resource Conservation and Recovery Act, as
amended and the Occupational Safety and Health Act of 1970, which may require
us, our prospective working partners or its customers to obtain permits or
approvals to utilize the Plasma Waste Converter and related equipment on job
sites. In addition, because we are marketing the Plasma Waste Converter
internationally and expect those sales to represent a significant portion of our
revenues, our customers will be required to comply with laws and regulations
and, when applicable, obtain permits or approvals in those other countries.
There is no assurance that these required permits and approvals would be
obtained. Furthermore, particularly in the environmental remediation market, we
may be required to conduct performance and operating studies to assure
government agencies that the Plasma Waste Converter and its by-products do not
prove to be environmental risks. There is no assurance that these studies, if
successful, will not be more costly or time-consuming than anticipated. Further,
if new environmental legislation or regulations are enacted or existing
legislation or regulations are amended or are interpreted or enforced
differently, our prospective working partners and/or its customers may be
required to meet stricter standards of operation and/or obtain additional
operating permits or approvals. There can be no assurance that our system's
performance will satisfy all of the applicable regulatory requirements.
14
Environmental matters
Our customers operations are subject to numerous federal, state and local
regulations relating to the storage, handling and transportation of regulated
materials. Although our role is generally limited to the sale or leasing of its
specialized technical equipment for use by our customers, there is always the
risk that equipment failures could result in significant claims against us. Any
claims against us could materially adversely affect our business, financial
condition and results of operations as well as the price of our common stock.
Manufacturing operations
Our products and systems are presently being manufactured by third party vendors
who build specific component parts to our specifications. Some of the
manufacturing components are constructed at our 30,000 square foot manufacturing
facility located in Bristol, CT. We also assemble, ship and test our systems
there.
Research and development
While the principal research and development to produce commercial Plasma
Converters has been completed, we will continue to perform research and
development activities with respect to product improvement and new product
development, utilizing internal technical staff as well as independent
consultants. These activities have to date been entirely paid for and sponsored
by the company. No further research and development is required for Plasma
Converters currently being marketed and sold. We will continue to develop and
design operational improvements that will be primarily in the area of the use of
the Plasma Converted Gas produced by the Plasma Converter. Expenditures for
research and development will be geared to achieving lower costs designs and
higher efficiencies consistent with our business model of offering complete
systems solutions. In the twelve months ending October 31, 2002 we expensed
$160,785 for research and development. As we expand our research and development
focus in fiscal year 2003 our efforts are expected to be devoted to the
development of patentable proprietary inventions in the field of high
temperature thermo-chemistry and the production of low cost hydrogen. In
addition we will continue conducting ongoing tests, demonstrations and
enhancements of the Plasma Converter for potential customers and governmental
agencies.
Employees
As of January 15, 2003, the Company had 18 full-time employees, of these
full-time employees, 8 are in engineering, 1 in research and development, 2 are
in manufacturing and production, 2 are in sales and marketing and 5 are in
management or administrative positions. We believe that we have been successful
in attracting experienced and capable personnel. All officers and directors have
entered into agreements requiring them not to disclose any proprietary
information, assigning all rights to inventions made during their employment,
and prohibiting them from competing with us. Our employees are not represented
by any labor union or collective bargaining agreement, and we believe that our
relations with our employees are good. In addition to 18 full-time employees the
Company has one part-time employee.
15
ITEM 2 - PROPERTIES:
- -------------------
Our corporate headquarters is located at 15 Old Danbury Road, Suite 203, Wilton,
Connecticut 06897-2525 where we lease 5,800 square feet of office space from CD
Station, LLC as landlord. The lease and taxes provides for monthly payments of
$15,634, increasing annually from December 2002 to December 2004, when the lease
expires. There is an option for us to extend the lease for a five (5) year term
with the Landlord having the right to cancel the lease after two (2) years of
the extended term if the buildings main tenant, The Common Fund, requires the
additional space for their corporate offices.
Our Product Showroom is located at 190 Century Drive, Bristol, Connecticut,
06010, where we lease 5,400 square feet of office space from Tunxis Management
as landlord. The lease provides for monthly payments of $2,475 increasing
annually to September 2005, when the lease expires.
Our Manufacturing facility is located at 545 Broad Street, Bristol, Connecticut,
06010, where we lease 30,000 square feet of manufacturing space from Gaski
Leasing as landlord. The lease provides for monthly payments of $5,265 per
month. The Lease will expire on July 1, 2004.
The following table listed below is the annual rent expense for the corporate
headquarters at Wilton, Connecticut, and the Product showroom in Bristol,
Connecticut, and the Manufacturing facility in Bristol, Connecticut:
Year Annual Rent
2003 278,472
2004 282,720
2005 95,580
ITEM 3 - LEGAL PROCEEDINGS:
- --------------------------
On June 5, 2002, the Company received a Demand for Arbitration filed with the
American Arbitration Association in East Hartford, CT by Peter Francisco and
Fran Environmental, LLC. Fran Environmental has a Representatives Agreement with
the Company. Peter Francisco is the principal member of Fran Environmental. The
claim being made is that Startech has failed to provide proper support to assist
this representative in its effort to market and sell our products in Brazil. The
relief sought is for no less than $150,000. The Company does not believe the
claim is subject to Arbitration under the terms of its agreement with the
representative and has so advised the American Arbitration Association. On
January 6, 2003 a temporary injunction was granted to Startech to stop the
arbitration process and conduct a hearing as to whether a permanent injunction
should be granted to enjoin the arbitration proceeding from continuing. There
are no other pending legal, regulatory or administrative matters to which we are
a party.
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.
16
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
- ------------------------------------------------------------------------
MATTERS:
- -------
(a) Market Information
------------------
From November 1995 through November 1, 2000 our common stock was traded on the
OTC Bulletin Board under the symbol STHK. On November 2, 2000 our common stock
began trading on the Nasdaq Small Cap Market under the symbol STHK. The table
below shows the high and low closing price of our Common Stock during the
quarters indicated.
Closing Price
-------------
Quarter Ended High Low
January 31, 2003 (January 23, 2003) $ 1.66 $ 0.84
October 31, 2002 $ 2.05 $ 1.20
July 31, 2002 $ 3.38 $ 1.40
April 30, 2002 $ 3.63 $ 2.47
January 31, 2002 $ 3.67 $ 1.95
October 31, 2001 $ 4.83 $ 2.05
July 31, 2001 $ 5.15 $ 3.95
April 30, 2001 $ 7.44 $ 3.82
January 31, 2001 $ 9.88 $ 5.38
(b) Stockholders
------------
As of January 24, 2003, there were 680 holders of record of the Company's Common
Stock. This number does not include those beneficial owners whose securities are
held in street name.
(c) Dividends
---------
The Company has never paid a cash dividend on its Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings, which it may
realize in the future to finance its operations. During the fiscal year 2002 the
Company paid $22,310 in preferred dividends payable in additional shares of
Series A Convertible Preferred Stock.
17
ITEM 6 - SELECTED FINANCIAL DATA:
- --------------------------------
The selected financial data set forth below for the five years ended October 31,
2002 is derived from the Company's audited financial statements. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7
and "Financial Statements And Supplementary Data" included in Item 8 which are
incorporated herein by reference. The acquisition of Startech Corporation by the
Registrant occurred on November 17, 1995. The financial information reflects the
operations of both companies combined for all the periods presented.
