Unknown;
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
Amendment No. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR 12(g) OF THE SECURITIES ACT OF 1934
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(Name of Small Business Issuer in Its Charter)
Delaware Applied For
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
TNO Environmental Technology Valley
Laan van Westenenk 501
7334 D T Apeldoorn, The Netherlands
(Address of Principal Executive Offices)
011 31 55 534 7040
(Company's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
Securities to be registered pursuant to Section 12(g) of the Act:
Common stock, no par value
(Title of Class)
<PAGE> 1
TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis and Plan of Operation 11
Item 3. Description of Property 13
Item 4. Security Ownership of Certain Beneficial Owners and Management 13
Item 5. Directors, Executive Officers, Promoters and Control Persons 14
Item 6. Executive Compensation 14
Item 7. Certain Relationships and Related Transactions 17
Item 8. Description of Securities 18
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity
and Other Shareholder Matters 20
Item 2. Legal Proceedings 20
Item 3. Changes in and Disagreements with Accountants 20
Item 4. Recent Sales of Unregistered Securities 21
Item 5. Indemnification of Directors and Officers 22
PART F/S
December 31, 1998, 1999 and 2000, audited financial statements 23
June 30, 2001 reviewed financial statements 44
PART III
Item 1. Index to Exhibits 65
Item 2. Description of Exhibits 65
SIGNATURES 65
<PAGE> 2
PART I
Item 1. Description of Business.
The Company was formed to develop a proprietary technology for drying and
treating animal manure and sludge.
The Company was originally incorporated in Colorado on December 10, 1997.
On December 11, 1997 the Company sold 5,000,000 shares of common stock for
$5,000 in cash. On December 26, 1997, Solutions Tek, Inc., a Colorado
corporation acquired all of the Series L common stock of STB Corporation, a
Colorado corporation. Pursuant to the "Plan of Share Exchange" the STB
Corporation Series L common stock holders exchanged all of their Series L shares
for common stock of Solutions Tek, Inc. on the basis of one share of Series L
common stock of STB Corporation for one share of common stock of Solutions Tek,
Inc. Solutions Tek, Inc. acquired no assets or business entity as a result of
this transaction. The rights of the shareholders from the former STB Corp.
significantly changed as shareholders of Solutions Tek, Inc. by reason that
Series L shareholders were not subject to control features of STB Corp. as
Series L shareholders.
Shares of Solutions Tek, Inc. common stock issued and outstanding which
shares had rights to vote at the January 9, 1998 meeting. Notice was also given
of dissenters rights pursuant to Colorado law pursuant to Section 7-113-101
through 7-113-303 of the Colorado Business Corporation Act. Solutions Tek, Inc.
valued its shares at $0.001 per share for purposes of reimbursing any
dissenters. The merger also required Solutions Tek, Inc. to change its
corporate domicile to the State of Delaware and to change the Company name to
Management of Environmental Solutions and Technologies Corp.
On January 9, 1998 pursuant to the notice provisions as described above, a
majority of the shareholders of Solutions Tek, Inc. approved the plan of merger
set forth in the December 26, 1997 notice by a majority vote. There were no
dissenters and no funds were paid to dissenting shareholders. "As a result of
the share for share exchange between the Series L shareholders of STB Corp. and
Solutions Tek, Inc., no business, rights, tangible or intangible assets were
acquired."
On December 18, 1997, counsel, William Hart, incorporated Management of
Environmental Solutions & Technology Corp. in the State of Delaware under file
number 971438081-Z635318 authorizing capital stock of 30,000,000 shares of
common stock at .0001 par value and 5,000,000 shares of preferred stock at .0001
par value. The initial director was named in the Articles as Marieke Oudejans.
On December 26, 1997, Management of Solutions Tek, Inc. notified its
shareholders of a special meeting of shareholders to be held in British Columbia
on January 9, 1998 to consider a plan of merger between Solutions Tek, Inc. and
Management of Environmental Solutions & Technology Corp. The significant
features of the merger which occurred by way of special meeting of shareholders
on January 9, 1998 follow.
Shareholder of Solutions Tek, Inc. by majority vote agreed to cancel all
issued and outstanding stock in exchange for the issuance by MEST Corp, the
Delaware corporation of its common stock to the shareholders of Solutions Tek,
Inc. on the basis of one common share of MEST Corp. issued for each share of
common stock of Solutions Tek, Inc. cancelled. MEST Corp. issued 5,175,456
shares to the shareholders of Solutions Tek, Inc. who cancelled its shares.
Pursuant to the notice of the shareholders meeting of Solutions Tek, Inc. held
<PAGE> 3
on January 9, 1998, Solutions Tek, Inc. shareholders were notified of their
right to exercise dissenters rights with respect to the proposed merger pursuant
to Section 7-113-101 through 7-113-302 of the Colorado Business Corporation Act.
Additionally, Solutions Tek, Inc. notified its shareholders that it would pay
$0.001 per share to any shareholder dissenting from the merger. No shareholder
made objection or dissented from the plan of merger at the January 9, 1998
special shareholder meeting.
On March 2, 1998 shareholders owning in excess of 50% of the Company's
common stock approved a 1,000-for-1 reverse split of the Company's common stock.
On March 10, 1998 the Company sold 5,094,900 shares of common stock for
$510.
On April 9, 1998 the Company issued 1,920,000 shares of its common stock in
consideration for all issued and outstanding shares of M.E.S.T., B.V., a
Netherlands corporation. M.E.S.T., B.V. was acquired because it had certain data
and technical information which the Company plans to use in its business. At the
time of this acquisition, M.E.S.T., B.V. was controlled by the Company's
President. See "Management - Transactions with Affiliates".
During 1998 the Company sold 299,980 shares of common stock for $3.00 per
share.
Between December 16, 1998 and September 30, 1999 the Company sold 354,410
shares of its Series A Preferred stock for an average price of $3.92 per share
(after currency translation adjustments).
a. MSTec, B.V. obtained an exclusive, non-transferable license with
respect to patent number 1009619 dated July 10, 1999, Cost Effective Method for
Treatment and/or Disposal of Water Containing Waste Streams based on application
of zeolite for the further development and commercialization of the referenced
patent application with a sub-licensing right which will be described hereafter.
b. MSTec, B.V. obtained a non-exclusive right to utilize all technical
knowledge and experience with regard to the referenced patent application.
c. In the event patent applications were not successful, MSTec, B.V.
obtained the right to utilize know-how regarding the patent applications to
further its purposes as expressed above.
d. For the manufacturing and sales of manure conversion installations by
MSTec, B.V., MSTec, B.V. is required to give a non-transferable exclusive
sub-license regarding the referenced patent and the know-how embraced in that
patent "against payment of royalties by MSTec, B.V.".
e. In the event the referenced patent cannot be exploited independently
from TNO's patent entitled Method and Device for Heating and Cooling Food
Products, TNO has agreed to prospectively award a license on patent number 1 in
order to protect MSTec, B.V.'s commercial options as contemplated in the license
agreement.
f. TNO was required to expand its patent on Method and Device for Heating
and Cooling Food Products if licensee funds such an expansion.
Section 2 of the license agreement describes the consideration to be paid
by MSTec, B.V. for the licensing right (2,000,000 Dutch Guilders excluding the
AT). The same detailed provisions are included regarding the method, manure and
account numbers at which such payment shall be made.
<PAGE> 4
Section 3 of the license agreement deals with patent protection and
infringement rights and duties. MSTec, B.V. is required to pay for the
application process and any expansion of the referenced patents by TNO. The
party who discovers infringement is required to notify the other party. Both
parties have maintained the right to protect their rights and/or interests in
the referenced patent independently at its own expense.
Section 4 of the license agreement delineates TNO duties to transfer
ownership of patents on the completion of certain payments. The license
agreement includes non-disclosure provisions, delineates ownership of patents
granted and not granted at term of the agreement and dispute resolution.
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing regulatory
and legislative requirements have resulted in the continued growth in demand for
wastewater treatment. Government regulations require most companies and
municipalities to treat outgoing wastewater.
In the opinion of management, government regulations regarding the disposal
of industrial waste, as well as rising wastewater discharge fees and public
concern regarding water pollution, have led to increased awareness on the part
of businesses and public utilities as to the need for waste treatment.
Management provides a summary of a six-year study by a group of Dutch Business
school graduates and associates involved in environmental issues related to
agriculture production and pollution in the Netherlands included an in-depth
survey of the various aspects of manure dumping in the Netherlands and the
detrimental effects of this practice on land and water reserves. The survey was
performed in close cooperation with the Dutch government and several scientific
institutes. The outcome of this survey led to a follow-up study on the global
possibilities of exporting organic fertilizer from countries with excess manure
to regions with a shortage of fertilizer. This study was carried out in close
cooperation with a variety of international organizations such the U.N. Food
and Agriculture Organization (FAO) and revealed that many European countries
and the United States - on an even larger scale - were facing excessive
environmental problems from indiscriminate manure dumping by large livestock
producers.
It is the opinion of management that farmers in many other countries are
seeking clean, environmentally friendly solutions to improve crop production.
They have little recourse but to use synthetic fertilizer, the continued use
of which often damages the soil composition and adversely affects certain life
forms, such as earthworms, which have a beneficial effect on soil composition.
Although untreated animal manure has long been used as fertilizer, it is
unable to be economically shipped long distances due to the water content in the
manure. In addition, many farmers are reluctant to use animal manure as
fertilizer since untreated animal manure often contains weed seeds and
micro-organisms that can cause crop disease.
Research into the application of zeolites for drying specific substances
such as manure and sludge has been performed at The Netherlands Organization for
Applied Scientific Research ("TNO") for a number of years. Experiments have been
conducted under different conditions to investigate both the drying and further
treatment of the sludge by incineration during the regeneration stage of the
zeolite. The results of this research have been stated in various TNO reports
and publications. Zeolite is a clay substance processed into various sizes with
an extremely high water absorption capacity. The absorption of water creates
extreme heat which is utilized in the absorption phase of materials processing
for pasteurization.
<PAGE> 5
Using proprietary technology developed by TNO, the Company and TNO formed
a corporation, known as Manure and Sludge Technology B.V. ("MST"), for the
purpose of developing a process for use on commercial basis which would
economically remove water from manure and sludge, refine the manure into pellets
which could be sold as organic fertilizer and other products. MST is a
Netherlands corporation. The Company and TNO each own 50% of the capital stock
of MST.
TNO is a European contract research organization based in the
Netherlands.
TNO employs approximately 5,100 highly skilled scientists, technical types
and University professors for purposes of engaging in product development under
collaborative arrangements. TNO has identified as its core areas of development
the following: new materials research, product development and new production
techniques; sustainable processes, use of energy and materials; defense;
information and communications technology; electronic and physical systems;
nutrition and food; prevention and health; labor and labor environment;
transport and logistics; building and infrastructure; subsurface and natural
resources; and innovation management. In 1999 TNO's operating income was
$468,604,000.00 Euro Dollars.
TNO has developed alliances with corporations from the United Kingdom and
the European Continent.
TNO's process for the treatment of hog and/or poultry manure involves the
following steps:
1. Raw manure containing approximately 10% solid material is
pre-treated, if required, to avoid release into the air of nitrogen compounds
(in particular ammonia) which may be present in the manure.
2. Part of the water present in the manure is removed by conventional
technology yielding a concentrated manure containing approximately 25% solid
material.
3. The concentrated manure is mixed in a vessel with zeolites in such a way
that most of the water present in the manure is transferred to the zeolites. At
the same time small solid manure particles are formed.
4. The manure particles are separated from the zeolites using existing
technology.
5. The manure particles containing 85% solid material are reshaped into
pellets for packaging and shipment. The pelletizing process takes away another
5% of the moisture, which leaves an organic fertilizer product with over 90% dry
material.
6. The zeolites are regenerated to remove the absorbed water and are
recycled back to the drying vessel.
The Company is required to contribute $1,000,000 to the joint venture of
which $590,000 has been paid as of September 30, 1999, and $410,000 of which is
to be paid by January 2000. In February MEST Corp., through its subsidiary
MSTec, B.V., paid $150,239.81. The balance of $259,760.19 has not nor will be
paid. The Company mutually agreed with TNO not to pay 259.760.19 by reason that
TNO did not complete certain technical requirements of the development contract.
With the funds provided by the Company, TNO is performing a study to determine
the feasibility of using zeolites for the treatment and processing of animal
manure and/or sludge on a commercial basis. The joint venture's feasibility
study involves four phases:
<PAGE> 6
Phase 1 - Determine the technical and economic feasibility of the zeolite
technology for manure/sludge treatment on a commercial scale. During this stage
a price range will be calculated which will be the basis for the decision
concerning the continuation of the project.
Phase 2 - Design the components of the system. The different functional
elements (manure/sludge pre-treatment, dryer, transport systems, zeolite, and
regeneration unit/furnace, etc.) will be assessed individually in an
experimental program. Product samples will be assessed as to their quality.
Phase 3 - Construct a large pilot-plant scale (200 kilograms per hour
capacity) to determine if the technology in its entirety (i) functions properly,
(ii) with adequate efficiency, and (iii) produces manure of good quality.
Phase 4 - Design, engineer and construct a fully operational plant (with a
five ton per hour capacity) to fully test the technology.
As of June 30, 2001 Phases 1, 2 and 3, and 4 have been completed.
The results of testing and operation of the pilot plant have demonstrated that
pig poultry and cattle manure can be introduced into the MEST Corp. drying
process, rapidly dried and then pelletized in order to form a value added
product. Testing demonstrated that the absorptive material, zeolite, may be
regenerated by a special reactor which heats the saturated zeolite thus enabling
the zeolite to be utilized repeatedly.
Pursuant to the agreement dated February 1, 1999 between TNO and MSTec,
B.V., as a part of the construction of the pilot plant with a capacity of 250 kg
per hour processing capability, TNO is required to provide specifications,
design format and engineering schematics for plants with production capacities
of 5 tons per hour and 11 tons per hour. The engineering, design specifications
and fabrication of the 250 kg pilot plant has been completed as of the first
quarter of calendar year 1999. The design specifications for the 5 ton per hour
and the 11 ton per hour have been completed by TNO. These specifications have
been delivered to Industri Techniek Borculo (ITB), a Dutch enterprise, part of
the Willems Groep, specializing in manufacture of machinery and equipment for
the gas turbine industry. ITB has given price quotations for the manufacture of
the proprietary zeolite drying process. Neither the Company nor ITB has
undertaken the manufacture of either of the 5 ton per hour or 11 ton per hour
device. The Company anticipates a manufacturing review for production devices
prior to the manufacture of such production devices. The Company anticipates
the commencement of production in 2002.
