SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1998.
Commission File Number 000-24723
INTEGRATED CARBONICS CORP.
(Exact name of Company as specified in its charter)
Nevada 88-0393257
(State of organization) (I.R.S. Employer Identification No.)
750 W. Pender St., Suite 804, Vancouver, BC Canada V6C 2T8
(Address of principal executive offices)
Company's telephone number, including area code (604) 682-8445
Company's Attorney: Daniel G. Chapman, Esq.,
3360 W. Sahara Ave., Suite 200
Las Vegas, NV 89102
(702) 732-2253, FAX (702) 732-7516
Securities registered under Section 12(g) of the Exchange Act:
Common stock, $0.001 par value per share
Check whether the issuer (1) filed all reports required to be
file by Section 13 or 15(d) of the Exchange Act during the past
12 months and (2) has been subject to such filing requirements
for the past 90 days. Yes X
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ X ]
Issuer's Revenue during the year ended December 31, 1998: $ 0
Aggregate market value of the voting and non-voting common equity
held by non-affiliates based on the price of $0.531 per share
(the selling or average bid and asked price) as of March 29,
1999: $1,893,731.85.
DOCUMENTS INCORPORATED BY REFERENCE:
The Company's form 10-SB/A, filed on December 17, 1998, and the
exhibits attached thereto, are incorporated by reference. A list
of those exhibits is provided in ITEM 13 below.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Background
Integrated Carbonics Corp. (the "Company") is a Nevada
corporation. Company was incorporated in the State of Delaware on
February 23, 1993 under the name of PLR, Inc. Each of the two
founders of the Company were issued 300 shares of common stock.
On March 15, 1996, the Board of Directors approved a 3500:1
common stock split, increasing the outstanding shares to 2.1
million. On January 1, 1997, the stock was split again, this time
by 5:1, increasing to 10.5 million the number of outstanding
stock.
On September 22, 1997, the Company's board of directors and
officers, after approving the issuance of 15,000,000 shares of
common stock to Da-Jung resources, resigned in favor of current
directors and officers, including Mr. Fawcett and Mr. Hoegler,
each of whom hold a twenty-five percent equity interest in Da-
Jung. Prior to the execution of the Da-Jung agreement, the
Company was a "blank-check" company.
The Company changed its name to Integrated Carbonics Corp. on
October 3, 1997 in Delaware. On October 9, 1997, a company named
Integrated Carbonics Corp. was incorporated in Nevada, solely for
the purpose of re-domiciling the Delaware corporation. The
Company was re-domiciled to the State of Nevada on October 30,
1997 by merging the two entities, with the Nevada corporation
being the surviving entity. Shareholders of the Delaware company
were given shares of the Nevada company. On October 31, 1997, a
Special meeting of the Shareholders of the Corporation was held
wherein the Shareholders approved a reverse stock split of 100:1
reducing the number of outstanding shares to 255,000 shares of
common stock. The Company's principal place of business is
located at 750 W. Pender St., Suite 804, Vancouver, BC Canada V6C
2T8. The Company also maintains a site on the world-wide web at
www.integratedcarbonics.com.
On November 29, 1998, the Company's registration statement that
had been filed voluntarily on Form 10SB with the United States
Securities and Exchange Commission became effective. On that
date, the Company became a "fully reporting" company under United
States Securities Laws. An amended Form 10SB ("Form 10-SB/A") was
filed on December 17, 1998.
Business of the Issuer
Although still considered a development stage enterprise, the
Company is in the business of mining, and has recently began
operations in earnest by entering into a number of contracts.
These contracts are described below and were included as exhibits
to the Form 10-SB/A.
Graphite Processing Joint Venture
On October 7, 1997, the Company acquired the rights of Da-Jung
Resource Corp. pursuant to an "Agreement on Establishment of a
Sino Foreign Equity Joint Venture" with Jixi Liumao Graphite Mine
of Heilongjiang Province, People's Republic of China.
Consideration for this Agreement was 6,000,000 of the Company's
post split common shares plus reimbursement of certain expenses
that had been incurred by Da-Jung. This amount is $200,000,
payable per an additional agreement with Da-Jung -- $70,000 upon
completion of the Company's limited offering (see "Management's
Discussion and Analysis - Liquidity and Capital Resources"),
$50,000 upon exercise of all of the warrants issued in that
offering, and the remaining $80,000 due upon the earlier of one
year from the date of that offering or upon completion of an
additional offering. The Company and Da-Jung agreed to make the
cash portion of the purchase price payable as a note that is due
on July 1, 1999. A total of $130,000, including interest imputed
at 8% per year, is due on that date.
NOTE: DA-JUNG RESOURCE CORP. IS A COMPANY CONTROLLED BY CERTAIN
DIRECTORS OF INTEGRATED CARBONICS CORP.
On November 10, 1997, the Company entered into a Sino Foreign
Equity Joint Venture with the Liumao Graphite Group of
Heilongjiang Province, People's Republic of China, to form a
joint venture company named "ICC Liumao Graphite Products, Ltd."
The purpose of the joint venture company is to construct and
operate a value-added graphite processing plant that will produce
high purity graphite, expandable graphite, graphite sheet, or
other graphite products.
The Company commissioned two independent firms to conduct
feasibility studies and laboratory analyses (see "Management's
Discussion and Analysis or Plan of Operation - Results of
Operation"). According to their reports, the Liumao Graphite Mine
is the largest known graphite mine in Asia, and one of the
biggest in the world. The mine has been in operation since 1936
and has reserves of 350 million tons with an average grade of
13.8% graphite. The anticipated mine life, based upon the
estimated reserves, average grade estimates, and annual output,
is in excess of 100 years. Annual production can be as much as
40,000 tons of high carbon graphite. The joint venture agreement
calls for production of 5,000 tons of value-added graphite
annually.
As an 80% equity partner, the Company is required to contribute
80% of the capital required for construction which is estimated
to be $28 million, and will obtain an 80% share of the profits
over a 30 year period. Under the terms of this Joint Venture
Agreement, the Company will also contribute technical direction
and management of the joint venture. The joint venture has
obtained all regulatory approval, including a business license,
in the People's Republic of China. Through December 31, 1998, the
Company has expended $274,170 (of its eventual estimated total of
$4,400,000) in engineering costs on Phase II of the project
(construction of processing facility for the 5,000 tons per year
of high grade graphite).
At yearend, management elected to expense the previously
capitalized feasibility study costs in order to comply with US
generally accepted accounting principles related to the treatment
of such costs in the absence of firm financial commitments to
complete the development of the project. These costs cover
engineering feasibility of its Liumao High Purity Graphite
Processing Plant. Management continues to seek financing for this
project on the basis of favorable results achieved in work
completed on this project to date.
To meet additional capital requirements of the joint venture, the
Company intends to complete additional private placement
financing (see "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources"). The Company will
contribute capital, technology assistance, marketing assistance
and hands on management to the Joint Venture. At this date, there
is no specific amount to be contributed to the Joint Venture, and
no dates on which contributions will be required. As discussed
below (see "Management's Discussion and Analysis or Plan of
Operation - Results of Operation"), the expenditures to date have
been capitalized on the books of the Company. These costs will
constitute a portion of the Company's contribution to the Joint
Venture.
The Company is and will continue to be involved in the marketing,
and subsequently, the sale of the processed graphite products.
