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, 1998
[_] 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 (Zip Code)
Offices)
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
*Excepting for the fact that this Form 10-K should have been filed on or
before June 30, 1998 and the further fact that the Registrant has not as yet
filed its Form 10-Q for quarter ended June 30, 1998.
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 September 15, 1998 is 27,874,689 shares, all of one class
of $.0001 par value Common Stock. Of this number a total of 20,988,875 shares
having a market value of $5,247,219 based on the closing price of the
Registrant's common stock of $.25 on September 25, 1998 as quoted on the
NASDAQ Smallcap market, were held by non-affiliates* of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
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 and successful operation 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.
* Affiliates for the purpose of this item refers to the Registrant's officers
and directors and/or any persons or firms (excluding those brokerage firms
and/or clearing houses and/or depository companies holding Registrant's
securities as record holders only for their respective clienteles'
beneficial interest) owning 5% or more of the Registrant's Common Stock,
both of record and beneficially--all as of September 15, 1998.
SEILER POLLUTION CONTROL SYSTEMS, INC.
FORM 10-K
FISCAL YEAR ENDED MARCH 31, 1998
TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1. Business.................................................. 1
Item 2. Properties................................................ 8
Item 3. Legal Proceedings......................................... 8
Item 4. Submission of Matters to a Vote of Security-Holders....... 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data................................... 9
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations................................. 10
Item 8. Financial Statements and Supplementary Data............... 13
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................... 13
PART III
Item 10. Directors and Executive Officers of the Registrant........ 13
Item 11. Executive Compensation.................................... 15
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 17
Item 13. Certain Relationships and Related Transactions............ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................. 19
SIGNATURES.......................................................... 20
SUPPLEMENTAL INFORMATION............................................ 20
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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 had been traded on the NASDAQ Smallcap Market under the
stock symbol SEPCE through October 12, 1998 at which time the Company's stock
was delisted for failure to meet certain listing requirements of NASDAQ.
Seiler Pollution Control Systems International, Inc. ("Seiler
International") is a wholly owned subsidiary which 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"). 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 September 15, 1998, Maxon owned approximately 1.0% of the
Company's outstanding stock. In October 1998, the Company entered into an
agreement with Maxon whereby the principal amount of debt and accrued interest
owed to Maxon related to the license agreements were converted into 3,333,333
shares of common stock.
Seiler SEPC AG ("SEPC AG") is a wholly owned subsidiary of the Company
located in Switzerland. In February 1995, SEPC AG formed the German company
Seiler Trenn-Schmelzanlagen Betreibs GmbH ("Seiler TSB"). SEPC AG owns 50% of
Seiler TSB and Dr. Gerold Weser, Seiler President and CEO and President of
Seiler TSB owns the remaining 50%.
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. Subsequent to the
transaction, NWT changed its name to Seiler Nuclear Control Systems, Inc.
("Seiler Nuclear"). Seiler intends to utilize $4.7 million of Seiler Nuclear
capital to design and build a prototype vitrification facility to eventually
process low-level nuclear waste.
Subsequent to March 31, 1998, the Company acquired an 80% interest in a
newly formed subsidiary called Seiler Abfallbehandlungs and Bienstleistungs
Gmbh ("SABD GmbH"). The remaining twenty percent is owned by Dr. Weser. A more
detailed description of this company may be found in the Current Projects
section of Item 1.
Unless specifically identified by their individual names, Seiler Pollution
Control Systems, Inc. and its four subsidiaries will hereafter be referred to
as "Seiler", "Company", or the "Registrant".
COMPETITION
Competition to manage or dispose of hazardous wastes is segmented among
waste landfills, waste treaters, incinerators and alternative technology
processors. Seiler belongs to the latter group as one of a small number of
companies engaged in recycling of wastes.
Landfills are the most prevalent means of waste disposal. In the United
States, landfill space is plentiful. However, costs, permitting and other
regulatory considerations have restricted the number of landfills. Currently,
approximately 18 hazardous waste landfills exist in the United States and
these are in direct competition with incinerators and other new technologies.
1
Most hazardous waste treaters mix waste with cement kiln dust or lime and
then dispose of this mixture in a landfill. This methodology stabilizes waste
but does not change its properties and it remains hazardous.
Incineration technology is only effective in handling organic laden waste
feedstocks. Inorganic feedstocks will either fume or melt in incinerators and
will eventually settle or be imbedded in the incinerator ash residue. This ash
residue then needs to be disposed. A Seiler vitrification system can be
integrated into an industrial waste incineration process to handle the ash
residue to prevent disposal and future liabilities related to the ash
residues.
Among the available alternative waste technologies, the most commonly known
are metal reclamation systems, plasma systems and vitrification systems
(similar to Seiler's HTV System).
Metal reclamation systems need large concentrations of waste feedstocks that
have material quantities of particular metals to be cost effective. Typically,
commercial waste generators produce wastes that have only small concentrations
of various metals. Since metal reclamation systems concentrate on only the
resource they reclaim, residues generated from these processes can be as
hazardous, or in some cases even more hazardous, than the original feedstocks
as the hazardous components become more concentrated.
Molten Metal Technology (MMT) has a system in the category of metal
reclamation. However, MMT's technology is currently being used to process
radioactive waste streams where large volumes of waste are available in this
market place at very high prices ($2,000--$3,000 per ton disposal costs).
Plasma systems require a large electrical source. This technology is very
good at producing extreme heat. However, because of the very high
temperatures, there is virtually no viable commercial end product (glass
ceramic) control.
Other competing vitrification companies such as GTS Duratek use electric or
joule melter technology. As in the case with the MMT technology, most of these
systems are still in the pilot stages and concentrate on the radioactive waste
marketplace.
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. In October 1998, the Company entered into an agreement with Maxon
whereby the outstanding principal indebtedness of approximately $1,977,000
plus accrued interest of approximately $79,000 was converted into 3,333,333
shares of common stock.
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
2
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 2,000 to 10,000 tons 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 reduced if not 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.
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 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
3
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 years.
CURRENT PROJECTS
FREIBERG, GERMANY PROJECT:
Groundbreaking ceremonies took place May 21, 1997, for a commercial HTV
System to be installed in Freiberg. The building to house the HTV System has
been installed and checked. As of September 30, 1998, the Freiberg HTV System
is in a facility start-up mode where everything has been turned on to full
processing capacity. According to good engineering practice, system
adjustments in the start-up mode usually take about thirty days before the
system goes to full operating conditions. Based on this, the Company therefore
projects full operations and revenue generation to commence no later than the
end of September 1998.
The Engineering Department set up in Freiberg will continue to oversee
operations of the commercial facility. The Company anticipates expanding the
engineering department's workload to encompass regulatory matters, design, and
construction of future HTV facilities in Germany. Dr. Rainer Lohrmann is the
Managing Director for the Freiberg facility.
UNITED STATES AIR FORCE PROJECT:
Seiler's work continued through 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
finding was written and the USAF authorized the next phase.
Phase II work called for further testing of the five USAF waste streams at
the Seiler HT pilot HTV System 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 USAF.
Seiler completed an additional component of Phase II in September, 1997 when
a waste recycling exempt status was granted by the California Environmental
Protection Agency for handling three waste categories in the state. The three
waste categories are electric and furnace dusts generated from steel mills,
sand blast media residuals, and industrial wastewater treatment sludge. The
Company will continue testing additional waste streams and apply for future
expansion of the exemption to cover more wastes. The project manager for the
Air Force project is Ray Richards.
The USAF has formally documented its past and ongoing work of developing
glass ceramic products from waste feedstocks using Seiler technology. They
have been directly involved in securing waste exemption status for the Seiler
HTV System from the State of California and have increased the Company's
existing testing contract, through Radian International, to test additional
Department of Defense waste streams. Approximately $21,000 worth of testing
work remains on the old contract and $92,000 worth of work is on the new
contract. The Company expects to complete Air Force and Department of Defense
testing work currently under contract by the end of the first quarter of 1999.
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COSHOCTON, OHIO PROJECT:
The Company received approval in May 1997 from Coshocton's Solid Waste
District on its request to construct an HTV recycling facility in Coshocton's
main industrial park. The Company has built a 9600 square foot steel frame
building at the Coshocton industrial park site. The building is large enough
to house an HTV pilot and commercial facility, a laboratory, locker and shower
facilities for employees, an office and storage for waste feedstocks and glass
ceramic products. The building and land for the Coshocton recycling facility
is currently being financed through a lease agreement with the Bridge Street
Development Corporation of Newcomerstown, Ohio, the company that built the
facility. The cost for the land and building for the Coshocton recycling
facility is valued at approximately $711,000.
