Enzyme Environmental Solutions, Inc.'s Background
35. Exhibit 18 is a true and correct copy of web pages I located when I searched for Enzyme Environmental Solutions, Inc. ("Enzyme Environmental") on the Pink Sheets' website at www.pinksheets.com.
36. According to records obtained on Lexis Nexis's website located at www.lexisnexis.com, Jared Hochstedler, age 33, is a resident of Fort Wayne, Indiana.
37. Exhibit 19 is a true and correct copy of excerpts from the testimony transcript of Jared Hochstedler, Enzyme Environmental's Chief Executive Officer, provided to the Commission staff on June 23, 2009.
38. Exhibit 20 is a true and correct copy of a purchase agreement between Strategic Consultants, Inc. ("SCI") and Belmont Partners, LLC for the purchase of Cucos, Inc. ("Cucos"), a publicly traded company, produced by Enzyme Environmental to the Commission staff.
Enzyme Environmental's Wrap Agreements with K&L
First Wrap Agreement with K&L
39. Exhibit 21 is a true and correct copy of a document dated January 15, 2008 and titled Wrap-Around Agreement between K&L, Enzyme Environmental and Hochstedler that Enzyme Environmental produced to the Commission staff ("K&L's First EESO Wrap Agreement").
40. Between February 22, 2008 and June 16, 2008, Enzyme Environmental issued eight board resolutions converting the $215,635 debt under K&L's First EESO Wrap Agreement into 601,647,111 shares issued to K&L. The following chart is a summary of conversion shares issued to K&L under the convertibility provision of the wrap-around agreement that I created based on my review of the transfer agent records:
Assigned Actual Actual
Conversion Conversion Issuance Cert. Conversion Conversion
Date Amount Date No. # of Shares Price Amount
2/22/2008 $10,000.00 2/26/2008 8502 1,111,111 $.0194 $21,556
2/29/2008 $10,000.00 3/10/2008 8503 20,000,000 $.0261 $522,000
3/20/2008 $20,000.00 3/24/2008 8504 100,000,000 $.01121 $1,121,000
3/27/2008 $20,000.00 3/27/2008 8505 100,000,000 $.00596 $596,000
5/7/2008 $40,000.00 5/12/2008 8511 100,000,000 $.01313 $1,313,000
5/27/2008 $55,000.00 5/28/2008 8513 110,000,000 $.00605 $666,050
6/5/2008 $48,000.00 6/5/2008 8514 120,000,000 $.003415 $409,800
6/16/2008 $12,635.00 6/16/2008 8517* 50,536,000 $.001905 $96,271
Totals: $215,635.00 601,647,111 $4,745,677
*lost certificate; later replaced with 8524 on 7/23/08
The last two columns of the chart show the conversion price per share under the convertibility provision of the wrap-around agreement (Section 2.1) and, based on the price, the actual value of the conversion shares issued. Exhibit 22 consists of true and correct copies of price and volume data I obtained from the Pink Sheets' website (www.pinksheets.com) relating to Enzyme Environmental's common stock from January 2008 through mid-September 2009.
41. Exhibit 23 is a true and correct copy of an opinion letter to Enzyme Environmental's transfer agent by attorney William Yarno dated February 7, 2008 relating to the conversion shares issued under K&L's First EESO Wrap Agreement.
42. Exhibit 24 is a summary of brokerage transactions by K&L in Enzyme Environmental shares that I created based on my review of the account statements and documents produced by Sloan Securities Corp. ("Sloan Securities"), Blue Trading and Oppenheimer. For each of the eight share issuances under K&L's First EESO Wrap Agreement, K&L sold the shares within thirty days of receiving them to the public market through its brokerage accounts at Sloan Securities and Blue Trading. By June 25, 2008, K&L had sold all of the 601,647,111 shares that it had received under the first agreement for proceeds totaling $1,663,152.
Enzyme Environmental's Second Wrap Agreement with K&L
43. Exhibit 25 is a true and correct copy of a document dated June 16, 2008 and entitled Wrap-Around Agreement between K&L, Enzyme Environmental and Hochstedler ("K&L's Second EESO Wrap Agreement") that Enzyme Environmental produced to the Commission staff.
