UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period year ended March 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _____ to _____
Commission file number 000-26095
ENVIROKARE TECH, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0412549
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2470 Chandler Avenue, Suite 5, Las Vegas, Nevada 89120
(Address of principal executive offices)
(702) 262-1999
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. Yes [ ] No [ ]
NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The total number of shares of Common
Stock, par value $.001 per share, outstanding as of April 27, 2000, was
11,089,478.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements..................................................1
Accountant's Review Report..........................................2
Statements of Financial Position....................................3
Statements of Operations and Comprehensive Loss.....................4
Statement of Stockholders' Equity...................................5
Statements of Cash Flows............................................6
Notes to the Financial Statements...................................7
Item 2. Plan of Operation....................................................14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................18
Item 2. Changes in Securities................................................18
Item 3. Defaults Upon Senior Securities......................................18
Item 4. Submission of Matters to a Vote of Security Holders..................19
Item 5 Other Information....................................................19
Item 6. Exhibits and Reports on Form 8-K.....................................19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENVIROKARE TECH, INC.
Financial Statements
March 31, 2000 and December 31, 1999
WILLIAMS & WEBSTER PS
Certified Public Accountants
Seafirst Financial Center
W 601 Riverside, Suite 1940
Spokane, WA 99201
(509) 838-5111
1
<PAGE>
Board of Directors
Envirokare Tech, Inc.
2470 Chandler, Suite 5
Las Vegas, Nevada 89120
Accountant's Review Report
We have reviewed the accompanying statement of financial position of Envirokare
Tech, Inc. (a development stage company) as of March 31, 2000 and the related
statements of operations and comprehensive loss, cash flows, and stockholders'
equity for the three months ended March 31, 2000, and for the period from June
15, 1998 (inception) through March 31, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The financial statements for the year ended December 31, 1999 were audited by us
and we expressed an unqualified opinion on them in our report dated March 31,
2000, but we have not performed any auditing procedures since that date.
As discussed in Note 2, the Company has been in the development stage since its
inception and has no revenues. The Company's continued viability is dependent
upon the Company's ability to meet its future financing requirements and the
success of future operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
April 25, 2000
2
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 321,898 $ 148,046
Prepaid expenses 91,290 76,291
----------- -----------
TOTAL CURRENT ASSETS 413,188 224,337
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 1,893 1,593
Office equipment 6,661 6,661
Less accumulated depreciation (1,789) (1,385)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 6,765 6,869
----------- -----------
OTHER ASSETS
Deposits and retainers 21,289 18,789
Patent costs 33,939 33,939
----------- -----------
TOTAL OTHER ASSETS 55,228 52,728
----------- -----------
TOTAL ASSETS $ 475,181 $ 283,934
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,198 $ 88,155
Notes payable 61,965 61,965
Accrued interest 8,321 6,770
Reimbursement due -- 12,200
----------- -----------
TOTAL CURRENT LIABILITIES 86,484 169,090
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized,
$.001 par value; 500,000 and no shares issued and
outstanding, respectively 500 500
Common stock, 200,000,000 shares authorized,
$.001 par value; 11,089,478 and 10,746,140 shares
issued and outstanding, respectively 11,089 10,746
Stock subscriptions receivable -- (105,000)
Additional paid-in-capital 842,557 585,400
Stock options 552,000 552,000
Accumulated deficit during developmental stage (1,015,089) (927,600)
Other comprehensive loss (2,360) (1,202)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 388,697 114,844
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 475,181 $ 283,934
=========== ===========
</TABLE>
See accountant's review report and notes to financial statements.