The Company terminated its three full time employees in order to
meet fiscal restraints. Two of the three, however, continue to
work for the Company without accruing wages or benefits. The
Company also relies on its senior management, directors,
independent consultants and professional support services in the
United States, Canada and China.
Yichang Joint Venture
On September 21, 1998, the Company signed an interim joint
venture agreement whereby the Yichang HengDa Graphite Group
Company, Ltd. ("YHGG") will vend in its operating division at net
book value, and the Company will contribute 28.6 million RMB
(US$3.84 million) according to a negotiated capital contribution
schedule spanning one to two years. In addition, the Company will
pay fees not to exceed $1,000,000 directly to YHGG for off-
balance sheet intangible assets vended into the joint venture.
This agreement and the full joint venture remain subject to
approval by the relevant Chinese regulatory authorities. At
yearend, the Company and YHGG had drafted the full joint venture
agreement which is to be signed following final negotiation of
the capital contribution schedule.
Interest in Mineral Property
On September 22, 1997, the Company acquired from Da-Jung Resource
Corp. an interest in the Yue-jinshan-Zianfengbei mineral property
in the Wandashan mineralization zone Heilongjiang Province in the
People's Republic of China. The Company exchanged 15,000,000 pre-
consolidation shares of common stock to Da-Jung for these rights.
The Company considers this project as secondary to its graphite
processing joint venture, which became its core business during
1998. Therefore, the Company decided to write this investment off
of its books.
Da-Jung Resources
Da-Jung Resources is a British Virgin Island company which was
created initially for the purpose of pursuing business
opportunities in China. Da-Jung is currently an investment
holding company whose principal assets include the 6.150 million
shares of Company's common stock. Da-Jung continues to seek
additional business opportunities (not necessarily in China) and
financing to assist in the development of ICC. Mario Aiello,
Robert Hoegler, James Dade Fawcett, and Edwin Dorffi, officers
and/or directors of the Company, each own 25% of the equity of Da-
Jung.
ITEM 2. DESCRIPTION OF PROPERTY.
Company maintains offices at the following locations:
(a) (Registered office in Nevada)
3360 W. Sahara Ave., Suite 200
Las Vegas, NV 89102
(b) (Principal Office)
750 West Pender Street, Suite 804
Vancouver, British Columbia V6C-2T8
The Company subleases its offices in Vancouver. The lease term on
the Company's Beijing office expired February 14, 1999, and the
Company is presently relocating this office. The rent for the 690
square foot Vancouver office is $550 per month, plus its
proportional share of operating costs and taxes. The sublease was
extended to December 31, 1999. The Vancouver space is subleased
from MCA Equities, Ltd., a company owned by principals of the
Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal
proceeding. The Company has recently received a letter from an
attorney representing a group of unnamed individuals claiming to
be shareholders. The letter claims that these alleged
shareholders were party to an agreement by which the Company was
to issue them tradeable common stock, and allege that the Company
has breached this alleged agreement. Management is aware of no
such agreement, and, while it views these allegations as
frivolous, baseless, and entirely without merit, it will, in the
event an action is instituted, vigorously defend the Company
against all such claims, and has threatened to seek punitive
action against the complaining parties. The Company has had no
further communication on this matter since the initial contact.
ITEM 4. SUBMISSION OF MATTERS TO SHAREHOLDERS' VOTE
During the fourth quarter of 1998, no matters were submitted to
the shareholders of the Company for their vote.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Company's common stock is traded in the over-the-counter market
in the United States under the ticker symbol ICCN. The high and
low bid for each quarterly period for the most year ended
December 31, 1998 is as follow:
<TABLE>
<S> <C> <C>
Quarter High Low
Q1 1998 2.375 1.375
Q2 1998 4.87 1.06
Q3 1998 1.50 0.53
Q4 1998 0.25 0.75
</TABLE>
The Company has eleven market-makers currently active in trading
the Company's common stock. As the stock is listed on the over
the counter market, the quotes above reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not
represent actual transactions. The source for these quotes is
America On-Line. The Company has no record of paying a cash
dividend and has no present intention of doing so.
The two founders of the Company received a total of 600 shares of
common stock in consideration of $3,000. In two transactions
occurring March 1 and March 8, 1993, these two founders
transferred their shares to a total of 14 people each, either as
gifts or for payment of outstanding debt, resulting in the
Company's stock being held by 28 individuals. All of these
transfers were made pursuant to section 4(2) of the Securities
Act of 1933. As a result of two forward splits, these 600 shares
became 10,500,000 shares prior to the Company being re-domiciled
to Nevada. The reverse split of 1:100 occurring with the re-
domiciliation resulted in those shares being equivalent to
105,000 present-day shares. In addition, another 150,000 post-
reverse shares (15,000,000 pre-reverse shares) were issued to Da-
Jung in connection with the investment in mineral property.
Company has sold 2,300,000 units pursuant to exemptions from
registration provided by Section 3(b) Regulation D and Rule 504
promulgated thereunder at a price of $0.10 per unit. Each unit
consists of 1 common share and 1 purchase warrant permitting the
holder to purchase one additional share at the price of $0.33.
The aggregate price per unit is $0.215 per unit. During the year
ended December 31, 1998, a total of $605,446 was received on the
sale of the units and the exercise of related warrants. The
warrants expired on December 8, 1998. In addition, Company has
issued the equivalent of 6,150,000 restricted common shares
pursuant to agreement described in ITEM 1 and ITEM 12 of this
Form 10K-SB.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
During the quarter the Company continued with its program to
develop Integrated Carbonics Corp.(ICC) into an operating
company.
For the 12 months ended December 31st, 1998 ICC had a net loss of
$667,601 or 7 cents per share. This loss compares with a loss of
$37,229 or 70 cents per share for the previous 12 month period
ended December 31st, 1997.
During the year, ICC expended $269,470 on its Liumao Project
which brought ICC's total-to-date engineering development cost of
that project to $274,170. At yearend, management elected to
expense these previously capitalized feasibility study costs in
order to comply with US Generally Accepted Accounting Principles
related to the treatment of such costs in the absence of firm
financial commitments to complete the development of the project.
These costs cover engineering feasibility of its Liumao High
Purity Graphite Processing Plant as discussed below. Management
continues to seek financing for this project on the basis of
favorable results achieved in work completed on this project to
date.
On the basis of the results of Rescan's Liumao project detailed
feasibility study completed during the year, ICC conducted pilot
plant trials to test the process on larger volume samples in
advance of its customer sampling program. ICC completed these
initial pilot plant trials which returned positive results with
graphite purities reaching up to 99.5% carbon, exceeding the
Company's minimum specification and overall expectations.
As previously mentioned, the Liumao Joint Venture, of which ICC
is an 80% equity partner with the Liumao Graphite Group of China,
received its Business License during the third quarter following
approval by the Jixi Planning Commission of the Joint Venture's
application. The Joint Venture Company is now licensed to operate
as Liumao ICC Graphite Products Ltd. The Business License holds
an operating term that runs through June, 2028 which is the full
term of the Company's Joint Venture Agreement with the Liumao
Graphite Group and is renewed on an annual basis.
