Item 1. Business.
This annual report on Form 10-K contains a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Specifically, all statements other than statements of historical facts included in this annual report regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this annual report, the words "anticipate," "believe," "estimate," "expect," "may," "will," "hope," "continue" and "intend," and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect our current view with respect to future events and are subject to risks, uncertainties and assumptions related to various factors including, without limitation, those described starting on page 36 of this annual report under the heading "Risk Factors" and in our registration statements and periodic reports filed with the Securities and Exchange Commission under the Securities Act and the Exchange Act.
Although we believe that our expectations are reasonable, we cannot assure you that our expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this annual report as anticipated, believed, estimated, expected, hoped or intended.
References in this annual report to "the Company," "Startech," "we," "us," and "our" refer to Startech Environmental Corporation and our wholly-owned subsidiary on a consolidated basis, unless otherwise stated.
Overview
Startech is an environmental technology company commercializing its proprietary plasma processing technology known as the Plasma Converter(TM) that achieves closed-loop elemental recycling that irreversibly destroys hazardous and non-hazardous waste and industrial by-products while converting them into useful commercial products. These products include a rich synthesis gas called PCG (Plasma Converted Gas)(TM) surplus energy for power, hydrogen, metals and silicates for use and for sale.
The Company's activities during the four fiscal years beginning November 1, 1992 and ending October 31, 1995 consisted primarily of the research and development of the Plasma Converter. On November 17, 1995 Kapalua Acquisitions, Inc., a Colorado corporation completed the acquisition of all of the issued and outstanding shares of the common stock of Startech Corporation, a Connecticut corporation, and then changed its name to Startech Environmental Corporation.
On November 18, 1995, the board of directors of the Company unanimously approved a change of the business purpose of Kapalua Acquisitions Inc. from one seeking an acquisition candidate to one engaged in the business of manufacturing and selling the Plasma Converter system to recover, recycle, reduce and remediate hazardous and nonhazardous waste materials. From that time to the date of this filing, the Company has maintained this as its principal focus.
Background
Startech is an environmental technology corporation that manufactures, markets and sells a recycling system called the Plasma Converter for the global marketplace. Until January 2002, we were solely engaged in the manufacture and sale of equipment for use by others. Thereafter, we have attempted to broaden the scope of our available revenue opportunities. This change was brought about by management's decision to expand its market penetration strategies and opportunities. Rather than only market and sell our products for use by others, we are now seeking opportunities to become directly involved in the operation and use of our products. We reconsidered our stated philosophy of not engaging in the processing of feedstock materials and/or waste and decided that it was timely to seek out and include all possible market penetration strategies, including build own operate, build own transfer of ownership, and joint development projects.
By concentrating on re-positioning our Company for long-term growth, we did not achieve the sales goals we did anticipated would occur in the 2003 and 2004 fiscal years. However, we believe this new way of approaching the market over time will help achieve maximum penetration in the shortest timeframe.
We believe specific events are driving demand for our Plasma Converter. They include:
o Increases in waste, and in particular hazardous wastes, due to rising consumer/industrial consumption and population growth in most nations.
o Current waste disposal and remediation techniques such as landfills and incineration are becoming regulatory, socially and environmentally unacceptable.
o A need for critical resources such as power and water to sustain local economies; and
o The emphasis being placed upon the production of distributed power and the need to provide alternatives to fossil fuels.
Our core plasma technology addresses these waste and resource issues by offering remediation solutions that are integrated with a range of equipment solutions and services. We believe these products will add value to our customers' business' so they can now realize revenue streams from disposal or processing fees, a reduction in material disposal costs, as well as from the sale of resulting commodity products and services. Alternatively, this will allow our customers to generate a valuable product while at the same time using a zero cost basis, or revenue generating source of raw material (waste). The costs of hazardous waste treatment and disposal methods continue to rise, and now range approximately $900 to more than $2,000 per ton. This does not include the additional processing, handling, packaging, insurance and management costs sustained by the hazardous waste generator within its facility prior to final disposal.
Since 1995, we have been actively educating and promoting to our customers the benefits of the plasma converter over other forms of waste remediation technologies. Ongoing education of the public and government is continuing. Like most new technologies we have been met with varying degrees of resistance. A rising comfort level with our plasma converter technology resulting in part from our educational and informational efforts has created additional awareness in the marketplace. We have taken steps to transform our business model from being solely a seller of equipment to a total solutions provider, including facility ownership or management.
Our business model and its market development strategies arise from our mission, who is to change the way the world views and employs discarded materials; what many would now call waste we view as a feedstock. We expect to achieve this objective by strategically marketing a series of products and services emanating from the core Plasma Converter (TM) technology, resulting in saleable fossil fuel alternatives while providing a safer and healthier environment. This strategy will be implemented through Plasma Converter sales with after sales support and service, build own operate/build own transfer of ownership facilities, joint development projects and engineering services.
Markets
We view the future of our business as divided into three key market segments; power/energy, waste remediation, and engineering services. Projects are generally categorized according to the specific or stated objective of the customer, waste remediation or power generation. A customer may have a need to remediate a particularly onerous waste such as PCBs but has no need to produce commodity products. The goal is to simply get rid of waste. That would be considered a waste remediation project. Conversely, a customer in an area with limited or high cost power may want to select a waste stream to give the greatest amount of Plasma Converted Gas (TM) with which to produce power to run his system or for other power uses. The production of power is the desired benefit and the feedstock (waste material) selected is chosen for the highest quality commodity product produced, in this case electric power. The market for our Plasma Converter System is for on-site use by industrial, institutional and government facilities, and also for commercial facilities that process waste under contract.
Our market for the sale of Plasma Converter Systems will be made up of sales to:
A) Generators of waste; and
B) Processors of waste
Startech's revenues and profits are produced by:
(1) the sale of its systems that may also include a continuing, revenue-producing "tolling fee" for each pound of material processed; and
(2) building and owning commercial Plasma Converter facilities operated separately by the Company or in partnership.
Power/Energy
This segment includes projects that incorporate equipment that create power/energy products to work in conjunction with our core Plasma Converter technology. Distributed power requirements and peak power demands have identified expanded opportunities.
Waste Remediation
This part of our business includes projects where the emphasis of the customer is to dispose of its waste material in an environmentally responsible, and cost effective, manner. Waste material disposal costs vary greatly depending on the composition of the waste. We are specifically targeting customers that will receive the most economic gain from using our technology. Examples of such waste streams are:
o Medical waste o Pharmaceutical waste o PCBs o Municipal solid wastes o Incinerator ash o Biological contaminants o Sewer and power-plant-scrubber sludge o Paints and solvents o Electronic industry waste o Contaminated soils o Asbestos and other hazardous waste streams
We further delineate these markets into the following categories:
o Onsite Treatment - Includes:
- Hospitals and medical centers. - Industrial hazardous waste generators such as petrochemical, chemical, refining, and metals companies. - Industrial hazardous waste processors. - Government agencies such as Department of Defense, Department of Energy.
o Offsite Treatment (at an integrated waste management facility) - Includes waste management and/or transport companies.
o Mobile Treatment - Includes all of the above who value the ability to move quickly from site to site.
Sales Strategy
Central to our growth strategy is maximizing market penetration and reducing the barriers of entry while optimizing our revenue sources. To achieve that objective, we have identified three key marketing strategies that make up the overall model. They are:
1. Equipment Sales: We will continue to be a direct seller of our products to customers who prefer to purchase and operate our equipment. We will sell our Plasma Converter and associated equipment to a customer with no equity position in the project. However, we will offer Long Term Service Agreements to create residual or ongoing revenue in this area.
2. Build Own Operate/Transfer Of Ownership Projects: We are actively seeking to develop opportunities to own and operate Plasma Converter facilities in various markets. These projects are attractive where long-term agreements with guaranteed waste streams and high value processing and or disposal fees are contracted for and will significantly increase ongoing revenue streams. The revenue generated by these types of projects has been shown to be up to ten times that realized from a straight equipment sale over the life of the project.
3. Joint-Development Projects: In a joint development project we will assume an equity position in return for a reduced purchase price on our equipment and associated engineering and management services. An additional advantage is that we receive the certainty of revenue from a direct sale along with the ability to realize future ongoing revenue from the operations of the sole source joint development company.
An important part of our development of world markets is our sales network. We sell systems through independent representatives and distributors, which helps to keep sales costs variable and low. Representatives are paid a commission on sales. Distributors purchase systems, mark them up, and re-sell them to customers. Distributors are also responsible for supplying after sales parts and service.
Our senior management also sells directly to customers, in addition to seeking out projects for build, own, operate and build, own, transfer of ownership facilities. Such customers and projects might include large corporations with activities in many states or countries, or sovereign governments where the complexity of the bidding process on projects requires a large degree of company time and attention.
We manufacture modular, skid-mounted systems that are easy to transport in standard tri-modal containers for shipment to any market in the world.
The Company requires down payments and progress payments to be scheduled (for direct sales and co-venture projects) so that cash flow in the manufacturing process will be positive. Startech will obtain project financing against guaranteed waste streams/ tipping fees for Build Own & Operate (BOO) projects to fund manufacturing, shipping, and installation costs before facility startup. In addition, the Company will incorporate performance insurance for BOO projects to guarantee performance on the specific waste stream to be processed as well as obtaining necessary local permits to begin operation.
Revenues will occasionally be derived from engineering services and testing. We perform paid-for engineering services, where we believe those services may lead to equipment sales.
Primary Customer
For the fiscal year ended October 31, 2004, 91% of our revenue was derived from Mihama Inc., while all of our revenue for the fiscal year ended October 31, 2003 was derived from Concurrent Technology Corporation.
Plasma Converter(TM) Demand
We believe that the primary factors that create the demand for our Plasma Converters include the need for customers to:
o Reduce the costs for hazardous and toxic waste disposal;
o Eliminate personal and organizational liability associated with hazardous and toxic waste disposal;
o Comply with present and anticipated environmental regulations in a cost-effective manner;
o Recover products for use or sale; and
o Destroy wastes completely, safely and irreversibly.
We believe our Plasma Converter will meet customers' needs because our system:
o Reduces the cost and risk associated with hazardous waste generation and disposal;
o Performs safer than prevailing environmental standards;
o Converts wastes into products for use or for sale;
o Destroys wastes safely and irreversibly; and
o Comes in small and large system capacities, in stationary and mobile configurations.
A device generally referred to as a plasma torch, although there is no fire involved in the device, produces the plasma lightening-like arc in the Plasma Converter vessel to produce a plume of radiant energy. The Plasma Converter therefore is an electrically driven system that produces an intense field of radiant energy within the plasma vessel that causes the dissociation of the molecular bonds of solid, liquid, and gaseous compounds for materials of both hazardous and non-hazardous wastes. We refer to this destruction process as "molecular dissociation."
Dissociation causes the molecules of the waste material to be separated into their elemental components (atoms), and reformed by the Plasma Converter System into special recoverable, commodity products. The process is not a combustion or burning process, and the system should not be confused with an incinerator or a vitrification process. It is the intense energy field produced by the plasma plume within the Plasma Converter vessel that drives the dissociation process.
The Plasma Converter vessel operates at normal atmospheric pressure quietly and safely. While the interior temperature of the plasma plume is about 30,000 degrees Fahrenheit, the temperature of the refractory walls inside the vessel is maintained at about 3,000 degrees Fahrenheit and is the lowest temperature experienced within the vessel. On the average most waste material will be dissociated or melted at temperatures exceeding 6,000 degrees Fahrenheit.
The Plasma Converter consists of many well-proven process components currently used in the metallurgical and chemical industries. Solid wastes being fed to our system are automatically fed through an air-locked infeed port, and the feeding is ordinarily on a continuous basis. Liquids, gases and sludges can also be fed or pumped directly into the vessel through a pipe port. Bulk solids, liquids, gases and sludge may be fed in and processed simultaneously.
The Plasma Converted Gas (PCG)(TM) a synthesis gas recovered from our system is drawn out of the vessel and put through our gas-polishing unit. The molten silicates, inorganics and metals, if any, are removed at the lower side of the Plasma Converter vessel through a melt discharge port and recovery procedure.
