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 ended June 30, 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
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 July 14, 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 Financial Statements......................................7
Item 2. Plan of Operation.................................................16
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings.................................................21
Item 2. Changes in Securities.............................................21
Item 3. Defaults Upon Senior Securities...................................21
Item 4. Submission of Matters to a Vote of Security Holders...............21
Item 5 Other Information.................................................22
Item 6. Exhibits and Reports on Form 8-K..................................22
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ENVIROKARE TECH, INC.
Financial Statements
June 30, 2000 and December 31, 1999
WILLIAMS & WEBSTER PS
Certified Public Accountants
Bank of America 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 June 30, 2000 and the related
statements of operations and comprehensive loss, cash flows, and stockholders'
equity for the six months ended June 30, 2000, and for the period from June 15,
1998 (inception) through June 30, 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.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 1, 2000
2
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 64,687 $ 148,046
Prepaid expenses 21,745 76,291
----------- -----------
TOTAL CURRENT ASSETS 86,432 224,337
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 1,893 1,593
Office equipment 6,661 6,661
Molds 70,000 --
Less accumulated depreciation (2,183) (1,385)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 76,371 6,869
----------- -----------
OTHER ASSETS
Deposits and retainers 97,441 18,789
Patent costs 37,598 33,939
----------- -----------
TOTAL OTHER ASSETS 135,039 52,728
----------- -----------
TOTAL ASSETS $ 297,842 $ 283,934
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25 $ 88,155
Notes payable 61,965 61,965
Accrued interest 9,866 6,770
Reimbursement due -- 12,200
----------- -----------
TOTAL CURRENT LIABILITIES 71,856 169,090
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized,
$.001 par value; 500,000 shares issued and
outstanding 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 development stage (1,176,860) (927,600)
Other comprehensive loss (3,300) (1,202)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 225,986 114,844
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 297,842 $ 283,934
=========== ===========
</TABLE>
See accountant's review and notes to financial statements.
3
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the For the For the For the Period from
Three Months Three Months Six Months Six Months June 15, 1998
Ended Ended Ended Ended (Inception) to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
EXPENSES
Consulting fees - related parties 8,817 15,000 23,987 30,000 316,703
Other consulting fees 16,615 3,000 49,115 10,500 434,165
Rent 2,292 3,684 4,584 5,874 18,403
General and administrative 41,518 16,708 66,404 30,360 177,110
Depreciation 394 326 798 326 2,182
Professional fees 44,013 18,621 54,699 18,784 100,662
Research and development 7,009 (11,500) 7,009 -- 78,159
Wages, salaries, and payroll taxes 39,569 -- 39,569 -- 39,569
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 160,227 45,839 246,165 95,844 1,166,953
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (160,227) (45,839) (246,165) (95,844) (1,166,953)
OTHER EXPENSES
Interest on notes payable 1,544 175 3,095 1,864 9,907
------------ ------------ ------------ ------------ ------------
TOTAL OTHER EXPENSES 1,544 175 3,095 1,864 9,907
INCOME TAX -- -- -- --
------------ ------------ ------------ ------------ ------------
NET LOSS (161,771) (46,014) (249,260) (97,708) (1,176,860)
OTHER COMPREHENSIVE LOSS
Foreign currency translation loss (940) -- (2,098) -- (3,300)
------------ ------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (162,711) $ (46,014) $ (251,358) $ (97,708) $ (1,180,160)
============ ============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.01) $ (0.00) $ (0.02) $ (0.01) $ (0.11)
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF BASIC AND DILUTED
COMMON STOCK SHARES OUTSTANDING 11,089,478 10,089,296 10,917,809 10,089,296 10,476,823
============ ============ ============ ============ ============
</TABLE>
See accountant's review 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 six months ended June 30, 2000 -- -- -- -- --
Foreign currency translation loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, June 30, 2000 (unaudited) 500,000 $ 500 11,089,478 $ 11,089 $ 842,557
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit
During Other Total
Stock Subscriptions Development Comprehensive Stockholders'
Options Receivable Stage 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 six months ended June 30, 2000 -- -- (249,260) -- (249,260)
Foreign currency translation loss -- -- -- (2,098) (2,098)
----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 (unaudited) $ 552,000 $ -- $(1,176,860) $ (3,300) $ 225,986
=========== =========== =========== =========== ===========
</TABLE>
See accountant's review and notes to financial statements.