During the third quarter the Company entered into negotiations
with the Yichang Hengda Graphite Group(YHGG) in Hubei Province,
PRC to form a joint venture in which YHGG would vend in an
operating division of their Company. This division contains a 500
tonne per year graphite sheet manufacturing complex, a new mine
and flotation plant, and rights to expansion plans for the
graphite sheet plant.
On September 21st, 1998 the Company signed an interim joint
venture agreement whereby YHGG will vend in its operating
division at net book value and ICC will contribute RMB 28.6
million (US$3.84 million) according to a negotiated capital
contribution schedule spanning one to two years. In addition, ICC
will pay fees not to exceed US$1.0 million directly to YHGG for
off balance sheet intangible worth of assets vended into the
joint venture. This agreement and the full joint venture remain
subject to approval by relevant Chinese regulatory authorities.
At yearend, the Company and YHGG had drafted the full joint
venture agreement which is to be signed following final
negotiation of the capital contribution schedule.
The business focus of Integrated Carbonics Corp. is to design,
construct and operate value-added graphite processing facilities
with joint venture partners in China. In keeping with the
corporate development strategy to achieve cash flow as quickly as
possible, the Company has rescheduled its Liumao project to
follow immediately after the startup of its Yichang joint
venture.
The Company also reports that it has limited risk concerning the
Y2K problem within its in-house administrative systems. These systems
are comprised of basic and widely used small business systems for which
there are standard Y2K solutions currently available. These are to be
implemented with assistance from the Company's system support consultant
during fiscal 1999. Risk is further mitigated by manual back up systems
for accounting and office administration. The Company is not reliant on
any suppliers to the extent that impacts of Y2K on their business will
affect it in a material way. There is currently limited risk concerning
the Y2K problem in the Company's joint ventures at their current stage of
development. The Company intends to address Y2K risk in these joint ventures
as an integral part of the financing and commencement of operations in them.
2. Liquidity and Capital Resources
In fiscal 1998 the Company continued its status as a development
company. The Company is continuing to incur development expenses,
is deriving no revenues, and has experienced an ongoing
deficiency in working capital. The Company's continued existence
is dependent on its ability to obtain additional financing to
proceed with investment in its joint ventures and ultimately to
attain profitable operations from its joint ventures.
At December 31st, 1998 the Company had current assets of $3,055
and $286,360 in current liabilities. This compares with $46,476
in cash and prepaid expenses, and $171,922 in current liabilities
at December 31, 1997.
The Company closed its 504 Offering earlier in the fiscal year,
it being fully subscribed, and has received a total of $605,446
in proceeds from subscriptions and exercise of warrants on a
fiscal year to date basis.
During the year, two directors of the Company exercised 40,000
warrants for a total of $13,200 in cash proceeds for the
corporate treasury. On December 8th the remaining warrants
outstanding exercisable at $0.33 per warrant expired. At December
31st, the Company had no outstanding securities instruments as a
potential source of financing and has reduced its ongoing
administration expenses to essential costs only. Not withstanding
this, there is significant uncertainty as to how long the Company
can continue to function in the absence of financing due to its
working capital deficiency and no current source of revenues.
As previously reported, the Company intends to complete
additional private placement financing for working capital and to
meet its obligations to its existing joint venture including
financing its share of the construction costs for the High Purity
Graphite Plant, and finance the development of additional joint
venture opportunities. During the quarter the Company established
its Yichang joint venture as noted above and revised its
financing goals to accommodate the new joint venture development
schedule mentioned above in "Results of Operations".
The Company's revised plan for financing calls for three stages
of financing to be completed. The first phase of financing is to
obtain $250,000 for general working capital purposes, in order
that the Company may proceed to completing its next stage of
financing in the amount of $3 million. The majority of proceeds
from this $3 million financing will be used for funding the
Yichang Joint Venture. The Company plans to proceed to a $12
million financing within one year of completing the $3 million
financing.
To accomplish these financing goals, the Company engaged an
investment banker, Bridgestream Partners, L.L.C., to arrange
financing for ICC's development requirements on a best efforts
basis.
Subsequent to yearend, the Company has also engaged Worldwide
Corporate Finance as a financial advisor to assist in matters of
financing the Company.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and supplemental data required by this
Item 7 follow the index of financial statements appearing at Item
13 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The financial statements for the year ended December 31, 1998,
were prepared by Deloitte and Touche, the same auditors who
performed the audit for the year ended December 31, 1997.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS
The members of the Board of Directors of the Company serve until
the next annual meeting of the stockholders, or until their
successors have been elected. The officers serve at the pleasure
of the Board of Directors. Information as to the directors and
executive officers of the Company is as follows:
<TABLE>
<S> <C> <C>
Name Age Position
James Dade Fawcett 31 Director
H. Frank Foster 45 CFO
Mario C. Aiello 48 President
Robert S. Tyson 38 Vice President, Corporate
Communications/Secretary
Robert Hoegler 53 Treasurer
Other senior
management:
Edwin C. Dorffi Engineering Advisor
Yihong Zhan Technical Advisor
</TABLE>
Mario C. Aiello - President and Director
Mr. Aiello has more than 15 years experience as an advisor and
consultant in the corporate and financial markets. In a
consulting capacity, he has successfully developed financial and
administrative programs for clients in a variety of market
segments ranging from high-tech to natural resources. These
include clients currently operating in China. He has been
directly responsible for financing many of these companies and
for securing share-listing status for more than 30 of them, both
on U. S. and Canadian exchanges. He is currently President and
Director of MCA Equities Ltd. As he has been for the past 15
years. Mr. Aiello was also a director of Consolidated Nu-Media
(now Pan Asia Resources Inc.) from 1989 to 1997 and Power Stick
Manufacturing Inc. from 1996 to present.
Mr. James Dade-Fawcett, Director
Mr. Dade-Fawcett is a successful entrepreneur with eight years of
experience in developing private-sector infrastructure and
resource projects in the Peoples Republic of China ranging
between US $30 million and $50 million in value. He possesses a
strong administrative and project development background having
been a principal of several Hong Kong based infrastructure and
resource companies. Mr. Fawcett is currently the Managing
Director of Kaison HK Limited and has been a principal of Power
Gen Investment Co. in Hong Kong since 1993.
H. Frank Foster, B.Sc., MBA - Chief Financial Officer and
Director
Mr. Foster has had an extensive career in the resource and
financial sectors. As a member of founding management, he was
Executive Vice President and CFO of Orenda Forest Products a
successful forest products company listed on the Toronto Stock
Exchange. Mr. Foster oversaw the development of Orenda's $550
million pulp and paper mill project to the stage of construction
readiness. He also has experience in the mining industry having
worked with one of Canada's largest consulting engineering firms
and corporate banking experience with on of Canada's major banks.
Mr. Foster's principal occupation from 1987 to June 1997 was as
Executive Vice President and Chief Financial Officer of Orenda
Forest Productions Ltd. of Vancouver, BC Canada and treasurer of
its subsidiary, Sound Energy Development Company. He is also
currently a director of Western Logic Resources, a Vancouver
Stock Exchange listed company headquartered in Calgary, Alberta
and the sole director of FR Ventures, a private company offering
business consulting services.
Robert S. Tyson - Vice President, Corporate Communications,
Secretary and Director
Mr. Tyson is an experienced administrator specializing in the
development of emerging public companies. Over the past 11 years,
he has been both a senior manager and consultant with emerging
companies in the manufacturing and high-tech sectors. He bring to
the Company considerable administrative, financial and corporate
communications experience along with extensive practical
experience in negotiating and implementing Sino-Foreign Joint
Ventures and offshore manufacturing and marketing contract. Mr.