Recovered products can be used or sold as commodities for use in various manufacturing processes. It is expected that most of the Plasma Converted Gas will be used as a fuel gas and to a lesser degree, as a chemical feed stock; silicate materials recovered will be used in the ceramics, abrasives or the construction industries; the metallic components can be used or be readily available for sale with little or no additional processing. There is a newly developing interest in PCG(TM) to produce hydrogen by use of our patented StarCell(TM) system. The economic justification for the use of our systems in hazardous waste applications does not depend on any revenues from the use or sale of the recovered commodity products, but the emergence of StarCell(TM) Hydrogen may modify that attitude.
Recovered Commodity Products
The Plasma Converter processes the wastes (matter) in such a way that the elemental components of the feedstock can be recovered in from one to three distinct phases:
(1) synthesis gas (PCG(TM), Plasma Converted Gas) that exits the chamber;
(2) inorganic, glass-like (obsidian-like) silicates which form a separate layer above the liquid metal (if there is a sufficient quantity of metal in the feed stock, with small quantities of metal encapsulated in the silicate stone); and
(3) liquid metallic elements, if in sufficient quantities, which collect and are automatically discharged at the base of the vessel.
Depending on the composition of the feedstock, any one phase may be produced, any two phases may be produced, or all three may be produced. However, the Company's experience indicates that the most likely commodity-product recover-phase will be in two parts:
(1) the PCG(TM) GAS-PHASE; and
(2) the SOLID-PHASE in which the inorganic silicate, containing metals, will be produced.
Energy Produced and Volume Reduced
Carbon is abundantly present in the products and the wastes of the industrial world. Such materials are inherently rich in latent chemical energy such as one would find in fuel. When carbonaceous waste feedstocks of many
industrial wastes, infectious hospital waste, municipal solid waste, shipboard waste, and such are processed, the Startech system will consume 1 unit of electrical energy while producing about 4 units of energy residing in the PCG(TM). With the improved efficiencies of electrical generating units, the 4 units of energy residing in the PCG(TM) can be used to create 2 units of electrical energy.
Materials such as scrap tires, for example, will produce recovered commodity products in two phases: the PCG(TM) gas phase and the metal phase, if metal exists. Because materials such as plastics, solvents, and tires are so rich in energy, they will produce a relatively large amount of PCG(TM) with a high-energy content that will result in approximately 6-8 units of recovered PCG(TM) energy for each unit of electrical energy used in the process.
In some applications, the Plasma Converter will produce enough energy for its own needs, and produce a surplus that can be sold to the local electrical grid, or used in the customer's facility to reduce the need for purchased power or purchased fuel. Not all wastes produce PCG(TM). For example, processing contaminated soil will produce no appreciable amount of PCG(TM).
The volume reduction of these solid wastes, when processed in the Plasma Converter, is approximately 300 to 1. Waste streams composed primarily of hazardous or non-hazardous paper, cloth, plastic, food, pharmaceutical, explosives, paints, solvents, PCBs, confiscated drugs, filters, oils, and so on will result in so few solids as to produce volume reductions approaching infinity. Materials such as this are also very rich in elements such as carbon, oxygen, and hydrogen and the processing results almost entirely in the PCG(TM) commodity synthesis gas. In addition to the volume reduction, none of the remaining materials, if any, are hazardous in nature.
Waste feedstocks that have a relatively high metal content will produce a separate liquid metal phase that can be recovered directly from the system for resale or reuse in the metallurgical industry.
Our system may also achieve volume reductions on low-level radioactive surrogate waste of approximately 300 to 1. Other present methods of volume reduction include compaction and incineration that produce overall volume reductions of about 8 to 1. Our system will not reduce the radioactivity of the low-level radioactive waste nor do we believe that can be done by any other system, but the volume of that waste may be significantly reduced. Industries that may benefit from this process are utilities, research laboratories and hospitals that store the reduced low-level radioactive waste material on-site until it can be shipped off site to a special repository. The cost for that method can be many thousands of dollars per ton. The continued availability of the few repository sites that exist, are problematic and uncertain. We believe our system can increase a site's storage capacity.
What is Plasma?
Plasma is simply a gas (air) that the Plasma Converter ionizes so it becomes an effective electrical conductor and produces a lightning-like arc of electricity that is the source of the intense energy transferred to the waste material as radiant energy. The arc in the plasma plume within the vessel can be as high as 30,000 degrees Fahrenheit ... three times hotter than the surface of the Sun. When waste materials are subjected to the intensity of the energy transfer within the vessel, the excitation of the wastes molecular bonds is so great that the waste-materials' molecules break apart into their elemental components (atoms). It is the absorption of this energy by the waste material that forces the waste destruction and elemental dissociation.
How The Process Works
The basic Plasma Converter system consists of the following:
o In-feed System o Plasma Vessel o Cooling Process o Filtration Process o Neutralization Process
Figure 1. Process Overview of PCS
- --Graphic on File--
The feed mechanism can simultaneously accommodate any proportion or combination of solid, liquid and gaseous feedstocks. Solid wastes, depending upon their composition, can be pumped, screw fed, or ram fed into the plasma vessel. A shredder ahead of the feed system may be appropriate to achieve size reduction or object separation prior to direct system feed.
Liquid wastes, including sludges, can be pumped directly into the PCS through the wall of the plasma vessel through a special infeed nozzle. The liquid feed system is designed to also accommodate any entrained solids that may be present.
Similarly, gaseous feedstocks may also be introduced into the plasma vessel through a specially designed nozzle.
The plasma vessel is a cylindrical two-part container made of stainless steel with an opening in the roof through which the plasma torch is inserted. The vessel is lined with insulation and refractory to allow both maximum retention of internal energy and to protect the stainless steel container from the intense heat inside the vessel. The plasma vessel is equipped with inspection ports (including a video camera so the operator can see real time images inside the vessel to assist in PCS operation), openings for introduction of feedstocks, and an exit port for removal of excess molten material. The smaller vessels are designed to remove molten material periodically through an automated tipping mechanism during which time the vessel may or may not remain in continuous operation. A design enhancement incorporated into the most recently constructed system is a continuous melt extraction feature which maintains the level of molten material in the plasma vessel at or below a preset limit without interrupting the operation of the system. This melt extraction system can be deployed with all sizes of Plasma Converters.
The plasma vessel is specially designed to ensure that no feedstock material is able to reach the exit port without first passing through the plasma energy field and undergoing complete molecular dissociation. The method by which this is accomplished forms a part of Startech's intellectual property. In addition, the plasma vessel is maintained at a slight negative pressure to ensure that no gases can escape to atmosphere.
The plasma torch system is a commercially available product that Startech can purchase from any number of reputable vendors. Comparable plasma systems have been used extensively in the metallurgical industry for decades. The most maintenance-intensive aspect of the PCS is the need to periodically replace electrodes, which occurs approximately every 300 to 500 hours of operation. Electrode replacement can be accomplished in approximately 30 minutes thus ensuring minimum downtime of the PCS.
The PCS is also equipped with a torch positioner system that allows the operator to aim the torch at different points within the plasma vessel. This aspect of the PCS allows the operator to quickly and efficiently treat feedstocks as they enter the vessel and move around inside the vessel to avoid any build-up of solidified melt that may occur on the vessel walls.
Our Plasma Converter that is being used for our demonstration and training unit in our Bristol, Connecticut facility continues to be a very active marketing tool in showcasing our technology to potential customers, investors, and governmental agencies. We have been proactive in utilizing this facility for training such as Eico Systems Corp. and also running some surrogate testing for specific customers. We expect testing activity to increase in 2005 as more and more companies and governmental agencies look to validate our technology for their specific applications.
StarCell(TM) development and technology
StarCell(TM) is the Company's patented hydrogen selective membrane device that separates hydrogen from Plasma Converted Gas (PCG(TM)). PCG(TM) is a synthesis-fuel gas mixture produced from processing material through the Plasma Converter. The increasing importance of the need for alternative energy sources and the emergence of the "Hydrogen Economy" drove our development of StarCell(TM).
There are essentially two principal uses of energy:
1. first, stationary energy for electrical power generation and heating;
2. second, mobile energy such as that used for transportation propulsion systems ... the energy you can put in a fuel tank and take with you.
Any discussion on energy-related issues, such as air pollution, dependable energy supplies, and global climate change, further illuminates the need for alternative fuels. Hydrogen offers very large benefits by eliminating polluting emissions and greenhouse gases, and, with the StarCell(TM) technology, hydrogen can become a more readily and cheaply available alternate primary energy fuel. Hydrogen, like electricity, is a premium-quality energy carrier. It can be used with high efficiency, and with zero tailpipe and zero stack emissions.
Besides producing the Plasma Converter, we are also developing equipment that can recover hydrogen from a variety of feedstocks including coal and the wastes of the world. This capability will help make it possible to have a large-scale dependable energy system with essentially no pollutants and with no climate-changing gases.
Hydrogen is clearly recognized as a very real alternative to our always-depleting reservoir of fossil fuel. But more than that, hydrogen is the pristine fuel. When used as a fuel, it produces only water vapor (fresh water) as the by-product. Although energy production is not our main objective, the ability to separate this highly sought after gas from an already valuable synthesis gas will be another step forward in our mission to achieve broad market acceptance of our primary product, the Plasma Converter.
StarCell(TM) is not a fuel cell; it is a ceramic membrane filtration system that extracts hydrogen from PCG(TM). Because hydrogen is such a small molecule, smaller than all the others in the PCG(TM) gas mixture, it can be pushed through the filtering membrane to allow the hydrogen to be separated from the PCG(TM).
PCG(TM) is produced from wastes; it is a gas mixture containing a large quantity of hydrogen. Hydrogen is a valuable commodity with many commercial uses. It also is a pristine fuel that produces no carbon by-products. Pound-for-pound, hydrogen contains more energy punch than all the other fuels; and, when used in fuel cells or engines produces only clean water vapor.
StarCell(TM) Hydrogen can feed fuel cells and hydrogen engines. StarCell(TM) Hydrogen is a fuel that can produce clean electricity and clean propulsion systems. The combination of the Plasma Converter with StarCell(TM) can produce hydrogen on a large scale from the wastes of the world, and at a very low cost. Our customers who use a Plasma Converter with a StarCell(TM) will get paid for processing the incoming waste at the front end, and will be paid for the hydrogen at the back end. People sometimes forget that waste, even hazardous waste, is an ever-present, and much overlooked, valuable and renewable resource.
Hydrogen is a very valuable commercial gas that is produced by various thermo-chemical industrial methods. Hydrogen gas is used in many industrial processes to make products that we use every day. These products include cooking oils, peanut butter, soap, insulation, metals, drugs, vitamins, adhesives, cosmetics, ammonia, fuels, and plastics and so on. Hydrogen is also used extensively to propel spacecraft because it is very light and has very high energy content. Hydrogen is used as a fuel to produce pollution-free electricity in fuel cells.
The paradox is, that while hydrogen is the most abundant material in the universe, it is not readily accessible. Expensive and sophisticated chemical-industry processes must extract it. Nearly all of the hydrogen produced today is made from fossil fuels. These fuels consist primarily of molecules made up of carbon and hydrogen. To produce hydrogen from these fossil fuel molecules, they must be "reformed" with steam and/or oxygen in a complex thermo-chemical process consisting of many steps. The products of reformation are hydrogen gas and carbon-gas species. The traditional industrial process further purifies and separates the hydrogen from the rest of the stream by various methods. This expensive reformation process is exactly what our Plasma Converter does in the process of destroying most feedstock. In other words, we get the reformation process from the Plasma Converter for no additional costs.
Competition
We believe we are the industry leader in the use of plasma technology to rid the world of its waste problem and/or create valuable alternative power sources and industrial products. There are other plasma-based technologies in various stages of development that claim to achieve some, but not all, of the benefits achieved by our system. However, the fact that the commercial use of plasma for waste destruction resulting in power and product creation is in its early stages makes competitive comparisons difficult. We welcome the presence of other plasma technologies. The market for plasma technology is huge and the existence of competing technologies provides credibility to the industry.
