UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 13, 2000
---------------------------
XAIBE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-27647 76-0594907
-------------------------- --------------- -----------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) file number) Identification Number)
13100 N.W. Freeway, Suite 130, Houston, Texas 77040
-----------------------------------------------------
(Address of principal executive offices)(Zip Code)
(713) 690-9233
----------------------------------------------------
(Registrant's telephone number, including area code)
2400 Loop 35, #1502, Alvin, Texas 77511
---------------------------------------------------------------
(Former name and former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant
Pursuant to the terms of the Exchange and the Acquisition described in Item
2 below, on October 27, 2000, control of Xaibe, Inc. (the "Company") was
transferred to the following persons:
Name Number of Shares Held Percent Ownership
------ ----------------------- ------------------
Steven Fodrie 2,050,000 13.7%
Jimmy Farmer, Jr. 1,600,000 10.7%
Pio Antonio Sgarbi 1,600,000 10.7%
All-American Foundation, Inc. 3,000,000 20.1%
With the exception of the shares held by All American Foundation, Inc.,
each of the foregoing shareholders acquired the shares listed pursuant to the
terms of an Exchange Agreement in exchange for shares of common stock of
PolarShield, Inc. The shares held by All American Foundation, Inc. were acquired
in exchange for the transfer of international marketing rights relating to
PolarShield's proprietary refrigerant technology.
The ownership percentages reflected above give effect to the 4-for-1 stock
split described in Item 5 below, the Exchange and the issuance of shares to
acquire international marketing rights, after which a total of 14,959,705 shares
were issued and outstanding.
Pursuant to the terms of the Exchange, John Bauska and Dorothy Mortenson
resigned as officers and directors of the Company and Jimmy Farmer was appointed
sole director and President of the Company.
Item 2. Acquisition or Disposition of Assets
On October 27, 2000, the Company completed an exchange (the "Exchange")
pursuant to which the Company issued an aggregate of 5,559,705 shares of common
stock in exchange for 97.9% of the outstanding shares of common stock of
PolarShield, Inc. ("PolarShield"). Pursuant to the terms of the Exchange, each
share of PolarShield common stock was exchangeable for one share of Company
common stock. As a result of the Exchange, PolarShield became a subsidiary of
the Company.
In connection with the Exchange all convertible preferred stock, options
and warrants to purchase shares of PolarShield common stock outstanding
immediately prior to the consummation of the Exchange were assumed by the
Company. PolarShield has 1,629,550 shares of preferred stock outstanding which,
45 days following the first quote on the Company's common stock, at the election
of the holder, is: (i) convertible into one share of common stock, subject to a
"lock-up" for a period of 18 months following conversion, (ii) convertible into
a number of shares of common stock determined by dividing, for each share of
preferred stock, 1 by 50% of the closing bid price of the Company's common stock
on the 30th calendar day following the first quote, subject to a "lock-up" for a
period of 12 months following conversion, or (iii) redeemable at $1.15 per
share. The preferred shares are convertible based on 50% of the closing bid
price if the holder fails to make an election.
2
<PAGE>
PolarShield, a Nevada corporation formed in 1998, is engaged in the
marketing of energy management and conservation solutions utilizing a patented
refrigerant process (the "Process") designed to improve efficiency of heating,
ventilation and air condition and refrigerant systems.
Item 5. Other Events
On September 13, 2000, prior to the Exchange, the Company declared a
4-for-1 stock split for all shareholders of record on that date.
Simultaneous with closing of the Exchange, the Company acquired from Energy
Technologies Group, Inc. the international marketing rights with respect to the
Process in exchange for 3,000,000 shares of common stock.
