SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
Amendment No. 1
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)
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
March 31, 2000 reviewed financial statements 39
June 30, 2000 reviewed financial statements 54
September 30, 2000 reviewed financial statements 70
June 30, 2001 reviewed financial statements 86
PART III
Item 1. Index to Exhibits 103
Item 2. Description of Exhibits 103
SIGNATURES 103
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
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".
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.
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.
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).
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.
4
The MSTec, B.V. joint venture was joined 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.
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.
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.
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.
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
5
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. At the same
time an agriculture review indicated that although farmers in many other
countries were seeking clean, environmentally friendly solutions to improve crop
production, they had 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.
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.
6
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:
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
7
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.
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
8
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.
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.
9
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.
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
10
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.
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.
11
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
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
12
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 Company does not currently own any material amount of property or equipment.
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".
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)
Maurice Schelvis 59 Vice President
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.
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.
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
06/01 $29,200 -- -- -- 50,000
Maurice Schelvis, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 100,000
1999 -- -- -- -- 100,000
2000 -- -- -- -- 100,000
06/01 -- -- -- -- 50,000
Greg Schmick, 1997 -- -- -- -- --
President/Secretary 1998 -- -- -- -- --
1999 -- -- -- -- --
2000 -- -- -- -- --
06/01 -- -- -- -- --
Eugene Larabie, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 15,000
1999 -- -- -- -- --
2000 -- -- -- -- --
06/01 -- -- -- -- --
Robert Johnson, 1997 -- -- -- -- --
Vice President 1998 -- -- -- -- 15,000
1999 -- -- -- -- --
2000 -- -- -- -- --
06/01 -- -- -- -- --
(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.
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 Unknown *
Maurice Schelvis 2,010,000 Unknown *
* The Company's common stock did not begin to trade 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.
15
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 $12,000(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 plans to issue 1,100,000 shares of its common stock to Ms.
Oudejans for services rendered to April, 2001. 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 30,2001 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
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 0 300,000/500,000 see footnote 1
Maurice Schelvis 0 0 300,000/500,000 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
16
(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.
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
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.
17
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,
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
18
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.
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, 2001 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.
19
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
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.
20
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 response to Comments Nos. 4 and 5. 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
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
21
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.
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.
22
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 Loss 3
Consolidated Statement of Stockholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 5
NOTES TO FINANCIAL STATEMENTS 6
23
Board of Directors
Management of Environmental Solutions & Technology Corp.
Amsterdam,
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 loss, cash flows, and stockholders' equity
(deficit) 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 accounting 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. December 31, 2000, 1999, and 1998,
and the results of its operations and its cash flows for the period from
December 10, 1997 (inception) to December 31, 2000, in conformity with
accounting standards 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. 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
24
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, December 31, December 31,
2000 1999 1998
-------------- -------------- --------------
ASSETS
CURRENT ASSETS
Cash $ 666,746 $ 646,274 $ 728,870
Tax refunds receivable 44,157 33,582 37,248
Due from shareholders or
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
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
25
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
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
============= ============= ============= ===============
The accompanying notes are an integral part of these consolidated financial
statements.
26
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Inception,
Dec. 10, 1997 - $ - $ - $ - $ - $ - $ - $ - $ -
Issuance of
common stock
for cash
Dec. 11, 1997 - - 5,000 1 5,009 - - - 5,010
Issuance of
common stock
to acquire
STB Corp. on
Dec. 26, 1997 - - 175 - 175 - - - 175
Net loss for
year ended
Dec. 31, 1997 - - - - - - (46,869) - (46,869)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Jan. 1, 1998 - - 5,175 1 5,184 - (46,869) - (41,684)
Issuance of
common stock
as follows:
For cash on
March 10, 1998 - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred
stock for cash
December 7
through 24 at
an average
price of $3.73
per share 23,900 2 - - 89,246 - - - 89,248
Issuance of
stock options
for compensation
on August 31,1998 - - - - - 865,938 - - 865,938
Net loss for
year ended
Dec. 31, 1998 - - - - - - (1,278,364) 15,284 (1,263,080)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
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
January through
December at an
average price
of $3.97
per share 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of
stock options
for compensation
on August 31, 1999 - - - - - 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
Issuance of
preferred stock
for cash Jan.
through June at
an average price
of $4.21 per
share 108,500 11 - - 456,571 - - - 456,582
Issuance of
stock options for
compensation on
August 31, 2000 - - - - - 767,900 - - 767,900
Expiration of
stock options
on July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss for
year ended
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
=========== =========== =========== ============ ============ =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
27
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
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)
------------- ------------- ------------- ---------------
The accompanying notes are an integral part of these consolidated financial
statements.
28
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
From Inception
(December 10,
For the Years Ended December 31, 1997)
------------------------------------------ to December 31,
2000 1999 1998 2000
------------- ------------- ------------- ---------------
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
============= ============= ============= ===============
The accompanying notes are an integral part of these consolidated financial
statements.
29
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
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 April 9, 1998, MEST issued stock in exchange for all
issued and outstanding shares of MEST, B.V., a Netherlands corporation. 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.
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.
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.
30
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
---------------------------------------
MEST's financial instruments consist primarily of cash, accrued expenses and
payables, and loans payable, which approximate fair value because of their short
maturities. MEST's notes payable approximate the fair value of such instruments
based upon management's best estimate of interest rates that would be available
to MEST for a similar financial arrangement at December 31, 2000, 1999, and
1998.
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.
During 1999 the Company engaged in currency trading that constituted derivative
activity, but on a level immaterial to the balance sheet. No such activity
occurred in 1998 or 2000,
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.
31
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 December 31, 2000, the Company had net deferred tax assets of approximately
$900,000, 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 $4,530,000, which expire in the years 2017 through 2020.
Basic and Diluted Loss Per share
-------------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
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 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.
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.
32
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reverse Stock Split
-------------------
The Company's Board of Directors in March 1998 authorized a 1 for 1000 reverse
stock split of its $0.0001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Stock Options and Stock Based Compensation
-----------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," companies adopting this
standard will recognize as compensation cost the value of stock options issued
at date of grant.
Loss Per Share
----------------
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings Per Share". This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
The weighted average number of shares outstanding for the period December 10,
1997 (inception) to December 31, 2000, was 6,902,688.
For all periods presented, diluted net loss per share was the same as basic net
loss per share since the inclusion of stock options and warrants would have been
anti-dilutive.
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.
NOTE 3 - CONCENTRATION OF RISK
At December 31, 2000, the Company maintained cash balances totaling $666,534 in
the Netherlands financial institutions. The funds are valued in U.S. dollars
and are insured.
33
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 4 - RELATED PARTY TRANSACTIONS
The following amounts were owed to shareholders or companies controlled by the
shareholders listed:
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice
Oudejans Schelvis Schelvis
-------------- -------------- --------------
Interest Loans to Loans to
Rate Maturity Company Company Advances
-------- -------- -------------- -------------- --------------
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
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest at both 5 and 6 percent rates, and
are due upon demand.
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
========== ========== ==========
34
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 5 - 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.
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 6 - 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. 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.
NOTE 7 - 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.
NOTE 8 - 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, MST has refined its technological process for use with other
waste products such as bio-solids, fish and food waste, and paper pulp.
35
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 8 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
(CONTINUED)
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 persons.
MEST's investment in the joint venture is recorded as $0 on MEST's 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.
The joint venture's primary assets, as the result of the aforementioned
investment, are a successfully functioning testing facility (pilot plant in
Apeldoorn, The Netherlands, where TNO is located) and a worldwide licensing
agreement for the application of the aforementioned technological process from
TNO. The Company's commercial facility and end products marketing and sales
also originate from the pilot plant's location in Apeldoorn.
NOTE 9 - 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 and TNO, 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.
Office lease
-------------
The Company leases office space in Amsterdam under a written agreement which
runs from July 1999 through January 2002 and provides 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.
NOTE 10 - TRANSLATION OF FOREIGN CURRENCY
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 relating
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.
36
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 11 - STOCK OPTIONS
During years 2000, 1999, and 1998 the Company granted its officers options to
purchase a total of 680,000 shares of MEST common stock at an exercise price of
$0.50 per share. Still outstanding at December 31, 2000, the options are
exercisable at anytime prior to dates that started at July 31, 2000, and extend
5 years from date of issue. Options were granted for the purchase of the
Company's common stock to the following persons:
Shares subject Option Expiration
Name to option exercise price date
------------------------ ---------------- --------------- ------------
Marieke Oudejans 100,000/ year $0.50 5 years from
issue date
Maurice Schelvis 100,000/ year $0.50 5 years from
issue date
Eugene M. Larabie 15,000 $0.50 July 31, 2000
Robert E. Johnson 15,000 $0.50 July 31, 2000
Frank J. Jansen 50,000 $0.50 July 31, 2003
Afris Holding, BV 50,000 $0.50 January 1, 2003
The Company has adopted the disclosure provisions of SFAS 123.