Tyson is also a director of Advanced Pultrusion Technologies
Ltd., A Canadian-based manufacturing company and Eisport
Products, Inc., a Florida based marketing and distribution firm.
Mr. Tyson's principal occupation for the past five years was as
President of Silent Communication Inc. (1992-present) and
President of Advanced Pultrusion Technologies Ltd. (1996-
present). Both companies are headquartered in Vancouver, Canada.
In addition, from 1992 to 1995, Mr. Tyson was president of Watson
Bell Communications, Inc., a communications technology company
listed on the Vancouver Stock Exchange. (Now Cosworth Ventures
Inc.)
Mr. Robert Hoegler - Treasurer and Director
Mr. Hoegler is an investment consultant advising both public and
private companies on investment structures and investor relations
strategies for the past 15 years. His clients range from high-
tech to resource based companies, including a company currently
operating in China. Mr. Hoegler is a Director of MCA Equities
Ltd., a consulting company providing advice to public companies
in both Canada and the U.S. He is also a director on Alexa
Ventures, a successful Canadian Manufacturing company, Eisport
Products, Inc., a Florida based marketing and distribution firm,
and Advanced Pultrusion Technologies Ltd., a Canadian base
manufacturing company. Mr. Hoegler's occupation for the past five
years is as director of MCA Equities Ltd.
Edwin C. Dorffi - Engineering Advisor
Mr. Dorffi has a technical background in Applied Science and
Engineering and has been active in the field of project
engineering for the past 20 years. His most recent experience has
particular emphasis on business development in the People's
Republic of China over the past six years. Mr. Dorffi has been a
business and technical advisor to various companies and has held
executive positions in both public and private sector
enterprises.
Yihong Zhan, M.Sc. - Technical Advisor
Ms. Zhan is currently a Ph.D. candidate in the Department of
Mining and Mineral Process Engineering at the University of
British Columbia. Ms. Zhan's previous experience includes working
as a chemical engineer with Xiamen Photographic Materials Ltd.
and as a project engineer with the Potash Corporation of
Saskatchewan and Canment Canada. She has also worked with Cominco
Ltd. and as a consultant to a number of mining interest in China.
Mr. Foster and Ms. Zhan are full time employees of the Company.
All other management are not consider employees on the basis that
no cash compensation or benefits are currently paid.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer of Company has cash compensation exceeding
$60,000. The executive officers as a group had compensation of $0
during the past fiscal year. All officers, directors and
employees are reimbursed for all out of pocket expenses
associated with corporate functions. There is currently no
compensation paid to directors for attending meetings of the
Board of Directors.
During the nine months ended September 30, 1998, Frank Foster was
paid according to a salary schedule calling for payment of
US$70,000 per year. This salary was suspended on July 31, 1998.
Robert Tyson, during that same period, was paid a total of
US$14,788.74 as a result of billings by MCA for expenses incurred
by Mr. Tyson for services rendered on behalf of the Company.
All directors and senior management identified in ITEM 9, with
the exception of Yihong Zhan, received an option to purchase
250,000 shares of Company's common stock at a price of $2.00 per
share expiring on January 13, 2001. Ms. Zhan received an option
to purchase 100,000 shares of Company's common stock at a price
of $2.00 per share expiring on January 13, 2001. The $2.00 option
price was determined as approximating the trading average of the
Company's shares on the 5 trading days immediately preceding
January 13, 1998. On January 13, 1998, stock options to purchase
a total of 40,000 shares of the Company's common stock at $2.00
per share were granted to two employees of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information relating to the
beneficial ownership of the Company's common stock by those
persons holding beneficially more than 5% of the Company's common
stock, by the Company's directors and executive officers, and by
all of the Company's directors and executive officers as a group.
In this case, the only holders of more than 5% of the Company's
common stock are the directors and executive officers, so only
one table is shown.
<TABLE>
<S> <C> <C> <C>
Title of Name & Address of Amount & Nature Percent of Class
Class Beneficial Owner of Beneficial
Owner
Common Da-Jung Resource Corp. 6,150,000 62.40%
P.O. Box 71 Road Town
Tortolla, BVI
Common James Dade Fawcett 1,577,500 16.00%
14A Nathan Tower
618 Nathan Road
Kowloon, Hong Kong
Common Robert Hoegler 1,557,500 15.80%
Suite 604
7040 Granville Ave.
Richmond, BC V6Y 3W5
Common Mario Aiello 1,557,500 15.80%
3648 Mathers Ave.
West Vancouver, BC
V7V 2K8
Common Edwin Dorffi 1,537,500 15.60%
1917 W. 4th Ave.
Vancouver, BC V6J 1M7
Common H. Frank Foster 40,000 0.41%
3932 Sharon Place
West Vancouver, BC
V6J 1M7
</TABLE>
Notes: Messrs. Fawcett, Aiello, Hoegler and Dorffi each own a
25% equity interest of Da-Jung Resources Corp. and, as such, may
be considered as beneficial owners of Company's shares issued to
Da-Jung Resource Corp. The breakdown of their share positions is
the sum of each individual's pro-rata interest in the shares
issued to Da-Jung Resource Corp. plus common shares purchased by
certain of the individuals pursuant to Company's 504 Offering
Memorandum dated December 8, 1997 (Mr. Dorffi did not purchase
common shares pursuant to Company's Offering Memorandum.)
Mr. Foster has no beneficial interest in Da-Jung Resource Corp.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On September 22, 1997, the Company entered into an agreement with
Da-Jung Resource Corp., a company controlled by certain directors
of the Company, to acquire 100% of its interest in the Yuejinshan-
Siangfenbei mineral property in the Wandashan Mineralization Zone
of Heilongjian Province, the People's Republic of China in
exchange for 15,000,000 pre-consolidation shares of the Company'
stock valued at $0.01 per share. Furthermore, the Company entered
into an agreement with Da-Jung Resource Corp. on October 7, 1997
to acquire 100% of its rights and obligations pursuant to an
"Agreement on Establishment of Sino Equity Joint Venture" with
Jixi Liumao Graphite Mine of Heilongjian Province, Peoples
Republic of China. Consideration for this agreement was 6,000,000
post split common shares of the Company's stock plus $200,000.
Messrs. Fawcett, Dorffi, Aiello and Hoegler each own a 25% equity
interest in Da-Jung Resource Corp.
FR Ventures, a personal holding company whose sole director is
Frank Foster, billed Company a total of $11,386.33 in consulting
fees during 1997, prior to Mr. Foster joining the Company. Of
this amount, the Company has paid FR Ventures a total of
$7,457.14, of which $6,600 was converted to common equity of the
Company through the exercise by Mr. Foster of warrants to
purchase common stock. Mr. Foster has also been granted a
management incentive option to purchase from Da-Jung a total of
200,000 shares of Company's common stock at a price not to exceed
$0.20 per share.
In addition, the Company paid a consulting fee of $9,668.00 to
Kaison (H.K.) Ltd., a company controlled by James Dade Fawcett,
during the year ended December 31, 1998.