The Company applied to the Coshocton, Fairfield, Licking, Perry (Four
County) Waste District for $150,000 in grants for the Coshocton recycling
facility. This grant money would go toward the construction of the onsite
laboratory, and will not have to be repaid provided the recycling facility
handles waste generators from the four county area. This does not preclude
handling other waste generators. The Four County Waste District grant was
approved in July, 1997.
Plans for constructing and erecting a commercial HTV System in Coshocton are
underway. This System is expected to have a processing capacity of 1500-2000
Kilograms of input waste per hour (3000-4000 Pounds). The Company estimates
that it will take between nine months and one year to engineer, build, install
and have this System completely operational where it will generate revenue.
In July, 1998 the Ohio Environmental Protection Agency formally determined
that the Company has exempt recycling status when processing electric arc
furnace dust (from steel mills), contaminated sand blast media, and
contaminated foundry sands in Ohio. Receiving this exempt status means that
Seiler is allowed to receive and recycle these specific hazardous wastes
without obtaining a RCRA Part B treatment permit. The Ohio EPA determination
also makes provisions for this exempt status to be extended to other types of
waste feedstocks. The Project Manager for the Coshocton project is Bob
Kroeger.
SACRAMENTO, CALIFORNIA PROJECT:
The California recycling exemption status heretofor referred to permits
Seiler to place an HTV System anywhere in the State of California. A site has
been identified and the Company is currently in preliminary negotiations for a
long-term lease. Meetings were held with the Local County Board of Supervisors
and their support was secured for the Sacramento, California project.
Since McClellan Air Force Base is in the process of becoming privatized,
ongoing maintenance and manufacturing facilities that generate waste at the
Base will either become privatized or shut down. Therefore, the Company is
developing an HTV recycling facility to serve both Department of Defense
ongoing waste streams and private manufacturing and maintenance facilities.
The Sacramento recycling facility will not be concentrating on one-time
material feedstocks on a yearly basis.
The Sacramento facility will be a sister to the Coshocton facility and will
have an input waste processing capability of 1500-2000 kilograms (3300-4000
pounds) per hour. The timing for the Sacramento facility is estimated to run
three to six months behind the Coshocton facility. The Project Manager for the
Sacramento, California project is Rob Yorke.
THE EDISON MATERIALS TECHNOLOGY CENTER (EMTEC) PROJECTS:
EMTEC is a quasi-governmental organization that is made up of Ohio
universities, businesses, and industries that join together in research and
development projects to benefit Ohio industries and commercialization. EMTEC
is funded by its organization members and the State of Ohio. Seiler's initial
EMTEC project under EMTEC's Core Technology Program began in October, 1995.
The purpose of the project was to
5
develop higher end-use glass ceramics from waste feedstocks using the HTV
System process. Phase I of this project was completed in September, 1996 and
successfully demonstrated on a laboratory-scale that Seiler's HTV System could
produce several high-value products from waste feedstocks. Some of the
products produced included medium and high grade abrasives, roofing granules,
and architectural filler materials. The contract to complete Phase I was
$100,000 (US).
Due to the success of Phase I, a contract was approved by EMTEC for Seiler
and its research team to continue this project under a $300,000 Phase II
contract. The Phase II EMTEC contract commenced in October, 1996 and runs to
December 31, 1998. This project continued the product development that began
in Phase I and also provided funds to identify sites where an Ohio HTV
Recycling System could be located. Phase II funding also authorized additional
laboratory testing and product development. Under this contract additional
product development and processing parameters were identified, and a plant
site was chosen (Coshocton Industrial Park). Several papers were published and
distributed to the American Ceramic Society, the Ohio industrial community,
and the United States environmental community regarding the Company's findings
from this EMTEC work. Company proprietary information was kept confidential.
Copies of these papers or our EMTEC reports are available upon request.
Because of the success of the work accomplished in Phase I, the Company was
awarded the State of Ohio Edison Award for Best Emerging Technology by
Governor George C. Voinovich.
In August, 1998 EMTEC confirmed that the Company has been awarded an
additional contract to continue its product development work and develop
additional high grade commercially accepted glass ceramic products from waste
feedstocks. This new contract has a Phase I value of $100,000 (US) and a Phase
II value of $350,000 (US). Phase I commences January 1, 1999 and should be
completed by December 31, 1999, Phase II commences January 1, 2000 and should
be completed by June 30, 2002.
BERLIN, GERMANY PROJECT:
During the third quarter of 1998, the Company acquired an 80% interest in a
newly formed subsidiary called "Seiler Abfallbehandlungs and Dienstleistungs
GmbH" (SABD GmbH) in return for certain future commitments on behalf of the
Company. The remaining 20% of the Company's stock is owned by Dr. Weser. SABD
GmbH has a cooperative agreement with ALBA, an international waste management
company headquartered in Berlin. ALBA is engaged in the collection,
transportation, and treatment of all types of wastes. The Berlin project
involves the Company operating an existing chemical and physical treatment
plant which is currently designed to handle and treat liquid hazardous wastes,
and the construction and operation of a new Seiler HTV facility which will
have the capability of handling solid wastes.
The Company has committed to purchase the existing chemical/physical
treatment plant for 1.2 million dm and ALBA will lease the land and building
to the Company at $5,000 monthly over a 20 year lease with no payments for the
first 10 years. In addition, the Company has committed 2 million dm for
modernizing and increasing the plant capacity, 2 million dm for the
modernization of the buildings and infrastructure and 300,000 dm for start up
costs.
The existing physical and chemical treatment plant is expected to generate
revenues in 1998. Permitting submittals for the HTV Berlin System are
currently being put together. The required permitting and licensing for the
vitrification facility is expected to be completed by Spring, 1999 with the
anticipated full support of the involved governmental and departmental
authorities. The availability of important governmental incentive programs for
job creation and environmental projects (similar to financial arrangements
utilized in the Company's Freiberg Project) are expected to facilitate the
financing for this project. Dr. A. Schwan has been appointed managing director
of the Berlin project.
6
SWISS "RESH" PROJECT:
The Company is looking into using the HTV System to process auto shredder
waste in Switzerland. The Company has entered into a joint venture with Swiss
Steel AG and Hydrotest Ingenieur-unternehmung AG to bid on a project using the
HTV process to recycle car shredder light fractions ("RESH"). The name of the
joint venture is PyRec AG. The project calls for building a commercial HTV
facility in Emmenbrucke, Switzerland with a processing capacity of 50,000-
60,000 tons per year. The metals would be reclaimed as metals and the
inorganic fractions would be vitrified and sold as glass ceramics. The initial
intention is also to sell the recaptured energy from the process as
electricity. Currently this project has a building permit and is in the
process of obtaining additional required permits. The Company has formally
responded to a proposal tendered by the Swiss Automobile Association (IGEA)
for handling these wastes. PyRec is one of just a few bidders being considered
for this project.
SEILER NUCLEAR CONTROL PROJECTS:
In the spring of 1997, the Company acquired 60% of the issued stock of a
newly formed New Jersey Corporation called N.W. Technology Inc. The name of
the company was subsequently changed to Seiler Nuclear Control Systems, Inc.
(SNC). The purpose of this company is to build and operate newly designed
vitrification systems, which can process low level and mixed nuclear waste.
SNC is currently in the process of fabricating and installing a small low-
level nuclear waste plant in Seibersdorf, Austria, the current home of the
International Nuclear Regulating Commission. This facility is expected to be
installed by the end of 1998 and will be initially a test facility. It will
have a processing capacity of approximately 50 Kilograms (100 pounds) per
hour. After significant testing, SNC plans to build larger processing
facilities to handle low-level mixed nuclear wastes commercially assuming the
availability of the necessary financing.
SNC is currently in the process of negotiating a low level and mixed waste
processing joint venture contract for a facility to be located in Oak Ridge,
Tennessee. The Chairman of SNC is Leo Wust.
ADDITIONAL PROJECTS:
France:
The French hazardous waste market is considered a prime market for the
Company because of the French Government adopting certain legislation that
regulated fly-ash disposal. In 1995, the French government adopted a change in
the regulation of hazardous fly-ash disposal requiring "inertage Hydraulique".