If TNO's study suggests that TNO's process will be commercially feasible,
the Company will have the right to use TNO's technology to build manure/sludge
treatment facilities for third parties. The Company's right to use this
technology will expire fifteen years after the Company installs the first
treatment facility using the TNO technology. In return for these rights, the
Company is obligated to pay the joint venture royalty equal to:
(1) 15% of the manufacturing costs of the first ten treatment facilities
installed by the Company
(2) 12.5% of the manufacturing costs for the next 15 treatment facilities, and
(3) 10% of the manufacturing costs for all remaining treatment facilities
installed by the Company
Any net profits earned by the joint venture will be equally distributed
between the Company and TNO.
TNO has reserved the right to use its technology for any purpose other
than the treatment of manure and sludge.
<PAGE> 7
MEST Corp acquired all of the issued and outstanding stock of
M.E.S.T.,B.V., a Netherlands Corporation from Marieke Oudejans on February 19,
1998. MEST-BV owns one half (20,000 shares) of Manure and Sludge Technology
BV hereafter referred to as MSTec, B.V. a Netherlands corporation. The Dutch
organization for applied scientific research (TNO) owns the other one half or
20,000 shares of MSTec, B.V. Between January 22, 1999 and February 1, 1999,
TNO and MSTec, B.V. entered into a license agreement wherein TNO granted an
exclusive non-transferable license for further development and
commercialization with rights to sub-license under certain conditions the
international patent "cost effective method for treatment and/or disposal of
water containing (waste) streams (like sludge, sewage, dung, etc.) based on the
application of zeolite". The license also granted to MSTec, B.V. the right to
use on a non-exclusive basis all of the technical knowledge and experience
contained in certain reports and publications relative to the patent described
above. If the referenced patent application were not granted, then the
agreement remains in force regarding the know-how involved in the patent
application. The circumstances arise when the above referenced patent could not
be exploited independently from international patent application #PCT/NL96/00215
entitled "Method and Device for Heating and Cooling Food Products" then TNO is
required to grant another license to MSTec, B.V. to preserve M.E.S.T., B.V.'s
"commercial options" for the purpose of the licensing agreement.
Once the patent regarding the treatment of waste and sludge has been
granted, TNO is required to transfer ownership of the patent to MSTec, B.V. for
consideration of one million Dutch Guilders. (Approximately $500,000.00 USD)
TNO is required to prosecute the patent and transfer that patent to MSTec, B.V.
on the payment of the consideration recited above. As MSTec, B.V. shares are
owned by TNO and M.E.S.T.,B.V. equally and M.E.S.T.,B.V. is owned outright by
MEST Corp, MEST Corp controls entirely the functions of M.E.S.T.,B.V. and MSTec,
B.V. The administrative functions of commercializing and propagating the sludge
and manure processing technology is controlled by MEST Corp. MEST Corp. will be
entirely responsible for sub-licensing the technology for utilization
domestically and internationally. There can be assurance that any patents will
be issued. Furthermore, there is no assurance as to the scope and degree of
protection any issued patents might afford TNO or the Company. Disputes may
arise with third parties as to the scope, validity and ownership rights of a
patent. Any defense of a patent could prove costly and time consuming and there
can be no assurance that TNO and/or the Company will be successful in
defending any such patents.
There can be no assurance that joint venture between the Company and TNO
will be successful in developing the technology to a state where it is
commercially feasible. There can be no assurance that the Company will receive
any revenues from any technology developed by the joint venture.
The construction and operation of waste, sludge and manure treatment
facilities has not yet been determined. The Company may sell production
capacity treatment devices to operators for their own purposes. The Company may
license distributors to sub-license the technology in define geographical areas
or the Company may fabricate devices which will be company owned and derived
compensation for production operations from processing and from production of
pelletized products. Actual fabrication will likely occur on a contract basis
by responsible fabricators and machine shops.
Operational obligations for the production of zeolite dehydration devices
is being determined. In the event the Company sells outright a treatment
facility, then the continuing operational obligations are negligible and
relegated to warranty services. In the event the Company fabricates and
operates treatment facilities in-house, then operational controls and
obligations are comprehensive and envelop all states of raw materials
procurement, processing, mechanical service maintenance and repair installation,
sale of finished product and warranty work.
<PAGE> 8
Hog and Poultry Farms In the European Community an estimated 121,000,000
hogs are raised in hog farms each year generating million tons of hog manure
each year. Hog farms breed and raise hogs in indoor pens. The pens are enclosed
in barns which, in some cases, are as large as football fields. Metal grates are
used as the floors for the pens. Hog manure is pushed through slats between the
metal grates and flushed into pits or holding ponds known as lagoons. The manure
in the lagoons is then buried in landfills. However, many fields surrounding hog
farms are becoming so saturated that they cannot absorb all of the hog manure.
In addition, lagoons have at times leaked and overflowed. As a result, the hog
manure is beginning to contaminate ground water, drinking wells, lakes, streams
and rivers and is causing air pollution as a result of odors from the hog barns
and lagoons. Poultry farms dispose of their waste in a similar fashion resulting
in the same pollution problem. The Company believes the process being developed
by MEST can provide a solution to the hog and poultry waste problem by
processing the manure into fertilizer on a continuous flow basis and thereby
eliminating the need for the lagoons.
Sludge Disposal. Most wastewater treatment facilities treat wastewater
through the use of bacteria. Wastewater is collected in tanks where bacteria
consume the waste. The bacteria (i.e. "sludge") then settles to the bottom of
the tank. Prior to discharge into rivers or lakes the treated wastewater is
disinfected with chlorine or ultra-violet light. The sludge is buried in
landfills. The Company believes the same TNO technology applicable to hog and
poultry manure can be used to incinerate the sludge.
Since the completion of the 250 kg/hr pilot plant, TNO has processed sludge
and manure to demonstrate feasibility for basic pretreatment practices, intake
mechanisms, interaction between sludge, manure and zeolite, segregation of
zeolite and dried material and pelletization. Initial tests concluded that
dehydration of material reduced moisture content in sludge by approximately 80%
or more. Sludge material was tested for combustion characteristics. The
company has tested exhaust for chemical composition. Initial testing indicates
that in excess of 90% of pollutants remain in the ash. The company makes no
representation regarding the market applications and economic feasibility of
utilizing dehydrated sludge for incineration purposes. The Company envisions
selling such products to incineration facilities for commercial boilers, heat
transfer or co-generation applications. Fly ash disposal will be effected in
compliance with local disposal ordinances.
Sales and Marketing
The Company plans to market its proprietary process and fertilizer through
sales personnel, manufacturers' representatives, distributors and licensees.
It is expected that the joint ventures manufacturer's representatives,
distributors and licensees will be independent businesses which, in certain
cases, will have the exclusive right to sell or use the joint venture's
technology systems in a specified geographical area. The joint venture may be
required to provide both engineering and marketing support to its manufacturer's
representatives, distributors and licensees.
The Company has made no decision regarding the area of market focus.
Preliminary hearing inquiries regarding the zeolite dehydration process have
come from Belgium, the Netherlands and Alaska. The Company's marketing impetus
will depend on the perceived ability of the Company to penetrate certain markets
regardless of geographical orientation.
<PAGE> 9
Competition
The waste treatment industry is fragmented, with numerous regional
participants in countries throughout the world which are limited in their
geographic scope. This fragmentation is primarily due to local differences in
water quality and supply, different levels of demand for water resulting from
varying concentrations of industry and population, and local governmental
regulation. Most participants in the waste treatment industry provide a limited
number of treatment technologies, a limited number of products or services, or
focus on a particular industry. The number of industry participants ranges from
several large companies to hundreds of small local companies.
A large number of companies compete in the chemical fertilizer industry,
most of which have greater financial and marketing resources than those of the
Company.
Government Regulation
The United States Government, through the Clean Water Act and the Clean Air
Act, regulate the processing, utilization and disposal of sludge, manure and
organic wastes which would be generated by the Company's proprietary dewatering
technology. Several phases of the dewatering process will involve local, state
and federal regulations. Hauling or transporting raw sewage or manure,
preprocessing storage, pre-dewatering segregation, air quality of processed
material, zeolite segregation, zeolite reconstitution, pelletization and
disposal of treated waste products may involve to a certain extent environmental
regulation and permitting by local state and national authorities. For example,
the United States Government regulates the quality of process sludge in terms of
disease, chemical composition or the existence of the proprietary treatment
material in the finished dewatered sludge product under 40 CFR 503 et seq.
Waste water effluents reintroduced into sewage systems are governed by 40 CFR
403. 40 CFR 122 prescribes pretreatment rules if the volume of effluence
constitutes a "significant source" under the applicable regulation.
If the materials processed by the Company's dewatering system constitutes
hazardous waste, it may be regulated by the Resource Conservation Recovery Act.
Non-hazardous waste substances are governed by 40 CFR 257 (materials without a
garbage content) or 40 CFR 258 (bio-solids with a garbage content). Generally
the United States federal regulations are secondary in consideration to
municipal concerns expressed in local, municipal or city ordinances. Local
ordinances will prescribe parameters for dewatering bio-solids, sludge and
manure as part of the regulation process of landfills, utilization of human and
animal waste products as fertilizers, sewage treatment plants (for
reintroduction of segregated fluids) and local air quality controls through the
permitting process.
MEST has not determined where the first dewatering processing system will
be located. This determination will likely be made based upon the location of
plants purchased by interested parties.
The actual construction of the proprietary dewatering process by MEST Corp
or a duly licensed subcontractor has not revealed or invited regulatory concern.
Mechanics of this system involve in-feed augers, hoppers, mixing chambers,
vacuum equipment, a segregation unit, a thermal desorption unit (turbid
reactor), air pumps, ventilation equipment, conveyors, pelletizers and other
standard manufactured items. The Company's negotiations with potential
manufacturing partners will include a requirement that manufacturing and the
physical facility where production is located comply with local, state or
provincial and applicable national regulations.
<PAGE> 10
Many governments regulate and enforce wastewater treatment as well.
Continued promulgation and enforcement of similar regulations, or the failure to
adopt or enforce such regulations could have a significant impact on the demand
for any technology which may be developed by the Company's joint ventures with
TNO.
The Company's offices are located at TNO Environmental Technology
Valley Laan van Westenenk 501, 7334 D T Apeldoorn, The Netherlands. The
Company's telephone number is 011 31 55 534 7040 and its facsimile number is
011 31 55 534 7532.
As of June 30, 2001, the Company has one full time employee, Mr. Greg
Schmick who serves as President, Secretary and Director. Contingent upon the
Company raising sufficient capital, the Company plans to hire additional
employees as may be required by the level of the Company's operations. See
"Use of Proceeds".
Item 2. Management's Discussion and Analysis or Plan of Operations
If TNO's study suggests that TNO's process will be commercially feasible,
the Company plans to use TNO's technology to build manure/sludge treatment
facilities for third parties. The Company anticipates that it will cost
approximately $850,000 to $1,000,000 USD and require from four to six months
to construct a plant capable of treating 11 tons per hour of manure.
During the nine month period ending September 30, 2002, the Company
projects expenditures of approximately $2,610,000 in capital to fund
ongoing research, construct a full scale dewatering device, fund operating and
marketing expenses and to acquire the exclusive rights to use the process
being developed by MST for processing sludge. The Company plans to raise
additional capital through the sale of its common stock.
Current available funding will allow the Company to successfully operate
for a period of twelve months as the Company is currently structured. In order
to engage in activities designed to quantify energy costs for a variety of
materials processed by the propriety dewatering device, engage in substantial
marketing activities, construct production devices, additional capital will be
required.
Current research and testing in collaboration with TNO after the
development of the pre-production device is concentrated on the quantification
of energy costs and procedures for processing a variety of materials. The
Company has plans for expanding the application of its proprietary process to
all types of animal manure and waste, various types of sludge, fish waste, pulp
and paper mill byproducts, agricultural and food processing wastes. The Company
has positioned itself in collaboration with TNO with the ability to economically
expand testing plans and individual market research economically and
efficiently. The pre-production unit is capable of demonstrating the
feasibility of utilizing the Company's proprietary dewatering process for
specific applications. While the Company does not anticipate generating
significant revenues from research or basic testing endeavors, it does expect to
cover costs of applied energy costs analysis as well as specific application
testing.
The Company expects to market its 5 ton per hour or 11 ton per hour device
and is currently entertaining several serious inquiries regarding the plan
process and its application in Europe. The initial pre-production sales are
expected to take longer than routine production because the Company anticipates
resolving production engineering and volume processing issues. The Company also
anticipates raising capital for in-house acquisition of production devices for
<PAGE> 11
demonstration facilities, fertilizers production or potential partnering or
organic waste processing. In order to facilitate the Company's plans for
marketing and production partnering, the Company expects to increase the number
of its employees to accommodate these specific objectives.
After the development of the 250 kg per hour pre-production device pursuant
to the joint venture arrangement with TNO, the proprietary dewatering system has
demonstrated the ability to process an ongoing stream of waste products.
Preliminary data regarding the commercial feasibility indicates that the
processing of manure may be commercially feasible in certain applications.
Commercial feasibility is dependent upon costs for disposal of animal waste,
potential for re-utilization of the dewatered product and administrative costs
of managing environmental regulations. For example, the process may be
economically viable for a commercial feed lot or hog operation and may not be
feasible for an individual dairy farmer.
There can be no assurance that the TNO's treatment process will be
commercially feasible, that the Company will be able to sell any treatment
plants or that the Company will be able to raise any additional capital.
The Company anticipates that the target market for the Company's
proprietary dewatering device will be high volume feed lots for hogs, poultry,
beef cattle and dairy animals where the aggregation and disposal of manure is
costly and highly regulated. Preliminary acceptance of the economically
efficient drying process is almost universal. However, commercial feasibility
and viability of processing bio-wastes has yet to be determined. Third party
purchases will generally not require in-house funding. Purchase contracts will
require installments calculated to cover manufacturing costs. The Company
currently does not anticipate acquiring necessary tooling for production or
pre-production purposes. The Company anticipates procuring additional funding
through September 30, 2002 through public offerings or private placements.