Company sub-leases certain office space and pays monthly
administrative consulting fees to MCA Equities Ltd., a company
whose principals include Mario Aiello and Robert Hoegler. During
the current fiscal year, the total consulting fees paid to MCA
were $9388.86.
ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS
(A.) Audited Financial Statements
Report of Independent Auditors, Deloitte & Touche,
LLP, dated March 17, 1999
Comments by Auditors, Deloitte & Touche, LLP,
concerning differences in reporting between the
United States and Canada.
Balance Sheet as of December 31, 1998 and 1997.
Statement of Operation for the years ended December
31, 1998, 1997, and 1996, and for the period from
inception through December 31, 1998.
Statement of Stockholders' Equity
Statement of Cash Flows for the years ended December
31, 1998, 1997, and 1996, and for the period from
inception through December 31, 1998.
Notes to Financial Statements
Auditors' Report
To the Board of Directors and Shareholders of Integrated
Carbonics Corp.
We have audited the balance sheets of Integrated Carbonics Corp.
(a development stage company) as at December 31, 1998 and 1997
and the statements of operations, stockholders' equity and cash
flows for the years then ended and for the period from February
23, 1993 (date of incorporation) to December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all
material respects, the financial position of the Company as at
December 31, 1998 and 1997 and the results of its operations, its
cash flows and changes in shareholders' equity for the years then
ended and for the period from February 23, 1993 (date of
incorporation) to December 31, 1998 in accordance with generally
accepted accounting principles in the United States of America.
The Company's financial statements for the year ended
December 31, 1996 and for the period from February 23, 1993 (date
of incorporation) through December 31, 1996 were audited by other
auditors whose report, dated November 19, 1997, expressed an
unqualified opinion on those statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
March 17, 1999
Comments by Auditors for U.S. Readers on Canada - United States
Reporting Differences
In the United States, reporting standards for auditors would
require the addition of an explanatory paragraph following the
opinion paragraph when the financial statements are affected by a
significant uncertainty such as referred to in Note 2 regarding
the Corporation's ability to continue as a going concern. Our
report to the shareholders dated March 17, 1999 is expressed in
accordance with Canadian reporting standards which do not permit
a reference to such uncertainties in the auditors' report when
the uncertainties are adequately disclosed in the financial
statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
March 17, 1999
INTEGRATED CARBONICS CORP.
(Formerly PLR, Inc.)
(A development stage company)
Balance Sheets
<TABLE>
<S>
<C> <C>
December 31, 1998 December 31, 1997
ASSETS
CURRENT
Cash $713 $44,576
Prepaid expense 2,342 1,900
TOTAL CURRENT ASSETS 3,055 46,476
CAPITAL ASSETS
Property, plant and equipment (Note 4,784 -
4)
Other - 4,500
OTHER ASSETS
Investment in a graphite processing 253,408 250,988
joint venture (Note 5)
Interest in mineral property (Note 6) - 15,000
258,192 270,488
TOTAL ASSETS $261,247 $316,964
LIABILITIES
CURRENT
Accounts payable $156,360 $51,922
Current portion of long-term debt 130,000 120,000
(Note 7)
286,360 171,922
LONG-TERM DEBT (Note 7) - 71,000
TOTAL LIABILITIES 286,360 242,922
CONTINGENCIES AND COMMITMENTS (Notes
2 and 11)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value
Authorized 10,000,000 shares None
outstanding
Common stock, $.001 par value (Note 9,856 6,795
9)
Authorized 50,000,000 shares
Issued and outstanding
(1998 - 9,856,350 common shares;
1997 - 6,795,000 common shares)
Subscriptions received - 37,000
Additional paid-in capital 673,590 71,205
Deficit accumulated during the (708,559) (40,958)
development stage
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (25,113) 74,042
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $261,247 $316,964
</TABLE>
(See accompanying notes to the financial statements)
INTEGRATED CARBONICS CORP.
(Formerly PLR, Inc.)
(A development stage company)
Statement of Operations
<TABLE>
<S> <C> <C> <C> <C>
Year ended Year ended Year ended February 23, 1993
December 31, 1998 December 31, 1997 December 31, 1996 (inception) to
December 31, 1998
EXPENSES
Amortization $4,078 $74 $61 $4,386
Engineering costs 274,170 - - 274,170
General and administration 195,298 17,701 800 216,494
Interest and bank charges 9,549 87 - 9,636
Legal and accounting 49,752 7,850 - 57,602
Transfer agent and filing fees 5,556 7,394 - 12,950
Rent 30,494 4,123 - 34,617
Salaries 83,704 - - 83,704
Write-off of interest in 15,000 - - 15,000
mineral property
667,601 37,229 861 708,559
NET LOSS $(667,601) $(37,229) $(861) $(708,559)
LOSS PER SHARE - BASIC AND $(0.07) $(0.07) $(0.01) $-
DILUTED
WEIGHTED AVERAGE NUMBER OF 9,168,248 565,000 105,000 -
SHARES OF COMMON STOCK
OUTSTANDING
</TABLE>
(See accompanying notes to the financial statements)
INTEGRATED CARBONICS CORP.
(Formerly PLR, Inc.)
(A development stage company)
Statement of Changes in Stockholders' Equity
<TABLE>
<S> <C> <C> <C> <C>
Common Stock Additional Deficit
Shares Amount al Paid- Accumulated
in During
Capital Development
Stage
February 23, 1993
Issued for cash 105,000 $105 $2,895 $-
Net loss, period ended December - - - (2,746)
31, 1993
Balance, December 31, 1993 105,000 105 2,895 (2,746)
Net loss, period ended December - - - (61)
31, 1994
Balance, December 31, 1994 105,000 105 2,895 (2,807)
Net loss, period ended December - - - (61)
31, 1995
Balance, December 31, 1995 105,000 105 2,895 (2,868)
Net loss, year ended December - - - (861)
31, 1996
Balance, December 31, 1996 105,000 105 2,895 (3,729)
Issued for an interest in a 150,000 150 14,850 -
mineral property(Note 6)
Issued for Graphite Processing 6,000,000 6,000 - -
Joint Venture agreement
(Note 5(a))
Issued for cash 540,000 540 53,460 -
Net loss, year ended December - - - (37,229)
31, 1997
Balance, December 31, 1997 6,795,000 6,795 71,205 (40,958)
Issued for cash 3,061,350 3,061 602,385 -
Net loss, year ended December - - - (667,601)
31, 1998
Balance, December 31, 1998 9,856,350 $9,856 $673,590 $(708,559)
</TABLE>
(See accompanying notes to the financial statements)
INTEGRATED CARBONICS CORP.
(Formerly PLR, Inc.)