44. Between June 20, 2008 and May 28, 2009, Enzyme Environmental issued seven board resolutions converting the $350,000 debt under K&L's Second EESO Wrap Agreement into 866,904,761 shares issued to K&L. The following chart is a summary of conversion shares issued to K&L under the convertibility provision of the wrap-around that I created based on my review of the transfer agent records:
Assigned Actual Actual
Conversion Conversion Issuance Conversion Conversion
Date Amount Date Cert. No. # of Shares Price Amount
6/20/2008 $32,500.00 6/20/2008 8518 130,000,000 $..00025 $32,500
7/1/2008 $20,000.00 7/11/2008 8522 130,000,000 $.000225 $29,250
7/1/2008 $15,000.00 8/26/2008 *8527 1,000,000 $.000225 $22,500
7/1/2008 $0.00 8/27/2008 *8528 99,000,000 0
9/16/2008 $6,000.00 9/19/2008 8531 120,000,000 $.000075 $9,000
9/16/2008 $6,000.00 10/30/2008 8537 120,000,000 $.000075 $9,000
1/15/2009 $25,000.00 3/16/2009 **12001 50,000,000 $.000425 $63,750
1/15/2009 $0.00 3/16/2009 **T2002 50,000,000 0
1/15/2009 $0.00 3/16/2009 **T2003 50,000,000 0
5/28/09 $245,500 6/4/09 T2064 116,904,761 $.00295 $344,869
Totals: $350,000.00 866,904,761 $510,869.00
*Certificates 8527 and 8528 are for the same $15,000 conversion. The transfer agent was instructed to issue 100,000,000 shares, but seems to have mistakenly issued only 1,000,000 shares initially.
**Certificates T2001, T2002 and T2003 are part of the same 150,000,000 conversion notice. At K&L's instruction, the transfer agent split the shares into 3 certificates of 50,000,000 each.
The last two columns of the chart show the conversion price per share under the convertibility provision of the wrap-around agreement (Section 2.1) and, based on the price, the actual value of the conversion shares issued. (See Ex. 22.)
45. Exhibit 26 is a true and correct copy of an opinion letter to Enzyme Environmental's transfer agent by attorney William Yarno dated June 18, 2008 relating to the conversion shares issued under K&L's Second EESO Wrap Agreement.
46. For each of the seven share issuances under K&L's Second EESO Wrap Agreement, K&L sold the shares within sixty days of receiving them to the public through its brokerage accounts at Blue Trading and Oppenheimer, as reflected in Exhibit 24. By June 17, 2009, K&L had sold all of the 866,904,761 shares it had received under the second agreement for proceeds totaling $3,266,374.
47. According to Exhibit 24, K&L realized a total of $4,929,526 from its sales of Enzyme Environmental shares received through conversions under K&L's First and Second EESO Wrap Agreements.
Amounts Paid by K&L to Enzyme Environmental Under Wrap-Around Agreements
48. After reviewing and analyzing available bank records and other documents, I have concluded that K&L paid Enzyme Environmental and Hochstedler nearly the entire debt encompassed within K&L's First and Second EESO Wrap Agreements. Specifically, K&L paid $320,135 to Enzyme Environmental and $245,000 to Hochstedler, for a total of $565,135. The following paragraphs in this section set forth my analysis.
49. K&L wired four payments totaling $167,500 to Belmont Partners, LLC from its Wachovia Bank account. The following details the payments made:
DATE AMOUNT RECIPIENT MEMO
1/22/08 $43,750 Belmont Partners, LLC None
2/19/08 $41,250 Belmont Partners, LLC CUCO INVESTMENT, 2ND PAYMENT
3/20/08 $41,250 Belmont Partners, LLC CUCO INVESTMENT
4/18/08 $41,250 Belmont Partners, LLC CUCO INVESTMENT
Total: $167,500
50. Exhibit 27 is a summary of transactions by K&L that I created based on my review of the bank records produced by Wachovia Bank relating to K&L's bank account. The memo column of the summary (which is also in the above chart) was drawn from the memos included in the wire transfer detail in the bank records. The dates and amounts of K&L's payments to Belmont Partners, LLC jibe
with the payment schedule SCI was required to meet under the December 21, 2007 purchase agreement between SCI and Belmont Partners, LLC relating to Cucos, attached as Exhibit 20. (See Ex. 20 at EES00587.)