For disclosure of stock option compensation to employees and officers, the fair
value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during years 2000, 1999, and 1998: no annual dividends,
expected volatility of 24.83%, 23.54%, and 22.25%, respectively; risk-free
interest rate of 6%; and expected lives of 5 years (or as stated above).
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 1997 0 $0.00
Granted during 1998 330,000 $0.50
Expired during 1998 0
-------------- -----------------
Options outstanding at December 31, 1998 330,000 $0.50
Granted during 1999 200,000 $0.50
Expired during 1999 0
-------------- -----------------
Options outstanding at December 31, 1999 530,000 $0.50
Granted during 2000 200,000 $0.50
Expired during 2000 (30,000) $0.50
-------------- -----------------
Options outstanding at December 31, 2000 700,000 $0.50
============== =================
Compensation costs charged to operations attributed to option expense during
2000, 1999, and 1998, were as follows:
2000 1999 1998
---------- ---------- ----------
Expense of options charged
to compensation $ 767,900 $ 717,900 $ 865,938
========== ========== ==========
37
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
NOTE 12 - 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.
38
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
39
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
Amsterdam, 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
March 31, 2000 and March 31, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the three months ended March
31, 2000 and March 31, 1999, and for the period from December 10, 1997
(inception) to March 31, 2000. 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.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997. The Company has no revenues and has recurring
losses. These factors, which relate to the Company's expressed decision to
perfect its technological application before entering the market, raise doubt
about the Company's ability to continue as a going concern. In management's
opinion, the Company's continuance is contingent upon expected, imminent sales.
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 30, 2001
40
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
(Unaudited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 638,578 $ 646,274
Tax refunds receivable 33,582 33,582
Due from shareholders or related parties 968,705 933,303
Other receivables 4,942 2,247
Prepaid expenses 15,016 15,936
------------- -------------
Total Current Assets 1,660,823 1,631,342
------------- -------------
OTHER ASSETS
Property and equipment, net of depreciation 10,758 11,359
------------- -------------
Total Other Assets 10,758 11,359
------------- -------------
TOTAL ASSETS $ 1,671,581 $ 1,642,701
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 755,645 $ 544,171
Loans from related parties 119,480 119,480
------------- -------------
Total Current Liabilities 875,125 663,651
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock - Series A; $0.00001 par value,
5,000,000 shares authorized, 463,485 and
427,485 issued and outstanding, respectively 45 42
Common stock; $0.0001 par value, 30,000,000
shares authorized, 7,320,055 shares issued
and outstanding 732 732
Additional paid-in capital 2,766,053 2,615,517
Stock options 1,775,813 1,583,838
Deficit accumulated during development stage (3,637,470) (3,135,375)
Accumulated other comprehensive income (loss) (108,717) (85,704)
------------- -------------
Total Stockholders' Equity 796,456 979,050
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,671,581 $ 1,642,701
============= =============
See accompanying notes and accountant's review report.
41
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended (Inception)
---------------------------- to
March 31, March 31, March 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
REVENUES $ - $ - $ -
------------- ------------- -------------
EXPENSES
General and administrative 309,000 319,475 2,536,075
Research and development - - 471,595
Depreciation 601 700 3,135
------------- ------------- -------------
Total Expenses 309,601 320,175 3,010,805
------------- ------------- -------------
LOSS FROM OPERATIONS (309,601) (320,175) (3,010,805)
------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest income 24,720 2,000 58,757
Interest expense - - -
------------- ------------- -------------
Other Income (Expense) 24,720 2,000 58,757
------------- ------------- -------------
LOSS BEFORE INCOME TAXES (284,881) (318,175) (2,952,048)
LOSS FROM JOINT VENTURE (217,214) - (685,422)
INCOME TAX EXPENSE - - -
------------- ------------- -------------
NET LOSS AFTER TAX (502,095) (318,175) (3,637,470)
------------- ------------- -------------
NET LOSS (502,095) (318,175) (3,637,470)
------------- ------------- -------------
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation
(loss) (23,013) (15,284) (108,717)
------------- ------------- -------------
COMPREHENSIVE (LOSS) $ (525,108) $ (333,459) $ (3,746,187)
============= ============= =============
LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.07) $ (0.05) $ (0.54)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 7,320,055 7,320,055 6,902,688
============= ============= =============
See accompanying notes and accountant's review report.
42
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Inception,
Dec. 10, 1997 - $ - $ - $ - $ - $ - $ - $ - $ -
Issuance of
common stock
for cash
Dec. 11, 1997 - - 5,000 1 5,009 - - - 5,010
Issuance of
common stock
to acquire
STB Corp. on
Dec. 26, 1997 - - 175 - 175 - - - 175
Net loss for
year ended
Dec. 31, 1997 - - - - - - (46,869) - (46,869)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Jan. 1, 1998 - - 5,175 1 5,184 - (46,869) - (41,684)
Issuance of
common stock
as follows:
For cash on
March 10, 1998 - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred
stock for cash
December 7
through 24 at
an average
price of $3.73
per share 23,900 2 - - 89,246 - - - 89,248
Issuance of
stock options
for compensation
on August 31,1998 - - - - - 865,938 - - 865,938
Net loss for
year ended
Dec. 31, 1998 - - - - - - (1,278,364) 15,284 (1,263,080)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
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
January through
December at an
average price
of $3.97
per share 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of
stock options
for compensation
on August 31, 1999 - - - - - 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
Issuance of
preferred stock
for cash
Jan. through March
at an average
price of $4.21
per share 36,000 3 - - 150,536 - - - 150,539
Issuance of
stock options
for
compensation - - - - - 191,975 - - 191,975
Net loss,
March 31, 2000 - - - - - - (502,095) (23,013) (525,108)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
March 31, 2000
(unaudited) 463,485 $ 45 7,320,055 $ 732 $ 2,766,053 $1,775,813 $(3,637,470) $ (108,717) $ 796,456
=========== =========== =========== ============ ============ =========== =========== =========== ===========
See accompanying notes and accountant's review report.
43
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Three Months Ended (Inception)
---------------------------- to
March 31, March 31, March 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (502,095) $ (318,175) $ (3,637,470)
Foreign currency translation
(loss) (23,013) (15,289) (108,717)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 601 700 3,135
(Increase) decrease in assets:
Tax refunds receivable - 1,248 1,248
Other receivables (2,695) (4,712) (4,942)
Prepaid expenses 920 703 (16,856)
Options granted as
compensation 191,975 179,475 1,775,813
Increase (decrease) in
liabilities:
Accounts payable 211,474 (762) 755,645
Loans from related parties - - 72,611
Other liabilities - - 46,869
------------- ------------- -------------
Net cash (used) by
operating activities (122,833) (156,812) (1,112,664)
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment - (7,344) (13,983)
Investment in loans receivable (35,399) - (968,702)
------------- ------------- -------------
Net cash (used) by
investing activities (35,399) (7,344) (982,685)
------------- ------------- -------------
See accompanying notes and accountant's review report.
44
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Three Months Ended (Inception)
---------------------------- to
March 31, March 31, March 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the sale of
preferred stock 150,536 155,112 1,808,477
Proceeds from the sale of
common stock - - 900,450
Acquisition of subsidiary - - 20,000
------------- ------------- -------------
Net cash provided by
financing activities 150,536 155,112 2,728,927
------------- ------------- -------------
Net increase (decrease) in cash (7,696) (9,044) 633,578
Cash, beginning of period 646,274 728,870 5,000
------------- ------------- -------------
Cash, end of period $ 638,578 $ 719,826 $ 638,578
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ - $ - $ -
Interest income $ 24,720 $ 2,000 $ -
Income taxes paid $ - $ - $ -
NON-CASH TRANSACTIONS:
Stock options granted for
compensation $ 191,975 $ 179,475 $ 1,775,813
See accompanying notes and accountant's review report.
45
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 April 9, 1998, MEST issued stock in exchange for all
issued and outstanding shares of MEST, BV, a Netherlands corporation. 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.
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.
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.
