U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
[ ] 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: 000-28679
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(Name of Small Business Issuer in Its Charter)
Delaware Applied For
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
TNO Environmental Technology Valley
Laan van Westenenk 501
7334 DT Apeldoorn, The Netherlands
(Address of Principal Executive Offices)
011 31 55 534 7040
(Company's Telephone Number, Including Area Code)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 7,320,055
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<page> 1
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
TABLE OF CONTENTS
PAGE
Part I - FINANCIAL INFORMATION 3
Item 1 - Financial Statements 3
Accountant’s Review Report 4
Balance Sheet......................................................5
Statements of Operation............................................6
Statement of Shareholders’ Equity 7
Statements of Cash Flow...........................................11
Notes to Financial Statements.....................................13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................24
PART II – OTHER INFORMATION.........................................26
SIGNATURES..........................................................27
<PAGE> 2
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
The Board of Directors of Management of Environmental Solutions and Technology
Corp. (MEST) as currently constituted, serves as the committee which performs
and functions as the audit committee on behalf of the Company. The Company has
provided interim financial statements prepared by the Company's accountants,
Arenthals Grant Thornton, which have been reviewed by the Company's independent
public accountant utilizing Professional Standards of Procedures for conducting
such reviews in accordance with generally accepted auditing standards. Please
refer to the interim financial statements provided in accordance with 17 CFR
{section}228.310(b).
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
Consolidated Financial Statements
September 30, 2001
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
Bank of America Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
MANAGEMENT OF ENVIRONMENTAL
SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
TABLE OF CONTENTS
ACCOUNTANT'S REVIEW REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Operations and Comprehensive Loss 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6
<PAGE> 3
To the Board of Directors
Management of Environmental
Solutions & Technology Corp.
Apeldoorn, The Netherlands
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying consolidated balance sheets of Management of
Environmental Solutions & Technology Corp. (a development stage company) as of
September 30, 2001 and the related consolidated statements of operations and
comprehensive loss, stockholders' equity and cash flows for the three months
and nine months ended September 30, 2001, for the three months and nine months
ended September 30, 2000, and for the period from December 10, 1997 (inception)
to September 30, 2001. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States
of America.
The financial statements for the year ended December 31, 2000 were audited by
us and we express an unqualified opinion on them in our report dated June 1,
2001. We have not preformed any auditing procedures since that date.
As discussed in Note 2, the Company has been in the development stage since its
inception on December 10, 1997 and has had recurring losses and no revenues.
The Company's decision is to perfect its technological application before
entering the market. Realization of a major portion of the assets is dependent
upon the Company's ability to meet its future financing requirements and the
success of future operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 29, 2002
<page> 4
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30,
2001 December 31,
(Unaudited) 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 356,635 $ 666,746
Accounts receivable 1,034 44,157
Due from shareholders or related parties - 158,441
Other receivables 28,011 -
Prepaid expenses - 19,274
------------ ------------
Total Current Assets 385,680 888,618
Property and equipment (net of depreciation) 4,011 7,182
------------ ------------
Total Other Assets 4,011 7,182
------------ ------------
TOTAL ASSETS $ 389,691 $ 895,800
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 45,611 $ 63,048
Accrued expenses 19,754 12,738
Loans, related parties 25,921 109,090
------------ ------------
Total Current Liabilities 91,286 184,876
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - Series A;
$0.0001 par value, 5,000,000 shares
authorized, 535,985 issued and
outstanding, aggregate liquidation
preference of $2,143,940 53 53
Common stock; $0.0001 par value,
30,000,000 shares authorized,
7,320,055 shares issued and outstanding 732 732
Additional paid-in capital 3,212,043 3,149,176
Stock options 2,274,650 2,274,650
Deficit accumulated during development stage (4,903,492) (4,530,690)
Accumulated other comprehensive income (loss) (285,581) (182,997)
------------ ------------
Total Stockholders' Equity 298,405 710,924
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 389,691 $ 895,800
============ ============
See accompanying notes and accountants’ review report.
<page> 5
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Three Months Ended Nine Months Ended (Inception)
September 30, September 30, to
-------------------------- -------------------------- September 30,
2001 2000 2001 2000 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
EXPENSES
General and administrative 87,270 182,768 205,147 917,759 3,462,276
Research and development - - 131,871 60,000 667,248
Depreciation 1,270 1,192 3,171 2,985 9,882
------------ ------------ ------------ ------------ ------------
Total Expenses 88,540 183,960 340,189 980,744 4,116,589
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (88,540) (183,960) (340,189) (980,744) (4,116,589)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 13,554 3,404 39,805 37,842 149,288
Interest expense - - - - (793)
Gain (loss) from joint
venture 5,517 - (72,418) (219,069) (935,398)
------------ ------------ ------------ ------------ ------------
Other Income (Expense) 19,071 3,404 (32,613) (181,227) (786,903)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (69,469) (180,556) (372,802) (1,161,971) (4,903,492)
INCOME TAX EXPENSE - - - - -
------------ ------------ ------------ ------------ ------------
NET LOSS (69,469) (180,556) (372,802) (1,161,971) (4,903,492)
OTHER COMPREHENSIVE
INCOME (LOSS)
Foreign currency translation
gain (loss) (12,987) - (102,584) (27,286) (285,581)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) $ (82,456) $ (180,556) $ (475,386) $(1,189,257) $(5,189,073)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE,
BASIC AND DILUTED $ (0.01) $ (0.02) $ (0.06) $ (0.16)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 7,320,055 7,320,055 7,320,055 7,320,055
============ ============ ============ ============
</TABLE>
See accompanying notes and accountants’ review report.