Year Ended October 31,
-----------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Net sales $ 136,471 $ 2,400,000 $ 1,069,441 $ 2,268,964 $ 1,088,782
Loss from operations 4,038,425 2,437,759 2,731,336 1,346,399 473,733
Other income (expense) 136,673 167,067 319,093 68,071 14,664
Net loss $ 3,915,300 $ 2,298,480 $ 2,430,576 $ 1,289,192 $ 463,051
=========== =========== =========== =========== ===========
Earnings loss per share of weighted
average shares of common
stock outstanding (0.40) (0.30) (0.63) (0.19) (0.07)
Weighted-average number of
shares of common stock
outstanding 9,746,165 8,359,111 7,430,838 6,875,999 6,887,736
Total assets $ 3,138,230 $ 4,663,005 $ 7,077,881 $ 6,374,818 $ 1,824,448
Total liabilities 743,802 740,957 1,196,596 359,458 1,163,774
Long-term obligations 17,580 43,299 13,225 7,718 0
Cash dividends per share
for common stock 0 0 0 0 0
18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS:
- -------------
Results of Operations
Comparison of Years Ended 2002 and 2001
Revenues. Our total revenues were $ 136,471 for the year ended October 31, 2002,
as compared to $2,400,000 for the same period in 2001, an decrease of $
2,263,529 or 94.3%. As no Plasma Converter Systems were shipped in fiscal year
2002, revenues were limited to additional components for the Eico System.
Gross profit. Our gross loss was $330,348 for the fiscal year ended October 31,
2002 as compared to a gross profit of $937,404 for the same period in 2001, a
decrease of $1,267,752 or 135.2%. The margin decreased as a result of
unanticipated costs related to modifications of the Plasma Converter and higher
customer installation costs related to the Eico system located in Japan.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 2002 were $2,636,550 an increase of $265,668, or
11.2%, from the same period in 2001. This increase resulted from higher salary
and related expenditures due to the hiring additional personnel, depreciation
expenses, facility rental expenses, and increased insurance premiums.
Research and development expenses. Our research and development expenses for the
year ended October 31, 2002 were $160,785 an increase of $9,618 or 6.4%, from
the same period in 2001. The increase is related to costs associated with the
installation for the Eico project. In addition costs were incurred for the
continued research, development and design of Starcell (TM). Starcell(TM) is our
latest product development that will improve the marketability and versatility
of our Plasma Converter system, as well as Starcell's ability to operate as a
stand-alone system for the production of hydrogen.
Selling expenses. Our selling expenses for the year ended October 31, 2002 were
$910,742 an increase of $57,628 or 6.8%, for the similar period in 2001. The
increased costs related to selling expenses comprised of a new customer
orientation video, Plasma Converter System scale models, attendance and
showcasing at several tradeshows, as well as the creation of new marketing
materials.
Interest income. Our interest income for the year ended October 31, 2002 was
$26,569, as compared to $182,193 in the similar period 2001 a decrease of 85.4%.
The decrease is due to lower cash balances and lower interest rates earned on
our investments resulting from the Federal Reserve lowering short-term interest
rates.
Income taxes. Income taxes for the year ended October 31, 2002 were $13,548 as
compared with $27,788 in the similar period 2001. We have minimal tax
obligations due to the fact that we have not had profitability to this point. We
have loss carry forwards of $11.7 million to offset against future profits.
19
Comparison of Years Ended 2001 and 2000
Revenues. Our total revenues were $ 2,400,000 for the year ended October 31,
2001, as compared to $ 1,069,441 for the same period in 2000, an increase of $
1,330,559 or 124.4%. The increase is due to the shipment of a 10,000
pound-per-day Plasma Converter to Eico Systems Corporation located in Japan.
This Eico contract represented all of the revenues for the year ended October
31, 2001.
Gross profit. Our gross profit was $937,404 for the fiscal year ended October
31, 2001 an increase of $670,590 or 251.3% from the same period in 2000. Our
gross margins on revenue were 39.1% for the year ended October 31, 2001 versus
25.0% for the year ended October 31, 2000. The margins improved as a result of
increased efficiencies in identifying subcontractors and procuring materials.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 2001 were $2,370,882 an increase of $302,646, or
14.6%, from the same period in 2000. This increase resulted from higher
depreciation expenses, office rental expenses, bad debt expense, insurance
expenses, and higher salary costs related to hiring additional personnel.
Research and development expenses. Our research and development expenses for the
year ended October 31, 2001 were $151,167 up 102.8%, from the same period in
2000. The increase is related to costs associated with our engineering and
design advances of the Plasma Converter sub-systems. Further, additional costs
were for the research, development and design of Starcell (TM). Starcell(TM) is
our latest product development that will improve the marketability and
versatility of our Plasma Converter system, as well as Starcell's ability to
operate as a stand-alone system for the production of hydrogen.
Selling expenses. Our selling expenses for the year ended October 31, 2001 were
$853,114 a decrease of $2,266 or less than 1%, for the similar period in 2000.
The costs related to selling expenses comprised mainly of demonstrations at our
Bristol showroom facility, as well as travel and consulting arrangements
associated with marketing activities.
Interest income. Our interest income for the year ended October 31, 2001 was
$182,193, as compared to $324,221 in the similar period 2000 a decrease of
43.8%. The decrease is due to lower cash balances and lower interest rates
earned on our investments resulting from the Federal Reserve lowering short-term
interest rates.
Income taxes. Income taxes for the year ended October 31, 2001 were $27,788 as
compared with $18,333 in the similar period 2000. We have minimal tax
obligations due to the fact that we have not had meaningful profitability to
this point. We have loss carry forwards of $7.8 million to offset against future
profits.
20
Comparison of Years Ended 2000 and 1999
Revenues. Our total revenues were $ 1,069,441 for the year ended October 31,
2000, as compared to $ 2,268,964 for the same period in 1999, a decrease of $
1,199,523 or 52.9%. Our decrease in revenue was due to the fact that in the 1999
period we were working on the Army sub-contract, whereas for the year ended
October 31, 2000, we were receiving no additional revenue from the Army
sub-contract as we had completed the Assembled Chemical Weapons Assessment Army
(ACWA) Project. In addition to the above, revenues were lower than expected due
to delays in progress payment for the three systems we had contracted to build
during that period for Taiwan, South Africa and Japan. While initial deposits of
varying amounts have been received for these systems, and preliminary design
work was completed, their manufacture has been delayed at the request of the
purchasers for reasons unrelated to our ability to manufacture and ship as
contracted.
Gross profit. Our gross profit was $266,814 for the fiscal year ended October
31, 2000 an increase of $136,109 or 104.0% from the same period in 1999. Our
gross margins on revenue were 24.9% for the year ended October 31, 2000. The
improved gross profit margins for the year ended October 31, 2000 were
attributable to revenues earned from the final payment fee from the US Army for
the Assembled Chemical Weapons Assessment Army (ACWA) Project, improved profit
margins associated with our strategic agreement with UXB International, and
lower associated costs related to our distributors. For the year ended October
31, 1999 lower gross profit margins resulted mainly from the higher than
expected initial costs relating to the Assembled Chemical Weapons Assessment
Army (ACWA) project.
General and administrative expenses. Our general and administrative expenses for
the year ended October 31, 2000 were $2,068,236 an increase of $591,133, or
40.1%, from the same period in 1999. The significant acceleration in expenses is
due to substantial increases in the following areas: hiring additional
professional and administrative personnel to support our operations,
international and domestic travel, printing expenses related to required SEC
filings, office rental expenses, professional services fees and insurance
expenses.