3
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the For the Period from
Three Months Three Months June 15, 1998
Ended Ended (Inception) to
March 31, March 31, March 31,
2000 1999 2000
(unaudited) (unaudited) (unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ -- $ -- $ --
------------ ------------ ------------
EXPENSES
Consulting fees: related parties 15,170 15,000 307,886
Other consulting fees 32,500 7,500 417,550
Rent 2,292 2,190 16,111
General and administrative 20,722 1,281 121,428
Transfer agent fees 679 -- 2,032
Depreciation 404 163 1,788
Interest on notes payable 1,551 1,689 8,363
Listing expenses and filing fees 3,485 12,371 12,132
Legal and accounting 10,686 11,500 56,649
Research and development -- -- 71,150
------------ ------------ ------------
TOTAL EXPENSES 87,489 51,694 1,015,089
------------ ------------ ------------
LOSS FROM OPERATIONS (87,489) (51,694) (1,015,089)
INCOME TAX -- -- --
------------ ------------ ------------
NET LOSS (87,489) (51,694) (1,015,089)
OTHER COMPREHENSIVE LOSS
Foreign currency translation loss (1,158) -- (2,360)
------------ ------------ ------------
COMPREHENSIVE LOSS (88,647) (51,694) (1,017,449)
============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.01) $ (0.01) $ (0.10)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED
COMMON STOCK SHARES OUTSTANDING 10,917,809 10,150,000 10,254,047
============ ============ ============
</TABLE>
See accountant's review report and notes to financial statements.
4
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------- --------------------------- Additional
Number Number Paid-In
of Shares Amount of Shares Amount Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock in June, 1998:
For cash at $.001 per share -- $ -- 10,000,000 $ 10,000 $ --
Net loss for period ended December 31, 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance
December 31, 1998 -- -- 10,000,000 10,000 --
Issuance of common stock at $.50 - $1.00 per share -- -- 746,140 746 334,053
for cash
Issuance of preferred stock at $.50 per share 500,000 500 -- -- 249,500
for cash
Issuance of stock options -- -- -- -- --
Forgiveness of debt -- -- -- -- 1,847
Net loss for year ended December 31, 1999 -- -- -- -- --
Foreign currency translation loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 500,000 500 10,746,140 10,746 585,400
Cash received for subscriptions receivable -- -- -- -- --
Issuance of common stock at $0.75 per share -- -- 343,338 343 257,157
Net loss for the three months ended March 31, 2000 -- -- -- -- --
Foreign currency translation loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 (unaudited) 500,000 500 11,089,478 11,089 842,557
=========== =========== =========== =========== ===========
<CAPTION>
Other Total
Stock Subscriptions Accumulated Comprehensive Stockholders'
Options Receivable Deficit Loss Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock in June, 1998:
For cash at $.001 per share $ -- $ -- $ -- $ -- $ 10,000
Net loss for period ended December 31, 1998 -- -- (34,427) -- (34,427)
----------- ----------- ----------- ----------- -----------
Balance
December 31, 1998 -- -- (34,427) -- (24,427)
Issuance of common stock at $.50 - $1.00 per share -- (105,000) -- -- 229,799
for cash
Issuance of preferred stock at $.50 per share -- -- -- -- 250,000
for cash
Issuance of stock options 552,000 -- -- -- 552,000
Forgiveness of debt -- -- -- -- 1,847
Net loss for year ended December 31, 1999 -- -- (893,173) -- (893,173)
Foreign currency translation loss -- -- -- (1,202) (1,202)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 552,000 (105,000) (927,600) (1,202) 114,844
Cash received for subscriptions receivable -- 105,000 -- -- 105,000
Issuance of common stock at $0.75 per share -- -- -- -- 257,500
Net loss for the three months ended March 31, 2000 -- -- (87,489) -- (87,489)
Foreign currency translation loss -- -- -- (1,158) (1,158)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 (unaudited) 552,000 -- (1,015,089) (2,360) 388,697
=========== =========== =========== =========== ===========
</TABLE>
See accountant's review report and notes to financial statements.
5
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the Period from
Three Months Three Months June 15, 1998
Ended Ended (Inception) to
March 31, March 31, March 31,
2000 1999 2000
(unaudited) (unaudited) (unaudited)
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (87,489) $ (51,694) $(1,015,089)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 404 163 1,788
Stock options issued for consulting fees -- -- 552,000
Increase (decrease) in prepaid expenses (17,499) 10,500 (112,579)
Increase (decrease) in accounts payable (84,157) -- 16,199
Increase in accrued interest 1,551 1,549 8,321
Expenses paid by note payable -- -- 2,870
----------- ----------- -----------
Net cash used by operating activities (187,190) (39,482) (546,490)
----------- ----------- -----------
Cash flows from investing activities:
Patent costs -- -- (609)
Purchase of equipment (300) -- (5,942)
----------- ----------- -----------
Net cash used in investing activities (300) -- (6,551)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock -- -- 250,000
Proceeds from sale of common stock 362,500 37,500 602,299
Proceeds from issuance of notes payable -- 12,000 25,000
----------- ----------- -----------
Net cash provided by financing activities 362,500 49,500 877,299
----------- ----------- -----------
Increase in cash 175,010 10,018 324,258
Adjustment for foreign currency (1,158) -- (2,360)
Cash, beginning of period 148,046 2,388 --
----------- ----------- -----------
Cash, end of period $ 321,898 $ 12,406 321,898
=========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
NON-CASH TRANSACTIONS:
Note issued for purchase of property, equipment and operating expenses $ -- $ -- $ 3,635
Note issued for pending patent to related party $ -- $ -- $ 33,330
Reimbursement due for purchase of equipment $ -- $ -- $ 1,847
Stock options issued for consulting fees $ -- $ -- $ 552,000
Stockholder's contribution for equipment $ -- $ -- $ 1,847
</TABLE>
See accountant's review report and notes to financial statements.