<page> 6
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Inception,
Dec. 10, 1997 - $ - - $ - $ - $ - $ - $ - $ -
Issuance of common
stock for cash on
Dec. 11, 1007 for
$1.00 per share - - 5,000 1 5,009 - - - 5,010
Issuance of common
stock to acquire
STB corp. on Dec.
26, 1997 at $1.00
per share - - 175 - 175 - - - 175
Net loss for year
ended Dec. 31, 1997 - - - - - - (46,869) - (46,869)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1997 - - 5,175 1 5,184 - (46,869) - (41,684)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of common
stock as follows:
For cash on March
10, 1998 at $.017
per share - - 5,394,880 539 899,911 - - - 900,450
To acquire
subsidiary on
April 9, 1998 at
$0.01 per share - - 1,920,000 192 19,808 - - - 20,000
Issuance of
preferred stock
for cash:
December 1998 at
$3.73 per share 23,900 2 - - 89,246 - - - 89,248
Issuance of stock
options for
compensation on
Aug. 31, 1998 at
$2.62 per option - - - - - 865,938 - - 865,938
Net loss for year
ended Dec. 31, 1998 - - - - - - (1,263,080) 15,284 (1,278,364)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants’ review report.
<page> 7
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1998 23,900 2 7,320,055 732 1,014,149 865,938 (1,325,233) 15,284 570,872
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash:
Jan. 1999 at
$3.92 per share 23,350 2 - - 91,644 - - - 91,646
Feb. 1999 at
$3.96 per share 48,050 4 - - 190,196 - - - 190,200
Mar. 1999 at
$3.90 per share 10,300 1 - - 40,199 - - - 40,200
April 1999 at
$4.00 per share 11,300 1 - - 45,199 - - - 45,200
May 1999 at
$3.85 per share 12,640 1 - - 48,684 - - - 48,685
June 1999 at
$4.01 per share 82,900 8 - - 332,237 - - - 332,245
July 1999 at
$4.00 per share 88,700 9 - - 354,941 - - - 354,950
Aug. 1999 at
$4.02 per share 25,770 3 - - 103,494 - - - 103,497
Sept. 1999 at
$3.43 per share 26,500 3 - - 90,997 - - - 91,000
Oct. 1999 at
$4.22 per share 6,200 1 - - 26,174 - - - 26,175
Nov. 1999 at
$4.05 per share 40,725 4 - - 165,086 - - - 165,090
Dec. 1999 at
$4.14 per share 27,150 3 - - 112,517 - - - 112,520
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued 1999 403,585 40 - - 1,601,368 - - - 1,601,408
Issuance of stock
options for
compensation on
Aug. 31, 1999 at
$3.59 per share - - - - - 717,900 - - 717,900
Net loss for year
ended Dec. 31, 1999 - - - - - - (1,810,142) (100,988) (1,911,130)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants’ review report.
<page> 8
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 1999 427,485 42 7,320,055 732 2,615,517 1,583,838 (3,135,375) (85,704) 979,050
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Issuance of
preferred stock
for cash:
Jan. 2000 at
$4.08 per share 8,300 1 - - 33,891 - - - 33,892
Feb. 2000 at
$4.34 per share 23,750 2 - - 103,054 - - - 103,056
Mar. 2000 at
$4.37 per share 4,500 1 - - 19,645 - - - 19,646
April 2000 at
$4.16 per share 61,700 5 - - 256,425 - - - 256,430
May 2000 at
$4.30 per share 5,250 1 - - 22,598 - - - 22,599
June 2000 at
$4.19 per share 5,000 1 - - 20,958 - - - 20,959
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total preferred
stock issued: 2000 108,500 11 - - 456,571 - - - 456,582
Issuance of stock
options for
compensation on
Aug. 31, 2000 at
$3.84 per share - - - - - 767,900 - - 767,900
Expiration of
stock options on
July 31, 2000 - - - - 77,088 (77,088) - - -
Net loss,
Dec. 31, 2000 - - - - - - (1,395,315) (97,293) (1,492,608)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Dec. 31, 2000 535,985 53 7,320,055 732 3,149,176 2,274,650 (4,530,690) (182,997) 710,924
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
</table>
See accompanying notes and accountants’ review report.