(A development stage company)
Statement of Cash Flows
<TABLE>
<S> <C> <C> <C> <C>
Year Year Year February
ended ended ended 23, 1993
December December December 31, (inception)
31, 1998 31, 1997 1996 to
December 31, 1998
OPERATING ACTIVITIES
Net loss $(667,601) $(37,229) $(861) $(708,559
Add (less)
Amortization 4,078 74 61 4,386
Imputed interest on long-term debt 9,000 - - 9,000
Organization costs - (3) - (308)
Write-off of interest in mineral 15,000 - - 15,000
property
Write-off of other asset 4,500 - - 4,500
Loss on disposal of property, plant 1,589 - - 1,589
and equipment
Net changes in working capital(Note 12) 103,996 25,902 800 134,923
(529,438) (11,256) - (539,469)
FINANCING ACTIVITIES
Issuance of common stock 568,446 54,000 - 625,596
Payments on long-term debt (70,000) - - (70,000)
Subscription received - 37,000 - 37,000
498,446 91,000 - 592,596
INVESTING ACTIVITIES
Purchase of property, plant and (11,423) - - (11,423)
equipment
Proceeds on disposal of property, 972 - - 972
plant and equipment
Investment in a graphite processing (2,420) (30,668) - (37,463)
joint venture
Other - (4,500) - (4,500)
(12,871) (35,168) - (52,414)
NET CASH (OUTFLOW) INFLOW (43,863) 44,576 - 713
CASH, BEGINNING OF PERIOD 44,576 - - -
CASH, END OF PERIOD $713 $44,576 $- $713
</TABLE>
SUPPLEMENTAL INFORMATION OF NON-CASH FINANCING AND INVESTING
ACTIVITIES
During the year ended December 31, 1997, the Company issued
6,000,000 common shares as partial consideration to acquire an
80% interest in the Liumao mine joint venture (Note 5(a)) and
issued 150,000 common shares to acquire a 100% interest in Yue-
jinshan-Zianfengbei mineral property (Note 6).
(See accompanying notes to the financial statements)
INTEGRATED CARBONICS CORP.
(Formerly PLR, Inc.)
(A development stage company)
Notes to Financial Statements
1. DESCRIPTION OF BUSINESS
The Company was organized on February 23, 1993 under the laws of
the State of Delaware as PLR, Inc. On October 3, 1997, it changed
its name to Integrated Carbonics Corp. and on October 30, 1997,
changed its jurisdiction of incorporation to Nevada.
The Company has signed joint venture agreements for the
construction and operation of two graphite processing plants in
the People's Republic of China.
2. CONTINUING OPERATIONS
The financial statements have been prepared on the basis of
accounting principles applicable to a going concern which
contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company is a
development stage enterprise and as such has no significant
revenue and is incurring substantial costs in connection with its
investment in a graphite processing joint venture as described in
Note 5. In addition the Company incurred a loss of $667,601 for
the year ended December 31, 1998 and has a working capital
deficiency of $283,305 at December 31, 1998. Management is
engaged in discussions with prospective investors to secure
additional financing (See Note 14). The Company's continued existence
is dependent on its ability to obtain additional financing to
proceed with the joint venture and ultimately to attain
profitable operations.
If the going concern assumption is not appropriate in the
preparation of these financial statements, adjustments would be
necessary to the carrying values of assets and liabilities, the
reported loss and the balance sheet classifications used.
3. SIGNIFICANT ACCOUNTING POLICIES
The financial statements are expressed in US dollars, have been
prepared in accordance with accounting principles generally
accepted in the United States and include the following
significant accounting policies:
(a) Investment in joint ventures
The Company records its investment in joint ventures at cost
until such date as the venturers make their initial capital
contribution at which time they are recorded on the equity basis.
(b) Interest in mineral property
The Company follows the method of accounting for its interest in
mineral property whereby initial costs related to the acquisition
of mineral properties are capitalized by property. Exploration
and development costs are expensed as incurred.
The interest in mineral property will be written down on a
property by property basis when a significant decline in value
that is other than temporary has occurred and will be written off
when a property is abandoned.
(c) Property, plant and equipment
Property, plant and equipment are recorded at cost. Depreciation
is charged to operations over the estimated useful lives of the
assets as follows:
Computer software straight line over 12 months
Computer hardware straight line over 24 months
Furniture and office equipment straight line over 60 months
The carrying value of property, plant and equipment is reviewed
on a regular basis for any permanent impairment in value. Where
such impairment is indicated, property, plant and equipment are
written down to estimated net realizable value.
(d) Accounting estimates
Preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those
estimates.
(e) Net loss per share
Net loss per share is computed using the weighted average number
of common shares outstanding during the period. Diluted loss per
share has not been disclosed as the effect of common shares
issuable upon the exercise of options or warrants would be anti-
dilutive.
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share".
SFAS 128 is effective for the fiscal year ending after
December 15, 1997. SFAS 128 redefines earnings per share under
U.S. GAAP and replaces primary earnings per share with basic
earnings per share and fully diluted earnings per share with
diluted earnings per share. Net loss per share, as reported, is
equal to the net loss per share based on SFAS 128 for all periods
presented.
(f) Stock-based compensation
The Company accounts for stock-based compensation using the
intrinsic value based method whereby compensation cost is
recorded for the excess, if any, of the quoted market price of
the common stock over the exercise price at the date granted for
all common stock options. As at December 31, 1998, no
compensation cost has been recorded for any period under this
method.
The following pro-forma financial information presents the net
loss for the year and the loss per common stock had the Company
adopted Statement of Financial Accounting Standard No. 123 ("SFAS
123") "Accounting for Stock-based Compensation".
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Pro-forma loss for $(2,661,585) $(37,229) $(861)
the year
Pro-forma loss per $(0.29) $(0.07) $(0.01)
common share
</TABLE>
Using the fair value method for stock-based compensation,
additional compensation costs of approximately $1,993,984 would
have been recorded for the year ended December 31, 1998 (1997,
1996 - $Nil). This amount is determined using an option pricing
model assuming no dividends are to be paid, the options vest
immediately, a weighted average annualized volatility of the
Company's share price of 122% and a weighted average annualized
risk-free interest rate at 5.00%.
(g) Recent accounting policies
In June 1998, the FASB issued Statement No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 establishes standards for accounting for derivative
instruments. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Company does not expect that adoption of
SFAS 133 will have a material effect on the Company's financial
statements.
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<S>
<C> <C>
1998 1997
Computer software $1,692 $ -
Computer hardware 1,520 -
Furniture and office 5,011 -
equipment ----- -----
8,223 -
Less: accumulated (3,439) -
depreciation
$4,784 $ -
</TABLE>
5. INVESTMENTS IN GRAPHITE PROCESSING JOINT VENTURES
(a) Liumao
On October 7, 1997, the Company entered into an agreement with Da-
Jung Resource Corp., a company controlled by certain directors of
the Company, to acquire 100% of its rights and obligations
pursuant to an "Agreement on Establishment of a Sino Foreign
Equity Joint Venture" with Jixi Liumao Graphite Mine, of
Heilongjiang Province, the People's Republic of China.
Consideration for this agreement was 6,000,000 shares of the
Company's post split common stock, plus $70,000 on the completion
of the offering which has been paid, $50,000 on the exercise of
all related warrants and $80,000 one year from the date of the
offering or upon completion of additional financing, whichever
comes first. At December 31, 1998, $130,000 was still payable in
connection with this agreement and the repayment date was
extended to July 31, 1999 (Note 7).
On November 10, 1997, the Company entered into a formal agreement
with the Liumao Graphite Mine to form a joint venture company
named ICC Liumao Graphite Products, Ltd. The purpose of the joint
venture company is to establish value added graphite processing
facilities at the Liumao Mine in China to produce high purity
graphite, expandable graphite, graphite sheet or other graphite
products.