46
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
---------------------------------------
MEST's financial instruments consist primarily of cash, accrued expenses and
payables, and loans payable, which approximate fair value because of their short
maturities. MEST's notes payable approximate the fair value of such instruments
based upon management's best estimate of interest rates that would be available
to MEST for a similar financial arrangement at March 31, 2000.
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.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At March 31, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
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.
47
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 March 31, 2001, the Company had net deferred tax assets of approximately
$720,000, 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 March 31, 2001.
At March 31, 2001, the Company has net operating loss carryforwards of
approximately $3,600,000, which expire in the years 2017 through 2021.
Basic and Diluted Loss Per share
-------------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
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 $3,637,470 for the period December 17, 1997 (inception)
to March 31, 2000 and had minimal 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.
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.
48
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reverse Stock Split
-------------------
The Company's Board of Directors in March 1998 authorized a 1 for 1000 reverse
stock split of its $0.0001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Stock Options and Stock Based Compensation
-----------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation," companies adopting this
standard will recognize as compensation cost the value of stock options issued
at date of grant.
Loss Per Share
----------------
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings Per Share". This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
The weighted average number of shares outstanding for the period December 10,
1997 (inception) to March 31, 2000, was 6,902,688.
For all periods presented, diluted net loss per share was the same as basic net
loss per share since the inclusion of stock options and warrants would have been
anti-dilutive.
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.
NOTE 3 - CONCENTRATION OF RISK
At March 31, 2000, the Company maintained cash balances totaling $638,578 in
Netherlands financial institutions. The funds are valued in U.S. dollars and
are insured.
49
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 4 - RELATED PARTY TRANSACTIONS
The following amounts were owed to related parties:
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice
Oudejans Schelvis Schelvis
-------------- -------------- --------------
Interest Loans to Loans to
Rate Maturity Company Company Advances
-------- -------- -------------- -------------- --------------
March 31, 2000 5% Upon $10,226 $5,574 $103,500
Demand
December 31, 1999 5% Upon $10,226 $5,754 $103,500
Demand
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest at 5 per cent rate, and are due upon
demand.
The following amounts were due from related parties:
March 31, December 31,
2000 1999
------------ ------------
Due from IJ-Beeher $ 35,402 $ 0
Due from Jan Luiken, B.V. 933,303 933,303
------------ ------------
$ 968,705 $ 933,303
============ ============
The aforementioned amounts bear interest between 5% and 7%, and are unsecured.
NOTE 5 - 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.
March 31, December 31,
2000 1999
------------ ------------
Office equipment, computers $ 13,893 $ 13,893
Less Accumulated depreciation (3,135) (2,534)
------------ ------------
Net property and equipment $ 10,758 $ 11,359
============ ============
50
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.0001 par value
preferred stock; 463,485 Series A preferred shares were issued and outstanding
at March 31, 2000. Each share of Series A preferred stock is entitled to a
dividend at the rate of $0.30 per share if the Company's Board of Directors
declares a dividend. 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.
NOTE 7 - 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 March 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.
NOTE 8 - 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, MST 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 persons.
MEST's investment in the joint venture is recorded as $0 on MEST's balance sheet
because MSTec's debt and losses exceed the joint venturers' investment in MSTec.
MEST's investment in the joint venture totaled $685,000 at March 31, 2000.
The joint venture's primary assets, as the result of the aforementioned
investment, are a successfully functioning testing facility (pilot plant in
Apeldoorn, The Netherlands, where TNO is located) and a worldwide licensing
agreement for the application of the aforementioned technological process from
TNO. The Company's commercial facility and end products marketing and sales
also originate from the pilot plant's location in Apeldoorn.
NOTE 9 - 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 and TNO, 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 principal.
51
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Office Lease
-------------
The Company leases office space in Amsterdam under a written agreement which
runs from July 1999 through January 2002 and provides 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.
NOTE 10 - TRANSLATION OF FOREIGN CURRENCY
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 relating
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.
NOTE 11 - STOCK OPTIONS
All options issued by the Company are exercisable over a five year period with
the exception of the 30,000 options issued during 1998, which expired in July of
2000. During years 2000, 1999, and 1998 the Company granted its officers
options to purchase a total of 680,000 shares of MEST common stock at an
exercise price of $0.50 per share. Options were granted for the purchase of the
Company's common stock to the following persons during the quarter ended March
31, 2000:
Shares subject Option Expiration
Name to option exercise price date
------------------ ------------------ --------------- --------------
Marieke Oudejans 25,000/quarter $0.50 5 years from
issue date
Maurice Schelvis 25,000/quarter $0.50 5 years from
issue date
For disclosure of stock option compensation to employees and officers, the fair
value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during years 2000, 1999, and 1998: no annual dividends,
expected volatility of 24.83%, 23.54%, and 22.25%, respectively; risk-free
interest rate of 6%; and expected lives of 5 years (or as described above).
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 1999 480,000 $0.50
Granted during 2000 50,000 $0.50
Expired during 2000 0 $0.50
-------------- -----------------
Options outstanding at March 31, 2000 530,000 $0.50
============== =================
52
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 11 - STOCK OPTIONS (CONTINUED)
Compensation cost charged to operations attributed to option expense during
1999, and the three months ended March 31, 2000 are as follows:
March 31, December 31,
2000 1999
------------ ------------
Expense of options charged
to compensation $ 191,975 $ 717,900
============ ============
NOTE 12 - SUBSEQUENT EVENTS
Effective May 15, 2001, Maurice Schelvis, an officer and director, 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, was forgiven $44,157 it owed to
MEST at December 31, 2000.
53
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
54
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
Amsterdam, 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, 2000 and June 30, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the three months and six
months ended June 30, 2000 and June 30, 1999, and for the period from December
10, 1997 (inception) to June 30, 2000. 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.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997. The Company has no revenues and has recurring
losses. These factors, which relate to the Company's expressed decision to
perfect its technological application before entering the market, raise doubt
about the Company's ability to continue as a going concern. In management's
opinion, the Company's continuance is contingent upon expected, imminent sales.
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 30, 2001
55
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2000 1999
(Unaudited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 620,275 $ 646,274
Tax refunds receivable 36,582 33,582
Due from shareholders or related parties 885,136 933,303
Other receivables 4,942 2,247
Prepaid expenses 16,016 15,936
------------- -------------
Total Current Assets 1,562,951 1,631,342
------------- -------------
OTHER ASSETS
Property and equipment, net of depreciation 9,566 11,359
------------- -------------
Total Other Assets 9,566 11,359
------------- -------------
TOTAL ASSETS $ 1,572,517 $ 1,642,701
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 649,156 $ 544,171
Loans from related parties 112,480 119,480
------------- -------------
Total Current Liabilities 761,636 663,651
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock - Series A; $0.00001 par value,
5,000,000 shares authorized, 535,985 and
427,485 issued and outstanding, respectively 53 42
Common stock; $0.0001 par value, 30,000,000
shares authorized, 7,320,055 shares issued
and outstanding 732 732
Additional paid-in capital 3,072,088 2,615,517
Stock options 1,967,788 1,583,838
Deficit accumulated during development stage (4,116,790) (3,135,375)
Accumulated other comprehensive income (loss) (112,990) (85,704)
------------- -------------
Total Stockholders' Equity 810,881 979,050
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ ,572,517 $ 1,642,701
============= =============
See accompanying notes and accountant's review report.
56
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Six Months Ended (Inception)
-------------------------- -------------------------- to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------- ------------
REVENUES $ - $ - $ - $ - $ -
------------- ------------- ------------- ----------- ------------
EXPENSES
General and
administrative 425,961 453,275 734,961 772,750 2,961,273
Research and
development 60,000 - 60,000 - 531,595
Depreciation 1,192 1,500 1,793 2,200 4,327
------------- ------------- ------------- ----------- ------------
Total Expenses 487,153 454,775 796,754 774,950 3,497,195
------------- ------------- ------------- ----------- ------------
LOSS FROM
OPERATIONS (487,153) (454,775) (796,754) (774,950) (3,497,195)
------------- ------------- ------------- ----------- ------------
OTHER INCOME
(EXPENSES)
Interest income 9,718 2,884 34,438 4,884 68,475
Interest expense - - - - (793)
------------- ------------- ------------- ----------- ------------
Other Income
(Expense) 9,718 2,884 34,438 4,884 67,682
------------- ------------- ------------- ----------- ------------
LOSS BEFORE
INCOME TAXES (477,435) (451,891) (762,316) (770,066) (3,429,513)
INCOME TAX
EXPENSE - - - - -
------------- ------------- ------------- ----------- ------------
NET LOSS AFTER TAX (477,435) (451,891) (762,316) (770,066) (3,429,513)
LOSS FROM JOINT
VENTURE (1,855) (320,295) (219,099) (320,295) (687,277)
------------- ------------- ------------- ----------- ------------
NET LOSS (479,290) (772,186) (981,415) (1,090,361) (4,116,790)
------------- ------------- ------------- ----------- ------------
See accompanying notes and accountant's review report.