Research and development expenses. Our research and development expenses for the
year ended October 31, 2000 were $74,534 up 100.0%, from the same period in 1999
during which no research and development expenses were reported. The increase is
due to costs related to improved design and engineering of our Plasma Waste
Converter, and the development of StarCell.
Selling expenses. Our selling expenses for the year ended October 31, 2000 were
$855,380, an increase of $788,522, or 1,179%, from the similar period 1999. The
increase is due to salaries for existing personnel, higher marketing and
demonstration cost.
Interest income. Our interest income for the year ended October 31, 2000 was
$324,221, as compared to $101,520 in the similar period 1999 and increase of
219.0%. The increase is due to higher cash balances as a result of the completed
preferred private placement dated October 20, 1999, and warrants that were
exercised during the year 2000.
Income taxes. Income taxes for the year ended October 31, 2000 were $18,333 as
compared with $10,864 in the similar period 1999. We have minimal tax
obligations due to the fact that we have not had meaningful profitability to
this point. We have loss carry forwards of $5.6 million to offset against future
profits.
21
Project Update
- --------------
Eico
On January 8, 2003 we were notified by a firm representing Eico Systems
Corporation that Eico had filed for Civil Rehabilitation under Japan's Civil
Rehabilitation Law. We had been attempting for the previous month to establish a
timetable with Eico regarding system turn-on and commercial operation but had
not received confirmatory responses. As previously announced, the Plasma
Converter System installed in Japan is operationally ready to process 5 ton per
day of hazardous incinerator ash. All of the scheduled modifications to our
system that we previously announced have been installed. We continue to await
Eico's initiation of commercial operations. Our current understanding of the
situation is that Eico will undergo a restructuring that will include the small
portion of their business that operates the Startech Plasma Converter. We have
been informed by Eico that they will continue to cooperate with Startech and
that Eico has received permission from their largest shareholder, Sanyo, to
continue the plasma business during this period of restructuring.
To the best of our knowledge the restructuring was required due to the general
state of the Japanese economy and the recent increase in heating oil prices
which has had a substantial negative affect on Eico's distributed power
business.
We will continue to monitor the situation closely and strive to continue towards
operating the Plasma Converter. We have been told that Eico is currently working
on its strategy to implement a new business and strategic plan. Eico's operation
are entirely outside Startech's control and we will continue to provide whatever
assistance we reasonably can to make this transition period as short as
possible, and we remain prepared to support bringing the system on-line for full
scale commercial use.
Poland
Our signed contracts with two private concerns in Poland, Ekologia and Chempol,
continue to move forward. The timing on these projects entering the production
cycle is dependent upon the receipt of partial funding from an ecological fund
that provides grants to certain approved environmental projects. According to
our representative both of the contracts we have entered into have received
approval from this funding source and that the parties are now confirming the
extent of funding that will be provided and the timing of that funding. The
timing of these grants has also driven the timing of the receipt of the balance
of funds from private sector sources. One of the projects has also received a
small additional grant that had been applied for from a separate public fund.
Our project in Bytom, Poland also continues to move forward. We have just been
advised that all the necessary site and operational permits to begin the project
have been received by the potential customer. The permits were required before
the customer could follow our signed Letter of Intent with a signed contract.
With the receipt of these payments we plan to be in Poland during the first week
of February to move this project to the contract stage.
Philippines
The situation in the Philippines has advanced to the point where we are
discussing the contractual language that will provide the necessary comfort to a
funding source. Based upon the difficulties experienced in this part of the
world, funding this long awaited project has been the major obstacle. We believe
that satisfying these last concerns of the investor will allow the contract to
be implemented and the payment schedule to be finalized.
Effects of Inflation
Due to the low rate of inflation there has been very little effect on the
Company's net revenues for fiscal 2002.
22
Liquidity and Capital Resources
The Company had working capital of $369,185 as of October 31, 2002 and had cash
and cash equivalents of $509,321 as of October 31, 2002.
Working capital was provided primarily from revenues earned from the Eico
Systems Corporation and a private placement that was completed on March 25, 2002
from which we raised net proceeds of $2,283,712 after commissions and expenses.
We have and will continue to be dependent upon the deposits and progress
payments from the sale of equipment and the private sale of securities. It is
anticipated that our capital requirements for future periods will increase and
our future working capital needs will be obtained from the above sources and
demonstration and testing programs, joint development programs, build own and
operate facilities, and from cash generated from the operations of our business.
In October 2002 the Company announced that contracts to sell two Plasma
Converters were signed aggregating in excess of $10 million dollars in sales.
The contracts include an established payment schedule coordinated to provide
progress payments at various stages of the manufacturing and delivery cycle. We
believe these progress payments, along with a recently completed sole source
private placement which raised $700,000 after commissions and expenses will
provide enough operating capital to sustain company operations at the current
level for more than 1 year. The private placement requires the issuance of
882,353 shares of our unregistered common stock at $.85 per share. We also are
required to issue one common stock purchase warrant for each share of common
stock purchased, exercisable at a price equal of $1.80 per share. The warrants
will expire in January 2006 provided the common stock is trading at $1.80 per
share at this time. If the stock is below the $1.80 per share the Company has
agreed to extend the period for up to two consecutive years. It must be noted,
however, that if the progress payments are not received in a timely manner or
additional sales of Plasma Converters or funding is not available we may have to
significantly cut expenses to maintain our operations over the next year.
The Company has historically satisfied its capital needs primarily by the sale
of equity securities. However there is no assurance that this financing will be
available when needed or that management will be able to obtain this or any
additional financing on terms acceptable to the Company. As stated, we believe
these financing needs will be satisfied but there can be no assurance this will
be the case.
The Company believes that continuing operations for the longer term will be
supported primarily through anticipated growth in revenues and, if necessary,
through additional sales of the Company's securities.
Our investing activities have consisted primarily of short-term high quality
liquid investments, with maturities of three months or less when purchased,
which are considered cash equivalents. The primary investments are high quality
commercial paper, U.S. Treasury notes and U.S. Treasury bills.
For the year ended October 31, 2002 we declared four quarterly dividends on our
Series A Convertible Preferred stock in the aggregate amount of $22,310, which
was paid by the issuance of 2,231 shares of Series A Convertible Preferred
stock.
This liquidity section contains forward looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports, and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies can be identified as
forward-looking statements. As a result, there can be no assurance that the
Company's future results will not be materially different from those described
herein as "believed," "anticipated," "estimated" or "expected," which reflect
the current views of the Company with respect to future events. We caution
readers that these forward-looking statements speak only as of the date hereof.
The Company hereby expressly disclaims any obligation or undertaking to release
23
publicly any updates or revisions to any such statements to reflect any change
in the Company's expectations or any change in events, conditions or
circumstances on which such statement is based.
ITEM 7. - QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
- -------------------------------------------------------------------
Management does not believe that there is any material market risk exposure with
respect to derivative or other financial instruments that would require
disclosure under this item.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
- ----------------------------------------------------
Report of Management
Management of Startech Environmental Corporation, is responsible for the
integrity of the financial information presented in this 10-K. The consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. Where necessary, they reflect estimates
based on management's judgment.
Management relies upon established accounting procedures and related systems of
internal control for meeting its responsibilities to maintain reliable financial
records. These systems are designed to provide reasonable assurance that assets
are safeguarded and that transactions are properly recorded and executed in
accordance with management's intentions.
The Audit Committee of the Board of Directors meets regularly with management
and its independent auditors to discuss audit scope and results, internal
control evaluations, and other accounting, reporting, and financial matters. The
independent auditors have access to the Audit Committee without management's
presence.