In connection with the Exchange, the Company relocated its principal
offices to the offices of PolarShield located at 13100 N.W. Freeway, Suite 130,
Houston, Texas 77040.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
Independent Auditors Report................................... F-1
Balance Sheet as of December 31, 1999......................... F-2
Statements of Income for the period from June 14, 1999 to
December 31, 1999.......................................... F-4
Statements of Changes in Stockholders Equity for the period
from June 14, 1999 to December 31, 1999................... F-5
Statements of Cash Flows for the period from June 14, 1999
to December 31, 1999...................................... F-6
Notes to Financial Statements................................. F-7
Balance Sheet as of June 30, 2000 (Unaudited)................. F-13
Statement of Income for the six months ended
June 30, 2000 (Unaudited).................................. F-15
Statements of Changes in Stockholders' Equity for the six
months ended June 30, 2000................................. F-16
Statement of Cash Flows for the nine months ended
June 30, 2000 (Unaudited).................................. F-17
Notes to Financial Statements (Unaudited)..................... F-18
3
<PAGE>
(b) Pro Forma Financial Information
The acquisition of PolarShield by the Company will be accounted for using
the purchase method of accounting. PolarShield will be deemed the acquiror
for accounting and financial reporting purposes. Because pro forma
financial statements giving effect to the Exchange on a historical basis
would be substantially identical to the financial statements of
PolarShield, no pro forma financial statements are included herewith.
(c) Exhibits
Exhibit
Number Description
---------- ----------------
2.1 Exchange Agreement dated September 29, 2000, by and among Xaibe,
Inc., PolarShield, Inc. and the shareholders of PolarShield, Inc.
10.1 Assignment and Bill of Sale dated October 26, 2000 by and among
Xaibe, Inc. and Energy Technology Group, Inc.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
XAIBE, INC.
Dated: November 6, 2000
By: /s/ Jimmy Farmer
----------------------
Jimmy Farmer
President
5
<PAGE>
Bob Stephens & Associates, P.C.
2825 Wilcrest, Suite 408
Houston, Texas 77042
Phone 713-339-3388
Fax 713-339-2355
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Polarshield, Inc.
We have audited the accompanying balance sheet of Polarshield, Inc. (a Nevada
Corporation and a development stage company) as of December 31,1999, and the
related statements of income, stockholders' equity, and cash flows for the
period from June 14, 1999 (inception), to December 31,1999. These financial
statements are the responsibility of Polarshield, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polarshield, Inc. as of
December 31, 1999, and the results of its operations and its cash flows for the
period from June 14, 1999 (inception), to December 31, 1999, in conformity with
generally accepted accounting principles.
/s/ Bob Stephens & Associates P.C.
Houston, Texas.
May 2, 2000
F-1
<PAGE>
POLARSHIELD, INC. (A Development Stage Company)
BALANCE SHEET
December 31, 1999
ASSETS
CURRENT ASSETS
Cash $42,009
Accounts receivable 30,798
Loans receivable 142,597
Inventory 10,000
Deferred tax benefit 103,530
------------
Total Current Assets 328,934
PLANT,PROPERTY AND EQUIPMENT, at cost
Equipment & machinery 44,269
Furniture & fixtures 182,250
------------
226,519
Less accumulated depreciation 24,064
------------
202,455
OTHER ASSETS
License & agreements - net of amortization 454,950
Other 25,273
------------
480,223
------------
TOTAL ASSETS $ 1,011,612
============
See accompanying notes to financial statements
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 36,254
Accrued expenses 15,066
Loans payable 166,450
------------
Total Current Liabilities 217,770
LONG-TERM LIABILITIES
Notes payable 266,113
Capital lease obligations - note 8 62,360
------------
328,473
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value per share;
authorized 25,000,000 shares;
issued 2,250,000 shares - note 8 2,250
Preferred stock, $0.01 par value per share;
authorized 5,000,000 shares;
issued 823,400 shares - note 8 8,234
Paid-in capital 659,766
Deficit accumulated in the development stage (204,881)
------------
465,369
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,011,612
============
F-3
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF INCOME
For the Period from June 14, 1999 to December 31, 1999
SALES $302,187
COST OF GOODS SOLD
Materials 40,000
Freight-in 1,354
Labor 32,736
---------
Gross Profit 228,097
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling expenses 89,167
Sales commissions 243,529
General & administrative 147,540
Amortization expense 30,330
Depreciation 24,064
---------
534,630
OTHER (INCOME) EXPENSE
Interest Income (1,650)
Interest Expense 3,528
---------