<page> 9
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
<TABLE>
<CAPTION>
Accumulated Accumulated
Preferred Stock Common Stock Deficit Other
------------------------------ ------------------------------ Additional During Comprehensive Total
Number of Number of Paid-in Stock Development Income Stockholders'
Shares Amount Shares Amount Capital Options Stage (Loss) Equity
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Balance carry-forward
Dec. 31, 2000 535,985 53 7,320,055 732 3,149,176 2,274,650 (4,530,690) (182,997) 710,924
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Forgiveness of
debt by officer - - - - 62,867 - - - 62,867
Net loss for
nine months ended
ended Sept. 30, 2001 - - - - - - (372,802) (102,584) (475,386)
-------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance,
Sept. 30, 2001 535,985 $ 53 7,320,055 $ 732 $ 3,212,043 $ 2,274,650 $ (4,903,492) $ (285,581) $ 298,405
============== ============== ============== ============== ============== ============== ============== ============== =============
</table>
See accompanying notes and accountants’ review report.
<page> 10
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Nine Months Ended (Inception)
September 30, to
------------------------------ September 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (372,802) $ (1,161,971) $ (4,903,492)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation 3,171 2,985 9,882
Options granted as compensation - 498,837 2,351,738
(Increase) decrease in assets:
Tax refunds receivable 43,123 (10,575) (1,034)
Other receivables (28,011) (2,695) (28,011)
Prepaid expenses 19,274 (13,788) -
Increase (decrease) in liabilities:
Accounts payable (17,437) (501,123) 40,426
Accrued expenses 7,016 - 19,754
-------------- -------------- --------------
Net cash provided (used) by operating
activities (345,666) (1,188,330) (2,510,737)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - - (13,893)
Loans provided to shareholders - - (933,303)
Payments on loans to related parties 112,218 683,033 887,080
-------------- -------------- --------------
Net cash provided (used) by investing
activities 112,218 683,033 (60,116)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party loans 25,921 - 145,391
Proceeds on related party loans - (10,390) (10,390)
Proceeds from the sale of preferred stock - 533,670 2,147,238
Proceeds from the sale of common stock - - 905,460
Cash acquired with subsidiary - - 20,000
-------------- -------------- --------------
Net cash provided (used) by financing
activities 25,921 533,670 3,209,884
-------------- -------------- --------------
Foreign currency translation loss (102,584) (27,286) (285,211)
Net increase (decrease) in cash (310,111) (9,303) 351,635
Cash, beginning of period 666,746 646,274 5,000
-------------- -------------- --------------
Cash, end of period $ 356,635 $ 636,971 $ 356,635
============= ============ =============
</table>
See accompanying notes and accountants’ review report.
<page> 11
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
December 17,
1997
Nine Months Ended (Inception)
September 30, to
------------------------------ September 30,
2001 2000 2001
(Unaudited) (Unaudited) (Unaudited)
-------------- -------------- --------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,544 $ - $ 2,337
Income taxes paid $ - $ - $ -
NON-CASH INVESTING AND FINANCING
TRANSACTIONS:
Stock options granted for compensation $ - $ 498,837 $ 2,428,826
Stock issued for acquisitions $ - $ - $ 20,175
Notes payable, related party netted
with notes receivable related party $ 46,233 $ - $ 46,233
Forgiveness of debt by officer $ 62,867 $ - $ 62,867
</TABLE>
See accompanying notes and accountants’ review report.
<page> 12
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
NOTE 1 - ORGANIZATION AND HISTORY
Management of Environmental Solutions & Technology Corp. was formed to develop
a proprietary technology for drying and treating animal manure and sludge to be
used as fertilizer. The "Company" ("MEST") was incorporated in Colorado on
December 10, 1997, followed by reorganization as a Delaware corporation on
December 18, 1997.
On December 26, 1997, the Company obtained all of the outstanding common stock
of STB Corporation, a shell corporation domiciled in Colorado, by issuing 175
share of the Company's common stock. Because STB Corporation had no assets or
operations, the Company recorded the transaction at the initial deemed value of
the stock conveyed ($175), which was consistent with the deemed value of the
Company's stock issued in its immediately precedent initial transaction. In
the year subsequent to the acquisition, STB Corporation was administratively
dissolved.
On April 9, 1998, the Company issued 1,920,000 shares of its common stock to
its president in exchange for all of the issued and outstanding shares of MEST,
B.V., a Netherlands corporation, owned by the Company's president. Although
MEST, B.V. had no recorded assets at the time of the transaction, the Company
recorded the acquisition at a nominal value of $0.01 per share. The aggregate
acquisition cost of $20,000, originally assigned to intangible assets, was
substantially written off by the end of 1998. Currently, MEST, B.V. is used to
conduct the Company's business in the Netherlands. MEST, B.V. was acquired
because it had certain data and technical information that the Company plans to
use in its business.