This method requires mixing fly-ash with cement and landfilling this mixture
in Class 1 landfills (called CET in France). Inertage is a costly solution and
not satisfactory in the long run as the cement mixture has the potential to
disintegrate and leach heavy metals into the ground and ground-water. The
regulation also forbids landfilling Inertage in CET after the year 2002. This
regulation makes HTV processing of hazardous fly-ash an excellent alternative
for handling this waste. The Company is currently negotiating with two large
French Incinerator Operators for constructing and installing commercial HTV
Systems in France.
Mexico:
On July 23, 1998, the Company submitted a proposal to a large Mexican
conglomerate for the sale of a full-scale commercial HTV System. This System
was proposed to have a processing capacity of approximately 7500 input tons of
waste. The proposal included several options including one for post-melt glass
ceramic processing and packaging. If the Company's proposal is accepted, the
recycling facility is to be placed in a city northwest of Mexico City near
Guadalajara. The Mexican conglomerate has informed the Company of their intent
to use the Export-Import Bank as a project guarantor.
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EMPLOYEES:
Currently, the Company's North America operations (including the corporate
headquarters in Dublin, Ohio) employs 4 full time employees, 5 part time
employees, and 4 contract staff members.
Seiler SEPC AG in Switzerland has 2 full time employees, 2 part time staff
members, and 3 contract consultants.
Currently STSB GmbH in Germany employees 8 full time employees and 1
contract consultant. STSB will staff up to 20 employees when the Freiberg
System is operating on a consistent commercial basis. Additional technical,
engineering, environmental, and other support staff are hired on a contract
basis as needed.
SNC has 1 full time employee and 1 contract employee.
Seiler SABD GmbH has 14 employees.
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 presently a party to litigation in Switzerland. It is the
opinion of the Company's legal counsel that the issue will ultimately be
resolved in favor of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the Company's
fourth quarter. However, on September 24, 1998, the Company held a Special
Meeting of Shareholders for purposes of authorizing the Company's Board of
Directors to effectuate, in their discretion a reverse stock split of all
issued and outstanding Company Common Stock on the basis of no less than 1 for
4 and no greater than 1 for 10. The shareholders overwhelmingly approved the
reverse stock split with approximately 99% of the voting quorum voting in
favor. Based upon the stockholder approval, the Board authorized a reverse
stock split on the basis of 1 for 6 effective October 1, 1998.
8
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 Smallcap Market and its securities are traded under the symbol SEPCE.
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, as well as data for periods subsequent to
March 31, 1998.
FISCAL YEAR ENDED MARCH 31, 1997 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES(1)
------------------------------------- --------------------------------
QUARTER DATE HIGH LOW
1st June 30, 1996 $ 6.0200 $ 4.7600
2nd September 30, 1996 4.8958 3.3958
3rd December 31, 1996 4.5400 3.4650
4th March 31, 1997 3.8540 2.8958
FISCAL YEAR ENDED MARCH 31, 1998 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES(1)(2)
------------------------------------- --------------------------------
QUARTER DATE HIGH LOW
1st June 30, 1997 $18.5625 $ 13.8750
2nd September 30, 1997 17.2500 8.6250
3rd December 31, 1997 15.7500 9.0000
4th March 31, 1998 12.3750 4.3215
FISCAL YEAR ENDING MARCH 31, 1999 QUARTERLY COMMON STOCK PRICE
BY QUARTER RANGES(1)(2)
------------------------------------- --------------------------------
QUARTER DATE HIGH LOW
1st June 30, 1998 $ 7.50 $ 1.3125
2nd Through September 15, 1998 3.75 1.3125
- --------
(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.
(2) Retroactively reflects 1 for 6 reverse stock split referred to above.
(b) Holders. As of September 15, 1998, the approximate number of
stockholders of the Company's Common Stock was 414.
(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.
9
FOR THE FISCAL YEARS ENDED MARCH 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
Statement of Operations
Revenue............... -- -- -- -- --
Net Loss.............. $(10,136,693) $ (5,556,500) $(1,615,446) $(1,967,831) $(2,899,707)
Net Loss Per Share.... (2.82) (1.71) (0.57) (0.90) (2.16)
AS OF MARCH 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- -----------
Balance Sheet
Total Assets.......... $ 16,579,050 $ 19,564,154 $15,045,626 $11,053,587 $12,743,876
Total Liabilities..... 11,339,710 6,413,791 3,639,769 2,734,833 7,413,688
Working Capital
(Deficit)............ (1,258,723) 2,752,430 (114,882) 6,500,005 1,673,347
Accumulated Deficit... (23,042,876) (12,906,183) (7,349,683) (5,552,955) (3,585,142)
Total Stockholder
Equity............... 5,239,350 13,150,363 11,405,857 8,318,754 5,330,188
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Revenues
The Company continued to invest its financial resources in the development
of HTV Systems in the United States, Switzerland and Germany during the fiscal
year ended March 31, 1998. No revenues have yet to be generated from the
operation of any commercially operating HTV System.
As of September 1, 1998, the Freiberg HTV System has been installed and
checked. The Company estimates that initial revenue generation from the
operation of this system will commence at the end of September, 1998.
It is expected that this system will process approximately 2,500 tons of
waste during the year ending March 31, 1999 and should produce revenues
ranging from 1.6 to 2 million dm.
Plans for constructing and erecting a commercial HTV System in Ohio are
underway and the Company expects to complete the system by mid 1999.
Operating Expenses
Operating expenses consist primarily of general and administrative expenses,
valuation adjustments of the HTV Systems, salaries, wages and related fringe
benefits, professional fees and consulting fees, depreciation and amortization
and research and development.
General and administrative expenses decreased approximately $107,000
primarily due to a reduction in the expenditures incurred to promote the
system in Freiberg in 1997 which were not incurred in 1998.
Valuation adjustments of the HTV Systems increased approximately $1,155,000
as a result of the Company preparing to take delivery of two HTV Systems
located in Dottingen, Switzerland from its contractor, Seiler HT, and
capitalizing the systems at their current estimated market values based upon
future estimated cash flows. In addition, it was determined that approximately
$1,200,950 of the advances for HTV Systems was related to research and
development expenditures. Furthermore, it was determined by management that
approximately $4,437,000 was expended for research and development costs
related to the development of a system to process low level nuclear waste by
SNC.
10
Salaries, wages and related fringe benefits remained stable at $801,000 as
personnel managed the projects and performed the consulting services under the
contracts with Radian International and the Edison Materials Technology Center
(EMTEC).
Professional and consulting fees decreased by $384,630 due to an increase in
consulting revenues primarily from the EMTEC and Radian contracts and the
reduction of fees paid to outside consultants in order to assist in the
development of the HTV system.
Interest expense increased due to borrowings under the Dresdner Bank
financing agreements.
Loss from Operations and Net Loss
The loss from operations increased by $4,580,200 due primarily to the
increase in system valuation adjustments and research and development
expenditures net of increased consulting fees and interest expense discussed
above.
1997 COMPARED TO 1996
Revenues
The Company continued to invest its financial resources in the development
of HTV Systems in the United States, Switzerland and Germany during the fiscal
year ended March 31, 1997. No revenues were generated from the operation of
any commercially operating HTV System in either year.
Operating Expenses
Operating expenses consist primarily of general and administrative expenses,
valuation adjustments of the HTV Systems, salaries, wages and related fringe
benefits, professional fees and consulting fees, depreciation and amortization
and research and development.
General and administrative expenses increased $1,427,000 primarily due to
expenditures incurred to promote the system in Freiberg in 1997 which were not
incurred in 1996.
Valuation adjustments of the HTV Systems increased $1,542,200 when it came
to management's attention that the advances to the HTV System contractor,
Seiler HT, would exceed the net realizable value of the systems as of March
31, 1997 based upon forecasted future cash flows. The resulting difference was
charged against earnings as a valuation adjustment. No valuation adjustment
was necessary as of March 31, 1996 in management's opinion.
Salaries, wages and related fringe benefits increased by $459,000 as a
result of the Company entering into employment contracts with the officers of
the Company effective January 1, 1996. The year ended March 31, 1997 includes
a full year of compensation to these officers while the year ended March 31,
1996 includes only one quarter of this compensation.
Professional and consulting fees increased $220,600 due to additional legal
and financial services to assist with complying with certain regulatory
requirements related to the permitting of the HTV Systems as well as the
attraction of additional capital resources.
Loss from Operations and Net Loss
The loss from operations increased by $3,956,500 due to the increase in
general and administrative expenses, system valuation adjustments, salaries,
wages and related fringe benefits and professional and other consulting fees
discussed above.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its capital requirements with a combination of minimal
operating cash flow, government loans and subsidies and equity financing. The
Company utilizes these sources of capital to construct HTV Systems, perform
research and development related to these systems, and meet the daily
administrative costs of operating the Company.