6
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Envirokare Tech, Inc., (hereinafter "the Company"), was incorporated in June
1998 under the laws of the State of Nevada. In December 1998, the Company
acquired the property, assets and undertakings of a business manufacturing and
developing a rubber mold technology and patent rights potentially applicable to
future development of a pallet made of recycled materials. The Company is
currently developing marketing and manufacturing plans for the products under
development. The Company maintains an office in Las Vegas, Nevada.
The Company is in the development stage, and as of March 31, 2000 had not
realized any significant revenues from its planned operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Envirokare Tech, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
which 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.
Development Stage Activities
The Company has been in the development stage since its formation in June 1998.
It is primarily engaged in the refinement of a manufacturing process which is
based on research findings for the development of pallets made of recycled
materials.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company has incurred an
accumulated deficit of $1,015,089 which includes a net loss of $87,489 for the
three months ended March 31, 2000 and has a working capital deficit. The
Company, being a developmental stage enterprise, is currently putting technology
in place which will, if successful, mitigate these factors which raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
7
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern (continued)
The Company has raised equity capital through the sale of common and preferred
stock. Management has proceeded as planned in the ongoing development of a
recycled plastic and rubber composite pallet. In-depth analysis of compounds,
extrusion method and equipment modifications have been studied and refined, as
have initial prototypes. During the year ending December 31, 1999, the Company
has contracted with Thermoplastic Composite Designs Inc. and Thermoplastic
Flowforming Technologies Corp. for professional and technical services. Finished
product should be available for distribution to potential customers for in-use
evaluation during the second quarter of year 2000.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Loss Per share
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Basic and diluted shares
outstanding are the same, as the inclusion of common stock equivalents would be
anti-dilutive.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Provision for Taxes
At March 31, 2000 and December 31, 1999, the Company had net operating losses of
approximately $87,489 and $927,600, respectively. No provision for taxes or tax
benefit has been reported in the financial statements, as there is not a
measurable means of assessing future profits or losses.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Reclassification
The reclassification in the financial statements have resulted in certain
changes in presentation which have no effect on the net losses or shareholders'
equity for March 31, 1999 and December 31, 1999, or the periods then ended.
8
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a statement
titled "Accounting for Impairment of Long-lived Assets." In complying with this
standard, the Company will review its long-lived assets quarterly to determine
if any events or changes in circumstances have transpired which indicate that
the carrying value of its assets may not be recoverable. The Company does not
believe any adjustments are needed to the carrying value of its assets at March
31, 2000.
Year 2000 Issues
Like other companies, Envirokare Tech, Inc. could be adversely affected if the
computer systems the Company, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment and elevators, etc. At this time, the
Company does not have any evidence of problems associated with the year 2000
issue.
Interim Financial Statements
The interim financial statements as of and for the three months ended March 31,
2000 included herein have been prepared for the Company, without audit. They
reflect all adjustments which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. All such adjustments
are normal recurring adjustments. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full fiscal year.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight line method over the estimated useful lives of the assets. The useful
lives of property, plant and equipment for purposes of computing depreciation
are five and seven years. The following is a summary of property, equipment and
accumulated depreciation.