/s/ Joseph S. Klimek
----------------------------------
Joseph S. Klimek
Chairman, President and
Chief Executive Officer
/s/ Robert L. DeRochie
----------------------------------
Robert L. DeRochie
Chief Financial Officer and
Vice President of Investor
Relations
Financial Statements and Supplementary data and the Independent Auditors Report
thereon are listed and included Part IV, Item 14 of this Form 10-K.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE:
- --------------------
None
24
PART III
Directors and Executive Officers of the Registrant
Note: The information pursuant to Items 10, 11, 12 and 13 is omitted from this
report (in accordance with Instruction G for Form 10-K) since the Company is
filing with the Commission (by no later than February 28, 2003), a definitive
proxy statement pursuant to Regulation 14A, which involves the election of
Directors at the annual shareholders' meeting of the Company, expected to be
held on or about March 7, 2003.
25
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Financial Statements
October 31, 2002, 2001 and 2000
i
STARTECH ENVIRONMENTAL CORPORATION
Table of Contents
For The Years Ended October 31, 2002, 2001 and 2000
Independent Auditors' Report.................................................F-1
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Changes in Stockholders' Equity...................F-4
Consolidated Statements of Cash Flows........................................F-5
Notes to the Consolidated Financial Statements...............................F-6
ii
Pond View Corporate Center
76 Batterson Park Road
Farmington, CT 06032
[GRAPHIC OMITTED] Farmington - New London Main Line: (860) 678-6000
Toll Free: (800) 286-KRCO
Business Advisors and Certified Fax: (860) 678-6110
Publis Accountants Web: www.kostin.com
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, 2002 and 2001, 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, 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, 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, 2002, in conformity with
accounting principles generally accepted in the United States of America.
Farmington, Connecticut
December 20, 2002
F-1
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Balance Sheets
October 31, 2002 and 2001
2002 2001
Assets
Current assets:
Cash $ 509,321 $ 2,207,328
Accounts receivable 290,000 300,000
Inventory 273,706 279,502
Prepaid expenses 5,000 5,000
Other current assets 17,380 1,861
------------ ------------
Total current assets 1,095,407 2,793,691
Equipment, at cost, net of accumulated depreciation 1,794,067 1,791,863
Other Assets 248,756 77,451
------------ ------------
Total Assets $ 3,138,230 $ 4,663,005
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 260,116 $ 115,489
Capital lease - short-term 44,885 38,920
Other accrued expenses 421,221 543,249
------------ ------------
Total current liabilities 726,222 697,658
Long-term liability:
Capital lease payable net of current portion 17,580 43,299
------------ ------------
Total liabilities 743,802 740,957
------------ ------------
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares authorized; 35,655, and 47,511 at
October 31, 2002 and 2001 respectively (aggregate liquidation preference
of $ 360,500 and $475,110 at October 31,2002 and 2001, respectively) 356,553 475,110
Common stock; no par value; 800,000,000 shares authorized shares issued 14,790,453 12,265,072
and outstanding: 10,293,392 at October 31, 2002 and 9,282,880 at
October 31, 2001
Additional paid-in-capital 1,742,745 1,742,745
Deficit (14,495,324) (10,560,879)
------------ ------------
Total stockholders' equity 2,394,427 3,922,048
------------ ------------
$ 3,138,230 $ 4,663,005
============ ============
The accompanying notes are an integral part of the financial statements.
F-2
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Operations
For The Years Ended October 31, 2002, 2001 and 2000
Year Ended October 31,
----------------------
2002 2001 2000
Revenue $ 136,471 $ 2,400,000 $ 1,069,441
Cost of goods sold 466,819 1,462,596 802,627
----------- ----------- -----------
Gross profit/loss (330,348) 937,404 266,814
Operating Expenses :
Selling Expense 910,742 853,114 855,380
Research and Development 160,785 151,167 74,534
General and Administrative 2,636,550 2,370,882 2,068,236
----------- ----------- -----------
Total Operating Expenses 3,708,077 3,375,163 2,998,150
----------- ----------- -----------
Loss from operations (4,038,425) (2,437,759) (2,731,336)
----------- ----------- -----------
Other income (expense):
Interest income 26,569 182,193 324,221
Interest expense (12,762) (15,126) (5,128)
Other Income 122,866 -- --
----------- ----------- -----------
Total other income 136,673 167,067 319,093
----------- ----------- -----------
Income tax expense 13,548 27,788 18,333
----------- ----------- -----------
Net loss ($3,915,300) ($2,298,480) ($2,430,576)
=========== =========== ===========
Net loss ($3,915,300) ($2,298,480) ($2,430,576)
Less: preferred dividends 22,310 257,504 2,251,276
----------- ----------- -----------
Loss attributable to common stockholders ($3,937,610) ($2,555,984) ($4,681,852)
=========== =========== ===========
Net loss per share ($ 0.40) ($ 0.30) ($ 0.63)
=========== =========== ===========
Weighted average common shares outstanding 9,746,165 8,359,111 7,430,838
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-3
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 2002, 2001 and 2000
Common Preferred
Shares Amount Shares
------------ ------------ ------------
Balance, October 31, 1999 6,905,257 2,984,219 696,978
Preferred shares converted to common shares 430,765 2,234,032 (243,890)
Shares issued during the year
for services rendered 14,918 136,338 --
Shares issued for cash 561,496 2,154,165 --
Shares issued for 401(k) plan 2,106 23,513 --
Shares issued in lawsuit settlement 171,118 -- --
Net loss during the year
ended October 31, 2000 -- -- --
Accretion of dividend on preferred shares -- -- --
Dividends -- -- 49,132
------------ ------------ ------------
Balance, October 31, 2000 8,085,660 $ 7,532,267 502,220
============ ============ ============
Preferred shares converted to common shares 1,178,720 4,423,877 (477,150)
Shares issued during the year
for services rendered 8,050 29,987 --
Shares issued for cash 30,000 210,000 --
Shares issued for 401(k) plan 15,450 68,941 --
Shares retired (35,000) -- --
Net loss during the year
ended October 31, 2001 -- -- --
Accretion of dividend on preferred shares -- -- --
Dividends -- -- 22,441
------------ ------------ ------------
Balance, October 31, 2001 9,282,880 $ 12,265,072 47,511
============ ============ ============
Preferred shares converted to common shares 38,163 140,867 (14,087)
Shares issued during the year
for services rendered 4,200 15,624 --
Shares issued for cash 927,969 2,283,712 --
Shares issued for 401(k) plan 40,180 85,178 --
Net loss during the year
ended October 31, 2002 -- -- --
Dividends -- -- 2,231
------------ ------------ ------------
Balance, October 31, 2002 10,293,392 $ 14,790,453 35,655
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
For The Years Ended October 31, 2002, 2001 and 2000
(Continued)
Additional
Paid-In
Amount Capital Deficit
------------ ------------ ------------
Balance, October 31, 1999 6,384,199 300 (3,353,358)
Preferred shares converted to common shares (2,234,032) -- --
Shares issued during the year
for services rendered -- -- --
Shares issued for cash -- -- --
Shares issued for 401(k) plan -- -- --
Shares issued in lawsuit settlement -- -- --
Net loss during the year
ended October 31, 2000 -- -- (2,430,576)
Accretion of dividend on preferred shares -- 1,742,445 (1,742,445)
Dividends 491,316 -- (508,831)
------------ ------------ ------------
Balance, October 31, 2000 $ 4,641,483 1,742,745 $ (8,035,210)
============ ============ ============
Preferred shares converted to common shares (4,423,877) -- --
Shares issued during the year
for services rendered -- -- --
Shares issued for cash -- -- --
Shares issued for 401(k) plan -- -- --
Shares retired -- -- --
Net loss during the year
ended October 31, 2001 -- -- (2,298,480)
Accretion of dividend on preferred shares -- -- --
Dividends 257,504 -- (227,189)
------------ ------------ ------------
