-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WrgXbuhxnQR8jqV5u1Yan5nDdSVdimrmdtVnVSBVr43tgk85Fyh74eg5CL8IjtxK pbN5rGUs9cSsfsy7gdBKRg== 0000950132-97-000535.txt : 19970722 0000950132-97-000535.hdr.sgml : 19970722 ACCESSION NUMBER: 0000950132-97-000535 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970714 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEILER POLLUTION CONTROL SYSTEMS INC CENTRAL INDEX KEY: 0000718827 STANDARD INDUSTRIAL CLASSIFICATION: 3567 IRS NUMBER: 222448906 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22630 FILM NUMBER: 97639777 BUSINESS ADDRESS: STREET 1: 555 METRO PLACE NORTH SUITE 100 STREET 2: 4TH FLOOR CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147913272 MAIL ADDRESS: STREET 1: 555 METRO PLACE NORTH CITY: DUBLIN STATE: OH ZIP: 43017 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1997 ---------------------------------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________________ to _____________________ Commission file number 0-222630 -------------------------------------------------- Seiler Pollution Control Systems, Inc. - - ------------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 22-2448906 - - ------------------------------- ------------------ State or other jurisdiction of (I.R.S. Employer Incorporation or organization Identification No.) 555 Metro Place North, Dublin, Ohio 43017 - - ---------------------------------------------------- ------------ (Address of principal executive Offices) (Zip Code) Registrant's telephone number, including area code 614/791-3272 ------------ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.0001 per share. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Yes [ ] No APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No Not Applicable The number of shares outstanding of each of the Registrant's classes of Common Stock, as of June 1, 1997 is 21,142,188 shares, all of one class of $.0001 par value Common Stock. Of this number a total of 18,392,188 shares having a market value of $47,129,982, based on the closing price of the Registrant's common stock of $2.5625 on July 8, 1997 as quoted on the NASDAQ SmallCap market, were held by non-affiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE Employment Agreements with Messrs. Heim, Sarko, Seiler, and Weser were entered into on June 29, 1996. The complete Agreements were reproduced in the Quarterly Report for the period ended June 30, 1996 and the description is hereby incorporated by reference. FORWARD LOOKING STATEMENTS Certain statements included in this Annual Report are not based on historical facts, but are forward looking statements. These statements can be identified by the use of forward looking terminology such as "believes", "expects", "may", "will", "should", or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect the Company's reasonable judgments with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Such risks and uncertainties include, but are not limited to the completion of an economically viable HTV system and the development and marketing of additional systems. The Company must also generate additional resources to enable it to continue the completion of the HTV system. Such additional resources may be generated through the sale of additional equity securities, the sale of an existing system, alliances, joint ventures or other business transactions which would generate sufficient resources. Other factors such as changes in business conditions and changes in regulations and laws may also impact the outcome of forward looking statements. SEILER POLLUTION CONTROL SYSTEMS, INC. Form 10-K Fiscal Year Ended March 31, 1997 TABLE OF CONTENTS Page No. -------- PART I Item 1. Business 1 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security-Holders 6 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 8 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 46 PART III Item 10. Directors and Executive Officers of the Registrant 46 Item 11. Executive Compensation 48 Item 12. Security Ownership of Certain Beneficial Owners and Management 51 - i - Item 13. Certain Relationships and Related Transactions 53 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 53 SIGNATURES SUPPLEMENTAL INFORMATION - ii - Part I ------ ITEM 1. BUSINESS - - ------ -------- Business Overview - - ----------------- Seiler Pollution Control Systems, Inc. (hereafter, "Seiler", the "Company", or the "Registrant") is engaged in the environmental service and equipment business. The Company was incorporated in 1983 in the State of Delaware, under the name of World Imports -- USA, Inc., an import-export company that operated until 1989. The Company was inactive during the fiscal years ended March 31, 1990 through 1993. Following a change in control in June 1993, World Imports -- USA, Inc. changed its name to Seiler Pollution Control Systems, Inc. and began active operations in the environmental field. The Company is currently publicly traded in the NASDAQ Small Capitalization Market under the stock symbol SEPC. In July 1993, the Company formed a wholly owned subsidiary, Seiler Pollution Control Systems International, Inc. ("Seiler International"), under the laws of the State of Delaware. This subsidiary holds the exclusive European rights to a High Temperature Vitrification System ("HTV System" or "System"). The HTV System was initially developed and patented in Switzerland by Seiler High Temperature Separating Systems Ltd. ("Seiler HT") a company controlled by Niklaus Seiler (a director of the Company) and his family. Seiler HT transferred exclusive worldwide rights to the System to Maxon Finance & Trade Ltd. ("Maxon"), a corporation organized under the laws of the Country of Panama with offices in Fribourg, Switzerland. In July 1993, Maxon transferred the European rights to Seiler International with the remaining worldwide rights acquired directly by the Company from Maxon under a separate license agreement. When the licensing agreements were executed, Maxon was a principal shareholder of the Company. As of June 1, 1997, Maxon owned 1.4% of the Company's outstanding stock. In November 1993, under the laws of the Country of Switzerland, the Company formed a wholly owned subsidiary, named Seiler SEPC AG. In February 1995, Seiler SEPC AG formed a subsidiary, under the laws of the Country of Germany named Seiler Trenn-Schmelzanlagen Betreibs GmbH (STSB GmbH) SEPC AG owns 90% of STSB GmbH and Dr. Gerold Weser, Seiler Vice President of European Operations and President of STSB GmbH, owns the remaining 10%. Subsequent to March 31, 1997, Dr. Weser has agreed to contribute capital to Seiler STSB in exchange for an additional 40% interest in the company, which will reduce Seiler AG's ownership interest in STSB to 50%. The transfer of the contributed capital and the execution of the agreement have not yet taken place. In March, 1997, Seiler acquired sixty percent (60%) of the issued stock of N.W. Technology Inc. (NWT), a newly formed New Jersey private company, in exchange for Seiler's expertise in vitrification technology. Seiler will utilize $4.7 million of NWT capital to design and build a prototype vitrification facility to eventually process low-level nuclear waste. Unless specifically identified by their individual names, Seiler Pollution Control Systems, Inc. and its three subsidiaries will hereafter be referred to as "Seiler", "Company", or the "Registrant". -1- Licensing Agreements - - -------------------- In July 1993, the Company entered into two separate licensing agreements with Maxon. The amended licensing agreements required the Company to pay Maxon a licensing fee of $2.5 million for the European rights to the HTV System and $2.5 million for the remaining worldwide rights. To date, $3,022,751 has been paid. The remaining sums due and owing are to be paid on a schedule as reflected in Note 5 of the Company's financial statements. These licensing agreements run for an indefinite term or until all of the proprietary information becomes public knowledge and the patent rights expire. The Technology - - -------------- The HTV System is a high temperature vitrification process that effectively processes a broad range of mixed and hazardous wastes into inert glass ceramic materials. The heart of the HTV System is a patented high temperature converter melter that operates at temperatures around 2700 to 3300 degrees F (1500 to 1800 degrees C). The energy causes chemical and physical reactions that convert hazardous chemical compounds into inert nonhazardous glass ceramics, metal oxides, and salts. The dryer and preheater components permit processing wet materials (e.g., sludges, metal hydroxide filter cake, wastewater treatment residues) or dry waste feedstocks (e.g., incinerator ash, spent foundry sands, asbestos). Also, the system's flexibility allows processing organic, inorganic or mixed organic/inorganic waste feedstocks. The inorganic residues are the primary components needed for producing glass ceramic products and metal oxides, while the organic residues provide supplemental energy for the system. The HTV System process can be controlled to produce materials in different shapes and forms as well as various degrees of hardness. The resulting materials are made into nonhazardous marketable products and recycled back into the commercial marketplace, or the glass ceramic materials can be stored in a non-hazardous waste landfill. The HTV System - - -------------- Seiler's commercial HTV System can process 2000 to 8000 tons (1800 to 7500 tonnes) of waste feedstocks per year at a rate of 600 to 2200 pounds (250 to 1000 kilograms) per hour. The commercial system is built to operate 24 hours a day, 7 days a week, shutting down only for scheduled maintenance or emergency repairs. The commercial HTV System includes extensive process controls, combustion air heat exchanger, flue gas quench system, refined glass ceramic exit system and sophisticated air pollution control components. The Company promotes installing a commercial HTV System on the site where the waste feedstocks are generated. By managing the waste onsite, transportation costs, safety and liability concerns associated with offsite management are eliminated. A commercial HTV System may, however, be built in a central location to serve as a regional recycling center for a number of hazardous and industrial waste generators and achieve economies of scale. Market Strategy and Business Development - - ---------------------------------------- Seiler's market strategy is to promote the Company's vitrification process as the preferred option for managing hazardous and industrial wastes because Seiler's HTV System offers environmental and economic advantages over traditional waste disposal or storage methods. The Company also plans to accelerate the product development and marketing side of the business. -2- Environmental Advantages: The HTV System recycles hazardous and industrial wastes into safe, nonhazardous glass ceramic products by binding the metal components in the waste feed to a glass ceramic matrix on a molecular level. The resultant inert materials pass standardized governmental leachate tests: the United States Toxic Characteristic Leaching Procedure in America and its equivalent eluent test in Europe. Dangers and liabilities associated with hazardous waste storage and disposal are removed, thereby providing a safer and more environmentally sound method of waste management. Economic Advantages: Because hazardous wastes require "cradle to grave" monitoring, disposal or storage costs are high both at the time of disposal and over the long-term period of responsibility. Liability issues with their accompanying potentially expensive legal fees and possible fines also remain open ended. Additionally, companies/responsible parties are subject to financial accountability on contamination issues not only for the future, but retroactively as well. Product Development and Marketing: As already pointed out, the glass ceramic materials produced by the HTV System are inert, nontoxic and reusable. Consistent characteristics such as substantive hardness, toughness, color and insulating properties make the recycled materials commercially marketable. The process produces reclaimable products that can also be sold, such as metal oxides and salts. Seiler's product research and development is conducted at The Ohio State University in Columbus, Ohio, through an ongoing arrangement with the university's Department of Materials Science and Engineering. Benchwork studies and laboratory research have identified three commercial glass product markets: Architectural Applications (floor and wall tile, sinks, bathtubs, patio stone, mosaics, bricks, vanities and counter tops); Abrasive Applications (sandpaper, grinding media, shot blast media, grinding wheels, glass beads, buffing compounds and polishing compounds); and Refractory Applications (fireproof wallboard, roofing media, filtration media, high temperature specialty products and insulation). In 1996, the Company's product development efforts were intensified with excellent results. Laboratory research on Seiler HTV System glass ceramic materials resulted in creation of more variety in shapes, forms and textures. Expanded market development efforts located additional buyers for the established and the newly developed products. Seiler intends to continue market development and product expansion in the coming year. Current Projects - - ---------------- Freiberg, Germany: Groundbreaking ceremonies took place May 21, 1997, for a commercial HTV System to be installed in Freiberg. Construction of the building to house the system and necessary site preparation will take three to four months and system installation will require an additional three to four months. The Freiberg facility will be operated by Seiler's German subsidiary, STSB. The plant will serve as a regional recycling center and process various industrial and governmental wastestreams. Initially, the facility will process industrial paint and hydroxide sludges, petrochemicals, industrial wastewater treatment sludges, spent solvents, oils, pesticides, electroplating sludges, contaminated chemicals, asbestos containing residuals and mixed organic/inorganic residuals. -3- United States Air Force: Seiler's work continued throughout the past year as a subcontractor on a Radian International, Inc. contract with the United States Air Force. Phase I of the project centered on laboratory testing to analyze, characterize and evaluate five waste streams from two Air Force bases and develop formulations for HTV System processing. Upon completion of Phase I, a report on the benchscale findings was written and the Air Force