We believe we are positioned to take advantage of the recognition of plasma technology as an alternative to conventional forms of waste disposal. We have spent substantial money, time and effort educating the public and private sectors on the benefits of our technology and believe we will reap the rewards of that effort.
We believe the following are a few of our competitive advantages:
o Low total system cost that allows our customers to make money with our system o Operating performance far safer than prevailing environmental standards o The ability to process solids, liquids, and gases simultaneously o Versatile feed systems and vessel openings that allow a wide variety of feed streams o Advanced stage of power producing peripheral equipment o Unmatched advanced design and operating performance of our complete system o Management's experience with plasma and its commercial application o Depth and breadth of manufacturing knowledge and experience o Greater access to capital markets as a public company over private companies o Fully trained distributors and representatives o Multiple modes of operations
We believe the following are our competitive disadvantages;
o Our cash position relative to other multi-national companies who may enter this field as it grows o Resistance to new technologies when dealing with the public health and safety
We believe many potentially competitive technologies are limited to a narrow number of waste feed-streams. In some of those technologies, if the system does not receive exactly what it expects, even something as benign as water or metals, the process may be ineffective and possibly dangerous. In the waste industry, it is difficult to specify the exact composition of a waste stream in a real world application. By their very nature, waste streams are sometimes made up of unknown and unpredictable materials. For any processing system to be commercially successful it must be able to safely and effectively process unpredictable waste streams without system upsets. Our Plasma Converter can handle great deviations in the waste stream content. We believe many of the potentially competitive technologies have yet to demonstrate capabilities beyond small laboratory or bench scale devices that use precisely controlled waste streams under precisely controlled conditions. They may also produce undesirable and hazardous by-products.
We believe the following companies are potential competitors in the plasma industry:
1) Integrated Environmental Technologies (IET); and
2) MSE Technology Applications, Inc. (MSE)
IET offers a very different system from our technology. IET uses a carbon rod plasma arc system whereas we use a plasma torch based system. MSE, like Startech, is a plasma torch based system.
There are difficulties present in comparing technologies in our industry that are not present in established industries. The commercial nature of any plasma-based system is based upon the performance data received and the versatility of the material feedstock that can be processed. Further, in addition to the performance data and versatility of feedstock, the commercial uses for the system can be greatly enhanced by the number of peripheral devices that can be added to the system to make use of the saleable gas, silicate and metals that the system produces to create a total solution. Because this industry is just beginning to develop, there is very little empirical evidence in the public domain regarding the performance data of each competing technology. Therefore, performance comparisons are not available. However, some of our competitive advantages are not data related, but are the direct result of the versatility in the feedstock variations we can accommodate and in the advanced level of our system design. Additionally, we know of no competitor who is offering the variety of uses for the gas and silicates that Startech can offer.
Besides those companies mentioned specifically, there are a number of other companies that advertise a capability using plasma technology. We have no way of knowing the status of these companies or if they are even ongoing concerns. Since many of them are small, private companies it is very difficult to know what, if any, capabilities are ready for the commercial market. We are not aware of any competitive company that has a commercial site up and operating other than those we have named above.
In addition, we believe that other waste disposal methods may be considered as competition. These methods are summarized as follows:
o Landfill Dumping: the least expensive in the short term and one of the most environmentally dangerous of all waste disposal methods.
o Incineration: even though the permitting of new incinerator installations is being dramatically reduced, and the method has fallen into great disfavor both in the U.S. and internationally, this rather primitive method of disposal is still presently accepted by many although the emissions produced are regarded as pollutants, and large quantities of toxic bottom ash and fly ash are produced which are eventually deposited into landfills in the community.
Intellectual Property
We have developed and acquired proprietary technology. Our technologies are comprised of a variety of overall coordinated system and subsystem concepts, detailed mechanical engineering calculations, detailed engineering design features, data compilations and analyses, complex chemical engineering calculations, business methods and market information. Since our formation, a substantial amount of intellectual property has been developed.
On or about June 4, 2002, we submitted an application for a patent to the United States Patent and Trademark Office. The patent involves a torch positioning apparatus designed and developed by our engineers. This is the only patent we have applied for to date. We have designed and developed other proprietary intellectual property that will be protected as trade secrets. We may in the future file US and foreign applications for these patents. We plan to continue our development and protection of our intellectual property. We have not authorized or licensed the use of our proprietary information to any third parties and have no plans to do so. We retain the exclusive worldwide rights for development and commercialization of our technologies.
We are the licensee on one patent. The inventions and related know how could enhance the commercial capability of our core plasma system for certain applications. The patent relates to a Hydrogen-Selective Ceramic Membrane that was developed by Media and Process Technology, Inc., and its predecessor, ALCOA Corporation. This technology provides for the high temperature dehydrogenation of our Plasma Converted Gas and forms the basis for our StarCell(TM) system.
Our success depends, in part, on our ability to maintain trade secrecy for our proprietary information that is not patented, obtain patents for new inventions and operate without infringing on the proprietary rights of third parties. There can be no assurance that the patents of others will not have an adverse effect on our ability to conduct business or that we will develop additional proprietary technology which is patentable or that any patents issued to us will provide competitive advantages or will not be challenged by third parties. We also protect our trade secrets and proprietary know-how and technology by non-disclosure agreements and non-compete agreements with our collaborators, employees and consultants. However, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, and that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
Government Regulation
Our customers are required to comply with a number of federal, state and local laws and regulations in the areas of safety, health and environmental controls, including without limitation, the Resource Conservation and Recovery Act, as amended and the Occupational Safety and Health Act of 1970, which may require us, our prospective working partners or its customers to obtain permits or approvals to utilize the Plasma Converter system and related equipment on job sites. In addition, because we are marketing the Plasma Converter system internationally and expect those sales to represent a significant portion of our revenues, our customers will be required to comply with laws and regulations and, when applicable, obtain permits or approvals in those other countries. There is no assurance that these required permits and approvals would be obtained. Furthermore, particularly in the environmental remediation market, we may be required to conduct performance and operating studies to assure government agencies that the Plasma Converter system and its by-products do not prove to be environmental risks. There is no assurance that these studies, if successful, will not be more costly or time-consuming than anticipated. Further, if new environmental legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, our prospective working partners and/or its customers may be required to meet stricter standards of operation and/or obtain additional operating permits or approvals. There can be no assurance that our system's performance will satisfy all of the applicable regulatory requirements.
Environmental Matters
Our customers operations are subject to numerous federal, state and local regulations relating to the storage, handling and transportation of regulated materials. Although our role is generally limited to the sale or leasing of its specialized technical equipment for use by our customers, there is always the risk that equipment failures could result in significant claims against us. Any claims against us could materially adversely affect our business, financial condition and results of operations as well as the price of our common stock.
Manufacturing Operations
Our products and systems are presently being manufactured by third party vendors who build specific component parts to our specifications. Some of the manufacturing components are constructed at our 30,000 square foot manufacturing facility located in Bristol, Connecticut. We also assemble, ship and test our systems there.
Research and Development
While the principal research and development to produce commercial Plasma Converters has been completed, we will continue to perform research and development activities with respect to product improvement and new product development, utilizing internal technical staff as well as independent consultants. These activities have to date been entirely paid for and sponsored by the company. We will continue to develop and design operational improvements that will be primarily in the area of the use of the Plasma Converted Gas produced by the Plasma Converter also used by StarCell. Expenditures for research and development will be geared to achieving lower costs designs and higher efficiencies consistent with our business model of offering complete systems solutions. In the twelve months ended October 31, 2004 we expensed $353,099 for research and development. As we expand our research and development focus in fiscal year 2005 our efforts are expected to be devoted to the development of patentable proprietary inventions in the field of high temperature thermo-chemistry and the production of low cost hydrogen. In addition we will continue conducting ongoing tests, demonstrations and enhancements of the Plasma Converter for potential customers and governmental agencies.
Employees
As of January 15, 2005, the Company had 20 full-time employees. Of these full-time employees, six are in engineering, one in research and development, one in manufacturing and production, five in sales and marketing and seven are in management or administrative positions. We believe that we have been successful in attracting experienced and capable personnel. All officers and directors have entered into agreements requiring them not to disclose any proprietary information, assigning all rights to inventions made during their employment, and prohibiting them from competing with us. Our employees are not represented by any labor union or collective bargaining agreement, and we believe that our relations with our employees are good.
Item 2.
Item 2. Properties.
Our corporate headquarters is located at 15 Old Danbury Road, Suite 203, Wilton, Connecticut 06897-2525 where we lease 5,800 square feet of office space from CD Station, LLC as landlord. The lease and taxes provides for monthly payments of $17,540 to December 2005, when the lease expires.
Our Product Showroom is located at 190 Century Drive, Bristol, Connecticut, 06010, where we lease 5,400 square feet of office space from Tunxis Management as landlord. The lease provides for monthly payments of $4,100 to September 2005, when the lease expires.
Our Manufacturing facility is located at 545 Broad Street, Bristol, Connecticut, 06010, where we lease 30,000 square feet of manufacturing space from Gaski Leasing as landlord. The lease provides for monthly payments of $5,625. This lease arrangement is on a month to month basis.
The following table listed below is the annual rent expense for the corporate headquarters at Wilton, Connecticut, and the Product showroom in Bristol, Connecticut, and the Manufacturing facility in Bristol, Connecticut:
Year Annual Rent ---- ----------- 2005 $319,944 2006 $29,700
Item 3.
Item 3. Legal Proceedings.
On June 5, 2002, the Company received a Demand for Arbitration filed with the American Arbitration Association in East Hartford, Connecticut by Peter Francisco and Fran Environmental, LLC. Fran Environmental has a Representatives Agreement with the Company. Peter Francisco is the principal member of Fran Environmental. The claim being made is that Startech has failed to provide proper support to assist this representative in its effort to market and sell our products in Brazil. The relief sought is for no less than $150,000. A decision from the arbitrator awarded Fran Environmental $55,816 which was broken down to $6,668 of expenses relating to the representative agreement, and $45,018 in attorney fees and $4,130 in costs. The Company has agreed to pay the award to Fran Environmental in two installments beginning in January 2005. The first installment was recently paid in January, and the second payment is due in February 2005. The Company did not file an appeal of the trial courts decision relative to the arbitration award.
Item 4.
Item 4. Submission of Matters to a Vote of Securityholders.
No matters were submitted to a vote of security holders during the fourth quarter of the year or covered by this report.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholders' Matters.
(a) Market Information
Our common stock is traded on the Over-the-Counter-Bulletin Board (OTCBB) under the symbol STHK.OB. The table below shows the high and low closing price of our Common Stock during the quarters indicated.
Fiscal Year Ended October 31: 2004 2003 - ----------------------------- ---- ---- High Low High Low ---- --- ---- ---
First Quarter $ 4.55 $ 1.15 $ 1.28 $ 0.84 Second Quarter $ 4.85 $ 3.30 $ 1.55 $ 1.03 Third Quarter $ 4.88 $ 2.85 $ 1.30 $ .77 Fourth Quarter $ 4.53 $ 3.30 $ 1.45 $ 1.00
Closing Price -------------
First Quarter Ended High Low January 31, 2005 (January 27, 2005) $ 4.39 $ 3.25
(b) Stockholders
As of January 7, 2005, there were 648 holders of record of the Company's Common Stock. This number does not include those beneficial owners whose securities are held in street name.
(c) Dividends
The Company has never paid a cash dividend on its Common Stock and has no present intention to declare or pay cash dividends on the Common Stock in the foreseeable future. The Company intends to retain any earnings, which it may realize in the future to finance its operations.
(d) Securities Authorized for Issuance under Equity Compensation Plans
Recent Sales of Unregistered Securities
During fiscal year 2004 the Company issued a total of 1,426,141 common shares. 1,232,000 common shares were issued for two private placements for cash proceeds of $2,591.460. The Company has initiated a private placement of our securities from which we have currently raised $819,360 after commissions and expenses and issued 275,708 shares of our unregistered common stock at $3.06 per share. Additionally, there were 275,708 warrants issued with this private placement that will expire in three years. We are continuing to have negotiations with various investment groups.
