UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT 1
to
FORM 10-SB
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL, INC, f.k.a
Ginsite Materials, Inc.
---------------------------------------------
(Name of Small Business Issuer in its charter)
FLORIDA 65-0774999
- ---------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization )
2828 North Speer, #103, Denver, CO 80211
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(Address of principal place of business) Zip Code
Issuer's telephone number: (303) 455-3100.
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which each
to be so registered class to be registered
None
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Securities to be registered under Section 12(g) of the Act:
(Common Stock, $.001 par value)
--------------------------------
(Title of class)
Copies of Communications Sent to:
Donald F. Mintmire
Mintmire & Associates
265 Sunrise Avenue
Suite 204
Palm Beach, FL 33480
(561) 832-5696
<PAGE>
TABLE OF CONTENTS
Part I
Forward-Looking Statements
Item 1: Description of Business
(a) Business Development
(b) Business of Registrant
General
Management:
Business Strategy
The Construction Market
Licensing & Distributorship
Patent Pending & Trademark Status
Research & Development
Marketing
Quality Control Issues
Risk Management Program - Workers Compensation
Employees
Customer Base/Market
Competition
Industry Regulation
Environmental Impact/Approvals
Seasonality
(c) Risk Factors
1. Development Stage Company
2. Operating History, Revenue or Earnings
3. Need for Additional Capital:
Going Concern Qualification Expressed by Auditor
4. Dependence on Management:
Management's Lack of Experience in Construction Marketing and
Marine Product Sales
5. No Existing Market Penetration or Customer Base
6. No Assurance of Product Quality: Performance and Reliability
7. No Assurance of Sales Force Quality: Performance and Reliability
8. Uncertainty of Market Acceptance
9. Seasonal Variations in Results
10.Raw Material Costs
11.Lack of Working Capital Funding Source
12.Conflicts of Interest
13.Increased Employee Costs
14.Liability for Workers Compensation Claims
15.Ability to Grow
16.Potential Legal Liability
17.Competition
18.Patent, Copyrights and Trademarks
19.Uncertainty Regarding Protection of Proprietary Rights
20.Cash Flow Commitments: Note Purchase Agreement
21.Possible Adverse Effect of Penny Stock Regulations on Liquidity of
Common Stock in any Secondary Market
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Discussion and Analysis
12 Month Plan of Operations
Results of Operations - Full Fiscal Years
Revenues
Net Sales
Operating Expenses
Sales and Marketing
General and Administrative
Results of Operations - Nine mos ended Sept. 30,1999
Net Losses
Research and Development
Patent Pending & Trademark Status
Interest and Other Income (Expense), Net
Financial Condition, Capital Resources and Liquidity
Net Operating Losses
The Company
Year 2000 Compliance
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
Description of Common Stock
Dividend Policy
Rights of Dissenting Shareholders
Preliminary Merger Discussions
Transfer Agent
Certain Provisions of Florida Law
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other
Shareholder Matters
Market Information
Holders of Common Stock
Dividends
Item 2. Legal Proceedings
Item 3. Changes In and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
<PAGE>
PART F/S
INDEX TO FINANCIAL STATEMENTS
AUDITED GINSITE FINANCIAL STATEMENTS
For the period ending December 31, 1999
Including the Interim period ending March 31, 1998
Independent Auditors' Report............................F-2
Balance Sheets..........................................F-3
Statements of Loss......................................F-4
Statements of Changes in Stockholders' Equity...........F-5
Statements of Cash Flows................................F-6
Notes to Financial Statements...........................F-7
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL["ECPI"]
Consolidated Unaudited Proforma Financial Statements
For the period ending December 31, 1998
Proforma Consolidated Balance Sheets..................................F-12
Proforma Consolidated Statements of Operations........................F-13
Notes to Proforma Consolidated Financial Statements..................F-14
AUDITED ENVIROCON FINANCIAL STATEMENTS
For the period ending December 31, 1998
Report of Independent Certified Public Accountants.................F-15
Balance Sheets.....................................................F-16
Statements of Operations...........................................F-17
Statements of Changes in Stockholders' (Deficit)...................F-18
Statements of Cash Flows...........................................F-19
Notes to Financial Statements .....................................F-20
Unaudited ECPI Consolidated Financial Statements
For the period ending September 30, 1999
Balance Sheets.....................................................F-23
Statements of Operations...........................................F-24
Statements of Changes in Stockholders' (Deficit)...................F-25
Statements of Cash Flows...........................................F-26
Notes to Financial Statements......................................F-27
PART III
Item 1. Index to Exhibits
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Part I
Forward-Looking Statements
This Report on Form 10-SB includes certain statements that may be deemed
to be "forward- looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The sections of this Report on Form 10-SB
containing such forward-looking statements include "Description of Business,"
"Growth," "Acquisitions," "Product and Services," "Marketing and Sales,"
"Markets," "Competition," and "Year 2000 Issues" under Item 1 below, and
"Management's Discussion and Analysis or Plan of Operation" under Item 2 below.
Statements in this Form 10-SB which address activities, events or developments
that we expect or anticipate will or may occur in the future, including such
topics as future issuances of shares, future capital expenditures (including the
amount and nature thereof), expansion and other development and technological
trends of industry segments in which the proposed registrant is active, business
strategy, expansion and growth of the registrant's and its competitors' business
and operations and other such matters are forward-looking statements. Although
we believe the expectations expressed in such forward- looking statements are
based on reasonable assumptions within the bounds of our knowledge of our
business, a number of factors could cause actual results to differ materially
from those expressed in any forward-looking statements, whether oral or written,
made by or on our behalf.
Our operations are subject to factors outside our control. Any one, or a
combination, of these factors could materially affect the results of our
operations. These factors include: (a) changes in levels of competition from
current competitors and potential new competitors; (b) loss of a significant
customer; and (c) changes in availability or terms of working capital financing
from vendors and lending institutions. The foregoing should not be construed as
an exhaustive list of all factors that could cause actual results to differ
materially from those expressed in forward-looking statements made by us.
Forward-looking statements made by or on our behalf are based on a knowledge of
our business and the environment in which we operate, but because of the factors
listed above, actual results may differ from those anticipated results described
in these forward- looking statements. Consequently, all of the forward-looking
statements made are qualified by these cautionary statements and it is possible
that the actual results or developments anticipated by us will not be realized
or, even if substantially realized, that they will not have the expected
consequences to or effects on our business or operations.
Item 1: Description of Business
(a) Business Development
Environmental Construction Products International, Inc, (hereinafter
referred to as the "Company" or "ECPI") f/k/a Ginsite Materials, Inc.("Ginsite")
was organized under the laws of the State of Florida on August 7, 1997. The
Company was originally organized by Mr. Murray Ginsberg, Chairman, President and
Director of the Company for the purpose of manufacturing GINSITE(TM), a
resin-bound innovative coating material which is non-porous, waterproof and
bonds directly to various surfaces. The product is manufactured exclusively for
the construction and marine markets. On August 13, 1999 the Company entered into
an Agreement and Plan of Reorganization("Agreement") in which it purchased at
least 80% of the issued and outstanding shares of Envirocon
Corporation("Envirocon"), a Nevada corporation. (See: Part III. Item 1. Index to
Exhibits- 10. Agreement and Plan Of Reorganization) The Agreement called for the
resignation of the original officers and board of directors of the Company and
the appointing of a new board and officers. The new board of directors consisted
of Murray Ginsberg and Wayne Doss representing the positions to be held by
Ginsite Representatives, and Frank Glinton and George Anagnost as new members of
the board of directors representing positions to be held by Envirocon
representatives. A fifth board member is to be named by the new board. Mr.
Glinton was subsequently appointed President and George Anagnost was appointed
<PAGE>
Senior Vice-President, Secretary and Treasurer of the Company. It is anticipated
that the Company will greatly benefit from the synergy expected to result from
the combination of professional experience provided by the above executives. The
Company has been active as a manufacturing development stage company since its
incorporation on August 7, 1997.
Envirocon manufactures proprietary composite wire mesh and Expandable
Polystyrene (EPS) foam panels for the construction of affordable,
environmentally friendly, and element tolerant residential homes and commercial
buildings. The Agreement between Envirocon and Ginsite was consummated with the
goal of combining each of the company's core product to provide opportunities
which the Company believed would be far in excess of what each alone could have
enjoyed as separate entities. With the acquisition of Envirocon the Company can
now offer a construction panel "system" which greatly expands its capabilities
and business plan which is to become a leading homebuilder in the United States
and a dominant player in key international housing markets.
The Agreement also allows the Company to consolidate managerial duties and
responsibilities by enabling more experienced managers to assume control of the
Company providing necessary managerial support in addition to reducing costs to
each respective company. The Company believes that its Econ Panel System will
provide it with the market recognition necessary to support the development of
additional technological enhancements which ECPI plans to incorporate in future
Econ Panel machines. The Econ Panel offers a structural building solution which
the Company believes is a step above that which is presently available in the
market at a better price.
The Company as a direct result of its acquisition of Envirocon is now firmly
positioned in the building construction materials industry. Its primary focus is
to produce a new Econ Panel System which entails the manufacturing of a
structural composite wire mesh and polystyrene foam panel for the construction
of residential homes and commercial buildings The Company builds both panel-
making machines and manufactures the panels for retail sales. These panels are
especially well suited for construction in high wind and earthquake prone
regions of the world. The Company controls proprietary technology for a wire
mesh, panelized building system that is particularly valuable for a variety of
building applications in the United States and around the world. The Econ Panel
System serves the growing need for an economically sound and environmentally
acceptable building material on a worldwide basis. A similar system has already
been used by Habitat for Humanity to construct low-cost homes in Mexico and is
sponsored by former President Jimmy Carter. Current trends in the construction
industry favors use of the company's product. The Econ Panel System provides a
wide array of features and benefits which are not directly met by the
competition.
The Company shortly after closing on the above Agreement changed its name to
Environmental Construction Products International, Inc. and changed its stock
symbol to "ECPI." The Company's stock is quoted for trade on the OTC Bulletin
Board under the symbol "ECPI". The Company's Principal Executive Offices are
located at 2828 North Speer, #103, Denver, CO 80211 and its telephone is: (303)
455-3100.
The Company is filing this Form 10-SB on a voluntary basis in order that the
public will have access to the required periodic reports on the Company's
current status and financial condition. The Company will file periodic reports
in the event its obligation to file such reports is suspended under the
Securities and Exchange Act of 1934 (the "Exchange Act".)
In August, 1997, the Company issued 200,000 shares of common stock
pursuant to Section 4(2) of the Act for the sum of $1,500 to First Equity Group,
Inc. for services to be rendered. The offering was made to a Florida corporation
in the State of Florida.
<PAGE>
The Company in September 1997 accepted subscriptions in the amount of
$1,000,000 for the sale of 3,000,000 shares of common stock , $0.001 par value
per share(in units consisting of 14 warrants for each share of common stock,
each warrant convertible at $0.35 per share into one (1) share of common stock
on or before November 30, 1998) in a private placement conducted pursuant to an
exemption from registration contained in section and 3(b) of the Act and Rule
504 of Regulation D promulgated thereunder. The offering was made to Florida
residents in the State of Florida. A Private Placement Memorandum was used in
connection with this offering which was disclosed to each prospective
investor.(See: Part II, Item 4. "Recent Sales of Unregistered Securities"). In
September 1998 the Company accepted subscriptions in the amount of $45,000.00
from the sale of 67,164 shares of common stock in a private placement to
accredited investors conducted pursuant to an exemption from registration
contained in section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.(See: Part II, Item 4. "Recent Sales of Unregistered Securities"). In
November, 1998 the Company accepted subscriptions in the amount of $4,899.00 for
the sale of 13,998 shares of common stock in a private placement conducted
pursuant to an exemption from registration contained in sections 3(b) of the Act
of 1933 and Rule 504 of Regulation D promulgated thereunder. The offering was
made to Florida residents in the State of Florida.(See: Part II, Item 4. "Recent
Sales of Unregistered Securities"). In March and April 1999, (prior to April 7,
1999) the Company accepted subscriptions in the amount of $330,250.00 for the
sale of 3,585,611 shares of common stock in a private placement conducted
pursuant to an exemption from registration contained in sections 3(b) of the Act
and Rule 504 of Regulation D promulgated thereunder. The offering was made to
Florida residents in the State of Florida(See: Part II, Item 4. "Recent Sales of
Unregistered Securities"). In June 1999, the Company accepted a subscription in
the amount of $50,000 from the sale of 400,000 shares of common stock in a
private placement to one accredited investor and Florida resident conducted
pursuant to an exemption from registration contained in section 3(b) of the Act
and Rule 504 of Regulation D promulgated thereunder. The offering was made in
the State of Florida.(See: Part II, Item 4. "Recent Sales of Unregistered
Securities"). All of the above subscriptions were fully funded.
All required state forms were filed in New York and Florida in compliance
with all Blue Sky laws under the terms of the exemption under which the above
offering was made.(See Part II, Item 4.
"Recent Sales of Unregistered Securities.")
On August 13, 1999, the Company entered into an Agreement and Plan of
Reorganization ("Agreement") with Envirocon Corporation, a Nevada
corporation,("Envirocon") which was formed in March 1998. Upon the closing of
the Agreement the Company acquired at least 80% of the 3,800,000 issued and
outstanding shares of Envirocon stock ("Envirocon Shares"). Envirocon became a
wholly owned subsidiary of the Company. In addition, upon the closing of the
Agreement the Envirocon shareholders acquired from Ginsite approximately
32,842,909 shares of the Company's common stock or approximately 60% of the post
reorganization issued and outstanding shares of the Company's common stock
("Ginsite Shares"). The original Ginsite shareholders own approximately
21,895,273 shares of the Company's common stock at the closing of the Agreement
or approximately 40% of its post reorganization issued and outstanding shares.
Upon completion of the Plan of Reorganization the Company will have issued an
aggregate of 54,738,182 shares of common stock representing 100% of all issued
and outstanding shares.
On September 7, 1999, the board of directors of the Company and a majority
of the Company's shareholders approved: (i) a 5 to 1 reverse split of its common
stock, (ii) the change in the name of the Company from Ginsite Materials, Inc.
to Environmental Construction Products International, Inc., and (iii) the change
to the Company's stock ticker symbol to ECPI if available. At this time a
majority of the Company's shareholders also reaffirmed the par value of the
common stock post reverse split to be $0.001 par value per share and that the
aggregate number of authorized shares post 5 to 1 reverse split to be
100,000,000.
<PAGE>
The Company is now focused on the building construction materials industry
subsequent to the above reorganization. It is in the business of producing a new
generation of structural composite wire mesh and polystyrene foam panel for the
construction of residential homes and commercial buildings. The Company builds
both panel-making machines and manufactures the panels for retail sales. The
Company's building panels are well suited for construction in high wind and
earthquake prone regions of the world. The Company controls proprietary
technology for a wire mesh, panelized building system that is particularly
valuable for a variety of building applications in the U.S. and around the
world.[See: Part III. Item 1. Index to Exhibits - Item 10.11 Original License
Agreement to Intellectual Property between Paul Artzer and Envirocon] The
Company's Econ Panel System serves the growing need for an economically sound
and environmentally acceptable building material on a worldwide basis. A similar
system has already been used by Habitat for Humanity to construct low-cost homes
in Mexico and is sponsored by former President Jimmy Carter. The Company
believes that current trends in the construction industry favors use of its Econ
Panel System. In addition, the Company does not see substantial direct
competition by another panel system with as wide an array of features and
benefits which the Company's Econ Panel System provides.
Subsequent to the closing of the Agreement the former directors and officers
(including Murray Ginsberg) challenged the validity of the Agreement. On October
19, 1999, the Company entered into a verbal Stipulation For Settlement agreement
with Murray Ginsberg, Henry Max and Audrey Max which also joined Henry Lione and
S. Barry Grieper ratifying and affirming the Plan of Reorganization and
acknowledging their respective resignations as directors as well as the
appointment of Frank Glinton as President and director, George Anagnost as Vice
President, Secretary, Treasurer and director, and Wayne Doss as a director. The
Settlement was approved by the parties and subsequently affirmed by court order.
[See: Part III. Item 1. Index to Exhibits. No. 99.1 - Order of the Circuit
Court.] In addition, the court directed, in accord with the terms of the
Settlement, that the above parties turn in their respective shares of stock to
the Company's Treasury for cancellation.
On October 25, 1999, the Company accepted subscriptions for 271,719
restricted shares of the Company's common stock pursuant to the conversion
option provided in two notes to the Company's subsidiary, Envirocon Corporation,
for a combined total $35,000. These notes were executed prior to the Company's
Reorganization in a private placement to accredited investors conducted pursuant
to an exemption from registration contained in section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.(See: Part II, Item 4. "Recent Sales
of Unregistered Securities").
There are no preliminary agreements or understandings between the Company
and its officers and directors or affiliates or lending institutions with
respect to any loan agreements or arrangements other than those disclosed in
Item 7: "Certain Relationships and Related Transactions."( See Part I, Item 7:
"Certain Relationships and Related Transactions")
The Company has no pending plans to offer additional securities under Rule
506 of Regulation D under the Act. ("Rule 506") to fund its short term and
medium term expansion plans.
The name and address of the transfer agent is Florida Atlantic Stock
Transfer, Inc., 5701 N. Pine Island Road, Suite 310B, Tamarac, Florida 33321.
See (b) "Business of Issuer" immediately below for a description of the
Company's business plan for the manufacturing and marketing of its Econ Panel
System.
<PAGE>
b) Business of Registrant
General
The Company was formed in August 7, 1997. Upon the acquisition of
Envirocon the Company's focus has evolved into one which aims to become a
leading homebuilder in the U.S. and to become a dominant player in key
international markets. The Company was originally engaged in product
development, manufacturing and sales of GINSITE(TM), a non-porous, resin-bound
coating material that can enhance wood, concrete, metals, fiberglass and other
costly materials in the construction, plywood, roofing, tile and marine
industries. Upon the addition of Envirocon, the Company possesses the ability to
manufacture a proprietary composite wire mesh and Expandable Polystyrene (EPS)
foam panels for the construction of affordable, environmentally friendly, and
element tolerant residential homes and commercial buildings. The Company is now
focused on the business of producing a new generation of structural composite
wire mesh and polystyrene foam panel it has labeled the Econ Panel System. These
panels are used in the construction of residential homes and commercial
buildings. ) The construction market can utilize the Econ Panel System in a
variety of applications from exterior walls, facades,, plywood, "drywall" and
even interior load bearing support walls. The Econ Panel System can include a
waterproof material( GINSITE(TM)) which can be appliedonto a panel's surface,
roofs and flat surfaces, poured into molds and sprayed onto metal and other
materials; and is clear in appearance and/or is offered in different colors.
As a reporting company, the Company will be required to file quarterly on
Form 10-QSB and annually on Form 10-KSB and in each case, will be required to
provide the financial and other information specified in such forms. In
addition, the Company would be required to file on Form 8-K in the event there
was a change of control, if the Company acquires or disposes of assets, if there
is a bankruptcy or receivership, if the Company changes its certified
accountants, upon the occurrence of other events which may be pertinent to the
security holders, and after certain resignations of directors. Being subject to
such reporting requirements reduces the pool of potential acquisitions or merger
candidates for the Company since such transactions require that certified
financial statements must be provided for the acquiring, acquired or merging
candidate within a specified period of time. At such time as the Company will
seek acquisitions or mergers, it will limit itself to companies which either
already have certified financial statements or companies whose operations lend
themselves to review for a certified audit within the required time.
Management
The current Company management is totally committed to the Company and its
new focus to become a leading homebuilder in the U.S. and to become a dominant
player in key international markets. All have made a commitment for "the long
haul" concerning the Company and have dedicated their professional efforts for
the betterment of the Company making whatever sacrifices are necessary to ensure
a profitable business venture.. The directors and/or executive staff devote
their full time, expertise and efforts to the Company. There are no conflicting
interests on the part of any of the board members and/or officers of the Company
at the present time that can be perceived to be in conflict with the Company.
All parties related to PTI and New Era Medical are no longer employed by the
Company subsequent its reorganization. Mr. Ginsberg has resigned from the board
of directors to pursue other interests. (See: Part I, Item 7: "Certain
Relationships and Related Transactions")
Business Strategy
The Company's business strategy, which is dependent on its obtaining
sufficient additional financing, of which there is no assurance, entails the
commercialization and market acceptance of its Econ Panel System. The Company
has filed for and is awaiting the granting by the U.S. Patent Office of Patent
<PAGE>
Protection for its panel system's complimentary coating, GINSITE(TM). At present
GINSITE(TM) is Patent Pending in the United States Patent Office only and is in
limited production at the Company's manufacturing plant which is located in
Plantation, Florida. [See: Part III. Item 1. Index to Exhibits - Item No. 10.9B
- - Patent Application & Status; Trademark Application & Status]
The Construction Market
The Company will market its Econ Panel System through not only direct
sales but also by establishing joint ventures with selected national and
international partners and will license its patented technology, as well as
manufacture and sell the machines used to produce the Econ Panel. The Company
will out source the manufacture of the machinery through an exclusive
arrangement with Bergandi Machinery, a well-established, sixty-year-old, U.S.
based wire machinery manufacturing company.[See. Part III. Item 1. Index to
Exhibits - Item No. 10.14 - Envirocon Corporation Bergandi Exclusivity
Agreement] The Company recognizes the primary applicability of its panel product
in the Construction Market. The Residential and Commercial Construction Market
is presently experiencing one of its strongest economic periods in history and
the demand from suppliers to this market is at and/or near historical highs. As
a result, demand for material and alternate supply sources by the market is
creating great opportunity for new and creative suppliers. The Company believes
that once it is able to achieve greater market visibility and acceptance of its
Econ Panel System the related production and manufacturing levels at the Company
will increase significantly and will have a positive impact on earnings.
However, there is no assurance that the Company will be able to achieve the
greater market visibility and acceptance required to become a viable enterprise.
Licensing & Distributorship
The Company's initial plans prior to its reorganization called for
Licensing Agreements and the establishing of Distributorships as the primary
means of generating product sales and revenue. All such Agreements executed by
the Company have been canceled and are no longer in existence due primarily to
the lack of performance by such parties with regard to minimum volume
requirements necessary to maintain such Agreements. ( See: Pat III. Item 1.
"Index to Exhibits: - 10.1: Distributorship Agreement - Form Of"). The Company
will continue to seek joint ventures with selected national and international
partners and will continue to license its technology when economically viable.
The Company also plans to develop Licensing Agreements to manufacture Econ
Panel Systems at satellite locations around the world. These form Licensing
Agreements have been drafted and are attached. ( See: Pat III. Item 1. "Index to
Exhibits: - 10.2: License Agreement - Form Of") Recent efforts by the Company in
this regard has produced a joint venture agreement with Modular Homes Limited, a
division of the Jain Group of Jalgoan, India to construct 12,000 homes in the
Indian state of Maharashtra. [See: Part III. Item 1. Index to Exhibits - Item
No. 10.13] The Jain Group is a privately held Indian corporation with annual
sales of over $1 (one) Billion US dollars with offices throughout the world.
ECPI, India has been organized as a new corporation, owned jointly by the Jain
Group and the Company, to develop the first of several projects to be completed
in India, using the Company's unique panel technology. Payment on the contract
is guaranteed by an agency of the government of India (HUDCO) and the project is
expected to commence at the beginning of the year 2000.
The Company, through its ECPI, India company has entered into a joint
venture agreement with Viral Corporation, a major Indian construction and
engineering firm which specializes in the manufacture of pre-fabricated
buildings, commercial structures and modular homes. This joint venture will
bring greater visibility to the Company's Econ Panel System technology in the
<PAGE>
geographical areas in which Viral Corporation has a presence. Viral Corporation
has operations in India, Korea, Singapore and Japan. Under the terms of the
Agreement, ECPI, India will provide the equipment to produce Econ Panels,
provide engineering and manufacturing expertise as well as the supervision and
training of labor. Viral Corporation will be responsible for the factory
infrastructure, manpower, procurement of projects, raw materials, government
licenses, permits and working capital.[See: Part III. Item 1. Index to Exhibits
- - Item No. 10.13?]
The Company is at various stages of contract negotiations on several
projects world-wide including Nicaragua, New Guinea, Honduras, Egypt, Mexico and
the United States. The Company's business plan includes the establishment of
international joint ventures around the globe wherein it will provide the
hardware/machinery to manufacture the panels and will also provide the necessary
supervision in addition to training the direct labor on how to properly apply
and operate the technology. The plan the Company believes will result in the
development of strategic international alliances that may result in exponential
growth. Furthermore, the Company believes that by partnering with
well-established native institutions internationally its entry into these
foreign markets will be greatly facilitated.
Patent Pending & Trademark Status
Mr. Ginsberg filed a application on July 28, 1995 for GINSITE(TM) with the
U.S. Patent Office after developing the product at PTI. On August 7, 1997, Mr.
Ginsberg formally assigned a certain patent pending originally dated July 28,
1995 and any and all international rights to Ginsite Materials, Incorporated.
The Patent has a historical cost of $50,976. (See: See: Part III. Item 1. Index
to Exhibits: 10.9A - Assignment of Patent & Trademark, and 10.9B Patents). A
subsequent patent application was filed on October 20, 1998 for a materially
enhanced and improved formula under the Ginsite Materials, Inc.'s ownership
interests. Although there exists coatings similar to GINSITE(TM) in the
marketplace, the Company believes its formula to be unique and to possess
characteristics that other GINSITE(TM) like coatings do not provide. The Company
will not be able to preclude the distribution of other GINSITE like products;
however, it anticipates that the granting of Patent protection to its formula
will preclude competitors from replicating its formula without financial and
legal ramifications. In discussions with the company's patent attorney, the
company has been advised that final patent approval should be granted in the
year 2000. The issuance of patent protection is not guaranteed. In the event the
Company fails to obtain patent protection for GINSITE(TM) its operating revenues
may not necessarily be negatively impacted due to the fact that the
reorganization has caused the Company to focus primarily on it Econ Panel System
which does not rely on GINSITE(TM) as a necessary component of its features and
benefits.