57
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Six Months Ended (Inception)
-------------------------- -------------------------- to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------- ------------
OTHER
COMPREHENSIVE
INCOME (LOSS)
Foreign currency
translation
(loss) (4,273) - (27,286) - (112,990)
------------- ------------- ------------- ----------- ------------
COMPREHENSIVE
(LOSS) $ (483,563) $ (772,186) $ (1,008,701) $(1,090,361) $(4,229,780)
============= ============= ============= =========== ============
LOSS PER COMMON
SHARE, BASIC
AND DILUTED $ (0.07) $ (0.11) $ (0.14) $ (0.15) $ (0.61)
============= ============= ============= =========== ============
WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES
OUTSTANDING,
BASIC AND
DILUTED 7,320,055 7,320,055 7,320,055 7,320,055 6,902,688
============= ============= ============= =========== ============
See accompanying notes and accountant's review report.
58
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Inception,
Dec. 10, 1997 - $ - $ - $ - $ - $ - $ - $ - $ -
Issuance of
common stock
for cash
Dec. 11, 1997 - - 5,000 1 5,009 - - - 5,010
Issuance of
common stock
to acquire
STB Corp. on
Dec. 26, 1997 - - 175 - 175 - - - 175
Net loss for
year ended
Dec. 31, 1997 - - - - - - (46,869) - (46,869)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Jan. 1, 1998 - - 5,175 1 5,184 - (46,869) - (41,684)
Issuance of
common stock
as follows:
For cash on
March 10, 1998 - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred
stock for cash
December 7
through 24 at
an average
price of $3.73
per share 23,900 2 - - 89,246 - - - 89,248
Issuance of
stock options
for compensation
on August 31,1998 - - - - - 865,938 - - 865,938
Net loss for
year ended
Dec. 31, 1998 - - - - - - (1,278,364) 15,284 (1,263,080)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
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
January through
December at an
average price
of $3.97
per share 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of
stock options
for compensation
on August 31, 1999 - - - - - 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
Issuance of
preferred stock
for cash
Jan. through
June at an
average price
of $4.21 per
share 108,500 11 - - 456,571 - - - 456,582
Issuance of stock
options for
compensation - - - - - 383,950 - - 383,950
Net loss,
June 30, 2000 - - - - - - (981,415) (27,286) (1,008,701)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
June 30, 2000
(unaudited) 535,985 $ 53 7,320,055 $ 732 $ 3,072,088 $1,967,788 $(4,116,790) $ (112,990) $ 810,881
=========== =========== =========== ============ ============ =========== =========== =========== ===========
See accompanying notes and accountant's review report.
59
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Six Months Ended (Inception)
---------------------------- to
June 30, June 30, June 30,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (981,415) $ (1,090,361) $ (4,116,790)
Foreign currency (loss) (27,286) - (112,990)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 1,793 1,500 4,327
(Increase) decrease in assets:
Tax refunds receivable 3,000 3,069 3,000
Accounts receivable - (9,052) (33,582)
Other receivables 2,695 3,703 448
Prepaid expenses 80 - (15,856)
Options granted as
compensation 383,950 358,950 1,967,788
Increase (decrease) in
liabilities:
Accounts payable 104,985 (11,375) 649,156
Loans from related
parties 7,000 4 79,611
Other liabilities - (12,443) 46,869
------------- ------------- -------------
Net cash (used) by
operating activities (505,198) (756,005) (1,528,019)
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment (11,821) (8,507) (25,714)
Investment in loans receivable - - (933,303)
------------- ------------- -------------
Net cash (used) by
investing activities (11,821) (8,507) (959,017)
------------- ------------- -------------
See accompanying notes and accountant's review report.
60
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Six Months Ended (Inception)
---------------------------- to
June 30, June 30, June 30,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the sale of
preferred stock 456,582 759,432 2,142,238
Proceeds from the sale of
common stock - - 905,635
Interest income 34,438 4,884 34,438
Acquisition of subsidiary - - 20,000
------------- ------------- -------------
Net cash provided by
financing activities 491,020 764,316 3,102,311
------------- ------------- -------------
Net increase (decrease) in cash (25,999) (196) 615,275
Cash, beginning of period 646,274 728,870 5,000
------------- ------------- -------------
Cash, end of period $ 620,275 $ 713,390 $ 620,275
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest income $ 34,438 $ 4,884 $ -
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
NON-CASH TRANSACTIONS:
Stock options granted for
compensation $ 383,950 $ 358,950 $ 1,967,788
See accompanying notes and accountant's review report.
61
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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 April 9, 1998, MEST issued stock in exchange for all
issued and outstanding shares of MEST, BV, a Netherlands corporation. 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.
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.
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.
62
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
---------------------------------------
MEST's financial instruments consist primarily of cash, accrued expenses and
payables, and loans payable, which approximate fair value because of their short
maturities. MEST's notes payable approximate the fair value of such instruments
based upon management's best estimate of interest rates that would be available
to MEST for a similar financial arrangement at June 30, 2000.
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.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At June 30, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
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.
63
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2000, the Company had net deferred tax assets of approximately
$820,000, 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, 2000.
At June 30, 2000, the Company has net operating loss carryforwards of
approximately $4,100,000, which expire in the years 2017 through 2021.
Basic and Diluted Loss Per share
-------------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
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 $4,116,790 for the period December 17, 1997 (inception)
to June 30, 2000 and had minimal 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.
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.
64
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reverse Stock Split
-------------------
The Company's Board of Directors in March 1998 authorized a 1 for 1000 reverse
stock split of its $0.0001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Stock Options and Stock Based Compensation
-----------------------------------------------
MEST accounts for all transactions under which employees, officers and directors
receive options to purchase shares of stock in MEST in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". In accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," MEST
adopted the pro forma disclosure requirements of SFAS 123. Accordingly, no
compensation has been recognized in the results of operations for the employees,
officers and directors stock option plan other than for options issued to
non-employees for consulting services, which are valued based at their fair
market value. In accordance with these standards, the Company values stock
issued to employees, officers, directors and consultants at its fair market
value at date of grant.
Loss Per Share
----------------
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings Per Share". This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
The weighted average number of shares outstanding for the period December 10,
1997 (inception) to June 30, 2000, was 6,902,688.
For all periods presented, diluted net loss per share was the same as basic net
loss per share since the inclusion of stock options and warrants would have been
anti-dilutive.
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.
65
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 3 - CONCENTRATION OF RISK
At June 30, 2000, the Company maintained cash balances totaling $620,275 in
Netherlands financial institutions. The funds are valued in U.S. dollars and
are insured.
NOTE 4 - RELATED PARTY TRANSACTIONS
The following amounts were owed to related parties:
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice Maurice
Oudejans Schelvis Schelvis Schelvis
----------- ---------- -------- ---------
Interest Loans to Loans to Payable Cash
Rate Maturity Company Company Balance Advances
-------- -------- ----------- ---------- -------- ---------
June 30, 2000 5% Upon $ 0 $5,590 $ 5,590 $103,500
Demand
December 31, 1999 5% Upon $10,226 $5,754 $15,980 $103,500
Demand
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest at 5 per cent rate, and are due upon
demand.
The following amounts were due from shareholders or related parties:
June 30, December 31,
2000 1999
------------ ------------
Due from Marike Oudejans $ 48,917 $ 0
Due from third parties 109,524 933,303
------------ ------------
Due from shareholders or related parties $ 158,441 $ 933,303
============ ============
NOTE 5 - 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.
June 30, December 31,
2000 1999
------------ ------------
Office equipment, computers $ 13,893 $ 13,893
Less Accumulated depreciation (4,327) (2,534)
------------ ------------
Net property and equipment $ 9,566 $ 11,359
============ ============
66
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 6 - 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 June 30, 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. 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.
NOTE 7 - 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, 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.
NOTE 8 - 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, MST 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 persons.
MEST's investment in the joint venture is recorded as $0 on MEST's balance sheet
because MSTec's debt and losses exceed the joint venturers' investment in MSTec.
MEST's investment in the joint venture totaled $687,000 at June 30, 2000.