5
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the Period from
Six Months Six Months June 15, 1998
Ended Ended (Inception) to
June 30, June 30, June 30,
2000 1999 2000
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (249,260) $ (97,708) $(1,176,860)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 798 326 2,182
Stock options issued for consulting fees -- -- 552,000
Increase (decrease) in prepaid expenses and deposits (24,106) (2,657) (119,186)
Increase (decrease) in accounts payable (100,330) 1,549 26
Increase in accrued interest 3,096 -- 9,866
Increase in accrued expenses -- 3,480 --
Increase in accrued expenses to related party -- 21,000 --
Expenses paid by note payable -- -- 2,870
----------- ----------- -----------
Net cash used by operating activities (369,802) (74,010) (729,102)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of molds (70,000) -- (70,000)
Patent costs (3,659) -- (4,268)
Purchase of equipment (300) (3,843) (5,942)
----------- ----------- -----------
Net cash used in investing activities (73,959) (3,843) (80,210)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock -- -- 250,000
Proceeds from sale of common stock 362,500 65,800 602,299
Proceeds from issuance of notes payable to related party -- 12,500 --
Proceeds from issuance of notes payable -- 2,000 25,000
----------- ----------- -----------
Net cash provided by financing activities 362,500 80,300 877,299
----------- ----------- -----------
Increase (decrease) in cash (81,261) 2,447 67,987
Adjustment for foreign currency (2,098) -- (3,300)
Cash, beginning of period 148,046 2,388 --
----------- ----------- -----------
Cash, end of period $ 64,687 $ 4,835 $ 64,687
=========== =========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
NON-CASH TRANSACTIONS:
Note issued for purchase of property, equipment
and operating expenses $ -- $ 3,635 $ 3,635
Note issued for pending patent to related party $ -- $ 33,330 $ 33,330
Reimbursement due for purchase of equipment $ -- $ 1,847 $ 1,847
Stock options issued for consulting fees $ -- $ -- $ 552,000
Stockholder's contribution for equipment $ -- $ -- $ 1,847
</TABLE>
See accountant's review and notes to financial statements.
6
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 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
has elected a fiscal year-end of December 31.
The Company is in the development stage, and as of June 30, 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 $1,176,860 which includes a net loss of $249,260 for the
six months ended June 30, 2000 and has a working capital deficit. The Company,
being a development 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
June 30, 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 ended December 31, 1999, the Company
contracted with Thermoplastic Composite Designs Inc. and Thermoplastic
Flowforming Technologies Corp. for professional and technical services. Finished
product is expected to be available for distribution to potential customers for
in-use evaluation during the third quarter of year 2000.
Concentration of Risk
The Company maintains its three cash accounts in two separate financial
institutions. Two accounts are located at one commercial bank in Vancouver,
British Columbia, Canada., one of which is a business checking account
maintained in U.S. dollars. This account totaled $9,281, as of June 30, 2000.
This account is not insured.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Fair Value of Financial Instruments
The carrying amounts for cash, marketable securities, accounts receivable,
accounts payable, notes payable and accrued liabilities approximate their fair
value.
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. As of June 30, 2000, the Company had convertible preferred stock
and stock options equivalent to 12,300,000 common shares which is decerned to 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 June 30, 2000 and December 31, 1999, the Company had net accumulated
operating losses of approximately $1,175,000 and $925,000, 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.
8
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassification
The reclassification of expenses in the financial statements has resulted in
certain changes in presentation which have no effect on the net losses or
shareholders' equity for June 30, 2000 and December 31, 1999, or the periods
then ended.
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.
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 June
30, 2000.
The Company does not believe any adjustments are needed to the carrying value of
its assets at June 30, 2000, nor at December 31, 1999.
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 six months ended June 30,
2000 and 1999 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.
9
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service, and other
factors. The Company's initial payroll was in May 2000. The Company's policy
will be to recognize the cost of compensated absences when actually paid to
employees. If the amount could be estimated, currently it would not be
recognized, as the amount would be deemed immaterial at this time.