Research & Development
For Fiscal years 1997 and 1998, the Company expended $50,976 and $29,536
respectively, on research and development. These expenditures represented 100 %
and 0.80%, respectively, of total company expenditures for such fiscal years.
The principal decrease in the cost of research and development for fiscal years
1997 and 1998 was the original cost, time and expenses incurred for the
manufacturing and conducting of displays and field demonstrations of product
applicability. The Company believes that ongoing research and development of the
Econ Panel System capability and applicability will continue.
At the current time, none of the costs associated with research and
development are borne directly by the customer; however, there is no guarantee
that such costs will not be borne by customers in the future and, at the current
time, the Company does not know the extent to which such costs may be borne by
the customer, if at all.
<PAGE>
The Company has in effect research and development efforts to design
machinery for additional uses of its Econ Panel System products. The Company
believes that licensing Econ Panel manufacturing equipment will further expand
its market diversification and broaden its revenue stream. . This equipment will
bear the ECPI brandname and be distributed exclusively through the Company. This
equipment will be utilized in various market applications and, in fact, will be
required by the Company to ensure proper product application which will further
ensure product performance as well as help meet product warranties.
Marketing
As with all start-up companies and with those introducing a newly-
manufactured product, time and acceptance of the product are factors which will
ultimately determine the success or failure of the Company. The Company believes
that the panel market in which it is focusing is greatly fractionalized and
without significant competitors; however, in order to enhance its penetration
into the market and to support market acceptance, the Company's marketing
program will emphasize how its Econ Panel System"enhances" and does not
necessarily "replace" other known and accepted products but rather is a viable
and cost-saving alternative in a market that is facing historically tight
construction materials. The Company believes that if properly introduced and
utilized, the Econ Panel System can provide material benefits not associated
with existing alternative products and can become a structural material of
choice along with wood, steel and concrete. This marketing program will continue
to emphasize getting the ECPI brand-name and its features and benefits in front
of the construction market end users as a viable and cost effective building
materials alternative which is supported by independent laboratory test results.
[See: Part III. Item 1. Index to Exhibits Item No. - 99.2 Arpin & Sons Engineers
Test Results.]
Quality Control Issues
The Company recognizes that a significant element of its success will
depend on the performance of the Econ Panel System and its competitive
environment. The Company believes that thorough quality control aimed at
ensuring consistent product performance specifications will contribute to the
successful performance of the Econ Panel System in the field and will be an
ongoing necessary concern in the manufacturing of the Company's Econ Panel
System. Furthermore, competitive product pricing will be directly dependent on
the maintaining of production cost efficiencies which entails keeping raw
material costs, personnel, and other overhead costs in control. Specific Company
policies concerning invoices, orders, payment schedules, etc. have been
established in order to provide critical and timely feedback to management of
the Company's cash flow burden and to enable it to respond quickly to
competitive challenges which are anticipated to arise in the marketplace. The
Company believes that all of the preceding concerns will contribute to the
quality of its Econ Panel System
Risk Management Program - Workmen's Compensation
Being a manufacturing company, the Company believes that a pro-active
prevention program and aggressive controls will reduce Workers' Compensation
costs. The Company will seek to prevent workplace injuries by implementing a
variety of training, safety and mandatory drug-free workplace programs including
pre-employment screening, random drug testing and post-accident drug monitoring
to ensure that safety awareness is heightened within the company. Further, the
Company will insist that all employees adhere to ongoing safety practices in all
areas of the corporate headquarters and manufacturing facilities as well as
other sites as they become available through expansion and/or acquisitions. The
Company has obtained adequate Workers' Compensation insurance at sufficient
<PAGE>
deductible per accident levels so as to cover the intended risk management
objectives. As an employer, the Company is subject to all federal, state and
local statutes and regulations governing its relationship with its employees and
affecting business generally.
Employees
The Company consists of Seven (7) managers, three of whom have been
officially assigned Officer's titles; however, all managers officers have been
actively involved in numerous aspects of the Company. As sales increase the
Company will add as required.
The Company's primary direct costs will be (i) salaries and wages of
managers (payroll cost), (ii) employment related taxes, (iii) health benefits
(iv) workers' compensation benefits and insurance, (v) materials required in the
manufacturing of the Econ Panel System and GINSITE(TM), and (vi)
administrative/office supplies including rent, utilities, etc.. Staffing will
consist of corporate officers with specific responsibilities. The sales force
will consist at least initially of management. To attract qualified personnel,
salaries for all personnel will be fair, equitable and competitive regarding the
job description and work to be accomplished. Employment related taxes consist of
the employer's portion of payroll taxes required under the Federal Income
Contribution Act ("FICA"), which includes Social Security and Medicare, and
federal and state unemployment taxes. The federal tax rates are defined by the
appropriate federal regulations. State of Colorado and Florida unemployment tax
rates are affected by claims experience, of which the Company has none at this
time. Health benefits are comprised primarily of medical insurance costs, but
also include costs of other employee benefits such as prescription coverage.
When the Company is in a financial position, it will offer its employees
appropriate retirement and other benefit plans such as group life insurance all
of which would be subject to " ERISA" rules and regulations.
Customer Base/Market
Through the business opportunities outlined, the Company believes it will
generate a stream of revenue that will cover its operational costs and also
yield excellent profit margins. All of the preceding will be dependent upon an
adequate infusion of additional capital and the further penetration and
acceptance in the marketplace of the Company's Econ Panel System. The Company
identifies its immediate market as the residential and commercial housing
markets. In 1994, according to US Department of Commerce statistics, the total
dollar volume in the construction industry was estimated at $460,000,000,000.
The Company believes its penetration of the residential and commercial customer
base will expand as the market gains further recognition of the Company's Econ
Panel System . The Company also believes that it will be able to expand the
distribution of its Econ Panel System and thereby expand the potential customer
base through the establishment of international joint ventures in foreign
countries wherein a satellite production facility can be established.[See: Part
I. Item 1. Description of Business (b) Business of Registrant - Licensing &
Distributorship] . The Company also believes that the establishment of larger
customer base will result in greater economies of scale which may further assist
the Company in maintaining competitive pricing of its Econ Panel System in the
<PAGE>
construction market. However, there is no assurance that such national or
international market penetration will occur or that beneficial economies of
scale to the Company will result therefrom.
The Company recognizes that increased labor costs and increased costs of raw
materials which comprise the manufacturing of its Econ Panel System may affect
profitability. The Company's gross profit margin will be determined in part by
its ability to estimate and control direct costs and its ability to incorporate
such costs in the distributorship and licensing fees charged. The Company's
operating plan anticipates changes in primary direct costs and it will make
product price and fees adjustments to customers, distributors, etc. to remain
competitive in the market place. However, the ability of the Company to pass
these adjustments on to consumers will be subject to the market 's ability to
absorb such adjustments. There is no assurance that the Company will be able to
pass on to the consumer increases in its labor costs and raw material costs
Competition
The residential and commercial construction panel market in addition to the
Company's planned entry is presently comprised of four (4) other producers: (1)
ICS 3-D Panel Works, Inc (ICS") and the 3D Panel; (2) Monolithic Panels, Inc.;
(3) Impac International and (4) Convintec. (1) ICS 's panel making machine is
too large to be containerized and/or moved to remote locations for on site panel
manufacturing and is believed to cost between $3,000,000 and $7,000,000. The ICS
entity has been sold as a non-core division and is reportedly operating at a
deficit. Repeat sales of the ICS 3-D panel have been said to be low due to a
lack of company provided technical support and/or field training in the use of
panel technology. ICS Panel Retail price including shipping equals approximately
$2.18 per square foot. (2) Monolithic Panels is owned and operated by Richard
Artzer, the brother of Paul Artzer with whom the Company has an exclusive
contractual agreement. [See: Part III. Item 1. Index to Exhibits - Item No.10.11
& 12 ]. The Monolithic Panel machine is a previous generation Paul Artzer "clip"
design. Monolithic reportedly requires its panel buyers to become licensed
distributors and to purchase a geographic region for exclusive rights. The
Monolithic Panel retail sales price equals approximately $2.34 a square foot.
(3) Impac International purportedly manufactures and licenses panel machines
which is a previous generation Artzer "clip" design. However, selling panel
machines does not appear to be this company's core business. In the Company's
and Mr. Artzer's opinion, Impac's primary focus in on wire "take-ups" or wire
products used for visual display systems and not for residential and commercial
construction purposes. (4) Convintec appears, in the Company's opinion, to be
the most established panel manufacturer with over 3,500,000 panels produced (or
37,800,000 square feet) since its inception in 1982. It presently has three(3)
facilities in Mexico and a distributor network in Latin America. The original
founders established the Company by purchasing Mr. Artzer's older generation
panel system from Covington Construction, Inc. of Fontana, California. The
Company believes that Convintec has three (3) panel machines, two(2) that
produce three(3) inch panels and one (1) that produces four(4) inch panels. The
Mexican market only requires the use of three-inch panels leaving the third
machine out of production. The Company is unable to determine more with regard
to the market penetration of Convintec due to the fact that it is not a US
company and is not subject to US building codes and/or evaluation criteria.
The Company believes that the nature of the domestic and international panel
manufacturing industry is one wherein a few producers are participating. In
addition,the Company believes that the production of panels is not organized and
<PAGE>
that there are not significant barriers to the entry of an additional quality
conscious producer. Furthermore, the Company has an exclusive right to new
proprietary production technology of panels that has been proven over the past
twenty years by the original designer and inventor, Paul Artzer. It is the
Company's belief that there are similar but not equivalent building panel
systems available in the market today. The Company will market its Econ Panel
System to companies that build residential homes as well as commercial buildings
and that its Econ panel System has the following competitive advantages:
New Construction Material: ECPI's Econ Panel System provides improved
material benefits not available in existing products. These product features and
benefits can allow the Econ Panel System to become an alternative structural
material choice along with wood, steel and concrete
Mature Product: ECPI has an exclusive right to proprietary technology that
has a proven twenty year history in the field and is preparing itself to become
a major manufacturer of pre-engineered building panels for the building
construction industry.
In addition to the Company's Econ Panels there are alternatives on the
market to the coating which can be applied to a panel and which appear to be in
competition with Ginsite. Each coating has specific characteristics, however,
only Ginsite combines a number of the individual attributes of each of the
products. The Company is careful not to compare Ginsite to paint, epoxies and/or
other types of coatings or sealants. Thus, the Company's Web Site and printed
materials use the term "enhance" since Ginsite will enhance any product it bonds
to, and the Company believes this maketing approach will greatly reduce the
perception of direct product competition.
Industry Regulation
The Company's Econ Panel System is a Council of American Building Officials
approved panel technology. This approval includes the BOCA, ICBO and SBCCI. The
Econ Panel possesses expanded polystyrene and or polypropylene as its thermal
barrier and meets VA, FHA and HUD energy efficiency rating requirements.
The Company has conducted many test's on its GINSITE(TM) coating product. As
a coating it has complimentary characteristics which by themselves do not
require the passing of standard building codes. The Company's main product is
its Econ Panel System which has already achieved construction industry approval.
The Company has however obtained the Hurricane Testing Center in Florida's
approval of Ginsite(TM) for impact and uplift standards. The approval by the
Hurricane Testing Center provides Ginsite with a critical requirement needed to
be favorably received by the construction industry in the hurricane prone
tri-county area of Palm Beach, Broward and Dade County, Florida.[See: Part III.
Item 1. Index to Exhibits - Item 99.3 - Hurricane Test Laboratory, Inc. Test
Results.]
The Company has also applied for and obtained approvals from the American
Society For Testing and Materials (ASTM) with regard to meeting the approvals
for the use of Ginsite(TM) in the residential and commercial construction
markets. In addition, the Company has performed Hurricane Laboratory Tests as
well as specific Roof and Building Covering Material Tests.[See: Part
<PAGE>
III. Item 1. Index to Exhibits - Item 99.3 - Hurricane Test Laboratory, Inc.
Results. Test Results.]
Environmental Impact/Approvals
The Company's product may be subject to regulation under the state and
Federal laws regarding environmental protection and hazardous substances
control, including the Occupational Safety and Health Act, the Environmental
protection Act, and Toxic Substance Control Act. However, the Company believes
that it is in material compliance with the current and other applicable laws and
that its continual compliance therewith will not have a material adverse effect
on its business.
The Basic module of the Econ Panel System is a factory manufactured 10 and
14 gauge steel-wire panel with a core of expanded polystyrene and weighs only 26
lbs. This 4'x8' (1.2m x 2.4m x 76mm) panel forms the core of the wall to which
the Portland cement plaster is applied. The wire grids are spaced far enough
away from the polystyrene to permit application of the Portland cement plaster
to the insulation, effectively sealing the insulation, and allowing the wire to
be completely imbedded within the cement, achieving maximum strength of the
system. All of the above materials have been approved and accepted by the
construction industry for years.
All of the materials that are used to manufacture Ginsite(TM) are, based
upon test data received from the manufacturers of the components, non-toxic and
friendly to the environment. All the products are earthen in nature and
composition. No special equipment or safeguards must be taken for the personnel
in manufacturing Ginsite(TM). Water is used to rinse and clean any tools used in
manufacturing Ginsite(TM). Material Safety Data Sheets (MSDS) sheets have been
accepted by all delivery agencies such as Federal Express, UPS and various
commercial trucking corporations. In addition, the US Customs Agency has
accepted the shipping of the components of Ginsite(TM) to such countries as
Canada, the Ukraine, China, Taiwan, Mexico and South America.
Seasonality
The Company recognizes that cash flow is paramount to the success of the
Company's efforts and, therefore, will as quickly as possible, establish a cash
reserve to off-set any drop in cash flow to cover normal operational monthly
charges. However, the Company believes that its marketing approach is
sufficiently diversified to minimize any possible seasonality of revenues. In
addition, the abundant availability of raw materials and direct labor for
production purposes is not subject to seasonal influences and, therefore, the
Company feels seasonality will have little to no effect on its operating
results.
c) Risk Factors
Before making an investment decision, prospective investors in the
Company's Common Stock should carefully consider, along with other matters
referred to herein, the following risk factors inherent in and affecting the
Company.
1. Development Stage Company. ECPI was only recently organized on August 7,
1997, and accordingly, is in the early stages of development and must be
considered promotional. Management's efforts, since inception, have been
allocated primarily to product research and development and fund raising
<PAGE>
activities and the ability of the Company to establish itself as a going concern
is dependent upon the receipt of additional funds from operations or other
sources to continue those activities and to commence more aggressive marketing
and sales its Econ Panel System. Potential investors should be aware of the
difficulties normally encountered by a new enterprise in its development stage,
including under-capitalization, cash shortages, limitations with respect to
personnel, technological, financial and other resources and lack of a client
base and market recognition, most of which are beyond the Company's control. The
likelihood that the Company will succeed must be considered in light of the
problems, expenses and delays frequently encountered in connection with the
markets in which the Company will operate. The Company's success depends to a
large extent on establishing market awareness and acceptance of its Econ Panel
System as a viable and cost effective construction materials alternative. There
is no guarantee that the Company's proposed activities will attain the level of
market acceptance and recognition necessary for the Company to attain a niche in
the construction markets. There exists in the construction and marine market
many established companies with proven products which have long histories of
reliable performance. Several of these companies are not only positioned in
these markets but also are better financed than the Company. There can be no
assurance that the Company will be able to compete with these companies and
achieve profitability. (See Part I, Item l. "Description of Business.")
2. Operating History, Revenue or Earnings. Although the Company has been in
business since August 7, 1997 it has been a manufacturing development stage
company actively engaged in research and development of its product since
inception and the Company has only recently begun shipping its Econ Panel
System. As of September 30, 1999, the Company had total assets of $473,549, a
cumulative net loss from operations of $7,624,746 on cumulative revenue of
$49,598 and stockholders equity of ($672,000) . Due to the Company's operating
history and limited resources, among other factors, there can be no assurance
that profitability or that significant revenue will occur in the immediate
future.
3. Need for Additional Capital: Going Concern Qualification Expressed by
Auditor. Without an infusion of Capital or profits from the sale of the
Company's Econ Panel System, the Company may not be expected to continue in
operation. Accordingly, the Company may not become a viable business entity
unless additional equity and/or debt financing is obtained. ECPI's independent
certified public accountant has expressed this as a "going concern"
qualification to the opinion of Durland and Company, CPAs P.A. on the Company's
financial statements. The Company does not anticipate the receipt of sufficient
revenues from the sale of the Company's Econ Panel System until management
successfully implements its business plan, which is not assured. Further, ECPI
may incur significant unanticipated expenditures which deplete its capital at a
more rapid rate because of among other things, the development stage of its
business, its limited personnel and other resources and its lack of market
penetration and product recognition. Because of these and other factors,
management is presently unable to predict what additional costs might be
incurred by the Company beyond those currently contemplated to obtain additional
financing and achieve market penetration on a commercial scale in its proposed
line of business, i.e. product manufacturing and sales. ECPI has no identified
sources of funds, and there can be no assurance that resources will be available
to the Company when needed.
4. Dependence on Management: Management's Experience in Construction Marketing
and Sales. The possible success of the Company is expected to be largely
dependent on the services of its CEO, Mr. Frank Glinton, who possesses a
thorough knowledge of the Company's Econ Panel Systems's features and benefits
and who has extensive experience in product manufacturing, marketing and sales
to the construction industry. In addition, Mr. George Anagnost, Executive Vice
<PAGE>
President for the Company, possesses extensive experience in corporate finance
and manufacturing from which the Company will greatly benefit. Furthermore, Mr.
Wayne Doss, the Company's President, bings operating experience in the areas of
plant moves, start-ups, new product development, product enhancement, product
machinery and plant automation systems. The skills and experience these managers
possess will determine the success of the Company.
5. Market Penetration or Customer Base. The Company was only recently organized.
ECPI intends to distribute its Econ Panel System to residential and commercial
construction contractors The Company recently signed a substantial joint venture
agreement to construct 12,000 homes in the Indian state of Maharashtra. This
joint venture provides the Company with an international market penetration and
expanded customer base the Company believes will result in a more consistent
revenue stream. However, there can be no assurance that the debt and/or equity
financing, which is expected to be required by the Company in order for ECPI to
continue in business after the expiration of the next six to twelve months, will
be available. The Company has very few customers presently and there can be no
assurance that it will be successful in obtaining customers in its initial
prospective markets. ECPI does aim to obtain long-term contracts; however,
management believes that the Company must, in order to survive, ultimately
obtain the loyalty of a large volume of customers. (See Part I, Item 1.
"Description of Business," (b) "Business of Issuer - Business Strategy; "Sales
and Marketing.")
6. No Assurance of Product Quality: Performance and Reliability. The Company
expects that their customers and ultimately their distributors will continue to
establish demanding specifications for product quality, performance and
reliability. Although the Company attempts to maintain and adhere to stringent
manufacturing standards, there can be no assurance that problems will not occur
in the future with respect to quality, performance and reliability as well as
price. If such problems occur, the Company could experience increased costs,
delays in or cancellations of orders or shipments and product returns and
discounts, any would have a material adverse effect on the Company's business,
financial conditions and results of operations.
7. No Assurance of Sales Force Quality: Performance and Reliability. The Company
does have adequate expertise and experience in construction industry sales and
recognizes the need to hire a competent and experienced sales manager and/or
managers for these markets as its business and markets expand. Although the
Company expects to hire a competent sales manager[s], there can be no assurance
that problems will not occur in the future with respect to the effectiveness and
success these sales manager[s] will have in establishing a market presence for
its Econ Panel System. If the Company fails to establish successful joint
ventures and sales, the Company will not realize the necessary revenues it
requires to achieve commercial viability.
8. Uncertainty of Market Acceptance. The future operating results of the Company
depend upon the continued need of the construction markets to identify and apply
products deemed necessary, useful, convenient, affordable and competitive to
their eventual end users/consumers. There can be no assurance that the Company's
product, the Econ Panel System, will achieve the market penetration and
recognition necessary for the Company to grow and become profitable on a
sustained basis, especially given the alternatives that already exist in the
marketplace from companies which are more established and have better financial
strength than the Company. (See "Part I, Item 1. "Description of Business.")
9. Seasonal Variations in Results. The Company expects to experience higher
revenues during the warmer weather months, i.e April through September, when
construction markets experience their highest demand volumes. These seasonal
variations in results may become greater once the Company establishes a presence
<PAGE>
in northern locations where winters can be severe and construction activity
significantly decreases. In addition, the company expects negative and/or less
attractive results in its operating revenues in the winter months, i.e. October
through March, when unfavorable weather conditions and lower overall economic
activity is present. Nevertheless, to date the company has not experienced any
seasonality in its operating revenues and feels that it is adequately
diversified in its market exposure, sourcing of raw materials and abundance of
labor to effectively neutralize any possible seasonality of revenues. There is
no assurance, however, that a definite seasonality of revenues to the Company
will eventually result.
10. Raw Material Costs. Raw materials necessary for the manufacture of the
Company's Econ Panel System are readily available from numerous third-party
suppliers. The Company does not rely on any principal suppliers for any of its
raw materials. The Company will out source the manufacture of the Econ Panel
System machinery through an exclusive arrangement with Bergandi Machinery, a
well established, sixty-year-old, U.S. based wire machinery manufacturing
company. At the present, the company buys its GINSITE(TM) raw material
ingredients from a major distributor of one of the oil producing companies.
However, if this one major oil producer would make the decision not to produce
the major raw material required by the company in its formulation, then the
other three oil producing companies may sell the major raw material at a higher
price than the company is currently paying. This would increase the raw material
costs to the company and negatively impact profitability. In addition, a
national or international crisis, may require the oil companies to discontinue
producing the major raw material which the company needs to manufacture its
product. Such an event would have serious detrimental effects on the ongoing
viability of the Company .
The Company's cost of raw materials and profitability will also be subject
to the pricing of oil in the open market and the influence on by-product
production goals that the open market may place on oil companies. The Company
may be unable to obtain critical raw materials if oil refineries change their
production schedules and by-product production goals and, instead, emphasize
other product production goals that do not produce the by-products which the
Company requires for the manufacture of GINSITE(TM). In addition, the constraint
on the supply of raw construction materials such as Portland cement, a major
panel material, may adversely affect the ability of the Company to meet
production demands for its Econ Panel System and thereby negatively impacting
the potential revenue associated with panel sales.
11. Lack of Working Capital Funding Source. . The Company has no current source
of working capital funds, and should the Company be unable to secure additional
financing on acceptable terms, its business, financial condition, results of
operations and liquidity would be materially adversely affected.
12. Conflicts of Interest. There are no existing and potential conflicts of
interest, including time, effort and corporate opportunity, involved in the
participation by the Company's CEO, Frank Glinton . All managers are committed
to the full success of the Company.
13. Increased Employee Costs. A major portion of the Company's primary direct
costs will be (i) salaries and wages of worksite employees (payroll cost), (ii)
employment related taxes, (iii) health benefits and (iv) workers' compensation
benefits and insurance. Staffing will consist of corporate officers with
specific responsibilities, and that number of manufacturing staff required
depending on business/sales orders. To attract qualified personnel, salaries for
all personnel will be fair, equitable and competitive regarding the job
description and work to be accomplished. Employment related taxes consist of the
employer's portion of payroll taxes required under the Federal Income
<PAGE>
Contribution Act ("FICA"), which includes Social Security and Medicare, and
federal and state unemployment taxes. State of Florida unemployment tax rates
are affected by claims experience, of which the Company has none at this time.
Health benefits are comprised primarily of medical insurance costs, but also
include costs of other employee benefits such as prescription coverage.
As the Company grows, it will offer its employees appropriate retirement and
other benefit plans such as group life insurance all of which would be in
compliance with " ERISA" rules and regulations. There can be no assurance that
the Company will be able to increase the prices of its products to cover
increased costs related to Worker's Compensation, unemployment insurance or
health insurance benefits which may be extended to worksite employees.
The Company anticipates an increase of manufacturing personnel,
administrative, accounting, clerical and secretarial personnel as demand for the
Company's products increases. Due to the present state of the economy which is
experiencing an historically low unemployment rate it is anticipated that future
employee hiring costs will become a major operating expense to the Company.
14. Liability for Workers Compensation Claims. The Company has acquired Workers'
Compensation insurance and believes it is adequately covered. (See Part I, Item
1. "Description of Business," (b) "Business of Issuer - Risk Management Program
- - Workers Compensation")
15. Ability to Grow. The Company expects to grow through increasing sales,
developing distributorships and by granting licensing rights. The Company plans
to expand its business from its current location and by entry into other
internationalmarkets. There can be no assurance that the Company will be able to
create a market presence, or if such market is created, to expand its market
presence or successfully enter other markets. The ability of the Company to grow
will depend on a number of factors, including the availability of working
capital to support such growth, existing and emerging competition and the
Company's ability to maintain sufficient profit margins in the face of pricing
pressures. The Company must also manage costs in a changing regulatory
environment, adapt its infrastructure and systems to accommodate growth and
recruit and train qualified managers and personnel.
The Company also plans to expand its business, in part, through the
acquisition of ancillary product manufacturers primarily in the construction
industry. Although the Company will continuously review potential acquisition
candidates, it has not entered into any agreement, understanding or commitment
with respect to any acquisitions at this time. There can be no assurance that
the Company will be able to successfully identify suitable acquisition
candidates, complete acquisitions on favorable terms, or at all, or integrate
acquired businesses into its operations. Moreover, there can be no assurance
that acquisitions will not have a material adverse affect on the Company's
operating results, particularly in the fiscal quarters immediately following the
consummation of such transactions, while the operations of the acquired business
are being integrated into the Company's operations. Once integrated,
acquisitions may not achieve comparable levels of revenues, profitability or
productivity as at then existing Company-owned locations or otherwise perform as
expected. The Company is unable to predict whether or when any prospective
acquisition candidate will become available or the likelihood that any
acquisitions will be completed. The Company will be competing for acquisition
and expansion opportunities with entities that have substantially greater
resources than the Company. In addition, acquisitions involve a number of
special risks, such as diversion of management's attention, difficulties in the
integration of acquired operations and retention of personnel, unanticipated
problems or legal liabilities, and tax and accounting issues, some of all of
which could have a material adverse effect on the Company'sresults of operations
and financial condition.