Total costs and expenses 536,508
---------
LOSS BEFORE INCOME TAXES (308,411)
INCOME TAXES
Deferred Tax Benefit 103,530
---------
NET LOSS $ (204,881)
=========
See accompanying notes to financial statements
F-4
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from June 14, 1999 to December 31, 1999
Number of
Shares Amount
--------- --------
COMMON STOCK
Balance June 14, 1999 - $ -
Issued pursuant to
Company resolutions 2,250,000 2,250
------------ ---------
Balance December 31, 1999 2,250,000 2,250
============ =========
PREFERRED STOCK
Balance June 14, 1999 - -
Issued pursuant to
sub-license agreement 313,200 3,132
Issued pursuant to
option agreement 314,500 3,145
Issued through direct subscription 195,700 1,957
------------ ---------
Balance December 31, 1999 823,400 8,234
============ =========
ACCUMULATED DEFICIT
Balance June 14, 1999 -
Net loss during development stage (204,881)
---------
Balance December 31, 1999 (204,881)
---------
PAID-IN CAPITAL
Balance June 14, 1999 -
Issued pursuant to
Company resolutions 1,850
Issued pursuant to
sub-license agreement 310,068
Issued pursuant to
option agreement 154,105
Issued through direct subscription 193,743
---------
Balance December 31, 1999 659,766
---------
Total Stockholders' Equity $ 465,369
=========
See accompanying notes to financial statements
F-5
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
For the Period from June 14, 1999 to December 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (204,881)
Adjustment to reconcile Net Income (loss) to net cash
provided by (used in) Operating Activities:
Depreciation 24,064
Amortization 30,330
Allowance for Doubtful Accounts 35,768
Changes in components of working capital-
(Increase) decrease in
Accounts Receivable (66,566)
Loans receivable (142,597)
Inventory (10,000)
Deferred income tax benefit (103,530)
Increase (decrease) in
Accounts Payable 15,414
Accrued Expenses 15,066
---------
Net cash used by Operating Activities (406,932)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquistion of property and equipment (164,159)
Acquisition of Other assets (130,963)
---------
Net cash used by Investing Activities (295,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Preffered Stock 477,950
Increase in Notes balance 266,113
--------
Net Cash used by Investing Activities (295,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase of Preferred Stock 477,950
Increase in Note balances 266,113
--------
Net Cash Provided by Financing Activities 744,063
--------
INCREASE (DECREASE) IN CASH FROM INCEPTION $ 42,009
========
F-6
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Polarshield, Inc., hereafter referred to as "Polarshield" or "the Company",
was organized in June 1999 as a State of Nevada Corporation. The primary
business of the Company is the manufacture and sale of polarized
refrigerant oil additives and related lubricants and metal treatments. The
headquarters of the Company is located in Houston, Harris County, Texas.
The Company is the exclusive owner of a license to market the product in
the territorial jurisdiction of the United States of America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Revenue Recognition
-------------------
Polarshield utilizes the accrual method of accounting whereby revenue
is recognized when earned and expenses are recognized when incurred.
The Company sells its products direct to the customer, through
distributors and through retail outlets. Direct sales to customers
consist primarily of sales to commercial businesses. Sales to
residential customers are minor. Revenue is recognized when the
services are rendered, payments are due under the terms of the
Distributorship Agreements or when the product has been ordered and
set aside for the retail outlet customer.
B. Inventories
-----------
Inventories, consisting primarily of chemicals, mineral oil and
transmission fluids, are stated at the lower of cost or market, as
determined by the first-in, first-out (FIFO) method.
C. Plant, Property and Equipment
-----------------------------
Plant, property and equipment are carried at cost. Depreciation
expense for the year was $24,064. Depreciation is calculated using the
straight-line method over the estimated useful lives as shown below:
Equipment & Machinery 5 years
Furniture & Fixtures 5 years
Computer Hardware/ Software 3 years
D. Other assets
------------
Other assets consist of security deposits, licenses and agreements.
The licenses and agreements are amortized over a term of eight years
on a straight-line basis. Amortization expense for the fiscal year was
$30,330.
E. Income Taxes
------------
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Income Taxes (continued)
------------
operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
the taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
F. Basis of Accounting
-------------------
The financial statements are prepared using the accrual basis of
accounting.