Translation of Foreign Currency
Monetary assets and liabilities denominated in foreign currencies are translated
into United States dollars at rates of exchange in effect at the balance sheet
date. Gains or losses are included in income for the year, except gains or
losses relating to long-term debt which are deferred and amortized over the
remaining term of the debt. Non-monetary assets and liabilities and items
recorded in income arising from transactions denominated in foreign currencies
are translated at rates of exchange in effect at the date of the transaction.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
At June 30, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
Research and Development Costs
Costs of research and development are expensed as incurred.
NOTE 3 - INTANGIBLE ASSETS
In December 1998, the Company acquired technology rights from Mr. 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 six months ended June 30, 2000, attorney fees of
$3,659, and for 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.
10
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 4 - 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.
June 30, December 31,
2000 1999
------------ ------------
Furniture and Fixtures $ 1,893 $ 1,593
Less Accumulated Depreciation 418 269
------------ ------------
Net Furniture & Fixtures $ 1,475 $ 1,324
============ ============
Office Equipment $ 6,661 $ 6,661
Less Accumulated Depreciation 1,765 1,116
------------ ------------
Net Office Equipment $ 4,896 $ 5,545
============ ============
Molds $ 70,000 $ --
============ ============
The Company, in the development of its pallet products, has acquired molds,
which will be depreciated over their expected useful life which currently has
not been determined. The molds are currently carried at their deemed cost. See
Note 10.
NOTE 5 - DETAILS OF SHORT-TERM DEBT
Reimbursement due, in the amount of $1,847, was money owing Mr. 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 at December 31, 1999 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 June 30, 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 Mr. Real Morel and are
due on demand. The principal amount on the notes is $63,965. Interest expense
recorded on the notes payable at June 30, 2000 and 1999 was $3,095 and $1,864,
respectively.
11
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 5 - DETAILS OF SHORT-TERM DEBT (CONTINUED)
In May 2000, Mr. Real Morel filed suit for payment of these notes in the Supreme
Court of British Columbia, Canada. Mr. Morel alleges non-payment by the company
of amounts due pursuant to demand promissory notes made by the Company to Mr.
Morel during 1998, after consultation with British Columbia legal counsel and a
review of the circumstances surrounding the issuance of the notes, the Company
has resolved to dispute liability. Management of the Company believes that the
outcome will not have a material adverse effect on the financial position of the
Company.
NOTE 6 - COMMON STOCK
Upon incorporation on June 15, 1998, 10,000,000 shares of common stock were
issued at $.001 per share, under Regulation D, Rule 504. At December 31, 1998,
this common stock was held by 30 shareholders, none of whom held in excess of
ten percent of the total.
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. This reverse stock split is
not reflected in the statement of stockholders' equity because of the effect of
the March 1, 2000 forward stock split described below.
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.
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 six
months ended June 30, 2000 and year ended December 31, 1999 have been restated
to reflect the stock split.
NOTE 7 - PREFERRED STOCK
During the year ended 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 shares to one by
the stock split effective March 1, 2000.
12
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 8 - STOCK OPTIONS
In September 1999, the Company adopted the 1999 Stock Plan. The plan was
registered with the Securities and 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 was 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 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). The plan also requires early exercising of the
options for various reasons, including employment termination, separation from
services, or cancellation of consulting contracts.
Effective in September 1999, the Company prior to the March 2000 forward stock
split, had granted 1,150,000 options for the same amount of common stock of the
Company. The subsequent stock split was extended by action of the board of
directors to include the options, which increased the outstanding options to
2,300,000. The underlying shares allowed by the plan was limited to 2,000,000 at
that time. Thereby, the Board of Directors had informally approved the doubling
of the authorized shares under the plan in conjunction with the 2 for 1 forward
stock split.
This issue was discovered after the Annual General Meeting of the stockholders
on May 13, 2000. Management and the board are currently amending and correcting
the plan and documents to address this issue. The formal directors' consent on
the 2 for 1 stock dividend conducted in March 2000 was not memorialized until
June 27, 2000. Until amended or some subsequent event, the outstanding options
are over authorized based upon the plan's current limits. The Company's
management believes that the appropriate plan amendments and director actions
will be completed during August 2000.