Capital and Debt Transactions
During the year ended March 31, 1998, the Company raised $4,467,000 from the
sale of 419,733 shares of additional common stock and the issuance of
convertible debentures. The proceeds from the sale of the common stock and
issuance of debentures were used to construct HTV Systems, perform research
and development related to these systems, and meet the daily administrative
costs of operating the Company.
During the year ended March 31, 1997, the Company raised $8,641,000 from the
sale of 436,090 shares of additional common stock. The proceeds from the sale
of the common stock were used to construct HTV Systems, perform research and
development related to these systems and meet the daily administrative costs
of operating the Company.
The Company also received borrowings of approximately $3,501,900 during the
year ended March 31, 1998 from the Dresdner Bank under the terms of the
financing agreement. The funds were used for construction of the HTV System in
Freiberg, Germany. Approximately $4.6 million remains for additional
borrowings under the agreement as of March 31, 1998.
The Company also received $3,309,000 in subsidies from the German state of
Saxony during the year ended March 31, 1998. The grant monies were also used
for the construction and installation of the HTV system in Freiberg, Germany,
and do not have to be repaid. The German State of Saxony has committed
approximately an additional $1,160,000 toward completion and installation of
this system.
HTV System Expenditures
The Company made payments aggregating $6,215,300 and $3,322,200 toward
completion of its High Temperature Vitrification Systems during the years
ended March 31, 1998 and 1997, respectively. These expenditures were funded
through the issuance of additional securities, issuance of convertible
debentures, receipt of governmental subsidies from the German government and
through a credit line commitment and long term investment loan from the
Dresdner Bank.
The Company commenced full operations of the Freiberg, Germany HTV System on
October 1, 1998 and commenced revenue generation.
Cash Flows
The Company had negative cash flows from operations of $5,297,300 in 1998,
$2,277,400 in 1997 and $1,593,400 in 1996.
The Company experienced negative cash flows from investing activities of
$6,987,500, $3,664,500 and $3,487,400 in 1998, 1997 and 1996, respectively.
These negative cash flows were primarily the result of expenditures to
construct the various HTV Systems currently under development.
The Company's cash flows from financing activities were $11,791,800,
$10,581,400 and $5,226,700 in 1998, 1997 and 1996, respectively. The Company's
cash flows from financing activities primarily consists of the proceeds from
the issuance of additional capital stock and convertible debentures as well as
the proceeds from German governmental subsidies and a credit line and long
term investment loan from the Dresdner Bank.
12
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.
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 the scope of auditing procedures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company, as of March 31, 1998,
were as follows:
NAME AND ADDRESS POSITION(S) HELD AGE
---------------- ---------------- ---
Dr. Gerold Weser Chairman (since June, 1998) 52
Dorfstrasse 12 President (since November, 1997)
D-22942 Vice President, European
Jersbek, Germany Operations
(through November, 1997)
President; Seiler TSB GmbH
Director
Werner Heim (1) Chairman of the Board (through 65
Witikoenstrasse 311B June 1998),
CH-8053 President (through November
Zurich, Switzerland 1997),
President; SEPC AG
Alan B. Sarko Vice President; North American 50
Seiler Pollution Control Systems, Inc. Operations
555 Metro Place North Chief Financial Officer
Dublin, Ohio, USA 43017 Secretary
Treasurer
Director
Niklaus Seiler Vice President; System Research 60
Conradin Zschokke-Strasse Development
CH-5312 President; Seiler HT AG
Dottingen, Switzerland Director
Eckart H. Busch Director (since November, 1997) 57
Petit Schoenberg 61
CH-1700
Fribourg, Switzerland
Morris Douglas Jaffe, Jr. Director (since May, 1998) 47
711 Navarro Street
Suite 707
San Antonio, Texas USA 78205
- --------
(1) Resigned from all positions held effective June 1998.
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
13
following the next annual meeting of shareholders and until their
successors have been elected and have qualified.
DR. GEROLD WESER served as Vice President of European Operations between
January 1996 and November, 1997, having joined the Company in January 1995. He
became a Director of the Company in May 1997. In November 1997, Dr. Weser was
elected President and CEO and in June 1998 was elected Chairman of the Board.
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 is also
President of SABD GmbH.
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.
WERNER HEIM served as Chairman of the Board between June 1993 and June 1998
and President between March 1995 and November 1997. 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.
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 the Institute of Economics in
Switzerland, then appointed to be a full-time member of the Planning Board of
the University of Zurich. Mr. Heim resigned from all positions held in June
1998.
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 the development and operation of vitrification systems for
waste processing.
14
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 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.
MORRIS D. JAFFE is currently Chairman of the Board and President of Jaffe
Group, Inc. a closely held Texas corporation which is the parent company of
the following subsidiaries: Comtran International, Inc. Lake LBJ Investment
Corporation, Jaffe Energy, Inc. Jaffe Realty, Inc. and Jaffe International,
Inc. Since 1995, Mr. Jaffe has been on the Board of Directors of Sino-
Swearingen Aircraft Company, a Taiwan/U.S. joint venture company. He is a
Board Member of Seven Q Seven, Inc., a Texas corporation, and from 1988 to
1990, Mr. Jaffe served on the Board of Directors of Apache Corporation.
ECKART BUSCH is a Swiss National with more than 30 years of international
financial, business and engineering experience. He has worked on many
government projects and joint ventures throughout the world. Two years ago,
Mr. Busch founded Busch Consultants, a global international environmental,
engineering and financial consulting company. Before launching his own
company, Mr. Busch was Project Development Manager for the Middle East for
ALCATEL's SEL Standard Electric Lorenz Company for six years. Prior to that,
Mr. Busch served for more than twelve years the Group of Glencore, an
international Swiss company that traded in oil, aluminum and metals.
ITEM 11. EXECUTIVE COMPENSATION
BOARD OF DIRECTORS FEES
Except as noted, for the fiscal year ended March 31, 1998, 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, 1998.
15
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL AWARDS AWARDS
---------------------------------- ----------------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR (1) SALARY COMPENSATION (6) OPTIONS (#) COMPENSATION (7)
- ------------------ -------- -------- ---------------- ----------- ----------------
Gerold Weser 1998 $150,000 -- -- --
Vice President (4) 1997 150,000 -- -- --
Werner Heim 1998 150,000 -- -- --
Chairman CEO, President (2) 1997 150,000 -- -- --
1996 150,000 -- 300,000 --
Alan B. Sarko 1998 150,000 -- -- 7,500
Vice President, CFO, 1997 150,000 -- -- 7,500
Secretary, Treasurer (3) 1996 105,000 -- 200,000 5,250
Niklaus Seiler 1998 150,000 -- -- --
Vice President (5) 1997 150,000 -- -- --
- --------
(1) For the fiscal year ended March 31 of the year listed below.
(2) Became an executive officer in August 1994, resigned as Chairman effective
June, 1998 resigned as President and CEO, November 1997.
(3) Became an executive officer in March 1995.
(4) Became an executive officer in January 1996. Elected Chairman effective
June, 1998. Elected President and CEO effective November 1997.
(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, 1998 nor have
any of the persons identified in the table exercised any stock options during
the fiscal year ended March 31, 1998 that were granted in previous fiscal
years.
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. Weser, Chairman of the Board and CEO, Mr. Heim,
Chairman of the Board (through June, 1998) and President (through November
1997) of
16
the Company, Mr. Sarko, Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company, and Mr. Niklaus Seiler, Vice President, serve or
served (as indicated) on the Company's Board of Directors. As members of the
Board and in view of the fact that the Company does not have a compensation
committee, Messrs. Sarko, Weser and Seiler currently participate in
deliberations concerning executive officer compensation. Mr. Heim has loaned
the Company, as of March 31, 1998, the sum of $94,492 on an interest-free
basis with the understanding that such amounts will be repaid on a mutually
agreed-upon future date. Included in this loan amount are amounts advanced to
Seiler Umwelttechnik AG, a related party through common owners and directors,
on behalf of Mr. Heim. Seiler Umwelttechnik AG leases a building to Seiler HT
which houses the HTV system in Dottingen, Switzerland.
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 1,315,000
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
27,874,689 shares of the Company's outstanding $.0001 par value Common Stock
as of September 15, 1998. 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 OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
Wilfried Groote 2,500,000 8.97%
28 rue Emile de Loth
98000 Monaco
Monte Carlo
Dominion Capital Fund, LTD. 2,414,608 8.66%
c/o Thomson Kernaghan & Company Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
Canada M5H 2V2
Sovereign Partners LP 1,541,206 5.53%
c/o Thomson Kernaghan & Company Ltd.