The Netherlands Organization for Applied Scientific Research ("TNO"), staffed
by 5,000 professionals, is one of Europe's leading contract research
organizations. Using proprietary technology developed by TNO, the Company and
TNO formed a corporation known as Manure and Sludge Technology, B.V. ("MSTec")
for the purpose of developing a process for use on a commercial basis that
would economically refine manure and sludge into pellets, which could be sold
as organic fertilizer and other products. MSTec, a Netherlands corporation, is
owned 50 percent by the Company and 50 percent by TNO.
The Company's year end is December 31.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company's management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America, and have been
consistently applied in the preparation of the financial statements.
<PAGE> 13
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting method of accounting in accordance with accounting principles
generally accepted in the United States of America.
DEVELOPMENT STAGE ACTIVITIES
The Company has been in the development stage since its formation in December
of 1997, and has not yet realized any revenues from its planned operations. It
is engaged in the business of manufacturing, distributing, and selling
fertilizer products.
USE OF ESTIMATES
The process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America, requires the use
of estimates and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
MEST's financial instruments consist primarily of cash, receivables, prepaid
expenses, accrued expenses and payables, and loans payable, which approximate
fair value because of their short maturities.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations as incurred. The
cost of intellectual property purchased from others that is immediately
marketable or that has an alternative future use is capitalized as intangible
assets. The Company periodically reviews its capitalized patent costs to
assess recoverability based on the projected undiscounted cash flows from
operations. Impairments are recognized in operating results when a permanent
diminution in value occurs.
The Company constructed a testing facility during 1999 in Apeldoorn, The
Netherlands at a cost of approximately $450,000. These costs were expensed as
research and development during the year ended December 31, 1999.
DERIVATIVE INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities", which is effective for the Company as of January
1, 2001. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at fair value.
<PAGE> 14
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS (CONTINUED)
If certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the changes
in the fair value of the hedged asset or liability that are attributable to the
hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change.
From November 1, 1999 to February 17, 2000, the Company entered into a small
number of foreign currency purchases for cash management purposes. The results
of these short-term transactions, which generated an aggregate loss of $7,124
in 199 and an aggregate gain of $4,262 in 2000, are included in Other
Comprehensive Income (Loss) as an element of foreign currency translation
earnings. The Company engaged in no similar foreign currency purchases either
prior to or subsequent to the aforementioned time frame.
COMPENSATED ABSENCES
Currently, the Company has no employees; therefore, no policy regarding
compensated absences has been established. The Company will establish a policy
to recognize the costs of compensated absences at the point in time that it has
employees.
ADVERTISING EXPENSES
Advertising expenses consist primarily of costs incurred in the design,
development, and printing of Company literature and marketing materials. The
Company expenses all advertising expenditures as incurred.
PROVISION FOR TAXES
Income taxes are provided based upon the liability method of accounting
pursuant to SFAS No. 109 "Accounting for Income Taxes." Under this approach,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year-end. A valuation allowance is
recorded against deferred tax assets if management does not believe the Company
has met the "more likely than not" standard imposed by SFAS No. 109 to allow
recognition of such an asset.
At September 30, 2001, the Company had net deferred tax assets of approximately
$490,000, principally arising from net operating loss carryforwards for income
tax purposes. As management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the net deferred
tax asset, a valuation allowance equal to the net deferred tax asset has been
established at September 30, 2001.
At September 30, 2001, the Company has net operating loss carryforwards of
approximately $2,480,000, which expire in the years 2017 through 2021. The
Company recognized approximately $2,300,000 of losses for the issuance of
common stock options for services, which are not deductible for tax purposes,
and are not included in the above calculation of deferred tax asset.
<PAGE> 15
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
Basic loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted average
number of shares was calculated by taking the number of shares outstanding and
weighting them by the amount of time they were outstanding. Outstanding
options and convertible preferred stock were not included in the computation of
diluted loss per share because the exercise price of the outstanding options is
higher than the market price of the stock, thereby causing the options to be
antidilutive.
GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has no revenues,
has incurred a net loss of $372,802 for the nine months ended September 30,
2001, has an accumulated deficit during development stage of $4,903,492 and has
had no sales. The future of the Company is dependent upon successful and
profitable operations from manufacturing, distributing, and selling its
fertilizer products. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
the Company cannot continue in existence.
Management has established plans designed to promote the sales of the Company's
product. Management intends to seek additional capital from new equity
securities offerings that will provide funds needed to increase liquidity, fund
internal growth and fully implement its business plan.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MEST and its
wholly owned subsidiary, MEST, B.V. All material intercompany transactions and
balances have been eliminated. Manure and Sludge Technology, BV ("MSTec"), a
50 percent owned corporation, is reflected in the financial statements on the
equity method of accounting, and not included in the financial statements as an
entity subject to consolidation.
ACCOUNTING FOR STOCK OPTIONS GRANTED TO EMPLOYEES AND NONEMPLOYEES
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"), defines a fair value-based method of
accounting for stock options and other equity instruments. The Company has
adopted this method, which measures compensation costs based on the estimated
fair value of the award and recognizes that cost over the service period.