The total investment of the Company in the joint venture company
is stipulated as 80% of anticipated joint venture construction
costs of $28 million, and the Company will obtain an 80% share of
the profits over a thirty year period. Further investment in the
joint venture by the Company is contingent on the completion of
additional financing arrangements with shareholders or third
parties. The joint venture company has received regulatory
approval.
The investment in the graphite processing joint venture is valued
at the cost to acquire the rights to enter into the joint venture
plus legal and other costs incurred by the Company to negotiate
the formal joint venture agreement. No capital investment in the
joint venture has been made to date.
(b) YiChang
On September 21, 1998, the Company entered into an interim
agreement with YiChang Heng Da Graphite Group Company Ltd.
("YiChang") to obtain a 55% interest in a joint venture between
YiChang and the Company. Under this joint venture agreement,
YiChang will sell, at net book value, to the joint venture one of
its operating divisions consisting of a new mine and mineral
processing plant and a graphite sheet manufacturing plant. The
Company will contribute RMB 28.6 million ($3.84 million)
according to a contribution schedule to be negotiated. The joint
venture will then proceed to construct additional graphite sheet
manufacturing capacity and, at its option, construct a
fluorographite and lithium ion battery manufacturing facility. As
of December 31, 1998, no costs have been incurred and the joint
venture agreement has not yet been signed.
6. INTEREST IN MINERAL PROPERTY
On September 22, 1997, the Company entered into an agreement with
Da-Jung Resource Corp., a company controlled by certain directors
of the Company, to acquire 100% of its interest in the Yue-
jinshan-Zianfengbei mineral property, in the Wandashan
mineralization zone of Heilongjiang Province, the People's
Republic of China in exchange for 150,000 shares of the Company's
common stock valued at $0.10 per share. During 1998, the interest
in mineral property was written off.
7. LONG-TERM DEBT
<TABLE>
<S> <C> <C>
1998 1997
Amount payable to Da-Jung $130,000 $191,000
Resource Corp. on acquisition
of its interest in the graphite
processing joint venture
(Note 5(a))
Current portion (130,000) (120,000)
--------- ---------
$0 $71,000
</TABLE>
The long-term debt is unsecured and non-interest bearing and as a
result was recorded on a present-value basis to December 31, 1998
with imputed interest recognized at 8%. During 1998, the lender
extended the repayment terms to July 1, 1999.
8. SHARE CAPITAL
The company has given retroactive effect and restated share
numbers to give effect to the following capital transactions:
On March 15, 1996, at a meeting of the Board of Directors, the
Board approved amending its Articles of Incorporation. These
amendments were approved by a majority vote of the stockholders.
The Company authorized changing its authorized common stock of
15,000 shares with $5.00 par value, to 50,000,000 common shares
with par value $.001 and 10,000,000 preferred shares with a par
value $.001. The Company also approved a forward stock split on
the basis of 3,500:1, increasing the number of outstanding shares
from 600 shares to 2,100,000 shares.
On January 17, 1997, at a special meeting of the Shareholders,
the Shareholders approved, effective January 4, 1997, a forward
stock split of 5:1, increasing the number of common shares
outstanding from 2,100,000 common shares to 10,500,000 common
shares outstanding.
On October 31, 1997, at a special meeting of the Shareholders,
the Shareholders approved a reverse stock split of 1:100 thus
reducing the number of common shares outstanding from 25,500,000
shares to 255,000 shares of common stock.
On October 31, 1997, at a special meeting of the Shareholders,
the Shareholders authorized a Regulation D Rule 504 offering of a
maximum of 2,300,000 units at $.10 per unit consisting of one
common share and one warrant exercisable at $.33 per share for
six months.
9. STOCK OPTIONS
In 1998, the Company adopted a Stock Option Plan to provide
options to purchase common shares of the Company for its
employees, officers and directors. The options granted pursuant
to the Stock Option Plan are exercisable at a price of $2.00
which is equal to the fair value of the common shares at the time
the options were granted. The maximum number of common shares
reserved for issuance under the Stock Option Plan, including
current options outstanding, is 2,000,000 common shares.
Information regarding the Company's stock options is as follows:
<TABLE>
<S> <C> <C>
Number of shares Share price
Outstanding at December 31, 1997 - -
Granted 1,640,000 2.00
Outstanding at December 31, 1998 1,640,000 2.00
</TABLE>
The following table summarizes information concerning options
outstanding at December 31, 1998:
<TABLE>
<S> <C> <C>
Number Price Expiry Date
1,640,000 2.00 January 13, 2001
</TABLE>
10. RELATED PARTY TRANSACTIONS
(a) As of December 31, 1998, accounts payable include $3,929
(1997 - $16,907) due to companies controlled by certain directors
of the Company. The amounts are unsecured, interest-free, and do
not have fixed repayment terms.
(b) The Company entered into the following transactions with
companies controlled by certain directors of the Company:
<TABLE>
<S> <C> <C>
1998 1997
Rent $25,167 $3,161
Office expenses 9,856 1,519
Management fees 24,178 3,321
Consultancy fee 9,668 11,144
</TABLE>
The Company has entered into an agreement to lease premises from
a company controlled by certain directors as described in
Note 11.
11. COMMITMENTS
On December 8, 1997, the Company entered into a one year lease
commitment effective January 1, 1998 for $6,600 plus applicable
operating costs. During 1998, this lease was extended to
December 31, 1999.
12. NET CHANGES IN WORKING CAPITAL
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1996 February 23, 1993
(inception) to December
31, 1998
Prepaid $(442) $(1,900) $- $(2,342)
Accounts Payable 104,438 27,802 800 137,265
$103,996 $25,902 $800 $134,923
</TABLE>
13. FINANCIAL INSTRUMENTS
The carrying values of cash, accounts payable and long-term debt
reflected on the balance sheet approximate their respective fair
values.
14. SUBSEQUENT EVENTS
In January 1999, the Company entered into a one-year corporate
finance advisory agreement, cancelable at any time on 30 days
written notice, with a third party and agreed to issue, as
partial consideration, 350,000 common shares at predetermined
dates over the course of the contract. The common shares are
subject to registration and, to March 17, 1999, 150,000 common
shares have been delivered at a deemed value of $39,780.
Also in January 1999, the Company entered into a marketing
agreement with another third party and issued, as partial
consideration, 360,000 common shares, at a deemed value of
$133,722 which are subject to registration.
15. PRIOR YEARS' AMOUNT
Certain of prior years' amounts have been reclassified where
applicable, to conform with the current year's presentation.
EXHIBITS
<TABLE>
<S> <C>
Exhibit 3.1 Articles of Incorporation (incorporated by reference to
Form 10SB/A)
Exhibit 3.2 By-Laws (incorporated by reference to Form
10SB/A)
Exhibit 4 Stock Option Plan (incorporated by reference to Form
10SB/A)
Exhibit 10 Underlying Agreements Between Company and Da-Jung Resource
Corp.
The Company incorporates by reference to its Form 10SB/A
the following material contracts entered into in previous
fiscal years.
10-A September 22, 1997 Agreement between Da-Jung Resource Corp.
and PLR, Inc.
10-B October 7, 1997 Agreement between Da-Jung Resource Corp.
and Integrated Carbonics Corp.
10-C September 9, 1997 Agreement on Establishment of Sino Equity
Joint Venture, China-Canada Liumao Graphite Products Co.
Ltd.
10-D November 10, 1997 Equity Joint Venture Agreement between
Liumao Graphite Mine and Integrated Carbonics Corp.