365 Bay Street, 10th Floor
Toronto, Ontario
Canada M5H 2V2
17
(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 September 15, 1998. 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 OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- ----------
Werner Heim (3) 405,500 1.44%
Seestrasse 17
CH-8702
Zollikon 2, Switzerland
Alan B. Sarko 300,000 1.06%
Seiler Pollution Control
Systems, Inc.
555 Metro Place North
Dublin, Ohio USA 43017
Niklaus Seiler 625,000 2.22%
Seiler Hochtemperatur--Trennanlagen AG
Conradin Zschokke-Strasse
CH-5312
Dottingen, Switzerland
Dr. Gerold Weser 200,000 .71%
Seiler TSB GmbH
Dorfstrasse 12
D-22941
Jersbek, Germany
Eckart Busch -- --
Petit Schoenberg 61
CH-1700
Fribourg, Switzerland
Morris Douglas Jaffe -- --
711 Navarro Street
Suite 707
San Antonio, Texan USA 78205
All Officers and Directors
As a Group (5 Persons) 1,530,000 5.28%
- --------
(1) Except for 105,500 shares owned by Mr. Heim and the 325,000 shares owned
beneficially by Niklaus Seiler, the balance of the shares represented
below (1,100,000) 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 options
and shares held by the named person by the sum of the 27,874,689
outstanding shares and the option shares held by the above referenced
persons while the number of shares indicated for all officers and
directors as a group includes 1,100,000 options which were added to the
total number of shares outstanding in order to determine percentage
interest.
(3) Mr. Heim resigned from all positions held with the Company effective as of
June 1998.
18
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PTI Management AG, a stockholder of the Company 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, 1998, was $89,085. The repayment date has
not been determined.
Additionally, Mr. Heim has individually loaned funds to the Company. As of
March 31, 1998, the sum of $94,492 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. Included in this loan amount are amounts advanced
to Seiler Umwelttechnik AG, a related party through common owners and
directors, on behalf of Mr. Heim. Seiler Umwelttechnik AG leases a building to
Seiler HT which houses the HTV system in Dottingen, Switzerland.
The Company has paid during the year ended March 31, 1998, to its sole
supplier, Seiler HT AG, a total of $6,215,300 towards 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,
1998, the Company did not file any reports on Form 8-K.
(c) Exhibits.
NO. DESCRIPTION
--- -----------
10. Convertible Debentures
27. Financial Data Schedule
19
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.
Dated: October 27, 1998 Seiler Pollution Control Systems,
Inc.
/s/ Alan B. Sarko
By___________________________________
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/ Gerold Weser Chairman, President, CEO Dated: October 27, 1998
- -------------------------
Dr. Gerold Weser
/s/ Alan B. Sarko Vice President, Treasurer, Dated: October 27, 1998
- ------------------------- Secretary, Chief Financial
Alan B. Sarko Officer, Director
/s/ Niklaus Seiler Vice President, Director Dated: October 27, 1998
- -------------------------
Niklaus Seiler
/s/ Eckart H. Busch Director Dated: October 27, 1998
- -------------------------
Eckart H. Busch
/s/ Morris D. Jaffe, Jr. Director Dated: October 27, 1998
- -------------------------
Morris D. Jaffe, Jr.
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.
20
SEILER POLLUTION CONTROL SYSTEMS, INC.
AND SUBSIDIARIES
DUBLIN, OHIO
Report on Audits of Consolidated Financial Statements
For the years ended March 31, 1998, 1997 and 1996
21
CONTENTS
PAGE
-----
INDEPENDENT AUDITORS' REPORT............................................. 23
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, March 31, 1998 and 1997................... 24
Consolidated Statements for the years ended March 31, 1998, 1997 and
1996:
Operations........................................................... 25
Changes in Stockholders' Equity...................................... 26
Cash Flows........................................................... 27
Notes to Consolidated Financial Statements............................. 28-37
22
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, 1998 and 1997
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years ended March 31, 1998, 1997
and 1996. 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 fifty percent owned subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH
(March 31, 1998 only), which statements reflect identifiable assets of
$12,951,005 and operating losses of $6,723,282. Those statements were audited
by other auditors whose reports have 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 audits provide 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, 1998 and 1997 and the results of its
operations and its cash flows for the years ended March 31, 1998, 1997 and
1996, in conformity with generally accepted accounting principles.
The accompanying financial statements 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.
Schneider Downs & Co., Inc.
Columbus, Ohio
September 21, 1998 (except for notes 1,9,13 and 14 as to which the date is
October 13, 1998)
23
SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31
-----------------------
1998 1997
----------- -----------
CURRENT ASSETS
Cash................................................. $ 383,234 $ 4,188,278
Prepaid expenses and sundry receivables.............. 143,104 207,066
----------- -----------
Total Current Assets................................. 526,338 4,395,344
OTHER ASSETS
Licensing agreements, less accumulated amortization
of $1,495,384 and $1,178,048 in 1998 and 1997,
respectively (Note 5)............................... 3,264,619 3,581,952
Other assets......................................... 457,670 27,776
Vetrotherm option.................................... -- 167,920
Advances to related party (Note 3)................... -- 516,832
----------- -----------
3,722,289 4,294,480
NET REALIZABLE ADVANCES FOR
HIGH TEMPERATURE VITRIFICATION SYSTEMS................ 3,316,809 6,197,524
PROPERTY, PLANT, AND EQUIPMENT--NET (Note 6)
Equipment, Buildings and Land........................ 3,861,664 356,084
High temperature vitrification systems (Note 4)...... 5,151,960 4,320,722
----------- -----------
9,013,624 4,676,806
----------- -----------
$16,579,060 $19,564,154
=========== ===========
LIABILITIES
MARCH 31
-----------------------
1998 1997
----------- -----------
CURRENT LIABILITIES
Accounts payable..................................... $ 1,270,396 $ 1,005,577
Accrued expenses..................................... 514,665 637,337
----------- -----------
Total Current Liabilities.......................... 1,785,061 1,642,914
LONG-TERM DEBT
Licensing agreements payable (Note 5)................ 1,977,250 1,977,250
LOANS PAYABLE
Stockholders (Note 7)................................ 677,781 913,627
Bank (Note 8)........................................ 3,501,858 --
DEFERRED INCOME--GOVERNMENT SUBSIDIES (Note 8)......... 3,309,662 --
MINORITY INTEREST...................................... 88,098 1,880,000
----------- -----------
11,339,710 6,413,791
STOCKHOLDERS' EQUITY
COMMON STOCK
Common stock, $.0001 par value; authorized
35,000,000 shares, issued and outstanding
3,943,418 and 3,523,685 shares at March 31,1998
and 1997, respectively........................... 394 352
ADDITIONAL PAID IN CAPITAL.......................... 31,007,211 26,540,202
ACCUMULATED DEFICIT................................. (23,042,876) (12,906,183)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT............. (2,725,379) (484,008)
----------- -----------
5,239,350 13,150,363
----------- -----------
$16,579,060 $19,564,154
=========== ===========
See notes to consolidated financial statements.
24
SEILER POLLUTION CONTROL SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ---------- ----------
OPERATING EXPENSES
Research and development (Note 4)...... $ 5,638,450 $ 186,350 $ 181,281
Valuation adjustment of High
Temperature
Vitrification Systems (Note 4)........ 2,696,855 1,542,200 --
General and administrative............. 1,644,901 1,752,218 325,600
Salaries, wages and related fringe
benefits.............................. 800,607 830,705 371,980
Professional and other consulting fees
(net of consulting revenue)........... 382,813 767,443 546,835
Depreciation and amortization (Note
5).................................... 358,603 445,136 323,146
----------- ---------- ----------
LOSS FROM OPERATIONS..................... 11,522,229 5,524,052 1,748,842
Interest expense (Notes 5, 7 and 8).... 455,987 34,060 56,153
Interest income........................ (49,622) (1,612) (2,573)
----------- ---------- ----------
LOSS BEFORE MINORITY INTEREST............ 11,928,594 5,556,500 1,802,422
Minority interest...................... 1,791,901 -- (5,695)
----------- ---------- ----------
NET LOSS................................. $10,136,693 $5,556,500 $1,796,727
=========== ========== ==========
LOSS PER COMMON SHARE.................... $ 2.82 $ 1.71 $ 0.64
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING............................. 3,594,679 3,249,249 2,821,275
=========== ========== ==========
See notes to consolidated financial statements.