<PAGE> 16
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The interim financial statements for the period ended September 30, 2001,
included herein have not been audited, at the request of the Company. They
reflect all adjustments, which are, in the opinion of management, necessary to
present fairly the results of operations for the period. All such adjustments
are normal recurring adjustments. The results of operations for the period
presented is not necessarily indicative of the results to be expected for the
full fiscal year.
IMPAIRED ASSET POLICY
In March 1995, the Financial Accounting Standards Board issued a statement SFAS
No. 121 titled "Accounting for Impairment of Long-lived Assets," which has been
replaced by SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets." In complying with this standard, the Company reviews its long-lived
assets quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not be
recoverable. The Company determines impairment by comparing the undiscounted
future cash flows estimated to be generated by its assets to their respective
carrying amounts.
The Company does not believe any adjustments are needed to the carrying value
of its assets at September 30, 2001.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" (SFAS 130), which was issued in June 1997. SFAS 130
establishes rules for the reporting and display of comprehensive income and its
components. The effect of the adoption of SFAS 130 is reflected in the
accompanying financial statements and included under the headings "Other
Comprehensive Loss."
FOREIGN CURRENCY TRANSLATION GAINS/LOSSES
The Company has adopted Financial Accounting Standard No. 52. Monetary assets
and liabilities denominated in foreign currencies are translated into United
States dollars at rates of exchange in effect at the balance sheet date. Gains
or losses are included in income for the year, except gains or losses related
to long-term debt, which are deferred and amortized over the remaining term of
the debt. Non-monetary assets, liabilities and items recorded in income
arising from transactions denominated in foreign currencies are translated at
rates of exchange in effect at the date of the transaction.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the assets, which range from three to ten years. See Note 4.
CONCENTRATION OF CREDIT RISK
The Company maintains its cash in several Netherlands financial institutions.
These financial institutions are considered credit worthy and have not
experienced any losses on deposits at September 30, 2001. The funds are valued
in U.S. dollars and are fully insured.
<PAGE> 17
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This new standard establishes a single accounting model
for long-lived assets to be disposed of by sale, including discontinued
operations . Statement 144 required that these long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or discontinued operations. This statement is
effective beginning for fiscal years after December 15, 2001, with earlier
application encouraged. The Company adopted SFAS 144 and does not believe that
the adoption will have a material impact on the financial statements of the
Company at September 30, 2001.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 establishes guidelines related to
the retirement of tangible long-lived assets of the Company and the associated
retirement costs. This statement required that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived assets. This statement is effective for financial statements issued
for the fiscal years beginning after June 15, 2002 and with earlier application
encouraged. The Company adopted SFAS No. 143 and does not believe that the
adoption will have a material impact on the financial statements of the Company
at September 30, 2001.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 provides for the
elimination of the pooling-of-interest method of accounting for business
combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142
prohibits the amortization of goodwill and other intangible assets with
indefinite lives and requires periodic reassessment of the underlying value of
such assets for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. An early adoption provision exists for
companies with fiscal years beginning after March 15, 2001. The Company does
not have assets with indeterminate lives, therefore the Company does not
believe the adoption will have a material impact on the financial statements of
the Company at September 30, 2001.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets with Extinguishment of Liabilities." This
statement provides accounting and reporting standard for transfers and
servicing of financial assets and extinguishment of liabilities and also
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS No. 140 is
effective for recognition and reclassification of collateral and for
disclosures related to securitization transactions and collateral for fiscal
years ending after December 15, 2000, and is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The Company believes that the adoptions of this standard
will not have a material effect on the Company's results of operations or
financial positions.
<PAGE> 18
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes
to the Company's accumulated deficit or net losses presented
NOTE 3 - RELATED PARTY TRANSACTIONS
LOANS FROM RELATED PARTIES
At December 31, 2000, loans from related parties consisted of the following:
2000
--------------
Maurice Schelvis, (a shareholder of the
Company), unsecured, interest at 5%,
due on demand. $ 5,590
Maurice Schelvis, (a shareholder of the
Company), unsecured, interest at 6%,
due on demand. 103,500
--------------
Total $ 109,090
==============
The Company had no outstanding loans from related parties at September 30,
2001.
RECEIVABLE FROM RELATED PARTIES
At December 31, 2000 the following amounts were receivable from shareholders or
related parties:
2000
--------------
IJ-Beeher, interest at 5%, unsecured. $ 48,917
Jan Luiken, B.V., interest at 7%, unsecured. 109,524
--------------
$ 158,441
===============
The Company had no receivables from related parties at September 30, 2001.
OTHER RELATED PARTY TRANSACTIONS
The president of the Company conveyed all outstanding shares of MEST, B.V. to
the Company in exchange for 1,920,000 shares of common stock of the Company
during the year ended December 31, 1998.
NOTE 4 - PLANT, PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful lives of the assets are expensed as incurred. Depreciation
of property and equipment is being calculated using the straight-line method
over the expected useful lives of the assets. Depreciation expense for the
periods ended September 30, 2001 and 2000 was $3,171 and $2,985, respectively.