Fixed Plan
-------------------------
Weighted
Number of Average
Shares Exercise
Price
----------- -----------
Outstanding at December 31, 1998 -- $ --
Granted 2,300,000 .575
----------- -----------
Outstanding at December 31, 1999 2,300,000 .575
Granted -- --
----------- -----------
Outstanding at June 30, 2000 2,300,000 $ .575
=========== ===========
Options Exercisable June 30, 2000 2,300,000 $ .575
=========== ===========
13
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ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 8 - STOCK OPTIONS (CONTINUED)
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 stock sales of
$100,000 per year for shares that qualify as exercisable as first time under the
plan.
Subsequent to June 30, 2000, on July 31, 2000, 300,000 of the granted options
expired unexercised. Therefore, as of August 1, 2000, 2,000,000 options were
outstanding.
NOTE 9 - RELATED PARTIES
Jeannie M. Runnalls, who was appointed president, secretary, and director of the
Company on January 24, 2000, received $23,987 in cash for consulting fees during
the first six months of 2000. Jeannie M. Runnalls, received cash in consulting
fees during the year ended December 31, 1999 of $22,715.
Stock options of 2,300,000 were issued for common stock shares during the year
ending December 31, 1999. Of these stock options, 1,000,000 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, was 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 specified that she would 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 specified that
she would receive $5,000 per month for the term of the contract, which commenced
November 1, 1998 and terminated June 30, 1999. Both contracts provided
indemnification against any and all liability and provided for reimbursement of
expenses up to a specified amount.
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
14
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
lease were $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 were $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 $4,380
2001 $6,570
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. During the period ended
June 30, 2000, this balance was paid. 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. As of June
30, 2000, this prepaid expense of $70,000 was reclassified as property and
equipment. 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.
15
<PAGE>
ENVIROKARE TECH, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 2000
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, E Pallet(TM), 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-related fees during the fourth quarter of 2000. Further, the Company's
management expects that the Company and/or its licensees will commence
commercial production of the E Pallet(TM) early in 2001.
The Company had originally planned to have its licensees begin producing
the E Pallet(TM) 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 E Pallet(TM) has set back production
dates, the Company believes that this additional testing has substantially
minimized or eliminated any concerns as to the E Pallet's(TM) 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 E Pallet(TM) have been developed and refined. The Company
expects to have potential customers evaluate the E Pallet(TM) through in-use
testing beginning in the third quarter of 2000. The Company believes that after
a final engineering analysis report is completed, the Company and/or its
licensees will commence commercial production of the E Pallet(TM) once
appropriate production facilities are procured and commissioned for production,
currently anticipated for early 2001.
16
<PAGE>
Liquidity and Capital Resources
The Company is not yet generating revenues. For the six months ended June
30, 2000, the Company had a net loss of $249,260. The Company's net loss
accumulated for the period from June 15, 1998 (inception) to June 30, 2000 was
$1,176,860. The Company anticipates that it will begin to generate revenue early
in 2001, upon the planned start of production of the E Pallet(TM) by the Company
and/or its licensees. At June 30, 2000 the Company had current assets of
$86,432, consisting of $64,687 in cash and $21,745 in prepaid expenses. During
the six months ended June 30, 2000, the Company's cash resources increased
slightly, reflecting increased research and development costs and prepaid
licensing fees, offset by cash raised by issuance of the Company's common stock
for aggregate proceeds to the Company of $257,500. At June 30, 2000 the Company
had current liabilities of $71,856. At June 30, 2000 current assets exceeded
current liabilities by $14,576. 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 for the twelve months through June 2001 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
E Pallet(TM) 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 June 30, 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 E Pallet(TM).
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.
17
<PAGE>
Product Testing and Development
The Company has been actively involved in extensive testing and development
of the E Pallet(TM). The Company contracted with substrate component testing
engineers in the Akron, Ohio area who performed the primary series of component
testing. Subsequent testing has been conducted on the E Pallet(TM) at Virginia
Polytechnic Institute and State University through the William H. Sardo Jr.