The joint venture's primary assets, as the result of the aforementioned
investment, are a successfully functioning testing facility (pilot plant in
Apeldoorn, The Netherlands, where TNO is located) and a worldwide licensing
agreement for the application of the aforementioned technological process from
TNO. The Company's commercial facility and end products marketing and sales
also originate from the pilot plant's location in Apeldoorn.
NOTE 9 - 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 MST, B.V. in phases
during the year 1999. Repayment was intended to commence December 31, 1999,
contingent upon MST, B.V. generating an "operating profit". Further, in the
event of MST, B.V.'s default or bankruptcy, MEST agreed to subordinate its
interest in the loan for the benefit of RABO bank in Apeldoorn and TNO, until
all other debts of MST were paid. Upon payment of debts and obligations of MST,
B.V. the loan from MEST would again be eligible for repayment of interest and
principal.
67
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Office lease
-------------
The Company leases office space in Amsterdam under a written agreement which
runs from July 1999 through January 2002 and provides 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.
NOTE 10 - TRANSLATION OF FOREIGN CURRENCY
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 relating
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.
NOTE 11 - STOCK OPTIONS
During years 2000, 1999, and 1998 the Company granted its officers options to
purchase a total of 680,000 shares of MEST common stock at an exercise price of
$0.50 per share. Still outstanding at June 30, 2000, the options are
exercisable at anytime prior to dates that started at July 31, 2000, and extend
5 years from date of issue. Options were granted for the purchase of the
Company's common stock to the following persons during the six months ended June
30, 2000:
Shares subject Option Expiration
Name to option exercise price date
------------------ ------------------ --------------- ----------------
Marieke Oudejans 50,000/ year $0.50 5 years from
(25,000/quarter) issue date
Maurice Schelvis 50,000/ year $0.50 5 years from
(25,000/quarter) issue date
The Company has adopted the disclosure only provisions of SFAS 123.
For disclosure of stock option compensation to employees and officers, the fair
value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during years 2000, 1999, and 1998: no annual dividends,
expected volatility of 24.83%, 23.54%, and 22.25%, respectively; risk-free
interest rate of 6%; and expected lives of 5 years (or as described above).
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 1999 480,000 $0.50
Granted during 2000 100,000 $0.50
Expired during 2000 (30,000) $0.50
-------------- -----------------
Options outstanding at June 30, 2000 550,000 $0.50
============== =================
68
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 11 - STOCK OPTIONS (CONTINUED)
Compensation cost charged to operations attributed to option expense during
1999, and the six months ended June 30, 2000, follows:
June 30, December 31,
2000 1999
------------ ------------
Expense of options charged
to compensation $ 383,950 $ 717,900
============ ============
NOTE 12 - 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, was forgiven $44,157 it owed to MEST at December
31, 2000.
69
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
70
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
Amsterdam, The Netherlands
ACCOUNTANT'S REVIEW REPORT
--------------------------
We have reviewed the accompanying consolidated balance sheet of Management of
Environmental Solutions & Technology Corp. (a development stage company) as of
September 30, 2000 and the related consolidated statements of operations,
stockholders' equity and cash flows for the three and nine months ended
September 30, 2000, and for the period from December 10, 1997 (inception) to
September 30, 2000. These financial statements are the responsibility of the
Company's management.
We conducted our review 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 review, 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.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997. The Company has no revenues and has recurring
losses. These factors, which relate to the Company's expressed decision to
perfect its technological application before entering the market, raise doubt
about the Company's ability to continue as a going concern. In management's
opinion, the Company's continuance is contingent upon expected, imminent sales.
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 30, 2001
71
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
(Unaudited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 636,971 $ 646,274
Accounts receivable 44,157 33,582
Due from shareholders or related parties 250,270 933,303
Other receivables 4,942 2,247
Prepaid expenses 29,724 15,936
------------- -------------
Total Current Assets 966,064 1,631,342
------------- -------------
OTHER ASSETS
Property and equipment, net of depreciation 8,374 11,359
------------- -------------
Total Other Assets 8,374 11,359
------------- -------------
TOTAL ASSETS $ 974,438 $ 1,642,701
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 43,048 $ 544,171
Loans from related parties 109,090 119,480
------------- -------------
Total Current Liabilities 152,138 663,651
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock - Series A; $0.00001 par value,
5,000,000 shares authorized, 535,985 and
427,485 issued and outstanding, respectively 53 42
Common stock; $0.0001 par value, 30,000,000
shares authorized, 7,320,055 shares issued
and outstanding 732 732
Additional paid-in capital 3,149,176 2,615,517
Stock options 2,082,675 1,583,838
Deficit accumulated during development stage (4,297,346) (3,135,375)
Accumulated other comprehensive income (loss) (112,990) (85,704)
------------- -------------
Total Stockholders' Equity 822,300 979,050
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 974,438 $ 1,642,701
============= =============
See accompanying notes and accountant's review report.
72
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Nine Months Ended (Inception)
-------------------------- -------------------------- to
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------ ------------
REVENUES $ - $ - $ - $ - $ -
------------- ------------- ------------- ------------ ------------
EXPENSES
General and
administrative 182,768 325,154 917,759 1,095,582 3,144,041
Research and
development - - 60,000 - 531,595
Depreciation 1,192 26 2,985 2,226 5,519
------------- ------------- ------------- ------------ ------------
Total Expenses 183,960 325,180 980,744 1,097,808 3,681,155
------------- ------------- ------------- ------------ ------------
LOSS FROM
OPERATIONS (183,960) (325,180) (980,744) (1,097,808) (3,681,155)
------------- ------------- ------------- ------------ ------------
OTHER INCOME
(EXPENSES)
Interest income 3,404 - 37,842 4,884 71,879
Interest expense - (1,161) - (1,161) (793)
------------- ------------- ------------- ------------ ------------
Other Income
(Expense) 3,404 (1,161) 37,842 3,723 71,086
------------- ------------- ------------- ------------ ------------
LOSS BEFORE
INCOME TAXES (180,556) (324,019) (942,902) (1,094,085) (3,610,069)
INCOME TAX
EXPENSE - - - - -
------------- ------------- ------------- ------------ ------------
NET LOSS AFTER TAX (180,556) (324,019) (942,902) (1,094,085) (3,610,069)
(LOSS) FROM
JOINT VENTURE - (147,913) (219,069) (468,208) (687,277)
------------- ------------- ------------- ------------ ------------
NET LOSS (180,556) (471,932 (1,161,971) (1,562,293) (4,297,346)
------------- ------------- ------------- ------------ ------------
See accompanying notes and accountant's review report.
73
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Nine Months Ended (Inception)
-------------------------- -------------------------- to
Sept. 30, Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ------------ ------------
OTHER
COMPREHENSIVE
INCOME (LOSS)
Foreign currency
translation
(loss) - (38,489) (27,286) (38,489) (112,990)
------------- ------------- ------------- ------------ ------------
COMPREHENSIVE
(LOSS) $ (180,556) $ (510,421) $ (1,189,257) $(1,600,782) (4,410,336)
============= ============= ============= ============ ============
LOSS PER COMMON
SHARE, BASIC
AN DILUTED $ (0.02) $ (0.07) $ (0.16) $ (0.22) $ (0.64)
============= ============= ============= ============ ============
WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES
OUTSTANDING,
BASIC AND
DILUTED 7,320,055 7,320,055 7,320,055 7,320,055 6,902,688
============= ============= ============= ============ ============
See accompanying notes and accountant's review report.
74
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Inception,
Dec. 10, 1997 - $ - $ - $ - $ - $ - $ - $ - $ -
Issuance of
common stock
for cash
Dec. 11, 1997 - - 5,000 1 5,009 - - - 5,010
Issuance of
common stock
to acquire
STB Corp. on
Dec. 26, 1997 - - 175 - 175 - - - 175
Net loss for
year ended
Dec. 31, 1997 - - - - - - (46,869) - (46,869)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Jan. 1, 1998 - - 5,175 1 5,184 - (46,869) - (41,684)
Issuance of
common stock
as follows:
For cash on
March 10, 1998 - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred
stock for cash
December 7
through 24 at
an average
price of $3.73
per share 23,900 2 - - 89,246 - - - 89,248
Issuance of
stock options
for compensation
on August 31,1998 - - - - - 865,938 - - 865,938
Net loss for
year ended
Dec. 31, 1998 - - - - - - (1,278,364) 15,284 (1,263,080)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
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
January through
December at an
average price
of $3.97
per share 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of
stock options
for compensation
on August 31, 1999 - - - - - 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
Issuance of
preferred stock
for cash
Jan. through
June at an
average price
of $4.21 per
share 108,500 11 - - 456,571 - - - 456,582
Issuance of
stock options for
compensation - - - - - 575,925 - - 575,925
Expiration of
stock options
on July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss,
Sept. 30, 2000 - - - - - - (1,161,971) (27,286) (1,189,257)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Sept. 30, 2000
(unaudited) 535,985 $ 53 7,320,055 $ 732 $ 3,149,176 $2,082,675 $(4,297,346) $ (112,990) $ 822,300
=========== =========== =========== ============ ============ =========== =========== =========== ===========
See accompanying notes and accountant's review report.