authorized the next phase. Phase II work called for further testing of the five Air Force waste streams at the Company's pilot HTV System plant in Leibstadt, Switzerland. Pilot tests were successfully completed on June 13, 1996 and in February 1997 a pilot test report was compiled and submitted to the Air Force. An additional component of Phase 2, which is currently underway, involves designing, locating and permitting a commercial HTV System at McClellan and/or Tinker Air Force bases. The project is currently in the permitting stage for the McClellan Air Force base location. When approved, the Company will build and operate the system. Edison Materials Technology Center (EMTEC): EMTEC is an organization made up of Ohio businesses and other companies that join together in research and development projects to benefit Ohio industries. Seiler's EMTEC project under the Core Technology Program began in October 1995. The purpose of the project was to develop higher end-use glass ceramics from waste feedstocks using the HTV System process. Phase 1 of the project, completed in September 1996, successfully demonstrated that Seiler's HTV System process could produce several high-value products from hazardous waste feedstocks such as medium and high grade abrasives, roofing granules and architectural filler material. A Phase 2 contract was granted to Seiler for $300,000 by EMTEC to continue the product development that began in Phase I and identify Ohio sites to locate a Seiler pilot and commercial system. This contract began in October 1996 and will run until January 1999. To date, Seiler has identified possible sites for placement of a pilot Seiler system in Ohio. Site selection criteria were developed and an industrial park site in Coshocton, Ohio, was chosen. The Company is moving ahead with preliminary engineering design and cost estimates. Phase 2 also authorized additional laboratory testing and product development. Coshocton, Ohio: Seiler received approval in May 1997 from Coshocton's Solid Waste District of its request to construct a pilot industrial high temperature vitrification recycling facility in the Coshocton Industrial Park. The Company will build and operate the pilot HTV System plant to provide important information to: determine the suitability of different wastes for Seiler vitrification; develop formulations for HTV System processing; ascertain the proper energy balance; and supply preliminary air testing. The planned Coshocton pilot facility will have a capacity to process up to 600 tons (544 tonnes) of wastes per year at a rate of 55 to 220 pounds (25 to 100 kilograms) per hour. Costs for the building and land are expected to be project- and/or equity-financed. Currently, an application has been submitted to Coshocton's Solid Waste District requesting $150,000 in grants, which would not have to be paid back. Construction of the building in Coshocton is expected to start late summer or early fall of 1997. Within a year, the Company expects to also house a commercial Seiler HTV System in this same building with a capacity to process approximately 2200 pounds (1000 kilograms) per hour. -4- Additional Projects - - ------------------- Germany: Negotiations for commercial HTV Systems are currently underway with two recycling centers in Berlin/Brandenburg and Saxony. The availability of important incentive programs for job creation and environmental projects (similar to financial arrangements utilized in Seiler's Freiberg project) are expected to facilitate financing for these projects. Also, the largest German car manufacturer has contracted with Seiler to conduct tests on industrial and hazardous wastes produced by their operations. Upon successful completion of these tests, it is anticipated that orders will be placed for one or more commercial HTV System plants. France: The French hazardous waste market is considered a prime market for Seiler as a result of recently introduced national legislation. Currently, Seiler is negotiating with two large operators of incinerators and toxic waste facilities in France for commercial HTV System facilities. A contract was recently signed with a major incinerator operator for Seiler to test flyash in September 1997. Switzerland: Tests were completed in June 1997 at Seiler's Dottingen plant on waste from a Canton of Jura toxic waste site, from which the Company expects to receive a contract for construction of a commercial HTV System facility during the 1998 fiscal year. Additionally, Seiler is looking into using the HTV System to process auto shredder waste in Switzerland. Employees - - --------- Currently, Seiler employs 7 full time, 7 part time personnel and 8 contract employees. Seiler SEPC AG in Switzerland has 2 full time employees, 2 part time staff members and 3 contract consultants. STSB GmbH in Germany employs 2 full time employees and 1 contract consultant. The Company's North American operations (including the corporate headquarters in Dublin, Ohio) employ 3 full time, 5 part time and 4 contract staff members. Additional technical, engineering, environmental and support staff are hired on a contract basis as needed. ITEM 2. PROPERTIES - - ------- ---------- Seiler's corporate headquarters are located at 555 Metro Place North, Dublin, Ohio, U.S.A. pursuant to a one-year lease. Seiler SEPC AG has offices at Seestrasse 17, CH-8702, Zollikon 2, Switzerland, also on a one-year lease. Seiler TSB GmbH is located at Amst. Niclas Schacht 13, D-09599, Freiberg, Germany, pursuant to a one-year lease. ITEM 3. LEGAL PROCEEDINGS - - ------- ----------------- The Company is not presently a party to any material litigation nor, to the knowledge of management, is any material litigation threatened. -5- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS - - ------- --------------------------------------------------- This item is omitted since no matters were submitted to a vote of security-holders during the Company's fourth quarter. Part II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - - ------- --------------------------------------------------------------------- (a) Marketing Information. The Company's Common Stock is listed on the --------------------- NASDAQ Small Cap Market and its securities are traded under the symbol SEPC. The following table sets forth for the periods indicated the range of high and low bid prices on the dates indicated for the Company's Common Stock for each full quarterly period. The data covers the two most recent fiscal years and any subsequent interim period for which financial statements are included and/or required to be included.
Fiscal Year Ended March 31, 1996 Quarterly Common Stock Price By Quarter Ranges(1) - - -------------------------------- ---------------------------- Quarter Date High Low 1st June 30, 1995 $3.50 $1.1875 2nd September 30, 1995 3.28125 1.3125 3rd December 31, 1995 2.4375 1.40625 4th March 31, 1996 5.6875 1.625 Fiscal Year Ended March 31, 1997 Quarterly Common Stock Price By Quarter Ranges(1) - - -------------------------------- ---------------------------- Quarter Date High Low 1st June 30, 1996 $6.02 $4.76 2nd September 30, 1996 4.8958 3.3958 3rd December 31, 1996 4.54 3.465 4th March 31, 1997 3.854 2.8958 Fiscal Year Ended March 31, 1998 Quarterly Common Stock Price By Quarter Ranges(1) - - -------------------------------- ---------------------------- Quarter Date High Low 1st Through May 30, 1997 $2.9295 $2.749
___________________ (1) The over-the-counter market quotations indicated above reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions. -6- (b) Holders. As of June 1, 1997, the approximate number of stockholders -------- of the Company's Common Stock was 200. (c) Dividends. The Company has not paid or declared any cash dividends --------- upon its Common Stock since its inception and does not anticipate paying any cash dividends in the foreseeable future. The payment by the Company of cash dividends in the future rests within the discretion of its Board of Directors and will depend, among other things, upon the Company's earnings, its capital requirements and its financial condition, as well as other relevant factors. ITEM 6. SELECTED FINANCIAL DATA - - ------- ------------------------ The selected financial information set forth below is derived from the Company's audited consolidated financial statements included herein in Item 8 hereof. The information set forth below should be read in conjunction with such financial statements and notes thereto.
For the fiscal years Ended March 31, ---------------- 1997 1996 1995 ------------------------------------------ Statement of Operations Revenue $ - $ - $ - Net Loss (5,556,500) (1,796,727) (1,967,813) Net Loss Per Share (0.29) (0.11) (0.15)
For the fiscal years Ended March 31 --------------- 1997 1996 ---------------------------- Balance Sheet Total Assets 19,564,154 15,045,62 Total Liabilities 6,413,791 3,639,769 Working Capital 2,752,430 (114,882) Accumulated Deficit (12,906,183) (7,349,683) Total Stockholder Equity 13,150,363 11,405,857
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------- The Company's net loss for the year ended March 31, 1997, was $5,556,500 as compared to $1,796,727 for the year ended March 31, 1996. The increase in the net loss is the result of the establishment of a valuation adjustment of the High Temperature Vitrification Systems aggregating $1,542,200 to reduce the carrying value of the systems to their net realizable value. Furthermore, the loss increased due to increased professional and consulting fees and salaries, wages and related fringe benefits as well as increases in general and administrative expenses such as promotion and other expenses of developing the HTV System for commercial use. -7- Seiler made payments aggregating to $2,340,314 toward completion of its High Temperature Vitrification Systems during the year ended March 31, 1997 and expended $196,106 for the acquisition of property and equipment. The Company funded these capital expenditures and operating losses through the issuance of additional securities aggregating $5,821,620 and the acquisition of N.W. Technology Inc. which provided additional paid in capital of $2,820,000 and resulted in a minority interest of $1,880,000. The Company expects to incur substantial expenditures to complete the HTV Systems, including operational start-up costs and to develop and market additional systems. Management's plans to generate additional resources include consideration of the sale of additional equity securities, alliances or joint venture agreements with entities interested in the Company's HTV System, project financing agreements or other business transactions which would generate sufficient resources to assure continuation of the Company's operations. Results of Operations -- March 31, 1996 v March 31, 1995 - - ------------------------------------------------------- The Company's net loss for the year ended March 31, 1996, was $1,796,727 as compared to $1,967,813 for the year ended March 31, 1995. The decrease in the net loss is the result of decreases in professional and consulting fees and salaries, wages and related fringe benefits. Increases in research and development expenses mitigated the effects of the expense reductions. Seiler has made payments aggregating $3,226,377 for completion of its High Temperature Vitrification Systems during the year ended March 31, 1996. In addition, $261,048 was expended for the acquisition of property and equipment. The Company has funded these capital expenditures and operating losses through the issuance of additional equity securities and loans from stockholders aggregating $5,163,600 and $827,098, respectively. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - - ------- ------------------------------------------- The following financial statements have been prepared in accordance with the requirements of Regulation S-X and supplementary financial information included herein, if any, has been prepared in accordance with Item 301 of Regulation S-K. -8- SEILER POLLUTION CONTROL SYSTEMS, INC. --------------------------------------- AND SUBSIDIARIES ---------------- Dublin, Ohio Report on Audits of Consolidated Financial Statements For the years ended March 31, 1997 and 1996 - 9 - CONTENTS PAGE ----
INDEPENDENT AUDITORS' REPORT 11 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets, March 31, 1997 and 1996 12 Consolidated Statements for the years ended March 31, 1997 and 1996: Operations 13 Changes in Stockholders' Equity 14 Cash Flows 15 Notes to Consolidated Financial Statements 16 - 26
- 10 - INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Stockholders Seiler Pollution Control Systems, Inc. Dublin, Ohio We have audited the accompanying consolidated balance sheets of Seiler Pollution Control Systems, Inc. and Subsidiaries as of March 31, 1997 and 1996 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. 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 audits. We did not audit the financial statements of Seiler SEPC AG, a wholly owned subsidiary, and Seiler AG's ninety percent owned subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH, which statements reflect total assets of $13,143,174 and operating expenses of $4,105,310. Those statements were audited by other auditors whose report has been furnished to us and our opinion, in so far as it relates to the amounts included for Seiler SEPC AG and its Subsidiary, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seiler Pollution Control Systems, Inc. and Subsidiaries at March 31, 1997 and 1996 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements for 1997 and 1996 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and limited capital resources raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ SCHNEIDER DOWNS & CO., INC. Columbus, Ohio June 19, 1997 - 11 - SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES ------------------------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- ASSETS
March 31 ----------------------------------- 1997 1996 ---------------- ---------------- CURRENT ASSETS Cash $ 4,188,278 $ 200,351 Prepaid expenses and sundry receivables 207,066 109,152 ---------------- ---------------- Total Current Assets 4,395,344 309,503 HIGH TEMPERATURE VITRIFICATION SYSTEMS (Note 4) 10,518,246 9,720,132 OTHER ASSETS Licensing agreements, less accumulated amortization of $1,178,048 and $860,712 in 1997 and 1996, respectively (Note 5) 3,581,952 3,899,288 Advances to related party (Note 3) 516,832 624,902 Vetrotherm option (Note 11) 167,920 167,920 Deposits 27,776 36,103 ---------------- ---------------- 4,294,480 4,728,213 PROPERTY AND EQUIPMENT -- AT COST (net of accumulated depreciation of $2,186 and $8,403 at 356,084 287,778 March 31, 1997 and 1996, respectively) ---------------- ---------------- $ 19,564,154 $ 15,045,626 ================ ===============