G. Use of Estimates
----------------
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
H. Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, cash on hand, deposits at
bank and petty cash are considered to be cash or cash equivalents.
I. Accounts Payable
----------------
Trade accounts payable, including accruals not yet billed are for
expenses are recognized when the Company becomes obliged to make
future payments as a result of a purchase of assets or services. Trade
accounts payable are generally settled within 30 days.
3. INCOME TAXES
The tax effects of the Company's loss ($308,411) at the statutory federal
tax rates (average rate of 33.56%) comprise the deferred tax balance of
$103,530. There were no timing differences. The benefit of the tax losses
will only be obtained if:
(i) The Company derives future assessable income of a nature and of an
amount sufficient to enable the benefit from the deduction s for the
loss to be realized: and
(ii) The Company continues to comply with the conditions for deductibility
imposed by the law:
4. RECEIVABLES
Current Amount
--------- --------
Trade $ 66,566
Less Allowance for doubtful accounts (35,768)
---------
Receivables, net $ 30,798
=========
F-8
<PAGE>
4. RECEIVABLES (continued)
The Company provides an allowance for doubtful accounts equal to the
estimated collection losses that will be incurred in collection of all
receivables. The estimated losses are based on historical collection
experience coupled with review of the current status of existing
receivables.
5. RELATED PARTY TRANSACTIONS
Loans Receivable/ Payable
December 31,1999
----------------
Aggregate amount of loans receivable from related parties $ 142,597
Aggregate amount of loans payable to related parties $ 232,438
Loans receivable are from Polarshield, LLC (a limited liability company
owned by officers of the Company), and officers of the Company for advances
made to them in the ordinary course of business. Loans payable consists of
outstanding obligations to officers of the Company assumed pursuant to a
license agreement between Polarshield, LLC, and the Company. Loans
receivable and payable are current assets and obligations.
Notes Payable
-------------
The Company issued promissory notes to purchase furniture and equipment
from officers of the company. The notes have a stated interest rate of 6%
simple interest, and are payable over five years.
Inventory purchases
-------------------
The Company did not commence production of inventory during the year.
Instead, it acquired its entire inventory from Polarshield, LLC. Inventory
on hand at December 31, 1999, amounted to $10,000.
6. OPERATING LEASES
The Company has operating leases for the use of office space and certain
equipment. The lease agreement for equipment ranges from thirty-two to
sixty-three months. Lease expenses are approximately $7,305 per month.
Minimum lease payments for the next five years are as follows:
Year Amount
------- --------
2000 $ 87,664
2001 87,664
2002 67,214
2003 4,977
2004 4,680
----------
$ 252,199
==========
F-9
<PAGE>
7. NON-CASH TRANSACTIONS
Agreements entered into by the Company in the form of non-cash transactions
for the year were:
(i) 100,000 shares of common stock, at par, were issued to an officer of
the Company, for assignment to the Company of trade secrets, technical
know-how and intellectual rights to products developed and owned by
him in his individual capacity.
(ii) 1,100,000 shares of common stock, at par, were issued to an officer of
the Company, pursuant to Company resolutions to compensate him for
services rendered and other claims given up against the Company.
(iii)1,050,000 of common stock, at par, were issued to an officer of the
Company, pursuant to Company resolutions to compensate him for
services rendered and other claims given up against the Company.
(iv) In June 1999, the Company acquired a sub-license from Polarshield,
LLC, under a "License and Option agreement" for $483,180, to be paid
for partly by the issue of preferred stock (188,200 shares) for
$188,200 and partly by assumption of certain liabilities including
royalties payable by the Polarshield, LLC.
(v) The Company acquired an estimated $64,250 of furniture & fixtures as
part of the operating lease of its furnished office building. The
lease obligation has been accounted for as a capital lease component
of the operating lease on the building space. The Company is applying
a portion of the operating lease payments ($1,890 for 1999) to the
purchase of the assets. The term of the lease is 34 months.
8. CAPITAL STOCK
Common Stock
------------
The Company has authorized 25,000,000 shares of common stock ($0.001 par
value), of which 2,250,000 shares were issued at December 31,1999.
