Some highlights,
WHY ARE WE CONCERNED?
We are concerned because under its present management, since May 1, 1997, among other things:
There Has Been Massive Share Dilution. There were 49,834,681 shares outstanding on April 30, 1997. This had
grown to 71,005,909 on April 30, 1998 - an increase of more than 42%. Since April 30, 1998 the number of outstanding
shares has increased to 126,046,134 - an increase of more than 77% in just under five months. Almost 36 million
shares were issued in the nine days immediately preceding the record date for the Meeting. These numbers take
no account of the number of options and warrants outstanding. According to the Corporation's 20-F filing with the
Securities and Exchange Commission, as of September 16, 1998 there were options outstanding to purchase approximately
2.6 million shares; and warrants outstanding to purchase almost 8 million shares. The 20-F also reveals that on August 14,
1998 the Corporation issued convertible preferred shares which, in the most favorable circumstances, would be convertible
into 3 million common shares. On the basis of the recent market price of the common shares, the preferred shares could be
converted into almost 29 million additional shares. The August 14 sale of convertible preferred shares was not
publicly disclosed until late September.
The Deficit Has Grown By Approximately $23 Million In 15 Months. At April 30, 1997, the
Corporation had an accumulated deficit of $39,262,299. Subsequent to the year end, it reduced capital by that amount,
wiping out the deficit. By July 31, 1998 the deficit had already risen to $23,058,886.
Total Liabilities Have Doubled in 15 Months from approximately $10.6 million at April 30, 1997 to
approximately $22 million at July 31, 1998. Of total debt at July 31, 1998, approximately $7.6 million consisted of accounts
payable and accrued liabilities and approximately $8.7 million is due on demand. Management consistently misrepresents
the liabilities by emphasizing only long-term liabilities.
At Least $1.37 Million Was Paid Or Accrued In Favor Of Officers And Directors In The
Fiscal Year. Management salaries have continued to increase despite an extremely poor record of performance.
Moreover, it is impossible to determine from the audited financial statements the exact amount that was paid or accrued in
favor of management and related parties during the fiscal year, but it appears to be not less than $1.37 million, and is
probably more than that. This represents approximately 42% of total revenues for the fiscal year of
approximately $3.28 million.
Options To Purchase An Aggregate Of Approximately 2.5 Million Shares Were Granted To
Mr. Branconnier And Members Of His Family.
The Corporation's Patents Have Been Transferred. The patents are now held by the inventors, who
include Mr. Branconnier and Dr. Cumming, both directors and senior officers of the Corporation. The
management explanation for this is that "the Corporation is currently going through a corporate structuring program
designed to take it through the transition to a mature, multi-national operating Corporation. The patent has been retained in
the hands of the inventors until such time as that structuring is complete. Upon completion of the re-structuring, the patent
will be assigned to the Corporation at no cost." Shareholders have been given no explanation of what the
"structuring program" is all about, or why it is necessary, pending its completion, to put the patents in the hands
of the inventors.
In addition:
The Corporation Has Overpaid For Worthless Assets. For example, in 1996 the Corporation purchased all
the outstanding shares of Thermo Waste Exchange Inc. for $877,098. $250,000 of the purchase price was paid in cash, and
the balance through the issuance of 166,153 shares (at approximately $3.77 per share). The liabilities of Thermo Waste
exceeded its assets by $52,000, and the $929,000 difference between this deficiency and the purchase price was attributed
to "goodwill". In 1998, the Corporation decided that the goodwill had "no remaining value" and wrote it off.
The Corporation Appears To Have Engaged In Highly Unusual Financing Transactions:
The Corporation seems to have borrowed 260,000 common shares from Mr. Branconnier "to satisfy stock subscriptions
outstanding". Why? Normally, stock subscriptions are satisfied by a direct issuance of shares from treasury. Moreover, the
transaction seems to have resulted in the creation of a debt of over $1 million in favor of Mr. Branconnier. When is this
debt to be repaid, and how?