LIABILITIES March 31 ----------------------------------- 1997 1996 -------------- ---------------- CURRENT LIABILITIES Accounts payable $1,005,577 $316,450 Accrued expenses 637,337 107,935 -------------- ---------------- Total Current Liabilities 1,642,914 424,385 LONG-TERM DEBT Licensing agreements payable (Note 5) 1,977,250 1,977,250 Loans payable - stockholders (Note 7) 913,627 1,238,134 Minority Interest 1,880,000 - -------------- ---------------- 4,770,877 3,215,384 STOCKHOLDERS' EQUITY COMMON STOCK Common stock, $.0001 par value; authorized 25,000,000 shares, issued and outstanding 21,142,108 and 18,525,569 shares at March 31,1997 and March 31, 1996, respectively. 2,115 1,853 ADDITIONAL PAID IN CAPITAL 26,538,439 17,897,081 ACCUMULATED DEFICIT (12,906,183) (7,349,683) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (484,008) 856,606 -------------- ---------------- 13,150,363 11,405,857 -------------- ---------------- $19,564,154 $15,045,626 ============== ===============
See notes to consolidated financial statements. - 12 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1997 AND 1996 -------------------------------------------
1997 1996 ------------- ------------- OPERATING EXPENSES General and administrative $1,752,218 $ 325,600 Valuation adjustment of High Temperature Vitrification Systems 1,542,200 - Salaries, wages and related fringe benefits 830,705 371,980 Professional and other consulting fees (net of consulting revenue) 767,443 546,835 Depreciation and amortization (Note 5) 445,136 323,146 Research and development (Note 4) 186,350 181,281 ------------- ------------- LOSS FROM OPERATIONS 5,524,052 1,748,842 Interest income (1,612) (2,573) Interest expense (Note 5) 34,060 56,153 ------------- ------------- LOSS BEFORE MINORITY INTEREST 5,556,500 1,802,422 Minority interest - (5,695) ------------- ------------- NET LOSS $5,556,500 $ 1,796,727 ============ ============ LOSS PER COMMON SHARE $ .29 $ .11 ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,495,492 16,927,652 ============ ============
See notes to consolidated financial statements. - 13 - SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES ------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- FOR THE YEARS ENDED MARCH 31, 1997 AND 1996 -------------------------------------------
Additional Common Stock Paid-in Accumulated ------------------------- Shares Amount Capital Deficit ------------- --------- -------------- ---------------- BALANCE, MARCH 31, 1995 14,250,569 $ 1,425 $12,733,909 $(5,552,956) Exercise of stock options under the 1993 Non-Statutory Stock Option Plan 25,000 3 46,097 - Exercise of stock options under the 1994 Non-Statutory Stock Option Plan 25,000 3 31,872 - Issuance of common stock for cash 4,225,000 422 5,085,203 - Foreign currency translation adjustment - - - - Net loss - - - (1,796,727) ------------- --------- -------------- ---------------- BALANCE, MARCH 31, 1996 18,525,569 1,853 17,897,081 (7,349,683) Exercise of stock options under the 1993 Non-Statutory Stock Option Plan 57,000 6 194,619 - Exercise of stock options under the 1996 Non-Statutory Stock Option Plan 500,000 50 874,950 - Issuance of common stock for cash 1,419,058 142 3,601,019 - Acquisition of majority owned subsidiary (See note 2 - - 2,820,000 - Debentures converted into stock 640,481 64 1,150,770 - Foreign currency translation adjustment - - - - Net loss - - - (5,556,500) ------------- --------- -------------- ---------------- BALANCE, MARCH 31, 1997 21,142,108 $ 2,115 $26,538,439 $ (12,906,183) ============ ======== ============= =============== Foreign Currency Translation Adjustment Total ------------- ------------- BALANCE, MARCH 31, 1995 $ 1,136,375 $8,318,753 Exercise of stock options under the 1993 Non-Statutory Stock Option Plan - 46,100 Exercise of stock options under the 1994 Non-Statutory Stock Option Plan - 31,875 Issuance of common stock for cash - 5,085,625 Foreign currency translation adjustment (279,769) (279,769) Net loss - (1,796,727) ------------- ------------- BALANCE, MARCH 31, 1996 856,606 11,405,857 Exercise of stock options under the 1993 Non-Statutory Stock Option Plan - 194,625 Exercise of stock options under the 1996 Non-Statutory Stock Option Plan - 875,000 Issuance of common stock for cash - 3,601,161 Acquisition of majority owned subsidiary (See note 2) - 2,820,000 Debentures converted into stock - 1,150,834 Foreign currency translation adjustment (1,340,614) (1,340,614) Net loss - (5,556,500) ------------- ------------- BALANCE, MARCH 31, 1997 $(484,008) $ 13,150,363 ============= =============
See notes to consolidated financial statements - 14 - SEILER POLLUTION CONTROL SYSTEMS, INC. SUBSIDIARIES --------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED MARCH 31, 1997 AND 1996 -------------------------------------------
1997 1996 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss ($5,556,500) ($1,796,727) Adjustments to reconcile net loss to net cash provided from operating activities: Valuation adjustment of HTV Systems 1,542,200 - Depreciation and amortization 445,136 323,146 Foreign currency translation (707,254) (245,028) Minority interest - (10,171) Changes in assets and liabilities: Prepaid expenses and sundry receivables (97,914) (73,637) Deposits 8,327 (18,090) Accounts payable 689,127 236,504 Accrued expenses 529,402 (9,439) -------------- -------------- Net Cash Used In Operating Activities (3,147,476) (1,593,442) CASH FLOWS USED IN INVESTING ACTIVITIES Acquisition of property and equipment (196,106) (261,048) Advances for High Temperature Vitrification Systems (2,340,314) (3,226,377) -------------- -------------- Net Cash Used In Investing Activities (2,536,420) (3,487,425) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 5,821,620 5,163,600 Acquisition of majority owned subsidiary 2,820,000 - Minority interest incurred with acquisition of majority owned subsidia 1,880,000 - Proceeds on loans payable -- stockholder - 827,098 Payments on loans payable -- stockholder (324,507) (139,057) Payments on (Advances to) related party 108,070 (624,902) -------------- -------------- Net Cash Provided By Financing Activities 10,305,183 5,226,739 EFFECT OF EXCHANGE RATE CHANGES ON CASH (633,360) (34,741) -------------- -------------- Net Increase In Cash 3,987,927 111,131 CASH -- BEGINNING OF YEAR 200,351 89,220 -------------- -------------- CASH -- END OF YEAR $4,188,278 $200,351 ============= =============
See notes to consolidated financial statements. - 15 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 1 - NATURE OF BUSINESS AND LIQUIDITY Seiler Pollution Control Systems, Inc. (the Company) was incorporated under the laws of the State of Delaware in 1983 as World Imports -- USA, Inc. The Company's initial business plans were unsuccessful and the Company was inactive during the fiscal years ended March 31, 1990 through 1993. Following a change of control in 1993, World Imports changed its name to Seiler Pollution Control Systems, Inc. (SPCS). The Company presently is an environmental service and equipment company which acquired the rights to a technology called High Temperature Vitrification (HTV) which treats a potentially wide variety of waste products. The Vitrification process transforms hazardous waste into non- toxic substances which can either be stored in a non-hazardous waste landfill or be recycled. The Company's financial statements for the years ended March 31, 1997 and 1996 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $5,556,500 for the year ended March 31, 1997, and as of March 31, 1997 had an accumulated deficit of $12,906,183. The Company expects to incur substantial expenditures to complete the first commercial HTV Systems (including operational start up costs) and to develop and market additional systems. The Company's financial position at March 31, 1997 plus limited revenue will not be sufficient to meet such objectives as presently structured. Management recognizes that the Company must generate additional resources to enable it to continue operations with available resources. Management's plans include consideration of the sale of additional equity securities, the sale of an existing system located in Dottingen, Switzerland, alliances or joint venture agreements with entities interested in the Company's HTV Systems, project financing, or other business transactions which would generate sufficient resources to assure continuation of the Company's operations. Management expects to raise additional equity resources and/or borrow additional funds to support operations. Although management expects that these efforts will result in additional resources for the Company, no assurances can be given that the Company will be successful in raising additional capital. Furthermore, there can be no assurance assuming the Company successfully raises additional funds, that the Company's commercial HTV system will be economically viable and that the Company will achieve overall profitability and positive cash flows. The Company acquired sixty percent of the stock of N.W. Technology, Inc. in consideration of the Company providing expertise and vitrification technology. NWT was incorporated on March 6, 1997 with capitalization of $4.7 million which provided the Company with additional paid-in-capital of $2,820,000 and resulted in a minority interest of $1,880,000. - 16 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include Seiler Pollution Control Systems, Inc., and its wholly owned subsidiaries, Seiler Pollution Control Systems International, Inc., (SPCSI) (incorporated in Delaware), Seiler SEPC AG (Seiler AG) (incorporated in Switzerland), and Seiler AG's majority, (90%), owned subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH (Seiler TSB) (incorporated in Germany) and the Company's majority (60%) interest in N.W. Technology, Inc. (NWT). The statements reflect the financial position, results of operations and cash flows of SPCS and its wholly owned and majority owned subsidiaries as a single entity. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over estimated useful lives. Repairs and maintenance which do not extend the lives of the applicable assets are charged to expense as incurred. Profit or loss resulting from the retirement or other disposition of assets is included in operations. Licensing agreements are stated at cost, less accumulated amortization. Amortization is computed by the straight-line method over an estimated life of fifteen years based upon management's expectations relating to the life of the technology and current competitive market conditions. The estimated life is reevaluated each year based upon changes in these factors. Loss per common share is computed by dividing the net loss for the year by the weighted average number of shares of common stock outstanding during the year. All costs incurred in connection with the sale of the Company's common stock have been recorded as a reduction of additional paid in capital. For subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the year and the statement of operations is translated at average exchange rates for the year. Translation gains and losses are included as a separate component of stockholders' equity. Net foreign currency transaction gains and losses are included in operations. NOTE 3 - RELATED PARTY TRANSACTIONS The Company acquired two licensing agreements from Maxon Finance and Trade, Ltd., S.A. who owns 300,000 shares of the Company's outstanding shares of common stock, representing an approximate 1.4% and 1.6% ownership interest at March 31, 1997 and 1996, respectively. (See Note 5.) - 17 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 3 - RELATED PARTY TRANSACTIONS (Continued) The Company has a note payable to PTI Management AG, a stockholder owning 2,750,000 and 3,480,000 shares of the Company's outstanding common stock at March 31, 1997 and 1996, respectively, representing an approximate 14.0% and 18.8% ownership interest at March 31, 1997 and 1996 respectively. (See Note 7.) The Company has advanced $516,832 to Seiler Hochtemperatur Trennanlagen AG (Seiler HT). A majority of the outstanding shares of Seiler HT is owned by a director of the Company. The advances have been presented as non-current in the accompanying balance sheet. Realization of the advances is dependent upon the successful completion of the Company's first commercial HTV system. (See Note 1.) Subsequent to March 31, 1997, the minority owner of TSB agreed to contribute capital to TSB in exchange for an additional 40% ownership interest in the Company which will reduce Seiler AG's ownership interest in TSB to 50%. The transfer of the contributed capital and the execution of the agreement have not yet taken place. The Company charged $96,000 to operations for legal services rendered by a stockholder in the year ended March 31, 1996. NOTE 4 - HIGH TEMPERATURE VITRIFICATION SYSTEM The HTV system is a patented high temperature converter melter which supplies the energy necessary to provide final chemical and physical reactions that convert hazardous chemical compounds into inert nonhazardous glass ceramics, metal oxides, and salts. The financial statements for the year ended March 31, 1996 presented the HTV Systems as three contracts with Seiler HT (a related party); construction of a full scale commercial system, a second production line for the commercial system and the construction of a pilot system that will be used in the United States for purposes of testing and developing commercial systems. The systems have been under construction and have been undergoing air pollution control testing to evaluate product characteristics and commercial viability. Subsequent to March 31, 1996, the contracts were modified due to changes in business conditions resulting from negotiations with the German government to build a new system in Germany as a condition of obtaining the financing with the Dresdner Bank described in Note 11. Therefore, the Company's wholly owned subsidiary, Seiler AG, modified its contracts with Seiler HT to develop HTV Systems located in Switzerland and the United States. Amounts advanced to Seiler HT through March 31, 1997 amounted to $8,758,706. Seiler AG's majority owned subsidiary, Seiler TSB entered into a contract with Seiler HT during 1997 to construct a commercial HTV System in Freiberg, Germany. Amounts advanced by Seiler TSB through March 31, 1997 amounted to $3,148,340. - 18 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 4 - HIGH TEMPERATURE VITRIFICATION SYSTEM (Continued) In addition N.W. Technology advanced to Seiler HT