Preferred Stock
---------------
The Company has authorized 5,000,000 shares of preferred stock ($0.01 par
value), of which 823,400 shares were issued and outstanding at December
31,1999. The preferred shares are restricted as to transferability and
holding period. They are convertible in the event the Company goes public
or is acquired by a publicly held company. The options of the stockholders
for conversion are through the election of one of the following:
(i) One share of preferred stock for one share of common stock. After
conversion, the shares must be held for at least 18 months from
the date of conversion; or
(ii) The preferred share shall be valued at $1 per share and shall be
converted into common shares on an exchange basis on which, the
common shares are valued at 50% of the market bid price of the
shares 30 days after the initial trading of the company shares in
a public market, or the merger of the company with a publicly
held company, and such shares shall be subject to a holding
period restriction of 12 months and shall be subject to Rule 144.
F-10
<PAGE>
8. CAPITAL STOCK (continued)
(iii) Retain the preferred shares in Company;
(iv) Request repayment of 115% of the amount of the subscription
agreement, payable by the Company within 30days of such written
request.
The shares of the Company have not been registered under any U.S. or State
Securities Laws and may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of without appropriate registration or
an exemption from registration.
9. CONCENTRATION OF CREDIT RISK
The primary financial instruments, which potentially subject the Company to
concentrations of credit risk, are cash and accounts receivable. The
Company's cash balances are with a high quality financial institution and
are covered by FDIC insurance limits. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that
its trade accounts receivable credit risk exposure is limited. The maximum
potential loss does not exceed the amounts already recognized in the
balance sheet.
10. SEGMENT AND GEOGRAPHIC INFORMATION
Polarshield, Inc is a Developing Stage Enterprise and is in the initial
stages of Operation. The Company's raw material, chemicals and other goods
essential to the production of their products are easily available and the
Company does not expect any shortages in supply.
In 1999, the Company targeted its sales efforts to retail chains, and
commercial buildings and facilities. The Company will expand its sales
efforts to include sales to national chains of restaurants and hotels, and
government institutions in future. The Company has distributors in the
States of Texas, Louisiana, and Hawaii. It also sells wholesale to
Companies under "private label agreements".
11. COMMITMENTS AND CONTINGENCIES.
Commitments
-----------
In October, 1999, the Company entered into a tri-party agreement (the
"Agreement") with Energy Technologies Group, LTD ("ETG", a related party)
and Polarshield, LLC, pursuant to which, ETG shall have the option to
transfer all of the assets acquired from Polarshield, LLC, to Polarshield,
Inc. for a consideration of $1,500,0000.
Contingencies
-------------
The Company is currently a party to various disputes arising from their
operations, which involve, or may involve, litigation. Management believes
that the outcome of these proceedings, individually and in the aggregate,
will have no material effect on the financial position or results of
operations of Polarshield, Inc.
F-11
<PAGE>
12. SUBSEQUENT EVENTS
ETG exercised its option under the Tri-party agreement and the Company
acquired all the assets of Polarshield, LLC, in April 2000. As a result of
this purchase, the Company started manufacture of its product in January
2000.