75
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Nine Months Ended (Inception)
---------------------------- to
September 30, September 30, September 30,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,161,971) $ (1,562,293) $ (4,297,346)
Foreign currency (loss) (27,286) (38,489) (112,990)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 2,985 26 5,519
(Increase) decrease in assets:
Accounts receivable (10,575) 2,024 (44,157)
Other receivables (2,695) (5,288) (4,942)
Prepaid expenses (13,788) 3,033 (29,724)
Options granted as
compensation 498,837 538,425 2,082,675
Increase (decrease) in
liabilities:
Accounts payable (501,123) (18,489) 43,048
Loans from related parties (10,390) 4 62,221
Other liabilities - (31,775) 46,869
------------- ------------- -------------
Net cash (used) by
operating activities (1,226,006) (1,112,822) (2,248,827)
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
Equipment - 8,666 (13,893)
Investment in loans receivable 683,033 - (250,270)
------------- ------------- -------------
Net cash provided (used) by
investing activities 683,033 8,666 (264,163)
------------- ------------- -------------
See accompanying notes and accountant's review report.
76
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Nine Months Ended (Inception)
---------------------------- to
September 30, September 30, September 30,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the sale of
preferred stock 533,670 1,334,356 2,219,326
Proceeds from the sale of
common stock - - 905,635
Acquisition of subsidiary - - 20,000
------------- ------------- -------------
Net cash provided by
financing activities 533,670 1,334,356 3,144,961
------------- ------------- -------------
Net increase (decrease) in cash (9,303) 230,200 631,971
Cash, beginning of period 646,274 728,870 5,000
------------- ------------- -------------
Cash, end of period $ 636,971 $ 959,070 $ 636,971
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,161 $ 1,161 $ -
Income taxes paid $ - $ - $ -
NON-CASH INVESTING AND
FINANCING TRANSACTIONS:
Stock options granted for
compensation $ 498,837 $ 538,425 $ 2,082,675
See accompanying notes and accountant's review report.
77
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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 April 9, 1998, MEST issued stock in exchange for all
issued and outstanding shares of MEST, BV, a Netherlands corporation. 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.
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.
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.
78
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
---------------------------------------
MEST's financial instruments consist primarily of cash, accrued expenses and
payables, and loans payable, which approximate fair value because of their short
maturities. MEST's notes payable approximate the fair value of such instruments
based upon management's best estimate of interest rates that would be available
to MEST for a similar financial arrangement at September 30, 2000.
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.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At September 30, 2000 the Company has not engaged in any transactions that would
be considered derivative instruments or hedging activities.
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.
79
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 September 30, 2000, the Company had net deferred tax assets of approximately
$860,000, 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 September 30, 2000.
At September 30, 2000, the Company has net operating loss carryforwards of
approximately $4,300,000, which expire in the years 2017 through 2021.
Basic and Diluted Loss Per share
-------------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
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 $4,297,346 for the period December 17, 1997 (inception)
to September 30, 2000 and had minimal 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.
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 ("MST"), 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.
80
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reverse Stock Split
-------------------
The Company's Board of Directors in March 1998 authorized a 1 for 1000 reverse
stock split of its $0.0001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Stock Options and Stock Based Compensation
-----------------------------------------------
MEST accounts for all transactions under which employees, officers and directors
receive options to purchase shares of stock in MEST in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". In accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," MEST
adopted the pro forma disclosure requirements of SFAS 123. Accordingly, no
compensation has been recognized in the results of operations for the employees,
officers and directors stock option plan other than for options issued to
non-employees for consulting services, which are valued based at their fair
market value. In accordance with these standards, the Company values stock
issued to employees, officers, directors and consultants at its fair market
value at date of grant.
Loss Per Share
----------------
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings Per Share". This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
The weighted average number of shares outstanding for the period December 10,
1997 (inception) to September 30, 2000, was 6,902,688.
For all periods presented, diluted net loss per share was the same as basic net
loss per share since the inclusion of stock options and warrants would have been
anti-dilutive.
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.
81
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 3 - CONCENTRATION OF RISK
At September 30, 2000, the Company maintained cash balances totaling $636,971 in
Netherlands financial institutions. The funds are valued in U.S. dollars and
are insured.
NOTE 4 - RELATED PARTY TRANSACTIONS
The following amounts were owed to related parties:
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice Maurice
Shareholders Oudejans Schelvis Schelvis Schelvis
------------- ----------- ---------- -------- ---------
Loans
Interest Loans to Loans to Payable Cash
Year-end Rate Maturity Company Company Balance Advances
------------------- -------- -------- ----------- ---------- -------- ---------
September 30, 2000 5% Upon $ 0 $5,590 $ 5,590 $103,500
Demand
December 31, 1999 5% Upon $10,226 $5,754 $15,980 $103,500
Demand
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest at 5 per cent rate, and are due upon
demand.
The following amounts were due from shareholders or related parties:
September 30, December 31,
2000 1999
------------- -------------
Due from Marike Oudejans $ 48,917 $ 0
Due from third parties 109,524 933,303
------------- -------------
Due from shareholders or related parties $ 158,441 $ 933,303
============= =============
NOTE 5 - 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
September 30, December 31,
2000 1999
------------- -------------
Office equipment, computers $ 13,893 $ 13,893
Less Accumulated depreciation (5,519) (2,534)
------------- -------------
Net property and equipment $ 8,374 $ 11,359
============= =============
82
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 6 - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.0001 par value
preferred stock; 354,410 Series A Preferred Shares were issued and outstanding
at September 30, 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. 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.
NOTE 7 - 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 September 30, 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.
NOTE 8 - 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, MST 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 persons.
MEST's investment in the joint venture is recorded as $0 on MEST's balance sheet
because MSTec's debt and losses exceed the joint venturers' investment in MSTec.
MEST's investment in the joint venture totaled $687,000 at September 30, 2000.
The joint venture's primary assets, as the result of the aforementioned
investment, are a successfully functioning testing facility (pilot plant in
Apeldoorn, The Netherlands, where TNO is located) and a worldwide licensing
agreement for the application of the aforementioned technological process from
TNO. The Company's commercial facility and end products marketing and sales
also originate from the pilot plant's location in Apeldoorn.
NOTE 9 - 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 MST, B.V. in phases
during the year 1999. Repayment was intended to commence December 31, 1999,
contingent upon MST, B.V. generating an "operating profit". Further, in the
event of MST, B.V.'s default or bankruptcy, MEST agreed to subordinate its
interest in the loan for the benefit of RABO bank in Apeldoorn and TNO, until
all other debts of MST were paid. Upon payment of debts and obligations of MST,
B.V. the loan from MEST would again be eligible for repayment of interest and
principal.
83
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Office lease
-------------
The Company leases office space in Amsterdam under a written agreement which
runs from July 1999 through January 2002 and provides 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.
NOTE 10 - TRANSLATION OF FOREIGN CURRENCY
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 relating
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.
NOTE 11 - STOCK OPTIONS
During years 2000, 1999, and 1998 the Company granted its officers options to
purchase a total of 680,000 shares of MEST common stock at an exercise price of
$0.50 per share. Still outstanding at September 30, 2000, the options are
exercisable at anytime prior to dates that started at July 31, 2000, and extend
5 years from date of issue. Options were granted for the purchase of the
Company's common stock to the following persons during the nine months ended
September 30, 2000:
Shares subject Option Expiration
Name to option exercise price date
------------------ ------------------ --------------- ----------------
Marieke Oudejans 75,000/ year $0.50 5 years from
(25,000/quarter) issue date
Maurice Schelvis 75,000/ year $0.50 5 years from
(25,000/quarter) issue date
The Company has adopted the disclosure only provisions of SFAS 123.