through Seiler AG, $2,000,000 during March, 1997 for the purpose of developing technology that will process low level nuclear waste. Each of these contracts have been presented under the caption HTV System in the accompanying financial statements and has been classified as long term in the accompanying financial statements since it is management's intention, upon completion, testing and permitting, to own and operate these systems to process waste on a commercial basis in Switzerland, Germany and the United States. Amortization of the cost of these systems has not been provided for in the accompanying financial statements since the systems are still under construction and are not yet operating commercially and a valuation reserve of $1,388,800 has been provided at March 31, 1997 to reflect the HTV Systems at their net realizable value. Research and development costs associated with the development of these systems amounted to $186,350 and $181,281 in the years ended March 31, 1997 and 1996, respectively. NOTE 5 - LICENSING AGREEMENTS The Company entered into two separate licensing agreements in 1993 with Maxon Finance and Trade Ltd., S.A., a stockholder of the Company, and a corporation organized under the laws of Panama. The agreements, as amended in March of 1994, are for an exclusive field-of-use license to use the proprietary information, including the patent rights, worldwide for the High Temperature Vitrification System. Licensing fees aggregating $5,000,000 are to be paid under the terms of the agreements. These fees have been discounted at 7%, resulting in a net capitalized cost of $4,760,000. These agreements are for an indefinite term or until all of the proprietary information becomes public knowledge and the patent rights expire. Amortization expense for each of the years ended March 31, 1997 and 1996 was $317,334. Maxon Finance and Trade Ltd., S.A. modified its note agreement terms with the Company in February 1996 by extending the payment terms to December 31, 2000. Subsequent to March 31, 1996, the Company modified the terms of the agreement again to begin payments in June 1998 extending through December 31, 2002. These modifications reduced the effective interest rate from 7%, per the original agreement, to approximately 1%. - 19 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 5 - LICENSING AGREEMENTS (Continued) The aggregate annual principal payments due in years subsequent to March 31, 1997 are payable as follows:
Year Ended March 31, 1999 $ 312,880 2000 374,787 2001 380,826 2002 386,962 2003 521,795 Total $1,977,250
NOTE 6 - ACCRUED LIABILITIES Accrued liabilities consist of the following at March 31, 1997 and 1996:
1997 1996 Payroll $347,754 $ 25,997 Other 214,635 8,804 Interest 66,579 64,297 Taxes 8,369 8,837 Total $637,337 $107,935
NOTE 7 - LOAN PAYABLE - STOCKHOLDERS Werner Heim, President, Chairman of the Board of Directors and stockholder, has made unsecured, non-interest bearing advances to the Company which are payable upon future mutual agreement of the parties. The advances have been presented as a long term liability in the accompanying balance sheet based upon the parties intent to not repay the advances currently. The balances at March 31, 1997 and 1996 were $824,542 and $1,149,049, respectively. PTI Management AG, advanced $105,000 to the Company. The advances are unsecured, non-interest bearing and due on December 31, 1997. The balance due to PTI at March 31, 1997 and 1996 is $89,085. - 20 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 8 - INCOME TAXES For the years ended March 31, 1997 and 1996, there was no provision for current and deferred federal, state or foreign income taxes. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes recorded in the balance sheets at March 31, 1997 and 1996 include a deferred tax asset related to federal net operating loss carryforwards of approximately $6,080,000 and $4,593,000 which have been fully offset by valuation allowances. The valuation allowances have been established equal to the full amount of the deferred tax asset, as the Company is not assured that it is more likely than not that these benefits will be realized. The loss carryforwards expire through March 31, 2012 if not fully utilized. A reconciliation between the statutory federal income tax rate and the effective income tax rates based on continuing operations for the years ended March 31, 1997 and 1996 is as follows:
Amount Percent --------------------------- ---------------- 1997 1996 1997 1996 ------------- ------------- ------ ------- Net Loss $ 5,556,500 $(1,796,727) 100.0% 100.0% ============= ============= ====== ======= Statutory U.S. federal income tax benefit $(1,889,200) $ (611,000) (34.0)% (34.0)% Operating losses with no current tax benefits 506,200 327,600 9.1 18.2 Effect of foreign operations 1,383,000 283,400 24.9 15.8 ------------- ------------- ------ ------- Provision for Income Taxes - - - - ============= ============= ====== =======
NOTE 9 - PENSION PLAN The Company adopted a Simplified Employee Pension Plan (SEP) for the benefit of its eligible employees. The plan enables the employee to contribute up to a maximum of 10% of their base salary through a salary reduction and requires the Company to make a 5% contribution. For the years ended March 31, 1997 and 1996, the Company charged $9,970 and $6,000, respectively to operations for plan contributions. - 21 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 10 - STOCK OPTIONS The Board of Directors has adopted Non-Statutory Stock Option Plans and reserved 4,500,000 shares, for issuance to eligible full and part-time employees, directors and consultants. Options are nontransferable and are exercisable during a term of not more than ten (10) years from the grant date. The options are issuable in such amounts and at such prices as determined by the Board of Directors, except that each option price of each grant will not be less than eighty-five percent of the fair market value of such shares on the date the options are granted. The following table summarizes Common Stock options outstanding as of March 31, 1997:
Price Per Shares Shares Shares Date Granted Share Granted Exercised Outstanding - - ---------------------------- ----------- --------- ----------- ------------ 1993 Stock Option Plan: ---------------------- June 14, 1993 $ 2.00 $338,000 $ 338,000 - June 30, 1993 $ 1.70 40,000 40,000 - September 30, 1993 $ 3.61 50,000 50,000 - November 1, 1996 $ 0.75 500,000 - $ 500,000 --------- ----------- ------------ Total outstanding $ 428,000 $ 428,000 $ 500,000 ========= =========== ============ 1994 Stock Option Plan: ---------------------- February 22, 1995 $ 1.275 $175,000 $ 175,000 - March 29, 1995 $ 1.275 150,000 25,000 $ 125,000 February 1, 1996 $ 2.10 100,000 - 100,000 --------- ----------- ------------ Total outstanding $425,000 $ 200,000 $225,000 ========= =========== ============ 1995 Stock Option Plan: ---------------------- December 1, 1995 $ 1.65 $ 200,000 - $ 200,000 February 1, 1996 $ 2.10 800,000 - 800,000 --------- ----------- ------------ Total outstanding $1,000,000 - $1,000,000 ========= =========== ============ 1996 Stock Option Plan: ----------------------- May 9, 1996 $ 1.75 $ 650,000 $ 500,000 $ 150,000 January 2, 1997 $ 3.14 40,000 - 40,000 --------- ----------- ----------- Total outstanding $ 690,000 $ 500,000 $ 190,000 ========= =========== ============
- 22 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 10 - STOCK OPTIONS (Continued) Option activity for 1997 is as follows:
Price Per Shares Share ---------- ------------ Outstanding at March 31, 1996.. 2,022,000 $1.275-3.61 Granted during 1997........... 1,190,000 $ .75-3.14 Exercised during 1997......... (725,000) $1.275-3.61 Expired during 1997........... (572,000) $ 1.70-3.61 ---------- Outstanding at March 31, 1997.. 1,915,000 ==========
NOTE 11 - COMMITMENTS On February 27, 1996, the Company obtained a credit line commitment from the Dresdner Bank approximating $1,422,000 and a long term investment loan in the amount of $6,703,000 for the fabrication, construction and installation of a high temperature separating and melting facility on land located in Germany acquired by the Company from the German State of Saxony. The commitments require that the German government provide the Dresdner Bank with a surety bond covering eighty-percent of the commitment, obtain the necessary approvals and permits and meet certain financial covenants relating to working capital requirements and debt to equity ratios. In connection with this financing package, the Company will receive certain German governmental grants of approximately $4,469,000. The grants do not have to be repaid and will be utilized by the Company to install an HTV system in Freiberg, Germany. The Company entered into a three phase contract with Radian Corporation on September 27, 1996 to provide laboratory and pilot testing services in the first two phases of the contract and design, locate, permit and build a commercial HTV System in the third phase. Radian's prime contract with the United States Air Force is for the evaluation for the construction of two High Temperature Vitrification Technology Systems. The Company entered into a contract with the Edison Materials Technology Center to produce and evaluate new glass and ceramic products generated from waste materials from Ohio industry. Phase I of the contract in the amount of $100,000 provides for laboratory studies. Phase II of the contract in the amount of $300,000 provides for continued evaluation, product optimization, pilot studies and site selection for a Seiler pilot system in Ohio. - 23 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- NOTE 11 - COMMITMENTS (Continued) The Company entered into written employment agreements with Werner Heim (President), Alan B. Sarko (Vice President), Gerold Weser (Vice President) and Niklaus Seiler (Vice President). The agreements commenced January 1, 1996 and expire five years thereafter and provide for base salaries of $150,000 per year as well as certain additional bonuses based upon the Company reaching certain levels which have not yet been attained. Mr. Heim, Mr. Sarko, Mr. Weser, and Mr. Seiler have also been granted options to purchase up to 300,000; 300,000; 200,000 and 300,000 shares, respectively of the Company's common stock in accordance with the terms and conditions of the Company's Non-Statutory Stock Option Plans. The Company purchased an option to acquire 100% of the registered shares of Vetrotherm AG, Netstal. The option price of $167,920 was paid in 1994 and will be applied toward the final purchase price. The actual purchase of the registered shares and related price is contingent upon a final valuation of the shares and receipt of certain approvals by regulatory authorities. The Company entered into management consulting agreements with the three principals of the Studdert Companies, Messrs. Studdert, Murdock, and Dudley. The agreements were to be for the period from April 1, 1995 through March 31, 1996 (unless terminated on 30 day written notice) and provided for aggregate annual compensation of $18,000 ($6,000 each) and further provided that Messrs. Studdert, Murdock and Dudley be granted 70,000, 52,500 and 52,500 options, respectively, to purchase Company common stock in accordance with the Company's 1994 Non-Statutory Stock Option Plan. The options were exercised in July, 1996 and the agreements were terminated in June 1995. The Company paid $1,500 through June 30, 1995 to each of the individuals resulting in consulting fee expense of $4,500 for the year ended March 31, 1996. The Company entered into a financial advisory services agreement with Sands Brothers and Company, Ltd. whereby the Company issued five year warrants, with certain registration rights, to purchase shares of the Company's common stock. The demand to register the warrants could not be requested prior to November 1, 1996. On November 1, 1996 the warrants were converted into 500,000 stock options under the 1993 Non-Statutory Stock Option Plan. The Company entered into a financial advisory service contract with Ladenburg, Thalmann & Co., Inc. in February 1994 which expired January 31, 1995. The Company was required to pay $5,000 towards out-of-pocket expenses and is required to issue warrants to purchase 400,000 shares of the Company's common stock at $6.50 per share which expire January 31, 1999. The Company leases various office space in the United States, Switzerland and Germany, all on a month-to-month basis. The total charges to operations for the years ended March 31, 1997 and 1996 were $30,730 and $35,446, respectively. - 24 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1997 AND 1996 ----------------------- - 25 - NOTE 12 - SEGMENT INFORMATION The following table summarizes segment information by geographic area:
United States Switzerland Germany Consolidated ---------- ----------- ---------- ------------- Operating Loss for the year ended March 31, 1997 $1,487,602 $3,825,045 $ 243,853 $ 5,556,500 ========== =========== ========== ============= Identifiable Assets as of March 31, 1997 $6,420,981 $9,547,455 $3,595,718 $19,564,154 ========== =========== ========== =============
General corporate expenses, miscellaneous income and expense have not been allocated in arriving at operating losses. Identifiable assets are those assets of the Company which can be identified with the operations of each geographic area. - 26 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- MARCH 31, 1995 AND 1994 ----------------------- - 27 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- MARCH 31, 1995 AND 1994 ----------------------- CONTENTS -------- Page ---- Independent Auditors' Report 29 Consolidated Balance Sheets 30 - 31 Consolidated Statements of Operations 32 Consolidated Statements of Stockholders' Equity (Deficiency) 33 Consolidated Statements of Cash Flows 34 - 35 Notes to Consolidated Financial Statements 36 - 45 - 28 - [LOGO OF BEDERSON & COMPANY] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Board of Directors and Stockholders Seiler Pollution Control Systems, Inc. Dublin, Ohio We have audited the accompanying consolidated balance sheets of Seiler Pollution Control Systems, Inc. as of March 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the years then ended. 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 audits. The financial statements of Seiler Pollution Control Systems, Inc. as of March 31, 1993 were audited by other auditors who have ceased operations and whose report dated June 29, 1993 expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 1995 and 1994 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Seiler Pollution Control Systems, Inc. at March 31, 1995 and 1994 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. BEDERSON & COMPANY /s/ BEDERSON & COMPANY June 28, 1995, except for Notes 1 and 3 to which the date is July 8, 1996 West Orange, New Jersey - 29 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- MARCH 31, 1995 AND 1994 -----------------------