<PAGE>
Distribution and Licensing growth poses the additional risk of the
inability of the Company to control the quality of services provided by its
distributors and licensees. Moreover, the failure of any Distributor and/or
Licensee to pay fees due to the Company could have a material adverse effect on
the Company's financial condition and results of operations (See Part I, Item 1.
"Description of Business (b) "Business Strategy.")
16. Potential Legal Liability. The Company may be subject to claims relating to
the actions of their employees including possible claims of other civil actions
or torts. Management intends to adopt and implement policies and guidelines to
reduce its exposure to these risks. However, the failure of any Company employee
to follow these policies and guidelines may result in negative publicity,
injunctive relief and the payment by the Company of money damages or fines.
There can be no assurance that the Company will not experience such problems.
As an employer, the Company may be subject to a wide variety of
employment-related claims such as claims for injuries, wrongful death,
harassment, discrimination, wage and hour violations and other matters. In
addition, at such time as the Company enters into Distributorship and Licensing
agreements, the Company plans to have a standard agreement which establishes a
contractual division of responsibilities between the Company and each
Distributor and/or Licensee. However, the Company may be subject to liability
for legal violations despite these contractual provisions even if it does not
participate in such violations. Although such agreements are expected to provide
that the Distributor and/or Licensee is to indemnify the Company for any
liability attributable to the Distributor's and/or Licensee's failure to comply
with its contractual obligations and the requirements imposed by law, the
Company may not be able to collect on such contractual obligation claims and
thus may be responsible for satisfying such liabilities. The Company has in
place a liability insurance policy, but there can be no assurance that any such
insurance will be sufficient to cover any judgments, settlements or costs
relating to any future claims, suits or complaints or that sufficient insurance
will be available to the Company or such providers in the future on satisfactory
terms, if at all. If insurance is not sufficient to cover any judgements,
settlements or costs relating to any claims, suits or complaints, the Company's
business, financial condition, results of operations and liquidity could be
materially adversely affected. (See Part I, Item 1. "Description of Business"
(b) "Business of Issuer-Industry Regulation.")
At such time as the Company enters into Distributor and/or Licensing
agreements, the Company may be subject to claims asserting that it is
vicariously liable for the damages allegedly caused by the Distributor and/or
Licensee. The Company intends for its distributor an/or licensing agreements to
state that the parties are not agents and that the distributors and/or licensees
control the day-to-day operations of their businesses. Furthermore, it is
intended that the distributor and/or licensing agreements will require the
distributor and/or licensee to undertake certain efforts to inform the public
that they are not agents of the Company and that they are independently owned
and operated businesses. Moreover, the Company will take certain additional
steps to insulate its potential liability based on claims from the distributor's
and/or licensee's conduct including requiring the distributor and/or licensee to
indemnify the Company for such claims and mandating that the distributor's
and/or licensee's carry certain insurance coverage naming the Company as an
additional insured. Despite these efforts to minimize the risk of vicarious
liability, there can be no assurance that a claim will not be made against the
Company, nor that the indemnification requirements and insurance coverage will
be sufficient to cover any judgments, settlements or costs relating to such a
claim.
<PAGE>
17. Competition. Although the Company identifies some competition in the market
of a comparable product to its Econ Panel System and GINSITE(TM) the
construction supply industry is highly competitive with several major companies
involved. The Company will be competing with larger competitors who supply
product that the Company intends to enhance and possibly replace. Many of the
Company's competitors may not wish to allow ECPI to establish a presence and may
through their greater marketing, financial and other resources deter ECPI's
market penetration. There can be no assurance that the Company will be able to
compete effectively against such competitors in the future.(See Part I. Item 1.
"Description of Business," (b) "Business of Issuer- Competition.")
18. Patent, Copyrights and Trademarks. Murray Ginsberg invented GINSITE(TM)
while working with PTI. Mr Ginsberg obtained full rights to his invention
pursuant to an assignment by PTI to him which he then assigned to GSIT. ECPI
obtained the rights to GINSITE pursuant to the terms of its Plan of
Reorganization (See: Part II - Item 7"Certain Relationships and Related
Transactions Part III-Item 1. - Index to Exhibits - Item Nos 4.2 - 10.9A - 10.9B
- - 10.10A.1 - 99.1)
Mr. Ginsberg filed an initial patent application on July 28, 1995 for
GINSITE(TM) with the U.S. Patent Office while developing the product at PTI. On
August 7, 1997, Mr. Ginsberg formally assigned a certain patent pending,
originally dated July 28, 1995, and any and all international rights thereto to
GSIT.(See: Part III. Item 1. Index to Exhibits - 10.9A - Assignment of Patent -
10.9B Patent Application & Status). The Company also obtained the Trademark
rights to GINSITE(TM) upon receipt of the assignment from Murray Ginsberg. Such
trademark was registered on April 20, 1998.(See: Part III. Item 1. Index to
Exhibits - 10.9B - Patent Application & Status; Trademark Application & Status).
A subsequent patent application was filed on October 20, 1998 for an improved
version of GINSITE(TM) which Mr. Ginsberg developed while at GSIT . In
discussions with the company's patent attorney, the company has been advised
that the final patent approval should be granted in the year 2000. The issuance
of patent protection is not guaranteed. The Company believes that in the event
the Company fails to obtain patent protection for GINSITE(TM) its operating
revenues may not be severally impacted by the entrance of other competitors in
the marketplace who may or may not attempt to establish their own distribution
of GINSITE(TM) like products due to the fact that GINSITE(TM) has now assumed a
secondary role to the Econ Panel System in generating the Company's revenues.
19. Uncertainty Regarding Protection of Proprietary Rights. The Company attempts
to protect its intellectual property rights through patents, trademarks, secrecy
agreements, trade secrets and a variety of other measures. However, there can be
no assurance that such measures will provide adequate protection for the
Company's trade secrets or other proprietary information, that disputes with
respect to the ownership of its intellectual property rights will not arise,
that the Company's trade secrets or proprietary products will not otherwise
become known or be independently developed by competitors or that the Company
can otherwise meaningfully protect its intellectual property rights. There can
be no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with the scope of the claims sought by
the Company, if at all. Furthermore, there can be no assurance that others will
not develop similar products, duplicate the Company's products or design around
the patents owned by the Company or that third parties will not assert
intellectual property infringement claims against the Company. In addition,
there can be no assurance that foreign intellectual property laws will
adequately protect the Company's intellectual property rights abroad. The
failure of the Company to protect its proprietary rights could have a material
adverse affect on its business, financial condition and results of operations.
<PAGE>
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
infringement, invalidity, right to use or ownership claims will not be asserted
by third parties or claims for indemnification resulting from infringement
claims will not be asserted in the future. If any claims or actions are asserted
against the Company, the Company may seek to obtain a license under a third
party's intellectual property rights. There can be no assurance, however, that a
license will be available under reasonable terms or at all. In addition, should
the company decide to litigate such claims, such litigation could be extremely
expensive and time consuming and could materially adversely affect the Company's
business, financial condition and results of operations, regardless of the
outcome of the litigation. (See Part I, Item 1. "Description of Business- (b)
Business of Issuer - Patents, Copyrights and Trademarks.")
20. Cash Flow Commitments: 9% Convertible Notes. The company issued $254,000 in
Convertible Notes carrying a 9% annual interest rate as collateral for a loan to
the Company for $254,000. The funds borrowed have been used to meet the
company's outstanding liabilities, past and current cash flow needs. (See: Part
III. Item 1. Index to Exhibits - 4.1B Note Purchase Agreement, The Augustine
Fund)
21. Possible Adverse Effect of Penny Stock Regulations on Liquidity of Common
Stock in any Secondary Market. The Common Stock of the Company presently falls
within the meaning of the term "penny stock" under 17 CAR 240.3a51-1 because
such shares are issued by a small company; are low-priced (under five dollars);
and are not traded on NASDAQ or on a national stock exchange. The Securities and
Exchange Commission has established risk disclosure requirements for
broker-dealers participating in penny stock transactions as part of a system of
disclosure and regulatory oversight for the operation of the penny stock market.
Rule 15g-9 under the Securities Exchange Act of 1934, as amended, obligates a
broker-dealer to satisfy special sales practice requirements, including a
requirement that it make an individualized written suitability determination of
the purchaser and receive the purchaser's written consent prior to the
transaction. Further, the Securities Enforcement Remedies and Penny Stock Reform
Act of 1990 require a broker-dealer, prior to a transaction in a penny stock, to
deliver a standardized risk disclosure instrument that provides information
about penny stocks and the risks in the penny stock market. Additionally, the
customer must be provided by the broker-dealer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and the
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. For so long as the
Company's Common Stock is considered penny stock, the penny stock regulations
can be expected to have an adverse effect on the liquidity of the Common Stock
in the secondary market.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Discussion and Analysis
The Company was founded in 1997 to provide the construction industry with an
alternative to its mass consumption of wood based materials by supplementing and
enhancing such materials with a resin based coating that can, when bonded to
wood, provide a strengthening characteristic without adding more wood. The
Company has broadened its mission to expand the application of GINSITE(TM) and,
its many derivations, to research, develop and market GINSITE(TM) to the
construction, home improvement, boating and marine markets. Since its inception
<PAGE>
the Company has focused primarily on organizational and capital raising
activities. In August 1999, the Company executed and Agreement and Plan of
Reorganization with Envirocon Corporation. Through this Agreement the Company
obtained experienced management who also added a new product that was more
mature and established in the construction marketplace. After the Company
instituted its Plan of Reorganization it changed its management structure and
reorientated its focus and now markets it Econ Panel System as its primary
product which may be complimented with a GINSITE(TM) coating. For the period
from inception (August 7, 1997) through September 30, 1999, the Company on a
consolidated unaudited basis generated revenues of $49,598.00 from operations
and $7,674,344.00 in cumulative operating expenses. The Econ Panel System and
its technology has been proven for over twenty years, requiring no need for
extensive R&D. However, the company is currently looking into developing a cold
climate panel that will address the need of low cost housing in extreme
temperature regions throughout the world. However, due to the Company's
operating history and limited resources, among other factors, there can be no
assurance that profitability or significant revenues on a quarterly or annual
basis will occur in the future. Moreover, the Company expects to continue to
incur operating losses through at least the fourth quarter 1999. And there can
be no assurance that losses will not continue after such date.
Upon obtaining increased market awareness and subsequent sales, the Company
expects to experience a period of growth, which will require it to significantly
increase the scale of its operations. This increase will include the hiring of
additional manufacturing personnel and production equipment which will
contribute to significantly higher operating expenses. The increase in operating
expenses is expected to be partially funded by an increase in revenues. However,
the Company's net loss may continue to increase. Expansion of the Company's
operations may cause a significant strain on the Company's management, financial
and other resources. The Company's ability to manage recent and any possible
future growth, should it occur, will depend upon a significant expansion of its
research and development, accounting and other internal management systems and
the implementation and subsequent improvement of a variety of systems,
procedures and controls. There can be no assurance that significant problems in
these areas will not occur. Any failure to expand these areas and implement and
improve such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse affect on
the Company's business, financial condition and results of operations. As a
result of such expected expansion and the anticipated increase in its operating
expenses, as well as the difficulty in forecasting revenue levels, the Company
expects to continue to experience significant fluctuations in its revenues,
costs and gross margins, and therefore its results of operations. (See Part I,
Item 1. "Description of the Business - (b) Business of the Issuers - Risk
Factors - 15. Ability to Grow".)
12 Month Plan of Operations
Over the next twelve(12) months the Company will focus on the contracts it
has in hand and the development of potential contracts to be in the final stages
of negotiations.[See: Part III Item 1. Index to Exhibits - Item Nos. 10.13 -
10.14 - 10.15] In addition, the Company has executed an exclusive manufacturing
agreement with Bergandi Machinery, the manufacturer of the machines which
produce the Econ Panel System.[See: Part III. Item 1. Index to Exhibits - Item
No. 10.16] The vertical integration of the Econ Panel System technology by the
Company will enable the close monitoring and managing of company overhead and
cost of goods while at the same time permitting the increase of revenues and
assets. Moreover, by being vertically integrated the Company believes it will be
better able to successfully react to the supply and demand forces present in
both the domestic and international residential and commercial construction
industry marketplace.
<PAGE>
The Company has adopted an operational strategy to become a full service
turnkey supplier, not just a panel and coating supplier. To distinguish ECPI
from the competition, ECPI will provide through its various joint ventures and
partnerships the training and support necessary to utilize our product in the
correct and successful manner intended. The joint ventures and partnerships will
further reduce ECPI's risk, capital investment, need for facilities and direct
responsibility for employees in foreign countries. Our partners will provide the
necessary cultural and business practices of the particular country.
Results of Operations - Full Fiscal Years
Revenues
To date, a limited number of customers and one distributor have accounted
for substantially all of the Company's revenues with respect to product sales.
The Company anticipates that the main focus of its selling efforts will be to
focus on the production and sale of its Econ Panel System to the residential and
commercial construction industry both domestically and internationally through
the execution of joint venture agreements. For the fiscal year ending December
31, 1997, the Company did not derive any revenue from sales.. The Company was in
its research and development efforts and did not have any product sales on an
audited basis in 1997. For fiscal year ending December 31, 1998, the Company on
a proforma consolidated unaudited basis derived approximately 70% of its revenue
from product sales. Product sales of GINSITE(TM) amounted to $15,830.00, the
remaining revenue was derived from a GINSITE(TM) distributor's fees in the
amount of $6,980.00 by 1998 fiscal year end. (See: PART F/S - Statement of Loss
- - F-4). Envirocon Corporation was not an operating entity during 1997 and
therefore did not contribute any revenues to the Company on a consolidated
basis. For the fiscal year ending December 31, 1998 commencing from the date of
inception, March 31, 1998, Envirocon Corporation on an audited basis generated
zero revenue(See: PART F/S Statement of Operations - F-14). For fiscal year
ending December 31, 1998, Ginsite Materials, Inc., on an audited basis derived
approximately 70% of its revenue from product sales. Product sales of
GINSITE(TM) amounted to $15,830.00, the remaining revenue was derived from a
GINSITE(TM) distributor's fees in the amount of $6,980.00 by 1998 fiscal year
end. (See: PART F/S - Statement of Loss - F-22).
The Company had in place four distributorship agreements as of the close of
the Company's 1998 fiscal year end. [See: Part III. Item 1. Index to Exhibits -
10.1 - Distributorship Agreements] These Distributorship Agreements have been
terminated as of September 30, 1999 due to the failure by each distributor to
meet minimum volume requirements. However, there are no assurances that the
Company will be able to obtain adequate distribution of its products through the
establishment of new distributorship agreements. In addition, most successful
distributors carry an extensive line of products and various of these products
may compete with each other as to function, price or other factors. In addition,
numerous construction and marine product distributors are not themselves well
capitalized and their financial condition may impact their ability to properly
distribute the Company's products.
The Company's ability to achieve revenues in the future will depend in
significant part upon its ability to obtain orders from, maintain relationships
with and provide support to, existing and new customers, as well as the
condition of its customers. As a result, any cancellation, reduction or delay in
orders by or shipments to any customer or the inability of any customer to
finance its purchases of the Company's products may materially adversely affect
the Company's business, financial condition and results of operations. There can
be no assurance that the Company's revenues will increase in the future. In
addition, the Company expects that the average selling price of a particular
product will also decline as such products mature, and as competition increases
<PAGE>
in the future. Accordingly, the Company's ability to maintain or increase
revenues will depend in part upon its ability to increase unit sales volumes of
its products and to introduce and sell new products at prices sufficient to
compensate for reduced revenues resulting from declines in the average selling
price of the Company's more mature products. ( See Part I, Item 1. "Description
of the Business - (b), Business of the Issuers - Risk Factors -15. Ability to
Grow")
Over the next twelve(12) months the Company expects that it will be
necessary to raise additional funds to meet operating capital needs.
Accordingly, management is presently exploring all available alternatives for
debt and/or equity financing, including but not limited to private and public
securities offerings. The Company anticipates that it will offer over the next
twelve months as its central revenue raising alternative convertible debt
financing pursuant in a private placement conducted pursuant to an exemption
from registration contained in sections 3(b) of the Act and Rule 504 of
Regulation D promulgated thereunder. All anticipated offerings may be made to
Florida residents located in the State of Florida.
Net Sales
For the year ended December 31, 1997, a discussion regarding net sales and
the cost of sales is not applicable on an audited basis due to the fact that
research and development costs were not able to be offset to any extent since
1997 product sales were zero. Cumulative net sales for the Company on a proforma
consloidated unaudited basis for the year ended December 31, 1998 of $22,810 are
comprised of sales of GINSITE(TM) and the partial payment on a distributorship
agreement. Envirocon Corporation's inception date is March 13, 1998 and was not
in existence during 1997 and therefore did not contribute net sales to the
Company on a consolidated basis. Product sales and related costs for the Company
on a proforma consolidated unaudited basis for the year ended December 31, 1998,
would again not be applicable due to the fact that product sales of $15,830
remain de-minimus when measured against the research and development cost and
other costs related to the Company's marketing and sales efforts. Envirocon
Corporation generated zero sales revenue on an audited basis for the year ended
December 31, 1998. Ginsite materials, Inc. on an audited basis for the year
ended December 31, 1998 would again not be meaningful due to the fact that
Ginsite Materials, Inc.'s sole product sales of $15,830 remain de-minimus when
measured against the research and development costs and other costs related to
the Company's marketing and sales efforts.
In addition, the Company has not established a production history or sales
history due to the fact of its start-up nature and the need to focus on
marketing and promotional activities. As a result, it would not be meaningful to
discuss the possible profit margin that the Econ Panel System can produce for
the Company. Without the benefit of real sales volumes against which a cost of
production can be attributed there can not be a meaningful discussion of a net
sales figure against which a profit margin can be attributed. To attempt to
discuss such would be pure conjecture and would rely on forward looking
estimates of which there may be no assurance.
Nevertheless, the Company has an ongoing program to reduce the costs of
manufacturing its products. As part of this program, the Company has been
attempting to achieve cost reductions principally through engineering and
manufacturing improvements, product economies. The success of these cost
reduction programs will not be known until production volumes are scaled up.
There can be no assurance that the Company's ongoing or future programs can be
accomplished or that they will increase gross profits.
<PAGE>
To the extent the Company is unable to reduce its production costs or
introduce new products with higher margins, the Company's results of operations
could be materially adversely affected. The Company's results may also be
affected by a variety of other factors, including mix of products sold;
production, reliability or quality problems; market competition; and warranty
expenses and discounts.
Operating Expenses
Sales and Marketing: These expenses of the Company on a proforma unaudtied
consolidated basis consist of advertising, meetings, product conventions and
entertainment related to product exhibitions and related travel expenses. Since
inception through December 1998, the Company spent on a consolidated unaudited
proforma basis approximately $ 76,931 on sales and marketing expenses. For the
years ended December 31, 1997 and December 31, 1998, sales and marketing
expenses on a consolidated unaudited proforma basis were $ 5,000 and $71,931,
respectively. In 1998, the Company increased its promotional advertising and
hired additional sales and marketing personnel to expand its sales and marketing
effort to establish the infrastructure necessary to support future operations.
The Company expects that such expenses in 1999 will increase in absolute dollars
as compared to 1998. Furthermore Envirocon Corporation was not an operating
entity during fiscal year 1997 and therefore did not contribute to sales and
marketing expenses in 1997. Envirocon Corporation however was operating from
March 13, 1998(date of inception) through December 31, 1998 but was engaged
primarily in organizational efforts, the raising of capital and the search for a
business combination. As such no expenses were incurred in relation to sales and
marketing operations.
General and Administrative: These expenses of the Company on a proforma
unaudtied consolidated basis consist primarily of the general and administrative
expenses for salaries, contract labor and other expenses for management and
finance and accounting, legal and other professional services including ongoing
expenses as a publicly owned Company related to legal, accounting and other
administrative services and expenses. . For the years ended December 31, 1997
and December 31, 1998, on a consolidated unaudited proforma basis general and
administrative expenses were $25,936 and $770,955, respectively. The increase of
$745,019 is due primarily to GINSITE(TM) research and development expenses,
legal and accounting fees associated with the Company's SEC filings,
reorganization related expenses, higher depreciation and amortization and rent
for the Company's Colorado headquarters and Ft. Lauderdale facility . The
Company expects general and administrative expenses to increase in absolute
dollars in 1999 as compared to 1998, as the Company continues to expand its
operations. (See: PART F/S - Proforma Consolidated Statements of Operations - -
F-19).
Results of Operations - For the Nine Months ended September 30, 1999
For the nine(9) months ended September 30, 1998 and nine(9) months ended
September 30, 1999, on a consolidated unaudited basis general and administrative
expenses were $519,245 and $576,450, respectively. The increase of $57,205 is
due primarily to, legal and accounting fees associated with the Company's SEC
filings, reorganization related expenses, higher depreciation and amortization
and rent for the Company's headquarters.( See: Part F/S - Unaudited ECPI
Consolidated Financial Statements - F- 21)
As of September 30, 1999 the Company had on a consolidated unaudited basis
total cumulative expenses of $7,674,344 of which $5,884,123 is attributable to
the Company's granting stock in lieu of cash compensation to its officers, key
employees, related third parties and consultants. Accordingly, after excluding
the Company's Rule 144 stock compensation to the officers, key employees,
<PAGE>
related third parties and consultants, the total adjusted operating expenses
incurred for the nine(9) months ended September 30, 1999 are $613,065 of the
$7,674,344 total cumulative operating expenses listed above. Furthermore, of the
$613,065 total adjusted operating expenses, total property and equipment
expenses (including leasehold improvements less accumulated depreciation)
amounted to $142,992; total rent expense for the nine(9) month period ended
September 30, 1999 and 1998 was $124,120 and $104,855, respectively; total
interest expense for the nine(9) month period ended September 1999 and 1998 was
$115,435 and $1,354 respectively; ; and for the nine(9) month period ended
September 1999 and 1998 bad debt expense to a related party amounted to $10,000
and $0.00 respectively .(See: PART F/S - Unaudited ECPI Consolidated Statements
of Operations - F-22).
Net Losses For the nine(9) month period from January 1, 1998 to September
30, 1998 , the Company reported on a consolidated unaudited basis a net loss
from operations of $3,708,326 which includes $3,183,341 in Rule 144 Stock as
compensation to officers, key employees and related third parties. When the
aforementioned stock is subtracted from the Company's net loss in this nine(9)
month period a more accurate consolidated net loss from operations is obtained
in the amount of $524,985 of which $519,245 is related to general and
administrative costs.(See: PART F/S Unaudited ECPI Consolidated Statements of
Operations - - F- 22).
For the nine(9) month period from January 1, 1999 to September 30, 1999, the
Company reported a on an consolidated unaudited basis a net loss from operations
of $3,557,490 which includes $2,971,213 in Rule 144 Stock as compensation to
officers, key employees, related third parties and consultants. When the
aforementioned stock is subtracted from the Company's net loss in this nine(9)
month period a more accurate net loss from operations is obtained in the amount
of $586,277 of which $576,450 is related to general and administrative costs.
(See: PART F/S - Unaudited ECPI Consolidated Statements of Operations - - F 22).
Research and Development
These expenses consist primarily of costs associated with personnel,
equipment costs, field demonstrations and tests.
Since inception, the Company has spent on an consolidated unaudited basis
approximately $80,512 on research and development. For the years ended December
31, 1997 and December 31, 1998, research and development expenses on an audited
consolidated basis were approximately $50,976 and $29,536, respectively. During
1997, research and development expenses were significant as the Company
concentrated on GINSITE(TM) applications The Company made enhancements to
GINSITE(TM) in 1998, and the majority of these related costs were capitalized
and will be amortized over a period not to exceed five (5) years. Envirocon
Corporation during 1998 was not engaged in research and development and as a
result on an audited basis during its fiscal year ending December 1998 generated
no expenses in this area The Company does not intend to continue to invest
significant resources to continue the development of new products and expects
that research and development expenses in 1999 will decrease substantially in
absolute dollars as compared to 1998. The is the result primarily of the
Company's reorganization and subsequent change of focus toward the marketing and
sales of its Econ Panel System which has a twenty year successfully proven
application history.
Patent Pending & Trademark Status
Mr. Ginsberg while developing the formula at PTI filed an initial patent
application on July 28, 1995 for GINSITE(TM) with the U.S. Patent Office. On
August 7, 1997, Mr. Ginsberg formally assigned a certain patent pending
<PAGE>
originally dated July 28, 1995 and any and all international rights to Ginsite
Materials, Incorporated. The Patent has a historical cost of $50,976. (See: Part
III. Index to Exhibits - 10.9A Assignment of Patent & Trademark Rights , and
10.9B Patents). A subsequent patent application was filed on October 20, 1998
with the U.S. Patent Office for an improved formula developed under the
ownership of Ginsite Materials, Inc. In discussions with the company's patent
attorney, the company has been advised that the final patent approval should be
granted in the year 2000. However, the issuance of patent protection is not
guaranteed. Nevertheless, in the event the Company fails to obtain patent
protection for GINSITE(TM) the Company believes it will not be severally
impacted due to the new focus by the Company on the Econ Panel System and the
GINSITE(TM) coating now being complimentary thereto and not an essential panel
component.