Under enclosure 2 the Company has included an agreement with regard to the
subordinated loan between M.E.S.T.,B.V. and MSTec, B.V. The referenced
agreement acknowledges and contemplates MSTec, B.V.'s financial obligations to
procure the licenses for the zeolite technology and patent procurement. MSTec,
B.V. is required to pay the loan by remitting 50% of all positive operating
profits commencing December 31, 1999. Any unpaid balance of the loan bears
interest at the rate of 5% per annum. The interest is to be paid yearly.
M.E.S.T.,B.V. agreed to subordinate MEST's repayment obligations for the benefit
of Rabo Bank in Appledorn and the benefit of TNO so that MSTec, B.V. can pay all
other debts except those that are "equal to both parties".
Item 3. Description of Property.
The Dutch Organization for Applied Scientific Research which is based at
2628VK DELFT Schoemakerstraat 97 (hereafter referred to as TNO) entered into a
license agreement with Manure and Sludge Technology B.V. (Hereafter referred to
as MSTec, B.V.). The data and technical information acquired in the MSTec, B.V.
acquisition relates to basic research, compilations of statistical information
from basic engineering and experimentation. TNO conducted research beginning in
1993 involving utilization of the zeolite technology for pasteurizing and drying
food products. TNO applied for international patents for the use of zeolite in
drying process under patent number PCT/NL96/00215 entitled Method and Device for
Heating and Cooling Food Products. The zeolite application to the treatment of
sludge and manure developed from the original application of the zeolite drying
technology for certain food stuffs under an original application number
NL/1000482 dated June 1, 1995.
<PAGE> 12
On July 10, 1998 TNO applied for another patent under number 1009619
entitled Cost Effective Method for Treatment and/or Disposal of Water Containing
Waste Streams (like sludge, sewage, dung, etc. based upon the application of
zeolite). The patents are still pending.
MSTec. B.V.'s license regarding the aforementioned TNO technologies are to
further "develop and commercialize the unique zeolite drying process.
Commensurate with such rights MSTec, B.V. has the right to utilize all
"technical knowledge and experience" with regard to the patent applications.
The Company acquired all of MSTec, B.V. license rights through the acquisition
of M.E.S.T., B.V. which owns all of the shares of MSTec, B.V.
The MSTec, B.V. joint venture was formed with TNO on February 1, 1999. The
material terms of the licensing agreement are contained in Section 1 of the
license and are summarized here.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the number of and percentage of outstanding
shares of common stock beneficially owned by the Company's officers, directors
and those shareholders owning more than 5% of the Company's common stock as of
June 30, 2001.
Shares of
Name and Address Common Stock (1) Percent of Class
-------------------------------- ------------------- ----------------------
Marieke Oudejans 2,260,000 (2) 29.44%
#68 Willem Van Weldamme LAAN
P.C. 1082 KW
Amsterdam, The Netherlands
Maurice Schelvis 2,010,000 (2) 26.19%
Stadhouderskade 142
1074 BA Amsterdam
The Netherlands
Eugene M. Larabie -- --
507-595 Howe St.
Vancouver, British Columbia
Canada V6C 2T5
Robert E. Johnson -- --
L1901-1600 Beach Avenue
Vancouver, British Columbia
Canada V6G 7Y6
All Officers and Directors 4,270,000 55.63%
as a Group (4 persons)
(1) Does not include shares issuable upon the exercise of options held by the
certain officers. See "Management - Transactions with Affiliates".
<PAGE> 13
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following sets forth certain information concerning the present
management of the Company:
Name Age Position with Company
------------------------- --- ------------------------------------------------
Marieke Oudejans 30 President, Secretary, Director (12/97 to 4/01)
Greg Schmick 51 President, Secretary, Director (began April
2000 through date of last amendment)
Maurice Schelvis 59 Vice President (through date of last amendment)
Eugene M. Larabie 61 Vice President
Robert E. Johnson 65 Chief Financial Officer and Vice
President of Operations
Greg Schmick has been president and Secretary the Company since April,
2001. Mr. Schmick has been a Director since February of 2000. Mr. Schmick
has been previously engaged as a principal of International Soil Sciences, Inc.,
a Oregon corporation, engaged in the business of recycling since 1998. For the
past 5 years, Mr. Schmick has been an independent contractor consulting for
various recycling operations in the Pacific Northwest.
Marieke Oudejans has been was formerly an Officer and Director of the
Company from January 1998 to April 2001. Since June 1997 Ms. Oudejans
as been the President of M.E.S.T., B.V., a corporation which was acquired by the
Company in April 1998 until April 2001. Until June 1997 Ms. Oudejans
was an assistant vice president for ATT-Unisource, a Company engaged in
telecommunications.
Maurice Schelvis has been an officer and director of the Company since
July 1998. For the past five years Mr. Schelvis has been an officer and director
of a real estate trading company in Amsterdam, The Netherlands.
Eugene M. Larabie has been an Officer of the Company since February 1998.
Since 1984 Mr. Larable has been the president of Laroth Engineering Ltd., a
corporation providing consulting services to the mining industry.
Robert E. Johnson has been an Officer of the Company since February 1998.
Mr. Johnson has been retired since 1993. From 1975 to 1993 Mr. Johnson was
manager of customer services for the British Columbia Hydro and Power Authority.
Technical Advisor Jan Pranger is a process engineering consultant with
extensive experience in manufacturing and design and has served as a
technical advisor since March 1999. Mr. Pranger obtained his masters degree
in Chemical Engineering (with distinction) from the Dutch University of
Delft. Before starting his studies he gained several years research
experience with the Company Tebodin Consultants and Engineers in the Hague.
After obtaining his degree in chemical engineering, Mr. Pranger became a member
of the Royal Institute of Engineers (Kivl).
Item 6. Executive Compensation.
The following table sets forth in summary form the compensation received
by (i) Marieke Oudejans, the Company's Former President, (ii) Maurice
Schelvis, Eugene Larabie and Robert Johnson, the Company's Vice Presidents
and (iii) Greg Schmick, the Company's current President and Secretary and (iv)
by each other executive officer of the Company who received compensation
during the fiscal years ending December 31, 1997, 1998, 1999, 2000 and the
six-month period ending June 30, 2001.
<PAGE> 14
Other Annual Restricted Options
Name and Fiscal Salary Bonus Compensation Stock Awards Granted
Principal Position Year (1) (2) (3) (4) (5)
-------------------- ------ ------ ----- ------------ ------------ -------
Marieke Oudejans, 1997 -- -- -- -- --
President 1998 -- -- -- -- 100,000
1999 100,000
2000 $87,602 -- -- -- 100,000
2001 $29,200 -- -- -- 100,000
06/02 -- -- -- -- 50,000
Maurice Schelvis, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 100,000
1999 -- -- -- -- 100,000
2000 -- -- -- -- 100,000
2001 -- -- -- -- 100,000
06/02 -- -- -- -- 50,000
Greg Schmick, 1997 -- -- -- -- --
President/Secretary 1998 -- -- -- -- --
1999 -- -- -- -- --
2000 $16,000 -- -- -- --
2001 $24,000 -- -- -- --
06/02 $12,000 -- -- -- --
Eugene Larabie, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 15,000
1999 -- -- -- -- --
2000 -- -- -- -- --
2001 -- -- -- -- --
06/02 -- -- -- -- --
Robert Johnson, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 15,000
1999 -- -- -- -- --
2000 -- -- -- -- --
2001 -- -- -- -- --
06/02 -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amounts in the table represents automobile allowances.
(4) Amounts reflect the value of the shares of the Company's common stock issued
as compensation for services.
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the year fiscal years shown in the table.
<PAGE> 15
The table below shows the number of shares of the Company's Common Stock
owned by the officers listed above, and the value of such shares as of June 30,
2001.
Name Shares Value
--------------------- --------- -------------
Marieke Oudejans 2,260,000 2,260,000 *
Maurice Schelvis 2,010,000 2,010,000 *
* The Company's common stock did not begin to trade on the pink sheets until
July 1999. From July, 1999 until June 2001, there has not been sufficient
trading history or consistent market from which to base an opinion regarding the
value of such shares. Please refer to footnote 1 on page 17.
The following shows the amounts which the Company expects to pay to its
officers and technical advisor during the year ending December 31, 2001 and the
time which the Company's executive officers and technical advisor plan to devote
to the Company's business. The Company does not have employment agreements with
any of its officers or technical advisor.
Proposed Time to be Devoted
Name Compensation To Company's Business
------------------------- ------------------- --------------------------------
Marieke Oudejans (1) 100% (to 4/01)
Greg Schmick $16,000(4) 100% (from 4/01)
Maurice Schelvis (2) 50%
Eugene Larabie (3) 5%
Robert E. Johnson (3) 5%
Jan Pranger (5) 0%
(1) The Company previously planned to issue 1,100,000 shares of its common
stock to Ms. Oudejans for services rendered to the Company to April, 2000.
The decision to issue such stock has not yet been made by the Board of
Directors. Ms. Oudejans was compensated at the rate of $87,602 per year
beginning in 2000 which terminated with her employment in April 2001.
(2) Subsequent to September 30, 1999 the Company issued 100,000 shares of its
common stock to Mr. Schelvis for services provided to the Company. The
Company also plans to compensate Mr. Schelvis with options for the purchase
of shares of the Company's common stock.
(3) The Company plans to issue shares of its common stock, as well as options,
to this person for services provided to the Company.
(4) Mr. Schmick's stock option package is yet to be determined.
(5) Mr. Pranger's services are not anticipated to be required until 2002.
The Company's Board of Directors may increase the compensation paid to the
Company's officers depending upon the results of the Company's future
operations.
As of June 30, 2002 the Company had granted options for the purchase
of the Company's common stock to the following persons:
Shares Subject Option Expiration
Name To Option Exercise Price Date
-------------------- ---------------- -------------- ------------------
Marieke Oudejens 100,000/yr $0.50 July 31, 2002
Maurice Schelvis 100,000/yr $0.50 February 2, 2002
Eugene M. Larabie 15,000 $0.50 July 31, 2000
Robert E. Johnson 15,000 $0.50 July 31, 2000
Frank J. Janssen 50,000 $0.50 July 31, 2003
Afris Holding B.V. 50,000 $0.50 July 31, 2003
<page> 16
Value of
Unexercised
Name Shares No. of Securities In-The-Money
Acquired Value Underlying Options/
on Exercise Realized Unexercised options/ SARs at FY-end
SARs and FY-end (dollars)
Exercisable and Exercisable/
Unexercisable Unexercisable
----------------- ------------ -------- -------------------- ---------------
Marieke Oudejans 0 0 450,000/500,000 see footnote 1
Maurice Schelvis 0 0 450,000/500,000 see footnote 1
Eugene M. Larabie 0 0 15,000/15,000 see footnote 1
Robert E. Johnson 0 0 15,000/15,000 see footnote 1
Frank J. Janssen 0 0 50,000/50,000 see footnote 1
Afris Holdings BU 0 0 50,000/50,000 see footnote 1
(1) The Company is unable to place a value of exercisable or unexercisable
options due to the lack of historical or current market activity. However,
footnote 11 on the Notes to Consolidated Financial Statements represented
compensation costs to operations as follows: 1998 - $865,938; 1999 - $717,900;
2000 - $767,900.
In the opinion of Management and based upon the transactional history of
stock sales of Registrant as of June 30, 2002, the estimated fair value of the
Company's common stock is $7,320,806 USD indicating a per share price of
Approximately $1.00 USD. The share price derives from NASD Pink Sheet
transactional history. The value of shareholdings held by the Company's
principals has been revised to indicate values on page 15 of the Amended filing.
The statement explaining why registrant believes the valuations are estimates
only. The fair value of the unexercised in-the-money options as of June 30, 2002
has been revised by the inclusion of Management's estimate of option values.
Accounting standards which consider standards for recognition of stock in
stock options for purposes of compensating directors, officers, employees or
advisers, are found in Statement of Financial Accounting Standards number 123
(SFAS 123). In accordance with SFAS 123, the options and/or stock compensation
given to the individuals mentioned in the last table of item 6 follows: Options
granted to Marieke Oudejans and Maurice Schelvis were deemed compensation for
services rendered for founders efforts, forbearance from collecting wages or
salaries and for compensation for loans or monies advanced. Options to Messrs.
Larabie and Johnson were compensation for more limited activities benefiting
the Company. Afris Holdings, Inc. received stock options pursuant to a request
by Richard Van Bremmell who acted as general manager in 1998-1999 as part of a
salary compensation package. Larabie and Johnson were each given options for
15,000 shares as part of a salary compensation package.
Item 7. Certain Relationships and Related Transactions.
The Company has issued shares of its common stock to the persons, in the
amounts, and for the consideration set forth below:
Number
Name Date of Shares Consideration
--------------------- ----------- ---------------- --------------------------
Marieke Oudejans 4/9/98 1,920,000 All of the issued
and out-standing
shares of M.E.S.T., B.V.
Marieke Oudejans 4-08-98 2,100,000 $25 and founder's services
Maurice Schelvis 3-10-98 250,000 $25 and founder's services
<PAGE> 17
An accounting of the loans made by the Company's principals, Marieke
Oudejans and Maurice Schelvis, appear in four related party transactions and
Note 12 "Subsequent Events" which are attached to the consolidated financial
statements for years ending December 31, 1998, 1999, and 2000. The loans,
forgiveness of debt and reconciliation occurred May 15, 2001 and explanations
have been made as a part of the audited accounting.
In March 1999 Marieke Oudejans transferred 1,760,000 of her shares of the
Company's common stock to Maurice Schelvis in a private transaction. See
Securities Ownership of Certain Beneficial Owners, above.
M.E.S.T., B.V. had issued previously 2,000 shares of its common stock to
Marieke Oudejans which represented all of the issued and outstanding stock of
M.E.S.T., B.V. At the time of the April 9, 1998 transaction, no attempt was
made by M.E.S.T., B.V. to obtain an independent business appraisal or accounting
opinion regarding the value of M.E.S.T., B.V. M.E.S.T., B.V.'s assets consisted
of rights and duties it procured by virtue of the Licensing Agreement between
TNO, MSTec, B.V. and M.E.S.T., B.V. with its attendant rights, duties and
liabilities. The value of the proprietary dewatering system was not the subject
of an independent business valuation or independent audit. Consequently, there
were no representations made to shareholders, officers or directors of the
Company in regards to the sale/acquisition of M.E.S.T., B.V. shares.