Item 6.
Item 6. Selected Financial Data.
The selected financial data set forth below for the five years ended October 31, 2004 is derived from the Company's audited financial statements. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
Startech's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, accounts receivable reserves, marketable securities, valuation of long-lived and intangible assets accounting for joint ventures and software development. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The following accounting policies are deemed critical to the understanding of the consolidated financial statements included under Item 8 - -Financial Statements and Supplementary Data.
Inventories--Inventories, which are stated at the lower of cost or net realizable value, consist of inventory held for resale to customers. Cost is determined on the first-in, first-out basis and includes freight and other incidental costs incurred. Judgment is involved in evaluating backlog and in assessing the recoverability of inventory held at the balance sheet date. Startech provides inventory allowances based on the determination of excess and obsolete inventories as determined through the evaluation of future sales and changes in technology.
Research and Development Costs--Research and development costs are expensed as incurred.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of--Startech reviews the valuation of long-lived assets, including property and equipment and capitalized equipment, under the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and SFAS No.86. Startech is required to assess the recoverability of long-lived assets and capitalized equipment costs whenever events and circumstances indicate that the carrying value may not be recoverable. Factors we consider important that could trigger an impairment review include the following:
o significant underperformance relative to expected historical or projected future operating results;
o significant changes in the manner of our use of the acquired assets or the strategy of our overall business;
o significant negative industry or economic trends; and
o significant decline in our stock price for a sustained period.
In accordance with SFAS No. 144, when we determine that the carrying value of applicable long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate whether the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of that asset. If such a circumstance exists, we would measure an impairment loss to the extent the carrying amount of the particular long-lived asset or group exceeds its fair value. We would determine the fair value based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. In accordance with SFAS No. 86, when we determine that the carrying value of certain other types of long-lived assets may not be recoverable we evaluate whether the unamortized cost exceeds the expected future net realizable value of the products. If the unamortized costs exceed the expected future net realizable value of the products, the excess amount is written off.
Results of Operations
Comparison of Years Ended 2004 and 2003
Revenues. Our total revenues were $ 1,708,768 for the fiscal year ended October 31, 2004, as compared to $70,000 for the same period in 2003, an increase of $ 1,638,768 or 2,341.1%. In fiscal 2004 we delivered to Mihama components and system modifications, as well as contracted spare parts. Additional revenue resulted from distributor agreements located in Australia and Puerto Rico. There were no Plasma Converter Systems shipped in fiscal year 2003, revenues were limited to testing for Concurrent Technologies Corporation ("CTC").
Gross profit. Our gross profit was $1,080,012 for the fiscal year ended October 31, 2004 as compared to a gross profit of $21,324 for the same period in 2003, a increase of $1,058,688 or 4,964.7%. The gross margin increase for fiscal year 2004 was a result of higher than expected margins on the components as well as the spare parts for the Mihama Project. Our margins were also positively impacted from the amortization of our distributorships. The gross margin increase for fiscal year 2003 was a result of the completion of the CTC demonstration program.
General and administrative expenses. Our general and administrative expenses for the year ended October 31, 2004 were $2,460,013 compared to $1,998,893 for the same period in 2003, a increase of $461,120, or 23.1%. This increase resulted from the higher legal fees, public relations, consulting fees, office expenses, and higher insurance costs.
Research and development expenses. Our research and development expenses for the year ended October 31, 2004 were $353,099, compared to $310,219 for Fiscal 2003, an increase of $42,880 or 13.8%, from the same period in 2003. These increased expenditures are a result of costs incurred for the preparation for the Department of Energy program as well as other internal projects.
Selling expenses. Our selling expenses for fiscal year 2004 were $928,619 compared to $789,133 for the same period in 2003, a increase of $139,486 or 17.7%, for the similar period in 2003. The increased costs in 2004 were related to the hiring of additional sales and marketing personnel, as well as travel and associated expenses relating to various marketing projects.
Interest income. Our interest income for the year ended October 31, 2004 was $29,491, as compared to $9,220 in the similar period 2003 a increase of $20,271 or 219.8%. The increase is due to higher cash balances and higher interest rates earned on our investments resulting from the Federal Reserve raising short-term interest rates.
Income taxes. Income taxes for the year ended October 31, 2004 were $12,473 as compared with a credit balance of $143 in the similar period 2003. The taxes paid in 2004 resulted from state taxes on equity requirements. The tax credit balance for fiscal year 2003 was a result of refunds received. We have minimal tax obligations due to the fact that we have not had profitability to this point. We have loss carryforwards of approximately $18.5 million to offset against future profits.
Comparison of Fiscal Years Ended 2003 and 2002
Revenues. Our total revenues were $ 70,000 for the year ended October 31, 2003, as compared to $136,471 for the same period in 2002, a decrease of $ 66,471 or 48.7%. There were no Plasma Converter Systems shipped in fiscal year 2003, revenues were limited to testing for CTC.
Gross profit. Our gross profit was $21,324 for the fiscal year ended October 31, 2003 as compared to a gross loss of $330,348 for the same period in 2002, a increase of $351,672 or 106.5%. The gross margin increase for fiscal year 2003 was a result of the completion of the CTC demonstration program. The gross margin decrease for fiscal year 2002 was due to unexpected costs related to modifications of the Plasma Converter and higher customer installation costs related to the Eico system located in Japan.
General and administrative expenses. Our general and administrative expenses for the year ended October 31, 2003 were $1,998,893 compared to $2,636,550 for the same period in 2002, a decrease of $637,657, or 24.2%. This decrease resulted from the reduction in staff and related salaries, taxes, and employee benefits. Reductions also occurred in the areas office of expenses, legal expenses and supplies.
Research and development expenses. Our research and development expenses for the year ended October 31, 2003 were $310,219 an increase of $149,434 or 92.9%, from the same period in 2002. These expenditures are a result of costs incurred for the continued research, development and design of StarCell (TM). In addition, costs were incurred from further development of utilization efficiencies plasma medium gases in our operations, as well as continued improvements to our gas polisher components.
Selling expenses. Our selling expenses for the year ended October 31, 2003 were $789,133 a decrease of $121,609 or 13.4%, for the similar period in 2002. The decreased costs related to selling expenses were as result of lower consulting expenses and printing expenses.
Interest income. Our interest income for the year ended October 31, 2003 was $9,220, as compared to $26,569 in the similar period 2002 a decrease of $17,349 or 65.3%. The decrease is due to lower cash balances and lower interest rates earned on our investments resulting from the Federal Reserve lowering short-term interest rates.
Income taxes. Income taxes for the year ended October 31, 2003 resulted in a credit balance of $143 as compared with $13,548 in the similar period 2002. The tax credit balance was a result of refunds received during fiscal year 2003. We have minimal tax obligations due to the fact that we have not had profitability to this point. We had a loss carryforward of approximately $15.5 million to offset against future profits.
One time management restructuring charges amounted to $346,052 for the year ended October 31, 2003 versus $0 for the year ended October 31, 2002. This one time charge is for expenses related to severance, legal, and various other expenses as a result of restructuring charges.
Comparison of Fiscal Years Ended 2002 and 2001
Revenues. Our total revenues were $ 136,471 for the year ended October 31, 2002, as compared to $2,400,000 for the same period in 2001, a decrease of $ 2,263,529 or 94.3%. As no Plasma Converter Systems were shipped in fiscal year 2002, revenues were limited to additional components for the Eico System.
Gross profit. Our gross loss was $330,348 for the fiscal year ended October 31, 2002 as compared to a gross profit of $937,404 for the same period in 2001, a decrease of $1,267,752 or 135.2%. The margin decreased as a result of unanticipated costs related to modifications of the Plasma Converter and higher customer installation costs related to the Eico system located in Japan.
General and administrative expenses. Our general and administrative expenses for the year ended October 31, 2002 were $2,636,550 an increase of $265,668, or 11.2%, from the same period in 2001. This increase resulted from higher salary and related expenditures due to the hiring additional personnel, depreciation expenses, facility rental expenses, and increased insurance premiums.
Research and development expenses. Our research and development expenses for the year ended October 31, 2002 were $160,785 an increase of $9,618 or 6.4%, from the same period in 2001. The increase is related to costs associated with the installation for the Eico project. In addition costs were incurred for the continued research, development and design of StarCell (TM).
Selling expenses. Our selling expenses for the year ended October 31, 2002 were $910,742 an increase of $57,628 or 6.8%, for the similar period in 2001. The increased costs related to selling expenses comprised of a new customer orientation video, Plasma Converter System scale models, attendance and showcasing at several tradeshows, as well as the creation of new marketing materials.
Interest income. Our interest income for the year ended October 31, 2002 was $26,569, as compared to $182,193 in the similar period 2001 a decrease of 85.4%. The decrease is due to lower cash balances and lower interest rates earned on our investments resulting from the Federal Reserve lowering short-term interest rates.
Income taxes. Income taxes for the year ended October 31, 2002 were $13,548 as compared with $27,788 in the similar period 2001. We have minimal tax obligations due to the fact that we have not had profitability to this point. We had loss carryforward of $11.7 million to offset against future profits.
Project Update
The Mihama Plasma Converter in Japan
The system, now owned by Mihama, has been disassembled and moved to Mihama's new facility presently under construction near Kobe, Japan where it will be used to safely and irreversibly destroy PCBs (polychlorinated byphenyls) commercially. As the Company's Japan distributor, Mihama will also use the system to support its Startech sales and marketing operations and be able to demonstrate a Plasma Converter System in a commercial operation to its customers.
FB Immobiliare
On February 17, 2004, the Company announced that it had signed a $34,300,000 contract for the delivery and startup of two 50 ton-per-day Plasma Converter Systems with FP Immobiliare to process electronic waste (e-waste) and specialty waste in a new FP Immobiliare facility in Frosinone, a city about 50 miles from Rome.
The customer will be employing lease financing for this program. FB Immobiliare has been in discussions with leasing companies on securing the financing for the project. FB Immobiliare will be assigning its contract to another of its companies that has the financial backing to satisfy the lease. Upon the successful completion of the lease-financing arrangements between the customer and the leasing company, Startech will receive the first of its scheduled payments and manufacturing will then commence immediately.
Poland
The initial contracts signed in Poland are in the financial development stage, however two of the contracts previously announced are being modified to increase their size and designated waste streams.
The Eko Plasma project is expanding beyond 10 TPD into a Plasma Converter Processing Facility that will now incorporate various waste streams including both Municipal Solid Waste (MSW) and various hazardous wastes including Medical and Industrial waste from surrounding municipalities.
The Ekologia project previously announced will be increased from 10 TPD to 100 TPD Plasma Processing Facility that will process animal meal and hazardous waste. This Plasma Converter System will be operated to increase the selected output gas which will be sold to the neighboring chemical plant.
The Chempol project previously announced is continuing with the initial 10 TPD Plasma Converter.
The two 300 TPD Plasma Converter Processing Facilities contracts signed with Eco Group of America, Inc. are undergoing financing and the structuring of waste and power contracts within Poland. The sites have been approved as initially announced.
Multiple new projects are being developed in Poland to process wastes ranging from MSW to Pesticides.
New York City
On December 3, 2004 a testimony (presentation) was made before the NYC Solid Waste Committee to emphasize the ability of the Startech Plasma Converter System to process both hazardous and non-hazardous wastes. This testimony and video presentation included the offering of a 150 TPD Pilot Plant to be built and operated at one of the City's existing power generating sites, transfer stations or landfills. This offer was at no cost to the City, however, it required the City to furnish the waste stream for at least three years after Pilot Plant commissioning.
Vitech
Site selection and permitting has been underway during the past few months. The site selection has been narrowed down to specific locations North Carolina, and, South Carolina. Financing has been assured and the project will proceed upon final site documentation and state permit approval.
South Africa
All site approvals have been received and the contract negotiations are proceeding to establish all project responsibilities. Final phase financing is expected to close shortly and this project will place (2) 25 TPD Plasma Converter Systems in place within 12 months of the closing. The facility selected has the ability for significant growth potential.