51. From April 2, 2008 through April 24, 2009, K&L sent payments totaling $838,679 from its Wachovia Bank account directly to either Enzyme Environmental's Enzyme Consultants Organization, Inc. ("ECO") account or SCI account, both held at 1st Source Bank, or its account at Regions Bank. The following summarizes the payments made, as reflected in Exhibit 27:
DATE AMOUNT RECIPIENT MEMO
4/2/08 $25,000 ECO INVESTMENT AGREEMENT FOR EESO
4/16/08 $30,000 ECO EESO INVESTMENT
4/30/08 $30,000 ECO EESO INVESTMENT PER AGREEMENT
5/16/08 $35,000 ECO INVESTMENT IN EESO PER AGREEMENT
5/22/08 $30,000 ECO INVESTMENT IN EESO PER AGREEMENT
6/10/08 $55,000 ECO INVESTMENT FOR EESO PER AGREEMENT
6/12/08 $14,000 ECO LOAN TO JARED HOCHSTEDLER PER AGREE
6/18/08 $48,000 ECO FOR INVESTMENT OF EESO PER AGREEMENT
6/20/08 $8,323 ECO INVESTMENT OF EESO PER AGREEMENT
6/26/08 $12,635 ECO FOR INVESTMENT OF EESO PER AGREEMEN [sic]
6/27/08 $14,633 ECO INVESTMENT OF EESO PER AGREEMENT
7/14/08 $12,635 ECO INVESTMENT OF EESO PER AGREEMENT
7/15/08 $7,467 ECO FOR INVESTMENT OF EESO PER AGREEMEN [sic]
7/31/08 $20,000 ECO FOR INVESTMENT OF EESO PER AGREEMEN [sic]
8/29/08 $15,000 ECO FOR INVESTMENT IN EESO PER AGREEMEN [sic]
10/3/08 $18,476 ECO FOR INVESTMENT IN EESO PER AGREEMEN [sic]
11/21/08 $25,500 ECO INVESTMENT OF EESO PER AGREEMENT
12/2/08 $10,000 ECO INVESTMENT OF EESO PER AGREEMENT
1/20/09 $22,010 SCI None
1/26/09 $25,000 ECO INVESTMENT OF EESO PER AGREEMENT
4/24/09 $180,000 EESO BALANCE OF LOAN
4/24/09 $200,000 EESO LOAN
Total: $838,679
52. According to Exhibit 27, on June 4, 2009 — or the same date as the final conversion under K&L's Second Wrap-Around Agreement for $245,500 — K&L sent $245,000 from it bank account at Wachovia Bank to Hochstedler's personal bank account.
53. The sum of (1) the amounts sent by K&L to Belmont Partners, LLC on Enzyme Environmental's behalf ($167,500), (2) the amounts sent directly to Enzyme Environmental through its own account at Regions Bank and its ECO and SCI accounts at lst Source Bank ($838,679), and (3) the June 4, 2009 payment by K&L to Hochstedler ($245,000) is $1,251,179.
54. On page 239 of Hochstedler's testimony transcript attached as Exhibit 19, Hochstedler states that K&L's $180,000 and $200,000 payments to Enzyme Environmental on April 24, 2009 (as set forth in ¶ 51) were loans so that Enzyme Environmental could meet operational expenses when its largest customer refused to pay its bill for products purchased.
55. Exhibit 28 is a true and correct copy of four promissory notes between K&L (lender) and Enzyme Environmental (borrower) that Enzyme Environmental produced to the staff. All of the notes are signed by Hochstedler on behalf of Enzyme Environmental and by Powalisz on behalf of K&L. The first promissory note, which is numbered EES00009-11, is dated December 16, 2008 and reflects a loan of $26,250 made between January 1 and March 31, 2008 (hereinafter, "Q1 2008 Note"). The second promissory note, which is numbered EES00012-14, is dated December 16, 2008 and reflects a loan of $185,706 made between April 1, 2008 and June 30, 2008 (hereinafter, "Q2 2008 Note"). The third promissory note, which is numbered EES00015-17, is dated December 16, 2008 and reflects a loan of $28,102 made between July 1, 2008 and September 30, 2008 (hereinafter, "Q3 2008 Note"). The fourth note, which is numbered EES00018-20, is dated December 31, 2008 and reflects a loan of $75,986 made between October 1, 2008 and December 31, 2008 (hereinafter, "Q4 2008 Note").
56. Each promissory note refers to an "Exhibit A," which details the individual payments encompassed in the total loan amount for that specific promissory note. (Ex. 28 at EES00018 , Section 2.) On pages 226-229 of Hochstedler's testimony transcript attached as Exhibit 19, Hochstedler confirms that the documents produced by Enzyme Environmental at EES00046-49 were those Exhibit As. Exhibit 29 contains true and correct copies of these exhibits to the promissory notes. Specifically, EES00049 is Exhibit A to the Q1 2008 Note, EES00048 is Exhibit A to the Q2 2008 Note, EES00047 is Exhibit A to the Q3 2008 Note, and EES00046 is Exhibit A to the Q4 2008 Note.