March 31, December 31,
2000 1999
--------- ------------
Furniture and Fixtures $1,893 $1,593
Less Accumulated Depreciation 348 269
------ ------
Net Furniture & Fixtures $1,545 $1,324
====== ======
Office Equipment $6,661 $6,661
Less Accumulated Depreciation 1,441 1,116
------ ------
Net Office Equipment $5,220 $5,545
====== ======
9
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 4 - INTANGIBLE ASSETS
In December 1998, the Company acquired technology rights from Real Morel and his
affiliated companies of International Pallet Control Systems Inc. and The Pallet
Company. The Company is currently investigating the patent process on this
technology. During the year ended December 31, 1999, attorney fees of $609 were
added to patent cost. The amortization of patent costs will begin when the final
patents are granted. If the Company does not obtain the patent, the costs of
acquiring the patent rights from its originator will be charged to operations.
NOTE 5 - DETAILS OF SHORT-TERM DEBT
Reimbursement due, in the amount of $1,847, are monies owing Timothy Zuch for
gift certificates provided to the Company in fiscal year ending December 31,
1998, which were deducted from the purchase price of computer equipment. This
debt was forgiven during the year ending December 31, 1999 and applied to
additional paid in capital.
Refunds of $12,200 were due to potential investors from the stock subscription
offering. The potential investors did not meet the accredited investor criteria
that was a prerequisite for inclusion in the offering. The refunds were paid in
February 2000.
Short-term notes payable at March 31, 2000 and December 31, 1999 consist of
unsecured notes bearing 10% interest and are dated between August 18, 1998 and
December 16, 1998. The short-term notes are payable to Real Morel and are due on
demand. The principal amount on the notes is $63,965. Interest expense recorded
on the notes payable at March 31, 2000 and December 31, 1999 was $1,551 and
$6,239, respectively.
NOTE 6 - COMMON STOCK
Upon incorporation, 10,000,000 shares of common stock were sold at $.001 per
share, under Regulation D, Rule 504. At year's end, the stock was held by 30
shareholders, none of whom held in excess of ten percent of the stock.
On February 22, 1999, the Board of Directors authorized a 2-for-1 reverse stock
split of the Company's $.001 par value common stock. As a result of the reverse
split, 5,000,000 shares were cancelled and additional paid-in capital was
increased by $5,000. All references in the accompanying financial statements to
the number of common shares and per-share amounts for 1998 were restated to
reflect the reverse stock split.
During the year ending December 31, 1999, common stock shares of 373,070 were
issued for cash. At December 31, 1999 the balance of stock subscriptions was
$105,000. Stock subscriptions were paid, and stock issued February 16, 2000, for
these common stock shares.
10
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 6 - COMMON STOCK (Continued)
During the month of February 2000, common stock shares of 343,338 were issued at
$0.75 per share. A common stock split, two for one, took place for holders of
record as of March 1, 2000. All references in the accompanying financial
statements to the number of common shares and per share amounts for the first
three months ended March 31, 2000 and year ended December 31, 1999 have been
restated to reflect the stock split.
NOTE 7 - PREFERRED STOCK
During the year ending December 31, 1999, preferred stock shares of 500,000 were
issued for $250,000 cash. The preferred stock has no rights for dividends, but
is convertible to common stock at the rate of ten shares of common for each
preferred share. This conversion feature was modified to twenty to one by the
subsequent stock split effective March 1, 2000.
NOTE 8 - STOCK OPTIONS
In September 1999, the Company adopted the 1999 Stock Plan, a non-qualified
plan. The plan was registered with the Securities Exchange Commission. The 1999
Stock Plan authorizes 2,000,000 stock options. The purposes of the 1999 Stock
Plan are to attract, retain and motivate employees, directors and consultants of
the Company. In accordance with Statement on Financial Accounting Standard No.
123, the fair value of the options granted were estimated using the
Black-Scholes Option Price Calculation. The following assumptions were made to
value the stock options: risk-free interest rate at 5%, expected life at 10
years, and management's expected volatility at 30%. For the year ended December
31, 1999, the company recorded $552,000 ($.48 per option) in consulting fees for
the value of the options based upon these Black Scholes assumptions. These stock
options will expire September 29, 2009. (See Note 9).
Fixed Plan
Number of Weighted Average
Shares Exercise Price
Outstanding at December 31, 1998 -- --
Granted 1,150,000 $ 1.15
--------- --------
Outstanding at December 31, 1999 1,150,000 $ 1.15
Granted -- --
--------- --------
Outstanding at March 31, 2000 1,150,000 $ 1.15
========= ========
Options Exercisable March 31, 2000 287,500 $ 1.15
========= ========
Common stock when issued for the above options will have certain contractual
restrictions upon subsequent sale. All holders cannot sell more than 25% of
their granted amounts per year held, nor exceed total annual sales of $100,000
per year.