Balance, October 31, 2001 $ 475,110 $ 1,742,745 $(10,560,879)
============ ============ ============
Preferred shares converted to common shares (140,867) -- --
Shares issued during the year
for services rendered -- -- --
Shares issued for cash -- -- --
Shares issued for 401(k) plan -- -- --
Net loss during the year
ended October 31, 2002 -- -- (3,915,300)
Dividends 22,310 -- (19,145)
------------ ------------ ------------
Balance, October 31, 2002 $ 356,553 $ 1,742,745 $(14,495,324)
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-4(Con't)
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Statements of Cash Flows
For The Years Ended October 31, 2002, 2001 and 2000
Year Ended October 31,
----------------------
2002 2001 2000
Cash flows from operating activities:
Net loss $(3,915,300) $(2,298,480) $(2,430,576)
Adjustments to reconcile net loss to net
cash used in operating activities:
Expenses paid for through the
issuance of common stock 15,624 29,987 136,338
Loss on sale of asset 4,633 -- --
401(k) match through issuance
of common shares 85,178 68,941 23,513
Depreciation 190,588 141,640 51,849
Preferred stock accrual 3,165 30,315 --
(Increase) decrease in:
Accounts receivable 10,000 38,000 174,066
Prepaid expense -- (5,000) --
Inventory 5,796 (5,796) (273,706)
Other current assets (15,519) 12,015 (4,973)
Other assets (171,305) (4,256) 148,991
Increase (decrease) in:
Accounts payable 144,627 (333,727) 203,642
Accrued expenses (122,028) (166,999) 594,670
----------- ----------- -----------
Net cash used in operating activities (3,764,541) (2,493,360) (1,376,186)
----------- ----------- -----------
Cash flows used in investing activities:
Purchase of equipment (172,385) (685,345) (1,033,298)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of asset 500 -- --
Proceeds from common stock issuance 2,283,712 210,000 2,154,165
Repayment of capital lease payable (45,293) (45,121) (19,761)
Dividends on preferred shares -- -- (46)
----------- ----------- -----------
Net cash provided by financing activities 2,238,919 164,879 2,134,358
----------- ----------- -----------
Net decrease in cash and cash
equivalents (1,698,007) (3,013,826) (275,126)
Cash and cash equivalents, beginning 2,207,328 5,221,154 5,496,280
----------- ----------- -----------
Cash and cash equivalents, ending $ 509,321 $ 2,207,328 $ 5,221,154
=========== =========== ===========
The accompanying notes are an integral part of the financial statements
F-5
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 1 - Summary of Significant Accounting Policies:
- ---------------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Startech Environmental Corporation
include the accounts of Startech Corporation, its wholly-owned subsidiary. All
intercompany transactions have been eliminated in consolidation.
Company's Activities
- --------------------
The Company is an environmental technology corporation dedicated to the
development, production and marketing of low cost waste minimization, resource
recovery, and pollution prevention systems that convert waste into valuable
commodities.
Basis of Presentation
- ---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua
Acquisitions, Inc., was acquired in a reverse acquisition, in which all the then
issued and outstanding shares of common stock of Startech Corporation were
exchanged for 4,000,000 shares of Kapalua Acquisitions, Inc.'s common stock.
After the acquisition and exchange of stock, the former shareholders of Startech
Corporation owned 80.5% of the common stock of Kapalua Acquisitions, Inc.
Subsequent to November 17, 1995, Kapalua Acquisitions, Inc. filed registration
statements with the Securities and Exchange Commission to register certain
securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech
Environmental Corporation. The financial statements of Startech Environmental
Corporation include all of the accounts of Startech Corporation. This
acquisition has been accounted for under the purchases method in the
accompanying financial statements.
Revenue Recognition
- -------------------
The Company recognizes revenue on the sale of its manufactured products at the
date of delivery. Revenues earned from consulting and design services are
recognized when the services are complete.
Management Estimates
- --------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at October 31, 2002, 2001 and 2000, 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.
Reclassifications
- -----------------
Certain reclassifications have been made to the fiscal 2002, 2001, and fiscal
2000 financial statements to conform to the presentation used in the fiscal 2002
financial statements. The reclassifications had no effect on shareholders'
equity or net losses as previously reported.
F-6
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments, with a maturity of three
months or less when purchased, to be cash equivalents. The primary investments
will be high quality commercial paper, U.S. Treasury Notes, and T-Bills.
Regarding supplementary cash flows information, income taxes paid were $13,548
for the year ended October 31, 2002, $27,788 for the year ended October 31,
2001, and $18,333 for the year ended October 31, 2000. Interest paid for the
three years ended October 2002 was $12,762, $15,126 and $5,128 respectively. The
Company also had the following non-cash transactions:
2002
----
Shares Amount
Common shares issued for services rendered in 2002 4,200 $ 15,624
Common shares issued for 401(k) match 40,180 85,178
Series A convertible preferred shares converted to common shares 14,087 140,867
Equipment acquired through capital lease -- 25,539
2001
----
Shares Amount
Common shares issued for services rendered in 2001 8,050 $ 29,987
Common shares issued for 401(k) match 15,450 68,941
Series A convertible preferred shares converted to common shares 477,150 4,423,877
Equipment acquired through capital lease -- 90,208
Accrued dividends on the preferred stock -- 3,170
Shares returned and cancelled in 2001 (35,000) --
2000
----
Shares Amount
Common shares issued for services rendered in 2000 14,918 $ 136,338
Common shares issued for 401(k) match 2,106 23,513
Series A convertible preferred shares converted to common shares 243,890 2,234,032
Accretion of dividends associated with the issuance of the convertible
preferred shares -- 1,742,445
Equipment acquired through capital lease -- 41,118
Accrued dividends on the preferred stock -- 33,485
F-7
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 1 - Summary of Significant Accounting Policies: (Continued)
- ---------------------------------------------------
Inventory
- ---------
Inventory consists of raw materials and work in process, and is stated at lower
of cost or market. Cost is determined by the first-in, first-out method.
Equipment
- ---------
Depreciation of equipment is provided using the straight-line method over the
estimated useful lives of the assets. Expenditures for major renewals and
betterments which extend the useful lives of the equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
Other Assets
- ------------
Other assets consist of security deposits on office leases and utility deposits
in 2002, 2001 and 2000. In addition we have incurred $174,305 of project costs
related to two specific projects we are currently undertaking. Upon completion
of these projects our investments in them will be accounted for under the equity
method.
Income Taxes
- ------------
Income taxes consist of State taxes on capital. The Company has net operating
loss carry-forwards of approximately $11.7 million expiring in various years
through 2022. The deferred tax asset arising from the carry-forwards has been
fully reserved against, since the likelihood of realization cannot be
determined.
Earnings (Loss) Per Share
- -------------------------
Earnings (loss) per share are based on the weighted average number of shares of
common stock outstanding during the year. The Company has 2,783,907 potential
common shares, 2,091,009 potential common shares, and 2,799,249 potential common
shares in 2002, 2001, and 2000, respectively that were not used in the
computation of diluted earnings per share because they would have been
anti-dilutive for each of the three years ended October 31, 2002, 2001 and 2000.