For disclosure of stock option compensation to employees and officers, the fair
value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during years 2000, 1999, and 1998: no annual dividends,
expected volatility of 24.83%, 23.54%, and 22.25%, respectively; risk-free
interest rate of 6%; and expected lives of 5 years (or as proscribed above).
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 1999 480,000 $0.50
Granted during 2000 150,000 $0.50
Expired during 2000 (30,000) $0.50
-------------- -----------------
Options outstanding at September 30, 2000 600,000 $0.50
============== =================
84
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 11 - STOCK OPTIONS (CONTINUED)
Compensation cost charged to operations attributed to option expense during
1999, and the nine months ended September 30, 2000, follows:
September 30, December 31,
2000 1999
------------- -------------
Expense of options charged
to compensation $ 767,900 $ 717,900
============= =============
NOTE 12 - 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, was forgiven $44,157 it owed to MEST at December
31, 2000.
85
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
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
86
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
Amsterdam, 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,
stockholders' equity and cash flows for the three months and six months ended
June 30, 2001, for the three months and six months ended June 30, 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.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997. The Company has no revenues and has recurring
losses. These factors, which relate to the Company's expressed decision to
perfect its technological application before entering the market, raise doubt
about the Company's ability to continue as a going concern. In management's
opinion, the Company's continuance is contingent upon expected, imminent sales.
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
October 3, 2001
87
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(Unaudited)
------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 401,028 $ 666,746
Tax refunds receivable 20,852 44,157
Due from shareholders or related parties - 158,441
Other receivables 1,921 -
Prepaid expenses - 19,274
------------- -------------
Total Current Assets 423,801 888,618
------------- -------------
OTHER ASSETS
Property and equipment, net of depreciation 4,650 7,182
------------- -------------
Total Other Assets 4,650 7,182
------------- -------------
TOTAL ASSETS $ 428,451 $ 895,800
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 32,365 $ 63,048
Accrued expenses 15,225 12,738
Loans from related parties - 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 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 3,149,176 3,149,176
Stock options 2,274,650 2,274,650
Deficit accumulated during development stage (4,771,156) (4,530,690)
Accumulated other comprehensive income (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 accountant's review report.
88
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Six Months Ended (Inception)
---------------------------- -------------------------- to
June 30, June 30, June 30, June 30, June 30,
2001 2000 2001 2000 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------- ------------
REVENUES $ - $ - $ - $ - $ -
EXPENSES
General and
administrative 83,900 425,961 87,241 734,961 3,368,493
Research and
development 70,982 60,000 131,871 60,000 667,248
Depreciation 918 1,192 1,901 1,793 8,612
------------- ------------- ------------- ----------- ------------
Total Expenses 155,800 487,153 221,013 796,754 4,044,353
------------- ------------- ------------- ----------- ------------
LOSS FROM
OPERATIONS (155,800) (487,153) (221,013) (796,754) (4,044,353)
------------- ------------- ------------- ----------- ------------
OTHER INCOME
(EXPENSES)
Interest income 15,573 9,718 26,251 34,438 135,734
Interest expense - - - - (793)
------------- ------------- ------------- ----------- ------------
Other Income
(Expense) 15,573 9,718 26,251 34,438 134,941
------------- ------------- ------------- ----------- ------------
LOSS BEFORE
INCOME TAXES (140,227) (477,435) (194,762) (762,316) (3,909,412)
INCOME TAX EXPENSE - - - - -
------------- ------------- ------------- ----------- ------------
NET LOSS AFTER TAX (140,227) (477,435) (194,762) (762,316) (3,909,412)
LOSS FROM JOINT
VENTURE (108,571) (1,855) (108,571) (219,099) (924,611)
------------- ------------- ------------- ----------- ------------
NET LOSS (248,798) (479,290) (303,333) (981,415) (4,834,023)
------------- ------------- ------------- ----------- ------------
See accompanying notes and accountant's review report.
89
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
December 17,
1997
Three Months Ended Six Months Ended (Inception)
-------------------------- -------------------------- to
June 30, June 30, June 30, June 30, June 30,
2001 2000 2001 2000 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------- ----------- ------------
EXTRAORDINARY ITEM
Loss on
forgiveness of
debt 62,867 - 62,867 - 62,867
OTHER COMPREHENSIVE
INCOME (LOSS)
Foreign currency
translation
(loss) (11,501) (4,273) (89,597) (27,286) (272,594)
------------- ------------- ------------- ----------- ------------
COMPREHENSIVE
(LOSS) $ (197,432) $ (483,563) $ (330,063) $(1,008,701) $(5,043,750)
============= ============= ============= =========== ============
NET LOSS PER
COMMON SHARE,
BASIC AND
DILUTED $ (0.03) $ (0.07) $ (0.05) $ (0.14) $ (0.73)
============= ============= ============= =========== ============
WEIGHTED AVERAGE
NUMBER OF
COMMON SHARES
OUTSTANDING,
BASIC AND
DILUTED 7,320,055 7,320,055 7,320,055 7,320,055 6,902,688
============= ============= ============= =========== ============
See accompanying notes and accountant's review report.
90
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Inception,
Dec. 10, 1997 - $ - $ - $ - $ - $ - $ - $ - $ -
Issuance of
common stock
for cash
Dec. 11, 1997 - - 5,000 1 5,009 - - - 5,010
Issuance of
common stock
to acquire
STB Corp. on
Dec. 26, 1997 - - 175 - 175 - - - 175
Net loss for
year ended
Dec. 31, 1997 - - - - - - (46,869) - (46,869)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Jan. 1, 1998 - - 5,175 1 5,184 - (46,869) - (41,684)
Issuance of
common stock
as follows:
For cash on
March 10, 1998 - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred
stock for cash
December 7
through 24 at
an average
price of $3.73
per share 23,900 2 - - 89,246 - - - 89,248
Issuance of
stock options
for compensation
on August 31,1998 - - - - - 865,938 - - 865,938
Net loss for
year ended
Dec. 31, 1998 - - - - - - (1,278,364) 15,284 (1,263,080)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
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
January through
December at an
average price
of $3.97
per share 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of
stock options
for compensation
on August 31, 1999 - - - - - 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
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
91
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accum-
Accum- ulated
ulated Other
Preferred Stock Common Stock Deficit Compre- Total
------------------------- ------------------------ Additional During hensive Stock-
Number of Number of Paid-in Stock Development Income holders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
Dec. 31, 1999
carryforward 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.
through June at
an average price
of $4.21 per
share 108,500 11 - - 456,571 - - - 456,582
Issuance of
stock options for
compensation on
August 31, 2000 - - - - - 767,900 - - 767,900
Expiration of
stock options
on July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss for
year ended
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
Net loss,
June 30, 2001 - - - - - - (240,466) (89,597) (330,063)
----------- ----------- ----------- ------------ ------------ ----------- ----------- ----------- -----------
Balance,
June 30, 2001
(unaudited) 535,985 $ 53 7,320,055 $ 732 $ 3,149,176 $2,274,650 $(4,771,156) $(272,594) $ 380,861
=========== =========== =========== ============ ============ =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
92
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Six Months Ended (Inception)
---------------------------- to
June 30, June 30, June 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (240,466) $ (981,415) $ (4,771,156)
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
Gain on forgiveness of debt (62,867) - (62,867)
(Increase) decrease in assets:
Tax refunds receivable 23,305 (3,000) (20,852)
Accounts receivable - - -
Other receivables (1,921) (2,695) (1,921)
Prepaid expenses 19,274 (80) -
Increase (decrease) in
liabilities:
Accounts payable (30,683) 104,985 32,365
Accrued liabilities 2,487 - 15,225
------------- ------------- -------------
Net cash (used) by
operating activities (288,970) (496,462) (2,448,856)
------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Sale or retirement (purchase)
of property and equipment - - (13,893)
Loans to related parties - - (158,441)
Cash received on loans 112,218 48,167 112,218
------------- ------------- -------------
Net cash provided (used) by
investing activities 112,218 48,167 (60,116)
------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial
statements.
93
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
December 17,
1997
Six Months Ended (Inception)
---------------------------- to
June 30, June 30, June 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
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 - - 111,265
Payments on related party loans - (7,000) (7,000)
Cash acquired with subsidiary - - 20,000
------------- ------------- -------------
Net cash provided by
financing activities - 449,582 3,176,963
------------- ------------- -------------
Net increase (decrease) in cash (176,752) 1,287 667,991
Foreign currency translation
(loss) (88,966) (27,286) (271,963)
Cash, beginning of period 666,746 646,274 5,000
------------- ------------- -------------
Cash, end of period $ 401,028 $ 620,275 $ 401,028
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ - $ - $ -
Income taxes paid $ - $ - $ -
NON-CASH TRANSACTIONS:
Stock options granted for
compensation $ - $ 383,950 $ 2,351,738
Stock issued to acquire
subsidiary $ - $ - $ 20,000
Stock issued to acquire STB Corp $ - $ - $ 175
Notes payable, related party
netted with note receivable,
related party, $ 46,223 $ - $ 46,223
The accompanying notes are an integral part of these consolidated financial
statements.