Interest and Other Income (Expense), Net
On an consolidated unaudited basis cumulative interest and other income
(expense), net of $120,680 consists primarily of interest expenses accrued on
the direct loan to the Company less interest income earned from loans to related
parties under the assignment of the patent and trademark rights to GINSITE. (See
Part I, Item 2. "Management's Discussion and Analysis or Results of Operations -
Financial Condition, Capital Resources and Liquidity; Part F/S - Notes to ECPI
Unaudited Consolidated Financial Statements - F-21")
Financial Condition, Capital Resources and Liquidity
On an consolidated unaudited basis as of the nine(9) months ended September
30, 1999 , the Company had assets totaling $473,549.00 and liabilities of
$1,145,549.00 . Since the Company's inception, it has accepted subscriptions in
the amount of $1,633,899 in cash as consideration for the issuance of shares of
Common Stock and $254,000 in cash from the issuance of convertible debt.. (See:
PART F/S - ECPI Unaudited Consolidated Statement of Cash Flows - F-24)
On November 15, 1997, the Company entered into a 10 year Office/Warehouse
Lease Agreement. Total lease expenses for the period ending December 31, 1997
were $7689; 1998 lease expenses were $139,806; 1999 lease expenses will be
$133,866; Subsequent to the Company's Reorganization and pursuant to a
Settlement Agreement with Murray Ginsberg, the above lease shall be the primary
responsibility of Mr. Ginsberg and secured by his interest in the patent to
GINSITE(TM).[See: Part III. Item 1. Index to Exhibits - 10.3 - Lease Agreement,
Steven J. Cooperman, Trustee - 99.1 Order of the Circuit Court of the
Seventeenth Judicial Circuit for Broward County, Florida, Enforcing Settlement
between Environmental Construction Products International, Inc., a Florida
corporation, and Murray Ginsberg, Henry Max and Audrey Max, dated November 15,
1999.]
In September, 1997 accepted subscriptions in the amount of $1,000,000.00
from the sale of 3,000,000 shares of common stock in a private placement
conducted pursuant to an exemption from registration contained in sections 3(b)
of the Act and Rule 504 of Regulation D promulgated thereunder. The offering was
made in the State of Florida, Pennsylvania and New York. A Private Placement
Memorandum was used in connection with this offering which was disclosed to each
prospective investor.(See: Part II, Item 4. "Recent Sales of Unregistered
Securities"). In September, 1998, the Company accepted subscriptions in the
amount of $45,000 from the sale of 67,164 shares of common stock in a private
placement to accredited investors conducted pursuant to an exemption from
registration contained in sections 4(2) of the Securities Act of 1933 and Rule
506 of Regulation D promulgated thereunder.(See: Part II, Item 4. "Recent Sales
of Unregistered Securities").
<PAGE>
In October 1998 the Company accepted subscriptions in the amount of $4,899
from the sale of 13,998 shares of common stock in a private placement to
accredited investors conducted pursuant to an exemption from registration
contained in sections 3(b) of the Act and Rule 504 of Regulation D promulgated
thereunder. The offering was made in the State of Florida.(See: Part II, Item 4.
"Recent Sales of Unregistered Securities").
In March and April 1999, (prior to April 7, 1999) the Company accepted
subscriptions in the amount of $499,500 from the sale of 3,685,611 shares of
common stock in a private placement to accredited investors conducted pursuant
to an exemption from registration contained in section 3(b) of the Act and Rule
504 of Regulation D promulgated thereunder. The offering was made in the State
of Florida. All of the above subscriptions were fully funded. (See: Part II,
Item 4. "Recent Sales of Unregistered Securities").
The Company has made a series of advances to PTI, a related company under
common control, in the form of unsecured promissory notes. Unpaid amounts,
including any accrued interest, were $89,461 and $76,500 as of March 31, 1999
and December 31, 1998 respectively. Accrued interest at March 31, 1999 and 1998
was $2,705 and $0, respectively.(See Notes to Financial Statement - F7)
These PTI advances are related to the following: (i) on August 7, 1987, the
Company issued a 360 day note( renewable at the option of the note holder for an
additional 360 days) with an annual interest rate of 6.343%, to Murray Ginsberg,
executive officer and director of GSIT, for $50,976.00. Unpaid principal was
$43,058 at March 31, 1999. Accrued interest at March 31, 1999 and December 31,
1998 was $5,125 and $3,949, respectively. (See Notes to Financial Statements -
F7); (ii) as of January 1, 1998, the Company provided personnel services to and
shared certain building expenses with PTI.. The Company is reimbursed for the
costs of these items and records the reimbursements as a reduction of its
operating expenses. Charges were $10,901 and $11,808 for the periods ended March
31, 1999 and 1998 respectively. Unpaid amounts as of March 31, 1999 and December
31, 1998 were $57,597 and $46,696, respectively.(See: Notes to Financial
Statements - F7); (iii) on September 23, 1998, Murray Ginsberg, as President for
PTI, and witnessed by Audrey Max, as Executive Vice President for PTI executed a
Promissory Note to the Company for $45,000 with interest at the rate of 10%,
payable in 360 days after signing. The note may be extended for an additional
360 days at the option of the holder; (iv) on November 2, 1998,Murray Ginsberg,
as President for Progressive Technology, Inc. (PTI), and witnessed by Audrey
Max, as Executive Vice President for PTI executed a (Limited) Guaranty and
Pledge to the Company in exchange for the Company's extension of credit to PTI.
This (Limited) Guaranty and Pledge contains an interest of not less than 10% per
annum and the notes evidencing this pledge shall not exceed $75,000 in the
aggregate. Murray Ginsberg has pledged and liened GSIT stock belonging to him
and in an amount necessary to satisfy the PTI notes made payable to the Company.
In March 1999, the Company was offered debt financing in the form of
non-interest bearing loans for up to $581,000, to be loaned on an as needed
basis throughout the remainder of 1999. There is no formal written agreement
regarding the repayment of these loans. During April and May, 1999, the Company
received total proceeds of $168,000 drawn against these loans.
In June 1999, the Company accepted a subscription in the amount of $50,000
from the sale of 400,000 shares of common stock in a private placement to one
accredited investor and Florida resident conducted pursuant to an exemption from
registration contained in section 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder. The offering was made in the State of Florida.(See: Part
II, Item 4. "Recent Sales of Unregistered Securities").
<PAGE>
On October 25, 1999, the Company accepted subscriptions for 271,719
restricted shares of the Company's common stock pursuant to the conversion
option provided in two notes to the Company's subsidiary, Envirocon Corporation,
for a combined total $35,000. These notes were executed prior to the Company's
Reorganization in a private placement to accredited investors conducted pursuant
to an exemption from registration contained in section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.(See: Part II, Item 4. "Recent Sales
of Unregistered Securities").
On January 2, 1999, the Company, through the mutual consent of a majority
of its shareholders, authorized two amendments to the Article of Incorporation
effective January 2, 1999 to authorize the following: (1) the issuance of up to
50,000,000 shares of common stock and, (2) up to 10,000,000 shares of Preferred
Stock (See Part I, Item 4. "Security Ownership of Certain Beneficial Owners and
Management" and Part I, Item 7. "Certain Relationships and Related
Transactions.")
The Company has no potential capital resources from any outside sources at
the current time. The Company believes that it will require nine (9) to
twelve(12) months in order to determine the market demand, distributorship and
licensing potential for GINSITE(TM).
The ability of the Company to continue as a going concern is dependent upon
increasing revenues from the sale of GINSITE(TM) and obtaining additional
capital and financing. The Company believes that in order to be able to expand
its initial operations, it must increase sales of GINSITE(TM) substantially and
when financially feasible hire an experienced sales manager[s].
Net Operating Losses
The Company
On an consolidated unaudited basis the Company has net operating loss
carry-forwards of $802,745 which expire in the year beginning December 31, 2117.
The company has deferred tax assets, cumulative as of December 31, 1998 of
$157,940 resulting from the loss carry-forwards, for which it has established a
valuation allowance of $164,254, as the Company has no history of profitable
operations. Until the Company's current operations begin to produce earnings, it
unclear as to the ability of the Company to utilize such carry-forwards. (See:
PART F/S - Notes to ECPI Unaudited Consolidated Financial Statements - F-25)
Year 2000 Compliance
The Company has determined that the Year 2000 impact is not material to ECPI
and that it will not impact its business, operations or financial condition
since all of the internal software utilized by the Company has the capability of
being manually upgraded on site at minimal cost to support Year 2000 versions.
In the event any unforseen Year 2000 computer viruses impact the Company's
internal computers it has retained a consultant at the cost of $80.00 an hour
for emergency purposes. The Company's consultant has expressed that if any
software changes are necessary the cost will not exceed One Thousand Dollars
($1,000).
The Company's Year 2000 contingency plan is to utilize a manual accounting
system currently in place.
<PAGE>
Item 3. Description of Property:
Subsequent to the Company's reorganization it relocated its executive
offices to 2870 Speer Boulevard, Suite 205, Denver, CO , 80211. Its executive
offices telephone number is (303) 455-3100 and its facsimile number is
(303)455-1241.
On November 15, 1997, the Company entered into a 10 year Office/Warehouse
Lease Agreement. Total lease expenses for the period ending December 31, 1997
were $7689; 1998 lease expenses were $139,806; 1999 lease expenses will be
$133,866; Subsequent to the Company's reorganization the aforementioned lease
has become the primary responsibility of Murray Ginsberg upon his resignation
from the Company. [See: Part III. Item 1. Index to Exhibits - 10.3 - Lease
Agreement, Steven J. Cooperman, Trustee - 99.1 - Order of the Circuit Court of
the Seventeenth Judicial Circuit for Broward County, Florida ...]
The Company owns no real property and its personal property consists of
manufacturing equipment, telephone systems, office furniture, computer system,
prototype molds and deposits on property and equipment valued at $142,992
$185,174 on September 30, 1999 In addition, the Company has on hand inventories
and raw materials totaling $13,566 as of September 30, 1999 .
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of December 15, 1999 regarding
the ownership of the Company's stock
<TABLE>
<CAPTION>
(1)
Name & Address of Title of Amount & Nature Percent of
Beneficial Owner Class of Beneficial Owner Class
- ------------------ -------- ------------------ ---------
<S> <C> <C> <C>
Frank Glinton Common 2,103,629 23.73 %
George Anagnost Common 1,074,604 12.12 %
Wayne Doss Common 160,000 1.80 %
----------- ---------
Officers and Directors 3,338,233 37.65 %
========= =======
as group(three (3) persons)
Futro & Associates Common 525,907 5.93 %
- ---------------------
</TABLE>
(1) Based on 8,866,128 shares issued and outstanding as of December 28,
1999.[Post 5 to 1 reverse split. There are no arrangements which may result in
the change of control of the
Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
As of December 15, 1999 the following are the names, ages, positions, with
the Company and experiences of the executive officers and directors of the
company. Mr. Grieper resigned as a director as of March 1999, and the Company
Controller as of December 31, 1998. Mr. Eugene Ladin resigned as Chief Financial
Officer and Director of the Company on July 13, 1999.
<PAGE>
Name Age Position(s) with Company
- ---------- --- -------------------------
Frank Glinton 46 CEO & Director
George Anagnost 49 President & Director
Wayne Doss 49 Executive Vice President & Director
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualify. Officers
serve at the pleasure of the Board of Directors. The officers and directors will
devote such time and effort to the business and affairs of the Company as may be
necessary. Except for the above officers, there are no other persons whose
activities will be material to the operation of the Company.
Frank Glinton has served as CEO and Director of the Company subsequent to the
Plan of Reorganization in August 1999. He founded Envirocon in March of 1998 and
has subsequently completed the technology transfer of the Econ Panel technology
from the inventor to the Company. In addition to Mr. Glinton's responsibilities
of CEO, he will be primarily responsible for contractual procurement. From 1994
thru 1997 prior to founding Envirocon Mr. Glinton was President of Glinton
Corporation, a chemical manufacturing company, which produced environmentally
safe chemical products. Mr. Glinton is a graduate of Howard University and was
an original member of the Seattle Seahawks.
Wayne Doss has served as Director of the Company subsequent to the Plan of
Reorganization in August 1999. Shortly after closing on said Reorganization he
was appointed the Company's President. He was part of the original management of
the Company and upon his appointment to the board of directors served as the
Company's CEO prior to the Reorganization providing valuable assistance and
experience to Company management in addition to the development of its ecommerce
Web Site. Mr. Doss was the lead negotiator on behalf of the Company in the
consummation of the recent Reorganization. Prior to joining the Company from
1989 to December 1998, Mr. Doss served in various capacities at Keller
Industries, a $250 Million Dollar diversified building products company. During
1992 he was appointed President and in 1993 he assumed the role of CEO of Keller
Industries. Mr. Doss has extensive operating experience in the areas of plant
moves, start-ups, new product development, product enhancement, production
machinery upgrades, plant automation and systems. Mr. Doss is a graduate of the
University of Maryland with a B.S. degree in Accounting & Business Finance.
George Anagnost has served as Executive Vice President and Director of the
Company subsequent to the Plan of Reorganization in August 1999. He originally
joined Envirocon in April of 1998 where he held the position of
Secretary/Treasurer. He is presently responsible for the Company's corporate and
project funding. From 1993 thru 1997 he was the Syndicate Manager and member of
the corporate department of RAF Financial Corporation and was instrumental in
establishing Colorado's first publicly traded gaming corporation. Prior to RAF,
Mr. Anagnost was a vise president with Novan Energy, a publicly held solar
energy manufacturer. Mr. Anagnost received his B.A. in History from the
University of Rhode Island and did graduate work in the School of Public
Communications at Boston University where he was nominated for a Clio award.
<PAGE>
Item 6. Executive Compensation.
<TABLE>
<CAPTION>
Name and Post Year Salary 144 Stock $ Total
Compensation
- ---------------- ----- ----------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
Murray Ginsberg 1999 $52,000 $52,000
1998 $52,000 0 $52,000
1997
thru 4/99
- ---------------- ----- ----------- ---------------------- ----------
Audrey Max 1999 $36,400 0 $36,400
1998 $36,400 $36,400
1997
thru 4/99
- ---------------- ----- ----------- ---------------------- ----------
Eugene Ladin 1999 $38,500 $38,500
1998 $38,500 $38,500
1997 N/A N/A N/A N/A
thru 4/99 0
- ---------------- ----- ----------- ---------------------- ----------
Henry V. Lione 1999 $ 0 $ 0
1998 $ 0
1997 $ 0
thru 4/99
- ---------------- ----- ----------- ---------------------- ----------
Barry S. Grieper 1999 $ 0 $ 0 $ 0
1998 $36,400 $ 0 $36,400
1997
thru 4/99
- ---------------- ----- ----------- ---------------------- ----------
Henry Max 1999 $36,400 $36,400
1998 $36,400 $36,400
1997 0 $ 0
thru 4/99
- ---------------- ----- ----------- ---------------------- ----------
</TABLE>
The above identified shares of common stock issued to Murray Ginsberg,
Audrey Max, and Henry Max were returned to the Company's Treasury and canceled
pursuant to the direction of the Broward County Circuit Court in accord with its
order enforcing the Settlement Agreement between the Company and the respective
parties.[See: Part III. Item 1. Index to Exhibits - Item No. - 99.1] Mr. Henry
V. Lione, voluntarily returned his common stock holdings to the Company's
Treasury for cancellation.
<PAGE>
<TABLE>
<CAPTION>
Name and Post Year Salary 144 Stock $ Total
Compensation
- ---------------- ----- ----------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
Frank Glinton 1999 $114,750 $114,750
CEO/Director
- ---------------- ----- ----------- ---------------------- ----------
Wayne Doss 1999 $101,250 800,000(1) $163,200 $101,250
COO/Director
- ---------------- ----- ----------- ---------------------- ----------
George Anagnost 1999 $101,250 $101,250
Exec. V.P./Director
- ---------------- ----- ----------- ---------------------- ----------
(1) Pre 5:1 Reverse Split
</TABLE>
Base salaries for executive officers have been set at competitive levels in
consultation with the Board, giving due consideration to individual performance
and time in position. It has been the Company philosophy that shareholder's
interests are best served by encouraging executives to have ownership interests
in the company. To that end, the Company through its board and Chairman will
provide stock ownership to its executives based on individual executive
performance and contribution in achieving the Company's objectives and
profitability. Base salaries for the executive positions are as follows when the
Company is in a financial position to award such salaries: Mr Frank Glinton, CEO
& Director: $114,750; Mr. George Anagnost, Executive Vice President and
Director:$101,250; Mr. Wayne Doss, President & Director: $101,250. Long term
incentives, key man insurance, etc. will be implemented when the Company is in a
financial position to offer such benefits.
Item 7. Certain Relationships and Related Transactions.
The aforementioned shares of common stock issued to Murray Ginsberg in the
total amount of 10,517,750 were returned to the Company's Treasury and canceled
pursuant to the direction of the Broward County Circuit Court in accord with its
order enforcing the Settlement Agreement between the Company and Mr. Ginsberg.
[See: Part III. Item 1. Index to Exhibits - Item No. - 99.1]
The aforementioned shares of common stock issued to Audrey Max in the total
amount of 764,875 were returned to the Company's Treasury and canceled pursuant
to the direction of the Broward County Circuit Court in accord with its order
enforcing the Settlement Agreement between the Company and Ms. Max. [See: Part
III. Item 1. Index to Exhibits - Item No. - 99.1]
The aforementioned shares of common stock issued to Henry Lione in the
total amount of 475,000 were voluntarily returned to the Company's Treasury and
canceled in accord with the Settlement Agreement between the Company and Mr.
Lione. [See: Part III. Item 1. Index to Exhibits - Item No. - 99.1]
Mr. Eugene Ladin voluntarily resigned as Chief Financial Officer and
Director of the Company on July 13, 1999.
The aforementioned shares of common stock issued to Henry Max in the total
amount of 100,000 were voluntarily returned to the Company's Treasury and
canceled in accord with the Settlement Agreement between the Company and Mr.
Max. [See: Part III. Item 1. Index to Exhibits - Item No. - 99.1]
Any stock issued and to be issued by the Company to its executive staff/
directors has been and will be in accordance with authorized personnel practices
and pursuant to 4(2) and/or Rule 506 of Regulation D of the Securities Act of
1933.
Item 8. Description of Securities.
The Company's authorized stock when incorporated on August 7, 1997,
consisted of common stock in the amount of 17,250,000 with a par value of $0.001
per share. The shareholders, in January 1999, consented to increase the number
of authorized common shares, $0.001 par value, from 17,250,000 to 50,000,000
shares and to 100,000,000 shares in September 1999. Concurrently, 10,000,000
shares of preferred stock with no determined par value were authorized. In
September
<PAGE>
1999, the Company completed a one for five reverse split of the issued and
outstanding common shares. The Company had 10,977,636[reflecting the 5 to 1
reverse split] and 13,783,662[pre split] shares of common stock issued and
outstanding at September 30, 1999 and December 31, 1998, respectively. There
were no shares of preferred stock issued as of September 30, 1999.(See: Part
III. Item 1. Index To Exhibits - 3(i)3 Articles of Amendment to Articles of
Incorporation")In addition, the Company concurrently authorized the issuance of
10,000,000 shares of preferred stock with no determined par value as needed in
the future. As of December 23, 1999, the Company has 8,866,128 shares of common
stock outstanding.
Description of Common Stock
All shares of Common Stock have equal voting rights and, when validly issued
and outstanding, are entitled to one vote per share in all matters to be voted
upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully
paid and non-assessable shares. Cumulative voting in the election of directors
is not permitted; which means that the holders of a majority of the issued and
outstanding shares of Common Stock represented at any meeting at which a quorum
is present will be able to elect the entire Board of Directors if they so choose
and, in such event, the holders of the remaining shares of Common Stock will not
be able to elect any director. In the event of liquidation of the Company, each
shareholder is entitled to receive a proportionate share of the Company's assets
available for distribution to shareholders after the payment of liabilities and
after distribution in full of preferential amounts, if any, to be distributed to
holders of any Preferred Stock. All shares of the Company's Common Stock issued
and outstanding are fully-paid and non-assessable.
Dividend Policy
Holders of shares of Common Stock are entitled to share pro rata in
dividends and distribution with respect to the Common Stock when, as and if
declared by the Board of Directors out of funds legally available therefore,
after requirements with respect to preferential dividends on, and other matters
relating to, the Preferred Stock, if any, have been met. The Company has not
paid any dividends on its Common Stock to date and intends to retain earnings,
if any, to finance the development and expansion of its business. Future
dividend policy is subject to the discretion of the Board of Directors and will
depend upon a number of factors, including future earnings, capital requirements
and the financial condition of the Company.
Rights of Dissenting Shareholders
In accordance with Florida Statute Section 607.1103, the Company intends to
provide its shareholders with any plan or merger, and as soon as available, all
audited financial statements, concerning a target company and its business prior
to any merger or acquisition. Dissenters have rights as defined and set forth in
Florida Statue Sections 607.1301, 607.1302, the procedure of which is set forth
in Florida Section 607.1320. Essentially such statutes provide that a dissenting
shareholder has the right to receive payment of the fair market value of his
shares.
Preliminary Merger Discussions
The Company's officers and directors are constantly pursuing additional
business opportunities in the form of mergers, acquisitions and joint-ventures.
On June 30, 1999, the Company announced that it is presently engaged in
preliminary discussions with Envirocon Corporation, a Denver- based construction
industry supplier, to merge operations. The preliminary agreement is subject to
<PAGE>
due diligence by both parties. Subsequent to the conducting of due diligence
inquiries the Company and Envirocon agreed to a mutually beneficial Plan of
Reorganization Agreement which resulted in the resignation of the Company's
original Board of Directors and Officers and the refocusing of the Company's
business to be that of a supplier to the residential and commercial construction
industry of its Econ Panel System. (See: Part I. Item 1. Description of Business
- - (b) Business of Registrant)
Transfer Agent
The Transfer Agent and Registrar for the Company's Common Stock is Florida
Atlantic Stock Transfer which is located at 5701 North Pine Island Road, Suite
310B, Tamarac, Florida 33321.
Certain Provisions of Florida Law
Section 607.0902 of the Florida Business Corporation Act prohibits the
voting of shares in a publicly-held Florida Corporation that are acquired in a
"control share acquisition" unless the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition or
unless the corporation's articles of incorporation or bylaws specifically state
that this section does not apply. A "control share acquisition" is defined as an
acquisition that immediately thereafter entitles the acquiring party to vote in
the election of directors within each of the following ranges of voting power:
(I) one-fifth or more, but less that one-third of such voting power: (ii)
one-third or more, but less than a majority of such voting power; and (iii) more
than a majority of such voting power.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Since the Company's inception it has not declared nor paid any stock or cash
dividends to its shareholders. The price of the Company stock has ranged from a
high of $5 35/64 to a low of 13/64th. First Equity Group participated in a
public relations program disseminating information on the Company and its
initial product, GINSITE(TM). This created the initial market.
The first annual shareholders meeting was held October 15, 1998 at the
Company Corporate Headquarters, Plantation, Florida, to which all registered
shareholders were invited.
Market Information The Company's Common Stock has been quoted for trades on
the over-the-counter/bulletin board (OTC/BB) market since January 2, 1998, and,
since January 2, 1998, has been quoted on the OTC/Bulletin Board System under
the symbol "GSIT". On December 1, 1999, the Company's symbol ECPI was removed
from quotation on the OTC/BB and has continued trading on the small
capitalization "Pink Sheets." The Company's common stock will continue to be so
traded until it can qualify to return to active quotation on the OTC/BB. The
Company expects to return to the OTC/BB as soon as its 10SB Registration clears
the United States Securities and Exchange Commission's review. The following
table sets forth the high and low closing sales prices for the Common Stock for
each quarterly period within the Company's two most recent fiscal years on the
National Market System.
<PAGE>
<TABLE>
<S> <C> <C>
1999 HIGH LOW
- ------- ---- -----
December 31, 1999 - -
September 30, 1999 3.94 2.25
June 30, 1999 4.32 .87
March 31, 1999 1-61/64 13/64
1998 HIGH LOW
- ------ ---- -------
December 1998 2-3/8 1-13/32
September 30, 1998 4-3/4 1- 1/8
June 30, 1998 5-3/8 3-15/16
March 31, 1998 5-35/64 13/64
1997 HIGH LOW
- ----- ---- ---
December 31, 1997 N/A N/A
Inception to September 30, 1997 N/A N/A
</TABLE>
Holders of Common Stock As of December 23, 1999 there were approximately67
holders of record of the Company's Common Stock.
Dividends The Company has never paid cash dividends on its Common Stock, and
does not anticipate paying cash dividends in the foreseeable future. Any future
determination as to the payment of cash dividends will be dependent upon the
Company's financial condition and results of operations and other factors then
deemed relevant by the Board of Directors.
Item 2. Legal Proceedings.
Subsequent to the closing of the Plan of Reorganization Agreement the former
directors and officers (including Murray Ginsberg) challenged the validity of
the Agreement. On October 19, 1999, the Company entered into a verbal
Stipulation For Settlement agreement with Murray Ginsberg, Henry Max and Audrey
Max which also joined Henry Lione and S. Barry Grieper ratifying and affirming
the Plan of Reorganization and acknowledging their respective resignations as
directors as well as the appointment of Frank Glinton as President and director,
George Anagnost as Vice President, Secretary, Treasurer and director, and Wayne
Doss as a director. On October 19, 1999, the Company appeared with counsel in
the Circuit Court for Broward County, Florida Case No.: 99-017314 to enter into
open court the Stipulation For Settlement as agreed to by all parties on October
19, 1999. The court entered an order on November 15, 1999 reaffirming the
Stipulation For Settlement with few exceptions.[See: Part III., Item 1, Index to
Exhibits, Exhibit No. 99.1 Order of the Circuit Court of the Seventeenth
Judicial Circuit for Broward County, Florida Enforcing Settlement..., dated
November 15, 1999.] A motion to set aside this order is pending. It is the
opinion of Counsel for the Company that the pending motion is without merit.
Item 3. Changes In and Disagreements with Accountants.
The Certified Public Accountants, Durland and Company, CPA's, P.A. 340
Royal Palm Way, Suite 204 Palm Beach, Florida 33480, performed an audit as of
December 31, 1998, and prepared non-audited financial statements as of September
<PAGE>
30, 1999 Durland and Company continue to be the Company's accountants through
the date hereof and there is no disagreement on accounting and financial
disclosure between Durland and Company and the Company.
Item 4. Recent Sales of Unregistered Securities.
In August, 1997, the Company issued 200,000 shares of common stock pursuant
to Section 4(2) of the Act for the sum of $1,500 to First Equity Group, Inc. for
services to be rendered . The facts relied upon by the Company for such
exemption are (i) the issuance of the shares did not involve a public offering
and (ii) the purchaser is an accredited investor and had full access to the
information regarding the Company necessary to make an informed investment
decision. The offering was made to a Florida corporation in the State of
Florida.