DOE Contract
The demonstration activity and equipment acquisition has been underway. The demonstration equipment will be assembled and installed at our Bristol, CT facility. The first phase of the demonstration is scheduled to be completed during 2005. Startech has also been informed of additional funding approval and anticipates incorporating additional demonstration activity that will go into 2006.
Australian Contracts
A new distributor has been established in Australia to service the markets in both New Zealand and Australia. The Distributor has initiated down-payments for their 10 TPD Plasma Converter System and has acquired a permitted facility.
In addition, the Agreement also requires PlasmaTech to make annual purchases of Startech Plasma Converter Systems to maintain the Distributorship.
Recent Developments
Wall Street Journal's First Place "Best and Brightest" Award
Startech was awarded The Wall Street Journal's 2004 Technology Innovation Award in the category of "Materials and Other Base Technologies." The awards, which honor the "Best and the Brightest," world wide, in a dozen categories, appeared in the November 15, 2004, edition of The Wall Street Journal. Startech was honored in first place for developing a recycling system that uses superheated, ionized gases, known as plasma to help save the environment and produce clean energy.
Industry Week's Technologies of the Year Award
Startech's Plasma Converter System has been designated a Notable Innovation by Industry Week's Technologies of the Year Awards. The Awards, which are featured in the magazine's December issue, honor Startech's waste remediation system for its potential to change how materials are manufactured and used for industry.
Top Stock Performer of the Industry
Waste News Market Handbook 2004 has ranked Startech shares second in the listing of "Top Five Percentage - Gainers." The list shows that Startech shares have had an increase in share value of 232 percent during the year between August 29, 2003 and August 31, 2004. Also, in the list of 30 Top Companies in the Waste Industry, Startech shares were second in percentage gain.
Caribbean Distributor
Startech appointed PlasmaTech Corporation of San Juan, Puerto Rico as its exclusive distributor for the Territories and Island Nations of the Greater and Lesser Antilles. The Company received a $250,000 irrevocable payment for this Distributorship Agreement.
The agreement requires PlasmaTech to purchase a 10 ton-per-day Plasma Converter System (PCS), or larger, by May 25, 2005. In addition, the agreement also requires PlasmaTech to make annual purchases of Startech Plasma Converter Systems to maintain the distributorship. During the next 10 years the minimum purchases must amount to approximately $300 million worth of Plasma Converter Systems.
Startech Hydrogen Grant in President Bush's Bill
On December 8, 2004, President Bush signed the Omnibus Appropriations Legislative Package into law that grants an additional $413,000 to Startech to continue its work for the Department of Energy for the development of low-cost hydrogen.
The Startech Hydrogen Project focuses on the production of hydrogen by the processing of coal, medical waste and municipal solid waste through the Plasma Converter System(TM). This FY05 $413,000 funding is in addition to the $500,000 funding from the FY04 Water and Energy Bill announced on December 15, 2003. The grants also fund programs for the production of a StarCell(TM) system that extracts hydrogen from the Plasma Converted Gas (PCG)(TM) that is created by processing materials such as tires through the Plasma Converter System. The work is in progress at our Plasma Converter Technical Center in Technology Park in Bristol, Connecticut."
First Plasma Converter System for Australia
Startech has received an initial $250,000 down payment from PlasTech Solutions, Ltd. of New South Wales, Australia for the purchase of a 10 ton-per-day Plasma Converter System to process hazardous materials. PlasTech is Startech's exclusive distributor for Australia and New Zealand. The facility housing the first-of-its-kind 10 ton-per-day System in Australia will also serve as PlasTech's Demonstration and Technical Center to support its marketing and sales activities.
This $250,000 payment is in addition to the $250,000 received for the Distributorship that requires PlasTech to purchase make annual purchases of Startech Plasma Converter Systems to maintain the Distributorship. During the next 10 years the minimum purchases must amount to approximately $300 million worth of Plasma Converter Systems. George Hatzimihalis, CEO of Plastech, said Plastech's Sydney Center will be completed by December, 2005.
Startech on History Channel
The Plasma Converter operating at the Startech Technical Center in Bristol Connecticut was featured on The History Channels Toolbox and was shown over the course of several months in various locations throughout the country and also on certain Airlines in the video entertainment section.
New CEO and President
On November 1, 2004, the employment agreement between the Startech and Joseph S. Klimek expired, pursuant to which Mr. Klimek served as Chief Executive Officer and President of Startech. The Company and Mr. Klimek have mutually agreed to extend his services on a consultancy basis. The board of directors has appointed Joseph F. Longo to succeed Mr. Klimek as Chief Executive Officer and President of the Company. As a result of his appointment as CEO and President, Mr. Longo no longer serves as Chief Operating Officer .
Effects of Inflation
Due to the low rate of inflation there has been very little effect on the Company's net revenues for fiscal 2004.
Liquidity and Capital Resources
This liquidity section contains forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in registration statements, annual reports, and other periodic reports and filings of the Company filed with the Securities and Exchange Commission. All statements, other than statements of historical facts, which address the Company's expectations of sources of capital or which express the Company's expectation for the future with respect to financial performance or operating strategies can be identified as forward-looking statements. As a result, there can be no assurance that the Company's future results will not be materially different from those described herein as "believed," "anticipated," "estimated" or "expected," which reflect the current views of the Company with respect to future events. We caution readers that these forward-looking statements speak only as of the date hereof. The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which such statement is based.
The Company had net working capital of $1,720,403 as of October 31, 2004 and had cash and cash equivalents of $2,401,061 as of October 31, 2004.
Working capital was provided primarily from the private placements that were completed in 2004, from which we raised net proceeds of $2,506,461 after expenses. We have and will continue to be dependent upon the deposits and progress payments from the sale of equipment and the private sale of securities. It is anticipated that our capital requirements for future periods will increase and our future working capital needs will be obtained from the above sources as well as additional private placements, demonstration and testing programs, joint development programs, build own and operate facilities, and from cash generated from the operations of our business.
We believe the completed private placements which raised over $2,500,000 after expenses will provide enough operating capital to sustain company operations at the current level for more than 1 year. It must be noted, however, that if the progress payments are not received in a timely manner or additional sales of Plasma Converters or funding is not available we may have to significantly cut expenses to maintain our operations.
The Company has historically satisfied its capital needs primarily by the sale of equity securities. We are currently in discussions with several funding sources to raise additional capital through the issuance of additional equity securities. However, there is no assurance that this financing will be available when needed or that management will be able to obtain this or any additional financing on terms acceptable to the Company. As stated, we believe these financing needs will be satisfied but there can be no assurance this will be the case.
The Company believes that continuing operations for the longer term will be supported primarily through anticipated growth in revenues and, if necessary, through additional sales of the Company's securities.
Our investing activities have consisted primarily of short-term high quality liquid investments, with maturities of three months or less when purchased, which are considered cash equivalents. The primary investments are high quality commercial paper, U.S. Treasury notes and U.S. Treasury bills.
RISK FACTORS
This annual report on Form 10-K contains a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specifically, all statements other than statements of historical facts included in this annual report regarding our financial position, business strategy and plans and objectives of management for future operations are forward-looking statements. These forward-looking statements are based on the beliefs of management, as well as assumptions made by and information currently available to management. When used in this annual report, the words "anticipate," "believe," "estimate," "expect," "may," "will," "hope," "continue" and "intend," and words or phrases of similar import, as they relate to our financial position, business strategy and plans, or objectives of management, are intended to identify forward-looking statements. These statements reflect our current view with respect to future events and are subject to risks, uncertainties and assumptions related to various factors including, without limitation, those described below under this heading "Risk Factors" and in our registration statements and periodic reports filed with the Securities and Exchange Commission under the Securities Act and the Exchange Act.
Although we believe that our expectations are reasonable, we cannot assure you that our expectations will prove to be correct. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described in this annual report as anticipated, believed, estimated, expected or intended.
Risks Related to Our Business
We have limited operating history upon which to evaluate our potential for future success.
We were formed in May 1991. To date, we have generated limited revenues from the sale of our products and do not expect to generate significant revenues until we sell a larger number of our products. Accordingly, we only have a limited operating history upon which to base an evaluation of our business and prospects. The likelihood of our success must be considered in light of the risks and uncertainties frequently encountered by early stage companies like ours in an evolving market, such as unforeseen capital requirements, failure of market acceptance, failure to establish business relationships and competitive disadvantages as against larger and more established companies. If we are unsuccessful in addressing these risks and uncertainties, our business will be materially harmed. We were considered a development stage company for accounting purposes until 1998 because we had not generated any material revenues to that date. Revenues from shipments and services began to be recognized in 1999.
We have incurred substantial operating losses and may not achieve or sustain profitability in the future.
We have incurred substantial net losses in each year since we commenced operations. We must overcome significant manufacturing and marketing hurdles to sell large quantities of our products. As we strive to grow our business, we expect to spend significant funds for general corporate purposes, including working capital and marketing, and for research and development. To the extent that our revenues do not increase as quickly as these costs and expenditures, our results of operations and liquidity will be materially adversely affected. If we experience slower than anticipated revenue growth or if our operating expenses exceed our expectations, we may not achieve profitability. Even if we are profitable in the future, we may not be able to sustain profitability.
To date we have delivered and installed two Plasma Converter Systems(TM), one for the demonstration phase of a U. S. Army program in 1999, and one for commercial use in Japan that was delivered in August 2001 and installed in April 2002. We do not expect to generate any material revenues until after we successfully complete the manufacture and installation of a significant number of Plasma Converters(TM). We expect losses to increase as a result of increased expenses of approximately $250,000 over the next 6 months, as we expand our marketing efforts and demonstrate our results of operations and liquidity will be materially adversely affected and our technology to potential customers. If we are unable to increase revenues and continue to operate at a loss, our results of operations and liquidity will be materially adversely affected and the market price of our common stock will likely decline and decrease the value of your investment.
We have not yet sold the Plasma Converter(TM) on a large - scale commercial basis which may limit our sales and revenue.
We have never utilized the Plasma Converter(TM) under the conditions and in the volumes that will be required to achieve profitability nor has the Plasma Converter(TM) been utilized on a large-scale commercial basis. While we have demonstrated the Plasma Converter(TM)'s ability to process and dissociate waste feedstocks and recover resources in pilot scale and industrial-sized Plasma Converters(TM), there is no guarantee that the same or similar results could be obtained on a large-scale continuing commercial basis or on any specific project. Our success will depend, in part, on our ability to design and build systems that handle many tons of material per day and operate continuously. Our data and research to date support the fact that we will achieve results in the larger systems similar to those we have had in the smaller system we have manufactured and our results of operations and liquidity will be materially adversely affected and extensively tested. If the larger systems do not operate as we expect, it will significantly limit our sales and revenue, our results of operation and liquidity will be materially, adversely affected and the market price of our common stock will likely decline in value.
We are dependent on third parties for manufacturing key components which may cause delays in manufacturing and increased costs to the Company.
We currently have our own manufacturing facility where we assemble and test systems. We also rely upon third parties for the manufacture of key components. Delays and difficulties in the manufacturing of our products could substantially harm our product development efforts.
There are limited sources of supply for some Plasma Converter(TM) components. Business disruptions, financial difficulties of the manufacturers or suppliers, or raw material shortages could increase the cost of goods sold or reduce the availability of these components. In our development to date, we have been able to obtain adequate supplies of these key components. If sales accelerate as expected, we will experience a rapid and substantial increase in our need for components. If we are unable to obtain a sufficient supply of required components, we could experience significant delays in manufacturing, which could result in the loss of orders and customers, and could affect our business, financial condition and results of operations. Although we plan to purchase inventories of these strategic components, we may still require alternative sources if we experience delays in obtaining them. If the cost of finished components increases, we may not be able to pass on price increases to our customers if we are to remain competitively priced. This would reduce profit, which in turn would reduce the value of your investment.
Our failure to achieve market acceptance of the Plasma Converter(TM) within our expanded business model would adversely affect our business.