11
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 9 - RELATED PARTIES
Jeannie M. Runnalls, who was appointed President, Secretary, and director of the
Company on January 24, 2000, received $15,170 in cash for consulting fees during
the first three months of 2000.
Jeannie M. Runnalls, who serves as a director, received cash in consulting fees
during the year ending December 31, 1999 of $22,715.
Stock options of 1,150,000 were issued for common stock shares during the year
ending December 31, 1999. Of these stock options, 500,000 were issued to related
parties. (See Note 8).
Madelyn Thomas, who received $10,000 in consulting fees under the terms of an
ongoing contract as of December 31, 1998 and an additional $20,000 as of
December 31, 1999, is the wife of the past president of the Company, Charles W.
Thomas. On June 1, 1999, Madelyn Thomas served the company thirty-day notice to
terminate her consulting contract to be effective at month's end.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company entered into consulting contracts with Susan Westfall and Madelyn
Thomas on November 1, 1998 for the purpose of establishing corporate offices on
behalf of the Company. The terms of Ms. Westfall's contract specify that she
will receive $2,500 per month for the term of the contract, which commenced
November 1, 1998 and terminated April 30, 1999. The terms of Mrs. Thomas's
contract specify that she will receive $5,000 per month for the term of the
contract, which commenced November 1, 1998 and terminated June 30, 1999. Both
contracts provide indemnification against any and all liability and provide for
reimbursement of expenses up to a specified amount. They may be terminated upon
thirty days written notice by either party.
On April 1, 1999, the Company entered into a lease for office space in British
Columbia for the period of twelve months beginning April 1, 1999. Monthly
payments for the initial year of the lease are $800(CDN) per month, not
including utilities. This lease was cancelled as of July 31, 1999 without
penalty.
The Company entered into a lease for office space in Nevada for the period of
thirty-six months beginning October 1, 1998. Monthly payments for the initial
year of the lease are $730 per month, including $40 for utilities. In compliance
with the terms of the lease, the Company has purchased comprehensive public
liability insurance. Future annual minimum lease payments for the term of the
lease are as follows for the years ending December 31:
2000 $6,957
2001 $7,200
12
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
March 31, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)
In November 1999 the Company entered into a contract with Thermoplastic
Composite Designs (TCD), Inc. and Thermoplastic Flowforming Technologies Corp.
(TPF) for professional and technical services. These services included the
design and material specs, mold fabrication, prototype and demo units. The total
contract amount is $133,800. During the year ended December 31, 1999, the amount
paid was $50,800 leaving a balance owing of $83,000. On January 24, 2000 a
payment of $35,000 was made. An additional payment of $35,000 was made on March
15, 2000. The Company recorded $70,000 of these research and development costs
to prepaid expenses as of December 31, 1999. This amount represents the value of
the molds derived from this contract, which may become depreciable property if
no further development is necessary. Upon execution of a TPF Technology
Licensing Agreement, the Company will receive a credit of $61,600; representing
46% of the payments made to TCD under the development contract, toward the
license fee payable to TPF Technologies.
13
<PAGE>
Item 2. Plan of Operation
This Form 10-QSB contains some statements that the Company believes are
"forward-looking statements." These include statements about the future of the
pallet industry, statements about future business plans and strategies, and most
other statements that are not historical in nature. Forward-looking statements
involve risks and uncertainties, including changing market conditions and
competitive, regulatory and other matters discussed in the disclosure contained
in this Form 10-QSB and the other filings with the Securities and Exchange
Commission made by the Company from time to time. These and other factors could
cause actual results to be materially different from any future results,
performance or achievements expressed or implied. The discussion of the
Company's plan of operation, including forward-looking statements, does not take
into account the effect of any changes to the Company's operations or any
external factors. Accordingly, readers should not place undue reliance on
forward-looking statements. Also, the Company has no obligation to publicly
update forward-looking statements it makes in this Form 10-QSB.