<PAGE> 19
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 5 - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $0.0001 par value
preferred stock; 535,985 Series A preferred shares were issued and outstanding
at September 30, 2001 and December 31, 2001. Each share of Series A preferred
stock is entitled to a dividend at the rate of $0.30 per share if the board of
directors declares a dividend. although no dividends have been declared. Upon
liquidation or dissolution of the Company, each outstanding share of Series A
preferred stock is entitled to a distribution of $4.00 per share prior to any
distribution to common stock shareholders. Series A preferred stock is non-
voting, and each share is convertible into one share of the Company's common
stock at any time after June 1, 1999.
During the year ended December 31, 1998, the Company sold 23,900 shares of its
preferred stock at an average price of $3.73 per share. During the year ended
December 31, 1999, the Company sold 403,585 shares of its preferred stock at an
average price of $3.93 per share. During the year ended December 31, 2000,
the Company sold 108,500 shares of its preferred stock at an average price of
$4.21 per share.
NOTE 6 - COMMON STOCK
The Company is authorized to issue 30,000,000 shares of $0.0001 par value
common stock. At September 30, 2001, 7,320,055 shares were issued and
outstanding. Each holder of common stock has one, non-cumulative vote per
share on all matters voted upon by the shareholders. There are no preemptive
rights or other rights of subscription.
During the period ended December 31, 1997, the Company issued 5,000 shares of
its common stock for cash at $1.00 per share and 175 shares of its common stock
valued at $1.00 per share to acquire STB Corp. The stock was valued at its
fair market value on the date of issuance.
During the year ended December 31, 1998, the Company sold 5,394,880 shares of
its common stock for cash at $0.17 per share and issued 1,920,000 shares of its
common stock at $0.01 per share to acquire a subsidiary. The stock was valued
at the fair market value on the date of issuance.
<PAGE> 20
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
Manure and Sludge Technology, B.V. (hereinafter "MSTec") is a Netherlands
corporation that was formed for the purpose of developing a process for use on
a commercial basis that would economically dry and pasteurize manure and sludge
into pellets that could be sold as organic fertilizer and other products.
Since its inception, MSTec has refined its technological process for use with
other waste products such as bio-solids, fish and food waste, and paper pulp.
MEST owns 50 percent of the common stock of MSTec, and accounts for MSTec on
the equity method. The other 50 percent of MSTec's common stock is owned by
The Netherlands Organization for Applied Scientific Research ("TNO"), the
largest single research facility in Europe employing over five thousand
professionals.
MEST's investment in the joint venture is recorded as $0 on MEST's balance
sheet because MSTec's debt and losses exceeds MEST's share of investment in the
joint venture. MEST's investment in the joint venture totaled $816,000 at June
30, 2001 and December 31, 2000. In forming the joint venture of MSTec, the
Company committed to an investment in the form of a loan to MSTec of
approximately $800,000, which funds were in fact advanced to MSTec in 1999 and
2000. This loan is treated as an equity investment under the Company's
understanding of the conditions of the joint venture. The investment is
subject to the terms of the related loan agreement dated January 22, 1999, in
which the Company agreed in the event of MSTec's bankruptcy or termination, to
forego repayment of the funds advanced until such time as all other creditors
(apart from TNO) are paid in full. At the date of these financial statements,
no funds advanced by the Company to MSTec have been repaid.
The joint venture’s primary asset, as the result of the aforementioned
investment, is a worldwide licensing agreement for the application of the
aforementioned technological process from TNO.
TNO controls the research and activities of the joint venture while MEST Corp's
participation consists of investment with rights to products developed by the
joint venture.
The following is a summary of the financial positions and results of operations
of MSTec.
September 30, December 31,
2001 2000
------------- -------------
Current assets $ 122,321 $ 123,809
Property, plant, and equipment - -
Other assets (net) - 50,624
------------- -------------
Total assets $ 122,321 $ 174,433
============= ==============
<PAGE> 21
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 7 - JOINT VENTURE INVESTMENT IN MANURE AND SLUDGE TECHNOLOGY, B.V.
(CONTINUED)
September 30, December 31,
2001 2000
------------- -------------
Current liabilities $ 322,702 $ 210,753
Long-term debt - related parties 1,654,416 1,673,640
------------- -------------
Total liabilities 1,977,118 1,984,393
Stockholders' equity (1,854,797) (1,709,960)
------------- -------------
Total liabilities and equity $ 122,321 $ 174,433
============= ==============
Net sales $ - $ -
Gross profit $ - $ -
Loss from continuing operations $ (144,837) $ (789,544)
Net loss $ (144,837) $ (789,544)
JOINT VENTURE ROYALTY AGREEMENT
In connection with the formation of the MSTec joint venture, a sub-license
agreement was executed wherein M.E.S.T. agreed to pay to MSTec "sub-license"
fees, which are effectively royalty fees, for manure conversion factories
constructed by MEST over a period of fifteen years. The fifteen-year period
begins when M.E.S.T. constructs its first such factory. Royalty fees due to
MSTec are computed on a sliding scale, based upon actual factory construction
costs, and range from 15% to 10%. At the date of these financial statements,
no royalty fees were owed under the aforementioned agreement.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OFFICE LEASE
The Company leases office space in Apeldoorn under a written agreement, which
provides for lease payments of approximately $2,000 per month through June
2006. Formerly the Company leased office space in Amsterdam under a written
agreement, which ran from July 1999 through January 2002 and provided for lease
payments of approximately $1,500 per month. In 2001, the lease agreement was
renegotiated and the lease expiration date was changed to July 31, 2001 with
other lease provisions remaining unchanged.