On March 18, 1998 the Corporation announced it had acquired a 50% interest in Ontario Thermo Tech Ltd. The terms of
the acquisition were not disclosed, however, until the release of the audited financial statements some six
months later. It turns out that the price was approximately $7 million (of which approximately $6 million represented
"goodwill") which was paid with 4,123,380 shares. These shares were "provided" by (i.e. borrowed from) a mysterious
Bahamian Corporation which apparently agreed to do so at an "agreed value" of approximately $11.5 million. The
Bahamian Corporation acquired those shares from an unidentified "officer of the Corporation or companies
related to him and persons related to him." The difference between the "agreed value" of $11.5 million for the
borrowed shares, and the $7 million price for the interest in Ontario Thermo Tech was "charged to Deficit". At April 30,
1998 "the balance remaining on the indebtedness to Baha Co. was some $6.7 million, due on demand. What was the
reason for this convoluted transaction? It is suspicious on its face and has never been explained. And is the
$6 million in goodwill also to be written off as having "no remaining value". And what other assets have
been acquired at a cost greater than their value?
The Corporation Has Ignored Its Own By-Laws. Under the By-laws of the Corporation notice of a record
date for a meeting of shareholders must be published in a newspaper not less than 7 days before the record date.
Publication of the September 25 record date in the Toronto Globe and Mail occurred on September 28 - three days after
the record date.
The Corporation Has Persistently Issued Press Releases And Made Other Statements That
Are Confusing, Uninformative Or Misleading And Which Seem To Have No Purpose Other
Than To Conceal What Management Is Doing And To Stimulate Market Activity. We have
already given some examples of this. Here are some others:
The Corporation has publicly stated that Hamilton Bio Conversion Inc. "has operated profitably, exceeding its financial
targets, through the first nine months of the current fiscal year." Since the "financial targets" have never been disclosed, it is
impossible for shareholders to determine the significance of this statement.
In a June 16, 1998 press release, the Corporation reported total revenues from Hamilton Bio Conversion for the 12 months
to April 30, at $3,650,823. On September 28, the Corporation announced total Corporation wide revenues of $3,284,542 -
$400,000 less than the revenues previously reported for Hamilton Bio Conversion alone.
On June 26, 1998 the Corporation announced that it had terminated its dependency on a convertible debenture facility. It
said that the Corporation was "confident that we will be generating the necessary revenue to efficiently address our internal
working capital requirements. Furthermore, by terminating this facility, we will also be terminating further dilution of our
shareholders" Despite this, after June 26, 1998 shareholders' equity has been further diluted by the issuance of
an additional 46 million shares.
In an August 4, 1998 press release, the Corporation announced "final negotiations" for the acquisition of a waste water
treatment facility in Carver, Mass. On September 28, 1998 it was disclosed that the Corporation's "offer" for the facility
was subject to completion of suitable arrangements for debt financing. Is there an agreement for the acquisition, subject to
financing, or is there merely an unaccepted offer? It is impossible to tell.
On April 1, 1998 the Corporation announced that "the Thermo Enzyme spin-off" was "coming in the first fiscal quarter of
fiscal 1998/9 . . . Arrangements are nearly complete . . . . Shareholders . . . will receive 1 share in Thermo Enzymes for
every 10 shares they hold" in the Corporation. On June 16, 1998 the Corporation announced that it was "continuing its
discussion with legal and financial advisors as it prepares for the spin-off of Thermo Enzymes and the share dividend which
will go to Corporation shareholders." The first quarter ended on July 31. There was no spin-off by that, nor has there been
any since. Moreover, the financial statements at April 30, 1998 make no reference to Thermo Enzymes. Did the
Corporation own it on April 1 or not? If it did not, how could Thermo Enzymes be "spun-off", by way of dividend or
otherwise. The press release issued by the Corporation on September 28, 1998 in connection with the release of the audited
financial statements contains what purports to be a comprehensive statement of the Corporation's affairs, and includes a
"plant update". This press release makes no reference to Thermo Enzymes or to its spin-off or to a stock dividend.
Shareholders are entitled to a clear explanation of all this. They have received none - not one word.
In a press release of October 2, 1998 the Corporation reported "profit before expenses" of $168,247 for the first quarter
ended July 31, 1998. This is a novel concept. In fact, the Corporation incurred an operating loss for the period of
approximately $1.7 million, and a net loss of approximately $2.6 million. Neither of these amounts are disclosed in the press
release.
The present management and directors of the Corporation have forfeited all claim to continue in their present
positions. THEY SHOULD BE REPLACED. |