F-12
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (Unaudited)
June 30, 2000
ASSETS
CURRENT ASSETS
Accounts receivable $ 47,815
Inventory 21,448
Deferred tax benefit 346,104
----------
Total Current Assets 415,367
PLANT, PROPERTY AND EQUIPMENT, at cost
Equipment & machinery 124,138
Furniture & fixtures 188,910
----------
313,048
Less accumulated depreciation 53,324
----------
259,724
OTHER ASSETS
License & agreements - net 1,405,125
Goodwill, patents & trademark - net 515,455
Other 18,306
----------
1,938,885
----------
TOTAL ASSETS $ 2,613,976
==========
See accompanying notes and accountants' review report
F-13
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Overdraft $ 13,148
Accounts payable 49,135
Accrued expenses 7,979
Related party payables 111,101
---------
Total Current Liabilities 181,363
LONG-TERM LIABILITIES
Notes payable 43,873
Capital lease obligations 51,020
---------
94,893
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value per share;
authorized 25,000,000 shares;
issued and outstanding 5,258,562 shares 5,258
Preferred stock,$0.01 par value per share;
authorized 5,000,000 shares;
issued and outstanding 1,327,250 shares 13,273
Paid-in capital 3,064,586
Deficit accumulated in the development stage (745,398)
----------
2,337,719
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,613,976
==========
See accompanying notes and accountants' review report
F-14
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF INCOME (Unaudited)
For the Three Months Ended March 31, and Six Months Ended June 30, 2000
June 30 March 31
----------- -----------
SALES $ 101,074 $ 67,836
COST OF GOODS SOLD
Materials 417 250
Freight-in 412 412
Labor 12,892 8,713
--------- ---------
Gross Profit 87,353 58,461
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling expenses 43,345 31,983
Consulting fees 304,271 78,905
General & administrative 405,449 183,865
Amortization expense 75,249 15,536
Depreciation 29,260 13,215
--------- ---------
857,574 323,504
OTHER (INCOME) EXPENSE
Miscellaneous Income (5,248) (253)
Interest Income (460) 12,938
Interest Expense 18,578 -
--------- ---------
870,444 336,189
--------- ---------
NET LOSS BEFORE INCOME TAXES (783,091) (277,728)
INCOME TAXES
Deferred Tax Benefit 242,574 85,912
--------- ---------
NET LOSS $(540,517) $(191,816)
========= =========
LOSS PER COMMON SHARE:
Basic and fully diluted $ (0.1813) $ (0.0795)
========= =========
Weighted Average Number of Common
Shares Outstanding 2,918,113 2,405,556
========== ==========
See accompanying notes and accountants' review report
F-15
<PAGE>
POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2000
Number of
Shares Amount
------------ ----------
COMMON STOCK
Balance December 31, 1999 2,250,000 $ 2,250
Issued pursuant to option agreement - March 17 1,000,000 1,000
Issued pursuant to option agreement - April 28 250,000 250
Issued through direct subscription - June 30 1,758,562 1,758
------------ ---------
Balance June 30, 2000 5,258,562 5,258
============ =========
PREFERRED STOCK
Balance December 31, 1999 823,400 8,234
Issued pursuant to option agreement - March 17 245,000 2,450
Issued through direct subscription - various 67,500 675
Cancelled per option agreement - various (8,000) (80)
Issued through direct subscription - various 199,350 1,994
------------ ---------
Balance June 30, 2000 1,327,250 13,273
============ ---------
ACCUMULATED DEFICIT
Balance December 31, 1999 (204,881)
(540,517)
---------
Balance June 30, 2000 (745,398)
PAID-IN CAPITAL
Balance December 31, 1999 659,766
Issued pursuant to option agreement - March 17 1,241,550
Issued pursuant to option agreement - April 28 249,750
Cancelled per option agreement - June 30 (7,920)
Issued through direct subscription - March 17 66,825
Issued through direct subscription - June 30 854,615
-----------
Balance June 30, 2000 3,064,586
-----------
Total Stockholders' Equity $2,337,719
===========
See accompanying notes and accountants' review report
F-16
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POLARSHIELD, INC. (A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (Unaudited)
For the Six Months Ended June 30, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (540,517)
Adjustment to reconcile Net Income (loss) to net cash
provided by (used in) Operating Activities:
Depreciation 29,260
Amortization 75,249
Deferred income tax benefit (242,574)
Changes in components of working capital -
(Increase) decrease in
Accounts receivable (17,017)
Related party receivables 142,595
Inventory (11,448)
Increase (decrease) in
Accounts payable 12,881
Accrued Expenses (7,085)
Related party payables (71,349)
-----------
Net cash provided by Operating Activities (630,005)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (29,929)
Acquisition of other assets (95,512)
------------
Net cash used by Investing Activities (125,441)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Stock 971,002
Cancellation of Preferred Stock (8,000)
Decrease in notes payable (262,713)
------------
Net cash provided by Financing Activities 700,289
Increase (Decrease) in Cash (55,157)
Cash balance at March 31, 2000 42,009
------------
Bank Overdraft at June 30, 2000 $ (13,148)
============
See accompanying notes and accountants' review report
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1. ORGANIZATION
Polarshield, Inc., hereafter referred to as "Polarshield" or "the Company",
was organized in June, 1999, as a State of Nevada Corporation. The primary
business of the Company is the manufacture and sale of polarized
refrigerant oil additives and related lubricants and metal treatments. The
headquarters of the Company is located in Houston, Harris County, Texas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Revenue Recognition
-------------------
Polarshield utilizes the accrual method of accounting whereby revenue
is recognized when earned and expenses are recognized when incurred.