25
SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
COMMON STOCK ADDITIONAL CURRENCY
----------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNTS CAPITAL DEFICIT ADJUSTMENT TOTAL
--------- ------- ----------- ------------ ----------- -----------
BALANCE, MARCH 31,
1996................... 3,087,595 $309 $17,897,081 $ (7,349,683) $ 856,606 $11,405,857
Exercise of stock
options under the
1993 Non-Statutory
Stock Option Plan.... 9,500 1 194,619 -- -- 194,625
Exercise of stock
options under the
1996 Non-Statutory
Stock Option Plan.... 83,333 8 874,950 -- -- 875,000
Issuance of common
stock for cash....... 236,510 24 3,601,019 -- -- 3,601,161
Acquisition of
majority owned
subsidiary (See Note
2)................... -- -- 2,820,000 -- -- 2,820,000
Debentures converted
into stock........... 106,747 10 1,150,770 -- -- 1,150,834
Foreign currency
translation
adjustment........... -- -- -- -- (1,340,614) (1,340,614)
Net loss.............. -- -- -- (5,556,500) -- (5,556,500)
--------- ---- ----------- ------------ ----------- -----------
BALANCE, MARCH 31,
1997................... 3,523,685 352 26,540,202 (12,906,183) (484,008) 13,150,363
Exercise of stock
options under the
1996 Non-Statutory
Stock Option Plan.... 3,066 -- 10,051 -- -- 10,051
Issuance of common
stock for cash....... 416,667 42 1,999,958 -- -- 2,000,000
Issuance of
convertible
debentures........... -- -- 2,457,000 -- -- 2,457,000
Foreign currency
translation
adjustment........... -- -- -- -- (2,241,371) (2,241,371)
Net loss.............. -- -- -- (10,136,693) -- (10,136,693)
--------- ---- ----------- ------------ ----------- -----------
BALANCE, MARCH 31,
1998................... 3,943,418 $394 $31,007,211 $(23,042,876) $(2,725,379) $ 5,239,350
========= ==== =========== ============ =========== ===========
See notes to consolidated financial statements
26
SEILER POLLUTION CONTROL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................. $(10,136,693) $(5,556,500) ($1,796,727)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Valuation adjustment of HTV
Systems........................... 2,696,855 1,542,200 --
Depreciation and amortization...... 320,205 322,555 323,146
Changes in assets and liabilities:
Prepaid expenses and sundry
receivables....................... 1,927,350 (64,670) (73,637)
Deposits........................... (15,734) 1,872 (18,090)
Other Assets....................... (331,236) (58,995) --
Accounts payable................... 297,977 826,631 236,504
Accrued expenses................... (56,033) 709,551 (9,439)
------------ ----------- -----------
Net Cash Used In Operating
Activities...................... (5,297,309) (2,277,356) ($1,338,243)
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisition of property and
equipment........................... (772,125) (342,300) (261,048)
Advances for High Temperature
Vitrification Systems............... (6,215,348) (4,505,562) (3,226,377)
------------ ----------- -----------
Net Cash Used In Investing
Activities...................... (6,987,473) (4,847,862) (3,487,425)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common
stock............................... 2,010,051 5,821,620 5,163,000
Proceeds from issuance of convertible
debentures.......................... 2,457,000 -- --
Proceeds from Government Subsidy..... 3,728,266 -- --
Proceeds from bank loan.............. 4,371,592 -- --
Payments on loans payable--
stockholder......................... (775,159) (48,292) (139,057)
Acquisition of majority owned
subsidiary.......................... -- 2,820,000 --
Minority interest incurred with
acquisition of majority owned
subsidiary.......................... -- 1,880,000 --
Advances from related party.......... -- 108,070 (624,902)
------------ ----------- -----------
Net Cash Provided By Financing
Activities...................... 11,791,750 10,581,398 4,399,041
EFFECT OF EXCHANGE RATE CHANGES ON
CASH.................................. (3,312,012) 531,747 (34,741)
------------ ----------- -----------
Net (Decrease) Increase In Cash.. (3,805,044) 3,987,927 (461,368)
CASH--BEGINNING OF YEAR................ 4,188,278 200,351 89,220
------------ ----------- -----------
CASH--END OF YEAR...................... $ 383,234 $ 4,188,278 ($ 372,148)
============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest........................... $ 367,107 $ 31,778 $ 56,153
============ =========== ===========
See notes to consolidated financial statements.
27
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998, 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 HTV process transforms
hazardous waste into non-toxic substances which can either be stored in a non-
hazardous waste landfill or recycled.
The Company's financial statements 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 $10,136,693 for the year ended March 31, 1998, and as
of March 31, 1998 had an accumulated deficit of $23,042,876. 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, 1998 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 understands the concern of moving the Company from a start-up
enterprise to a position where it is commercially acceptable in the
marketplace. Accordingly, the Company has developed a plan that is based on
steps that will attempt to build a foundation for Seiler. The first of these
steps entailed going through a long testing period for the HTV system that
demonstrated the capabilities of the technology. To do this, the Company set
up laboratory and pilot testing facilities and went through the environmental
permitting process to obtain exempt status for the recycling facilities.
Several different waste feedstocks were tested from a wide variety of
governmental and private business waste generators.
The Company started out with only equity financing on a small scale with the
idea of reserving long term debt and project financing for substantive
projects. The Company has secured research and development contracts from both
Radian International on behalf of the United States Air Force and the Edison
Materials Technology Center, (a partnership between the State of Ohio and
private entities). With these research and development projects Seiler has
been able to formulate several glass-ceramic products from waste feedstocks.
The Company has therefore established a capability to process waste materials
into usable products and generate revenues for both processing the waste and
for selling the resultant glass-ceramic.
The Company has developed business plans to secure financing both through
equity and long term debt project financing. The financing currently sought is
between $10-25 million. Use of proceeds of this money will go directly to
building HTV recycling facilities and low-level nuclear waste handling
facilities as well as handling the ongoing administrative obligations of the
Company.
The Company is also in the process of attempting to attract private equity
funding as well as continuing to secure government environmental grants
similar to those received for the Freiberg, Germany and Coshocton, Ohio
projects. The financing currently sought will finish the Freiberg facility and
allow the Company to move forward with four other projects which include
constructing HTV facilities in Coshocton, Ohio; Sacramento, California; an
auto-shredder facility in Emmenbruke, Switzerland; and a low-level nuclear
prototype facility in Seibersdorf, Austria. Management anticipates revenues
generated from these projects will not only finance the debt but also generate
cash flow and profits for the Company's future.
28
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 1--NATURE OF BUSINESS AND LIQUIDITY (CONTINUED)
The Company must meet certain requirements in order to maintain its Nasdaq
Smallcap Listing. The requirements include a $1 minimum bid price, certain
quantitative requirements, and the adoption of corporate governance
requirements. As of October 13, 1998 the Company has not satisfied the Nasdaq
Smallcap Listing Requirements and has been delisted from the exchange.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied by
management in the preparation of the accompanying financial statements
follows.
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 50%, owned
subsidiary, Seiler Trenn-Schmeizanlagen Betriebs GmbH (Seiler TSB)
(incorporated in Germany) and the Company's majority (60%) interest in Seiler
Nuclear Control, Inc. (SNC) (incorporated in New Jersey). 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.
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.
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.
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. Stock options and convertible debentures were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive for the periods presented.
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 statements of operations and cash flows are 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.
The Company adopted the following accounting standards during the year ended
March 31, 1998: (1) The Company has adopted SFAS No. 128, "Earnings per
Share," issued in February 1997. This statement requires
29
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the disclosure of basic and diluted earnings per share and revises the method
required to calculate these amounts. The adoption of this standard did not
impact previously reported earnings per share amounts, (2) In June 1997, SFAS
No. 130, "Reporting Comprehensive Income," was issued. The Company has adopted
this standard which requires the display of comprehensive income and its
components in the financial statements. In the Company's case, comprehensive
income includes net income and unrealized gains and losses from currency
translation, (3) A new accounting rule, SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," was issued in June 1997.
The implementation of SFAS No. 131 required the disclosure of segment
information in the same basis that is used internally for evaluating segment
performance and allocating resources to segments. The adoption of this
standard did not have a financial impact on the Company.
Certain amounts in previously issued financial statements were reclassified
to conform to 1998 presentations.