In September, 1997, the Company accepted subscriptions in the amount of
$1,000,000 from the sale of 3,000,000 shares of common stock , $0.001 par value
per share (in units consisting of 14 warrants for each share of common stock,
each warrant convertible at $.35 per share into one(1) share of common stock on
or before November 30, 1998) in a private placement conducted pursuant to an
exemption from registration contained in sections 3(b) of the Act and Rule 504
of Regulation D promulgated thereunder. The offering was made to Florida
residents in the State of Florida.
These warrants were exercised and fully funded.
The aforementioned shares of common stock have been returned to the
Company's Treasury and canceled pursuant to the direction of the Broward County
Circuit Court in accord with its order enforcing the Settlement Agreement
between the Company and the named parties. [See: Part III. Item 1. Index to
Exhibits - Item No. - 99.1] On November 7, 1997 the Company issued 50,000 shares
of common stock to Gary Blume, Esq., its legal advisor valued at par. In
September 1998 the Company accepted subscriptions in the amount of $45,000.00
from the sale of 67,164 shares of common stock in a private placement to
accredited investors conducted pursuant to an exemption from registration
contained in section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.(See: Part II, Item 4. "Recent Sales of Unregistered Securities").
The offering was made to Florida residents in the State of Florida. (See Part I,
Item 6. "Executive Compensation)
In December, 1997, the Company issued 30,000 shares of common stock to
Howard J. Voren and Kathleen M. Voren in exchange for services valued at $300.
The Company relied upon an exemption under Section 4(2) of the Act and Rule 506
of Regulation D promulgated thereunder. Such reliance was based upon the fact
that (i) the issuance of the shares did not involve a public offering and (ii)
each of the parties is an accredited investor and had full access to the
information regarding the Company necessary to make an informed investment
decision. The offering was made to Florida residents in the State of Florida.
In January, 1998, the Company issued 125,000 shares of common stock to Marco
D'alanzo in exchange for services valued at $13,672; (ii) in January, 1998, the
Company issued 125,000 shares of common stock to Douglas Baker in exchange for
services valued at $13,750.00; and, (iii) in January 1998 the Company issued
125,000 shares of common stock to Joseph M. Vazquez, III for services rendered
valued at $13,750.00; (iv) in January 1998 the Company issued 125,000 shares of
common stock to Suzanne Davis for services valued at $13,750.00. The Company
relied upon an exemption under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. Such reliance was based upon the fact that
(i) the issuance of the shares did not involve a public offering and (ii) each
of the parties is an accredited investor and had full access to the information
regarding the Company necessary to make an informed investment decision. The
offering was made to Florida residents in the State of Florida.
<PAGE>
In March, 1998, the Company issued 200,000 shares of common stock to Henry
V. Lione for services rendered valued at $498,438; (ii) in April, 1998, the
Company issued 25,000 shares of common stock to Albert Medina for services
rendered valued at $68,164; (iii) in April, 1998, the Company issued 100,000
shares of common stock to Frederick B. Carroll for services rendered valued at
$272,656; (iv) in April, 1998, the Company issued 200,000 shares of common stock
to Harvey J. Berse for services rendered valued at $545,312; (v) in April, 1998,
the Company issued 100,000 shares of common stock to Igor Vasershteyn for
services rendered valued at $272,656; ( The aforementioned shares of common
stock issued to Henry V. Lione have been returned to the Company's Treasury and
canceled pursuant to the direction of the Broward County Circuit Court in accord
with its order enforcing the Settlement Agreement between the Company and the
named parties. [See: Part III. Item 1. Index to Exhibits - Item No. - 99.1] The
Company relied upon the exemption under Section 4(2) of the Act and Rule 506 of
Regulation D promulgated thereunder. Such reliance was based upon the fact that
(i) the issuance of the shares did not involve a public offering and (ii) each
of the parties is an accredited investor and had full access to the information
regarding the Company necessary to make an informed investment decision by
virtue of his or her position as an employee, officer and/or director of the
Company and/or as a party related to an officer or director. The offering was
made to Florida residents in the State of Florida.
In September 1998, the Company issued 44,776 shares of common stock to James
Weintraub for services rendered valued at $29,999.90; (ii) in September 1998,
the Company issued 14,925 shares of the Company's common stock to Greenwolf
Investments for services rendered valued at $9,999.90; and (iii) in September
1998, the Company issued 7,463 shares of common stock to Greenwolf Investments
for services rendered valued at $5,000.20. The Company relied upon the exemption
under Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder. Such reliance was based upon the fact that (i) the issuance of the
shares did not involve a public offering and (ii) each of the parties are
accredited investors and had full access to the information regarding the
Company necessary to make an informed investment decision. The offering was made
to Florida residents in the State of Florida.
In November 1998, the Company accepted subscriptions in the amount of
$4,899 for the sale of 13,998 shares of common stock in a private placement
conducted pursuant to an exemption from registration contained in sections 3(b)
of the Act and Rule 504 of Regulation D promulgated thereunder. The offering was
made to Florida residents in the State of Florida.
In February, 1999, the Company issued 1,000 shares of common stock to Jan
Michael Morris for services rendered valued at $1,766;; (ii) in March, 1999, the
Company issued 75,000 shares of common stock to Albert Medina for services to be
rendered valued at $19,500; (iii) in March, 1999, the Company issued 100,000
shares of common stock to Keith D. Foutz for services rendered valued at
$26,000. The Company relied upon the exemption under Section 4(2) of the Act and
Rule 506 of Regulation D promulgated thereunder. Such reliance was based upon
the fact that (i) the issuance of the shares did not involve a public offering
and (ii) each of the parties is an accredited investor and had full access to
the information regarding the Company necessary to make an informed investment
decision by virtue of his or her position as an employee, officer and/or
director of the Company and/or as a party related to an officer or director.
On March 31, 1999, the Company executed a Note Purchase Agreement payable to
The Augustine Fund,, in the principal amount of $254,000.00, plus interest
thereon at the rate of 9% per annum, and convertible into the common stock of
the Company. The Company partially satisfied the Note Purchase Agreement by
issuing 650,000 shares of common stock in accordance with the terms of the Note.
The Note Purchase Agreement was executed pursuant to an exemption from
<PAGE>
registration contained in sections 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder. The offering was made to Florida Residents in the State
of Florida.
In March, 1999, the Company issued 250,000 shares of common stock to
Monetary Advancement International, Inc., as consideration for services to be
rendered valued at $422,500. In June, 1999, by mutual consent of the parties,
150,000 shares of the aforementioned stock was canceled due to the lack of
performance of the consulting agreement with the Company. Monetary Advancement
International, Inc. retained 100,000 shares of the common stock valued at
$168,750. The Company relied upon the exemption from registration contained in
sections 3(b) of the Act and Rule 504 of Regulation D promulgated thereunder.
The offering was made to a New York corporation in the State of New York. The
Company never received these canceled shares as directed by the executed
settlement agreement between the parties and may pursue its full recourse under
the law to enforce said agreement.
In April, 1999, the Company accepted subscriptions, in the amount of
$76,250, from the sale of 2,550,000 shares of the Company's common stock to the
following parties: (i) Donald F. Mintmire subscribed to 50,000 shares of common
stock for $1,250; (ii) Joseph M. Vazquez, III subscribed to 750,000 shares of
common stock for $22,500; (iii) Dan Campbell subscribed to 750,000 shares of
common stock for $22,500; (iv) Infinity Financial Group subscribed to 1,000,000
shares of common stock for $30,000. The Company relied upon an exemption from
registration contained in sections 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder. The offering was made to Florida residents in the State
of Florida.
In May 1999, the Company satisfied in full the Note Purchase Agreement with
the Augustine Fund by issuing the remaining balance due pursuant to the
Agreement of 385,615 shares of common stock in total accordance with the terms
of the Note. The Note Purchase Agreement was executed pursuant to an exemption
from registration contained in sections 3(b) of the Act and Rule 504 of
Regulation D promulgated thereunder. The offering was made to Florida Residents
in the State of Florida.
The aforementioned shares of common stock issued to Murray Ginsberg have
been returned to the Company's Treasury and canceled pursuant to the direction
of the Broward County Circuit Court in accord with its order enforcing the
Settlement Agreement between the Company and Mr. Ginsberg. [See: Part III. Item
1. Index to Exhibits - Item No. - 99.1]
In June 1999, the Company accepted a subscription in the amount of $50,000
from the sale of 400,000 shares of common stock in a private placement to one
accredited investor and Florida resident conducted pursuant to an exemption from
registration contained in section 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder. The offering was made in the State of Florida.(See: Part
II, Item 4. "Recent Sales of Unregistered Securities").
Subsequent to the closing of the Agreement the former directors and
officers (including Murray Ginsberg) challenged the validity of the Agreement.
On October 19, 1999, the Company entered into a verbal Stipulation For
Settlement agreement with Murray Ginsberg, Henry Max and Audrey Max which also
joined Henry Lione and S. Barry Grieper ratifying and affirming the Plan of
Reorganization and acknowledging their respective resignations as directors as
well as the appointment of Frank Glinton as CEO and director, George Anagnost as
Vice President, Secretary, Treasurer and director, and Wayne Doss as a director.
The Settlement was approved by the parties and subsequently affirmed by court
order. [See: Part III. Item 1. Index to Exhibits. No. 99.1 - Order of the
Circuit Court.] In addition, the court directed, in accord with the terms of the
Settlement, that the above parties turn in their respective shares of stock to
the Company's Treasury for cancellation.
<PAGE>
On October 25, 1999, the Company accepted subscriptions for 271,719
restricted shares of the Company's common stock pursuant to the conversion
option provided in two notes to the Company's subsidiary, Envirocon Corporation,
for a combined total $35,000. These notes were executed prior to the Company's
Reorganization in a private placement to accredited investors conducted pursuant
to an exemption from registration contained in section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.(See: Part II, Item 4. "Recent Sales
of Unregistered Securities").
The facts relied upon the by the Company to make the federal exemption
available exemption under Section 3(b) of the Act and Rule 504 of Regulation D
promulgated thereunder include the following: (i) the aggregate offering price
for the offering of the shares of common stock (with attached warrants) did not
exceed $1,000,000, less the aggregate offering price for all securities sold
within the twelve months before the start of and during the offering of the
shares in reliance on any exemption under Section 3(b); (ii) no general
solicitation or advertising was conducted by the Company in connection with the
offering of any of the shares; (iii) the fact that the Company has not been
since its inception (a) subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended; (b) an "investment
Company" within the meaning of the Investment Company Act of 1940, as amended;
or (c) a development stage Company that either has no specific business plan or
purpose or has indicated that its business plan is to engage in a merger or
acquisition with an unidentified company or companies, or other entity or
person; and, (iv) the required number of manually executed originals and true
copies of Form D were filed.
The facts relied upon to make the New York Exemption available include the
following: (i) the aggregate number of persons purchasing the Company's stock
during the 12 month period ending on the date of issuance did not exceed 40;
(ii) neither the offer nor the sale of any of the shares was accomplished by a
public solicitation or advertisement; (iii) that at the time of filing no
offering had yet been made to any resident of the State of New York, (iv) that
the offering is to be made to personal friends, relatives and business
associates and other principals of the issuer, (v) that these common shares have
been issued or sold in reliance of Section 359-f(2) of the New York General
Business Law, (vi) each purchaser executed a statement to the effect that the
securities purchased have been purchased for their own account; (vii) that they
have adequate means of providing for their current needs and possible personal
contingencies; and (viii) they do not have a need for liquidity of this
investment.
The facts relied upon to make the Florida exemption available include the
following: (i) sales of the shares of Common Stock were not made to more than 35
persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of GSIT or, by reason of their business or financial
experience, could be reasonably assumed to have the capacity to protect their
own interests in connection with the transaction; (iv) each purchaser
represented that he was purchasing for his own account and not with a view to or
for sale in connection with any distribution of the shares; and (v) prior to
sale, each purchaser had reasonable access to or was furnished all material
books and records of the Company, all material contracts and documents relating
to the proposed transaction, and had an opportunity to question the executive
officers of the Company. Pursuant to Rule 3E-500.005, in offerings made under
Section 517.061(11) of the Florida Statutes, an offering memorandum is not
required; however each purchaser (or his representative) must be provided with
or given reasonable access to full and fair disclosure of material information.
An issuer is deemed to be satisfied if such purchaser or his representative has
<PAGE>
been given access to all material books and records of the issuer; all material
contracts and documents relating to the proposed transaction; and an opportunity
to question the appropriate executive officer. In this regard, the Company's
Executives supplied such information and was available for such questioning.
Item 5. Indemnification of Directors and Officers.
Article XVI of the Company's Articles of Incorporation contains provision
providing for the indemnification of directors and officers of the Company as
follows:
The Corporation shall indemnify a director or officer of the Corporation who
was wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director or officer was a party because the director or
officer is or was a director or officer of the Corporation against reasonable
attorney fees and expenses incurred by the director or officer in connection
with the proceedings. The Corporation may indemnify an individual made a party
to a proceeding because the individual is or was a director, officer, employee
or agent of the corporation against liability if authorized in the specific case
after determination, in the manner required by the Board of Directors,
that indemnification of the director, officer, employee or agent, as the case
may be, is permissible in the circumstances because the director, officer,
employee or agent has met the standard of conduct set forth by the board of
Directors. The indemnification and advancement of attorney fees and expenses for
directors, officers, employees and agents of the Corporation shall apply when
such persons are serving at the Corporation's request while a director, officer,
employee or agent of the Corporation, as the case may be, as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
Corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, whether or not for profit, as well as in their official capacity
with the Corporation. The Corporation may also pay for or reimburse the
reasonable attorney fees and expenses incurred by a director, officer, employee
or agent of the Corporation who is a party to a proceeding in advance of final
disposition of the proceeding. The Corporation also may purchase and maintain
insurance on behalf of an individual arising from the individual's status as a
director, officer, employee or agent of the Corporation, whether or not the
Corporation would have power to indemnify the individual against the same
liability under the law. All references in these Articles of Incorporation are
deemed to include any amendment or successor thereto. Nothing contained in these
Articles of Incorporation shall limit or preclude the exercise of any right
relating to indemnification or advance of attorney fees and expenses to any
person who is or was a director, officer, employee or agent of the Corporation
or the ability of the Corporation otherwise to indemnify or advance expenses to
any such person by contract or in any other manner. In any word, clause or
sentence of the foregoing provisions regarding indemnification or advancement of
the attorney fees or expenses shall be held invalid as contrary to law or public
policy, it shall be severable and the provisions remaining shall not be
otherwise affected. All references in these Articles of Incorporation to
"directors", "officer", "employee" and "agent" shall include the heirs, estates,
executors, administrators and personal representatives of such persons.
<PAGE>
The Company has no agreements with any of its directors or executive
offices providing for indemnification of any such persons with respect to
liability arising out of their capacity or status as officers and directors.
At present, there is no pending litigation or proceeding involving a
director or executive officer of the Company as to which indemnification is
being sought.
PART F/S
The Financial Statements of ECPI, and Notes to Financial Statements
together with the Independent Auditor's Report of Durland and Company, CPA's,
P.A., required by this Part F/S commence on page F-1 hereof and are incorporated
herein by this reference. The Proforma Consolidated Financial Statements of
ECPI, and Notes to Financial Statements of Durland and Company, CPA's, P.A.,
required by this Part F/S commence on page F-18 hereof and are incorporated
herein by this reference. In addition, the Financial Statements of Envirocon
Corporation and Notes to Financial Statements together with the Independent
Auditor's Report of Schumacher & Associates, Inc., CPA's required by the recent
Agreement and Plan of Reorganization commence on page F-12 hereof and are
incorporated herein by this reference. Lastly, the Unaudited ECPI Consolidated
Financial Statements for the period ending September 30, 1999 and Notes to
Financial Statements of Durland and Company, CPA's, PA commence on page F-21.
<PAGE>
AUDITED GINSITE FINANCIAL STATEMENTS
For the period ending December 31, 1999
Including the Interim period ending March 31, 1998
Independent Auditors' Report............................F-2
Balance Sheets..........................................F-3
Statements of Loss......................................F-4
Statements of Changes in Stockholders' Equity...........F-5
Statements of Cash Flows................................F-6
Notes to Financial Statements...........................F-7
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL["ECPI"]
Consolidated Unaudited Proforma Financial Statements
For the period ending December 31, 1998
Proforma Consolidated Balance Sheets..................................F-12
Proforma Consolidated Statements of Operations........................F-13
Notes to Proforma Consolidated Financial Statements..................F-14
AUDITED ENVIROCON FINANCIAL STATEMENTS
For the period ending December 31, 1998
Report of Independent Certified Public Accountants.................F-15
Balance Sheets.....................................................F-16
Statements of Operations...........................................F-17
Statements of Changes in Stockholders' (Deficit)...................F-18
Statements of Cash Flows...........................................F-19
Notes to Financial Statements .....................................F-20
Unaudited ECPI Consolidated Financial Statements
For the period ending September 30, 1999
Balance Sheets.....................................................F-23
Statements of Operations...........................................F-24
Statements of Changes in Stockholders' (Deficit)...................F-25
Statements of Cash Flows...........................................F-26
Notes to Financial Statements......................................F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO: The Board of Directors
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Fort Lauderdale, Florida
We have audited the accompanying balance sheet of Ginsite Materials, Inc., a
development stage enterprise, as of December 31, 1998 and the related statements
of loss, changes in stockholders' equity and cash flows for the year ended
December 31, 1998 and from August 7, 1997 (Inception) through December 31, 1997.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ginsite Materials, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
year ended December 31, 1998 and from August 7, 1997 (Inception) through
December 31,1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note11 to the
financial statements, the Company has experienced a loss since inception. The
Company's financial position and operating results raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 11. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Durland & Company
- -------------------------
Durland & Company, CPAs, P.A.
Palm Beach, Florida
March 4, 1999
F-2
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(unaudited)
------------------------- ---------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 43,687 $ 360
Accounts receivable
Trade 1,348 1,323
Related party 29,597 18,696
Inventories 20,557 23,379
Advance to related party 30,000 0
Note receivable-related party 14,416 0
------------------------- ---------------------------
Total current assets 139,605 43,758
------------------------- ---------------------------
PROPERTY AND EQUIPMENT
Equipment 128,624 128,624
Leasehold improvements 56,550 56,550
Less: Accumulated depreciation (25,279) (19,021)
------------------------- ---------------------------
Total property and equipment 159,895 166,153
=======
------------------------- ---------------------------
OTHER ASSETS
Deposits 13,448 13,448
Intangible asset-patent pending 38,232 40,781
------------------------- ---------------------------
Total other assets 51,680 54,229
------------------------- ---------------------------
Total Assets $ 351,180 $ 264,140
========================= ===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 30,325 $ 68,352
Accounts payable-related party 4,350 4,350
Salaries payable 0 4,816
Payroll taxes payable 20,278 14,834
Note payable-related party 48,183 47,007
------------------------- ---------------------------
Total current liabilities 103,136 139,359
LONG TERM DEBT 109,000 0
------------------------- ---------------------------
Total Liabilities 212,136 139,359
------------------------- ---------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized
10,000,000 shares; 0 issued and outstanding 0 0
Common stock, $0.001 par value, authorized
50,000,000 shares; 18,087,570 and
13,783,662 issued and outstanding, respective 18,088 13,784
Additional paid-in capital 5,486,472 3,867,255
Deficit accumulated during the development stage (5,401,849) (3,756,258)
Beneficial conversion feature 36,333 0
------------------------- ---------------------------
Total Stockholders' Equity 139,044 124,781
------------------------- ---------------------------
Total Liabilities and Stockholders' Equity $ 351,180 $ 264,140
========================= ===========================
</TABLE>
F-3
The accompanying notes are an integral
part of the financial statements.
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Statements of Loss
<TABLE>
<CAPTION>
Period from Period from
Three months ended August 7, 1997 August 7, 1997
--------------------------------------- Year ended (Inception) to (Inception) to
March 31, March 31, 1998 December 31, December 31, March 31, 1999
1999(unaudited) (unaudited) 1998 1997 (unaudited)
------------------- ------------------- ------------------ ---------------- ----------------------
<S> <C> <C> <C> <C> <C>
Revenues
Product sales 2,326 0 15,830 0 18,156
Distributor fees 0 0 6,980 0 6,980
------------------- ------------------- ------------------ ---------------- ----------------------
Total revenues 2,326 0 22,810 0 25,136
------------------- ------------------- ------------------ ---------------- ----------------------
Costs and expenses
Compensation :
Officers 414,142 518,738 1,698,850 0 2,112,992
Other 234,029 1,168,309 1,179,807 0 1,413,836
Related party 1,440 3,000 6,240 13,500 21,180
Depreciation and amortization 8,806 4,220 28,859 357 38,022
General and Administrative 905,113 140,667 717,069 25,936 1,648,118
Bad debt - related party 0 0 105,750 0 105,750
------------------- ------------------- ------------------ ---------------- ----------------------
Total expenses 1,563,530 1,834,934 3,736,575 39,793 5,339,898
------------------- ------------------- ------------------ ---------------- ----------------------
Loss from operations (1,561,204) (1,834,934) (3,713,765) (39,793) (5,314,762)
Other income (expense)
Interest income 1,455 0 1,250 0 2,705
Interest expense (85,842) 0 (2,804) (1,146) (89,792)
------------------- ------------------- ------------------ ---------------- ----------------------
Net loss (1,645,591) (1,834,934) (3,715,319) (40,939) (5,401,849)
------------------- ------------------- ================== ================ ======================
Net loss per weighted average
share, basic $ (0.11) $ (0.16) $ (.30) (.004) (.45)
basic basic basic
basic
basicbascbasic
=================== =================== ================== ================ ======================
Weighted average number of
shares, 15,293,219 11,383,676 12,560,147 9,198,364 12,136,159
basic
=================== =================== ================== ================ ======================
</TABLE>
F-4
The accompanying notes are an integral
part of the financial statements.
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Number of Common Paid-in Bene Conv Development Stockholders'
Shares Stock Capital Feature Stage Equity
----------- ----------- ------------ ------------ ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
August 7, 1997 (Inception) 0 $ 0 $ 0 $ 0 $ 0 $ 0
Third quarter - cash ($0.0075/sh) 200,000 200 1,300 0 0 1,500
Third quarter - services ($0.001/sh) 50,000 50 0 0 0 50
Third quarter - services ($0.001/sh)* 879,750 880 0 0 0 880
Third quarter - loan repayment ($0.001/sh) 7,917,750 7,918 0 0 0 7,918
Fourth quarter - cash ($0.10/sh) 200,000 200 19,800 0 0 20,000
Fourth quarter - cash ($0.35/sh) 58,000 58 20,242 0 0 20,300
Fourth quarter - offering costs 0 0 (5,485) 0 0 (5,485)
Fourth quarter - cash ($0.01/sh) 30,000 30 270 0 0 300
Net loss 0 0 0 0 (40,939) (40,939)
----------- ---------- ------------ ----------- ------------- -------------------
BALANCE, December 31, 1997 9,335,500 9,336 36,127 0 (40,939) 4,524
First quarter - cash ($0.35/sh) 754,986 755 263,490 0 0 264,245
First quarter - services ($0.11/sh) 500,000 500 54,188 0 0 54,688
First quarter - services ($2.49/sh)* 200,000 200 498,238 0 0 498,438
First quarter - services ($2.73/sh)** 425,000 425 1,158,363 0 0 1,158,788
Second quarter - cash ($0.35/sh) 879,300 879 306,876 0 0 307,755
Second quarter - services ($2.56/sh)* 250,000 250 640,375 0 0 640,625
Third quarter - cash ($0.35/sh) 646,714 647 225,703 0 0 226,350
Third quarter - cash ($0.67/sh) 67,164 67 44,933 0 0 45,000
Third quarter - services ($2.13/sh)* 200,000 200 424,800 0 0 425,000
Fourth quarter - cash ($0.35/sh) 474,998 475 165,774 0 0 166,249
Fourth quarter - services ($0.97/sh)* 50,000 50 48,388 0 0 48,438
Net loss 0 0 0 0 (3,715,319) (3,715,319)
----------- ---------- ------------- ---------- ------------- -------------------
BALANCE, December 31, 1998 13,783,662 13,784 3,867,255 0 (3,756,258) 124,781
----------- ---------- ------------- ----------- ------------ -------------------
First quarter - cash/compensation ($0.26/sh) 2,500,000 2,500 647,500 0 0 650,000
First quarter - services 151,000 151 183,365 0 0 183,516
First quarter - services ($1.58/sh)** 100,000 100 157,712 0 0 157,812
First quarter - services ($.26/sh)** 175,000 175 45,325 0 0 45,500
First quarter - services ($.41/sh)* 950,000 950 392,409 0 0 393,359
First quarter - debt conversion 427,908 428 144,572 0 0 145,000
Beneficial conversion feature 0 0 0 84,667 0 84,667
First quarter - convertible debt conversion 0 0 48,334 (48,334) 0 0
Net loss 0 0 0 0 (1,645,591) (1,645,591)
----------- ---------- ------------- ---------- ------------- -------------------
BALANCE, March 31, 1999 (Unaudited) 18,087,570 $ 18,088 $ 5,486,472 $ 36,333 $ (5,401,849) $ 139,044
=========== ========== ============= ========== ============= ===================
</TABLE>
* Shares issued to officers in lieu of cash
** Shares issued to non-officer
employees in lieu of cash
F-5
The accompanying notes are an
integral part of the financial statements.