Item 8. Description of Securities.
Common Stock
The Company is authorized to issue 30,000,000 shares of Common Stock (the
"Common Stock"). As of June 30, 2001 the Company had 7,320,055 shares of
Common Stock issued and outstanding. Holders of Common Stock are each entitled
to cast one vote for each share held of record on all matters presented to
shareholders. Cumulative voting is not allowed; hence, the holders of a majority
of the outstanding Common Stock can elect all directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid until the Company is in profit.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock. All of the
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common stock offered hereby will be, upon issuance, fully paid and
non-assessable.
The stock of the Company MEST Corp is considered a penny stock which has
numerous trading restrictions by virtue of the Securities and Exchange Act of
1934. Please refer to Rule 15g-1 through 15g-9 (17 CFR 240.15 g-1 through 17
CFR 240.15 g-9). 17 CFR 240.15g-2 makes it unlawful for a broker or dealer to
effect a penny stock transaction for or with the account of a customer unless he
or she has furnished to the customer a document which contains the warnings and
precautionary disclosures regarding the penny stock market contained in 17 CFR
240.15g-100, 15g, and a manually signed acknowledgment of receipt of these
documents. Schedule 15g contains important information regarding penny stocks
which include disclosures regarding the risk of investing in penny stocks, the
financial remuneration of the sales person in regards to the stock purchased,
<PAGE> 18
rights to seek outside advice before buying any stock and rights with respect to
redress through compliance officer for any problems which may have arisen
regarding sales persons. Schedule 15g cautions investors regarding information
which investors should obtain, offering price, selling prices and compensation
charged by the selling and purchasing dealers. Potential investors are also
cautioned regarding brokers' duties and customers' rights and remedies which
include contact information for the NASD, NASAA and the SEC. Schedule 15g also
informs investors regarding the role of the Securities and Exchange Commission
with respect to the issuance or approval of such shares and provides further
cautions regarding the timeliness of investment decisions, information
concerning the company issuing the stock, risk of penny stock securities and
the market and the credibility and reliability of the brokerage firm who is
purveying the stock.
Rule 15g-3, 17 CFR 240.15g-3 requires a broker or dealer to reveal to
prospective purchasers inside bid or offer quotations if such are available.
Under certain circumstances the dealer is required to disclose its offer price
for the security under conditions set forth in Rule 15g-3(a)(i)(A) and (C).
Rule 15g-4 requires the broker or dealer to reveal the aggregate amount of any
compensation received in connection with a transaction of penny stock and keep
records regarding such disclosures. Rule 15g-5 requires a broker or dealer to
reveal to its customer the aggregate amount of any cash compensation received as
a part of a transaction and keep records of the same. Rule 15g-6 requires
brokers and dealers to send a customer a written statement containing the
information concerning price determinations and market and price information in
accordance with Rule 15g-6(c)(d). Rule 15g-8 prohibits any person from selling
or offering securities deposited and held in escrow or trust account pursuant to
rule 419 under Securities Act of 1933 with certain exceptions. Rule 15g-9
restricts broker/dealers from selling any penny stocks to customers unless the
transaction is exempt or the broker/dealer before the transaction has approved
the person's account transactions involving penny stocks pursuant to Rule
15g-9(b) and the broker or dealer has received a written agreement to the
transaction setting forth the identity and quantity of the penny stock to be
purchased.
The foregoing description is intended only as a summary of the restrictions
on broker/dealers with respect to the promotion and sale of penny stock
transactions. The two fold effect of compliance with all of the broker dealer
regulations set forth above allows prospective purchasers to have valuable
information regarding the financial motivations of the broker dealer purveying
penny stock and restricts broker dealers with respect to the financial
qualifications and informational requirements distributable to persons
contemplating the acquisition of the company's shares. A copy of Rule 15g,
read it carefully and consult with counsel if necessary.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of Preferred
Stock. The Company's Articles of Incorporation provide that the Board of
Directors has the authority to divide the Preferred Stock into series and,
within the limitations provided by Delaware statute, to fix by resolution the
voting power, designations, preferences, and relative participation, special
rights, and the qualifications, limitations or restrictions of the shares of any
series so established. As the Board of Directors has authority to establish the
terms of, and to issue, the Preferred Stock without shareholder approval, the
Preferred Stock could be issued to defend against any attempted takeover of the
Company.
<PAGE> 19
The Company's directors ratified Company activities to established the
Company's Series A Preferred Stock and authorized the issuance of up to
1,000,000 shares of Series A Preferred Stock as part of this series. Each
share of Series A Preferred Stock is entitled to a dividend at the rate of
$0.30 per share when, as and if declared by the Board of Directors out of funds
legally available for the payment of dividends. Dividends not declared by
the Board of Directors do not cumulate. Upon any liquidation or dissolution of
the Company, each outstanding share of the Series A Preferred Stock is entitled
to distribution of $4.00 per share prior to any distribution to the holders of
the Company's Common Stock. The holders of the Series A Preferred Stock are
not entitled to any voting rights. Each share of the Series A Preferred
Stock is convertible into one share of the Company's Common Stock at any
time after June 1, 1999. Effective February 1, 2000 each Series A Preferred
Share which is still outstanding will automatically be converted into one
share of the Company's common stock.
As of June 30, 2002 the Company has sold 535,985 Series A Preferred
Shares at an average price of $4.01 per share (after currency translation
adjustments). The Company is currently converting all Series A Preferred Shares
into Common Shares.
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity and
Other Shareholder Matters.
As of June 30, 2001 there were 169 record owners of the Company's common
stock and 141 record owners of the Company's Series A preferred stock. The
Company's common stock is traded in the over-the-counter market. Set forth
below are the range of high and low bid quotations for the periods
indicated as reported by National Quotation Bureau. The market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions
and may not necessarily represent actual transactions. The Company's common
stock began trading in July 1999. There is no public market for the Company's
Series A Preferred Stock.
Quarter Ending High Low
--------------------- ----- -----
September 30, 1999 $ 4.50 $4.43
December 31, 1999 -- --
March 31, 2000 4.00 2.00
June 30, 2000 -- --
September 30, 2000 -- --
December 31, 2001 1.00 0.12
March 31, 2001 1.04 0.98
June 30, 2001 -- --
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends on it's
Common Stock and the Company does not have any current plans to pay any Common
Stock dividends.
The provisions in the Company's Articles of Incorporation relating to the
Company's Preferred Stock would allow the Company's directors to issue Preferred
Stock with rights to multiple votes per share and dividends rights which would
have priority over any dividends paid with respect to the Company's Common
Stock. The issuance of Preferred Stock with such rights may make more difficult
<PAGE> 20
the removal of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
Item 2. Legal Proceedings.
The company has been made aware of an inquiry from the COB Bourse
Authority (Securities Regulators in France) published in the September 22,
1999 Extel Examiner (France). No communication regarding a complaint or
claim has been made to the Company. The COB Bourse Authority will not share
any information regarding the complaint or status of any investigation.
Item 3. Changes in and Disagreements with Accountants.
The Company changed Auditors from Arenthals En Partners (a Netherlands
Accounting Firm) to Williams & Webster PS, Certified Public Accountants. To the
extent the Consolidated Financial Statements for calendar years 1998, 1999 and
2000, together with the Quarterly Consolidated Financial Statements for quarters
ending March 31, June 30 and September 30, 2000 and March 31 and June 30, 2001
differ from the Statements provided by Arenthals En Partners, Management
disagrees with the Financial Statements provided by Arenthals En Partners.
Item 4. Recent Sales of Unregistered Securities.
Shares outstanding Common Stock
----------------------------------------------------------------- -------------
1. On December 11, 1997 the Company sold 5,000,000 shares 5,000,000
of common stock for $5,000 in cash.
Please refer to the narrative contained in Item 1 "Description of Business".
The December 11, 1997 transaction whereby Solutions Tek, Inc. sold 5,000,000
shares of common stock to Bona Vista Holdings, Inc. privately in an isolated
transaction involving an accredited investor with no public solicitation
Securities Act of 1933 Section 4 (6). Bona Vista Holdings, Inc. is an entity in
which all of the shareholders (Martin Apps) were accredited investors by virtue
of his status as director and executive. See 17 CFR 233.501(a) (4) and (8).
Rule 502(b)(1) makes no mandatory disclosure of information to an accredited
investor under Rule 505 or 506 exemptions. Rule 505 is available to the
Solutions Tek, Inc. sale of 5,000,000 shares by virtue of the accredited status
afforded to Bona Vista Holdings and its shareholder who was the director and
executive officer and the fact that the aggregate amount of sales did not exceed
$5,000,000.00. Rule 505 does not contain the exceptions listed under Rule 504
(a) (1), (2) and (3) which precludes the use of Rule 504 for "development stage
company that either has no specific business plan or purpose". Note, these
shares were subject to the reverse stock split described in number 3 below.
2. On December 26, 1997 the Company issued 175,456 shares 5,175,456
of its common stock in a share-for-share exchange
with the Series "L" shareholders of STB Corp.
The Company avails itself of the "exempted transaction" status of the Company's
issuance of 175,456 common shares in a cashless, share for share exchange with
the holders of Series L common shares of STB Corp. Section 4 of the Securities
and Exchange Act of 1933 expressly provides that the registration requirements
of the 1933 Act under Section 5 do not apply to transactions by an issuer NOT
involving any public offering. The exchange involved no consideration other than
stock. The Series L, STB shareholders had the opportunity to vote at the
<PAGE> 21
special meeting of shareholders, January 8, 1998. No single dissent vote was
made. Aside from the Notice to Shareholders of special meeting, no general
advertisement or solicitation was made by the Company to the public. Note, these
shares were subject to the reverse stock split described in number 3 below.
3. On March 2, 1998 shareholders owning in excess of 50% 5,175
of the Company's common stock approved a 1,000-for-1
reverse split of the Company's common stock.
4. On April 9, 1998 the Company sold 5,094,900 shares of 5,100,075
common stock for $510.
5. On April 9, 1998 the Company issued 1,920,000 shares of 7,020,075
its common stock in consideration for all issued and out-
standing shares of M.E.S.T., B.V., a Netherlands corporation.
6. Between June 8, 1998 and October 9, 1998 the Company sold 7,320,055
299,980 shares of its common stock for $3.00 per share.
Between June 8, 1998 and October 9, 1998, the Company sold 299,980 common
shares pursuant to an exemption under 17 CFR 230:504 (Regulation D 504 of the
Securities and Exchange act of 1933) and Regulation S. The Company directly
solicited investors at $3.00 USD per share. The Company received and accepted
146 subscriptions and raised a total of $899,940.00 which was reported to the
SEC on the standardized Regulation D Report Form. All of the shareholders who
purchased common stock were solicited offshore as that term is defined and
utilized under Regulation S (17 CFR 233:902). There was no direct or indirect
selling effort made in the United States by the Company, a Company affiliate or
an agent representing the Company or affiliate. The offering amount qualified
it for an exemption from registration pursuant to Regulation D, Rule 504 of the
1933 Act.
Shares outstanding Preferred Stock
--------------------------------------------------------------- ---------------
1. From December 7, 1998 to June 30, 2000 the Company 535,985
sold 535,985 preferred shares and raised a total of
$2,147,185.
Between December 7, 1998 and June 30, 2000, the Company sold 535,985
preferred shares pursuant to an exemption under 17 CFR 230:903 (Regulation S).
The Company directly solicited foreign investors at $4.01 USD per share. The
Company received and accepted 141 subscriptions and raised a total of
$2,147,185. All of the shareholders who purchased preferred stock were
solicited offshore as that term is defined and utilized under Regulation S (17
CFR 233:902). There were no direct selling efforts made in the United States
by the Company, a Company affiliate or an agent representing the Company or
affiliate.
The sale of the Company's Series A preferred stock was exempt pursuant to
the provisions of Regulation S of the Securities and Exchange Commission. No
offering or sale of the Series A preferred stock was made to any U.S. person.
The Series A preferred stock and the shares issuable upon the conversion of
Series A preferred stock are restricted securities as that term is defined in
Rule 144 of the Securities and Exchange Commission. Neither the Series A
preferred shares or any shares issuable upon the conversion of the Series A
preferred shares can be sold or transferred to any U.S. person, unless
registered for public resale, prior to the end of the restricted period required
by Regulation S.
<PAGE> 22
Item 5. Indemnification of Directors and Officers.
The Delaware General Corporation Law and the Company's Bylaws provide that
the Company may indemnify any and all of its officers, directors, employees or
agents or former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the defense of any
legal proceeding or threatened legal proceeding, except as to matters in which
such persons shall be determined not to have acted in good faith and in the best
interest of the Company. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
PART F/S
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
WILLIAMS & WEBSTER PS
CERTIFIED PUBLIC ACCOUNTANTS
BANK OF AMERICA FINANCIAL CENTER
601 W. RIVERSIDE, SUITE 1940
SPOKANE, WA 99201
(509) 838-5111
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and
Comprehensive Income (Loss) 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
<PAGE> 23
Board of Directors
Management of Environmental Solutions & Technology Corp.
APELDOORN,
The Netherlands
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheets of Management of
Environmental Solutions & Technology Corp. (a development stage company) as of
December 31, 2000, 1999, and 1998 and the related consolidated statements of
operations and comprehensive income (LOSS), stockholders' equity, and cash
flows for the years then ended and for the period from December 10, 1997
(inception) to December 31, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
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 Management of
Environmental Solutions & Technology Corp. at December 31, 2000, 1999, and
1998, and the results of its consolidated statements of operations and
comprehensive income (loss), cash flows, and stockholders' equity for the years
ended December 31, 2000, 1999, and 1998, and for the period from December 10,
1997 (inception) to December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997 and has had recurring losses and no revenues.