Future minimum rental commitments under the operating lease are as follows at
September 30, 2001:
Year Ending:
December 31, 2001 $ 20,500
December 31, 2002 $ 24,000
December 31, 2003 $ 24,000
December 31, 2004 $ 24,000
December 31, 2005 $ 24,000
NOTE 9 - STOCK OPTIONS
The Company has granted its officers options to purchase a total of 700,000
shares of the Company's common stock at an exercise price of $0.50 per share.
Following is a summary of the status of these performance-based options during
the periods ended September 30, 2001 and December 31, 2000.
<PAGE> 22
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 9 - STOCK OPTIONS (CONTINUED)
Number of Weighted Average
Shares Price per Share
------------ ----------------
Outstanding at December 31, 1999 530,000 $ 0.50
Granted 200,000 0.50
Expired (30,000) 0.50
Exercised or forfeited - -
------------ ----------------
Outstanding and exercisable at
December 31, 2000 700,000 $ 0.50
============ ================
Weighted average fair value of
options granted during 2000 $ 3.59
================
Outstanding at December 31, 2000 700,000 $ 0.50
Granted - -
Exercised, expired or forfeited - -
------------ ----------------
Outstanding and exercisable at
September 30, 2001 700,000 $ 0.50
============ ================
The Company estimated the fair value of each stock option at the grant date by
using the Black-Scholes option pricing model with the following weighted-
average assumptions used: Dividend yield of zero percent; strike price of
$0.50; expected volatility of 24.83%; risk-free interest rate of six percent
and expected lives of five years. The weighted average fair value at date of
grant for options granted to officers in the year ended December 31, 2000 was
$3.59 per option. Compensation cost charged to operations was $767,900 during
the years ended December 31, 2000.
NOTE 10 - SUBSEQUENT EVENTS
In January 2002, the Company loaned $200,000 to an officer. In April 2002,
$150,000 was repaid and the Company also received a mortgage on real estate as
collateral for this loan.
<page> 23
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
Item II - Management's Discussion and Analysis or Plan of Operation
The Company provides the information required by 17 CFR {section}228.303(a) and
provides a discussion regarding the Company's plan of operation for the next 12
months.
Summary of Product Research
The Company recently concluded preliminary testing of the Company's proprietary
dewatering device. Utilizing the Zeolite Dewatering System has provided
meaningful insight into actual production constraints and operations.
Management will concentrate on developing conveyors and airlock valves in the
turbid reactor which do not harm the Zeolite. This additional research is
anticipated to cost less than $20,000.00.
Marketing Plan
Management has engaged in the exercise of identifying financially productive
applications for the Company's proprietary dewatering device. The Company has
tested various bio-solids and sludges in the past to determine the ability of
the Company's proprietary dewatering process to handle certain materials. This
kind of research is ongoing and the Company actively solicits different
varieties of bio-waste which may have value added in its dehydrated state. The
Company plans to utilize this information to develop a more precise marketing
plan which will concentrate on processes which offer financial return and which
are amenable to the current status of MEST's dewatering technology.
In that regard, the Company has plans to assemble pilot plants in locations
which provide constant sources of biological waste. In order to address
processing requirements when the Company has finally identified site and
product specific waste stream processing, Management has deemed it necessary to
solicit bids from potential manufacturers in Europe and in the United States.
As a preliminary matter, the Company estimates that a production facility will
cost between $500,000.00 and $700,000.00 U.S. dollars to fabricate in limited
quantities. Specific engineering figures will be required in order for the
Company to more accurately develop cost estimates for processing bio-solids,
sludges or biological waste materials. The Company has previously engaged TNO
to determine processing costs on the Company's pilot plan. The Company
believes that it has certain useful information regarding the dewatering
processing costs in a test format, more precise information should be developed
by the financing production and employment of functional dewatering plants.
The Company has pursued an opportunity to locate and operate a Zeolite
dewatering facility in Cordova, Alaska for purposes of processing fish waste.
The Company intends to fully explore fish waste processing and make decisions
regarding the Company's initial production application. The issue is whether
the Company should sell dewatering devices to third parties and derive profits
from the sale of equipment and machinery. The Company is entertaining the
prospect of royalty or production based fees. Management has also considered
retaining all vestiges of ownership in the Zeolite dewatering systems and
deriving profits from processing bio-solids or biological waste products.