Overview
The Company is currently in the development stage and has not yet generated
any operating revenues. Since its inception in June 1998, the Company has
developed a single piece molded pallet (the "Pallet") manufactured primarily
from recycled plastics and granulated rubber derived from discarded tires
(commonly referred to as "crumb rubber"). The Company is currently in the final
stages of testing this product, and expects to begin generating licensing
revenues during the third quarter of 2000, as the Company's licensees begin
production of the Pallet.
The Company had originally planned to have its licensees begin producing
the Pallet in June 2000 but decided to conduct additional tests, which has
delayed the previously planned start date by approximately four months.
Significantly improved substrate technology caused the Company to rethink their
initial production start-up dates. Consequently, additional product testing was
required that would be specific to the improved substrate composition, prior to
initiating the launch of production operations for licensees. Although the
Company's decision to further test the Pallet has set back production dates, the
Company believes that this additional testing has substantially minimized or
eliminated any concerns as to the Pallet's design and ability to perform. The
Company's testing program has included in-depth analysis of substrate compounds,
extrusion methods and equipment modifications. Initial prototypes of the Pallet
have been developed and refined. The Company expects to have potential customers
evaluate the Pallet through in-use testing beginning in the second quarter of
2000. The Company believes that after a final engineering analysis report is
completed, Company licensees will commence production of the Pallet during the
third quarter of 2000.
14
<PAGE>
Liquidity and Capital Resources
The Company is not yet generating revenues. For the period ended March 31,
2000, the Company had a net loss of $87,489. The Company's net loss accumulated
for the period from June 15, 1998 (inception) to March 31, 2000 was $1,015,089.
The Company anticipates that it will begin to generate revenue during the third
quarter of 2000 upon the planned start of production of the Pallet by the
Company's licensees. At March 31, 2000 the Company had current assets of
$413,188, consisting of $321,898 in cash and $91,290 in prepaid expenses. During
the first quarter of 2000, the Company's cash resources increased primarily due
to issuance of the Company's common stock for aggregate proceeds to the Company
of $257,500. At March 31, 2000 the Company had current liabilities of $86,484.
At March 31, 2000 current assets exceeded current liabilities by $326,704. Other
than as discussed above, the Company is not aware of any trends, demands,
commitments or uncertainties, other than those affecting business and the
economy in general, that could result in the Company's liquidity decreasing or
increasing in a material way within the next 12 months.
To date, the Company has raised capital through private placements of
common stock and convertible preferred stock. The Company has budgeted
expenditures in 2000 of $504,282, and plans to raise $550,000 in the next
several months to cover its proposed expenditures. These funds may be raised
through additional equity financings, as well as borrowings and other resources.
The Company is currently holding discussions with potential investors. With the
capital it has raised to date, and the additional $550,000 it plans to raise in
the next several months, the Company now believes that it is at the point where
it can move forward with its production and marketing plans, which in the short
term include the start-up of Pallet manufacturing operations by Company
licensees, and in the longer term include adding additional licensees and
expanding the product line mix. Management of the Company believes that its
financing plans described above will enable it to meet its obligations including
cash requirements for at least the next twelve months to March 31, 2001.
To achieve and maintain competitiveness of its products and to conduct
further testing and development that will allow the Company to enter into the
production stage of operations, the Company may be required to raise substantial
funds in addition to funds already raised through the issuance of the Company's
shares. There can be no assurance that additional funding will be available
under favorable terms, if at all. If adequate funds are not available, the
Company may be required to curtail operations significantly. For example, the
Company's longer-term plans include setting up its own production operations, in
addition to its shorter-term focus of having licensees produce the Pallet. If
the Company cannot raise enough funds, it may not be able to carry out its plan
to set up its own operations. The Company might also have to obtain funds
through entering into arrangements with collaborative partners or others. That
could require the Company to relinquish rights to certain products, which could
impair future sources of revenues for the Company.
15
<PAGE>
Product Testing and Development
The Company has been actively involved in extensive testing and development
of the Pallet. The Company contracted with substrate component testing engineers
in the Akron, Ohio area who performed the primary series of component testing.