The Company will issue an additional 199,171 common shares when all the
preferred shares are converted. In addition, an additional 882,353 common shares
were issued as a result of a recent private placement completed on January 14,
2003.
Off Balance Sheet Risk
- ----------------------
The Company had more than $100,000 in a single bank during the year. Amounts
over $100,000 are not insured by the Federal Deposit Insurance Corporation.
However, management does monitor the financial condition of the institution
where these funds are invested.
Note 2 - Inventory:
- ------------------
Inventory consists of the following at October 31, 2002
and October 31, 2001: 2002 2001
---- ----
Raw materials $145,000 $145,000
Work in process 128,706 134,502
-------- --------
Total inventory $273,706 $279,502
======== ========
F-8
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 3 - Property, Plant and Equipment:
- --------------------------------------
Equipment is summarized by major classifications as follows:
2002 2001
Computer equipment $ 123,007 $ 96,181
Demonstration equipment 1,742,347 1,595,119
Furniture and fixtures 167,580 162,717
Vehicles -- 14,002
Leasehold improvements 108,096 95,088
---------- ----------
2,141,030 1,963,107
Less: accumulated depreciation 393,452 211,732
---------- ----------
1,747,578 1,751,375
Cost of demonstration equipment being manufactured 46,489 40,488
---------- ----------
Total property, plant and equipment $1,794,067 $1,791,863
========== ==========
Note 4 - Operating Lease:
- ------------------------
The Company leases its offices in Wilton and its showroom and manufacturing
facilities in Bristol, Connecticut, under lease agreements that expire in
December 2004 and October 2005. Rental expense for the years ended October 31,
2002, 2001 and 2000, were $269,418, $216,756, and $163,042, respectively. There
is an option for the Company to extend the Wilton, Connecticut lease for a five
year term with the Landlord having the option to cancel after two years. Annual
non-cancelable rent payments for the next three years are as follows:
October 31,
-----------
2003 $ 278,472
2004 282,720
2005 95,580
F-9
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 5 - Stockholders' Equity:
- -----------------------------
Common Stock
- ------------
During 2002 the Company completed a private placement of its securities pursuant
to which we issued 927,969 shares of its unregistered common stock at $2.60 per
share, resulting in aggregate net proceeds of $2,283,712 after commissions of
$59,850 and expenses of $69,158. In August 2002 the Company completed a
registration statement in which all of the shares and the warrants attached
became effective.
Preferred Stock
- ---------------
During 1999 the Company issued 696,978 shares of its 8% Series A cumulative,
convertible, redeemable, preferred stock. On September 15, 2002 the Company sent
a notice to the preferred shareholders announcing the remaining 35,655 preferred
shares are to be converted at a $1.81 per share as mandated by the offering
agreement, this conversion represents 199,171 common shares. Common shares
outstanding as of October 31, 2002 do not reflect the preferred shares
converted. During the year ended October 31, 2002, 14,087 preferred shares were
converted to common shares compared to 477,150 preferred shares converted during
the year ended October 31, 2001.
Warrants
- --------
In conjunction with the private placement in 2002 the Company issued one common
stock warrant for each share of common stock purchased, exercisable at a price
equal to 120% of the market price of the common stock on the NASDAQ Small Cap
Market based on the average closing price per share for the ten (10) trading
days immediately preceding March 25, 2002. Accordingly, the exercise price per
share is $3.34.
In conjunction with the issuance of the preferred stock in 2000 the Company
issued Warrants to purchase 396,464 shares of common stock at a price of $15.00
per share. These Warrants were set to expire on August 1, 2002 however the price
of the stock did not exceed $15.00 per share and the expiration was extended to
August 31, 2004.
In June 2000 the Company issued to the Connecticut Development Authority (CDA)
Warrants to purchase 433,268 shares of our common stock at $7.00 per share.
Since June 2000 CDA has purchased a total of 45,000 common shares at $7.00 per
share, and for the year ended October 31, 2002 no CDA Warrants were exercised.
The remaining CDA Warrants have since expired. The CDA Warrants provide for a
limit on the shares of common stock that can be sold upon exercise of the CDA
Warrants during any five day period equal to 7.0% of the average weekly reported
trading volume of the common stock during the four calendar weeks preceding the
date of sale. In addition if on or before July 1, 2002 the holder publicly sells
any shares of our common stock at a price per share less than $7.00, we shall
pay the holder an amount equal to his realized loss in cash or, at our
discretion, in shares of our common stock valued at the current market price at
the time of payment or in any combination of cash and shares. If we have paid
the holder on account of a realized loss and later, but not later than July 1,
2002, the holder publicly sells additional shares at a price per share greater
than $7.00, the holder shall promptly repay to us an amount equal to the lesser
of (1) the amount by which the aggregate proceeds from such sale exceeds $7.00
and (2) the total realized loss previously paid by us to the holder. The
repayment to us may be made in cash or in shares of common stock valued at the
current market price at the time of repayment or in any combination of cash and
shares.
F-10
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 6 - Non-qualifying Stock Option Plan:
- -----------------------------------------
1995 Stock Option Plan
- ----------------------
In November 1995, the Company registered 2,000,000 common shares, issuable upon
exercise of stock options issued by the Company under its 1995 Non-qualifying
Stock Option Plan (the Plan) for employees, directors and other persons
associated with the Company whose services have benefited the Company. The
options must be issued within 10 years from November 20,1995. Determination of
the option price per share and exercise date is at the sole discretion of the
Compensation Committee. During the years ended October 31, 2002 and 2001, the
Company issued 10,000 and 297,500 stock options, respectively. The options have
an exercise price of $3.38 and $5.63 per share, respectively. On the issuance
dates, the market value was the same as the exercise price, therefore, no
compensation expense was recorded. As of October 31, 2002, 8,089 options have
not been granted.
Options outstanding - 1995 Plan
Options outstanding, October 31, 1998 --
Options granted in 1999 20,000
----------
Options outstanding, October 31, 1999 20,000
Options granted in 2000 895,000
Options exercised in 2000 (10,000)
Options cancelled in 2000 (5000)
----------
Options outstanding, October 31, 2000 900,000
Options granted in 2001 297,500
----------
Options outstanding, October 31, 2001 1,197,500
==========
Options granted in 2002 10,000
----------
Options outstanding October 31, 2002 1,207,500
==========
2000 Stock Option Plan
- ----------------------
Options outstanding - 2000 Plan
Options outstanding, October 31, 2000 0
Options granted in 2002 277,000
Options cancelled in 2002 (5,000)
----------
Options outstanding, October 31, 2002 272,000
==========
Our 2000 Stock Option Plan was adopted by our board of directors in January 2000
and was approved by our stockholders in February 2000. The plan authorizes the
issuance of up to 1,000,000 shares of our common stock. During the year ended
October 31, 2002, 277,000 options have been granted at an average exercise price
of $2.04 per share and 5,000 options have been cancelled. On the issuance dates,
the market value was the same as the exercise price, therefore, no compensation
expense was recorded. As of October 31, 2002, 728,000 options are available to
be granted.
The plan provides for the grant of incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code and non-statutory stock options.
Our officers, directors, employees and consultants, and employees and
consultants of our majority-owned affiliated companies, are eligible to receive
awards under the plan.