NOTE 3--RELATED PARTY TRANSACTIONS
The Company acquired two licensing agreements from Maxon Finance and Trade,
Ltd., S.A. (Maxon) who owns 300,000 shares of the Company's outstanding shares
of common stock, representing an approximate 1.3% and 1.4% ownership interest
at March 31, 1998 and 1997, respectively. (See Note 5.)
The Company has a note payable to PTI Management AG (PTI), a stockholder
owning 1,450,000 and 2,750,000 shares of the Company's outstanding common
stock at March 31, 1998 and 1997, respectively, representing an approximate
6.1% and 13.0 % ownership interest at March 31, 1998 and 1997 respectively.
(See Note 7.)
The Company had advanced $516,832 to Seiler Hochtemperatur Trennanlagen AG
(Seiler HT) as of March 31, 1997. A majority of the outstanding shares of
Seiler HT is owned by a director of the Company. The advances have been
presented as payments toward completion of the HTV system for the year ended
March 31, 1998.
Prior to November 30, 1997 the Company's wholly-owned Swiss subsidiary, SEPC
AG owned 90% of the German company Seiler TSB and Dr. Gerold Weser, Seiler
Vice President of European Operations and President of TSB, owned the
remaining 10%. On November 30, 1997, Dr. Weser contributed capital to Seiler
TSB in exchange for an additional 40% interest in the company, which reduced
Seiler AG's ownership interest in Seiler TSB to 50%. As a result of this
transaction, the minority interest has been adjusted to reflect Dr. Weser's
additional ownership interest in Seiler TSB. The operating results and
financial position of Seiler TSB have been consolidated with these financial
statements since the Company owns and controls the license agreements
underlying the HTV technology.
NOTE 4--HIGH TEMPERATURE VITRIFICATION SYSTEMS
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.
Seiler SEPC AG, the Company's wholly owned subsidiary, entered into three
contracts with Seiler HT to construct in Dottingen, Switzerland (1) a full
scale commercial HTV system, (2) a second production line for the commercial
system and (3) a pilot system that will ultimately be used for purposes of
testing and developing
30
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 4--HIGH TEMPERATURE VITRIFICATION SYSTEMS (CONTINUED)
commercial systems. Currently, SEPC AG has only advanced funds to Seiler HT
under contracts 1 and 3. According to management, it is unlikely that
construction will ever begin under the second contract. Contract number one is
for the sum of 9 million Swiss francs and contract number three is for 3
million Swiss francs. The Company does not have legal title of ownership to
any HTV system possessed by Seiler HT and therefore has accounted for the
advances to Seiler HT as advances for the construction of the systems. The
Company has requested delivery of these systems and has been refused. In
management's opinion, they plan to take ownership of the systems and resolve
this issue in their favor.
The contracts provide that the systems will be delivered to Seiler SEPC AG
upon their completion. Certain additional costs for research and development
and cost overruns have been advanced by SEPC AG to Seiler HT and have been
presented in the financial statements for the period in which the expenditures
occurred as a charge to income. Through March 31, 1998, SEPC AG had advanced
$10,125,000 to Seiler HT for construction of these systems under the
contracts. For the year ended March 31, 1998, SEPC AG has reduced the advances
for the HTV Systems under contracts 1 and 3 to their net realizable values of
6 million Swiss francs and 450,000 Swiss francs. Accordingly, research and
development costs of $1,200,000 and a valuation adjustment of $2,696,855 were
recorded for the year ended March 31, 1998.
The Company's fifty percent owned subsidiary, Seiler TSB, entered into a
contract with Seiler HT to construct a commercial HTV System in Freiberg,
Germany. The contract provides that the system will be constructed on Seiler
TSB's site in Freiberg. Therefore, the system has been presented as a
component of property and equipment in the financial statements. Certain
additional costs for research and development and cost overruns have been
advanced by Seiler TSB to Seiler HT and have been presented in the financial
statements for the period in which the expenditures occurred as a charge to
income. Through March 31, 1998, Seiler TSB had advanced $5,152,000 to Seiler
HT for construction of the system under the contract.
The Company's sixty percent owned subsidiary, SNC advanced funds to Seiler
SEPC AG who in turn advanced the funds to Seiler HT for purpose of developing
technology that will process low level nuclear waste. A purchase order has
been issued between SNC and SEPC AG and SNC has agreed to provide funds of
$5,000,000 to develop the low level nuclear waste technology. Through March
31, 1998, SNC advanced approximately $4.7 million to Seiler AG, who in turn
advanced the funds to Seiler HT, toward construction of this system. As of
March 31, 1998, management determined that $4,437,000 million of the advances
were for research relating to the processing of low level nuclear waste and
accordingly recorded this amount as research and development expense. The
remaining $200,000 in advances for the construction of the system is presented
along with the advances from Seiler AG to Seiler HT.
The net realizable value of the advances under each of the arrangements has
been determined based upon the expected future cash flows that will be
realized upon completion and operation of each of these systems.
The contract between TSB and Seiler HT has been presented under the caption
HTV System in the accompanying financial statements and has been classified as
property and equipment in the accompanying financial statements since it is
management's intention, upon completion, testing, delivery and permitting, to
own and operate these systems to process waste on a commercial basis in
Germany. 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. The contracts between
Seiler SEPCAG, SNC and Seiler HT have been presented as net realizable
advances for HTV Systems until such time the completed systems are delivered
to the Company.
31
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 5--LICENSING AGREEMENTS
The Company entered into two separate licensing agreements in 1993 with
Maxon, 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 was $317,336 for each of the years
ended for March 31, 1998, 1997, and 1996 respectively.
Maxon 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%.
On October 20, 1998, Maxon agreed to convert the outstanding debt of
$1,977,250 plus accrued interest of approximately $79,000 to 3,333,333 shares
of common stock.
NOTE 6--PROPERTY, PLANT AND EQUIPMENT--NET
Property, plant and equipment consists of the following at March 31, 1998
and 1997:
1998 1997
---------- --------
Equipment.............................................. $ 731,691 $ 31,969
Buildings and land..................................... 3,129,973 324,115
---------- --------
$3,861,664 $356,084
========== ========
NOTE 7--LOANS PAYABLE--STOCKHOLDERS
In June 1998, Werner Heim resigned from the Board of Directors of Seiler
Pollution Control Systems, Inc. as well as from the Board of Directors of
Seiler Nuclear Control, Inc. Dr. Gerold Weser was appointed as Chairman of the
Board of Seiler Pollution Control Systems, Inc. and was also appointed to the
Board of Directors of Seiler Nuclear Control, Inc.
Gerold Weser, Chairman of the Board of Directors and President, 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 balance at March 31, 1998 was
$115,470.
Werner Heim, former Chairman of the Board of Directors and a 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, 1998 and 1997 were $94,492 and $824,542, respectively. The balance
at March 31, 1998 was reduced by a payment to Seiler Umwelttechnik AG, a
related party through common stockholders and directors, on behalf of Mr.
Heim. Seiler Umwelttechnik leases a building to Seiler HT which houses the HTV
systems in Switzerland.
PTI advanced $105,000 to the Company. The advances are unsecured, non-
interest bearing and have no maturity date. The balance due to PTI was $89,085
at March 31, 1998 and 1997.
32
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 8--LOANS PAYABLE--BANK
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.
NOTE 9--CONVERTIBLE DEBENTURES
The Company received $2,457,000 from the sale of 7% cumulative convertible
debentures pursuant to a registration under Regulation D. Fifty percent of the
debentures are convertible into shares of common stock at the option of the
debenture holder at the lesser of (a) 120% of the 5 day average closing bid
price for the 5 trading days immediately preceding the closing date, or (b)
75% of the 5 day average closing bid price for the 5 trading days immediately
preceding the applicable conversion date for any conversion dates that are
after the earlier of the registration effective date or 120 days following the
closing date. The purchaser may convert the debentures into common stock at
the lesser of (1) 120% of the five day average bid price for the 5 trading
days immediately preceding the closing date or (b) 65% of the 5 day average
closing bid price for the 5 trading days immediately preceding the applicable
conversion date for any conversion dates that after 120 days following the
closing date. The remaining 50% of the debentures may be converted at 75% or
65% of the five day average closing bid price within or without 120 days
following the closing date respectively. Interest on the debentures is payable
in cash or common stock upon conversion, at the option of the Company.
Interest of $73,600 has accrued since the convertible debenture issuance.
For purposes of the accompanying financial statements, the convertible
debentures are recorded as additional paid in capital since the debenture
agreement does not provide for repayment of the debenture in cash and requires
a mandatory conversion into common stock no later than thirty-six months after
issuance.