The failure to achieve market acceptance of the Plasma Converter(TM) within our expanded business model would affect our profitability, future revenues, the market price of our common stock, and the success of our business. Many prospective users of the Plasma Converter(TM) have committed substantial resources to other forms of material processing treatments or technologies. Our growth and future financial performance will depend on our ability to demonstrate to prospective customers the technical and economic advantages of the Plasma Converter(TM) over these alternatives. We may not be successful in this effort. Furthermore, it is possible that competing alternatives may actually have advantages over the Plasma Converter(TM) for certain industries or applications.
We have expanded our business to include market penetration strategies in which we have no previous experience. These strategies include build own and operate facilities; build own and transfer of ownership facilities; and joint development projects. Although certain of our executives have individual experience in these areas we have not, as a company, developed projects of this type in the past.
We have been largely dependent on one customer for our revenues to date and failure to expand our customer base will make us vulnerable to substantial loss of revenues.
For the fiscal year ended October 31, 2004, 91% of our revenues were derived from a contract with Mihama Corporation in Japan. If we cannot diversify our customer base, we will be vulnerable to a substantial decline in revenues if we do not continue to receive contracts from this customer. Such an event could cause a material and adverse effect on our business, operations and financial condition and the value of our common stock could decline.
Our failure to obtain additional financing, if needed, would adversely affect our business results.
We believe our cash reserves, anticipated cash generated from operations and other existing sources of capital will be adequate to fund our operations for up to one year. However, we may require additional financing to fund ongoing operations if our sales and revenue growth are insufficient to meet our operating costs. Our inability to obtain necessary capital or financing will adversely affect our ability to fund operations and continue as a going concern. Financing for all of our activities to date has been provided by private sales of our securities. Additional financing may not be available when needed or may not be available on terms acceptable to us. If additional funds are raised by issuing equity securities, shareholders may incur dilution. If adequate funds are not available, we may be required to delay, scale back or eliminate one or more of our development programs or otherwise limit the development, manufacture or sale of Plasma Converters (TM), which may affect our business, results of operations and financial condition and reduce the value of your investment.
We face numerous risks associated with our plans to market and distribute the Plasma Converter(TM) domestically.
We are currently marketing the Plasma Converter(TM) principally in international markets, including both industrialized and developing countries, and expect a significant portion of our future revenues to come from foreign sales. If we are unable to expand our domestic marketing efforts beyond current levels our future expected profitability will be substantially reduced. Substantial risks still remain for us to market our product effectively in domestic markets. These risks include:
o Political and economic instability. Many of our domestic initiatives involve local government support or funding. Sales to governments may have a long sales cycle. Any change in the political or economic climate during this sales cycle may prevent us from making an anticipated sale.
o Difficulties in collecting accounts receivable. We are a small company with limited cash resources. It may be difficult for us to recover monies owed from a domestic customer
o if we are forced to take legal action.
o Protection of intellectual property. The domestic and foreign laws governing intellectual property may afford little or no effective protection of our intellectual property. Even if protected, litigation may result in substantial costs or a diversion of resources.
Any of these risks will reduce expected revenues and may prevent us from achieving or sustaining profitability. An inability to increase revenues or become profitable may reduce the market price of our common stock and the value of your investment.
We may acquire other companies, product lines or technology and our failure to integrate any of them may have an adverse effect on our business.
As part of our growth strategy, we may pursue acquisitions and investments that could provide complementary and competitive new technologies, products, or businesses. Future acquisitions or investments would involve the use of significant amounts of cash, which may cause us to incur a significant amount of debt. In addition, acquisitions involve numerous risks, including the diversion of management's attention from other business concerns and risks of entering markets in which we have limited or no prior experience.
We currently have no commitments with respect to any acquisition or investment. If an acquisition or investment does occur and we cannot successfully integrate the business, product, technology, or personnel that we acquire, it would have a material adverse affect on our business, results of operations and financial condition. Any event that adversely affects our financial condition is likely to reduce the market price of our common stock.
We may be unable to find appropriate strategic alliances, which would adversely affect market penetration of the Plasma Converter(TM).
Future strategic alliances may include cooperative agreements for the sharing of information, cooperative marketing agreements, or other business relationships such as equity investments or joint ventures. We may be unable to find appropriate strategic alliances in markets in which we have little or no experience, which could prevent us from bringing our products to these markets in a timely manner, if at all. This may lower the demand for and reduce market acceptance of the Plasma Converter(TM), reducing our revenues and profitability.
We have made several strategic alliances for the purpose of commercializing the Plasma Converter(TM). These alliances are intended to facilitate our entry into the marketplace and accelerate the development and commercialization of our products; however, to date none of our alliances have resulted in any product sales.
The terms our alliances may require us and our alliance partners to share revenues and expenses from joint activities, or for us to grant to our partners licenses to manufacture market and sell our products. While the leveraging of our resources through these alliances may have a favorable effect on our financial condition, the sharing of revenues may negatively affect our results of operations.
Contracts with federal and state governments subject us to possible contract terminations and audits.
We participate in selective research and sales opportunities involving federal and state governments. Contracts with the United States government are subject to various risks, including the risk of termination at the convenience of the government. This type of contractual clause is included in all government contracts and allows the government to cancel a contract at any time during the performance of the contract without penalty. If cancelled for "convenience" the government must pay the costs of the contract up until that date and other reasonable costs related to its termination. Additionally, revenues from these potential relationships are subject to time-consuming audit procedures under various federal statutes.
There may be claims made against us for personal injury and business losses which may subject us to litigation and related costs.
We anticipate that the Plasma Converter(TM) system will be utilized in a variety of industrial and other settings, and will be used to handle materials resulting from the generation of hazardous waste. The equipment will therefore be subject to risks of breakdowns and malfunctions, and it is possible that claims for personal injury and business losses arising out of these breakdowns and malfunctions will be made against us. Our insurance may be insufficient to provide coverage against all claims, or for claims made for amounts substantially in excess of applicable policy limits. Such an event could have a material adverse effect on our business, financial condition and results of operations.
Product liability claims could result in losses and could divert our management's time and resources.
The manufacture and sale of our products create a risk of product liability claims. Any product liability claims, with or without merit, could result in costly litigation and reduced sales, cause us to incur significant liabilities and divert our management's time, attention and resources. We do have product liability insurance; however, there is no assurance that such insurance is adequate to cover all potential claims. The successful assertion of any such large claim against us could materially harm our liquidity and operating results.
Our failure to properly control the use of hazardous materials could result in substantial financial liabilities to us.
We use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes in our research, development and manufacturing activities. Therefore, we are subject to a variety of federal, state and local government regulations related to the storage, use and disposal of such materials. Failure to comply with present or future regulations could result in an imposition of fines on us, suspension of production or a cessation of operations. We are not aware of any environmental investigation, proceeding or action by federal or state agencies involving any of our facilities. However, under federal and state statutes and regulations, a government agency may seek recovery and response costs from both operators and owners of property where releases of hazardous substances were committed by previous occupants of the property or have occurred or are ongoing. If we fail to control the use of, or to restrict adequately the discharge of, hazardous substances, we could be subject to substantial financial liabilities. Our business, financial condition and operating results could suffer a material adverse effect if costs resulting from these liabilities are not covered by insurance or exceed our coverage.
Failure to comply with government regulations will severely limit our sales opportunities and future revenues.
We and our customers may be required to comply with a number of federal, state and local laws and regulations in the areas of safety, health and environmental controls, including without limitation, the Resource Conservation and Recovery Act and the Occupational Safety and Health Act of 1970, which may require our prospective working partners or our customers to obtain permits or approvals to utilize the Plasma Converter(TM) and related equipment on job sites. In as much as we intend to market the Plasma Converter(TM) internationally, we will be required to comply with laws and regulations and, when applicable, obtain permits in those other countries. We cannot be certain that required permits and approvals will be obtained or that new environmental regulations will not be enacted or that if they are, we and our customers can meet stricter standards of operation or obtain additional operating permits or approvals. Failure to obtain operating permits, or otherwise to comply with federal and state regulatory requirements, could affect our ability to market and sell the Plasma Converter(TM) and could substantially reduce the market price of our common stock.
Failure to protect our intellectual property could adversely affect our brand and business.
The success and competitiveness of our product depends in part upon our ability to protect our current and future technology, manufacturing processes, and brand name through a combination of patent, trademark, trade secret and unfair competition laws, and our failure to do so could seriously harm our business, financial condition and results of operations.
Patent applications in the United States are maintained in secrecy until patents are issued, and the publication of discoveries in the scientific literature tends to lag behind actual discoveries. Therefore, we cannot guarantee that we will be the first creator of future inventions for which we seek patents or the first to file patent applications for any of our inventions.
Patent applications filed in foreign countries are subject to laws, rules and procedures which differ from those of the United States. We cannot be certain that:
o patents will be issued from future applications;
o any future patents will be sufficient in scope or strength to provide meaningful; protection or any commercial advantage to us;
o foreign intellectual property laws will protect our intellectual property; or
o others will not independently develop similar products, duplicate our products or design around any patents which may be issued to us.
We enter into confidentiality and non-disclosure of intellectual property agreements with our employees, consultants and many of our vendors, and generally control access to and distribution of our proprietary information. Notwithstanding these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information without authorization or to develop similar information independently.
Policing unauthorized use of intellectual property is difficult. The laws of other countries may afford little or no effective protection of our technology. We cannot assure you that the steps taken by us will prevent misappropriation of our technology, which may cause us to lose customers and revenue opportunities. In addition, pursuing persons who might misappropriate our intellectual property could be costly and divert the attention of management from the operation of our business.
Our failure to keep pace with our competitors and technological changes may result in the loss of customers and revenue opportunities.
Other manufacturers of systems used to process and dispose of materials and wastes in both the private and public sectors include several large domestic and international companies and numerous small companies, many of whom have substantially greater financial and other resources and more manufacturing, marketing and sales experience than we do. As other technologies evolve, the Plasma Converter(TM) may be rendered obsolete. To the extent that our competitors are able to offer more cost-effective technological alternatives, our ability to compete and sell the Plasma Converter(TM) could be materially and adversely affected and could cause a decline in the market price of our common stock.
We are dependent on key personnel and our business would be disrupted if we are unable to retain and expand our management team
Due to the nature of our business, we are highly dependent on the continued service of, and on the ability to attract and retain, qualified engineering, technical, manufacturing, sales, marketing and senior management personnel. The loss of any key employees or principal members of management could have a material adverse effect on our business and operating results. Further, if we are unable to hire additional qualified personnel as needed, we may not be able to adequately manage and implement plans for our expansion and growth. Joseph F. Longo, our Chairman, Chief Executive Officer and President, has an employment agreement with us; however, any other officer or employee of the Company may terminate his or her relationship with us at any time. Our employment agreement with Mr. Longo and our employment arrangements with other executive officers and significant employees impose customary confidentiality and non-compete obligations and provide for the assignment to us of all rights to any technology developed by such person during the time of his or her employment.
Due to the lengthy sales cycles of our products and services, the timing of our sales is difficult to predict and may cause us to miss our revenue expectations.
Our products and services are typically intended for use in applications that may be critical to a customer's business. In certain instances, the purchase of our products and services involves a significant commitment of resources by prospective customers. As a result, our sales process is often subject to delays associated with lengthy approval processes. For these and other reasons, the sales cycle associated with the selling of our products and services typically ranges between six and eighteen months and is subject to a number of significant delays over which we have little or no control. While our customers are evaluating whether our products and services suit their needs, we may incur substantial sales and marketing expenses and expend significant management effort. We may not realize forecasted revenues from a specific customer in the quarter in which we expend these significant resources, or at all, because of the lengthy sales cycle for our products and services.
Our common stock has been delisted from the Nasdaq Stock Market.
As of July 17, 2003, our common stock was delisted from the Nasdaq SmallCap Market and began trading on the NASD Over-the-Counter Bulletin Board. Since our shares are not listed for trading on the Nasdaq SmallCap Market or other national securities exchange, the trading our shares is more difficult for investors, potentially leading to further declines in the price of our common stock. It may also make it more difficult for us to raise additional capital. Further, we may also incur additional costs under state blue-sky laws in connection with any sales of our securities.