ASSETS ------ 1995 1994 ----------- ----------- CURRENT ASSETS: Cash $ 89,220 $ 40,047 Advances to supplier -- related party 6,661,676 7,971,197 Prepaid expenses and sundry receivables 35,514 31,797 ----------- ----------- TOTAL CURRENT ASSETS 6,786,410 8,043,041 ----------- ----------- PROPERTY AND EQUIPMENT, at cost: Office furniture and equipment 35,133 11,188 Less: Accumulated depreciation 2,590 330 ----------- ----------- NET PROPERTY AND EQUIPMENT 32,543 10,858 ----------- ----------- OTHER ASSETS: Licensing agreements, acquired from stockholder, less accumulated amortization of $543,379 (1995) and $226,046 (1994) 4,216,621 4,533,954 Deposits 18,013 - Start up costs - 156,023 ----------- ----------- TOTAL OTHER ASSETS 4,234,634 4,689,977 ----------- ----------- TOTAL ASSETS $11,053,587 $12,743,876 =========== ===========
The accompanying notes are an integral part of these financial statements. - 30 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- MARCH 31, 1995 AND 1994 ----------------------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
1995 1994 ------------ ------------ CURRENT LIABILITIES: Current portion of licensing agreement payable -- stockholder $ - $ 1,082,614 Loan payable -- stockholder 89,085 29,085 Cash overdraft 11,271 - Accounts payable 68,675 62,467 Payroll taxes payable 1,134 4,396 Customer deposits - 5,079,000 Accrued officers' salaries - 33,038 Accrued interest -- stockholder 32,611 32,611 Accrued expenses 83,629 46,483 ----------- ----------- TOTAL CURRENT LIABILITIES 286,405 6,369,694 ----------- ----------- LONG-TERM DEBT: Licensing agreement payable -- stockholder, net of current portion 1,977,249 894,635 Loan payable -- officer 461,008 149,359 ----------- ----------- TOTAL LONG-TERM DEBT 2,438,257 1,043,994 ----------- ----------- MINORITY INTEREST 10,171 - ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, $.0001 par value; authorized 25,000,000 shares, issued and outstanding 14,250,569 shares at March 31, 1995 and 11,789,723 shares at March 31, 1994 1,425 1,179 Additional paid-in capital 12,733,909 8,778,331 Accumulated deficit (5,552,955) (3,585,142) Foreign currency translation adjustment 1,136,375 135,820 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 8,318,754 5,330,188 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,053,587 $12,743,876 =========== ===========
The accompanying notes are an integral part of these financial statements. - 31 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -----------------------------------------
1995 1994 1993 ------------ ------------ --------- REVENUE $ - $ - $ - ----------- ----------- -------- OPERATING EXPENSES: Officers' salaries 416,056 125,493 21,250 Salaries -- other - 14,546 - Payroll taxes 15,155 4,338 - Directors' compensation 8,000 8,000 - Advertising, promotional and selling 206,701 6,560 - Consulting fees 198,770 336,229 - Consulting fees -- related parties 108,083 1,671,707 - Employee welfare 47,648 3,629 - Insurance 26,966 501 - Office expenses 53,551 13,582 - Pension plan 8,415 1,875 - Professional fees 133,073 65,494 3,000 Professional fees -- related party 215,516 114,393 6,120 Public relations 22,968 74,095 - Rent 28,354 1,848 - Research and development cost 50,881 30,973 - Taxes 30,809 792 - Telephone 5,683 946 - Travel and entertainment 36,558 54,951 - Depreciation 2,260 330 - Amortization 317,333 226,046 - Miscellaneous 46,731 25,736 - ----------- ----------- -------- TOTAL OPERATING EXPENSES 1,979,511 2,782,064 30,370 ----------- ----------- -------- LOSS BEFORE OTHER INCOME (EXPENSES) AND PROVISION FOR INCOME TAXES (1,979,511) (2,782,064) (30,370) ----------- ----------- -------- OTHER INCOME (EXPENSES): Interest income 73 6,399 - Interest expense -- related party - (123,709) - Foreign currency loss - (333) - ----------- ----------- -------- TOTAL OTHER INCOME (EXPENSES) 73 (117,643) - ----------- ----------- -------- LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST (1,979,438) (2,899,707) (30,370) PROVISION FOR INCOME TAXES - - - ----------- ----------- -------- LOSS BEFORE MINORITY INTEREST (1,979,438) (2,899,707) (30,370) MINORITY INTEREST 11,625 - - ----------- ----------- -------- NET LOSS $(1,967,813) $(2,899,707) $(30,370) =========== =========== ======== LOSS PER COMMON SHARE $(.15) $(.36) $(.04) =========== =========== ======== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 13,065,659 8,098,573 770,734 =========== =========== =========
The accompanying notes are an integral part of these financial statements. - 32 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED STATEMENTS OF -------------------------- STOCKHOLDERS' EQUITY (DEFICIENCY) --------------------------------- YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -----------------------------------------
Foreign Additional Currency Common Stock Paid-in Accumulated Translation ---------------------- Shares Amount Capital Deficit Adjustment Total ------------ -------- ----------- ------------ ---------- ------------ BALANCE, APRIL 1, 1992 700,023 $ 70 $ 393,190 $ (655,065) $ - $ (261,805) YEAR ENDED MARCH 31, 1993: Issuance of restricted shares of common stock for accrued officer salary, rent and officer advances 35,000 4 220,615 - - 220,619 Issuance of restricted shares of common stock for accrued legal fees 50,000 5 24,995 - - 25,000 Issuance of restricted shares of common stock for officer salary 35,000 3 21,247 - - 21,250 Net loss for the year - - - (30,370) - (30,370) ---------- ------ ----------- ----------- ---------- ----------- BALANCE, MARCH 31, 1993 820,023 82 660,047 (685,435) - (25,306) YEAR ENDED MARCH 31, 1994: Issuance of restricted shares of common stock for officers' and directors' salaries 35,000 3 27,997 - - 28,000 Issuance of restricted shares of common stock for legal fees 40,000 4 24,302 - - 24,306 Issuance of common stock for cash 10,169,700 1,017 6,616,058 - - 6,617,075 Issuance of common shares under stock option plan for consulting fees 315,000 32 629,968 - - 630,000 Issuance of common stock for consulting fees 410,000 41 819,959 - - 820,000 Foreign currency translation adjustment - - - - 135,820 135,820 Net loss for the year - - - (2,899,707) - (2,899,707) ---------- ------ ----------- ----------- ---------- ----------- BALANCE, MARCH 31, 1994 11,789,723 1,179 8,778,331 (3,585,142) 135,820 5,330,188 YEAR ENDED MARCH 31, 1995: Issuance of common shares under stock option plan for cash 38,000 4 67,896 - - 67,900 Issuance of common stock for cash 2,422,846 242 3,887,682 - - 3,887,924 Foreign currency translation adjustment - - - - 1,000,555 1,000,555 Net loss for the year - - - (1,967,813) - (1,967,813) ---------- ------ ----------- ----------- ---------- ----------- BALANCE, MARCH 31, 1995 14,250,569 $1,425 $12,733,909 $(5,552,955) $1,136,375 $ 8,318,754 ========== ====== =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. - 33 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- YEARS ENDED MARCH 31, 1995, 1994 AND 1993 -----------------------------------------
1995 1994 1993 ------------ ------------ ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,967,813) $(2,899,707) $ (30,370) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 319,593 226,376 - Operating expenses through issuance of restricted common stock -- related parties - 52,306 265,669 Operating expenses through issuance of common stock -- related parties - 1,450,000 - Foreign currency translation 1,011,016 146,568 - Minority interest 10,171 - - (Increase) decrease in operating assets: Advances to supplier -- related party 1,309,521 (7,971,197) - Prepaid expenses and sundry receivables (3,717) (31,797) - Deposits (18,013) - - Start up costs 156,023 (156,023) - Increase (decrease) in operating liabilities: Cash overdraft 11,271 - - Accounts payable 6,208 37,161 (15,880) Payroll taxes payable (3,262) 4,396 - Customer deposits (5,079,000) 5,079,000 - Accrued officers' salaries (33,038) 33,038 (24,425) Accrued interest -- stockholder - 32,611 - Accrued expenses 37,146 46,483 (194,994) ----------- ----------- --------- NET CASH USED BY OPERATING ACTIVITIES (4,243,894) (3,950,785) - ----------- ----------- --------- CASH FLOWS USED BY INVESTING ACTIVITIES: Acquisition of property and equipment (23,945) (11,188) - ----------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term borrowings -- stockholder - (2,782,751) - Proceeds from issuance of common stock 3,955,824 6,617,075 - Proceeds from stockholder loan 60,000 45,000 - Principal payments of stockholder loan - (15,915) - Proceeds from officer loan 311,649 149,359 Decrease in related party loans - - (1,200) Issuance of restricted common stock for related party loan - - 1,200 ----------- ----------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 4,327,473 4,012,768 - ----------- ----------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,461) (10,748) - ----------- ----------- --------- NET INCREASE IN CASH 49,173 40,047 - CASH, beginning of year 40,047 - - ----------- ----------- --------- CASH, end of year $ 89,220 $ 40,047 $ - =========== =========== =========
The accompanying notes are an integral part of these financial statements - 34 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- YEARS ENDED MARCH 31, 1995, 1994 AND 1993 ----------------------------------------- (Continued)
1995 1994 1993 --------- ---------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest - stockholder $ - $ 91,098 $ - --------- ---------- --------- Income taxes $ - $ - $ - --------- ---------- --------- NON-CASH OPERATING ACTIVITIES: Issuance of restricted common stock for officers and directors salaries $ - $ 28,000 $216,244 Issuance of restricted common stock for rent - - 24,425 Issuance of restricted common stock for legal fees - stockholder - 24,306 25,000 Issuance of common stock exercised under stock option plan for consulting fees - 630,000 - Issuance of common stock for consulting fees - 820,000 - --------- ---------- --------- TOTAL NON-CASH OPERATING ACTIVITIES $ - $1,502,306 $265,669 --------- ---------- --------- NON-CASH FINANCING ACTIVITIES: Issuance of restricted common stock for related party loan $ - $ - $ 1,200 Acquisition of licensing agreements for long-term notes payable - stockholder - 4,760,000 - --------- ---------- --------- TOTAL NON-CASH OPERATING ACTIVITIES $ - $4,760,000 $ 1,200 ========= ========== =========
The accompanying notes are an integral part of these financial statements. - 35 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - - ------ ------------------------------------------ Organization and Business ------------------------- The Company was incorporated under the laws of the State of Delaware on April 11, 1983 as World Imports -- USA, Inc. The Company's initial business plans were unsuccessful, and on July 1, 1993, it changed its name to Seiler Pollution Control Systems, Inc. The Company presently is a toxic waste disposal concern which acquired the rights to a technology called High Temperature Vitrification which treats a potentially wide variety of waste products. The Vitrification process transforms hazardous waste into non-toxic substances which can either be stored in a non-hazardous waste landfill or be recycled. Principles of Consolidation --------------------------- The consolidated financial statements include Seiler Pollution Control Systems, Inc., its wholly owned subsidiary (incorporated in Delaware), Seiler Pollution Control Systems International, Inc., the latter's wholly owned subsidiary (incorporated in Switzerland), Seiler SEPC AG, and it's majority (90%) owned subsidiary (incorporated in Germany), Seiler Trenn-Schmeizanlagen Betriebs GmbH. The statements reflect the financial position, results of operations and cash flows of Seiler Pollution Control Systems, Inc. and its wholly owned and majority owned subsidiaries as a single entity. All significant intercompany accounts and transactions have been eliminated in consolidation. Basis of Accounting ------------------- The Company maintains its records on the accrual basis of accounting. Income is recorded when earned and expenses are recorded when incurred. Property and Equipment ---------------------- Property and equipment are recorded at cost. Depreciation of property and equipment is provided for over the estimated useful lives of the respective assets. Depreciation is recorded based on the straight-line method over estimated useful lives of five (5) years. Maintenance, repairs, and minor renewals are charged to earnings when they are incurred. When assets are retired or otherwise disposed of, the assets and related allowance for depreciation and amortization are eliminated from accounts and any resulting gain or loss is reflected in income. Licensing Agreements -------------------- Licensing agreements are stated at fair value (cost less imputed interest) less accumulated amortization. Amortization is computed by the straight-line method over an estimated life of fifteen (15) years. Research and Development ------------------------ Cost associated with research, new product development, and product cost improvements are treated as expense when incurred. Research and development cost charged to operations for the years ended March 31, 1995, 1994 and 1993 were $50,881, $30,973 and $-0-, respectively. - 36 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) - - ------ ------------------------------------------ Loss Per Common Share --------------------- Loss per common share is computed by dividing the net loss for the year by the weighted average number of shares of Common Stock outstanding during the year. Reclassifications ----------------- Certain reclassifications have been made to prior year's financial statements to conform to the March 31, 1995 presentation. Expenses Related to Sales and Issuance of Securities ---------------------------------------------------- All costs incurred in connection with the sale of the Company's Common Stock have been capitalized and charged to additional paid-in capital. Foreign Currency Translation ---------------------------- Assets and liabilities of subsidiaries operating in foreign countries are translated into U.S. dollars using the exchange rate in effect at the balance sheet date. Results of operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in stockholders' equity, while gains and losses resulting from foreign currency transactions are included in