Subsequent to March 31, 1998, the Company issued convertible debentures in
the amount of $450,000 bearing interest at 7% and convertible at a discount
from market of 35%.
NOTE 10--INCOME TAXES
For the years ended March 31, 1998, 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, 1998 and
1997 include a deferred tax asset related to federal net operating loss
carryforwards of approximately $6,650,000 and $6,080,000 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, 2013 if not fully utilized.
33
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 10--INCOME TAXES (CONTINUED)
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, 1998, 1997 and 1996 is as follows:
AMOUNT PERCENT
------------------------------------ ---------------------
1998 1997 1996 1998 1997 1996
----------- ----------- ---------- ----- ----- -----
Net Loss................ $10,136,693 $ 5,556,500 $1,615,446 100.0% 100.0% 100.0%
=========== =========== ========== ===== ===== =====
Statutory U.S. federal
income tax benefit..... $(3,446,500) $(1,889,200) $ (549,300) (34.0)% (34.0)% (34.0)%
Operating losses with no
current tax benefits... 1,703,300 506,200 327,600 19.0 9.1 20.3
Effect of foreign
operations............. 1,743,200 1,383,000 221,700 15.0 24.9 13.7
----------- ----------- ---------- ----- ----- -----
Provision for Income
Taxes.................. -- -- -- -- -- --
=========== =========== ========== ===== ===== =====
NOTE 11--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, 1998 and
1997, the Company charged $12,000 and $10,000, respectively to operations for
plan contributions.
NOTE 12--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, 1998:
PRICE PER SHARES SHARES SHARES SHARES
DATE GRANTED SHARE GRANTED EXERCISED OUTSTANDING EXPIRED
------------ --------- --------- --------- ----------- -------
1993 Stock Option Plan: (1,000,000 Shares Authorized)
June 14, 1993............... $2.00 338,000 338,000 -- 7,000
June 30, 1993............... $1.70 55,000 40,000 -- 15,000
September 30, 1993.......... $3.61 450,000 50,000 -- 400,000
November 1, 1996............ $0.75 500,000 5,000 495,000 --
--------- ------- ------- -------
Total outstanding......... 1,343,000 433,000 495,000 422,000
========= ======= ======= =======
1994 Stock Option Plan: (500,000 Shares Authorized)
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 --
========= ======= ======= =======
34
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 12--STOCK OPTIONS (CONTINUED)
PRICE PER SHARES SHARES SHARES SHARES
DATE GRANTED SHARE GRANTED EXERCISED OUTSTANDING EXPIRED
------------ --------- --------- --------- ----------- -------
1995 Stock Option Plan: (1,000,000 Shares Authorized)
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: (2,000,000 Shares Authorized)
May 9, 1996................. $1.75 650,000 500,000 150,000 --
January 2, 1997............. $3.14 40,000 -- 40,000 --
September 10, 1997.......... $2.00 625,000 -- 625,000 --
--------- ------- --------- ---
Total outstanding......... 1,315,000 500,000 815,000 --
========= ======= ========= ===
Option activity for 1998 is as follows:
WEIGHTED
AVERAGE
EXERCISE
PRICE PER
SHARES SHARE
--------- ---------
Outstanding at March 31, 1997.............................. 1,915,000 $ 1.64
Granted during 1998...................................... 625,000 2.00
Exercised during 1998.................................... (5,000) (0.75)
Expired during 1998...................................... -- --
--------- ------
Outstanding at March 31, 1998.............................. 2,535,000 1.73
========= ======
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock-
Based Compensation" in accounting for its employee stock option plans. Under
APB No. 25, because the market price of the Company's stock has historically
been equal to or less than the exercise price of the Company's stock options
at the date of grant, no compensation expense has been recognized in the
Company's financial statements.
Furthermore, the Company cannot determine the pro-forma effects of recording
compensation cost on net income and earnings per share pursuant to Financial
Accounting Standards Board Statement Number 123 due to the volatility in the
Company's stock in recent years as well as limitations on the Company's
ability to declare dividends in the future due to the current financial
constraints placed upon the Company in its efforts to develop commercial HTV
Systems.
NOTE 13--STOCK SPLIT
On September 24, 1998, the Board authorized a 1 for 6 reverse stock split of
the Company's $.0001 par value common stock. As a result of the split
23,228,908 shares were recalled, and additional paid in capital was increased
by $209, $219 and $1,544 at March 31, 1998, 1997, and 1996 respectively. All
references in the accompanying financial statements to the number of common
shares and all computations of per-share amounts for years ended March 31,
1998, 1997, and 1996, have been restated to reflect the reverse stock split.
35
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 14--COMMITMENTS
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 of High Temperature
Vitrification Technology Systems construction.
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.
The Company entered into written employment agreements with Werner Heim
(former President), (see Note 7) 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 was
to be applied toward the final purchase price. During 1998, the Company
declined to exercise this option and reduced the value of the option to zero.
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, 1998 and 1997 were $149,635 and $30,730,
respectively.
Subsequent to March 31, 1998, the Company acquired an 80% interest in a
newly formed subsidiary called "Seiler Abfallbehandlungs and Dienstleistungs
GmbH" (SABD GmbH) in return for certain future commitments on behalf of the
Company. The remaining 20% of the Company's stock is owned by Dr. Weser. SABD
GmbH has a cooperative agreement with ALBA, an international waste management
company headquartered in Berlin. ALBA is engaged in the collection,
transportation, and treatment of all types of wastes. The Berlin project
involves the Company operating an existing chemical and physical treatment
plant which is currently designed to handle and treat liquid hazardous wastes,
and the construction and operation of a new Seiler HTV facility which will
have the capability of handling solid wastes.
The Company has committed to purchase the existing chemical/physical
treatment plant for 1.2 million dm and ALBA will lease the land and building
to the Company at $5,000 monthly over a 20 year lease with no payments for the
first 10 years. In addition, the Company has committed 2 million dm for
modernizing and increasing the plant capacity, 2 million dm for the
modernization of the buildings and infrastructure and 300,000 dm for start up
costs.
36
SEILER POLLUTION CONTROL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1998, 1997 AND 1996
NOTE 14--COMMITMENTS (CONTINUED)
The existing physical and chemical treatment plant is expected to generate
revenues in 1998. Permitting submittals for the HTV Berlin System are
currently being put together. The required permitting and licensing for the
vitrification facility is expected to be completed by Spring, 1999 with the
anticipated full support of the involved governmental and departmental
authorities. The availability of important governmental incentive programs for
job creation and environmental projects (similar to financial arrangements
utilized in the Company's Freiberg Project) are expected to facilitate
financing this project.
The Company's wholly owned subsidiary SEPCAG has guaranteed the debts of
Seiler HT up to 5 million Swiss francs. As of March 31, 1998, no claims have
been made against SEPC AG related to the debts of Seiler HT.
NOTE 15--SEGMENT INFORMATION
Management has determined that segment information by geographic location is
appropriate since the Company is developing HTV systems in various geographic
regions and currently has not produced revenues from external customers.
The following table summarizes segment information by geographic area:
UNITED
STATES SWITZERLAND GERMANY CONSOLIDATED
---------- ----------- ---------- ------------
Operating Loss for the year
ended March 31, 1998.......... $3,413,311 $6,052,550 $ 670,832 $10,136,693
========== ========== ========== ===========
Identifiable Assets as of March
31, 1998...................... $3,628,045 $3,836,803 $9,114,212 $16,579,060
========== ========== ========== ===========
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.
NOTE 16--SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly information for the years ended
March 31, 1998 and 1997.
THREE MONTH PERIOD ENDED WITHIN FISCAL YEAR 1998
----------------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
----------- --------------------------- ------------
Operating expenses....... $ 804,592 $ 1,874,185 $ 1,394,779 $ 7,448,673
Net loss................. 703,719 1,904,797 1,308,548 6,219,629
Weighted average number
of common shares
outstanding............. 3,523,698 3,523,698 3,526,765 3,594,679
Loss per common share.... $ 0.20 $ 0.54 $ 0.37 $ 1.73
THREE MONTH PERIOD ENDED WITHIN FISCAL YEAR 1997
----------------------------------------------------
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
----------- --------------------------- ------------
Operating expenses....... $ 581,107 $ 1,062,470 $ 1,837,860 $ 2,042,615
Net loss................. 523,248 1,021,619 1,805,360 2,206,273
Weighted average number
of common shares
outstanding............. 3,119,539 3,232,105 3,250,271 3,249,249
Loss per common share.... $ 0.17 $ 0.32 $ 0.56 $ 0.68
37