The Company's decision is to perfect its technological application before
entering the market. Realization of a major portion of the assets is
dependent upon the Company's ability to meet its future financing requirements,
and the success of future operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding those matters are described in Note 2. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
June 1, 2001 EXCEPT FOR NOTES 1, 2, 5, 7 AND 10 AS TO WHICH THE DATE IS AUGUST
30, 2002
<page> 24
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31, December 31,
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 666,746 $ 646,274 $ 728,870
Tax refunds receivable 44,157 33,582 37,248
Receivables,
related parties 158,441 933,303 -
Other receivables - 2,247 5,288
Prepaid expenses 19,274 15,936 3,703
-------------- -------------- --------------
Total Current Assets 888,618 1,631,342 775,109
-------------- -------------- --------------
OTHER ASSETS
Property and equipment
(net of depreciation) 7,182 11,359 3,356
-------------- -------------- --------------
Total Other Assets 7,182 11,359 3,356
-------------- -------------- --------------
TOTAL ASSETS $ 895,800 $ 1,642,701 $ 778,465
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Loans from related parties $ 109,090 $ 119,480 $ 99,996
Accrued expenses 12,738 - 9,060
Accounts payable 63,048 544,171 66,762
Other liabilities - - 31,775
-------------- -------------- --------------
Total Current Liabilities 184,876 663,651 207,593
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.0001 par value
- authorized 5,000,000 shares
Series A preferred shares
issued and outstanding at end
of year, respectively, 535,985,
427,485, and 23,900 53 42 2
Common stock, $0.0001 par
value - authorized 30,000,000
shares; 7,320,055 shares
issued and outstanding 732 732 732
Additional paid-in capital 3,149,176 2,615,517 1,014,149
Stock options 2,274,650 1,583,838 865,938
Deficit accumulated during
the development stage (4,530,690) (3,135,375) (1,325,233)
Accumulated other comprehensive
income (loss) (182,997) (85,704) 15,284
-------------- -------------- --------------
Total Stockholders' Equity 710,924 979,050 570,872
-------------- -------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 895,800 $ 1,642,701 $ 778,465
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 25
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<table>
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
<s> <c> <c> <c> <c>
REVENUES $ - $ - $ - $ -
OPERATING EXPENSES
General and administrative 1,054,970 902,187 1,277,226 3,281,252
Research and development 63,782 471,595 - 535,377
Depreciation 4,177 2,189 345 6,711
------------- ------------- ------------- ---------------
Total Operating Expenses 1,122,929 1,375,971 1,277,571 3,823,340
LOSS FROM OPERATIONS (1,122,929) (1,375,971) (1,277,571) (3,823,340)
OTHER INCOME (EXPENSES)
Interest income 75,446 34,037 - 109,483
Interest expense - - (793) (793)
------------- ------------- ------------- ---------------
Total Other Income
(Expenses) 75,446 34,037 (793) 108,690
------------- ------------- ------------- ---------------
LOSS BEFORE INCOME TAXES (1,047,483) (1,341,934) (1,278,364) (3,714,650)
INCOME TAXES - - - -
------------- ------------- ------------- ---------------
NET LOSS AFTER TAXES (1,047,483) (1,341,934) (1,278,364) (3,714,650)
LOSS FROM JOINT VENTURE (347,832) (468,208) - (816,040)
------------- ------------- ------------- ---------------
NET LOSS (1,395,315) (1,810,142) (1,278,364) (4,530,690)
OTHER COMPREHENSIVE INCOME
(LOSS)
Foreign currency
translation gain (loss) (97,293) (100,988) 15,284 (182,997)
------------- ------------- ------------- ---------------
COMPREHENSIVE (LOSS) $ (1,492,608) $ (1,911,130) $ (1,263,080) $ (4,713,687)
============= ============= ============= ===============
LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.20) $ (0.26) $ (0.22) $ (0.68)
============= ============= ============= ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 7,320,055 7,320,055 5,825,885 6,902,688
============= ============= ============= ===============
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 26
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Inception,
Dec. 10, 1997 - $ - - $ - $ - $ - $ - $ - $ -
Issuance of common
stock for cash on
Dec. 11, 1007 for
$1.00 per share - - 5,000 1 5,009 - - - 5,010
Issuance of common
stock to acquire
STB corp. on Dec.
26, 1997 at $1.00
per share - - 175 - 175 - - - 175
Net loss for year
ended Dec. 31, 1997 - - - - - - (46,869) - (46,869)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1997 - - 5,175 1 5,184 - (46,869) - (41,684)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of common
stock as follows:
For cash on March
10, 1998 at $.017
per share - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 at
$0.01 per share - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred stock
for cash:
December 1998 at
$3.73 per share 23,900 2 - - 89,246 - - - 89,248
Issuance of stock
options for
compensation on
Aug. 31, 1998 at
$2.62 per option - - - - - 865,938 - - 865,938
Net loss for year
ended Dec. 31, 1998 - - - - - - (1,263,080) 15,284 (1,278,364)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<page> 27
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash:
Jan. 1999 at
$3.92 per share 23,350 2 - - 91,644 - - - 91,646
Feb. 1999 at
$3.96 per share 48,050 4 - - 190,196 - - - 190,200
Mar. 1999 at
$3.90 per share 10,300 1 - - 40,199 - - - 40,200
April 1999 at
$4.00 per share 11,300 1 - - 45,199 - - - 45,200
May 1999 at
$3.85 per share 12,640 1 - - 48,684 - - - 48,685
June 1999 at
$4.01 per share 82,900 8 - - 332,237 - - - 332,245
July 1999 at
$4.00 per share 88,700 9 - - 354,941 - - - 354,950
Aug. 1999 at
$4.02 per share 25,770 3 - - 103,494 - - - 103,497
Sept. 1999 at
$3.43 per share 26,500 3 - - 90,997 - - - 91,000
Oct. 1999 at
$4.22 per share 6,200 1 - - 26,174 - - - 26,175
Nov. 1999 at
$4.05 per share 40,725 4 - - 165,086 - - - 165,090
Dec. 1999 at
$4.14 per share 27,150 3 - - 112,517 - - - 112,520
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued 1999 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of stock
options for
compensation on
Aug. 31, 1999 at
$3.59 per share - - - - - 717,900 - - 717,900
Net loss for year
ended Dec. 31, 1999 - - - - - - (1,810,142) (100,988) (1,911,130)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<page> 28
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash: Jan. 2000 at
$4.08 per share 8,300 1 - - 33,891 - - - 33,892
Feb. 2000 at
$4.34 per share 23,750 2 - - 103,054 - - - 103,056
Mar. 2000 at
$4.37 per share 4,500 1 - - 19,645 - - - 19,646
April 2000 at
$4.16 per share 61,700 5 - - 256,425 - - - 256,430
May 2000 at
$4.30 per share 5,250 1 - - 22,598 - - - 22,599
June 2000 at
$4.19 per share 5,000 1 - - 20,958 - - - 20,959
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued: 2000 108,500 11 - - 456,571 - - - 456,582
Issuance of stock
options for
compensation on
Aug. 31, 2000 at
$3.84 per share - - - - - 767,900 - - 767,900
Expiration of
stock options on
July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss,
Dec. 31, 2000 - - - - - - (1,395,315) (97,293) (1,492,608)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 2000 535,985 $ 53 7,320,055 $ 732 $ 3,149,176 $ 2,274,650 $ (4,530,690) $ (182,997) $ 710,924
============== ============== ============== ============== ============== ============== ============== ============== ==============
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<page> 29
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<table>
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
<s> <c> <c> <c> <c>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,395,315) $ (1,810,142) $ (1,278,364) $ (4,530,690)
Foreign currency translation
gain or (loss) (97,293) (100,988) 15,284 (182,997)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 4,177 2,189 345 6,711
(Increase) decrease in
assets:
Accounts receivable (10,575) 3,666 (37,248) (44,157)
Other receivables 2,247 3,041 (5,288) -
Prepaid expenses (3,338) (12,233) (3,703) (19,274)
Options granted as
Compensation 767,900 717,900 865,938 2,351,738
Increase (decrease) in
liabilities:
Accrued liabilities 12,738 (9,060) 9,060 12,738
Accounts payable (481,123) 477,409 66,762 57,863
Loans from related
parties (10,390) 19,484 53,127 62,221
Other liabilities - (31,775) 31,775 46,869
------------- ------------- ------------- ---------------
Net cash used in operating
activities (1,210,972) (740,509) (282,312) (2,238,978)
------------- ------------- ------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment - (10,192) (3,701) (13,893)
Investment in loans
receivable 774,862 (933,303) - (158,441)
------------- ------------- ------------- ---------------
Net cash provided by (used
in) investing activities 774,862 (943,495) (3,701) (172,334)
------------- ------------- ------------- ---------------
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 30
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<table>
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
<s> <c> <c> <c> <c>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sales of
common stock - - 900,450 905,635
Proceeds from sales of
preferred stock 456,582 1,601,408 89,248 2,147,238
Acquisition of subsidiary,
M.E.S.T., B.V. - - 20,000 20,000
------------- ------------- ------------- ---------------
Net cash provided by
financing activities 456,582 1,601,408 1,009,698 3,072,873
------------- ------------- ------------- ---------------
Net increase (decrease) in
cash 20,472 (82,596) 723,685 661,561
Cash at beginning of year 646,089 728,685 5,000 5,000
------------- ------------- ------------- ---------------
Cash at end of year $ 666,561 $ 646,089 $ 728,685 $ 666,561
============= ============= ============= ===============
SUPPLEMENTAL ITEMS:
Interest paid $ - $ - $ 793 $ 793
Income taxes paid - - - -
------------- ------------- ------------- ---------------
$ - $ - $ 793 $ 793
============= ============= ============= ===============
NON-CASH INVESTING &
FINANCING ACTIVITIES:
Stock options granted
for compensation $ 767,900 $ 717,900 $ 865,938 $ 2,351,738
Stock issued for
Acquisitions $ - $ - $ 20,000 $ 20,175
</table>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 31
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 1 - ORGANIZATION AND HISTORY
Management of Environmental Solutions & Technology Corp. was formed to develop
a proprietary technology for drying and treating animal manure and sludge to be
used as fertilizer. The "Company" ("MEST") was incorporated in Colorado on
December 10, 1997, followed by reorganization as a Delaware corporation on
December 18, 1997.
On December 26, 1997, the Company obtained all of the outstanding common stock
of STB corporation, a shell corporation domiciled in Colorado, by issuing 175
shares of the company's common stock. Because STB corporation had no assets or
operations, the company recorded the transaction at the initial deemed valued
of the stock conveyed ($175), which was consistent with the deemed value of the
Company's stock issued in its immediately precedent initial transaction. In
the year subsequent to the acquisition, STB corporation was administratively
dissolved.
On April 9, 1998, the Company issued 1,920,000 shares of its common stock to
its president in exchange for all of the issued and outstanding shares of MEST,
B.V., a Netherlands corporation, owned by the Company's president. Although
MEST, B.V. had no recorded assets at the time of the transaction, the Company
recorded the acquisition at a nominal value of $0.01 per share. The aggregate
acquisition cost of $20,000, originally assigned to intangible assets, was
substantially written off by the end of 1998. Currently, MEST, B.V. is used to
conduct the company's business in the netherlands. MEST, B.V. was acquired
because it had certain data and technical information that the company plans to
use in its business.
The Netherlands Organization for Applied Scientific Research ("TNO"), staffed
by 5,000 professionals is one of Europe's leading contract research
organizations. Using proprietary technology developed by TNO, the Company and
TNO formed a corporation known as Manure and Sludge Technology, B.V. ("MSTec")
for the purpose of developing a process for use on a commercial basis that
would economically refine manure and sludge into pellets, which could be sold
as organic fertilizer and other products. MSTec, a Netherlands corporation, is
owned 50 percent by the Company and 50 percent by TNO.
The Company's year end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and have been
consistently applied in the preparation of the financial statements.
<page> 32
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Method
The Company's financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America.
Development Stage Activities
The Company has been in the development stage since its formation in December
of 1997, and has not yet realized any revenues from its planned operations. It
is engaged in the business of manufacturing, distributing, and selling
fertilizer products.
Use of Estimates
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
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
Fair Value of Financial Instruments
MEST's financial instruments consist primarily of cash, receivables, prepaid
expenses, accrued expenses and payables, and loans payable, which approximate
fair value because of their short maturities.
Research And Development
Research and development expenses are charged to operations as incurred. The
cost of intellectual property purchased from others that is immediately
marketable or that has an alternative future use is capitalized as intangible
assets. The Company periodically reviews its capitalized patent costs to
assess recoverability based on the projected undiscounted cash flows from
operations. Impairments are recognized in operating results when a permanent
diminution in value occurs.
The Company constructed a testing facility during 1999 in Apeldoorn, the
Netherlands at a cost of approximately $450,000. These costs were expensed as
research and development during the year ended December 31, 1999.
<page> 33
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", which is effective for the Company as of January
1, 2001. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
From November 1, 1999 to February 17, 2000, the Company entered into a small
number of foreign currency purchases for cash management purposes. The results
of these short-term transactions, which generated an aggregate loss of $7,124
in 1999 and an aggregate gain of $4,262 in 2000, are included in Other
Comprehensive Income (Loss) as an element of foreign currency translation
earnings. The Company engaged in no similar foreign currency purchases either
prior to or subsequent to the aforementioned time frame.
Compensated Absences
Currently, the Company has no employees; therefore, no policy regarding
compensated absences has been established. The Company will establish a policy
to recognize the costs of compensated absences at the point in time that it has
employees.
Advertising Expenses
Advertising expenses consist primarily of costs incurred in the design,
development, and printing of company literature and marketing materials. The
Company expenses all advertising expenditures as incurred.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting
pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. A valuation allowance is
recorded against deferred tax assets if management does not believe the Company
has met the "more likely than not" standard imposed by SFAS No. 109 to allow
recognition of such an asset.
<PAGE> 34
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision for Taxes (continued)
At December 31, 2000, the Company had net deferred tax assets of approximately
$430,000, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the net deferred
tax asset, a valuation allowance equal to the net deferred tax asset has been
established at December 31, 2000.
At December 31, 2000, the Company has net operating loss carryforwards of
approximately $2,170,000, which expire in the years 2017 through 2020. The
Company recognized approximately $2,300,000 of losses for the issuance of
common stock options for services, which are not deductible for tax purposes,
and are not included in the above calculation of deferred tax asset.
Loss Per share
Basic loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted average
number of shares was calculated by taking the number of shares outstanding and
weighting them by the amount of time they were outstanding. Outstanding
options and convertible preferred stock were not included in the computation of
diluted loss per share because the exercise price of the outstanding options is
higher than the market price of the stock, thereby causing the options to be
antidilutive.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has an
accumulated deficit of $4,530,690 for the period December 10, 1997 (inception)
to December 31, 2000 and has had no sales. The future of the Company is
dependent upon successful and profitable operations from manufacturing,
distributing, and selling its fertilizer products. The financial statements do
not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that might
be necessary in the event the Company cannot continue in existence.