10-E August, 1997 Cooperative Joint Venture Agreement between
Heilongjiang Geological and mining Technology Development
Corp. and Da-Jung Resource Corp.
Exhibit Letter from Barry L. Friedman, CPA (incorporated by
16-A reference to Form 10SB/A)
Exhibit Letter from Kurt D. Saliger, CPA (incorporated by reference
16-B to Form 10SB/A)
Exhibit 99 News Releases and Forms 8-K during the year ended December 31, 1998
NOTE: Exhibits 99-A through 99-J were included in the Form
10SB/A, and are incorporated by reference. Exhibits 99-KJ
and 99-L are included as an exhibit to this form 10KSB.
99-A January 6, 1998 - Joint Venture Partnership Established in
China
99-B January 14, 1998 - Company Announces Appointments to its
Board of Directors
99-C January 27, 1998 - Private Placement Closed; Auditors
Appointed
99-D May 7, 1998 - First Quarter Corporate Development Goals
99-E May 25, 1998 - Positive Laboratory Test Results
99-F July 15, 1998 - Detailed Feasibility Study and Pilot Plant
Trials Begin
99-G July 29, 1998 - ICC Receives Business License in China
99-H August 12, 1998 - Signs Letter of Intent
99-I December 9, 1998 - Signs Milestone Agreements in China
99-J Form 8-K filed on February 2, 1999 concerning resignation
of James Dade Fawcett, President (incorporated by
reference)
99-K December 14, 1998 -- ICC To Develop First Fluorographite
And Lithium-Fluorine Battery Plant In China
99-L Yichang Joint Venture Interim Agreement
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Company has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Integrated Carbonics Corp.
By: /s/ Mario Aiello
Mario Aiello, President
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NEWS RELEASE
For Immediate Release December 14, 1998
Trading Symbol: ICCN (OTC:BB)
ICC TO DEVELOP FIRST FLUOROGRAPHITE AND LITHIUM-FLUORINE BATTERY
PLANT IN CHINA
Further to the Company's news release of December 9, 1998:
Integrated Carbonics Corp. announces its intention to exercise
its rights of first refusal granted under its joint venture
contract with YiChang Hengda Graphite Group to joint venture the
development and operation of the first Fluorographite and Lithium-
Fluorine Battery Plant in the People's Republic of China.
This plant will employ the latest production technology imported
from the USA to become the exclusive producer of Fluorographite
in the PRC. The output capacity will be 50 tpa of Fluorographite
(CF2) and 5,000,000 units of Lithium-Fluorine Batteries (1.6V)
generating projected average annual sales of US $29.5 million and
a preliminary projected rate of return of 81%. The plant will be
located in the YiChang County Industrial Zone, Hubei Province,
PRC.
Along with ICC, it is expected that the YiChang Hengda Graphite
Group will contribute 45% of the project development and
operating costs in cooperation with the State Development Bank
and the People's Construction Bank of China. At this time, the
Project Feasibility Study, State Planning Commission and Economic
Commission approvals are all complete. Also, the site design and
civil infrastructure are underway. Capital contributions are
planned for the year 2000.
Fluorographite is used primarily in the manufacture of lithium-
fluorine batteries, computer batteries, fuel cells, lubricants,
aerospace products and nuclear moderators. According to an
independent copyright industry report released in 1998, the
worldwide market for Lithium-Ion batteries is anticipated to grow
to 134 million units per year by the year 2000.
With similar rapid market growth in China, it is anticipated that
the entire plant production of Fluorographite and Lithium-
Fluorine batteries will be sold within the PRC to industrial and
high tech customers in accordance with the existing State
Planning and Economic Commission Approvals.
Integrated Carbonics Corp. has positioned itself as a specialty
graphite and graphite product producer within the $8 billion
worldwide graphite industry. ICC is concentrating its development
efforts in China through joint venture arrangements covering 5
different graphite processing projects. ICC has aligned itself
with two Chinese joint venture partners recognized within the
graphite industry worldwide. ICC will continue its development
efforts within China due to China's ranking as the #1 graphite
producer in the world with low operating costs leading to
anticipated high returns.
This News Release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
and are subject to the risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties
include, but are not limited to, those related to business and
financial conditions, the Company's ongoing ability to finance
its operations and the ongoing viability of the graphite
industry.
Contact: Investor Relations: 1-888-734-7774 or
Robert Tyson, Vice President, Corporate Communications - (604)
682-8445
AGREEMENT
This agreement dated September 21st, 1998 made between Integrated
Carbonics Corp. (Party A) and YiChang HengDa Graphite Group
Company Ltd. (Party B), executed in Yichang, Hubei Province, the
PRC.
Whereas the parties have successfully completed negotiations and
are desirous of developing a successful business relationship and
agree as follows;
They shall establish a cooperative joint venture company with a
30 years term in the County of YiChang and the name of the
company shall be Yichang Integrated Carbonics Company Limited,
which shall utilize a limited liability company in accordance
with the PRC's laws and shall carry out business within the
graphite industry in the following scope;
Mining right to a 6,000,000 tonne graphite deposit in Yichang
County.
8,000 tonne per annum flotation, mining and concentrate
production facility located at the orebody site (A) above.
Drying, screening, packing, and classification (15,000tpa)
plants; including a 98-99% high purity plant (leaching) and an
expandable graphite plant - capacity 1,000 tpa.
A 1,000 tonne per annum capacity graphite sheet plant comprised
of an existing sheet plant and the construction and installation
of a second graphite sheet plant.
The parties contributions:
Party A: will invest 55% of the capital in the form of cash
and/or equipment as required and has the option to increase its
investment to 70%. Party A shall also contribute western
standards of management, accounting, technology where required
and know how.
Party B: will invest 45% of total capital in the form of
depreciated assets, inclusive of mining rights and existing
operations etal, customers, marketing, management, labour, etc.
Total Investment:
The total investment if 52 million RMB of which 12 million shall
be its registered capital. The amount of total investment is
suggested by Party B and agreed upon by Party A. This could not
be changed unless agreed by both parties.
Board of Directors and Management:
The board shall be composed of 5 directors; 3 appointed by Party
A and 2 appointed by Party B. The Chairman by Party A, the Vice-
chairman by party B. The General Manager shall be appointed by
the board as shall the Vice General Manager.
Distribution of Profit:
Party A shall initially receive 75% of the profits until all of
its capital investment is repaid, during this period Party B
shall receive 25%. Subsequently, Party B shall receive 65% of
the profits until its investment is repaid and party A will
receive 35% of the profits during this period. Once both parties
investments have been fully repaid, profits will be distributed
proportionately to their respective investment in the Joint
Venture Company.
Marketing Agency:
The parties agree that a marketing agency (independent from the
JVC) may be established to co-ordinate sales and marketing and
administer the invoicing and collection of sales to customers.
First Right of Refusal:
Party A shall have the first right of refusal to purchase other
existing assets of the YiChang Graphite Group or participate in
other proposed projects or expansions of either Party B or the
YiChang Graphite Group, if or when they become available.
8. This agreement is legally binding upon the parties and may
be amended by the formal contract to be drafted by party A's
legal counsel within the next tow (2) weeks, and which shall be
executed by both parties in YiChang City formally upon the
earliest possible convenient date.