operations. Restatement ----------- The 1995 and 1994 financial statements have been restated due to a change in the Company's policy regarding amortization of the licensing agreements, the reclassification of certain research and development cost and reclassification of foreign currency losses. The Company has decided to amortize the licensing agreements from date of acquisition rather than from the date of its initial sale of its first system. Certain research and development costs were previously capitalized rather than charged to operations. Certain foreign translation adjustments were previously charged to operations rather than to stockholders' equity. The effect of these changes increased the net loss by $187,115 in 1995 and $223,876 in 1994. Loss per common share increased by $.01 for 1995 and $.03 for 1994. NOTE 2 - ADVANCES TO SUPPLIERS - - ------ --------------------- The Company has advanced, to it's sole supplier, Seiler Hochtemperatur- Trennanlagen AG, a related party, the sum of $5,139,084 directly and on it's behalf, $1,522,592 to other unrelated suppliers towards the purchase of it's initial High Temperature Vitrification System. A principal stockholder of Seiler Hochtemperatur-Trennanlagen AG is a member of the Company's Board of Directors. - 37 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 3 - LICENSING AGREEMENTS - - ------ -------------------- The Company entered into two separate licensing agreements in July of 1993 with Maxon Finance and Trade Ltd., S.A., a stockholder of the Company, and a corporation organized under the laws of Switzerland. The agreements, as amended in March of 1994, are for an exclusive field-of- use license to use the proprietary information, including the patent rights, worldwide for the High Temperature Vitrification System. The agreements required a one time licensing fee of $5,000,000. This fee has been discounted at 7% for imputed interest of $240,000 resulting in a net capitalized cost of $4,760,000. These agreements are for an indefinite term or until all of the proprietary information becomes public knowledge and the patent rights expire. Amortization expense for the years ended March 31, 1995 and 1994 were $317,333 and $226,046, respectively. NOTE 4 - TROUBLED DEBT RESTRUCTURING - - ------ --------------------------- Maxon Finance and Trade Ltd., SA modified it's note agreement terms with the Company in February 1995 (see Notes 3 and 5) by extending the payment terms to December 31, 2000. This modification reduced the effective interest rate from 7%, per the original agreement, to 1.6%. NOTE 5 - LICENSING AGREEMENTS PAYABLE - - ------ ---------------------------- Licensing agreements payable, Maxon Finance and Trade Ltd., S.A., a Swiss Corporation, due December 31, 2000 (See Notes 3 and 4), and require payments as follows:
June 30, 1996 $ 127,721 December 31, 1996 185,159 June 30, 1997 186,645 December 31, 1997 188,142 June 30, 1998 189,652 December 31, 1998 191,174 June 30, 1999 192,708 December 31, 1999 194,254 June 30, 2000 195,813 December 31, 2000 325,981 ---------- TOTAL $1,977,249 ========== Annual maturities are as follows: Year Ended March 31, ---------- 1996 $ - 1997 312,880 1998 374,787 1999 380,826 2000 386,962 2001 521,794 ---------- TOTAL $1,977,249 ==========
- 38 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 7 - LOAN PAYABLE - OFFICER - - ------ ---------------------- Werner Heim, President and Chairman of the Board of Directors, has advanced the Company monies which are unsecured, non-interest bearing loans payable upon future mutual agreement of the parties. The balances at March 31, 1995 and 1994 were $461,008 and $149,359, respectively. NOTE 8 - INCOME TAXES - - ------ ------------ The Company adopted Statement of Financial Accounting Standard 109 ("SFAS"). SFAS 109 provides for an asset and liability approach to accounting for income taxes that require the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future consequences, SFAS 109 generally considers all expected future events other than proposed changes in the tax law or rates prior to enactment. Deferred income taxes recorded in the balance sheets at March 31, 1995 and 1994, after adoption of SFAS 109, includes a deferred tax asset related to net operating loss carryforwards of approximately $4,200,000 and $2,825,000, respectively, which have been fully offset by a valuation allowance. The valuation allowance has been established equal to the full amount of the deferred tax asset, as the Company is not assured that it is more likely than not that these benefits will be realized. For the years ended March 31, 1995, 1994 and 1993 there was no provision for current and deferred federal, state or foreign income taxes. A reconciliation between the statutory federal income tax rate (34%) and the effective income tax rates based on continuing operations is as follows:
1995 1994 1993 ---------- ---------- --------- Statutory federal income tax (benefit) $(468,684) $(960,698) $(3,100) Benefit not recognized on operating loss - - 3,100 Valuation allowance 468,684 960,698 - --------- --------- -------- TOTAL TAX PROVISION $ - $ - $ - ========= ========= ========
The Company has unused Federal net operating loss carryforwards at March 31, 1995 of approximately $4,200,000, which expire through March 31, 2010, if not fully utilized. - 39 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 9 - MINORITY INTEREST - - ------ ----------------- Minority interest represents a 10% interest in Seiler Trenn- Schmeizanlagen Betriebs GmbH, a subsidiary of Seiler SEPC AG. NOTE 10 - COMMON STOCK - - ------- ------------ On July 8, 1993 the Company effectuated a 1 for 100 reverse stock split to its then outstanding 84,002,000 shares of Common Stock so that immediately subsequent thereto, the number of Company shares outstanding was 840,023 shares. The accompanying financial statements reflect the retroactive effect of the reverse stock split, where applicable. NOTE 11 - CERTIFICATE OF INCORPORATION - - ------- ---------------------------- On October 31, 1994, the Company amended it's Certificate of Incorporation, reducing the total number of shares of Common Stock authorized from 250,000,000 to 25,000,000 shares. NOTE 12 - ISSUANCE OF COMMON STOCK FOR CASH - - ------- --------------------------------- The Company issued 2,460,846 shares of Common Stock for $4,485,327 less commissions of $529,503 during the fiscal year ended March 31, 1995, and 10,169,700 shares of Common Stock for $6,842,500 less commissions of $225,425 during the fiscal year ended March 31, 1994. NOTE 13 - PENSION PLAN - - ------- ------------ The Company, on January 1, 1994, adopted a Simplified Employee Pension Plan (SEP) for the benefit of its eligible employees. The plan enables the employee to contribute up to a maximum of 10% of their base salary through a salary reduction and requires the Company to make a 5% contribution. For the years ended March 31, 1995 and 1994, the Company has charged to operations $8,415 and $1,875, respectively. NOTE 14 - STOCK OPTIONS - - ------- ------------- In 1993 and 1994, the Board of Directors adopted Non-Statutory Stock Option Plans and reserved 1,000,000 and 500,000 shares, respectively, for issuance to key employees or consultants. Options are non- transferrable and are for a term of not more than ten (10) years from the grant date. The options are issuable in such amounts and at such prices as determined by the Board of Directors, except that each option price will not be less than eighty-five (85%) percent of the fair market value of such shares on the date the options are granted. - 40 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 14 - STOCK OPTIONS (Continued) - - ------- ------------- The following table summarizes Common Stock options outstanding as at March 31, 1995:
Price Per Shares Shares Shares Date Granted Share Granted Exercised Outstanding ------------------ --------- --------- --------- ----------- 1993 Stock Option Plan: ----------------------- June 14, 1993 $ 2.00 345,000 326,000 19,000 June 30, 1993 $ 1.70 55,000 27,000 28,000 September 30, 1993 $ 3.61 600,000 - 600,000 --------- ------- ------- TOTAL OUTSTANDING 1,000,000 353,000 647,000 ========= ======= ======= 1994 Stock Option Plan: ----------------------- March 1, 1995 $ 1.275 325,000 - 325,000 ========= ======= =======
NOTE 15 - COMMITMENTS - - ------- ----------- The Company entered into a consulting agreement with Rolcan Finance, Ltd. for a term of one year expiring June 20, 1994. The agreement required payment for services rendered in the amount of 460,000 shares of the Company's Common Stock. For the years ended March 31, 1995 and 1994, -0- and 410,000 shares, respectively, were issued for services rendered. The Company entered into a consulting agreement with Berkshire International Finance, Inc. ("Berkshire") for a term of one year, expiring June 11, 1994. The Company was required to pay $630,000 plus $10,000 per month over the terms of the agreement. The Company issued to Berkshire International Finance, Inc. options to purchase 315,000 shares of the Company's Common Stock at $2.00 per share. The option price will be applied against fees due Berkshire upon the exercising of options. Berkshire exercised all of its options to purchase 315,000 shares. (See Note 14). The agreement required Berkshire to provide certain business consulting services, maintain an office at its facility in Jersey City, New Jersey, and provide the necessary office services until such time as new corporate offices are established and Berkshire's services are concluded. The terms of this agreement were amended effective January 1994 reducing the monthly fee from $10,000 to $5,000 per month. - 41 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 15 - COMMITMENTS (Continued) - - ------- ----------- The Company entered into a written employment agreement with Arthur J. Helmstetter, its Chief Executive Officer and President, which agreement commenced December 1, 1993. The agreement provides the Company's President with a base annual salary of $150,000 as well as a five percent annual cost of living increase and an annual bonus of 3% of Company pre-tax profits and a further annual bonus of one-fourth of one percent of Company gross revenues. The Company's President has also been granted options to purchase up to 200,000 shares of the Company's Common Stock in accordance with the terms and conditions of the Company's 1993 and 1994 Non-Statutory Stock Option Plan (See Note 14). Mr. Helmstetter resigned his office on February 28, 1995. The Company entered into a written employment agreement with Alan B. Sarko, Vice President, which agreement commenced March 1, 1995 and expires two years thereafter. The agreement provides for a base salary of $90,000 per year as well as certain additional bonuses based upon the Company reaching certain levels which have not yet been attained. The Company's Vice-President has also been granted options to purchase up to 100,000 shares of the Company's Common Stock in accordance with the terms and conditions of the Company's 1994 Non-Statutory Stock Option Plan (See Note 14). Seiler SEPC AG, the Company's wholly owned Swiss subsidiary, entered into a written agreement with its President, Paul Schmidhauser, pursuant to which Mr. Schmidhauser is to receive Sfr. 15,000 per month (each Sfr. currently being equivalent to approximately $1.13 U.S. dollars) as well as certain bonus provisions. Mr. Schmidhauser has also been granted options to purchase up to 150,000 shares of the Company's Common Stock at $3.6125 per share in accordance with the terms and conditions of the Company's Non-Statutory Stock Option Plan (See Note 14). Mr. Schmidhauser resigned his office on January 1, 1995. On October 6, 1993 the Company entered into a consulting agreement with Sands Brothers & Co., Ltd., a member of the New York Stock Exchange ("Sands Brothers") which agreement provided for the engagement of Sands Brothers as the Company's financial advisor and consultant with respect to corporate finance, mergers and acquisitions and financial service matters for a period of three (3) years. In addition to providing for certain monetary compensation, Sands Brothers was to receive (A) transaction fees and an equity participation in the surviving entity of any acquisition transaction, and (B) certain financial fees in the event of the consummation of defined financing transactions through any third party financing source introduced by Sands Brothers. The agreement further provides Sands Brothers with certain rights of first refusal with respect to the underwriting or placement of the Company's future public or private financing of debt or equity securities and gives Sands Brothers the right to designate a member to the Company's Board of Directors. Further, the - 42 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 15 - COMMITMENTS (Continued) - - ------- ----------- agreement provided Sands Brothers with the potential for an equity participation in the Company through the proposed issuance to Sands Brothers of five (5) year Warrants (with certain registration rights) to purchase restricted shares of the Company's Common Stock. As a result of certain disputes and differences that have arisen between the Company and Sands Brothers, the original agreement has been amended as of December 3, 1994, as follows: a. The financial advisory and consulting agreements were cancelled in exchange for a $25,000 payment to Sands Brothers for full and complete settlement thereof and, b. The warrant agreements were modified and amended so that demand rights to register shares of the Company's Common Stock, which underlie the Warrants, cannot be demanded prior to November 1, 1996 nor may the Warrants be exercised prior to November 1, 1995. The Company entered into a financial advisory service contract with Ladenburg, Thalmann & Co., Inc. in February 1994. The effective date of this contract was February 1, 1994 and expired January 31, 1995. The Company was required to pay $5,000 towards out-of-pocket expenses and is required to issue Warrants to purchase 400,000 shares of the Company's Common Stock at $6.50 per share. These Warrants will expire January 31, 1999. The Company leases various office space in the United States, Switzerland and Germany, all on a month-to-month basis. The total charges to operations for the years ended March 31, 1995 and 1994 were $28,354 and $1,848, respectively. NOTE 16 - RELATED PARTY TRANSACTIONS - - ------- -------------------------- The Company's past President converted accrued rent, salaries, and cash advances due him for 70,000 shares of the Company's restricted common stock during the fiscal year ended March 31, 1993.