Management has established plans designed to promote the sales of the Company's
product. Management intends to seek additional capital from new equity
securities offerings that will provide funds needed to increase liquidity, fund
internal growth and fully implement its business plan.
<PAGE> 35
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of MEST and its
wholly owned subsidiary, MEST, B.V. All material intercompany transactions and
balances have been eliminated. Manure and Sludge Technology, B.V. ("MSTec"), a
50 percent owned corporation is reflected in the financial statements on the
equity method of accounting, and not included in the financial statements as an
entity subject to consolidation.
Accounting for Stock Options Granted to Employees and Nonemployees
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" ("SFAS No. 123"), defines a fair value-based method of
accounting for stock options and other equity instruments. The Company has
adopted this method, which measures compensation costs based on the estimated
bair value of the award and recognizes that cost over the service period.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130), which was issued in June 1997. SFAS 130
establishes rules for the reporting and display of comprehensive income and its
components. The effect of the adoption of SFAS 130 is reflected in the
accompanying financial statements and included under the heading "Other
Comprehensive Loss."
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a statement,
SFAS No. 121, titled "Accounting for Impairment of Long-lived Assets," which
has been replaced by SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets." In complying with this standard, the Company reviews its
long-lived assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value of its
assets may not be recoverable. The Company determines impairment by comparing
the undiscounted future cash flows estimated to be generated by its assets to
their respective carrying amounts.
The Company does not believe any adjustments are needed to the carrying value
of its assets at December 31, 2000.
<PAGE> 36
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation Gains/Losses
The Company has adopted Financial Accounting Standard No. 52. Monetary assets
and liabilities denominated in foreign currencies are translated into United
States dollars at rates of exchange in effect at the balance sheet date. Gains
or losses are included in income for the year, except gains or losses related
to long-term debt, which are deferred and amortized over the remaining term of
the debt. Non-monetary assets, liabilities and items recorded in income
arising from transactions denominated in foreign currencies are translated at
rates of exchange in effect at the date of the transaction.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years. See note 4.
Concentration of Credit Risk
The Company maintains its cash in several Netherlands financial institutions.
These financial institutions are considered credit worthy and have not
experienced any losses on deposits at December 31, 2000. The funds are valued
in U.S. dollars and are fully insured.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides interpretative guidance on the recognition,
presentation and disclosure of revenue. SAB 101 must be applied to financial
statements no later than the fourth quarter of fiscal 2001. We do not believe
that the application of SAB 101 will have a material effect on the Company's
financial position or results of its operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion
No. 25". The interpretation clarifies the application of Accounting Principles
Board (APB) Opinion No. 25 in certain situations, as defined. The
interpretation is effective July 1, 2000, but covers certain events occurring
during the period after December 15, 1998, but before the effective date. We
do not anticipate that the adoption of this interpretation will have a material
effect on the Company's financial position or results of operations.
<PAGE> 37
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 3 - RELATED PARTY TRANSACTIONS
Loans from Related Parties
The following amounts were owed to shareholders or companies controlled by the
shareholders listed:
<table>
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice
Oudejans Schelvis Schelvis
-------------- -------------- --------------
Interest Loans to Loans to
Rate Maturity Company Company Advances
-------- -------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c>
December 31, 2000 5% Upon $ 0 $ 5,590 $ 103,500
Demand
December 31, 1999 5% Upon $ 10,226 $ 5,754 $ 103,500
Demand
December 31, 1998 6% Upon $ 9,114 $ 6,382 $ 84,500
Demand
</table>
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest rates at both 5 and 6 percent, and
are due upon demand.
Receivable from Related Parties
The following amounts were due from shareholders or related parties:
For Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Due from IJ-Beeher $ 48,917 $ 0 $ 0
Due from Jan Luiken, B.V. 109,524 933,303 0
---------- ---------- ----------
$ 158,441 $ 933,303 $ 0
========== ========== ==========
Other Related Party Transactions
The president of the Company conveyed all outstanding shares of MEST, B.V. to
the Company in exchange for 1,920,000 shares of common stock of the Company
during the year ended December 31, 1998.
<PAGE> 38
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 4 - PLANT, PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful lives of the assets are expensed as incurred. Depreciation
of property and equipment is being calculated using the straight-line method
over the expected useful lives of the assets. DEPRECIATION EXPENSES FOR THE
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 WAS $4,177, $2,189 AND $345,
RESPECTIVELY.
For Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Office equipment, computers $ 13,893 $ 13,893 $ 3,701
Less Accumulated depreciation (6,711) (2,534) (345)
---------- ---------- ----------
Net property and equipment $ 7,182 $ 11,359 $ 3,356
========== ========== ==========
NOTE 5 - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.0001 par value
preferred stock; 535,985 Series A Preferred Shares were issued and outstanding
at December 31, 2000. Each share of Series A preferred stock is entitled to a
dividend at the rate of $0.30 per share if the Board of Directors declares a
dividend, although no dividends have been declared. Upon liquidation or
dissolution of the Company, each outstanding share of Series A preferred stock
is entitled to a distribution of $4.00 per share prior to any distribution to
common stock shareholders. Series A preferred stock is non-voting, and each
share is convertible into one share of the Company's common stock at any time
after June 1, 1999.
During the year ended December 31, 1998, the Company sold 23,900 shares of its
preferred stock at an average price of $3.73 per share. During the year ended
December 31, 1999, the Company sold 403,585 shares of its preferred stock at an
average price of $3.93 per share. During the year ended December 31, 2000, the
Company sold 108,500 shares of its preferred stock at an average price of $4.21
per share.
NOTE 6 - COMMON STOCK
The Company is authorized to issue 30,000,000 shares of $0.0001 par value
common stock; 7,320,055 shares were issued and outstanding at December 31,
2000. Each holder of common stock has one, non-cumulative vote per share on
all matters voted upon by the shareholders. There are no preemptive rights or
other rights of subscription.
During the period ended December 31, 1997, the Company issued 5,000 shares of
its common stock for cash at $1.00 per share and 175 shares of its common stock
valued at $1.00 per share to acquire stb corp. The stock was valued at its
fair market value on the date of issuance.
<PAGE> 39
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Note 6 - Common Stock (continued)
During the year ended December 31, 1998, the Company sold 5,394,880 shares of
its common stock for cash at $0.17 per share and issued 1,920,000 shares of its
common stock at $0.01 per share to acquire a subsidiary. The stock was valued
at the fair market value on the date of issuance.
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
Manure and Sludge Technology, B.V. (hereinafter "MSTec") is a Netherlands
corporation that was formed for the purpose of developing a process for use on
a commercial basis that would economically dry and pasteurize manure and sludge
into pellets that could be sold as organic fertilizer and other products.
Since its inception, MSTec has refined its technological process for use with
other waste products such as bio-solids, fish and food waste, and paper pulp.
MEST owns 50 percent of the common stock of MSTec, and accounts for MSTec on
the equity method. The other 50 percent of MSTec's common stock is owned by
The Netherlands Organization for Applied Scientific Research ("TNO"), the
largest single research facility in Europe employing over five thousand
PROFESSIONALS.
MEST's investment in the joint venture is recorded as $0 on the balance sheet
because MSTec's debt and losses exceed the joint venturers' investment in
MSTec. MEST's investment in the joint venture totaled $816,000 at December 31,
2000, $468,000 at December 31, 1999, and $0 and December 31, 1998. In forming
the joint venture of MSTEC, the Company committed to an investment in the form
of a loan to MSTEC of approximately $800,000, which funds were in fact advanced
to MSTEC in 1999 and 2000. This loan is treated as an equity investment under
the Company's understanding of the conditions of the joint venture. The
investment is subject to the terms of the related loan agreement dated January
22, 1999, which the Company agreed that in the event of bankruptcy or
termination of MSTEC, to forego repayment of the funds advanced until such time
as all other creditors are paid in full. At the date of these financial
statements, no funds advanced by the company to MSTEC have been repaid.
The joint venture's primary asset, as the result of the aforementioned
investment, is a worldwide licensing agreement for the application of the
aforementioned technological process from TNO.
TNO controls the research and activities of the joint venture while MEST
Corp.'s participation is its investment with rights to products developed by
the joint venture.
<PAGE> 40
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
(CONTINUED)
The following is a summary of the financial position and results of operations
Of MSTEC.
2000 1999 1998
------------ ------------ ------------
Current Assets $ 123,809 $ 231,342 $ -
Property, Plant, And Equipment - - -
Other Assets (Net) 50,624 446,548 -
------------ ------------ ------------
Total Assets $ 174,433 $ 677,890 $ -
============ ============ ============
Current Liabilities $ 210,753 $ 330,098 $ -
Long-Term Debt - Related Parties 1,673,640 1,268,208 $ -
------------ ------------ ------------
Total Liabilities 1,884,393 1,598,306 -
Stockholders' Equity (1,709,960) (920,416) -
------------ ------------ ------------
Total Liabilities And Equity $ 174,433 $ 677,890 $ -
============ ============ ============
Net Sales $ - $ - $ -
Gross Profit $ - $ - $ -
Loss From Continuing Operations $ (789,544) $ (936,416) $ -
Net Loss $ (789,544) $ (936,416) $ -
Joint Venture Royalty Agreement
In connection with the formation of the MSTEC joint venture, a sub-license
agreement was executed wherein MEST agreed to pay to MSTEC "sub-license" fees,
which are effectively royalty fees, for manure conversion factories constructed
by MEST over a period of fifteen years, which begins when MEST constructs its
first factory. Royalty fees due to MSTEC are computed on a sliding scale,
based upon actual factory construction costs, and range from 15% to 10%. At
the date of these financial statements, no royalty fees were owed under the
aforementioned agreement.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Subordinated loan agreement
Under the terms of an agreement dated January 22, 1999, the management of MEST
committed the Company to loan approximately $800,000 to MSTec in phases during
the year 1999. Repayment was intended to commence December 31, 1999,
contingent upon MSTec generating an operating profit. Further, in the event of
MSTec's default or bankruptcy, MEST agreed to subordinate its interest in the
loan for the benefit of RABO bank in Apeldoorn, until all other debts of MSTec
were paid. Upon payment of debts and obligations of MSTec, the loan from MEST
would again be eligible for repayment of interest and principle.
<PAGE> 41
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Office lease
The Company leases office space in Apeldoorn under a written agreement which
provides for lease payments of approximately $2,000 per month through June
2006. Formerly, the Company leased office space in Amsterdam under a written
agreement which runs from July 1999 through January 2002 and provided for lease
payments of approximately $1,500 per month. In 2001, the lease agreement was
renegotiated and the lease expiration date was changed to July 31, 2001 with
other lease provisions remaining unchanged.
Future minimum rental commitments under the operating lease are as follows at
December 31, 2000:
Year Ending:
December 31, 2001 $ 20,500
December 31, 2002 $ 24,000
December 31, 2003 $ 24,000
December 31, 2004 $ 24,000
December 31, 2005 $ 24,000
NOTE 9 - STOCK OPTIONS
During the years 2000, 1999, and 1998 the Company granted its officers options
to purchase a net total of 700,000 shares of MEST common stock at an exercise
price of $0.50 per share. Following is a summary of the status of these
performance-based options during the years ended December 31, 1998, 1999 and
2000.
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 1997 0 $0.00
Granted 330,000 $0.50
Exercised, Expired or Forfeited 0
-------------- -----------------
Outstanding and exercisable at
December 31, 1998 330,000 $0.50
============== =================
Weighted Average Fair Value Of
Options Granted During 1998 $2.62
=================
Outstanding At December 31, 1998 330,000 $0.50
Granted 200,000 0.50
Exercised, Expired Or Forfeited - -
-------------- -----------------
Outstanding And Exercisable At
December 31, 1999 530,000 $0.50
============== =================
Weighted Average Fair Value Of
Options Granted During 1999 $3.59
=================
<PAGE> 42
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 9 - STOCK OPTIONS (CONTINUED)
Weighted Average
Shares Exercise Price
-------------- -----------------
Outstanding At December 31, 1999 530,000 $0.50
Granted 200,000 0.50
Expired (30,000) 0.50
Exercised Or Forfeited - -
-------------- -----------------
Outstanding And Exercisable At
December 31, 2000 700,000 $0.50
============== =================
Weighted Average Fair Value Of
Options Granted During 2000 $3.84
=================
The Company estimated the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model with the following weighted-
average assumptions used: dividend yield of zero percent; strike prices of
$0.50; expected volatility of 24.83%, 23.54%, and 22.25%, respectively; risk-
free interest rate of six percent and expected lives of five years. The
weighted average fair value at date of grant for options granted to officers in
the years ended December 31, 2000, 1999 and 1998 was $3.84, $3.59 and $2.62 per
option, respectively.
Compensation cost charged to operations was $767,900, $717,900 and $865,938
during the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 10 - SUBSEQUENT EVENTS
Effective May 15, 2001, Maurice Schelvis executed a forgiveness of debt
agreement in respect to amounts owed him by MEST. At December 31, 2000, the
loans had a balance of $109,090. In exchange for this forgiveness, Mr.
Schelvis's company, IJ-Beeher, B.V., was forgiven $44,157 it owed to MEST at
December 31, 2000.
<PAGE> 43
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
WILLIAMS & WEBSTER PS
CERTIFIED PUBLIC ACCOUNTANTS
BANK OF AMERICA FINANCIAL CENTER
W 601 RIVERSIDE, SUITE 1940
SPOKANE, WA 99201
(509) 838-5111
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
ACCOUNTANT'S REVIEW REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Comprehensive Loss 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
<PAGE> 44
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
APELDOORN, The Netherlands
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying consolidated balance sheets of Management of
Environmental Solutions & Technology Corp. (a development stage company) as of
June 30, 2001 and the related consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for the three months
and six months ended June 30, 2001 and 2000, and for the period from December
10, 1997 (inception) to June 30, 2001. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with accounting principles generally accepted in the United
States of America.
The financial statements for the year ended December 31, 2000 were audited by
us and we expressed an unqualified opinion on them in our report dated June 1,
2001. We have not preformed any auditing procedures since that date.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997 and has had recurring losses and no revenues.