F-11
The options may be granted at an exercise price greater than or equal to the
fair market value of our common stock on the date of grant or not less than 110%
of the fair market value in the case of incentive stock options granted to
persons holding more than 10% of the voting power of the Company. Fair market
value for purposes of the plan is the closing market price of our common stock
on the relevant date.
The Stock Options in January 2000, the Company established the 2000 Stock
Compensation Plan (the 2000 Plan), which replaced the 1995 Stock Compensation
Plan (the 1995 Plan).
The 2000 Plan authorizes awards of the following type of equity-based
compensation: incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, annual grants of stock
options to directors, stock options to directors in lieu of compensation for
services rendered as directors, and other stock-based awards valued in whole or
in part by reference to stock of the Company. No incentive stock options may be
granted on or after February 1, 2010, nor shall such options remain valid beyond
ten years following the date of grant.
The total number of shares of stock reserved and available for distribution
under the 2000 Plan originally was 1,000,000 shares, a maximum of 1,000,000 of
which may be issued as incentive stock options.
At October 31, 2002, there were 736,089 shares reserved for outstanding options
under all plans and 728,000 shares available for granting of options under the
2000 Plan.
In fiscal 2002, and 2001, the Company granted 287,000, and 297,500 options,
respectively, to its employees, directors, and outside consultant. Fiscal 2001
options were granted under the 1995 Plan. Fiscal 2002 options were granted under
the 2000 Plan and 1995 Plan. Fifty percent of these options vest at the time of
the grant and the other 50% will vest six months after date of grant and expire
not more than ten years from date of grant.
F-12
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 6 - Non-qualifying Stock Option Plan: (Continued)
- -----------------------------------------
The plan is administered by our compensation committee. The committee has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the plan and to interpret its provisions. The committee
selects the recipients of awards and determines the number of shares of common
stock covered by the options and the dates upon which the options become
exercisable and terminate, subject to provisions of the plan. Incentive stock
options must terminate within ten years of the grant. Non-statutory options must
terminate within fifteen years of the date of grant. The committee has the right
to alter the terms of any option when granted or while outstanding pursuant to
the terms of the plan, except the option price.
All options automatically become excisable in full in the event of a change in
control, as defined in the 2000 plan, death or disability of the option holder
or as decided by the compensation committee. Upon retirement, options held at
least one year become exercisable in full. If an option holder's employment with
us is terminated for any reason, except death, disability or retirement, the
option holder has three months in which to exercise an option, but only to the
extent exercisable immediately after termination, unless the option by its terms
expires earlier. Termination or other changes in employment status may affect
the exercise period.
Note 7 - Major Customers:
- ------------------------
All of our revenues were derived from two major customers in 2002; All of the
revenues were derived from on major customer in 2001, while approximately 87
percent of revenues were derived from three major customers in 2000.
Note 8 - Capital Lease Payable:
- ------------------------------
The Company has entered into capital lease obligations for computer, capital
equipment, and telephone equipment. The terms of the leases range from 36 to 48
months, with principal and interest due in monthly installments aggregating
$4,749 at rates ranging from zero to 27.45%. The equipment was capitalized at
$139,906 and is being depreciated over five to fifteen years. Depreciation
expense for 2002 was $15,306 and accumulated depreciation at October 31, 2002,
is $27,048.
Total remaining lease payments:
2003 $ 51,485
2004 16,130
2005 2,831
---------
70,446
Less: unamortized interest 7,981
---------
62,465
Less: current portion 44,885
---------
$ 17,580
=========
F-13
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
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 sheets at
cost, which is a reasonable estimate of their fair value. Accounts payable,
capital lease payable and accrued expenses are also carried at cost, which is a
reasonable estimate of their fair value.
Carrying Estimated
Amount Fair Value
ASSETS:
Cash $ 509,321 $ 509,321
Accounts receivable 290,000 290,000
LIABILITIES:
Accounts payable 260,116 260,116
Capital lease payable 62,465 62,465
Accrued expenses 421,221 421,221
Note 10 - Commitments:
- ---------------------
The Company has entered into employment agreements with three of its executives.
Two of the agreements are for a term of four years, and one is for three years.
The agreements provide for salaries ranging from $140,000 to $185,000 and will
allow for annual increases based upon performance reviews. Two of the agreements
require the Company to grant each executive no less than 10,000 common stock
options each year. In the event of a change in control of the Company the
agreements provide the executives with severance benefits that include: a lump
sum payment of 150% of the amount the executive would have earned if he had
received his salary payments through the expiration date of this agreement; an
additional lump sum payment of $250,000; an immediate vesting of all options
awarded to the executive as part of this agreement; an immediate right to sell
the shares obtained through the exercise of those options without restriction as
to dates, times or amounts, immediate vesting and transfer of ownership of all
life insurance policies, and life and health benefits, including supplemental,
vision and dental benefits if applicable, in an equal or better plan than the
one currently provided to the executive and his family by the Company for a
period of three years from the date of termination or constructive termination.
In the event any payment or benefit received, or to be received, by the
executive in connection with the termination of his employment, whether pursuant
to his agreement or otherwise, is determined to be an excess parachute payment
as defined in the Internal Revenue Code, and thus subject to the 20 percent
Federal Excise tax, the amount of the benefits payable under his Agreement will
be reduced until they are no longer subject to such tax.
Note 11 - Employee Benefit Plan:
- -------------------------------
On June 1, 2000 The Company implemented an employee savings plan designed to
qualify under Section 401(k) of the Internal Revenue Code. This plan is for all
full-time employees who have completed 30 days of service. Company contributions
are made in the form of common stock at the prevailing current market price and
will vest equally over a three-year period. The Company will match the first 6
percent of the employee contribution on a dollar for dollar basis up to the
maximum contribution allowed under Internal Revenue Code. Contributions for the
year ended October 31, 2002 were $85,178, $68,941, and $23,573 for the years
ended October 31, 2002, 2001, 2000 respectively. These contributions were paid
through the issuance of 40,180, 15,450 and 2,106 shares of our common stock
respectively.
F-14
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements
For The Years Ended October 31, 2002, 2001 and 2000
Note 12 - Research and Development Costs:
- ----------------------------------------
Research and development costs are charged to operations when incurred. The
amounts charged were $160,785 in 2002, $151,167 in 2001 and $74,534 in 2000.
Note 13 - Subsequent Events:
- ---------------------------
On January 14, 2003 we completed a sole source private placement of our
securities we raised $700,000 after commission and expenses and issued 882,353
shares of our unregistered common stock at $.85 per share. We also issued one
common stock purchase warrant for each share of common stock purchased,
exercisable at a price equal of $1.80 per share, expiring in January 2006,
provided the common stock is trading at $1.80 per share at that time. If the
stock is below the $1.80 per share the Company has agreed to extend the period
for up to two consecutive years.
F-15
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, 2002 and October 31, 2001
Consolidated statement of operations for each of the three years in
the period ended October 31, 2002
Consolidated statement of changes in stockholder's equity for each of
the three years in the period ended October 31, 2002
Consolidated statement of cash flows for each of the three years ended
October 31, 2002
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.
(b) Reports on Form 8-K
On October 25, 2002, a form 8-K was filed with respect to announcing
the addition of Richard M. Messina as a Board of Director.