57. When I compared the amounts paid by K&L to Belmont Partners, LLC (see ¶ 49) and the amounts paid by K&L directly to Enzyme Environmental (see ¶ 51) against those amounts set forth in the Exhibit As to the promissory notes, I noted that many of K&L's payments were included — in whole or part — within the Exhibit As to the promissory notes. Specifically, I calculated that $306,044 of the $1,251,179 noted in ¶ 53 were encompassed in the notes.
58. When I subtract the amounts reflected in the promissory notes ($306,044) and the amount of the April 24, 2009 loan ($380,000) (see ¶ 54) from the amounts K&L paid to Belmont Partners, LLC, Enzyme Environmental and Hochstedler ($1,251,279) (see ¶ 53), the difference is $565,135.
59. The total debt reflected in K&L's First and Second Wrap-Around Agreements is $565,635. Thus, with the exception $500, K&L paid the entire amount of the debt underlying K&L's wrap-around agreements to Enzyme Environmental or Hochstedler. Specifically, Enzyme Environmental received $320,135 and Hochstedler received $245,000.
60. Exhibit 30 is a summary of transactions by Enzyme Environmental that I created based on my review of the bank records produced by 1st Source Bank for ECO's and SCI's bank accounts. My review of the summary and the underlying bank accounts indicate that Enzyme Environmental used the $320,135 it received from K&L for business operations.
Enzyme Environmental's Third Wrap Agreement with K&L
61. Exhibit 31 is a true and correct copy of a document dated June 8, 2009 and entitled Wrap-Around Agreement between K&L, Enzyme Environmental and Hochstedler ("K&L's Third EESO Wrap Agreement") produced to the Commission staff.
62. According to Exhibit 27 summarizing the transactions in K&L's bank account at Wachovia Bank, K&L sent $500,000 from its bank account at Wachovia Bank to Hochstedler's personal bank account on June 8, 2009.
63. Exhibit 32 is a true and correct copy of an opinion letter to Enzyme Environmental's transfer agent by attorney Cameron Linton dated June 17, 2009 relating to the conversion shares issued under K&L's Third EESO Wrap Agreement.
64. Exhibit 33 consists of true and correct copies of documentation produced by Enzyme Environmental's transfer agent to the Commission staff relating to the July 6, 2009 share issuance of 200,000,000 conversion shares in exchange for $165,000 in debt under K&L's Third EESO Wrap Agreement.
65. There remains $535,000 in debt available for conversion under K&L's Third EESO Wrap Agreement.
Enzyme Environmental's Wrap Agreements with Signature Worldwide
First Wrap Agreement with Signature Worldwide
66. Exhibit 34 is a true and correct copy of a document dated June 16, 2008 and entitled Wrap-Around Agreement between Signature Worldwide, Enzyme Environmental and Hochstedler that Enzyme Environmental produced to the Commission staff ("Signature Worldwide's First EESO Wrap Agreement").
67. Between June 26, 2008 and January 16, 2009, Enzyme Environmental issued three board resolutions converting $57,000 of the $350,000 debt under Signature Worldwide's First EESO Wrap Agreement into 400,000,000 shares. The following chart is a summary of conversion shares issued to Signature Worldwide under the convertibility provision of the wrap-around agreement that I created based on my review of the transfer agent records:
Assigned Actual Actual
Conversion Conversion Issuance Conversion Conversion
Date Amount Date Cert. No. # of Shares Price Amount
6/26/2008 $26,000.00 6/26/2008 8519 130,000,000 $.00025 $32,500
9/30/08 $6,000.00 10/30/08 8536 120,000,000 $.0001 $12,000
1/16/2009 $25,000.00 3/16/2009 *T2004 50,000,000 $.000425 $63,750
1/16/2009 $0.00 3/16/2009 *T2005 50,000,000 0 0
1/16/2009 $0.00 3/16/2009 *T2006 50,000,000 0 0
Totals: $57,000.00 400,000,000 s $108,250
*Certificates T2004, T2005 and T2006 are part of the same 150,000,000 conversion notice. At Signature Worldwide's instruction, the transfer agent split the shares into 3 certificates of 50,000,000 each.
The last two columns of the chart show the conversion price per share under the convertibility provision of the wrap-around agreement (Section 2.1) and, based on the price, the actual value of the conversion shares issued. (See Ex. 22.)