The Company's development focus is to ensure that the Pallet meets or exceeds
current market standards and that the Pallet will be superior in performance and
will be cost effective to produce and sell. In particular, the Company's
development focuses on the safety, structural integrity, reliability, and cost
effectiveness of the Pallet, involving in-depth analysis of compound variables
and strengths, extrusion methods and equipment modifications. The Company
believes that after extensive studies and refinement, it has minimized or
eliminated any concerns as to the Pallet's design and ability to perform. The
Company plans to conduct further testing which it believes will provide
information as to the longevity of the Pallet compared to other materials and
provide marketing strategies for the Company. Analysis to date indicates that
the Company's standard 48-inch by 40-inch Pallet will surpass current hardwood
and plastic pallet performance and will be a strong competitor in the pallet
industry worldwide.
On November 16, 1999, the Company and Thermoplastic Composite Designs, Inc.
("TCD"), entered into a product/technology development contract in connection
with TCD's assisting the Company in modifying earlier versions of the Pallet
design. TCD is a composite systems engineering and design corporation. The
contract required TCD to deliver a Pallet that would meet design specifications
including: 48-inch by 40-inch dimension; a maximum weight requirement; and a
target substrate composition. The contract also provided that TCD would supply
the appropriate engineered mold for the Company's first production facility.
This first generation mold was available to produce finished product in April
2000. The Company's payments under this contract totaled $50,800 in 1999, and
$70,000 in 2000 to date, with another $13,000 remaining to be paid upon
completion of the contract. The Company is in the completion stage on this
contract. Finished Pallet product is scheduled for distribution to potential
customers for in-use evaluation during the second quarter of 2000.
16
<PAGE>
Anticipated Revenue Sources; Marketing and Distribution
The Company plans to generate revenues from national and international
licensing agreements and royalty agreements based on units of production. As
opportunities present themselves, the Company will also consider developing and
operating its own manufacturing facilities. In December 1999, the Company
announced that it had received a letter of intent from Cultech International
Corporation to manufacture and market the Pallet in Asia. Cultech intends to
obtain exclusive manufacturing and marketing rights to the Pallet for all of
Asia. The terms of the letter of intent provide that the Company will deliver to
Cultech a manufacturing system that will enable Cultech to produce one million
Pallets per year. The parties have also agreed in principle that, once
engineering studies are satisfactorily completed, the parties will enter into an
agreement whereby Cultech will make payments to the Company including licensing
fees and royalty payments based on units of Pallet production.
In March 2000, the Company announced that it had received a production and
marketing letter of intent from Bryan Container Company, located in Bryan,
Texas. Bryan intends to become the first U.S.-based licensee to market the
Company's Pallet. Bryan, which manufactures large container lids among other
container products, plans to modify its production site to accommodate the
necessary changes to incorporate the Pallet manufacturing system, using the
Company's custom Pallet molds. Also in March 2000, the Company announced that it
had received a production and marketing letter of intent from International
Pallets of California. The letter of intent provides for the parties to enter
into a formal agreement that will allow International Pallets to produce, market
and sell the Pallet in California and Nevada. The formal agreement would include
provisions providing for International Pallets to pay a license fee and royalty
payments to the Company.
Employees
The Company currently has four full-time employees. Management of the
Company anticipates using consultants for business, accounting and engineering
services on an as-needed basis. Management does not currently anticipate making
any significant changes to the Company's employee headcount.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
Since January 1, 2000, the Company sold the following securities without
registration under the Securities Act of 1933 in reliance on the exemptions from
registration requirements cited. The share amounts and prices shown have not
been adjusted to take into account the Company's 2-for-1 stock split, effected
in the form of a 100% stock dividend, payable March 6, 2000 to shareholders of
record as of the close of business on March 1, 2000.
On or about February 18, 2000, the Company sold 154,669 shares of its $.001
par value common stock for $1.50 per share. The shares were issued in reliance
upon the exemption from the registration requirements of the Securities Act
specified by the provisions of Regulation S promulgated thereunder.
Specifically, the offer and sale was made to "non-U.S. persons outside the
United States of America" as set forth in Regulation S. The offering price for
the shares was arbitrarily established by the Company and had no relationship to
assets, book value, revenues or other established criteria of value. The Company
realized proceeds of $232,000. The proceeds of the offering were used to pay for
operating costs and provide working capital. There were no commissions paid on
this transaction.