<page> 24
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
Financial Requirements
In the event the Company does not manufacture or contract for the further
development and production of a Zeolite dewatering device, management estimates
that current Company funding will last between 9 and 12 months. As the Company
anticipates continuing operations and the development of up to five production
quality devices, then the Company will need to raise additional capital to
accomplish that purpose. The Company estimates that it will require
approximately $5,000,000.00 to administer the engineering project and to
construct the dewatering devices in accordance with the Company's plans. In
that regard, the Company intends to provide information to the Securities and
Exchange Commission sufficient to clear the comment phase and then to proceed
with a fully registered public offering to raise the $5,000,000.00 required for
the Company's plan of operations.
In order to implement the plans as outlined above, management anticipates
hiring an operations manager close to the location where the dewatering devices
will be manufactured. Prior to the delivery and installation of the dewatering
devices to the operating locations, management will hire a team of no more than
three operators for each dewatering system or it will subcontract the plant
operations to a third party. The Company will budget in its operating expenses
sufficient funding for either subcontracting services or for employee services
to maintain plant operations. The time period between engagement of the
subcontractor to build the devices and delivery is anticipated to be 4 to 6
months.
Finances of the Company derive from two exempted offerings of MEST common
shares and Preferred Series A. The Company has not earned income by virtue of
sales of goods and services. The payment of employees, expenses,
subcontractors and Company obligations has been made from capital raised by
the sale of equity shares. The Company anticipates the need to raise
additional capital through public or private offerings and does not expect to
earn revenues until late 2003.
<page> 25
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
PART II - OTHER INFORMATION
Item I - Legal Proceedings
Management is not aware of any claims, legal proceedings, litigation or
complaints against the Company during the applicable period covered by this
report. Accordingly the Company provides no information regarding such claims
or litigation as required by Item 103 of Regulation S-B.
Item II - Changes in Securities and Use of Proceeds
There has been no change in any instrument defining the rights of any holders
of any class of registered securities and accordingly no discussion is provided
regarding such changes or modifications to the rights of any affected
shareholders. The Company has not issued any class of securities, registered
or otherwise, which limit or affect the securities already outstanding.
The Company has not sold, issued or distributed any equity securities during
the period covered by this report and consequently does not provide the
information required by 17 CFR {section}228.701. The Company incorporates by
reference all of Part II Item 4 of the Amended Form 10-SB filed 10/15/01 to
describe unregistered offerings, funds raised by the sale of the Company's
Common and Preferred Stock and the use of proceeds.
Item III - Defaults upon Senior Securities
a. Management is unaware of any material default in the payment of
principal interest a sinking or purchase fund installment or any other material
default regarding any indebtedness of the Company which amounts to 5% of the
total assets.
b. Management is not aware of any material arrearage in the payment of
dividends as the Board of Directors has not declared any dividends payable for
reasons that the Company has not generated profits from which to make dividend
payments.
Item IV - Submission of Matters to a Vote of Security Holders
For the period in question, July through September 2001 there were no matters
submitted to security holders. No special or annual meeting was convened.
Consequently the Company provides no details regarding solicitation of proxies
as a result of any such meeting or the subject matter and results for such
meetings.
Item V - Other Information
The Company is aware of no other information which requires inclusion in this
Form 10QSB.
<page> 26
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
Form 10-QSB
For the quarterly period ended September 30, 2001
Item VI - Exhibits and Reports
Item VI - Exhibits and Reports
(a) Exhibits required by Item 601
(2) Plan of Acquisition, reorganization, arrangement,
liquidation or succession. (2)
(3)(i) Articles of Incorporation (2)
(3)(ii) Bylaws. (2)
(4) Instruments defining the rights of security holders,
including indentures. (2)
(9) Voting trust agreements. (1)
(10) Material contracts. (2)
(11) Statement re: computation of per share earnings. (1)
(13) Annual or quarterly reports, Form 10Q (1)
(16) Letter re: change in certifying accountant. (1)
(18) Letter re: change in accounting principles . (1)
(20) Other documents or statements to security holders. (1)
(21) Subsidiaries of the Registrant. (2)
(22) Published report regarding matters submitted
to vote of security holders. (1)
(23) Consents of Experts and counsel. (1)
(24) Power of Attorney. (1)
(27) Financial Data Schedule (no longer required) (1)
(99) Additional Exhibits. (1)
(1) These items have either been omitted or are not applicable
(2) Incorporated by reference to previous filing
(b) Reports on Form 8-K:
The company filed no Form(s) 8K during the last quarter of the period covered
by this report.
SIGNATURES
In accordance with the requirements of the Security Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
duly authorized.
MANAGEMENT OF ENVIRONMENTAL SOLUTIONS & TECHNOLOGY CORP.
(Registrant)
By: /s/ Greg Schmick
----------------------------
Greg Schmick, President
Date: September 19, 2002
----------------------------
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