(c) Exhibits
2. Plan of Reorganization
----------------------
(2)(a) Agreement and Plan of Reorganization between Company and
Kapalua Acquisitions, Inc. dated November 17, 1995 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed on November 29, 1995, Commission File No. 0-25312)
3. Articles of Incorporation of the Company
----------------------------------------
(3)(a) Articles of Incorporation of Startech (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form 10, filed on February 19, 1995, Commission File No. 0-25312)
(3)(a)i Articles of Amendment to the Articles of Incorporation*
(3)(b) By-Laws of Startech (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form 10, filed on February
19, 1995, Commission File No. 025312)
(3)(c) Amendment to by-Laws of Startech dated January 24, 2000*
26
4. Instruments defining the rights of security holders, including
--------------------------------------------------------------
indentures
----------
(4)(a) Form of Common Stock Certificate **
(4)(b) Form of Convertible Preferred Stock Certificate *
(4)(c) Form of Warrant Agreement*
(4)(d) Stock Subscription Warrant dated December 29, 1998 between the
Company and the Connecticut Development Authority ("CDA")**
(4)(e) Amendment to Stock Subscription Warrant dated March 31, 1999
between the Company and CDA**
(4)(f) Second Amendment to Stock Subscription Warrant dated June 15,
2000 between the Company and CDA**
(4)(g) Form of Warrant Agreement dated March 25, 2002 ******
(4)(h) Form of 2000 Stock Option Plan*******
10. Material Contracts
------------------
(10)(a) 2000 Stock Option Plan*
(10)(b) 1995 Stock Option Plan (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-8, filed in
November, 1995, Commission File No. 33-99790)
(10)(c) Loan Agreement Dated December 29, 1998 between the Company and
CDA**
(10)(d) Term Sheet for Preferred Stock dated August 17, 1999, between
the Company and Paradigm Group, LLC**
(10)(e) Strategic Alliance Agreement dated July 22, 1996 between the
Company and Bauer Howden, Inc.**
(10)(f) Strategic Alliance Agreement dated October 25, 1996 between
the Company and Calumet Coach Company**
(10)(g) Strategic Alliance Agreement dated November 10, 1997 between
the Company and Chase Environmental Group, Inc.**
(10)(h) Strategic Alliance Agreement dated April 17, 1998 between the
Company and the Ensign - Bickford Company**
(10)(i) Strategic Alliance Agreement dated September 30, 1999 between
the Company and UXB International Inc.**
(10)(j) Strategic Alliance Partner Agreement dated March 14, 2000
between the Company and Skidmore, Owings & Merrill LLP**
(10)(k) Lease Agreement dated September 16, 1999 between the Company
and the CD Station, LLC.**
27
(10)(l) Form of Distributor Agreement**
(10)(m) Patent License Agreement dated November 9, 1998 between the
Company and Rollan C. Swanson M.D. and Eleonora Swanson.**
(10)(n) License of Technology Agreement dated November 29, 1999
between the Company and Media and Process Technology Inc.**
(10)(o) Employment Agreement dated November 1, 2000 between the
Company and Joseph F. Klimek ****
(10)(p) Employment Agreement dated November 1, 2000 between the
Company and Kevin M. Black ****
(10)(q) Employment Agreement dated November 1, 2000 between the
Company and Robert L. DeRochie ****
(10)(r) Lease Agreement dated September 30, 2000 between the Company
and the Century Drive, LLC*****
(10)(s) Lease Agreement dated July 16, 2001 between the Company and
the Gaski Leasing Company*****
(10)(t) Strategic Alliance Agreement dated June 30, 2001 between the
Company and Hydro-Chem Company ******
(10)(u) Lease Agreement dated July 20, 2001 between the Company and
the Gaski Leasing Company, LLC******
(10)(v) Joint Development Agreement dated December 19, 2001 between
the Company and ViTech Enterprises Inc. ******
16. Letter re change in certifying accountant
-----------------------------------------
(16)(a) Letter, Re: Changes in Certifying Accountant (Incorporated by
reference to the Company's Current Report on Form 8-K dated January
28,1997 File No. 0-25312)
21. Subsidiaries of the registrant
------------------------------
Startech Corporation, a Colorado corporation doing business under the
name of Startech Corporation ****
23. Consent of experts and counsel
------------------------------
The Consent of Kostin, Ruffkess & Company, LLC dated December 15, 2001
********
28
******** Filed herewith
******* Filed with the Registration Statement of Form S-8 on October
31, 2002 Commission File No. 333-
****** Filed with the Registration Statement on Form S-1 on July 17,
2002, Commission File No. 333-96885
***** Filed with Annual Report on Form 10-K for 2001, filed on January
25, 2002.
**** Filed with Annual Report on Form 10-K for 2000, filed on January
25, 2001.
*** Filed with Amendment No. 3 to the Registration Statement on Form
S-1, filed on September 20, 2000, Commission File No. 333-35786.
** Filed with Amendment No 1. to the Registration Statement on Form
S-1 filed on July 7, 2000, Commission File No. 333-35786
* Filed with the Registration Statement on Form S-1 on April 27, 2000,
Commission File No. 333-35786
Exhibit 99.1: Certification by the CEO (annexed hereto)
Exhibit 99.2: Certification by the Principal Financial Officer
(annexed hereto)
29
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 24th day of
January, 2003.
STARTECH ENVIRONMENTAL CORPORATION
(Registrant)
BY: /s/ Joseph S. Klimek
--------------------------------
Joseph S. Klimek
Chief Executive Officer
President
BY: /s/ Robert L. DeRochie
--------------------------------
Robert L. DeRochie
Chief Financial Officer
and, Vice President
Investor Relations, and
Principal Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the Company and in
the capacities and on this 24th day of January 2003.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Joseph S. Klimek Chief Executive Officer
- ------------------------ and President January 24, 2003
Joseph S. Klimek
/s/ Kevin M. Black Sr. Vice President,
- ------------------------ General Counsel,
Kevin M. Black Secretary and Director January 24, 2003
/s/ Brendan J. Kennedy Director January 24, 2003
- ------------------------
Brendan J. Kennedy
/s/ Joseph F. Longo Director January 24, 2003
- ------------------------
Joseph F. Longo
/s/ Richard M. Messina Director January 24, 2003
- ------------------------
Richard M. Messina
/s/ Raymond J. Clark Director January 24, 2003
- ------------------------
Raymond J. Clark
30
CERTIFICATIONS
Certification requirements set forth in Section 302(a) of the Sarbanes-Oxley
Act.
I, Joseph S. Klimek certify that:
1. I have reviewed this annual report on Form 10-K of Startech
Environmental Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such internal controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's internal controls
and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the internal controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
I am responsible for preparing the Company's consolidated financial
statements and the other information that appears in this Form 10-K. I believe
that the consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10-K is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting my responsibility for the reliability of the consolidated
financial statements, I depend on the Company's system of internal accounting
controls. This system is designed to provide reasonable assurance that assets
are safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: January 24, 2003
/s/ Joseph S. Klimek
- -------------------------
Joseph S. Klimek
President and Chief Executive Officer
CERTIFICATIONS
Certification requirements set forth in Section 302(a) of the Sarbanes-Oxley
Act.
I, Robert DeRochie certify that:
1. I have reviewed this annual report on Form 10-K of Startech
Environmental Corp;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such internal controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. evaluated the effectiveness of the registrant's internal controls
and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the internal controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
I am responsible for preparing the Company's consolidated financial
statements and the other information that appears in this Form 10-K. I believe
that the consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10-K is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting my responsibility for the reliability of the consolidated
financial statements, I depend on the Company's system of internal accounting
controls. This system is designed to provide reasonable assurance that assets
are safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: January 24, 2003
/s/ Robert L. DeRochie
- ------------------------
Robert L. DeRochie
Chief Financial Officer &
Vice President, Investor Relations