On or about February 18, 2000, the Company sold 17,000 shares of its $.001
par value common stock for $1.50 per share. These shares were sold to accredited
investors in reliance on Section 4(2) of the Securities Act. The shares were
issued in a private placement and are therefore restricted securities that
cannot be resold unless they are registered or unless a further exemption from
registration is available for their resale. The offering price for the shares
was arbitrarily established by the Company and had no relationship to assets,
book value, revenues or other established criteria of value. The Company
realized proceeds of $25,500. The proceeds of the offering were used to pay for
operating costs and provide working capital. There were no commissions paid on
this transaction.
Item 3. Defaults Upon Senior Securities
None.
18
<PAGE>
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
On March 6, 2000, the Company effected a 2-for-1 stock split, in the form
of a 100% stock dividend, payable to shareholders of record as of the close of
business on March 1, 2000. This increased the number of common shares
outstanding as of March 7, 2000, from 5,544,739 shares to 11,089,478 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Company's Articles of Incorporation, as amended October 12, 1999
(incorporated herein by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999,
filed with the Commission on April 7, 2000).
3.2 Company's By-laws (incorporated herein by reference to Exhibit 3 to
the Company's Registration Statement on Form 10-SB filed with the
Commission on May 14, 1999, Registration No. 000-26095 ("Company's
Form 10-SB")).
10.1 General Assignment of Assets of the Rubber Mold Technology, dated as
of December 15, 1998, between Real Morel, as Assignor, and the
Company, as Assignee (incorporated herein by reference to Exhibit 4 to
Company's Form 10-SB).
10.2 Promissory Notes Executed by the Company in Favor of Real Morel, dated
as of December 15, 1998, December 15, 1998, August 18, 1998, September
24, 1998 and November 16, 1998 (incorporated herein by reference to
Exhibit 5 to Company's Form 10-SB).
10.3 Management Services Agreement, dated as of November 1, 1998, between
Susan Westfall, as Contractor, and the Company (incorporated herein by
reference to Exhibit 6 to Company's Form 10-SB).
10.4 Management Services Agreement, dated as of November 1, 1998, between
Madelyn Thomas, as Contractor, and the Company (incorporated herein by
reference to Exhibit 7 to Company's Form 10-SB).
27 Financial Data Schedule
19
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three months
ended March 31, 2000.
20
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Henderson, Nevada, on May 10, 2000.
ENVIROKARE TECH, INC.
Registrant
By: /s/ JEANNIE M. RUNNALLS
------------------------------------
Name: Jeannie M. Runnalls
Title: President and Director
(Principal Executive Officer
and Principal Financial and
Accounting Officer)
21
<PAGE>
Exhibit
Number Description of Document
3.1 Company's Articles of Incorporation, as amended October 12, 1999
(incorporated herein by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999,
filed with the Commission on April 7, 2000).
3.2 Company's By-laws (incorporated herein by reference to Exhibit 3 to
the Company's Registration Statement on Form 10-SB filed with the
Commission on May 14, 1999, Registration No. 000-26095 ("Company's
Form 10-SB")).
10.5 General Assignment of Assets of the Rubber Mold Technology, dated
as of December 15, 1998, between Real Morel, as Assignor, and the
Company, as Assignee (incorporated herein by reference to Exhibit 4
to Company's Form 10-SB).
10.6 Promissory Notes Executed by the Company in Favor of Real Morel,
dated as of December 15, 1998, December 15, 1998, August 18, 1998,
September 24, 1998 and November 16, 1998 (incorporated herein by
reference to Exhibit 5 to Company's Form 10-SB).
10.7 Management Services Agreement, dated as of November 1, 1998,
between Susan Westfall, as Contractor, and the Company
(incorporated herein by reference to Exhibit 6 to Company's Form
10-SB).
10.8 Management Services Agreement, dated as of November 1, 1998,
between Madelyn Thomas, as Contractor, and the Company
(incorporated herein by reference to Exhibit 7 to Company's Form
10-SB).
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at March 31, 2000 and the Statement of Income
for the three months ended March 31, 2000 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 321,898
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 413,188
<PP&E> 8,554
<DEPRECIATION> (1,789)
<TOTAL-ASSETS> 475,181
<CURRENT-LIABILITIES> 86,484
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<COMMON> 11,089
<OTHER-SE> 377,108
<TOTAL-LIABILITY-AND-EQUITY> 475,181
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<OTHER-EXPENSES> 85,938
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<INTEREST-EXPENSE> 1,551
<INCOME-PRETAX> (87,489)
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