As a result of our trading on the NASD Over-the-Counter Bulletin Board, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of the securities. In addition, we are subject to a Rule promulgated by the Securities and Exchange Commission that, if we fail to meet criteria set forth in such Rule, various practice requirements are imposed on broker-dealers who sell securities governed by the Rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transactions prior to sale. Consequently, the Rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock.
Terrorist attacks and other attacks or acts of war may adversely affect the markets on which our common stock trades our financial condition and our results of operations.
On September 11, 2001, the United States was the target of terrorist attacks of unprecedented scope. In March 2003, the United States and allied nations commenced a war in Iraq. These attacks and the war in Iraq have caused global instability in the financial markets. There could be further acts of terrorism in the United States or elsewhere that could have a similar impact. Armed hostilities or further acts of terrorism could cause further instability in financial markets and could directly impact our financial condition, our results of operations and the price of our common stock.
Item 7A.
Item 7A. Qualitative and Quantitative Disclosure about Market Risk.
Management does not believe that there is any material market risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The response to this item is submitted in a separate section of this annual report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Our management, including our chief executive officer and chief financial officer, have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of October 31, 2004, pursuant to Exchange Act Rules 13a-15(e) and 15(d)-15(e). Based upon that evaluation, our chief executive officer and chief financial officer have concluded that as of such date, our disclosure controls and procedures in place are effective to ensure material information and other information requiring disclosure is identified and communicated on a timely basis. There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.
Item 9B.
Item 9B. Other Information.
None.
PART III
The information required to be filed by Part III (Items 10, 11, 12, 13 and 14) is hereby incorporated by reference from the Company's definitive proxy statement (to be filed with the Securities and Exchange Commission pursuant to Regulation 14A), which proxy statement will be filed no later than 120 days after October 31, 2004.
STARTECH ENVIRONMENTAL CORPORATION
Consolidated Financial Statements
October 31, 2004, 2003 and 2002
STARTECH ENVIRONMENTAL CORPORATION
For The Years Ended October 31, 2004, 2003 and 2002
Page ----
Independent auditors' report
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of changes in stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Farmington - New London Pond View Corporate Center 76 Batterson Park Road Business Advisors and Certified Public Accountants Farmington, CT 06032
Main Line: (860) 678-6000 Toll Free: (800) 286-KRCO Fax: (860) 678-6110 Web: www.kostin.com
To the Board of Directors Startech Environmental Corporation
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Startech Environmental Corporation as of October 31, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended October 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Startech Environmental Corporation as of October 31, 2004 and 2003, and the results of its operations, changes in stockholders' equity and its cash flows for each of the three years in the period ended October 31, 2004, in conformity with U.S. generally accepted accounting principals.
Farmington, Connecticut December 15, 2004
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies: - ---------------------------------------------------
Principles of Consolidation - ---------------------------
The consolidated financial statements of Startech Environmental Corporation include the accounts of Startech Corporation, its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation.
Company's Activities - --------------------
The Company is an environmental technology corporation dedicated to the development, production and marketing of low cost waste minimization, resource recovery, and pollution prevention systems that convert waste into valuable commodities.
Basis of Presentation - ---------------------
On November 17, 1995, Startech Environmental Corporation, formerly Kapalua Acquisitions, Inc., was acquired in a reverse acquisition, in which all the then issued and outstanding shares of common stock of Startech Corporation were exchanged for 4,000,000 shares of Kapalua Acquisitions, Inc.'s common stock. After the acquisition and exchange of stock, the former shareholders of Startech Corporation owned 80.5% of the common stock of Kapalua Acquisitions, Inc. Subsequent to November 17, 1995, Kapalua Acquisitions, Inc. filed registration statements with the Securities and Exchange Commission to register certain securities.
On January 2, 1996, Kapalua Acquisitions, Inc. changed its name to Startech Environmental Corporation. The financial statements of Startech Environmental Corporation include all of the accounts of Startech Corporation. This acquisition has been accounted for under the purchases method in the accompanying financial statements.
Revenue Recognition - -------------------
The Company recognizes revenue on the sale of its manufactured products at the date of delivery. Revenues earned from consulting and design services are recognized when the services are complete. In the case of revenues received for distributorship agreements, the amount of revenue incurred for services and training is recognized at time of completion and the remaining amounts involved in the distributorship will be amortized over 36 months.
Management Estimates - --------------------
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at October 31, 2004, 2003 and 2002, and revenues and expenses during the years then ended. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies: (Continued) - ---------------------------------------------------
Reclassifications - -----------------
Certain reclassifications have been made to the fiscal 2002 financial statements to conform to the presentation used in the fiscal 2004 and 2003 financial statements. The reclassifications had no effect on shareholders' equity or net losses as previously reported.
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. The primary investments will be high quality commercial paper, money markets, U.S. Treasury Notes, and T-Bills. Regarding supplementary cash flows information, income taxes paid were $6,050 for the fiscal year ended October 31, 2004, a refund of $143 for the year ended October 31, 2003, and income taxes paid were $13,548 for the fiscal year ended October 31, 2002. Interest paid for the three fiscal years ended October 2004 was $1,705, $6,926 and $12,762 respectively. The Company also had the following non-cash transactions:
- ---- Shares Amount ------ ------ Common shares issued for services rendered in 2004 13,772 $ 45,000 Common shares issued for 401(k) match 16,060 62,932 Series A convertible preferred shares converted to common shares 12,853 26,453
- ---- Shares Amount ------ ------ Common shares issued for 401(k) match 69,848 $ 74,268 Series A convertible preferred shares converted to common shares 177,302 330,100 Equipment acquired through capital lease -- 3,612
- ---- Shares Amount ------ ------ Common shares issued for services rendered in 2002 4,200 $ 15,624 Common shares issued for 401(k) match 40,180 85,178 Series A convertible preferred shares converted to common shares 14,087 140,867 Equipment acquired through capital lease -- 25,539
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 1 - Summary of Significant Accounting Policies: (Continued) - ---------------------------------------------------
Option valuation models require highly subjective assumptions, including the expected stock price volatility, which may be significantly different from those of traded options. Because changes in subjective assumptions can materially affect the fair value estimate, it is our opinion that the existing models do not necessarily provide a reliable single measure of the fair value of our stock-based awards. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. The pro forma stock-based employee compensation was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for each year:
2004 2003 2002 ---- ---- ---- Risk-free interest rate 4.21% 4.24% 3.82% Expected life of options -- years 6.84 10.00 9.90 Expected stock price volatility 98% 76% 107% Expected dividend yield N/A N/A N/A
In accordance with APB Opinion No. 25, we use the intrinsic value method to measure the compensation costs of stock-based awards granted to employees as the excess of the market value of our common stock on the date of grant over the amount that must be paid to acquire our common stock. We record these compensation costs over the vesting period of the stock-based award.
We account for stock-based awards granted to non-employees at fair value in accordance with SFAS No. 123, 'Accounting for Stock-Based Compensation.'
In accordance with Financial Accounting Standards Board ('FASB') Interpretation No. 44, 'Accounting for Certain Transactions Involving Stock Compensation,' we record compensation charges or benefits related to re-priced stock options based on the market value of our common stock until the re-priced stock options are exercised, forfeited or expire.
Earnings (Loss) Per Share - -------------------------
Earnings (loss) per share are based on the weighted average number of shares of common stock outstanding during the year. The Company has 4,597,991 potential shares of common stock, 3,754,286 potential shares of common stock, and 2,783,907 potential shares of common stock in 2004, 2003, and 2002, respectively that were not used in the computation of diluted earnings per share because they would have been anti-dilutive for each of the three years ended October 31, 2004, 2003 and 2002.
Off Balance Sheet Risk - ----------------------
The Company had more than $100,000 in a single bank during the year. Amounts over $100,000 are not insured by the Federal Deposit Insurance Corporation. However, management does monitor the financial condition of the institution where these funds are invested.
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 5 - Stockholders' Equity: - -----------------------------
Common Stock - ------------
During fiscal year 2004, the Company completed two private placements of its securities totaling an aggregate of 1,232,080 shares of its unregistered common stock at average price of $2.10 per share, resulting in aggregate net proceeds of $2,506,461 after expenses of $85,000. In the first private placement completed in December 2003 the Company raised $200,000 by issuing 173,913 shares of common stock at a price of $1.15 cents per share. The second private placement which was completed on February 20, 2004 the Company raised $2,391,460 by issuing 1,058,167 shares of common stock at a price of $2.26 per share to sixteen investors. The Company also issued to one client 13,772 restricted common shares for services rendered which totaled $45,000 during fiscal year ended October 31, 2004.
Preferred Stock - ---------------
During 1999, the Company issued 696,978 shares of its 8% Series A cumulative, convertible, redeemable, preferred stock. During the fiscal year ended October 31, 2004, 2,645 preferred shares were converted to common shares compared to 33,010 preferred shares were converted to common shares and 14,087 preferred shares converted during the fiscal year ended October 31, 2003 and October 31, 2002 respectively.
Warrants - --------
As it relates to the private placement dated February 20, 2004, a total of 1,058,169 warrants were granted, of which 352,723 warrants were issued at an exercise price of $4.89 per share and 352,723 warrants were issued at an exercise price of $5.89 per share and 352,723 warrants were issued at an exercise price of $6.89 per share. These warrants will expire on February 20, 2007. There were no warrants issued in connection with the other private placements transacted in 2004.
In conjunction to the private placement that took place in January 2003, 882,353 warrants were issued at an exercise price of $1.80 per share. These warrants will expire in January 2006 provided the common stock is trading at $1.80 per share at this time. If the stock is below the $1.80 per share the Company has agreed to extend the period for up to two consecutive years. There were no warrants issued related to the other private placements transacted in 2003.
In conjunction with the private placement in 2002 the Company issued one common stock warrant to purchase a share of common stock for each share of common stock purchased, exercisable at a price equal to 120% of the market price of the common stock on the NASDAQ SmallCap Market based on the average closing price per share for the ten (10) trading days immediately preceding March 25, 2002. Accordingly, the exercise price per share is $3.34 and will expire on March 25, 2005. The Warrants are callable anytime at the discretion of the Company 12 months after an effective registration statement, and after the average closing bid prices exceeds in excess of a 150% gain over the exercise price for 10 consecutive trading days.
In conjunction with the issuance of the preferred stock in 2000, the Company issued Warrants to purchase 396,464 shares of common stock at a price of $15.00 per share. These Warrants were set to expire on August 1, 2002, however the price of the stock did not exceed $15.00 per share and the expiration was extended to August 31, 2004. On August 31, 2004 these warrants expired.
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 6 - Non-qualifying Stock Option Plan: - -----------------------------------------
1995 Stock Option Plan - ----------------------
In November 1995, the Company registered 2,000,000 common shares, issuable upon exercise of stock options issued by the Company under its 1995 Non-qualifying Stock Option Plan (the Plan) for employees, directors and other persons associated with the Company whose services have benefited the Company. The options must be issued within 10 years from November 20, 1995. Determination of the option price per share and exercise date is at the sole discretion of the Compensation Committee. During the years ended October 31, 2004, 2003, and 2002, the Company issued 0, 0 and 10,000 stock options, respectively. The options have an exercise price of $3.38 per share, respectively. On the issuance dates, the market value was the same as the exercise price; therefore, no compensation expense was recorded. As of October 31, 2004, 8,089 options have not been granted.
Options outstanding - 1995 Plan
Options outstanding, October 31, 2001 1,197,500 ========= Options granted in 2002 10,000 ------ Options outstanding October 31, 2002 and 2003 1,207,500 ========= Options granted in 2003 & 2004 0 - Options exercised in 2003 & 2004 0 - Options outstanding October 2004 1,207,500 =========
2000 Stock Option Plan - ----------------------
Our 2000 Stock Option Plan was adopted by our board of directors in January 2000 and was approved by our stockholders in February 2000. The plan authorizes the issuance of up to 1,000,000 shares of our common stock.
During the year ended October 31, 2004, 130,000 options have been granted at an average exercise price of $3.98 per share and 0 options have been cancelled. During the year ended October 31, 2004 152,000 options were exercised at an average price of $1.81. During the year ended October 31, 2003, 100,000 options have been granted at an average exercise price of $1.10 per share and 20,000 options were cancelled. During the year ended October 31, 2002, 277,000 options have been granted at an average exercise price of $2.09 per share. On the issuance dates, the market value was the same as the exercise price; therefore, no compensation expense was recorded. As of October 31, 2004, 513,000 options are available to be granted.