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterpris)
Statement of Cash Flows
<TABLE>
<CAPTION>
Period
Period from August
from August 7, 1997
Three months ended 7, 1997 (Inception)
----------------------------- Year ended (Inception) to March
March 31, March 31, 1998 December to December 31, 1999
1999(unaudited) (unaudited) 31, 1998 31, 1997 (unaudited)
--------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (1,645,591) $(1,834,934) $(3,715,319) $(40,939) $(5,401,849)
Adjustments to reconcile net loss to net
cash used by development activities
Amortization of beneficial conversion feature 84,667 0 0 0 84,667
Amortization-other 2,549 2,549 10,195 0 12,744
Depreciation 6,258 1,671 18,664 357 25,279
Stock issued in lieu of cash-third parties 758,515 54,687 54,687 0 813,202
Stock issued in lieu of cash-officers and employees 596,672 1,657,228 2,771,290 930 3,368,892
Bad debt-related party 0 0 105,750 0 105,750
Changes in assets and liabilities
Increase in accounts receivable-trade (25) 0 (1,323) 0 (1,348)
Increase in accounts receivable-related party (10,901) (240) (46,696) 0 (57,597)
(Increase) decrease in inventory 2,822 (4,245) (22,681) (698) (20,557)
Advance to related party (30,000) 0 0 0 (30,000)
Increase in accrued interest on note rec-related party (1,455) 0 (1,250) 0 (2,705)
Increase in deposits 0 (11,108) (13,448) 0 (13,448)
Increase (decrease) in accounts payable (38,027) 41,242 53,972 14,380 30,325
Increase (decrease) in accounts payable-related party 0 0 (15,650) 20,000 4,350
Increase (decrease) in salaries payable (4,816) 0 4,816 0 0
Increase in payroll taxes payable 5,444 1,525 14,834 0 20,278
Increase in accrued interest on note payable-related party 1,176 0 2,803 1,146 5,125
------------- -------------- -------------- -------- -----------
Net cash used by development activities (272,712) (91,625) (779,356) (4,824) (1,056,892)
------------- -------------- -------------- -------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Issuance of note receivable - related party (12,961) 0 (66,500) (10,000) (89,461)
Purchase of property and equipment 0 (152,737) (171,174) (4,000) (175,174)
Purchase of property and equipment - related party 0 0 0 (10,000) (10,000)
------------- -------------- -------------- -------- -----------
Net cash used by investing activities (12,961) (152,737) (237,674) (24,000) (274,635)
------------- -------------- -------------- -------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 75,000 264,243 1,009,599 36,615 1,121,214
Proceeds from issuance of convertible debt 254,000 0 0 0 254,000
------------- -------------- -------------- --------- -----------
Net cash provided by financing activities 329,000 264,243 1,009,599 36,615 1,375,214
------------- -------------- -------------- -------- -----------
Net increase (decrease) in cash 43,327 19,881 (7,431) 7,791 43,687
CASH, beginning of period 360 7,791 7,791 0 0
------------- -------------- -------------- --------- -----------
CASH, end of period $ 43,687 $ 27,672 $ 360 $ 7,791 $ 43,687
============= ============== ============== ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing and
financing activities:
Acquisition of patent from shareholder $ 0 $ 0 $ 0 $(50,976) $ (50,976)
============= ============== ============== ========= ===========
Issuance of common stock for patent $ 0 $ 0 $ 0 $ 7,918 $ 7,918
============= ============== ============== ========= ===========
Due to shareholder for patent $ 0 $ 0 $ 0 $ 43,058 $ 43,058
============= ============== ============== ========= ===========
Conversion of convertible debt $ (145,000) $ 0 $ 0 $ 0 $ (145,000)
============= ============== ============== ========= ===========
Issuance of common stock through conversion of
convertible debt $ 145,000 $ 0 $ 0 $ 0 $ 145,000
============= ============== ============== ========= ===========
</TABLE>
F-6
The accompanying notes are an integral part of
the financial statements.
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to periods ended March 31, 1999 and 1998 is unaudited)
(1) Summary of Significant Accounting Principles
The Company Ginsite Materials, Inc., is a Florida chartered development
stage corporation which conducts business from its headquarters in Fort
Lauderdale, Florida. The Company was incorporated on August 7, 1997.
The Company is principally involved in the manufacturing, marketing and sales
of the Ginsite formulation, a material that enhances or replaces wood,
concrete and similar construction materials. Current activities include
raising additional equity and negotiating with potential national
distributors.
The Company is in the development stage and has just begun to acquire the
necessary operating assets to carry on its proposed business. While the
Company is negotiating with potential customer distribution channels, there
is no assurance that any benefit will result from such activities. The
Company will not receive significant operating revenues until the
commencement of operations, but will nevertheless continue to incur expenses
until then.
The financial statements for the three months ended March 31, 1999 and 1998
include all adjustments which, in the opinion of management, are necessary
for fair presentation.
The following summarize the more significant accounting and reporting
policies and practices of the Company:
a) Use of estimates The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
as of the date of the statements of financial condition, and revenues
and expenses for the period then ended. Actual results may differ
significantly from those estimates.
b) Start-up costs Costs of start-up activities, including organization costs,
are expensed as incurred following Statement of Position (SOP) 98-5. This SOP
sets forth the generally accepted accounting principles for costs of start-up
activities of development stage entities.
c) Net loss per share Basic is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period.
Diluted is not presented because the inclusion of common share equivalents
would be anti-dilutive.
d) Compensation for services rendered for stock The Company
issues shares of common stock in exchange for services
rendered and in payment of shareholder loans. The costs of the
services are valued according to generally accepted accounting
principles and have been charged to operations.
e) Inventories Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method for substantially all
inventory.
f) Deposits Deposits are primarily payments made as security deposits on the
building lease and utilities.
g) Intangible asset - patent pending Patents are recorded at historical cost
and amortized, beginning the date the patents are placed in service over
their estimated useful lives, using the straight-line method.
h) Property and equipment All property and equipment are recorded at cost
and depreciated over their estimated useful lives, using the
straight-line method. Upon sale or retirement, the costs and related
accumulated depreciation are eliminated from their respective accounts,
and the resulting gain or loss is included in the results of
operations. Repairs and maintenance charges which do not increase the
useful lives of the assets are charged to operations as incurred.
F-7
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(2) Inventories Inventories consist of the following:
March 31, 1999 December 31, 1998
(unaudited)
---------------------- ----------------------
Raw materials $ 12,627 $ 14,855
Containers 1,421 1,672
Labels 6,509 6,852
---------------------- ----------------------
Total inventories $ 20,557 $ 23,379
====================== ======================
(3)Intangible Asset - Patent Pending On August 7, 1997, a majority shareholder
formally assigned to the Company a certain patent pending with the United
States Patent and Trademark Office of the Department of Commerce. The
patent was recorded at its historical cost of $50,976, which represents the
accumulated expenditures of the majority shareholder to refine the patent
process. The patent is being amortized over a period of five years, its
estimated useful life, which began in 1998, the year the patent process was
placed in service. Amortization expense for the periods ended December 31,
1998 and 1997 and March 31, 1999 and 1998 was $10,195, $0, $2,549 and
$2,549, respectively.
(4) Deposits As of March 31, 1999 (unaudited) and December 31, 1998, deposits
consist of payments for the following:
Building lease $ 10,558
Utilities 2,890
---------
$ 13,448
(5) Property and Equipment Property and equipment are summarized by major
classifications as follows:
<TABLE>
<S> <C> <C>
March 31, 1999 December 31,
(unaudited) 1998
------------------ ------------------
Property and equipment $ 65,290 $ 65,290
Deposit on property and equipment 7,072 7,072
Telephone system 11,412 11,412
Office furniture 21,094 21,094
Computer system 23,756 23,756
Leasehold improvements 56,550 56,550
------------------ ------------------
185,174 185,174
Less accumulated depreciation (25,279) (19,021)
------------------ ------------------
$159,895 $ 166,153
--------
================== ==================
</TABLE>
Depreciation expense for the periods ended December 31, 1998 and 1997 and
March 31, 1999 and 1998 was $18,664, $357, $ 6,258 and $1,671, respectively.
(6)Long Term Debt In February 1999, the Company issued a 9% convertible note
due on February 1, 2001 for $254,000 cash. The note is convertible into
shares of the Company's common stock at a conversion price equal to the
lesser of 100% of the lowest of the closing bid prices for the common stock
for the five trading days prior to the date of the note, or 75% of the lowest
of the closing bid prices for the common stock for the five trading days
immediately prior to the conversion date. As of March 31, 1999, $145,000 of
the debt was converted into 427,908 shares of common stock at prices ranging
from $0.19 to $0.66 per share. Subsequent to March 31, 1999, the remaining
$109,000 in debt was converted into 607,703 shares of common stock at prices
ranging from $0.17 to $0.19 per share.
The Company recognized a beneficial conversion feature discount, in
accordance with EITF Topic D-60 amounting to $84,665. The discount was
immediately amortized as the notes were immediately convertible.
F-8
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(6)Long Term Debt (cont.) The amount of reclassification from beneficial
conversion feature to additional paid-in capital due to conversion of the
related debt for the period ended March 31, 1999 was $48,334.
In March 1999, the Company was offered debt financing in the form of
non-interest bearing loans for up to $581,000, to be loaned on an as needed
basis throughout the remainder of 1999. There is no formal written
agreement regarding the repayment of these loans. During April and May,
1999, the Company received total proceeds of $168,000 drawn against these
loans.
(7)Stockholders' Equity The shareholders, in January 1999, consented to increase
the number of authorized common shares, $0.001 par value, from 17,250,000
to 50,000,000 shares. Concurrently, 10,000,000 shares of preferred stock
with no determined par value were authorized. The Company had 18,087,570
and 13,783,662 shares of common stock issued and outstanding at March 31,
1999 and December 31, 1998, respectively. There were no shares of preferred
stock issued as of March 31, 1999.
In August 1997, the Company issued 929,750 shares of restricted common
stock for the fair market value of services rendered of $930, and 7,917,750
shares of restricted common stock for the repayment of a shareholder loan
for par value of $0.001 per share. The Company, in September 1997, issued
200,000 shares of restricted common stock in exchange for $1,500 in cash.
On September 10, 1997, the Company authorized a Regulation D Rule 504
Private Placement for 200,000 units at $0.10 per unit. Each unit consists
of one share of common stock and fourteen stock purchase warrants,
entitling the holder to purchase one share of common stock at a purchase
price of $0.35 per share. The warrants can be exercised any time after the
purchase of a unit and expire on September 10, 1998. In October 1997, the
Company received cash proceeds from the sale of 200,000 units totaling
$20,000 and cash proceeds from the exercise of 58,000 warrants totaling
$20,300. Offering costs of $5,485 related to this private placement were
charged to paid-in capital as the proceeds were received. In December 1997,
the Company issued 30,000 shares of common stock for $300 in cash.
During the first quarter of 1998, the Company issued a total of 1,125,000
shares of restricted common stock for services rendered at a total value of
$1,711,914, the current market price less marketability discount. 200,000
of these shares were issued to officers and 425,000 to employees of the
Company. Also, during the first quarter of 1998, the Company issued 754,986
shares through the exercise of warrants for $264,245 in cash. In the second
quarter of 1998, the Company issued 250,000 shares of restricted common
stock for services rendered by officers of the Company at a total value of
$640,625, based on the current market price less any marketability
discount. The Company, in the second quarter of 1998, issued 879,300 shares
through the exercise of warrants for $307,755 in cash. During the third
quarter of 1998, the Company issued 200,000 shares of restricted common
stock for services rendered by officers of the Company at a total value of
$425,000, based on the current market price less marketability discount.
Cash proceeds totaling $271,350 were received during the third quarter from
the issuance of 646,714 shares through the exercise of warrants and from
the issuance of 67,164 shares for cash. During the fourth quarter, the
Company issued 50,000 shares of restricted common stock for services
rendered by officers of the Company at a total value of $48,437, based on
the current market price less marketability discount. Cash proceeds
totaling $166,249 were received during the fourth quarter from the issuance
of 474,998 shares through the exercise of warrants.
During the first quarter of 1999, the Company issued a total of 1,226,000
shares of restricted common stock for services rendered at a total value of
$598,438, the current market price less any applicable marketability
discount. 1,050,000 of these shares were issued to officers, 175,000 to
employees of the Company and 1,000 to a third party. The Company issued a
total of 150,000 shares of unrestricted common stock to third parties for
services rendered at a total value of $181,750. During the same quarter,
$145,000 of convertible debt was converted to 427,908 shares of
unrestricted common stock. The number of shares issued under the conversion
was determined according to the terms of the note (Note 6), with conversion
prices ranging from $0.19 per share to $0.66 per share. Also during the
first quarter of 1999, the Company issued 2,500,000 shares of unrestricted
common stock for $75,000 in cash. In accordance with generally accepted
accounting principles, these shares have been recorded at the stock's
market value on the date of obligation of $0.26 per share.
F-9
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(8)Operating Lease Compensation expense of $575,000 has been charged to
operations. The Company leases warehouse and office space located in the
Fort Lauderdale area. Total rent expense for the periods ended December 31,
1998 and 1997 and March 31, 1999 and 1998 was $139,806, $7,689, $34,767 and
$28,483, respectively.
Future minimum lease payments under the noncancellable operating lease at
December 31, 1998 are as follows:
1999 $ 133,866
2000 140,560
2001 147,588
2002 154,967
2003 162,715
Thereafter 710,593
$1,450,289
(9)Income Taxes Deferred income taxes (benefits) are provided for certain income
and expenses which are recognized in different periods for tax and
financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $802,745, which
expire beginning December 31, 2117.
The amount recorded as deferred tax assets, cumulative as of December 31,
1998, is $157,940 which represents the amount of tax benefits of loss
carry-forwards. The Company has established a valuation allowance for this
deferred tax asset of $164,254, as the Company has no history of profitable
operations.
(10) Related parties In January 1999, the Company advanced funds in the amount
of $30,000 to Progressive Technology, Inc., a company under common control.
These funds are considered a temporary advance and are expected to be
repaid within the subsequent year. As of March 31, 1999, the unpaid amount
was $30,000 and is presented in Advance to related party.
As of January 1, 1998, the Company provides personnel services for and
shares certain building expenses with Progressive Technology, Inc., a
company under common control. The Company is reimbursed for the cost of
providing these items and records the reimbursements as a reduction of
operating expenses. Charges were $46,696, $0, $10,901 and $11,808 for the
periods ended December 31, 1998 and 1997 and March 31, 1999 and 1998,
respectively. Unpaid amounts at March 31, 1999 and December 31, 1998 were
$57,597 and $46,696, respectively and are presented, net of allowance for
doubtful accounts of $28,000, in Accounts receivable - related party. The
Company has made a series of advances to Progressive Technology, Inc., a
company under common control, in the form of promissory notes. The notes
are payable on demand and are secured by shares of the Company's common
stock owned by a majority shareholder. One note in the amount of $26,500
bears no interest. Three additional notes, totaling $62,961 bear interest
of 10% annually. Unpaid principal amounts were $89,461 and $76,500 at March
31, 1999 and December 31, 1998, respectively. Accrued interest at December
31, 1998 and 1997 and March 31, 1999 and 1998 was $1,250, $0, $2,705 and
$0, respectively. Both the principal and accrued interest amounts are
presented in Note receivable - related party. As the related party entity
has minimal revenues currently, the Company has established a reserve of
$77,750 for those notes. During 1997, the Company paid $10,000 to
Progressive Technology, Inc., a company under common control, for the
design, labor and material necessary to build certain property and
equipment. This purchase is presented in property and equipment at
historical cost, net of accumulated depreciation. During the period ended
December 31, 1998, the Company was advanced funds from Y2K Medical, Inc., a
company under common control. Unpaid amounts were $4,350 at March 31, 1999
and December 31, 1998 and are presented in Accounts payable - related
party. Y2K Medical, Inc. is currently inactive and awaiting a formal
dissolution with the State of Florida.
During 1997, a majority shareholder formally assigned a certain patent
pending (Note 3) to the Company in exchange for a note bearing interest of
6.343% annually. The note is unsecured and is due within one year. The
shareholder has the option to permit an extension of the repayment period
for an additional year if the
F-10
<PAGE>
Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(10) Related parties (cont.) Company so requests. The unpaid principal amount
was $43,058 at March 31, 1999 and December 31, 1998. Accrued interest at
March 31, 1999 and December 31, 1998 was $5,125 and $3,949, respectively.
Both principal and accrued interest amounts are presented in Note payable -
related party.
(11) Going Concern The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company's
financial position and operating results raise substantial doubt about its
ability to continue as a going concern, as reflected by the net loss of
$5,401,849 accumulated from August 7, 1997 (Inception) through March 31,
1999. The ability of the Company to continue as a going concern is
dependent upon developing sales and obtaining additional capital and
financing. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
The Company is currently negotiating with potential national distributors
and seeking additional capital and financing to allow it to continue its
planned operations.
(12) Subsequent events In May 1999, the Company authorized the issuance of
2,000,000 shares of restricted common stock to its President, in order to
maintain his majority holding of shares of the Company. The Company expects
to record $531,250 in compensation expense as a result of this transaction.
See Note (6) regarding the subsequent issuance of shares of unrestricted
common stock due to the conversion of long term debt.
See Note (6) regarding the subsequent receipt of loan proceeds.
F-11
<PAGE>
Environmental Construction Products International
(A Development Stage Enterprise)
Proforma Consolidated Balance Sheets
(Unaudited)
December 31, 1998
<TABLE>
<CAPTION>
Environmental
Construction
Products Envirocon, Proforma Proforma
ASSETS International Inc. Adjustments Consolidated
----------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 360 $ 0 $ 360
Accounts receivable
Trade 1,323 0 1,323
Related party 18,696 0 18,696
Inventories 23,379 0 23,379
Advance to related party 0 0 0
Note receivable - related party 0 0 0
----------------- -------------- -------------
Total current assets 43,758 0 43,758
----------------- -------------- -------------
PROPERTY AND EQUIPMENT
Furniture and equipment 128,624 1,860 130,484
Leasehold improvements 56,550 0 56,550
Less: accumulated depreciation (19,021) (186) (19,207)
----------------- -------------- -------------
Total property and equipment 166,153 1,674 167,827
----------------- -------------- -------------
OTHER ASSETS
Deposits 13,448 0 13,448
Technology license 0 150,000 150,000
Intangible assets-patent pending 40,781 0 40,781
----------------- -------------- -------------
Total other assets 54,229 150,000 204,229
----------------- -------------- -------------
Total Assets $264,140 $151,674 $415,814
================= ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 68,352 $2,319 $ 70,671
Accounts payable and accrued expenses 0 19,286 19,286
Accounts payable - related party 4,350 109,447 113,797
Salaries payable 4,816 0 4,816
Payroll taxes payable 14,834 0 14,834
Note payable - related party 47,007 61,000 108,007
----------------- -------------- -------------
Total current liabilities 139,359 192,052 331,411
----------------- -------------- -------------
LONG-TERM LIABILITIES
Notes payable 0 150,358 150,358
----------------- -------------- -------------
Total long-term liabilities 0 150,358 150,358
----------------- -------------- -------------
Total Liabilities 139,359 342,410 481,769
----------------- -------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized 10,000,000; 0 issued and
outstanding; $.001 par value, authorized 1,000,000, 0 issued and
outstanding 0 0 0
Common stock, $0.001 par value, authorized 50,000,000and
100,000,000 shares, respectively; with 10,977,636 and 13,783,662
issued and outstanding, respectively; $.001 par value, authorized
10,000,000 shares, with 2,519,000 issued and outstanding 13,784 2,519 30,324 46,627
Additional paid-in capital 3,867,255 126,019 (30,324) 3,962,950
Deficit accumulated during the development stage (3,756,258) (319,274) (4,075,532)
----------------- --------------
Total stockholders' equity 124,781 (190,736) (65,955)
----------------- -------------- -------------
Total Liabilities and Stockholders' Equity $264,140 $151,674 $415,814
================= ============== =============
</TABLE>
F-12
The accompanying notes are an integral part of the financial statements
<PAGE>
Environmental Construction Products International
(A Development Stage Enterprise)
Proforma Consolidated Statements of Operations
(Unaudited)
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Environmental
Construction
Products Envirocon, Proforma Proforma
International Inc. Adjustments Consolidated
------------------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues
Product sales $ 15,830 $ 0 $ 15,830
Distributor fees $ 6,980 0 $ 6,980
------------------ -------------- --------------
Total revenues 22,810 0 22,810
------------------ -------------- --------------
Costs and expenses
Compensation:
Officers 1,698,850 0 1,698,850
Other 1,179,807 14,513 1,194,320
Related party 6,240 0 6,240
Consultants 0 111,080 111,080
Depreciation and amortization 28,859 186 29,045
General and administrative 717,069 53,886 770,955
Bad debt expense 105,750 112,068 217,818
Other 0 21,966 21,966
------------------ -------------- --------------
Total costs and expenses 3,736,575 313,699 4,050,274
------------------ -------------- --------------
Loss from operations (3,713,765) (313,699) (4,027,464)
------------------ -------------- --------------
Other income (expense)
Interest income 1,250 410 1,660
Interest expense (2,804) (5,985) (8,069)
------------------ -------------- --------------
Net loss $ (3,715,319)$ (319,274) $ (4,033,873)
================== ============== ==============
Net loss per weighted average share, basic $ (.30)$ (.13) $ (0.08)
================== ============== ==============
Weighted average number of shares, basic* 12,560,147 2,519,000 50,509,945
================== ============== ==============
</TABLE>
*Restated to reflect one for five reverse split.
F-13
The accompanying notes are an integral part of the financial statements
<PAGE>
Environmental Construction Products International
Notes to Proforma Consolidated Financial Statements
(Unaudited)
(1) Proforma Changes
a) Significant Acquisitions On August 13, 1999, the Company acquired 100% of
the issued and outstanding common shares of Envirocon Corp., a Nevada
corporation headquartered in Denver, Colorado. The Company issued 32,842,909
shares of its common stock to effect this transaction. This acquisition has
been accounted for as a pooling of interests.
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Envirocon Corp.
Denver, CO
We have audited the accompanying balance sheets of Envirocon Corp. (a
development-stage company) as of December 31, 1998 and June 30, 1999, and the
related statements of operations, stockholders' (deficit) and cash flows for the
period from March 13, 1998 (date of inception) through June 30, 1998, for the
period from March 13, 1998 (date of inception) through December 31, 1998, year
ended June 30, 1999 and from March 13, 1998 (date of inception) through June 30,
1999. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Envirocon Corp. (a
development-stage company) as of December 31, 1998 and June 30, 1999, and the
results of its operations, changes in its stockholders' (deficit) and its cash
flows for the period from March 13, 1998 (date of inception) through June
30,1998, for the period from March 13, 1998 (date of inception) through December
31, 1998, year ended June 30, 1999 and from March 13, 1998 (date of inception)
through June 30, 1999 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a net capital deficiency and has no
ongoing revenue producing business operations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is also described in Note 1. The financial statements do
not include any adjustments that may result from the outcome of this
uncertainty.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
November 22, 1999
F-15
<PAGE>
<TABLE>
<CAPTION>
ENVIROCON CORP.
(A Development Stage Company)
BALANCE SHEET
ASSETS
December 31, June 30,
1998 1999
----------- ------------
<S> <C> <C>
Current Assets:
Note receivable, net of allowance for
uncollectible balance of $10,000 - -
---------- ----------
Total Current Assets - -
Furniture and equipment, net of
depreciation of $186 at
December 31, 1998 and $372 at
June 30, 1999 1,674 1,488
Technology license (Note 1) 150,000 150,000
Other assets - 1,025
---------- ----------
TOTAL ASSETS $ 151,674 $ 152,513
========== ==========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Outstanding checks in excess of
amounts reported by bank $ 2,319 $ 849
Accounts payable and accrued expenses 19,286 53,045
Advances payable (Note 3) 109,447 92,600
Contract payable (Note 1) 61,000 61,000
Notes payable (Note 3) 150,358 285,359
---------- ----------
Total Current Liabilities 342,410 492,853
---------- ----------
TOTAL LIABILITIES 342,410 492,853
---------- ----------
Commitments and contingencies
(Notes 1,2,3 and 6) -
Stockholders' (Deficit):
Preferred stock, $.001 par value
1,000,000 shares authorized,
none issued and outstanding -
Common stock, $.001 par value
10,000,000 shares authorized,
2,519,000 issued and outstanding at December
31, 1998 and 3,675,000 issued
and outstanding at June 30, 1999 2,519 3,675
Additional Paid In Capital 126,019 434,733
Accumulated (Deficit) (319,274) (778,748)
---------- ----------
TOTAL STOCKHOLDERS' (DEFICIT) (190,736) (340,340)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 151,674 $ 152,513
========== ==========
</TABLE>
F-16
The accompanying notes are an integral part
of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIROCON CORP.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the For the For the
Period from period from Period from
March 13, March 13, March 13,
1998 (date of 1998 (date of 1998 (date of
inception) inception) For the inception)
through through Year Ended through
June 30, December 31, June 30, June 30,
1998 1998 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ - $ - $ - $ -
----------- ----------- ----------- -----------
Expenses:
Legal and professional fees 19,500 111,080 181,369 200,869
Rent - 10,473 17,007 17,007
Travel 81 43,413 74,982 75,063
Stock issued for services 2,013 14,513 288,750 290,763
Depreciation - 186 372 372
Bad Debt 12,500 112,068 109,568 122,068
Other 2,349 21,966 36,416 38,765
----------- ----------- ----------- -----------
Total Expenses 36,443 313,699 708,464 744,907
Operating (Loss) (36,443) (313,699) (708,464) (744,907)
----------- ----------- ----------- -----------
Other Income and Expenses
Interest income - 410 410 410
Interest expense - (5,985) (34,251) (34,251)
------------ ----------- ----------- -----------
Net (Loss) $ (36,443) $ (319,274) $ (742,305) $ (778,748)
============ =========== =========== ===========
Per Share $ (.02) $ (.13) $ (.21) $ (.23)
============ =========== =========== ===========
Weighted Average Shares
Outstanding 2,063,000 2,519,000 3,455,000 3,455,000
============ =========== =========== ===========
</TABLE>
F-17
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIROCON CORP.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
For the Period from March 13, 1998 (date of inception) through June 30, 1999
Additional
Preferred Stock Common Stock Paid-in Accumulated
No./Shares Amount No./Shares Amount Capital (Deficit) Total
---------- ------ ---------- -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 13, 1998 - $ - - $ - $ - $ - $ -
Common stock issued for
services at $.001 per share
- - 2,013,000 2,013 - - 2,013
Common stock issued for
cash at $.25 per share - - 50,000 50 12,450 - 12,500
Net loss-three months
ended June 30, 1998 - - - - - (36,443) (36,443)
Balance at June 30, 1998 - - 2,063,000 2,063 12,450 (36,443) (21,930)
Common stock issued for
cash at $.25 per share - - 446,000 446 111,054 - 111,500
Common stock issued for
services at $.25 per share
- - 1,166,000 1,166 287,584 - 288,750
Contributed capital - - - - 16,175 - 16,175
Option discount as part of
loan consideration - - - - 7,470 - 7,470
Net loss year ended June
30, 1999 - - - - - (742,305)
--------
(742,305)
Balance at June 30, 1999 - $ - 3,675,000 $3,675 $434,733 $ (778,748) $(340,340)
========
</TABLE>
F-18
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIROCON CORP.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the For the For the
Period from period from Period from
March 13, March 13, March 13,
1998 (date of 1998 (date of 1998 (date of
inception) inception) For the inception)
through through Year Ended through
June 30, December 31, June 30, June 30,
1998 1998 1999 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Activities:
Net (Loss) $ (36,443) $ (319,274) (742,305) (778,748)
Adjustments to reconcile
net cash provided by
operating activities:
Depreciation - 186 372 372
Stock issued for services 2,013 14,513 288,750 290,763
Increase in accounts payable
and accrued expenses - 19,286 53,045 53,045
Other (1,025) 2,319 17,470 16,445
----------- ----------- ----------- -----------
Net Cash (Used in) Operating
Activities (35,455) (282,970) (382,668) (418,123)
----------- ----------- ----------- -----------
Cash Flows from Investing
Activities:
(Increase) in note receivable - - (10,000) (10,000)
(Investment) in equipment - (1,860) (1,860) (1,860)
(Investment) in technology
license (88,863) (150,000) (61,137) (150,000)
----------- ----------- ---------- ----------
Net Cash (Used in) Investing
Activities (88,863) (151,860) (72,997) (161,860)
----------- ----------- ----------- ----------
Cash Flows from Financing
Activities:
Increase in contract payable 61,000 61,000 - 61,000
Increase in notes payable 55,510 150,358 229,849 285,359
Increase in advances payable - 109,447 92,600 92,600
Increase in additional
paid-in capital 13,450 113,569 126,229 139,679
Issuance of common stock 50 456 446 496
----------- ----------- ----------- ----------
Net Cash Provided by
Financing Activities 130,010 434,830 449,124 579,134
----------- ----------- ----------- ----------
Increase (decrease) in Cash 5,692 - (6,541) (849)
Cash, Beginning of Period - - 5,692
----------- ----------- ---------- ----------
Cash, End of Period $ 5,692 $ - $ (849) $ (849)
=========== =========== ========== ----------
Interest Paid $ - $ - $ - $
=========== =========== ========== ==========
Income Taxes Paid $ - $ - $ - $
=========== =========== ========== ==========
</TABLE>
F-19
The accompanying notes are an
integral part of the financial statements.