Pallet and Container Research Laboratories. Additional E Pallet(TM) testing is
scheduled during August 2000 at Virginia Polytechnic Institute and State
University testing facility. The Company's development focus is to ensure that
the E Pallet(TM) meets or exceeds current performance standards for hardwood and
plastic pallets, and that the E Pallet(TM) 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 E Pallet(TM), 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 E Pallet's(TM) design and ability to
perform. The Company plans to conduct further testing which it believes will
provide information as to the longevity of the E Pallet(TM) 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 E Pallet(TM) 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 E
Pallet(TM) 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 E Pallet(TM) mold to be used at 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 $83,000 in 2000, completing the Company's
payment obligations under the contract. Finished E Pallet(TM) product is
scheduled for distribution to potential customers for in-use evaluation during
the third quarter of 2000.
18
<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 E Pallet(TM) in Asia. Cultech intends
to obtain exclusive manufacturing and marketing rights to the E Pallet(TM) 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 E Pallets(TM) 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 E Pallet(TM)
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, which manufactures large container lids among other container
products, plans to modify its production site to accommodate the necessary
changes to incorporate the E Pallet(TM) manufacturing system, using the
Company's custom E Pallet(TM) molds. Also in March 2000, the Company announced
that it had received a production and marketing letter of intent from
International Pallets of California, providing for the parties to enter into a
formal agreement to allow International Pallets to produce, market and sell the
E Pallet(TM) in California and Nevada. However, in June 2000, the Company and
International Pallets decided not to pursue these contemplated arrangements and
are not negotiating any formal agreement. The Company currently plans to build
and operate a wholly owned operation for California and Nevada. The Company's
management anticipates that initial production of the E Pallet(TM) composite
pallet should commence in early 2001 from the Company's planned production
facility.
Recent Developments
In July 2000, the Company announced that it had signed a letter of intent
with Electroship (NY) Inc. ("Electroship"), whereby the Company would acquire
all of the outstanding stock of Electroship in exchange for common stock of the
Company, with other terms and conditions to be agreed upon. It is currently
anticipated that the Company would issue approximately 2.5 million shares of its
common stock in exchange for the Electroship shares. Electroship, based in Long
Island, New York, develops wireless tracking technology for the shipping
industry.
19
<PAGE>
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.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendant in an action filed by Mr. Real Morel in the
Supreme Court of British Columbia, Canada under which the Company was served in
May 2000. Mr. Morel alleges non-payment by the Company of amounts due pursuant
to demand promissory notes made by the Company to Mr. Morel during 1998. The
amount claimed is approximately $69,600 including interest. After consultation
with British Columbia legal counsel and a review of the circumstances
surrounding the issuance of the notes, the Company has resolved to dispute
liability and to advance a set-off and counterclaim. Management of the Company
believes that the outcome will not have a material adverse effect on the
financial position of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
The following matters were submitted to a vote of shareholders at the
Company's annual meeting of shareholders, held on May 13, 2000, with the vote
tabulations* as indicated below:
Voters elected three incumbent directors for one-year terms. The vote
tabulation for individual directors was:
Directors Shares For Shares Withheld
--------- ---------- ---------------
Jeannie M. Runnalls 11,028,300 --
Henry David Still, IV 11,028,300 --
James D. Scammell 11,028,300 --
Voters approved the adoption of the Company's 1999 Stock Plan by a vote of
21
<PAGE>
11,028,300 for and 0 against. There were no abstentions or broker non-votes.
Voters approved the selection of Williams & Webster, P.S., as auditors of
the Company for the Company's fiscal year ending December 31, 2000, by a vote of
11,028,300 for and 0 against. There were no abstentions or broker non-votes.
* Numbers represent the aggregate voting power of all votes cast with
holders of the Company's common stock casting one vote per share and
holders of the Company's Series A Convertible Preferred Stock casting
twenty votes per share.
Item 5. Other Information
In July 2000, the Company announced that it had signed a letter of intent
with Electroship (NY) Inc., whereby the Company would acquire all of the
outstanding stock of Electroship in exchange for common stock of the Company.
See Part I -- Item 2. Plan of Operation -- Recent Developments for additional
information about this announcement.
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 as amended and restated May 31, 2000.
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
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")).
10.2 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
22
<PAGE>
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
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended June
30, 2000.
23
<PAGE>
SIGNATURE
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 Las Vegas, Nevada, on August 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)
24
<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 as amended and restated May 31, 2000.
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 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")).
10.2 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
25