68. Exhibit 35 is a true and correct copy of an opinion letter to Enzyme Environmental's transfer agent by attorney William Yarno dated June 26, 2008 relating to the conversion shares issued under Signature Worldwide's First EESO Wrap Agreement.
69. For the first conversion under Signature Worldwide's First EESO Wrap Agreement, Signature Worldwide sold the 130,000,000 shares issued within three weeks of depositing them into its account at Blue Trading for proceeds totaling $69,977. Exhibit 36 is a summary of brokerage transactions by Signature Worldwide in Enzyme Environmental shares that I created based on my review of the account statements and documents produced to the Commission staff.
70. On July 21, 2009, Signature Worldwide sent $26,000 to Enzyme
Environmental's bank account in the name of ECO at 1st Source Bank. Exhibit 37 is a summary of transactions by Signature Worldwide that I created based on my review of the bank records produced by Regions Bank relating to Signature Worldwide's bank account.
72. Exhibit 38 is a true and correct copy of documentation produced by Enzyme Environmental's transfer agent to the Commission staff relating to Signature Worldwide's transfer of 120,000,000 shares originally issued on October 30, 2008 to Gibraltar Global Securities, Inc. ("Gibraltar") on November 4, 2008, and Gibraltar's subsequent cancellation of the certificate on December 2, 2008. Exhibit 39 consists of true and correct copies of documentation produced by Enzyme Environmental's transfer agent to the Commission staff indicating that, for the March 16, 2009 issuance of 150,000,000 conversion shares, Signature Worldwide directed the transfer agent to reissue 50,000,000 shares to Gibraltar on March 25, 2009, 50,000,000 shares to Grand Palm Ltd. ("Grand Palm") on March 27, 2009, and the final 50,000,000 shares to Grand Palm on April 24, 2009. Exhibit 39 also consists of true and correct copies of documentation produced by the transfer agent indicating that all of the reissued certificates were canceled by May 7, 2009.
73. I conducted a search of Gibraltar and Grand Palm on the web and discovered that they are brokerage firms located in the Bahamas and Turks & Caicos, respectively.
74. In reviewing the bank account documents of Signature Leisure, an entity also under Carnes' control (see Ex. 2), I noted that it received funds from Gibraltar totaling nearly $600,000 in the early part of 2009. Exhibit 40 is a summary of transactions by Signature Leisure that I created based on my review of the bank records produced by Regions Bank relating to Signature Leisure's bank account.
Second Wrap Agreement with Signature Worldwide
75. Exhibit 41 is a true and correct copy of a document dated June 5, 2009 and entitled Wrap-Around Agreement between Signature Worldwide, Enzyme Enviromental and Hochstedler ("Signature Worldwide's Second EESO Wrap Agreement") that Enzyme Environmental produced to the Commission staff.
76. Exhibit 42 is a true and correct copy of documentation produced by Wells Fargo Bank relating to a wire transfer of $700,000 sent by Buckwheat Holdings, LLC to Hochstedler. According to Florida Department of State, Division of Corporation's website, Carnes is the manager of Buckwheat Holdings. Also, based on my review of Buckwheat Holdings, LLC's bank account at Regions Bank, I have determined that Carnes is the only signatory on the company's bank account.
77. Exhibit 43 is a true and correct copy of an opinion letter to Enzyme Environmental's transfer agent by attorney Cameron Linton dated June 17, 2009 relating to the conversion shares issued under Signature Worldwide's Second EESO Wrap Agreement.
78. Exhibit 44 consists of true and correct copies of documentation produced by Enzyme Environmental's transfer agent to the Commission staff relating to the July 6, 2009 share issuance of 200,000,000 conversion shares to Signature Worldwide in exchange for $165,000 in debt under Signature Worldwide's Second EESO Wrap Agreement.
79. There remains $1,490,882 in debt available for conversion under Signature Worldwide's Second EESO Wrap Agreement.
Impact of Wrap Agreements on Enzyme Environmental's Outstanding Shares
80. Exhibit 45 is a true and correct copy of the control log produced by Enzyme Environmental's transfer agent to the Commission staff.
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09/24/2009 3 DECLARATION of Norman H. Jones in support of 1 Complaint, 2 MOTION by United States Securities and Exchange Commission. (2 volumes of exhibits supporting the declaration are in hard copy on the shelf) (LAK) (Entered: 09/24/2009)
6:09-cv-01638-GAP-KRS SEC v. K & L International Enterprises, Inc. et al
Pacer Doc 3 PDF file
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