<PAGE>
ENVIROCON CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(1) Summary of Accounting Policies
This summary of significant accounting policies of Envirocon Corp.
(Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
2. Description of Business
The Company was organized on March 13, 1998 for the purpose of engaging in any
lawful business but it is management's plan to seek a business combination. The
Company is a development-stage company since planned principal operations have
not commenced. The Company has selected June 30 as its year end.
(b) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(c) Going Concern
The Company has a net capital deficiency and has no ongoing revenue producing
business operation. These factors raise substantial doubt about its ability to
continue as a going concern. If the Company does not establish revenue producing
business operations or obtain additional financing, the Company may be unable to
continue as a going concern. The financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
Management is attempting to raise additional capital.
(d) License
Costs incurred to purchase a technology license totaling $150,000 will be
amortized over the useful life of the license. The license is for the production
of equipment that make panels for construction. Ownership of the license will be
transferred after the Company has obtained equity capital in an amount not less
than $1,000,000 and the balance due of $61,000 is paid. In the event that equity
capital in the amount of $1,000,000 is not received by the Company, the Company
is entitled to a refund of the $89,000 already paid for the license. A
contingency exists with respect to this matter. If the Company is unable to
obtain the $1,000,000 of equity capital, title to the technology will not
transfer to the Company. Even though the Company is then entitled to a refund of
the $89,000, the Company may not be able to collect the refund which could
result in a $89,000 loss. The ultimate loss, if any, related to this matter
cannot presently be determined. If the Company does obtain title to the
technology, recovery of the cost is contingent upon future production and
profitability of the product. A contingency also exists with respect to this
matter, the ultimate resolution of which cannot presently be determined.
F-20
<PAGE>
ENVIROCON CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(e) Income Taxes
As of June 30, 1999, the Company has approximately $778,748 of net operating
loss carryovers expiring in year 2019; available to offset future taxable
income, if any. A change in ownership of more than 50% of the Company may result
in the inability of the Company to utilize some or all of the carryovers. As of
June 30, 1999, the Company had deferred tax assets of approximately $116,812
related to the net operating loss carryovers. A valuation allowance has been
provided for the total amount since the amounts, if any, of future revenues
necessary to be able to utilize the carryovers are uncertain.
(2) Common Stock Issued
During the period ended June 30, 1998, the Company issued 2,013,000 shares of
restricted common stock for services at $.001 per share. The Company also issued
50,000 shares of common stock at $.25 per share for cash.
During the year ended June 30, 1999, the Company issued 1,166,000 shares of
common stock for services at $.25 per share. The Company also issued 446,000
shares of common stock at $.25 per share for cash. In addition, $16,175 was
received as additional paid-in capital.
(3) Notes Payable
As of June 30, 1999 the Company had outstanding $285,359 of uncollateralized
notes payable. Interest rates range from 8.5% to 10% and interest is due at
maturity of the notes. These notes payable are delinquent because they were not
paid when due. Two of these notes payable were signed prior to receiving funds.
One note holder has claimed that the balance payable on a note is $35,000 more
than shown on the records of the Company. While the note document also indicates
that the balance is $35,000 more, the Company contends that the additional
$35,000 note proceeds were never received. (See Note 4). Included as liabilities
of the Company are advances totaling $92,600 and $109,447 at June 30, 1999 and
December 31, 1998, respectively, not substantiated by written note
documentation.
(4) Stock Options and Note Conversion Options
As of June 30, 1999, the Company had granted options to acquire 70,000 shares of
the Company's stock at $.25 per share and options to acquire 30,000 shares of
the Company's common stock at $.01 per share. The Company has also granted
rights to convert $90,000 of notes payable to common stock at $.25 per share.
The 30,000 options at $.01 have been shown as interest expense of $7,470 due to
the discount in the exercise price. All of the above options and conversion
privileges were granted as part of the issuance of the notes payable.
(5) Note Receivable
The Company loaned $10,000 to an individual. The loan is uncollateralized and
due on September 1, 1999. An allowance for the total $10,000 has been provided
in the financial statements.
(6) Pending Litigation
The Company is being sued on a wage claim, a breach of contract claim and a
breach of contract/detrimental reliance claim. The case is pending in Denver
District Court. The Company intends to vigorously defend this litigation. The
F-21
<PAGE>
Company has engaged in initial discovery that has not yet been answered by the
plaintiff. Contingencies exist with respect to this matter, the ultimate
resolution of which cannot presently be determined. The financial statements do
not provide any provisions for losses related to this matter.
(7) Subsequent Event
On August 13, 1999, the Company entered into an agreement whereby 100% of the
outstanding common stock of the Company was acquired by an entity. The
shareholders of the Company then acquired 32,842,908 shares of the entity,
representing approximately 60% of the entity post reorganization. Upon closing,
the Company became a subsidiary of the acquiring entity.
F-22
<PAGE>
<TABLE>
<CAPTION>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 4,596 $ 360
Accounts receivable
Trade 0 1,323
Related party 0 18,696
Inventories 13,566 23,379
Advance to related party 5,000 0
Note receivable-related party
(net of allowance of $105,750 and $0, respectively) 109,788 0
------------------ -----------------
Total current assets 132,950 43,758
------------------ -----------------
PROPERTY AND EQUIPMENT
Equipment 124,606 128,624
Leasehold improvements 56,550 56,550
Less: Accumulated depreciation (38,164) (19,021)
------------------ ------------------
Total property and equipment 142,992 166,153
------------------ ------------------
OTHER ASSETS
Deposits 14,473 13,448
Intangible asset-patent pending 183,134 40,781
------------------- -------------------
Total other assets 197,607 54,229
------------------- -------------------
Total Assets $ 473,549 $ 264,140
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 110,062 $ 68,352
Accounts payable-related party 4,350 4,350
Salaries payable 0 4,816
Payroll taxes payable 92,574 14,834
Note payable-related party 267,676 47,007
------------------- ------------------
Total current liabilities 474,662 139,359
------------------- ------------------
LONG-TERM LIABILITIES
Notes payable 670,887 0
------------------- ------------------
Total long-term liabilities 670,887 0
------------------- ------------------
Total Liabilities 1,145,549 139,359
------------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value,
authorized 10,000,000; 0 issued and outstanding 0 0
Common stock, $0.001 par value,
authorized 50,000,000 and 100,000,000 shares,
respectively; with 10,977,636 and 13,783,662 issued and
outstanding, respectively 10,978 13,784
Additional paid-in capital 7,062,448 3,867,255
Deficit accumulated during the development stage (7,745,426) (3,756,258)
------------------- ------------------
Total stockholders' equity (672,000) 124,781
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 473,549 $ 264,140
=================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-23
<PAGE>
<TABLE>
<CAPTION>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(unaudited)
Cumulative
since Inception
For the NineMonths Ended through
September 30, 1999 September 30, 1998 September 30, 1999
--------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Revenues
Product sales $ 26,788 $ 14,312 $ 42,618
Distributor fees 0 0 6,980
--------------------- ----------------------- ---------------------
Total revenues 26,788 14,312 49,598
--------------------- ----------------------- ---------------------
Costs and expenses
Compensation :
Officers 1,101,890 1,962,930 2,815,253
Other 340,182 1,220,411 1,519,989
Related party 255,250 0 274,990
Consultants 1,273,891 0 1,273,891
Depreciation and amortization 26,615 18,715 56,017
General and Administrative 576,450 519,245 1,506,387
Bad debt expense 10,000 0 227,817
--------------------- ----------------------- ---------------------
Total expense 3,584,278 3,721,301 7,674,344
--------------------- ----------------------- ---------------------
Loss from operations (3,557,490) (3,706,989) (7,624,746)
Other income (expense)
Interest income 3,030 17 4,690
Interest expense (115,435) (1,354) (125,370)
--------------------- ----------------------- ---------------------
Net loss $ (3,669,895)$ (3,708,326)$ (7,745,426)
===================== ======================= =====================
Net loss per weighted average share, basic $ (0.35)$ (1.52)$ (0.77)
===================== ======================= =====================
Weighted average number of shares, basic* 10,346,692 2,440,469 10,101,989
===================== ======================= =====================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-24
<PAGE>
<TABLE>
<CAPTION>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
Deficit
Accumulated
Additional Bene. During the Total
Number of Common Paid-in Conv. Development Stockholders'
Shares Stock Capital Feature Stage Equity
------------ ----------- -------------- ---------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE, December
31, 1997 $ 9,335,500 $ 9,336 $ 36,127 $ 0 $ (40,939) $ 4,524
First quarter - cash ($0.35/sh) 754,986 755 263,490 0 0 264,245
First quarter - services ($0.11/sh) 500,000 500 54,188 0 0 54,688
First quarter - services ($2.49/sh)* 200,000 200 498,238 0 0 498,438
First quarter - services ($2.73/sh)** 425,000 425 1,158,363 0 0 1,158,788
Second quarter - cash ($0.35/sh) 879,300 879 306,876 0 0 307,755
Second quarter - services ($2.56/sh)* 250,000 250 640,375 0 0 640,625
Third quarter - cash ($0.35/sh) 646,714 647 225,703 0 0 226,350
Third quarter - cash ($0.67/sh) 67,164 67 44,933 0 0 45,000
Third quarter - services ($2.13/sh)* 200,000 200 424,800 0 0 425,000
Fourth quarter - cash ($0.35/sh) 474,998 475 165,774 0 0 166,249
Fourth quarter - services ($0.97/sh)* 50,000 50 48,388 0 0 48,438
Net loss 0 0 0 0 (3,715,319) (3,715,319)
------------ ----------- -------------- --------- ---------------- -----------------
BALANCE, December 31, 1998 $ 13,783,662 $ 10,091 $ 3,867,255 0 $ (3,756,258) $ 124,781
------------ ----------- -------------- --------- ---------------- -----------------
Beneficial conversion feature creation 0 0 0 84,667 0 84,667
First quarter - cash/services($0.26/sh) 2,500,000 2,500 647,500 0 0 650,000
First quarter - services 301,000 301 436,340 0 0 436,641
First quarter - services ($1.58/sh)** 100,000 100 157,712 0 0 157,813
First quarter - services ($.26/sh)** 175,000 175 45,325 0 0 45,500
First quarter - services ($.41/sh)* 950,000 950 392,409 0 0 393,359
First quarter - debt conversion 427,908 428 144,572 0 0 145,000
First quarter - debt conversion 0 0 48,334 0 0 0
Second quarter - cash ($0.13/sh) 400,000 400 49,600 0 0 50,000
Second quarter - services 800,000 800 163,200 0 0 164,000
Second quarter - services ($0.25/sh)* 2,000,000 2,000 498,000 0 0 500,000
Second quarter - debt conversion 607,703 608 108,392 0 0 109,000
Second quarter - debt conversion 0 0 36,333 0 0 0
Third quarter - acquisition 32,842,909 32,843 423,565 0 0 137,135
Third quarter - reverse split (43,910,546) (43,911) 43,911 0 0 0
Net loss 0 0 0 0 (3,169,895) (3,669,895)
------------ ----------- -------------- --------- ---------------- -----------------
ENDING BALANCE,
September 30, 1999 (unaudited) $ 10,977,636 $ 10,978 $ 7,062,448 $ 0 $ (7,745,426) $ (671,999)
============ =========== ============== ========= ================ =================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-25
<PAGE>
<TABLE>
<CAPTION>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(unaudited)
Cumlitive
since
For the Nine Months Ended Inception
September 30, September 30, September 30,
1999 1998 1999
----------------- ---------------- ----------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (3,669,895) $ (3,708,326) $ (7,745,426)
Adjustments to reconcile net loss to net cash used by
development activities
Amortization - beneficial conversion feature 84,667 0 84,667
Amortization - other 7,647 7,646 17,842
Depreciation 18,968 11,069 38,175
Stock issued in lieu of cash - third parties 1,995,891 54,688 2,050,578
Stock issued in lieu of cash - officers and employees 1,215,172 2,722,851 4,001,905
Bad debt 10,000 0 227,817
Changes in assets and liabilities
(Increase) decrease in accounts receivable - trade 1,323 0 0
(Increase) decrease in accounts receivable-related party 18,696 (29,247) (28,000)
(Increase) decrease in inventory 9,813 (15,185) (13,566)
(Increase) decrease in accrued interest on note receivable - related party 0 0 (1,250)
(Increase) decrease in deposits (1,025) (20,520) (14,473)
Increase (decrease) in accounts payable (29,971) 10,308 59,986
Increase (decrease) in accounts payable-related party 0 (20,000) 4,350
Increase (decrease) in salaries payable 0 332,174 4,816
Increase (decrease) in payroll taxes payable 64,949 25,109 79,783
Increase (decrease) in accrued interest on note payable - related party 0 1,354 3,949
----------------- ---------------- ----------------
Net cash used by development activities (273,765) (628,079) (1,228,847)
----------------- ---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Issuance of note receivable - related party (215,538) (66,500) (292,038)
Purchase of property and equipment 0 (150,766) (177,034)
Purchase of property and equipment - related party 0 0 (10,000)
----------------- ---------------- ----------------
(479,072)h used by investing activities (215,538) (217,266) (479,072)
----------------- ---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Loans from related parties 189,539 0 298,986
Proceeds from issuance of convertible debt 254,000 0 254,000
Proceeds from issuance of common stock, net 50,000 843,350 1,159,529
----------------- ---------------- ----------------
Net cash provided by financing activities 493,539 843,350 1,712,515
----------------- ---------------- ----------------
Net increase (decrease) in cash 4,236 (1,995) 4,596
CASH, beginning of period 360 7,791 0
----------------- ---------------- ----------------
CASH, end of period $ 4,596 $ 5,796 $ 4,596
================= ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Acquisition of patent from shareholder $ 0 $ 0 $ 50,976
================= ================ ================
Issuance of common stock for patent $ 0 $ 0 $ 7,918
================= ================ ================
Due to shareholder for patent $ 0 $ 0 $ 43,058
================= ================ ================
Conversion of convertible debt $ 254,000 $ 0 $ 254,000
================= ================ ================
Debt issued to acquire technology $ 0 $ 150,000 $ 150,000
================= ================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements
F-26
<PAGE>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to periods ended September 30, 1999 and 1998 is
unaudited)
(1) Summary of Significant Accounting Principles
TheCompany Ginsite Materials, Inc., is a Florida chartered development
stage corporation which conducts business from its headquarters in Fort
Lauderdale, Florida. The Company was incorporated on August 7, 1997.
The Company is principally involved in the manufacturing, marketing and
sales of the Ginsite formulation, a material that enhances or replaces
wood, concrete and similar construction materials. Current activities
include raising additional equity and negotiating with potential
national distributors. The Company is in the development stage and has
just begun to acquire the necessary operating assets to carry on its
proposed business. While the Company is negotiating with potential
customer distribution channels, there is no assurance that any benefit
will result from such activities. The Company will not receive
significant operating revenues until the commencement of operations,
but will nevertheless continue to incur expenses until then.
The financial statements for the nine months ended September 30, 1999
and 1998 include all adjustments which, in the opinion of management,
are necessary for fair presentation. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
a) Use of estimates The financial statements have been prepared
in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, as of the date of the statements of
financial condition, and revenues and expenses for the period
then ended. Actual results may differ significantly from those
estimates.
b) Start-up costs Costs of start-up activities, including
organization costs, are expensed as incurred.
c) Net loss per share Basic net loss per share is computed by
dividing the net loss by the weighted average number of common
shares outstanding during the period.
d) Compensation for services rendered for stock The Company
issues shares of common stock in exchange for services rendered
and in payment of shareholder loans. The costs of the services
are valued according to generally accepted accounting principles
and have been charged to operations.
e) Inventories Inventories are valued at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method for substantially all inventory.
f) Basis of presentation The consolidated financial statements
include the accounts of Envirocon Corp., its wholly owned
subsidiary. Intercompany accounts and transactions have been
eliminated in the consolidation.
g) Intangible asset - patent pending Patents are recorded at
historical cost and amortized, beginning the date the patents are
placed in service over their estimated useful lives, using the
straight-line method.
h) Property and equipment All property and equipment are recorded
at cost and depreciated over their estimated useful lives, using
the straight-line method. Upon sale or retirement, the costs and
related accumulated depreciation are eliminated from their
respective accounts, and the resulting gain or loss is included
in the results of operations. Repairs and maintenance charges
which do not increase the useful lives of the assets are charged
to operations as incurred.
F-27
<PAGE>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(2) Significant Acquisitions On August 13, 1999, the Company acquired 100%
of the issued and outstanding common shares of Environcon Corp., a
Nevada corporation headquartered in Denver, Colorado. The Company
issued 32,842,909 shares of its common stock to effect this
transaction. This acquisition has been accounted for as a pooling of
interests.
(3) Intangible Asset - Patent Pending On August 7, 1997, a majority
shareholder formally assigned to the Company a certain patent pending
with the United States Patent and Trademark Office of the Department of
Commerce. The patent was recorded at its historical cost of $50,976,
which represents the accumulated expenditures of the majority
shareholder to refine the patent process. The patent is being amortized
over a period of five years, its estimated useful life, which began in
1998, the year the patent process was placed in service. Amortization
expense for the periods ended September 30, 1999 and 1998 was $7,647
and $7,646, respectively.
(4) Property and Equipment Depreciation expense for the periods ended
September 30, 1999 and 1998 was $18,968 and $11,069, respectively.
(5) Long Term Debt In February 1999, the Company issued a 9% convertible
note due on February 1, 2001 for $254,000 cash. The note is convertible
into shares of the Company's common stock at a conversion price equal
to the lesser of 100% of the lowest of the closing bid prices for the
common stock for the five trading days prior to the date of the note,
or 75% of the lowest of the closing bid prices for the common stock for
the five trading days immediately prior to the conversion date. As of
September 30, 1999, the debt was converted into 1,035,611 shares of
common stock at prices ranging from $0.17 to $0.66 per share.
The Company recognized a beneficial conversion feature discount, in
accordance with EITF Topic D-60 amounting to $84,665. The discount was
immediately amortized as the notes were immediately convertible. The
amount of reclassification from beneficial conversion feature to
additional paid-in capital due to conversion of the related debt for
the period ended September 30, 1999 was $84,665.
In March 1999, the Company was offered debt financing in the form of
non-interest bearing loans for up to $581,000, to be loaned on an as
needed basis throughout the remainder of 1999. There is no formal
written agreement regarding the repayment of these loans.
(6) Stockholders' Equity The shareholders, in January 1999, consented to
increase the number of authorized common shares, $0.001 par value, from
17,250,000 to 50,000,000 shares and to 100,000,000 shares in September
1999. Concurrently, 10,000,000 shares of preferred stock with no
determined par value were authorized. In September 1999, the Company
completed a one for five reverse split of the issued and outstanding
common shares. The Company had 10,977,636 and 13,783,662 shares of
common stock issued and outstanding at September 30, 1999 and December
31, 1998, respectively. There were no shares of preferred stock issued
as of September 30, 1999.
During the first quarter of 1999, the Company issued a total of
1,226,000 shares of restricted common stock for services rendered at a
total value of $598,438, the current market price less any applicable
marketability discount. 1,050,000 of these shares were issued to
officers, 175,000 to employees of the Company and 1,000 to a third
party. The Company issued a total of 150,000 shares of unrestricted
common stock to third parties for services rendered at a total value of
$181,750.
Also during the first quarter of 1999, the Company issued 2,500,000
shares of unrestricted common stock for $75,000 in cash. In accordance
with generally accepted accounting principles, these shares have been
recorded at the market value on the date of obligation of $0.26 per
share. Compensation expense of $575,000 has been charged to operations.
During the second quarter of 1999, the Company issued a total of
2,800,000 shares of restricted common stock for services rendered at a
total value of $664,000, the current market price less any applicable
marketability discount. These shares were all issued to officers of the
Company. During the second quarter, 400,000 shares were issued for
$50,000 in cash.
F-28
<PAGE>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(6) Stockholders' Equity (Continued) In August 1999, the Company issued
32,842,909 shares of restricted common stock, in exchange for 100% of
the issued and outstanding common stock of Environcon Corp.
During the nine months, $254,000 of convertible debt was converted to
1,035,611 shares of unrestricted common stock. The number of shares
issued under the conversion was determined according to the terms of
the note (Note 5), with conversion prices ranging from $0.17 per share
to $0.66 per share.
(7) Operating Lease The Company leases warehouse and office space located
in the Fort Lauderdale area. Total rent expense for the period ended
September 30, 1999 and 1998 was $124,120 and $104,855, respectively.
Future minimum lease payments under the noncancellable operating lease
at December 31, 1998 are as follows:
1999 $ 133,866
2000 140,560
2001 147,588
2002 154,967
2003 162,715
Thereafter 710,593
----------
$1,450,289
==========
(8) Income Taxes Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $802,745, which
expire beginning December 31, 2117.
The amount recorded as deferred tax assets, cumulative as of December
31, 1998, is $157,940 which represents the amount of tax benefits of
loss carry-forwards. The Company has established a valuation allowance
for this deferred tax asset of $164,254, as the Company has no history
of profitable operations.
(9) Related parties In January 1999, the Company advanced funds in the
amount of $30,000 to Progressive Technology, Inc., a company under
common control. These funds are considered a temporary advance and are
expected to be repaid within the subsequent year. As of September 30,
1999, the unpaid amount was $30,000 and is presented in Note receivable
- related party.
As of January 1, 1998, the Company provides personnel services for and
shares certain building expenses with Progressive Technology, Inc., a
company under common control. The Company is reimbursed for the cost of
providing these items and records the reimbursements as a reduction of
operating expenses. Unpaid amount at September 30, 1999 is $215,538 and
is presented net of allowance for doubtful accounts of $105,750 in
Notes receivable - related party.
During 1997, the Company paid $10,000 to Progressive Technology, Inc.,
a company under common control, for the design, labor and material
necessary to build certain property and equipment. This purchase is
presented in property and equipment at historical cost, net of
accumulated depreciation. During the period ended December 31, 1998,
the Company was advanced funds from Y2K Medical, Inc., a company under
common control. Unpaid amounts were $4,350 at March 31, 1999 and
December 31, 1998 and are presented in Accounts payable - related
party. Y2K Medical, Inc. is currently inactive and awaiting a formal
dissolution with the State of Florida.
During 1997, a majority shareholder formally assigned a certain patent
pending (Note 3) to the Company in exchange for a note bearing interest
of 6.343% annually. The note is unsecured and is due within one year.
The shareholder has the option to permit an extension of the repayment
period for an additional year if the Company so requests. The unpaid
principal amount was $43,058 at March 31, 1999 and December 31, 1998.
Accrued interest at September 30, 1999 was $5,125.
F-29
<PAGE>
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(10) Going Concern The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's financial position and operating results raise substantial
doubt about its ability to continue as a going concern, as reflected by
the net loss of $7,745,426 accumulated from August 7, 1997 (Inception)
through March 31, 1999. The ability of the Company to continue as a
going concern is dependent upon developing sales and obtaining
additional capital and financing. The financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern. The Company is currently
negotiating with potential national distributors and seeking additional
capital and financing to allow it to continue its planned operations.