The Company's decision is to perfect its technological application before
entering the market. Realization of a major portion of the assets is dependent
upon the company's ability to meet its future financing requirements and the
success of future operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 11 to the Financial Statements, certain errors concerning
forgiveness of debt by an officer resulting in the understatement of previously
reported losses as of June 30, 2001 were discovered by management of the
Company in the subsequent period. Accordingly, the June 30, 2001 Financial
Statements have been restated to correct these errors, the net effect of which
was to increase the company's deficit accumulated during development stage by
$62,867.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
October 3, 2001 except for Notes 10 and 11, as to which the date is July 12,
2002.
<page> 45
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
June 30,
2001 December 31,
(Unaudited) 2000
------------ ------------
ASSETSCURRENT ASSETS
Cash $ 401,028 $ 666,746
Tax refunds receivable 20,852 44,157
Receivables, related parties - 158,441
Other receivables 1,921 -
Prepaid expenses - 19,274
------------ ------------
Total Current Assets 423,801 888,618
------------ ------------
PROPERTY AND EQUIPMENT (net of depreciation) 4,650 7,182
------------ ------------
TOTAL ASSETS $ 428,451 $ 895,800
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES
Accounts payable $ 32,365 $ 63,048
Accrued expenses 15,225 12,738
- 109,090
------------ ------------
Total Current Liabilities 47,590 184,876
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock - Series A; $0.0001 par value,
5,000,000 shares authorized, 535,985 shares
issued and outstanding, aggregate liquidation
preference of $2,143,940 53 53
Common stock; $0.0001 par value, 30,000,000 shares
authorized, 7,320,055 shares issued and
outstanding 732 732
Additional paid-in capital 3,212,043 3,149,176
Stock options 2,274,650 2,274,650
Deficit accumulated during development stage (4,834,023) (4,530,690)
Accumulated other comprehensive loss (272,594) (182,997)
------------ ------------
Total Stockholders' Equity 380,861 710,924
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 428,451 $ 895,800
============ ============
See accompanying notes and accountants' review report.
<page> 46
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Three Months Ended Six Months Ended (Inception)
June 30, June 30, to
-------------------------- -------------------------- June 30,
2001 2000 2001 2000 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
EXPENSES
General and administrative 114,536 425,961 117,877 734,961 3,352,189
Research and development 70,982 60,000 131,871 60,000 667,248
Depreciation 918 1,192 1,901 1,793 8,612
------------ ------------ ------------ ------------ ------------
186,436 487,153 251,649 796,754 4,028,049
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (186,436) (487,153) (251,649) (796,754) (4,028,049)
OTHER INCOME (EXPENSES)
Interest income 15,573 9,718 26,251 34,438 135,734
Interest expense - - - - (793)
Loss from joint venture (77,935) (1,855) (77,935) (219,099) (940,915)
------------ ------------ ------------ ------------ ------------
Other Income (Expense) (62,362) 7,863 (51,684) (184,661) (805,974)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES
INCOME TAXES (248,798) (479,290) (303,333) (981,415) (4,834,023)
------------ ------------ ------------ ------------ ------------
INCOME TAX EXPENSE - - - - -
EXPENSE
NET LOSS (248,798) (479,290) (303,333) (981,415) (4,834,023)
------------ ------------ ------------ ------------ ------------
OTHER COMPREHENSIVE LOSSForeign currency
translation loss (11,501) (4,273) (89,597) (27,286) (272,594)
------------ ------------ ------------ ------------ ------------
$ (260,299) $ (483,563) $ (392,930) $(1,008,701) $(5,106,617)
============ ============ ============ ============ ============
NET LOSS PER COMMON
SHARE, BASIC AND DILUTED $ (0.04) $ (0.07) $ (0.05) $ (0.14)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 7,320,055 7,320,055 7,320,055 7,320,055
============ ============ ============ ============
</TABLE>
See accompanying notes and accountants' review report.
<page> 47
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Inception,
Dec. 10, 1997 - $ - - $ - $ - $ - $ - $ - $ -
Issuance of common
stock for cash on
Dec. 11, 1007 for
$1.00 per share - - 5,000 1 5,009 - - - 5,010
Issuance of common
stock to acquire
STB corp. on Dec.
26, 1997 at $1.00
per share - - 175 - 175 - - - 175
Net loss for year
ended Dec. 31, 1997 - - - - - - (46,869) - (46,869)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1997 - - 5,175 1 5,184 - (46,869) - (41,684)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of common
stock as follows:For cash on March
10, 1998 at $.017
per share - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 at
$0.01 per share - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred stock
for cash:
December 1998 at
$3.73 per share 23,900 2 - - 89,246 - - - 89,248
Issuance of stock
options for
compensation on
Aug. 31, 1998 at
$2.62 per option - - - - - 865,938 - - 865,938
Net loss for year
ended Dec. 31, 1998 - - - - - - (1,263,080) 15,284 (1,278,364)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants' review report.
<page> 48
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash:
Jan. 1999 at
$3.92 per share 23,350 2 - - 91,644 - - - 91,646
Feb. 1999 at
$3.96 per share 48,050 4 - - 190,196 - - - 190,200
Mar. 1999 at
$3.90 per share 10,300 1 - - 40,199 - - - 40,200
April 1999 at
$4.00 per share 11,300 1 - - 45,199 - - - 45,200
May 1999 at
$3.85 per share 12,640 1 - - 48,684 - - - 48,685
June 1999 at
$4.01 per share 82,900 8 - - 332,237 - - - 332,245
July 1999 at
$4.00 per share 88,700 9 - - 354,941 - - - 354,950
Aug. 1999 at
$4.02 per share 25,770 3 - - 103,494 - - - 103,497
Sept. 1999 at
$3.43 per share 26,500 3 - - 90,997 - - - 91,000
Oct. 1999 at
$4.22 per share 6,200 1 - - 26,174 - - - 26,175
Nov. 1999 at
$4.05 per share 40,725 4 - - 165,086 - - - 165,090
Dec. 1999 at
$4.14 per share 27,150 3 - - 112,517 - - - 112,520
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued 1999 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of stock
options for
compensation on
Aug. 31, 1999 at
$3.59 per share - - - - - 717,900 - - 717,900
Net loss for year
ended Dec. 31, 1999 - - - - - - (1,810,142) (100,988) (1,911,130)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants' review report.
<page> 49
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash: Jan. 2000 at
$4.08 per share 8,300 1 - - 33,891 - - - 33,892
Feb. 2000 at
$4.34 per share 23,750 2 - - 103,054 - - - 103,056
Mar. 2000 at
$4.37 per share 4,500 1 - - 19,645 - - - 19,646
April 2000 at
$4.16 per share 61,700 5 - - 256,425 - - - 256,430
May 2000 at
$4.30 per share 5,250 1 - - 22,598 - - - 22,599
June 2000 at
$4.19 per share 5,000 1 - - 20,958 - - - 20,959
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued: 2000 108,500 11 - - 456,571 - - - 456,582
Issuance of stock
options for
compensation on
Aug. 31, 2000 at
$3.84 per share - - - - - 767,900 - - 767,900
Expiration of
stock options on
July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss,
Dec. 31, 2000 - - - - - - (1,395,315) (97,293) (1,492,608)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 2000 535,985 53 7,320,055 732 3,149,176 2,274,650 (4,530,690) (182,997) 710,924
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants' review report.
<page> 50
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 2000 535,985 53 7,320,055 732 3,149,176 2,274,650 (4,530,690) (182,997) 710,924
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Forgiveness of
debt by officer - - - - 62,867 - - - 62,867
Net loss for
six months ended
ended June 30, 2001 - - - - - - (303,333) (89,597) (392,930)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Sept. 30, 2001 535,985 $ 53 7,320,055 $ 732 $ 3,212,043 $ 2,274,650 $ (4,834,023) $ (272,594) $ 330,861
============== ============== ============== ============== ============== ============== ============== ============== =============
</table>
See accompanying notes and accountants' review report.
<page> 51
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Six Months Ended (Inception)
June 30, to
------------------------------ June 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (303,333) $ (981,415) $ (4,834,023)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 1,901 1,793 8,612
Options granted as compensation - 383,950 2,351,738
(Increase) decrease in assets:
Tax refunds receivable 23,305 (3,000) (20,852)
Other receivables (1,921) (2,695) (1,921)
Prepaid expenses 19,274 (80) -
Increase (decrease) in liabilities:
Accounts payable (30,683) 104,985 27,180
Accrued liabilities 2,487 - 15,225
-------------- -------------- --------------
Net cash used in operating activities (288,970) (496,462) (2,454,041)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - - (13,893)
Loans provided to shareholders - - (933,303)
Payments on loans to shareholders 112,218 48,167 887,080
-------------- -------------- --------------
Net cash provided (used) by investing
activities 112,218 48,167 (60,116)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the sale of preferred
stock - 456,582 2,147,238
Proceeds from the sale of common stock - - 905,460
Proceeds from related parties loans - - 119,470
Payments on related party loans - (7,000) (10,390)
Cash acquired with subsidiary - - 20,000
-------------- -------------- --------------
Net cash provided (used) by investing
activities - 449,582 3,181,778
-------------- -------------- --------------
Foreign currency translation loss (88,966) (27,101) (271,593)
Net increase (decrease) in cash (265,718) (25,814) 396,028
Cash, beginning of period 666,746 646,089 5,000
-------------- -------------- --------------
Cash, end of period $ 401,028 $ 620,275 $ 401,028
============= ============== ==============
</table>
See accompanying notes and accountants' review report.
<page> 52
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Six Months Ended (Inception)
June 30, to
------------------------------ June 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ - $ - $ 793
Income taxes paid $ - $ - $ -
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Stock options granted for compensation $ - $ 383,950 $ 2,351,738
Stock issued for acquisitions $ - $ - $ 20,175
Notes payable, related party netted
with notes receivable related party $ 46,233 $ - $ 46,233
Forgiveness of debt by officer $ 62,867 $ - $ 62,867
</TABLE>
See accompanying notes and accountants' review report.
<page> 53
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 1 - ORGANIZATION AND HISTORY
Management of Environmental Solutions & Technology Corp. was formed to develop
a proprietary technology for drying and treating animal manure and sludge to be
used as fertilizer. The "Company" ("MEST") was incorporated in Colorado on
December 10, 1997, followed by reorganization as a Delaware corporation on
December 18, 1997.
On December 26, 1997, the Company obtained all of the outstanding common stock
of STB Corporation, a shell corporation domiciled in Colorado, by issuing 175
shares of the Company's common stock. Because STB Corporation had no assets or
operations, the Company recorded the transaction at the initial deemed valued
of the stock conveyed ($175), which was consistent with the deemed value of the
Company's stock issued in its immediately precedent initial transaction. In
the year subsequent to the acquisition, STB Corporation was administratively
dissolved.
On April 9, 1998, the Company issued 1,920,000 shares of its common stock to
its president in exchange for all of the issued and outstanding shares of MEST,
B.V., a Netherlands corporation, owned by the Company's president. Although
MEST, B.V. had no recorded assets at the time of the transaction, the Company
recorded the acquisition at a nominal value of $0.01 per share. The aggregate
acquisition cost of $20,000, originally assigned to intangible assets, was
substantially written off by the end of 1998. Currently, MEST, B.V. is used to
conduct the Company's business in the Netherlands. MEST, BV was acquired
because it had certain data and technical information that the Company plans to
use in its business.
The Netherlands Organization for Applied Scientific Research ("TNO"), staffed
by 5,000 professionals is one of Europe's leading contract research
organizations. Using proprietary technology developed by TNO, the Company and
TNO formed a corporation known as Manure and Sludge Technology, B.V. ("MSTec")
for the purpose of developing a process for use on a commercial basis that
would economically refine manure and sludge into pellets, which could be sold
as organic fertilizer and other products. MSTec, a Netherlands corporation, is
owned 50 percent by the Company and 50 percent by TNO.
The Company's year end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and have been
consistently applied in the preparation of the financial statements.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the
United States of America.
<page> 54
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEVELOPMENT STAGE ACTIVITIES
The Company has been in the development stage since its formation in December
of 1997, and has not yet realized any revenues from its planned operations. It
is engaged in the business of manufacturing, distributing, and selling
fertilizer products.
USE OF ESTIMATES
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
MEST's financial instruments consist primarily of cash, receivables, prepaid
expenses, accrued expenses and payables, and loans payable, which approximate
fair value because of their short maturities.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations as incurred. The
cost of intellectual property purchased from others that is immediately
marketable or that has an alternative future use is capitalized as intangible
assets. The Company periodically reviews its capitalized patent costs to
assess recoverability based on the projected undiscounted cash flows from
operations. Impairments are recognized in operating results when a permanent
diminution in value occurs.
The Company constructed a testing facility during 1999 in Apeldoorn, The
Netherlands at a cost of approximately $450,000. These costs were expensed as
research and development during the year ended December 31, 1999.
DERIVATIVE INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", which is effective for the Company as of January
1, 2001. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at fair value.
<page> 55
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DERIVATIVE INSTRUMENTS (CONTINUED)
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
From November 1, 1999 to February 17, 2000, the Company entered into a small
number of foreign currency purchases for cash management purposes. The results
of these short-term transactions, which generated an aggregate loss of $7,124
in 1999 and an aggregate gain of $4,262 in 2000, are included in Other
Comprehensive Income (loss) as an element of foreign currency translation
earnings. The Company engaged in no similar foreign currency purchases either
prior to or subsequent to the aforementioned time frame.
COMPENSATED ABSENCES
Currently, the Company has no employees; therefore, no policy regarding
compensated absences has been established. The Company will establish a policy
to recognize the costs of compensated absences at the point in time that it
has employees.
ADVERTISING EXPENSES
Advertising expenses consist primarily of costs incurred in the design,
development, and printing of Company literature and marketing materials. The
Company expenses all advertising expenditures as incurred.
PROVISION FOR TAXES
Income taxes are provided based upon the liability method of accounting
pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. A valuation allowance is
recorded against deferred tax assets if management does not believe the Company
has met the "more likely than not" standard imposed by SFAS No. 109 to allow
recognition of such an asset.
At June 30, 2001, the Company had net deferred tax assets of approximately
$480,000, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the net deferred
tax asset, a valuation allowance equal to the net deferred tax asset has been
established at June 30, 2001.
At June 30, 2001, the Company has net operating loss carryforwards of
approximately $2,400,000, which expire in the years 2017 through 2021. The
Company recognized approximately $2,300,000 of losses for the issuance of
common stock options for services, which are not deductible for tax purposes,
and are not included in the above calculation of deferred tax asset.