Dates ------------------------------ May 6, 1992 December 17, 1992 Total ----------- ----------------- -------- Accrued rent $ 24,425 $ - $ 24,425 Accrued salary 194,994 21,250 216,244 Advances 1,200 - 1,200 -------- -------- -------- $220,619 $ 21,250 $241,869 ======== ======== ========
The Company acquired two licensing agreements for $5,000,000 including imputed interest (see Note 4) from Maxon Finance and Trade Ltd., S.A. who owns 2,000,000 shares of the Company's outstanding shares of Common Stock, representing an approximate 17% ownership interest. The Company has paid $2,871,405 of which $121,255 has been charged to operations, and $2,128,595 remains outstanding at March 31, 1995 including imputed interest. - 43 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 16 - RELATED PARTY TRANSACTIONS (Continued) - - ------- -------------------------- Certain former officers of the Company received restricted Common Stock in July 1993 for services rendered as follows:
Shares Amount ------ -------- Michael Castoro 15,000 $12,000 John Posteraro 10,000 8,000 Kathleen Histon 10,000 8,000 ------ ------- TOTAL 35,000 $28,000 ====== =======
The former officers indicated above are/or were employees of Berkshire International Finance, Inc. (See Note 15). The Company has charged to operations, for the years ended March 31, 1995 and 1994, $20,000 and $720,000, respectively, for consulting services. In October 1993 the Company entered into a written management consulting agreement with the Studdert Companies ("SC"), whose President, Stephen M. Studdert, formerly served on the Company's Board of Directors as Vice Chairman (resigned March 17, 1995). In accordance with the terms of the agreement SC is required to provide and has been providing consulting services to the Company in the areas of marketing strategies, governmental affairs and regulation and general corporate matters. The Company paid SC a retainer fee upon execution of the agreement and is obligated to pay a monthly retainer fee of $10,000. The Company has charged to operations for the years ended March 31, 1995 and 1994 $88,083 and $75,000, respectively, for consulting services. The management consulting agreement was terminated and replaced with three (3) separate consulting agreements, each dated March 1, 1995, with the three (3) principal's of the Studdert Companies, Messrs. Studdert, Murdock and Dudley. Such new agreements which were to be for the period April 1, 1995 through March 31, 1996 (unless terminated on 30 day written notice) provided for aggregate annual compensation of $18,000 ($6,000 each) and further provided that Messrs. Studdert, Murdock and Dudley be granted 70,000, 52,500 and 52,500 options, respectively, to purchase Company Common Stock in accordance with the Company's 1994 Non-Statutory Stock Option Plan. The Company charged to operations $215,516, $114,393 and $6,120 in legal fees in 1995, 1994 and 1993, respectively, for services rendered by a stockholder. The Company charged to operations in 1994 $123,709, representing interest in connection with the licensing agreement with Maxon Finance and Trade Ltd., S.A. (See Note 3). - 44 - SEILER POLLUTION CONTROL SYSTEMS, INC. -------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ MARCH 31, 1995, 1994 AND 1993 ----------------------------- NOTE 17 - SUBSEQUENT EVENTS - - ------- ----------------- On April 6, 1995, the Company sold 800,000 shares of its Common Stock for $880,000. On May 15, 1995, the Company sold 1,200,000 shares of its Common Stock for $1,320,000. In June 1995, 175,000 options were exercised under the 1994 Non- Statutory Stock Option Plan with the Company receiving an aggregate of $230,000. On May 11, 1995, Paul Schmidhauser (former President of the Company's wholly-owned Swiss subsidiary, Seiler SEPC AG) waived all rights granted to him with respect to the Company's 1993 Non-Statutory Stock Option Plan and the 150,000 options previously granted to him, thereunder. - 45 - ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE --------------------- There were no disagreements between the Company and Schneider Downs & Co., Inc. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope procedure. Part III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - - -------- -------------------------------------------------- The Directors and Executive Officers of the Company, as of March 31, 1997, were as follows:
Name and Address Position(s) Held Age - - ---------------------------------------- ----------------------------------------- --- Werner Heim Chairman of the Board, 64 Witikoenstrasse 311B President CH-8053 President; SEPC AG Zurich, Switzerland Alan B. Sarko Vice President; North American Operations 49 Seiler Pollution Control Systems, Inc. Chief Financial Officer 555 Metro Place North Secretary Dublin, Ohio, USA 43017 Treasurer Director Dr. Gerold Weser* Vice President; European Operations 51 Seiler TSB GmbH President; Seiler TSB GmbH Amst. Niclas Schacht 13 D-09599 Freiberg, Germany Niklaus Seiler Vice President; System Research Development 59 Seiler HT AG President; Seiler HT AG Steiacher Director CH-5312 Dottingen, Switzerland
___________________ *Subsequent to March 31, 1997, Dr. Weser was nominated to serve on the Board of Directors. Directors are elected to serve until the next annual meeting of shareholders and until their successors have been elected and have qualified. Officers are appointed to serve until the meeting of the Board of Directors following the next annual meeting of shareholders and until their successors have been elected and have qualified. - 46 - Werner Heim has been Chairman of the Board since June 1993 and President since March 1995. Mr. Heim is a Swiss national and he currently serves as President of SEPC AG, a position he has held since it was founded in November 1993. Mr. Heim's experience in international business development spans more than 30 years. From 1963 to 1971, Mr. Heim was employed by Friden Computer, which merged into Singer Corporation, where he served as Vice President. In 1971, Mr. Heim founded Swimex, a Swiss company that provided building materials and consulting services. In 1978, Swimex was sold to management. That same year, Mr. Heim founded Petrotech Holding AG, a holding company for businesses engaged in oil recovery and microbial waste processing. At the same time, Mr. Heim was a principal in MBR Bioreactor and he continued his association with both companies until 1988. From 1988 to 1991, Mr. Heim was Chairman of Biopore; a United States based company involved in a joint venture that centered on microfiltration research and development. From 1991 to 1993, Mr. Heim was an Industrial/Business Development Consultant for the following companies: Clearwater Ltd., a firm engaged in biological clean-up of oil spills; Seiler SHT, a firm engaged in high temperature waste vitrification; Set AG, a firm specializing in insulating, security and high temperature glass production; and ASI Artificial Sensing Instruments, a firm engaged in bioprocess control and related activities. In May 1995, Mr. Heim became Director of Swissray International, Inc., a public company trading under the symbol SRMI which engaged through its wholly owned subsidiary SR-Medical AG in the business of diagnostic x-ray medical equipment. Mr. Heim received a Diploma in Economic Studies from School of Economics, St. Gallen, in 1956 and conducted post-graduate studies in 1957 at HEC in Paris. Subsequently, Mr. Heim was Assistant at Institute of Economics in Switzerland, then appointed to be a full-time member of the Planning Board of the University of Zurich. Mr. Heim currently devotes a substantial portion of his business time to the ongoing business affairs of Seiler and intends to continue active involvement on a daily basis for the foreseeable future. Alan B. Sarko has served as Vice President of North American Operations since March 1995. That same year, he also became a Director of the Company. In May 1996, Mr. Sarko was appointed Secretary, Treasurer and Chief Financial Officer of Seiler. Mr. Sarko joined the Company in February 1994 as Director of Marketing. Before joining Seiler, Mr. Sarko worked for 10 years as Director of Marketing and Environmental Compliance for Inorganic Recycling Corporation. From 1973 until 1984, Mr. Sarko was Chief Executive Officer and Administrator of Sarko Equipment, Inc., a Midwestern industrial demolition contractor. Mr. Sarko received a Bachelor of Arts Degree from Michigan State University in 1969 and his Juris Doctorate from Detroit College of Law in 1972. He has also received Certificates of Completion for various post graduate courses in the field of hazardous waste management. Mr. Sarko devotes his full time and best efforts to the Company's business activities. Niklaus Seiler has been a Director of the Company since 1984 and Vice President of System Research Development since 1996. Currently, Mr. Seiler also serves as President and Chief Executive Officer of Seiler Patent AG, a company involved in development and operation of vitrification systems for waste processing. In 1993, Mr. Seiler founded and became a Director of Seiler HT AG. Mr. Seiler has also been professionally associated with two other companies he founded: N & H Seiler Pumpenbau, 1974-1993, and Seiler Montageunternehmon, 1969-1974. With more than 30 years of technical/scientific experience with mechanical and thermochemical systems, Mr. Seiler's accomplishments include personally developing sludge pumping systems, contact dryers and incineration equipment. Mr. Seiler holds Swiss Patent #680656, October 15, 1992, High Temperature Vitrification System, which provides the basis for the proprietary Seiler System. Mr. Seiler devotes such time as he deems reasonable and necessary to the Company's business affairs and research. - 47 - Dr. Gerold Weser has been Vice President of European Operations since January 1996, having joined the Company in January 1995. He became a Director of the Company in May 1997. Currently, Dr. Weser serves as President of STSB GmbH. From 1993 until he began his association with Seiler, Dr. Weser was Chief Executive Officer and Administrator of Dr. Weser & Partner. From 1990 to 1993, Dr. Weser served as Managing Director of Centralsug, Hamburg/Stockholm, Sweden. Dr. Weser received Vordiploma (B.A.) in Chemistry and Physics from Technical University of Karlsruhe in 1969. Subsequently, Dr. Weser received a Diploma in Chemistry from the University of Oxford, England, and a Diploma in Physics from the University of Marburg, Germany. In 1978, he received his Dr. Rer. Natl. (Ph.D.) from the Institute for Physical Chemistry, University of Marburg. From 1978 to 1990, Dr. Weser worked for various companies engaged in environmental processing, handling, recycling and management. Dr. Weser devotes his full time and best efforts to the Company's business activities. ITEM 11. EXECUTIVE COMPENSATION - - ------- ---------------------- Board of Directors Fees - - ----------------------- Except as noted, for the fiscal year ended March 31, 1997, members of the Board of Directors did not receive any fees for attending meetings of the Board of Directors. The Company's policy is to reimburse Board members for their expenses incurred to attend Board meetings. Officers of the Company who are also Directors do not receive any fees. Executive Compensation - - ---------------------- The following table sets forth information concerning the Chief Executive Officer of the Company and the Company's executive officers whose total annual salary and bonus exceeded $100,000 for the fiscal year ended March 31, 1997. SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards ------------------- ---------------------- Securities Name and Other Annual Underlying All Other Principal Position Year(1) Salary Compensation(6) Options (#) Compensation(7) - - --------------------------- ------------ ------------------- ------------ ---------- ------------ Werner Heim, Chairman 1997 $150,000 - - - CEO, President (2) 1996 150,000 - 300,000 - 1995 121,002 - - - Alan B. Sarko, Vice 1997 150,000 - - 7,500 President, CFO, 1996 105,000 - 200,000 5,250 Secretary, Treasurer (3) Gerold Weser, Vice 1997 150,000 - - - President (4) Niklaus Seiler, Vice 1997 150,000 - - - President (5)
- 48 - (1) For the fiscal year ended March 31 of the year listed below. (2) Became an executive officer in August 1994. (3) Became an executive officer in March 1995. (4) Became an executive officer in January 1996. (5) Became an executive officer in June 1996. (6) Individual amounts are not material. (7) Pension benefits. Option Exercises & Values - - ------------------------- None of the persons identified in the Summary Compensation Table above were granted any stock options during the fiscal year ended March 31, 1997. Stock options which remained unexercised as of March 31, 1997, and the value of these unexercised in-the-money options as of the same date for each executive officer named in the Summary Compensation Table are given in the table below. Potential Realizable Value At Assumed Annual Rates Of Stock Price Appreciation Individual Grants For Option Term (2) ----------------- ---------------------------