The Company sells its products direct to the customer, through
distributors and through retail outlets. Direct sales to customers
consist primarily of sales to commercial businesses. Sales to
residential customers are minor. Revenue is recognized when the
services are rendered, payments are due under the terms of the
Distributorship Agreements or when the product has been ordered and
set aside for the retail outlet customer.
B. Inventories
-----------
Inventories, consisting primarily of chemicals, mineral oil and
transmission fluids, are stated at the lower of cost or market, as
determined by the first-in, first-out (FIFO) method.
C. Plant, Property and Equipment
-----------------------------
Plant, property and equipment are carried at cost. Depreciation
expense for the six months ended June 30, 2000 was $29,260.
Depreciation is calculated using the straight-line method over the
estimated useful lives as shown below:
Equipment & Machinery 5 years
Furniture & Fixtures 5 years
D. Other assets
------------
Other assets consist of advances, licenses, patents, trademarks and
goodwill. The licenses are amortized over the unexpired term of the
license and the goodwill is amortized over fifteen years. Amortization
expense for the six months ended June 30, 2000, was $75,249.
E. Income Taxes
------------
The Company accounts for income taxes in accordance with the asset and
liability method of accounting for income taxes prescribed by
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for future tax
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
E. Income Taxes (continued)
------------
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to the taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
F. Basis of Accounting
-------------------
The financial statements are prepared using the accrual basis of
accounting.
G. Use of Estimates
----------------
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
H. Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, cash on hand, deposits at bank
and petty cash are considered to be cash or cash equivalents.
I. Accounts Payable
----------------
Trade accounts payable, including accruals not yet billed, are recognized
when the Company becomes obligated to make future payments as a result of a
purchase of assets or services. Trade accounts payable are generally
settled within 30 days.
3. INCOME TAXES
The tax effects of the Company's loss ($540,516) at the statutory federal
tax rates (average rate of 31%) was $242,574 and was included in the
deferred tax balance of $346,104. There were no timing differences.
Depreciation for tax purposes approximated depreciation for financial
statement accounting purposes. The benefit of the tax losses will only be
obtained if:
(i) The Company derives future assessable income of a nature and of an
amount sufficient to enable the benefit from the deduction s for the
loss to be realized: and
(ii) The Company continues to comply with the conditions for deductibility
imposed by federal income tax laws and regulations.
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4. RECEIVABLES
Accounts Receivable
-------------------
The Company provides an allowance for doubtful accounts equal to the
estimated losses that will be incurred in collection of all receivables.
The estimated losses are based on historical collection experience coupled
with review of the current status of the then currently outstanding
accounts receivable. The allowance for doubtful accounts estimated at June
30, 2000 was $0.
5. RELATED PARTY TRANSACTIONS
Payables June 30, 2000
---------- --------------
Related party payables $ 111,101
Related party payables consists of current obligations to officers of
the Company for advances they have made to the company.
6. LEASE OBLIGATIONS
Lease obligations of the Company are for office space, furniture and
equipment. Capital lease obligations are amortized over the remaining term
of lease (i.e.thirty four months.). Operating lease agreements vary from
thirty two to sixty three months. . Minimum lease payments for the next
five years are as follows:
Year Amount
------- -----------
2001 $ 87,664
2002 67,214
2003 4,977
2004 4,680
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$ 164,535
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7. NON-CASH TRANSACTIONS
In March, 2000, the Company acquired the assets and liabilities of
Polarshield, LLC, for $1,500,000 in common and preferred stock. The value
of the assets and liabilities acquired were as follows:
License and goodwill $1,488,533
Equipment 50,853
Furniture 5,747
Bank note on equipment (29,133)
Shareholder loan (16,000)
-----------
Total $ 1,500,000
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8. CONCENTRATION OF CREDIT RISK
The primary financial instruments, which potentially subject the Company to
concentrations of credit risk, are cash and accounts receivable. The
Company's cash balances are with a high quality financial institution and
are covered by FDIC insurance limits. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that
its trade accounts receivable credit risk exposure is limited. The maximum
potential loss does not exceed the amounts already recognized in the
balance sheet.