Options outstanding - 2000 Plan
Options outstanding, October 31, 2000 0 Options granted in 2002 277,000 Options cancelled in 2002 0 - Options outstanding, October 31, 2002 277,000 ======= Options granted in 2003 100,000 Options exercised in 2003 0 - Options cancelled in 2003 (20,000) ======= Options outstanding October 31, 2003 357,000 ======= Options granted in 2004 130,000 Options exercised in 2004 152,000 ------- Options outstanding October 31, 2004 513,000 =======
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
The plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code and non-statutory stock options. Our officers, directors, employees and consultants, and employees and consultants of our majority-owned affiliated companies, are eligible to receive awards under the plan.
Note 6 - Non-qualifying Stock Option Plan: (Continued) - -----------------------------------------
The options may be granted at an exercise price greater than or equal to the fair market value of our common stock on the date of grant or not less than 110% of the fair market value in the case of incentive stock options granted to persons holding more than 10% of the voting power of the Company. Fair market value for purposes of the plan is the closing market price of our common stock on the relevant date.
The Company established the 2000 Stock Compensation Plan which replaced the 1995 Stock Compensation Plan.
The 2000 Plan authorizes awards of the following type of equity-based compensation: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock, annual grants of stock options to directors, stock options to directors in lieu of compensation for services rendered as directors, and other stock-based awards valued in whole or in part by reference to stock of the Company. No incentive stock options may be granted on or after February 1, 2010, nor shall such options remain valid beyond ten years following the date of grant.
Fifty percent of these options vest at the time of the grant and the other 50% will vest six months after date of grant and expire not more than ten years from date of grant.
The plan is administered by our compensation committee. The committee has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the plan and to interpret its provisions. The committee selects the recipients of awards and determines the number of shares of common stock covered by the options and the dates upon which the options become exercisable and terminate, subject to provisions of the plan. Incentive stock options must terminate within ten years of the grant. Non-statutory options must terminate within fifteen years of the date of grant. The committee has the right to alter the terms of any option when granted or while outstanding, pursuant to the terms of the plan, except the option price.
All options automatically become excisable in full in the event of a change in control, as defined in the 2000 plan, death or disability of the option holder or as decided by the compensation committee. Upon retirement, options held at least one year become exercisable in full. If an option holder's employment with us is terminated for any reason, except death, disability or retirement, the option holder has three months in which to exercise an option, but only to the extent exercisable immediately after termination, unless the option by its terms expires earlier. Termination or other changes in employment status may affect the exercise period.
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 7 - Major Customers: - ------------------------
The majority of our revenues were derived from one major customer in 2004; all of the revenues were derived from one major customer in 2003, while all of our revenues were derived from two major customers in 2002.
Note 8 - Capital Lease Payable: - ------------------------------
The Company has entered into capital lease obligations for computer equipment. The terms of the leases range from 36 to 48 months, with principal and interest due in monthly installments aggregating $860 at rates ranging from 13.75% to 16.98%. The equipment was capitalized at $19,503 and is being depreciated over five years. Depreciation expense for 2004 was $3,900 and accumulated depreciation at October 31, 2004, is $10,154.
Total remaining lease payments: 2005 4,311 2006 247 -------- 4,558 Less: unamortized interest 243 -------- 4,315 Less: current portion 4,073 -------- $ 242 ========
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 9 - Fair Value of Financial Instruments: - --------------------------------------------
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value:
Cash and note receivable are carried in the accompanying balance sheets at cost, which is a reasonable estimate of their fair value. Accounts payable, capital lease payable and accrued expenses are also carried at cost, which is a reasonable estimate of their fair value.
Carrying Estimated Amount Fair Value
ASSETS: Cash and cash equivalents $ 2,401,061 $ 2,401,061 Note Receivable 50,000 50,000
LIABILITIES: Accounts payable 223,817 223,817 Capital lease payable 4,315 4,315 Accrued expenses 335,725 335,725
Note 10 - Commitments: - ---------------------
On September 30, 2004 the Board of Directors approved the terms of an employment agreement between Joseph F. Longo and the Company. Mr. Longo will serve as the Chief Executive Officer and President and will be paid an annual salary of $185,000. The term of the Employment Agreement is three years, effective as of January 1, 2004, unless extended by the Company.
STARTECH ENVIRONMENTAL CORPORATION
Notes To The Consolidated Financial Statements For The Years Ended October 31, 2004, 2003 and 2002
Note 11 - Employee Benefit Plan: - -------------------------------
The Company sponsors an employee savings plan designed to qualify under Section 401(k) of the Internal Revenue Code. This plan is for all full-time employees who have completed 30 days of service. Company contributions are made in the form of common stock at the prevailing current market price and will vest equally over a three-year period. The Company will match the first 6 percent of the employee contribution on a dollar for dollar basis up to the maximum contribution allowed under Internal Revenue Code. Contributions for the year ended October 31, 2004, 2003, 2002 were $62,932, $74,268, and $85,178 for the years ended October 31, 2004, 2003, 2002 respectively. These contributions were paid through the issuance of 16,060, 69,848 and 40,180 shares of our common stock respectively. During the years ended October 31, 2004, 2003, 2002 respectively 5,442, 9,518, and 938 shares of our common stock have been returned to the 401K plan due to employee shares that were not vested due to attrition.
Note 12 - Research and Development Costs: - ----------------------------------------
Research and development costs are charged to operations when incurred. The amounts charged were $353,099 in 2004, $310,219 in 2003 and $160,785 in 2002.
Note 13 - Note Receivable: - -------------------------
The Company currently has a note receivable outstanding with PlasmaTech Caribbean Corporation for the amount of $50,000. This note is in connection with the distributorship agreement that was signed on September 20, 2004. The note was due on December 31, 2004. The note is expected to be paid in full by January 31, 2005.
Note 14 - Subsequent Events: - ---------------------------
The Company is currently undertaking private placement of our securities from which we have raised $819,360 after commissions and expenses and issued 275,708 shares of our unregistered common stock at $3.06 per share. Additionally, there were 275,708 warrants issued with this private placement that will expire in three years.
In January of 2005 The Company and Fran Environmental have agreed to settle the dispute regarding a claim made that Startech has failed to provide proper support to assist this representative in its effort to market and sell our products in Brazil. A final settlement of $55,816 was agreed to by both parties and two equal payments were arranged. The first installment was recently paid in January 2005 and the final payment is due in February 2005.
PART IV
Item 15.
Item 15. Financial Statements, Financial Schedules, Exhibits and Reports on Form 8-K
(a) List of documents filed as part of the report:
1. Consolidated Financial Statements
See index to Consolidated Financial Statements on page
2. Financial Statement Schedule
See index to Consolidated Financial Statements on page
3. Exhibits
The following documents are filed as exhibits to this Form 10-K, including those exhibits incorporated in this Form 10-K by reference to a prior filing of the Company under the Securities Act or the Exchange Act as indicated in parenthesis:
Exhibit No. Description - ----------- --------------------------------------------------------------
2(a) Agreement and Plan of Reorganization between Company and Kapalua Acquisitions, Inc. dated November 17, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on November 29, 1995, Commission File No. 0-25312)
2(b) Agreement and Plan of Reorganization between Company and Kapalua Acquisitions, Inc. dated November 17, 1995 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on November 29, 1995, Commission File No. 0-25312)
3(i) Articles of Incorporation of Startech (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form 10, filed on February 19, 1995, Commission File No. 0-25312)
3(i)(a) Articles of Amendment to the Articles of Incorporation (1)
3(ii) By-Laws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form 10, filed on February 19, 1995, Commission File No. 025312)
3(ii)(a) Amendment to By-Laws of Startech dated January 24, 2000 (1)
3(ii)(b) Amendment to By-Laws of Startech dated August 13, 2004 (8)
4(a) Form of Common Stock Certificate (2)
4(b) Form of Convertible Preferred Stock Certificate (1)
4(c) Form of Warrant Agreement (1)
4(d) Stock Subscription Warrant dated December 29, 1998 between the Company and the Connecticut Development Authority ("CDA") (2)
4(e) Amendment to Stock Subscription Warrant dated March 31, 1999 between the Company and CDA (2)
4(f) Second Amendment to Stock Subscription Warrant dated June 15, 2000 between the Company and CDA (2)
4(g) Form of Warrant Agreement dated March 25, 2002 (3)
4(h) Form of 2000 Stock Option Plan (4)
10(a) 2000 Stock Option Plan (1)
10(b) 1995 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8, filed in November, 1995, Commission File No. 33-99790)
10(c) Employment Agreement dated November 1, 2000 between the Company and Joseph F. Klimek (5)
10(d) Employment Agreement dated November 1, 2000 between the Company and Kevin M. Black (5)
10(e) Employment Agreement dated November 1, 2000 between the Company and Robert L. DeRochie (5)
10(f) Lease Agreement dated September 30, 2000 between the Company and the Century Drive, LLC (6)
10(g) Lease Agreement dated July 20, 2001 between the Company and the Gaski Leasing Company, LLC (3)
10(h) Joint Development Agreement dated December 19, 2001 between the Company and ViTech Enterprises Inc. (3)
10(i) Separation Agreement dated as of August 27, 2003 by and between Kevin M. Black and Startech Environmental Corporation (7)
10(j) Stock Purchase and Registration Rights Agreement dated as of July 18, 2003, by and between Northshore Asset Management, LLC and Startech Environmental Corporation (7)
10(k) Stock Purchase Agreement dated as of July 22, 2003, by and between Northshore Asset Management, LLC and Startech Environmental Corporation (7)
10(l) First Amendment to Stock Purchase Agreement dated as of July 30, 2003, by and between Northshore Asset Management, LLC and Startech Environmental Corporation (7)
14 Code of Ethics *
21 Subsidiaries as of October 31, 2003 (5)
23 Consent of Kostin, Ruffkess & Company, LLC dated December 15, 2004*
24 Power of Attorney (see signature page) of this Annual Report on Form 10-K and incorporated herein by reference
31.1 Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2 Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
- ----------
* Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 on April 27, 2000, Commission File No. 333-35786.
(2) Incorporated by reference to Amendment No 1. to the Registration Statement on Form S-1 filed on July 7, 2000, Commission File No. 333-35786.
(3) Incorporated by reference to the Company's Registration Statement on Form S-1 on July 17, 2002, Commission File No. 333-96885.
(4) Incorporated by reference to the Company's Registration Statement of Form S-8 on October 31, 2002 Commission File No. 333- 100909.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for 2000, filed on January 25, 2001.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for 2001, filed on January 25, 2002.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter needed July 31, 2003.
(8) Incorporated by reference to the Company's Registration Statement on Form S-1 filed on October 8, 2004, Commission File No. 333-119668
(b) Exhibits
See index to exhibits on page 44.
(c) Financial Statement Schedule
See index to Consolidated Financial Statements and Schedule on page .
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 28th day of January, 2005.
STARTECH ENVIRONMENTAL CORPORATION (Registrant)
BY: /S/ Joseph F. Longo ------------------------------------------------- Joseph F. Longo Chairman, Chief Executive Officer, President and Director
BY: /S/ Peter J. Scanlon ------------------------------------------------ Peter J. Scanlon Chief Financial Officer, Secretary, Vice President, and Principal Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph F. Longo and Peter J. Scanlon, or either of them, his or her attorneys-in-fact, for such person in any and all capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Company and in the capacities and on this 28th day of January 2005.
SIGNATURES TITLE DATE - ---------- ----- ----
/S/ Douglas R. Ballew - --------------------- Douglas R. Ballew Director January 28, 2005
/S/ Joseph A. Equale Director January 28, 2005 - -------------------- Joseph A. Equale
/S/ Nicholas S. Perna Director January 28, 2005 - --------------------- Nicholas S. Perna
/S/ Kenneth J. Slepicka Director January 28, 2005 - ----------------------- Kenneth J. Slepicka