94
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
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 April 9, 1998, MEST issued stock in exchange for all
issued and outstanding shares of MEST, BV, a Netherlands corporation. 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.
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.
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.
95
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
----------------------------
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Fair Value of Financial Instruments
---------------------------------------
MEST's financial instruments consist primarily of cash, accrued expenses and
payables, and loans payable, which approximate fair value because of their short
maturities. MEST's notes payable approximate the fair value of such instruments
based upon management's best estimate of interest rates that would be available
to MEST for a similar financial arrangement.
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.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes.
At June 30, 2001, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
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.
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." In complying
with this standard, the Company.
96
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impaired Asset Policy (continued)
------------------------------------
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 whenever events or changes in circumstances
indicate that an asset may not be recoverable. Properties are acquired and
recorded at fair values negotiated in arm's length transactions. Although the
Company expenses as costs the exploration and maintenance of its properties and
claims, if results of exploration warrant an assessment of the carrying value of
a mineral property's acquisition cost, or if the Company has an indication that
the recorded fair value has declined, such costs will be reviewed and any
impairment will be recognized at that time.
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
$970,000, 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 $4,850,000, which expire in the years 2017 through 2021.
Basic and Diluted Loss Per share
-------------------------------------
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding.
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 $4,771,156 for the period December 17, 1997 (inception)
to June 30, 2001, and 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
97
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern (continued)
---------------------------
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.
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.
Reverse Stock Split
-------------------
The Company's Board of Directors in March 1998 authorized a 1 for 1000 reverse
stock split of its $0.0001 par value common stock. All references in the
accompanying financial statements to the number of common shares outstanding and
per share amounts have been restated to reflect the reverse stock split.
Stock Options and Stock Based Compensation
-----------------------------------------------
MEST accounts for all transactions under which employees, officers and directors
receive options to purchase shares of stock in MEST in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". In accordance with Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," MEST
adopted the pro forma disclosure requirements of SFAS 123. Accordingly, no
compensation has been recognized in the results of operations for the employees,
officers and directors stock option plan other than for options issued to
non-employees for consulting services, which are valued based at their fair
market value. In accordance with these standards, the Company values stock
issued to employees, officers, directors and consultants at its fair market
value at date of grant.
Loss Per Share
----------------
The Company has adopted the provisions of Financial Accounting Standards No.
128, "Earnings Per Share". This statement requires that the Company report
basic and diluted earnings (loss) per share for all periods reported. Basic net
income (loss) per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
for the period.
The weighted average number of shares outstanding for the period December 10,
1997 (inception) to June 30, 2001, was 6,902,688.
For all periods presented, diluted net loss per share was the same as basic net
loss per share since the inclusion of stock options and warrants would have been
anti-dilutive.
98
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Management does 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.
Management does not anticipate that the adoption of this interpretation will
have a material effect on the Company's financial position or results of
operations.
Research and Development Costs
---------------------------------
Costs of research and development, which are not deemed to be software
development costs, are expensed as incurred.
Reclassification
----------------
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes
to the Company's accumulated deficit or net losses presented
NOTE 3 - CONCENTRATION OF RISK
At June 30, 2001, the Company maintained cash balances totaling $401,028 in
Netherlands financial institutions. The funds are valued in U.S. dollars and
are insured.
NOTE 4 - RELATED PARTY TRANSACTIONS
The following amounts were owed to related parties:
Shareholder or company owned by shareholder
----------------------------------------------
Marieke Maurice Maurice
Oudejans Schelvis Schelvis
-------------- -------------- --------------
Interest Loans to Loans to Loans Payable
Rate Maturity Company Company Advances
-------- -------- -------------- -------------- --------------
June 30, 2001 5% Upon $ 0 $ 0 $ 0
Demand
December 31, 2000 5% Upon $ 0 $ 5,590 $ 103,500
Demand
99
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED)
The loans payable result from cash advances made to MEST and are
uncollateralized. The loans bear interest at 5 per cent rate, and are due upon
demand. The following amounts were due from shareholders or related parties:
June 30, December 31,
2001 2000
------------ ------------
Due from IJ - Beeher $ 0 $ 48,917
Due from Jan Luiken, B.V. 0 109,524
------------ ------------
Due from shareholders or related parties $ 0 $ 158,441
============ ============
NOTE 5 - 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
June 30, December 31,
2001 2000
------------ ------------
Office Equipment $ 13,262 $ 13,893
Less: Accumulated Depreciation (8,612) (6,711)
------------ ------------
Net Property and Equipment $ 4,650 $ 7,182
============ =============
NOTE 6 - 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 June 30, 2001. 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. 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.
NOTE 7 - 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. 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.
100
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 8 - 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 persons.
MEST's investment in the joint venture is recorded as $0 on MEST's balance sheet
because MSTec's debt and losses exceed the joint venturers' investment in MSTec.
The joint venture's primary assets, as the result of the aforementioned
investment, are a successfully functioning testing facility (pilot plant in
Apeldoorn, The Netherlands, where TNO is located) and a worldwide licensing
agreement for the application of the aforementioned technological process from
TNO. The Company's commercial facility and end products marketing and sales
also originate from the pilot plant's location in Apeldoorn. The joint venture
agreement provides for royalties which would range between 10 and 15 percent of
the manufacturing costs of future treatment facility installations.
NOTE 9 - 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 MST, B.V. in phases
during the year 1999. Repayment was intended to commence December 31, 1999,
contingent upon MST, B.V. generating an "operating profit". Further, in the
event of MST, B.V.'s default or bankruptcy, MEST agreed to subordinate its
interest in the loan for the benefit of RABO bank in Apeldoorn and TNO, until
all other debts of MST were paid. Upon payment of debts and obligations of MST,
B.V., the loan from MEST would again be eligible for repayment of interest and
principal.
Office lease
-------------
The Company leases office space in Amsterdam under a written agreement which
runs from July 1999 through January 2002 and provides 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.
101
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS
& TECHNOLOGY CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
NOTE 10 - TRANSLATION OF FOREIGN CURRENCY
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 relating
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. The Company's transactions in
the Netherlands are reported in Dutch guilders and converted to U.S. dollars.
NOTE 11 - STOCK OPTIONS
During years 2000, 1999, and 1998 the Company granted its officers options to
purchase a total of 730,000 shares of MEST common stock (less 30,000 that
expired during year 2000) at an exercise price of $0.50 per share. Between
December 31, 2000 and June 30, 2001 no new options were granted nor were any
options exercised resulting in 700,000 options outstanding at June 30, 2001.
Options are exercisable at anytime prior to dates that started at July 31, 2000,
and extend 5 years from date of issue.
During the 6 months ended June 30, 2001, the Company granted no options, as
reflected in the summary schedule below:
Weighted Average
Shares Exercise Price
-------------- -----------------
Options outstanding at December 31, 2000 700,000 $0.50
Granted during 2001 0 0
Expired during 2001 0 0
-------------- -----------------
Options outstanding at June 30, 2001 700,000 $ 0.50
============== =================
Compensation cost charged to operations attributed to option expense during year
2000, and the six months ended June 30, 2001 was as follows:
June 30, December 31,
2001 2000
------------ ------------
Expense of options charged to compensation $ 0 $ 767,900
============ ============
102
PART III
Item 1. Index to Exhibits
Page
Exhibit 2.1 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. 104
Exhibit 3.1 Articles of Incorporation, as amended 105
Exhibit 3.2 Bylaws 111
Exhibit 4.1 Instruments Defining the Rights of Security Holders 118
Exhibit 10.1 Material Contracts 121
Exhibit 23.1 Consent of Certified Accountants 153
Exhibit 23.2 Consent of Certified Accountants 154
Exhibit 23.3 Consent of Certified Accountants 155
Exhibit 23.4 Consent of Certified Accountants 156
Exhibit 23.5 Consent of Certified Accountants 157
Item 2. Description of Exhibits
Exhibits are included 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: September 5, 2001 By: /s/ Greg Schmick
-------------------------------------
Greg Schmick, President
103