F-30
<PAGE>
PART III
<TABLE>
<S> <C>
Item 1. Index to Exhibits
3.(i).1 Articles of Incorporation of Ginsite Materials, Inc. filed August 7, 1997 (1)
3.(i).2 Articles of Amendment to the Articles of Incorporation of Ginsite Materials, Inc.
filed April 16, 1999 (1)
3.(ii) Bylaws of Ginsite Materials, Inc. (1)
3.(i).3 Restated Articles of Incorporation of Ginsite Materials, Inc. filed September 9, 1999, superseding the
original Articles of Incorporation increasing the authorized Capital Stock and appointing new directors.(3)
3.(i).4 Articles of Amendment to the Articles of Incorporation of Ginsite Materials, Inc., changing the Name of
Corporation to Environmental Construction Products International, Inc., filed September 16, 1999.(3)
3.(i).5 Articles of Share Exchange and Reorganization pursuant to a Plan of Reorganization adopted August 13,
1999 and filed October 13, 1999. (3)
4.1A Form of Private Offering(1)
4.1B Note Purchase Agreement, The Augustine Fund, L.P., (1)
4.2 Agreement and Plan of Reorganization-Ginsite Materials, Inc's Acquisition of ENVIROCON Corporation dated
August 13, 1999. (2)
10.1 Form Of Distributorship Agreement (1)
10.2 Form Of License Agreement (1)
10.3 Lease Agreement, Steven J. Cooperman, Trustee(1)
10.4A Employment Agreement Murray Ginsberg(1)
10.4B Employment Agreement Audrey Max(1)
10.4C Employment Agreement Henry Lione(1)
10.4D Employment Agreement Eugene Ladin(1)
10.4E Employment Agreement Barry Grieper(1)
10.4F Employment Agreement Henry Max(1)
10.5 Indemnification Agreement & Covenant Not To Sue Murray Ginsberg(1)
10.6 Independent Marketing Services Agreement Wayne A. Doss(1)
10.7 Purchase & Sale Agreement with ECO Marine Materials, Inc.(1)
10.8A Consulting Agreement, Intercontinental Capital Corp.(1)
10.8B Consulting Agreement, Monetary Advancement International, Inc.(1)
10.8B.1 Consulting Agreement Termination & Mutual Release, Monetary Advancement International, Inc.(1)
10.9A Assignment of Patent by Murray Ginsberg(1)
10.9B Patent Application & Status; Trademark Application & Status(1)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.10.A.1 Promissory Note , Murray Ginsberg and Ginsite, patent assignment.(1)
10.10.A.2 Promissory Note, Ginsite and Progressive Technology(1)
10.10.A.3 Promissory Note, Ginsite and Progressive Technology(1)
10.11 Original License Agreement to Intellectual Property between
Paul Artzer, an individual, and ENVIROCON Corporation, a
Nevada corporation, October 13, 1998.(3)
10.12 Renewal of License Agreement to Intellectual Property between Paul Artzer, an individual, and
ENVIROCON Corporation, a Nevada corporation, October 13, 1998.(3)
10.13 Joint Venture Agreement between Environmental Construction
Products International, Inc.(USA) and Modular Homes
Limited(INDIA) for the purpose of jointly manufacturing,
marketing and promoting ECPI Panel Technology in India dated
August 19, 1999.(3)
10.14 * Envirocon Option Agreement with Martin Smerling and Lewis Lasher
10.15 * Non-Disclosure and Non-Circumvention Bilateral Agreement [Re: Nicaragua facilities]
10.16 * Envirocon Corporation & Bergandi Exclusivity Agreement
27.1 * Financial Data Schedule
27.2 * Financial Data Schedule Proforma
99.1 Order of the Circuit Court of the Seventeenth Judicial Circuit for Broward County, Florida Enforcing Settlement
between Environmental Construction Products International, Inc., a Florida corporation, and Murray Ginsberg,
Henry Max and Audrey Max, dated November 15, 1999.(3)
99.2 * Arpin & Sons Independant Laboratory Testing Results for GINSITE(TM).
99.3 * Hurricane Testing Results and other Laboratory Testing Results for
GINSITE(TM).
- -------------------
</TABLE>
1. Incorporated herein by reference to the Registration Statement on Form
10-SB of Ginsite Materials, Inc. (File No. 0- 26609), filed with the U.S.
Securities and Exchange Commission.
2. Incorporated herein by reference to the Form 8-K of ENVIRONMENTAL
CONSTRUCTION PRODUCTS INTERNATIONAL f/k/a GINSITE MATERIALS, INC. (File No.
0-26609), filed with the U.S. Securities and Exchange Commission.
3. Incorporated herein by reference to the Registration Statement Form 10-QSB
of ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL f/k/a GINSITE
MATERIALS, INC. (File No. 0-26609), filed with the U.S. Securities and
Exchange Commission.
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL
f/k/a
Ginsite Materials, Inc.
(Registrant)
Date: January 12, 1999 By: /s/ Frank Glinton
-----------------------
Frank Glinton, CEO
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date Signature Title
---- --------- -----
January 12, 2000 By: /s/ Frank Glinton CEO
-----------------------
Frank Glinton
January 12, 2000 By: /s/ Wayne Doss President
-----------------------
Wayne Doss
EXHIBIT 10.14
SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes to purchase 40,000 shares of common stock
("Common Stock") of Envirocon Corporation, a Nevada corporation (the
"Corporation") . In this regard, enclosed is $.25 per share of common stock as
the purchase price for $10,000.00 (aggregate dollar amount) in Common Stock.
In connection with its purchase, the undersigned warrants and represents the
following:
1. It was offered the Common Stock at a private sale for investment. The offer
to sell the Common Stock was directly communicated to the undersigned on and in
such a manner that the undersigned was able to ask questions and receive
satisfactory answers concerning the terms and conditions of this issuance, at no
time was the undersigned presented with or solicited by any promotional meeting,
newspaper, magazine, radio or television advertisement or any other form of
general advertising or solicitation;
2. By virtue of its position or relationship with the Corporation, the
undersigned had access to the same kind of information which would be available
in a registration statement filed under the Securities Act of 1933. Such
information by way of example, but not limitations includes:
3. The undersigned conducted its own due diligence on the Corporation;
4. The undersigned is an Accredited/Non-accredited Investor as defined in
Regulation D promulgated under the Securities Act of 1933, as amended;
5. The offering price of the Common Stock was arbitrarily determined by the
corporation;
6. The Corporation has not made any representations regarding the possible value
appreciation in the Common Stock;
7. The Common Stock is not being issued for services performed by the
undersigned;
8. The Common Stock is being acquired by the undersigned for investment with its
own funds or property from its own accounts as "Restricted Securities" as that
term is defined in Rule 144 of the Rules and Regulations adopted by the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
and not with a view to the distribution thereof by public sale or other
disposition. The undersigned does not intend to subdivide its acquisitions with
anyone;
9. The undersigned understands that the Common Stock being acquired hereunder
has not been registered under the Securities Act of 1933, as amended, or the
securities laws of any state;
10. The undersigned understands that it must bear the economic risk of the
investment for an indefinite period of time because the Common Stock has not
been registered under the Securities Act of 1933, as amended, or any state
securities laws, and therefore, cannot be sold unless it is subsequently
registered under the Act and any applicable state securities laws, or unless
exemption from such registrations are available;
<PAGE>
11. The undersigned understands that the corporation will restrict the transfer
of the common Stock in accordance with foregoing representations;
12. The undersigned agrees that all certificates representing Common Stock will
contain the following legend or a substantial equivalent:
"The securities represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "Restricted Securities"
as that term is defined in Rule 144 under the Act. The common Stock may not
be offered for sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or an exemption thereto, the
availability of which is to be established to the satisfaction of the
Corporation."
13. The undersigned agrees that a stop transfer order prohibiting the transfer
of the Common Stock will be placed by the corporation with its transfer agent,
when and if the common Stock is issued;
14. The undersigned acknowledges and hereby agrees that the corporation is under
no obligation to register or qualify the common Stock under the Securities Act
of 1933, as amended, and the rules and regulations adopted thereunder;
15. The undersigned understands and hereby agrees that the corporation will
comply with all valid, applicable Federal and state securities regulations which
may require among other things that the undersigned escrow the Common Stock;
16. The undersigned represents and warrants that in connection with the
acquisition of the Common Stock, the undersigned has had made available or
accessible to (it) (his) (her), by the Corporation and its officers and
directors all information which it has deemed material to making an informed
investment decision to acquire the Common Stock prior to (it) (his)
(her)subscription in the common Stock;
17. The undersigned represents and warrants that it has not acted as a Purchaser
Representative for any person in connection with this purchase of Common Stock
by the undersigned;
The undersigned requests that the Common Stock be issued in the name of the
undersigned and delivered to the undersigned at the address below.
I will hold title to my shares as follows: (check one)
___ Community Property ___ Joint tenancy (both must sign)
___ Tenancy in common _x_ Individual ownership
(All must sign) ___ Trust or Keogh Plan
___ As custodian under State ___ Partnership
___ Gifts to Minors Act ___ Other (please describe):
Intending to be legally bound hereby, the parties hereto have set their hands
and seals on this ____ day of __________________, 1999.
<PAGE>
Please type or print the following information:
Gary Laskowski
- ----------------------------------- -----------------------------------------
- ----------------------------------- -----------------------------------------
Full (name(s) of subscriber(s) Social security or employer
as it (they) should appear I.D. number(s) of subscriber(s)
on schedule of Corporation
163 South Wadsworth Lake Wood CO 80266
- -------------------------- -------------- -------- -----------
Street Address City State Zip Code
Dated: October 10, 1999. Dated: , 1999.
X /s/ Gary Laskowski X
- --------------------------- ------------------------------
Signature Signature
- --------------------------- --------------------------------
Title or capacity of signing party if the subscriber is partnership,
corporation, trust or other nonindividual entity.
Remittance should be payable to Envirocon Corporation/d.b.a. ECPI, Inc.
ACCEPTANCE OF SUBSCRIPTIONS BY CORPORATION
Accepted as of Oct - 12, 1999
Received and Subscription Accepted
Check No._____________________
ENVIROCON CORPORATION
/s/ Frank Glinton
----------------------------------
Frank Glinton, President
EXHIBIT 10.15
NON-DISCLOSURE AND NON-CIRCUMVENTION BILATERAL AGREEMENT
This Agreement is made and entered into the 22nd day of June, 1999 by and
between Envirocon, Inc. with offices at 2870 Speer Blvd. - Suite 205, Denver, CO
80211, and Roger Mayorga, 14551 S.W. 65th Avenue, Miami, FL 33158 and Luis
Ignacio Molina, 13140 S.W. 93rd Place, Miami, FL 33176.
WHEREAS, the parties hereto wish to exchange information for the purpose o f
exploring a potential business relationship for the benefit of both parties,
specifically to discuss building homes and manufacturing facilities in Nicaragua
and possibly other locations.
And
WHEREAS, some of the information exchanged may consist of marketing plans,
specifications, technical data, equipment, configuration, building systems or
other information which the disclosing party considers to be confidential
("Confidential Information").
NOW, THEREFORE, the parties hereto hereby agree as follows:
(1.) This is to confirm that each of the signatories, separately and
individually, and their associates hereby agree that (he/she) or (his/her)
corporation, divisions, subsidiaries, employees, agents or consultants will not
make any contact with, deal with, or otherwise involve in any transaction with
any corporations individuals, buyers, or sellers, introduced by another of the
signatories, separately and individually, and their associates, without the
written permission of the signatories of this agreement, their heirs, assignees,
and designees.
(2.) By signature below and execution of this agreement, each of the named
signatories, separately and individually, and their associates confirm that any
corporation, organization, firm, company, or individual of which the signee is a
party to, member of, principal, agent for, employee of, or otherwise would
benefit financially from an association, is bound by this agreement.
(3.) This agreement is a perpetuating guarantee for two (2) years from the date
affixed below and is to be applied to any and all transactions entertained by
the signatories, including subsequent follow-up, repeat, or renegotiated
transactions, as well as to the initial transaction , regardless of the success
of the project and/or discussions. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, and which is not settled
between the signatories themselves, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association with the
hearings to take place in Colorado and judgment upon the award rendered by the
Arbitrator(s) may be entered in any court having jurisdiction
thereof...including the award to the aggrieved signatory (signatories), their
heirs, assignees, and/or designees for the total remuneration received as a
result of business conducted with the parties covered by this agreement, plus
all court costs, attorneys fees, and other charges and damages deemed fair by
the arbitrator
(4.) The signatories hereby agree to keep completely confidential the names of
any corporations, companies, individuals, buyers or sellers, introduced by any
of the named signatories or their associates. Such identity shall remain
confidential during the applicable transaction(s) and during the duration of
<PAGE>
this agreement, and shall include any telephone numbers, addresses, facsimile
numbers, telex numbers, et al. Any controversy or claim arising out of or
relating to any part of this provision, or the breach thereof, and which is not
settled between the signatories themselves shall be settled by arbitration in
accordance with the Rules of the American Arbitrator(s) Association, with the
hearings to take place in Denver, Colorado and judgment upon the award rendered
by the Arbitrator(s) may be entered in any court having jurisdiction thereof
including the award to the aggrieved signatory (signatories) their heirs,
assignees, and/or designees, for the full amount of remuneration they would have
received had they been involved with the transaction, regardless if the
aggrieving signatory (signatories) receive any remuneration - plus all court
costs, attorney fees, and other charges and damages deemed fair by the
Arbitrator(s)
(5.) It is understood that this agreement is a reciprocal one between the
signatories concerning their privileged information and contacts.
(6.) It is also understood that a signatory cannot be considered or adjudged to
be in violation of this agreement when the violation is Involuntary, i.e. due to
situations beyond his control some evident examples being Acts of God, civil
disturbances, theft, or another connection having prior knowledge of possession
of the privileged information or contact(s) without the intervention or
assistance of the signatory Essentially the spirit behind the agreement is one
of mutual trust and confidence, and of the reliance on each other to do what is
fair and equitable.
(7.) We further agree that this constitutes the only such valid agreement and
that it will be valid for any further transactions.
(8.) We further guarantee that we will not, directly or indirectly, by ourselves
or through any other, transact with any of your sources without your previous
knowledge and agreement.
Envirocon Corporation
/s/ Frank Glinton 6-22-99
- ----------------------------- ---------
Frank Glinton - President Date
/s/ Roger Mayorga 6/23/99
- ------------------------- ----------
Roger Mayorga Date
/s/ Luis Molina 6-23-99
- -------------------- ----------
Luis I. Molina Date
EXHIBIT 10.16
ENVIROCON CORPORATION BERGANDI EXCLUSIVITY AGREEMENT
BMCI, Inc., d.b.a. BERGANDI Machinery Company ("Bergandi") and Envirocon
Corporation, Inc. ("Envirocon Corporation") agree to mutually develop a formal
exclusivity agreement (the "Agreement") based on, but not limited to, the terms
below set forth.
RECITALS
1. Both parties agree to negotiate in good faith, and complete and execute the
Agreement on or before September 30, 1999.
2. Envirocon Corporation has acquired the exclusive rights to construct and
market the EnviroPanel Machinery System from Paul Artzer.
3. Envirocon Corporation shall be responsible for all aspects of marketing the
Enviropanel Machinery System subject to Paragraph 13.
4. Bergandi shall be the exclusive builder of the EnviroPanel Machinery System.
5. Bergandi shall provide limited technical services to be further defined in
the Agreement to Envirocon Corporation and Envirocon Corporation's customers.
TERM
6. The initial term of the Agreement shall be for five years with an option to
renew the Agreement for two additional five-year periods.
CONFIDENTIALITY
7. Bergandi agrees to keep confidential any and all information provided to or
developed regarding the EnviroPanel Machinery System.
8. All drawings, bill of material, routers, diagrams or other schematics, and
any technical data related to the EnviroPanel Machinery System shall be the sole
and exclusive property of Envirocon Corporation.
9. Envirocon Corporation shall hold Bergandi harmless from any third party
patent or trade secret infringement claims that relate to the use of the
EnviroPanel Machinery System and shall, upon proper notice, fund Bergandi's
defense of such claims. In the event of such claims Bergandi shall cooperate
-1-
<PAGE>
with Envirocon Corporation to the fullest extent to permit Envirocon CorPottiori
to adequately assess such claims.
10. Bergandi agrees to provide all EnviroPanel Machinery System manufacturing or
production related information including, but without limitation, material,
cost, run, and efficiency.
GENERAL AGREEMENTS
11. Bergandi and Envirocon Corporation shall mutually agree upon the price and
terms for manufacturing the EnviroPanel Machinery system. (See Attachment A).
12. Envirocon Corporation shall pay for and exclusively own all engineering
documentation related to or required for the EnviroPanel Machinery System.
Billing for such documentation shall be based upon prices and terms of service
to be mutually agreed upon by the parties. (See Attachment A).
13. At the written request of Envirocon Corporation, Bergandi shall assist
Envirocon Corporation in marketing efforts related to the EnviroPanel Machinery
System. Bergandi shall submit an invoice for and Envirocon Corporation shall
reimburse Bergandi for any marketing costs advanced pursuant to this Paragraph.
14. All future productivity or cost reductions obtained by Bergandi will be
shared equally with Envirocon Corporation at 25% cost pass through. Any cost
increases, related to the EnviroPanel, in compensation, materials or overhead
incurred by Bergandi will be documented and passed through to Envirocon
Corporation.
15. Envirocon Corporation and Bergandi shall mutually agree upon all machinery
delivery schedules.
16. Bergandi shall have the exclusive right to provide any technical staffing,
management staffing, machinery, tooling and facilities to manufacture the
EnviroPanel Machinery System. In the event that demand for the EnviroPanel
Machinery System exceeds supply and Bergandi is unable to meet the manufacturing
demands within a reasonable period of time, then Envirocon Corporation shall
have a right to engage additional manufacturers to meet such demand.
17. Bergandi shall provide training and instruction in the use of the
EnviroPanel Machinery System at a mutually agreed upon price.
18. Bergandi shall have a first right of refusal to purchase exclusive rights
to the EnviroPanel Machinery System, in the event Envirocon Corporation sells
such rights.
19. Envirocon Corporation agrees to pay Bergandi a commission of 10% of all
revenues derived from customers referred to Envlrocon Corporation.
-2-
<PAGE>
TERMINATION
20. In the event that sales of the EnviroPanel Machinery System are insufficient
to permit the parties to maintain the EnviroPanel Machinery System business as a
going concern, then either of the parties May, upon 45 days written notice,
unilaterally terminate the Agreement.
Date: August 24, 1999 /s/ Frank Glinton
------------------------------
Frank Glinton, President
Envirocon Corporation, Inc.
Date: August 24, 1999 /s/ Ernest J. Turody
----------------------------------
Ernest J. Turody, President
BERGANDI Machinery Company
-3-
EXHIBIT 99.2
Arpin & Sons
4920 N. DIXIE * FT. LAUDERDALE, FL 33334 * (954) 772-8345 * (954) 772-9730
GENERAL CONTRACTOR * DESIGN BUILDERS * ENGINEERS * INSPECTORS
#CBC013698 #PE28585
AUGUST 3, 1999.
TO: COUNTY OF PALM BEACH
BUILDING DEPT. FX:
FI: GINS17
MANUFACTURER: GINSITE MATERIALS INC.
ITEM: GINSITE RESIN WALL COVERING
TO THE BEST OF MY ABILITY AND EXPERIENCE, UPON EVALUATION OF TEST DATA FOR
STRENGTH, CORROSION, INFILTRATION, CYCLIC STRESS, FIRE, WEATHER/UV, STEADY STATE
HEAT FLUX, THE PRODUCT MEETS OR EXCEEDS SB CODE FOR WALL COVERING APPLIED
APPLIED TO OSB BOARD AND CEMENT/CBS WALL SYSTEMS.
ATTACHED: TEST RESULTS
/S/DON ARPIN 8 3 99
-----------------------
DON ARPIN M.S.P.E.
PE28585
[SEAL}
(SINCE 1953)
<PAGE>
TEST DATA
GINSITE HAS SUCCESSFULLY PASSED EXHAUSTIVE TESTING:
<TABLE>
<S> <C> <C>
TEST METHOD RESULT
- --------------------- ------------------ -------------------------
Compressive Strength ASTM C 579-91 Passed: 4200 psi/average
point of failure.
Density ASTM C 1185-92 Passed: 50lbs. Per cubic ft.
Flexural Strength & Modulus ASTM C 580-93 Passed:1525 psi/average point
of Elasticity of failure
Insulation ASTM C 518-91 Average heat flux 69.13 btu's
(Thermal) Test per hour sq.ft.R-19@ 5/8"
thick.
Air Infiltration Test ASTM E 283 Passed:1.57 psf & 6.24 psf
Water Infiltration Test ASTM E 331 Passed: 12.00 psf.
Uniform Static/Cyclic Load ASTM E 330/PA 203 Passed: 60 psf Design
Test Pressure.
Static Load: Shear Wall Test ASTM E 564-76 (84) 15,438 lbs. No cracks/no
breaks in Ginsite membrane
observed.
Large Missile Impact Test PA 201 (Hurricane Center) Passed
Fire Test UL-94 V-0 Rating: flame times very
low.
Weather/UV Test ASTM G 53-77 Rating of 10 on 0-10 scale.
Rheolocical Test AR 1000 Passed: Viscosity less than
1,000 pa.s: Complex viscosity
1/2 of a million 10 hrs. after
curing.
Durometer (Hardness) Test ASTM - D Passed: Rating of 60.
6/7/99
</TABLE>
EXHIBIT 99.3
HURRICANE TEST LABORATORY, INC.
Windows * Doors * Store-Front * Curtain Walls *
*Shutters * EIFS * Metal Building Systems
LARGE MISSILE IMPACT TEST REPORT (R&D) - NOT FOR CERTIFICATION
Test Date: 09/03/98 Job Tracking #: 0177-0904-98 Speciman#: 1 Page#: 1
CUSTOMER INFORMATION
1.0 NAME OF APPLICANT: GINSITE MATERIALS, INC.
6781 W. Sunrise Blvd.
Plantation, Florida 33313
2.0 CONTACT PERSON: Henry Max
3.0 HTL NOTIFICATION #: N/A
4.0 HTL LAB CERTIFICATION #: 98 0127 02 (Miami-Dade)
TL9704A (SBCCI)
PRODUCT DESCRIPTION
5.0 DESCRIPTION OF TESTED UNITS:
5.1 Model Designation: Ginsite Wall System
5.2 Overall Size: 48-in.(w) x 48-in. (h)
5.3 General Description: Each sample consisted of a 4-ft. x 4-ft., 2-in. x
6-in. wood perimeter frame, with 2-in. x 4-in. wood studs placed
15-in. on center. A sheet of 1/2 -in. thick 1-in. density styrofoam
was used on the back of the wood studs. The system was then placed on
the front side of the wood stud assembly. The impacted side of the
specimen consisted of the following components:
(a) 1/2-in. Cellofoam Polystyrene (R-value 2.9) styrofoam (1st layer)
(b) 1/2-in. KCM (#002-653316-7) pressboard (2nd layer)
(c) 1/8-in. Ginsite Coating (exposed layer)
TEST RESULTS
6.0 LARGE MISSILE IMPACT TEST:
6.1 IMPACT DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Impact # Velocity Permanent Missile Missile X Y
(ft/s) Deflection Length (in.) Weight Coordinate Coordinate
(in.) (lbs.) (in.) (in.)
- -------- -------- ----------- ----------- ------- ---------- -----------
1 49.26 0.13 97.00 9.00 32.00 24.00
</TABLE>
8011-B2 Monetary Drive * Riviera Beach, FL 33404 *
(561) 881-0020 FAX (561) 881-0075
<PAGE>
LARGE MISSILE IMPACT TEST REPORT (R&D) - NOT FOR CERTIFICATION
Test Date: 09/03/98 Job Tracking #: 0177-0904-98 Speciman#: 1 Page#: 2
6.2 IMPACT LOCATIONS AND REMARKS:
Impact # 1 hit the intended target resulting in the recorded measurements.
[picture]
This sample was not cycled after impact as specified in Miami-Dade PA 201
and SBCCI SSTD 12- 97. Please be advised that successful completion of testing
by HTL in no way constitutes approval of this product by Miami-Dade County,
SBCCI, or HTL.
7.0 SUMMARY OF RESULTS:
Test Method Test Conditions Test Conclusion
- ------------------------- ---------------------- ----------------
Large Missile Impact Test PA201 & SSTD 12-97 PASS
MISCELLANEOUS INFORMATION
8.0 CERTIFICATION & DISCLAIMER STATEMENT:
The test and the results summarized in this test report were conducted in
accordance with the specifications of the applicable codes, standards & test
methods listed below by the Hurricane Test Laboratory, Inc. located at 6655
Garden Road, Riviera Beach, FL 33404. This report is only intended for the
use of the entity named in section 1.0 of this report.
9.0 APPLICABLE CODES, STANDARDS & TEST METHODS:
Metro-Dade County Protocol PA 201 - Impact Testing Criteria.
SBCCI SSTD 12-97 - Test Standard for Determining Impact Resistance From
Windborne Debris.
10.0 LIST OF OFFICIAL OBSERVERS: Joe Gibson - HTL, Technician Terry Roberts -
HTL, Technician Henry Max - GINSITE MATERIALS, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001046986
<NAME> ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL
<MULTIPLIER> 1
<CURRENCY> U.S. Currency
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,596
<SECURITIES> 0
<RECEIVABLES> 109,788
<ALLOWANCES> 0
<INVENTORY> 13,566
<CURRENT-ASSETS> 132,950
<PP&E> 142,992
<DEPRECIATION> (38,164)
<TOTAL-ASSETS> 473,549
<CURRENT-LIABILITIES> 474,662
<BONDS> 0
0
0
<COMMON> 10,978
<OTHER-SE> (672,000)
<TOTAL-LIABILITY-AND-EQUITY> 473,549
<SALES> 26,788
<TOTAL-REVENUES> 26,788
<CGS> 0
<TOTAL-COSTS> (3,557,490)
<OTHER-EXPENSES> 3,584,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (115,435)
<INCOME-PRETAX> (3,669,895)
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