9. SEGMENT AND GEOGRAPHIC INFORMATION
Polarshield, Inc is a Developing Stage Enterprise and is in the initial
stages of Operation. The Company's raw material, chemicals and other goods
essential to the production of their products are easily available and the
Company does not expect any shortages in supply.
10. CAPITAL STOCK
Common Stock
------------
(i) The Company has authorized 25,000,000 shares of common stock ($0.001
par value), of which 5,258,562 shares were issued and outstanding at
June 30, 2000.
Preferred Stock
---------------
The Company has authorized 5,000,000 shares of preferred stock ($0.01 par
value), of which 1,327,250 shares were issued and outstanding at June 30,
2000. The preferred shares of the Company carry a preference as to
liquidation and convertibility.
Liquidation Preference:
----------------------
In the event of liquidation, the preferred shareholders are to be paid off
before the common stockholders get a return of their capital.
Conversion Preference:
----------------------
The preferred shares of the Company are convertible in the event the
Company goes public or is acquired by a publicly held company. The options
of the stockholders for conversion are through the election of one of the
following:
(i) One share of preferred stock for one share of common stock. After
conversion, the shares must be held for at least 18 months from
the date of conversion; or
(ii) The preferred share shall be valued at $1 per share and shall be
converted into common shares on an exchange basis on which, the
common shares are valued at 50% of the market bid price of the
shares 30 days after the initial trading of the company shares in
a public market, or the merger of the company with a publicly
held company, and such shares shall be subject to a holding
period restriction of 12 months and shall be subject to Rule 144,
or
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(iii) Retain the preferred shares in the Company;
(iv) Request repayment of 115% of the amount of the subscription
agreement, payable by the Company within 30days of such written
request.
EPS-Earnings (Loss) Per Share
-----------------------------
Earnings (Loss) per share of common stock outstanding were computed as
follows:
Fiscal Year 2000
Quarter Ended
3/31/00 6/30/00 9/30/00 12/31/00
--------- --------- --------- ---------
Net Income (Loss) for basic
and diluted EPS $(191,816) $(348,701) - -
Common share information
Average common shares outstanding 2,405,556 3,430,670 - -
Basic (Loss) per common share (0.0797) (0.1016) - -
11. CONTINGENCIES.
The Company is currently a party to various disputes arising from their
operations, which involve, or may involve, litigation. Management believes
that the outcome of these proceedings, individually and in the aggregate,
will have no material effect on the financial position or results of
operations of Polarshield, Inc.
12. SUBSEQUENT EVENTS
On August 25, 2000, the Company granted to the Class A preferred
stockholders of record on March 31, 2000, warrants to purchase common
stock, $.001 par value, when the original issue holder exercises the
conversion right under the preferred stock for the original issue shares
held on March 31, 2000. After the number of shares of common stock to be
converted to is determined, the holder of the warrant shall have the right
to receive an additional number of shares of common stock equal to 15% of
the total shares of common stock received upon conversion of the preferred
stock.
The Company also offered to existing preferred stockholders of record as of
August 3, 2000, the right to purchase additional shares, not to exceed in
number the shares held on the record date, of the Class A Preferred Stock
on the same terms as the original purchase, and the rights offering shall
end on August 15, 2000.
In September 2000, Xaibe, Inc, a Nevada corporation, whose common stock is
listed on the OTC Bulletin Board (OTCBB) offered 5,676,385 shares of its common
stock, $0.001 par value, in exchange for all of the issued and outstanding
common stock of Polarshield, Inc, the offer will expire on October 31, 2000,
unless extended per the Exchange
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