<page> 56
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LOSS PER SHARE
Basic loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted average
number of shares was calculated by taking the number of shares outstanding and
weighting them by the amount of time they were outstanding. Outstanding
options and convertible preferred stock were not included in the computation of
gain or loss per share because the exercise price of the outstanding options is
higher than the market price of the stock, thereby causing the options to be
antidilutive.
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has no revenues,
has incurred a net loss of $303,333 for the six months ended June 30, 2001, has
an accumulated deficit of $4,834,023 and has had no sales. The future of the
Company is dependent upon successful and profitable operations from
manufacturing, distributing, and selling its fertilizer products. The
financial statements do not include any adjustments related to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
Management has established plans designed to promote the sales of the Company's
product. Management intends to seek additional capital from new equity
securities offerings that will provide funds needed to increase liquidity, fund
internal growth and fully implement its business plan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MEST and its
wholly owned subsidiary, MEST, BV. All material intercompany transactions and
balances have been eliminated. Manure and Sludge Technology, BV ("MSTec"), a
50 per cent owned corporation is reflected in the financial statements on the
equity method of accounting, and not included in the financial statements as an
entity subject to consolidation.
ACCOUNTING FOR STOCK OPTIONS GRANTED TO EMPLOYEES AND NONEMPLOYEES
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"), defines a fair value-based method of
accounting for stock options and other equity instruments. The Company has
adopted this method, which measures compensation costs based on the estimated
fair value of the award and recognizes that cost over the service period.
<page> 57
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INTERIM FINANCIAL STATEMENTS
The interim financial statements for the period ended June 30, 2001 included
herein have not been audited, at the request of the Company. They reflect all
adjustments, which are, in the opinion of management, necessary to present
fairly the results of operations for the period. All such adjustments are
normal recurring adjustments. The results of operations for the period
presented is not necessarily indicative of the results to be expected for the
full fiscal year.
IMPAIRED ASSET POLICY
In March 1995, the Financial Accounting Standards Board issued a statement,
SFAS No. 121, titled "Accounting for Impairment of Long-lived Assets," which
has been replaced by SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets." In complying with this standard, the Company reviews its
long-lived assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value of its
assets may not be recoverable. The Company determines impairment by comparing
the undiscounted future cash flows estimated to be generated by its assets to
their respective carrying amounts.
The Company does not believe any adjustments are needed to the carrying value
of its assets at June 30, 2001.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130), which was issued in June 1997. SFAS 130
establishes rules for the reporting and display of comprehensive income and its
components. The effect of the adoption of SFAS 130 is reflected in the
accompanying financial statements and included under the headings "Other
Comprehensive Loss."
FOREIGN CURRENCY TRANSLATION GAINS/LOSSES
The Company has adopted Financial Accounting Standard No. 52. Monetary assets
and liabilities denominated in foreign currencies are translated into United
States dollars at rates of exchange in effect at the balance sheet date. Gains
or losses are included in income for the year, except gains or losses related
to long-term debt, which are deferred and amortized over the remaining term of
the debt. Non-montary assets, liabilities and items recorded in income arising
from transactions denominated in foreign currencies are translated at rates of
exchange in effect at the date of the transaction.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years. See Note 4.
<page> 58
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in several Netherlands financial institutions.
These financial institutions are considered credit worthy and have not
experienced any losses on deposits at June 30, 2001. The funds are valued in
U.S. dollars and are fully insured.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This new standard establishes a single accounting model
for long-lived assets to be disposed of by sale, including discontinued
operations. Statement 144 required that these long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or discontinued operations. This statement is
effective beginning for fiscal years after December 15, 2001, with earlier
application encouraged. The Company adopted SFAS 144 and does not believe that
the adoption will have a material impact on the financial statements of the
Company at June 30, 2001.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 establishes guidelines related to
the retirement of tangible long-lived assets of the Company and the associated
retirement costs. This statement required that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived assets. This statement is effective for financial statements issued
for the fiscal years beginning after June 15, 2002 and with earlier application
encouraged. The Company adopted SFAS No. 143 and does not believe that the
adoption will have a material impact on the financial statements of the Company
at June 30, 2001.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interest method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. An early adoption provision exists for
companies with fiscal years beginning after March 15, 2001. The Company does
not have assets with indeterminate lives.
<page> 59
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This
statement provides accounting and reporting standard for transfers and
servicing of financial assets and extinguishment of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for
disclosures related to securitization transactions and collateral for fiscal
years ending after December 15, 2000, and is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The Company believes that the adoptions of this standard
will not have a material effect on the Company's results of operations or
financial positions.
NOTE 3 - RELATED PARTY TRANSACTIONS
LOANS FROM RELATED PARTIES
At December 31, 2000, loans from related parties consisted of the following:
2000
--------------
Maurice Schelvis, (a shareholder of the
Company), unsecured, interest at 5%,
due on demand. $ 5,590
Maurice Schelvis, (a shareholder of the
Company), unsecured, interest at 6%,
due on demand. 103,500
--------------
Total $ 109,090
==============
The Company had no outstanding loans from related parties at June 30, 2001.
RECEIVABLE FROM RELATED PARTIES
At December 31, 2000 the following amounts were receivable from shareholders or
related parties:
2000
--------------
IJ-Beeher, interest at 5%, unsecured. $ 48,917
Jan Luiken, B.V., interest at 7%, unsecured 109,524
--------------
$ 158,441
==============
The Company had no receivables from related parties at June 30, 2001.
<page> 60
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 3 - RELATED PARTY TRANSACTIONS (continued)
OTHER RELATED PARTY TRANSACTIONS
The president of the Company conveyed all outstanding shares of MEST, B.V. to
the Company in exchange for 1,920,000 shares of common stock of the Company
during the year ended December 31, 1998.
NOTE 4 - PLANT, PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful lives of the assets are expensed as incurred. Depreciation
of property and equipment is being calculated using the straight-line method
over the expected useful lives of the assets. Depreciation expense for the
periods ended June 30, 2001 and 2000 was $1,901 and $1,793, respectively.
NOTE 5 - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.0001 par value
preferred stock; 535,985 Series A preferred shares were issued and outstanding
at December 31, 2001 and 2000. Each share of Series A preferred stock is
entitled to a dividend at the rate of $0.30 per share if the board of directors
declares a dividend, although no dividends have been declared. Upon
liquidation or dissolution of the Company, each outstanding share of Series A
preferred stock is entitled to a distribution of $4.00 per share prior to any
distribution to common stock shareholders. Series A preferred stock is non-
voting, and each share is convertible into one share of the Company's common
stock at any time after June 1, 1999.
During the year ended December 31, 1998, the Company sold 23,900 shares of its
preferred stock at an average price of $3.73 per share. During the year ended
December 31, 1999, the Company sold 403,585 shares of its preferred stock at an
average price of $3.93 per share. During the year ended December 31, 2000, the
Company sold 108,500 shares of its preferred stock at an average price of $4.21
per share.
NOTE 6 - COMMON STOCK
The Company is authorized to issue 30,000,000 shares of $0.0001 par value
common stock; 7,320,055 shares were issued and outstanding at June 30, 2001 and
December 31, 2000. Each holder of common stock has one, non-cumulative vote
per share on all matters voted upon by the shareholders. There are no
preemptive rights or other rights of subscription.
During the period ended December 31, 1997, the Company issued 5,000 shares of
its common stock for cash at $1.00 per share and 175 shares of its common stock
valued at $1.00 per share to acquire STB Corp. The stock was valued at its
fair market value on the date of issuance.
During the year ended December 31, 1998, the Company sold 5,394,880 shares of
its common stock for cash at $0.17 per share and issued 1,920,000 shares of its
common stock at $0.01 per share to acquire a subsidiary. The stock was valued
at the fair market value on the date of issuance.
<page> 61
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
Manure and Sludge Technology, B.V. (hereinafter "MSTec") is a Netherlands
corporation that was formed for the purpose of developing a process for use on
a commercial basis that would economically dry and pasteurize manure and sludge
into pellets that could be sold as organic fertilizer and other products.
Since its inception, MSTec has refined its technological process for use with
other waste products such as bio-solids, fish and food waste, and paper pulp.
MEST owns 50 percent of the common stock of MSTec, and accounts for MSTec on
the equity method. The other 50 percent of MSTec's common stock is owned by
The Netherlands Organization for Applied Scientific Research ("TNO"), the
largest single research facility in Europe employing over five thousand
professionals.
MEST's investment in the joint venture is recorded as $0 on MEST's balance
sheet because MSTec's debt and losses exceeds MEST's share of investment in the
joint venture. MEST's investment in the joint venture totaled $816,000 at June
30, 2001 and December 31, 2000. In forming the joint venture of MSTec, the
Company committed to an investment in the form of a loan to MSTec of
approximately $800,000, which funds were in fact advanced to MSTec in 1999 and
2000. This loan is treated as an equity investment under the Company's
understanding of the conditions of the joint venture. The investment is
subject to the terms of the related loan agreement dated January 22, 1999, the
Company agreed in the event of bankruptcy or termination of MSTec's to forego
repayment of the funds advanced until such time as all other creditors are paid
in full. At the date of these financial statements, no funds advanced by the
Company to MSTec have been repaid.
The joint venture's primary asset, as the result of the aforementioned
investment, is a worldwide licensing agreement for the application of the
aforementioned technological process from TNO. TNO controls the research and
activities of the joint venture while MEST Corp'sparticipation consists of
investment with rights to products developed by the joint venture.
<page> 62
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
(continued)
The following is a summary of the financial positions and results of operations
of MSTec.
June 30, December 31,
2001 2000
------------- -------------
Current assets $ 114,680 $ 123,809
Property, plant, and equipment - -
Other assets (net) 49,824 50,624
------------- -------------
Total assets $ 164,504 $ 174,433
============= =============
Current liabilities $ 324,819 $ 210,753
Long-term debt - related parties 1,705,515 1,673,640
------------- -------------
Total liabilities 2,030,334 1,984,393
Stockholders' equity (1,865,830) (1,709,960)
------------- -------------
Total liabilities and equity $ 164,504 $ 174,433
============= =============
Net sales $ - $ -
Gross profit $ - $ -
Loss from continuing operations $ (155,870) $ (789,544)
Net loss $ (155,870) $ (789,544)
JOINT VENTURE ROYALTY AGREEMENT
In connection with the formation of the MSTec joint venture, a sub-license
agreement was executed wherein M.E.S.T. agreed to pay to MSTec "sub-license"
fees, which are effectively royalty fees, for manure conversion factories
constructed by M.E.S.T. over a period of fifteen years. The fifteen-year
period begins when M.E.S.T. constructs its first such factory. Royalty fees
due to MSTec are computed on a sliding scale, based upon actual factory
construction costs, and range from 15% to 10%. At the date of these financial
statements, no royalty fees were owed under the aforementioned agreement.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in Apeldoorn under a written agreement, which
provides for lease payments of approximately $2,000 per month through June
2006. Formerly the Company leased office space in Amsterdam under a written
agreement, which ran from July 1999 through January 2002 and provided for lease
payments of approximately $1,500 per month. In 2001, the lease agreement was
renegotiated and the lease expiration date was changed to July 31, 2001 with
other lease provisions remaining unchanged.
Future minimum rental commitments under the operating lease are as follows at
June 30, 2001:
Year Ending:
December 31, 2001 $ 20,500
December 31, 2002 $ 24,000
December 31, 2003 $ 24,000
December 31, 2004 $ 24,000
December 31, 2005 $ 24,000
<page> 63
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE 9 - STOCK OPTIONS
The Company has granted its officers options to purchase a total of 700,000
shares of the Company's common stock at an exercise price of $0.50 per share.
Following is a summary of the status of these performance-based options during
the periods ended June 30, 2001 and December 31, 2000.
Number of Weighted Average
Shares Price per Share
-------------- ----------------
Outstanding at December 31, 1999 530,000 $ 0.50
Granted 200,000 0.50
Expired (30,000) 0.50
Exercised or forfeited - -
-------------- ----------------
Outstanding and exercisable at
December 31, 2000 700,000 $ 0.50
============== ================
Weighted average fair value of
options granted during 2000 $ 3.59
================
Outstanding at December 31, 2000 700,000 $ 0.50
Granted - -
Exercised, expired or forfeited - -
-------------- ----------------
Outstanding and exercisable at
June 30, 2001 700,000 $ 0.50
============== ================
The Company estimated the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model with the following weighted-
average assumptions used: Dividend yield of zero percent; strike price of
$0.50; expected volatility of 24.83%; risk-free interest rate of six percent
and expected lives of five years. The weighted average fair value at date of
grant for options granted to officers in the year ended December 31, 2000 was
$3.59 per option.
Compensation cost charged to operations was $767,900 during the year ended
December 31, 2000.
NOTE 10 - SUBSEQUENT EVENTS
In January 2002, the Company loaned $200,000 to an officer. In April 2002,
$150,000 was repaid and the Company also received a mortgage on real estate as
collateral for this loan.
NOTE 11 - RESTATEMENT AND CORRECTION OF AN ERROR
The Company's financial statements for the period ended June 30, 2001 have been
restated to reflect the correction of forgiveness of debt by an officer as a
capital contribution, which increased additional paid-in capital by $62,867.
The effect of this correction was the reclassification of extraordinary gain on
debt forgiveness of $62,867 to additional paid-in capital for the six months
ended June 30, 2001.
<page> 64
PART III
Item 1. Index to Exhibits
Page
Exhibit 2.1 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc.
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 3.1 Articles of Incorporation, as amended
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 3.2 Bylaws
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 4.1 Instruments Defining the Rights of Security Holders
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 10.1 Material Contracts
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 23.1 Consent of Certified Accountants
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 23.2 Consent of Certified Accountants
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 23.3 Consent of Certified Accountants
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 23.4 Consent of Certified Accountants
Filed with 10sb Amendment No. 1, November 15, 2001
Exhibit 23.5 Consent of Certified Accountants
Filed with 10sb Amendment No. 1, November 15, 2001
Item 2. Description of Exhibits
Exhibits are included by reference as set forth in the Exhibit Index.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY, CORP.
Date: October 25, 2001 By: /s/ Greg Schmick
-------------------------------------
Greg Schmick, President
<PAGE> 65