# of % of Securities Total Underlying Options Exercise Options Granted in Price Name Granted (1) Fiscal Year ($/Share) Expiration Date 5% 10% - - ---------------- ---------- ----------- -------- --------------- ------- ------- Werner Heim 300,000 20 $2.10 12/31/2002 363,011 682,727 Alan B. Sarko 300,000 20 $2.10 12/31/2002 306,726 570,338 Gerold Weser 200,000 20 $2.10 12/31/2002 242,007 455,151 Niklaus Seiler 200,000 20 $2.10 12/31/2002 242,007 455,151 Niklaus Seiler 100,000 10 $1.65 12/31/2001 82,599 147,439
(1) Non-qualified options were granted at 85% of fair market value on the date of grant. (2) The potential realizable value of each grant of options assuming that the market price of the underlying security appreciates in value from the date of grant to the end of the option term, is presented at the indicated annualized rates. The assumed growth rates in price in the Company's stock are not necessarily indicative of actual performance that may be expected. The amounts are net of the cost by the executive to exercise such options. - 49 - AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options at Fiscal Year End at Fiscal Year End (2) -------------------------- ---------------------- Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise Realized (1) Unexercisable Unexercisable - - --------------- --------------- ------------ ------------- ------------- Werner Heim - - 300,000/0 316,875/0 Alan B. Sarko - - 300,000/0 398,875/0 Gerold Weser - - 200,000/0 211,250/0 Niklaus Seiler - - 300,000/0 361,875/0 - - ----------------------
(1) Represents the difference between the fair market value of the securities underlying the options and the exercise price of the options on the date of exercise. (2) Represents the difference between the fair market value of the securities underlying the options and the exercise price of the options at March 31, 1997. The average of the high and low trading price on March 31, 1997 was $3.15625. Retirement Plan - - --------------- On January 1, 1994, Seiler adopted a Simplified Employee Pension Plan (SEP) for the benefit of eligible employees. The SEP enables an employee to contribute up to a maximum of 10% of base salary through a salary reduction and requires the Company to make a contribution equal to 5% of the employee's base salary. Amounts contributed by the Company under the SEP to officers of the Company are contained in the Summary Compensation Table. Employment Contracts, Terminations of Employment, and Changes in - - ---------------------------------------------------------------- Control Agreements - - ------------------ As reported in the Company's quarterly report ended June 30, 1996, Seiler entered into employment agreements dated June 29, 1996, with Werner Heim, Alan B. Sarko, Niklaus Seiler and Gerold Weser. The complete agreements were reproduced in the quarterly report cited and the description is hereby incorporated by reference. Compensation Committee Interlocks and Insider Participation - - ----------------------------------------------------------- The Company has no compensation committee; rather the Company's Board of Directors performs the functions that would otherwise be performed by a compensation committee. Mr. Heim, chairman of the board and president of the Company, Mr. Sarko, vice president, chief financial officer, secretary and treasurer of the Company, and Mr. Niklaus Seiler, Vice President, serve on the Company's Board of Directors. Dr. Weser, Vice President, will serve on the compensation committee when his nomination to the Board of Directors is ratified. As members of the Board and in view of the fact that the Company does not have a compensation committee, Messrs. Heim, Sarko and Seiler currently participate and Dr. Weser, in the future, will participate in deliberations concerning executive officer compensation. Mr. Heim has loaned the Company, as of March 31, 1997, the sum of $824,542 on an interest-free basis with the understanding that such amounts will be repaid on a mutually agreed-upon future date. - 50 - Stock Option Plan - - ----------------- The Board of Directors has adopted non-statutory stock option plans (the 1993 Non-Statutory Stock Option Plan, the 1994 Non-Statutory Stock Option Plan, the 1995 Non-Statutory Stock Option Plan, and the 1996 Non-Statutory Stock Option Plan) and has reserved, 1,000,000, 500,000, 1,000,000, and 2,000,000 shares under the plans, respectively, for issuance to key employees, directors and consultants. Options are nontransferable and are exercisable during a term of not more than 10 years from the date of grant. The options are issued in such amounts and at such prices as determined by the Board of Directors, except that the option price of each grant shall not be less than 85% (eighty-five percent) of the fair market value of such shares on the date the options are granted. As of the record date, all options except 72,000 under the 1993 Plan have been granted. A total of 425,000 options have been granted under the 1994 Plan, including 100,000 to Mr. Sarko and 100,000 to Mr. Heim. All options under the 1995 Plan have been granted, including 300,000 options to Mr. Seiler and 200,000 options each to Messrs. Heim, Sarko and Weser. A total of 690,000 options have been granted under the 1996 Plan, none to directors or executive officers of the Company. See the Summary Compensation Table and the accompanying stock options tables presented above. Related Party Transactions - - -------------------------- See Item 13 below. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - - -------- -------------------------------------------------------------- (a) Security Ownership of Certain Beneficial Owners. The following persons ----------------------------------------------- are known to the Company to be the beneficial owners of more than 5% of the 21,142,108 shares of the Company's outstanding $.0001 par value Common Stock as of March 31, 1997. Each person has beneficial ownership of the shares and has sole voting power and sole investment power with respect to the number of shares beneficially owned.
Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership of Class - - ----------------------- -------------------- --------- PTI Management AG (1) 2,750,000 14.0% Witikoenstrasse 311B CH-8053 Zurich, Switzerland Cede & Co. (2) 15,982,562 75.6% P. O. Box 20 Bowling Green Station New York, New York USA 10004
(1) PTI Management AG is a Swiss corporation whose shares are issued solely in bearer name. Mr. Heim is a control person of PTI Management AG, but he disclaims beneficial ownership of any such shares. (2) A nominee of the Depository Trust Company, which held such shares of record on behalf of various of its customers. The names of the beneficial owners of the shares held by those stockholders are unknown to management. - 51 - (b) Security Ownership of Management. The number and percentage of shares -------------------------------- of Common Stock owned of record and beneficially by each current officer and director of the Company and by all current officers and directors of the Company as a group, are as follows as of March 31, 1997. Each individual has beneficial ownership of the shares and sole voting power and sole investment power with respect to the number of shares beneficially owned.
Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership(1) of Class (2) - - -------------------------- ----------------------- ------------ Werner Heim (3) 405,500 1.9% Seestrasse 17 CH-8702 Zollikon 2, Switzerland Alan B. Sarko 300,000 1.42% Seiler Pollution Control Systems, Inc. 555 Metro Place North Dublin, Ohio USA 43017 Niklaus Seiler 300,000 1.42% Seiler Patent AG Steicher CH-5316 Leuggern, Switzerland Dr. Gerold Weser 200,000 .95% Seiler TSB GmbH Dorfstrasse 12 D-22941 Jersbek, Germany All Officers and Directors As a Group (4 Persons) 1,205,500 5.7%
_______________________ (1) Except for 105,500 shares owned by Mr. Heim, the shares represented below are in the form of options to purchase shares of Seiler Common Stock. The options are presently exercisable but are not transferable. The options were granted pursuant to the Company's 1993 Non-Statutory Stock Option Plan, 1994 Non-Statutory Stock Option Plan or 1995 Non-Statutory Stock Option Plan. (2) The percentage shown has been determined by dividing the number of option shares held by the named person divided by the sum of the 21,142,108 outstanding shares and the option shares held by the above referenced persons. (3) Mr. Heim is a control person of PTI Management AG but he disclaims beneficial ownership of any such shares. The Company does not know of any arrangements or pledge of its securities by persons now considered in control of the Company that might result in a change of control. - 52 - ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - - ------- ---------------------------------------------- PTI Management AG, a principal stockholder of the Company and a firm in which Mr. Heim, the Company's Chairman of the Board of Directors and President, is a control person has, from time to time, loaned the Company sums of money on an interest-free basis. The principal sum due and outstanding, as of March 31, 1997, was $89,085. These monies are due and payable on December 31, 1997. Additionally, Mr. Heim has individually loaned funds to the Company. As of March 31, 1997, the sum of $824,542 was outstanding on an interest-free basis with the understanding that the loan is to be repaid to Mr. Heim on a future mutually agreed-upon date. The Company has paid during the year ended March 31, 1997, to its sole supplier, Seiler HT AG, a total of $2,340,314 toward the purchase of its initial High Temperature Vitrification System. Seiler HT AG on behalf of the Company constructs system plants, tests the system and performs research and development services on an ongoing basis. Mr. Niklaus Seiler, Vice President and a director of the Company, is the founder and a director of Seiler HT AG. Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - - -------- ---------------------------------------------------------------- (a) Reference is herewith made to the reports on audits of consolidated financial statements. (b) During the last quarter of the Company's fiscal year ended March 31, 1996, the Company did not file any reports on Form 8-K. (c) Exhibits. No. Description --- ----------- 27. Financial Data Schedule - 53 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEILER POLLUTION CONTROL SYSTEMS, INC. Dated: June 30, 1997 By /s/ Alan B. Sarko ______________________________________ Alan B. Sarko, Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated /s/ Werner Heim Chairman of the Dated: June 30, 1997 Board of Directors __________________________ and President Werner Heim /s/ Alan B. Sarko Vice President, Dated: June 30, 1997 Treasurer, Secretary, __________________________ Chief Financial Alan B. Sarko Officer, Director /s/ Dr. Gerold Weser Vice President Dated: June 30, 1997 __________________________ Dr. Gerold Weser /s/ Niklaus Seiler Vice President Dated: June 30, 1997 Director __________________________ Niklaus Seiler Supplemental Information Supplemental Information to be Furnished With reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act. Not Applicable. - 54 - EX-27 2 FINANCIAL SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEILER POLLUTION CONTROL SYSTEMS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR MAR-31-1997 MAR-31-1997 4,188,278 0 0 0 0 4,395,344 356,084 2,186 19,564,154 1,642,914 0 0 0 2,115 13,148,248 19,564,154 0 0 0 0 5,524,052 0 34,060 0 0 5,556,500 0 0 0 5,556,000 .29 .29
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