SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 1
To
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
MICRON ENVIRO SYSTEMS, INC.,
(Exact name of registrant as specified in its charter)
NEVADA 98-0202-944
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
17920-105 Avenue, Suite #200, Edmonton, Alberta, Canada T5S 2H5
(Address of registrant's principal executive offices) (Zip Code)
780.414.1525
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of Each Exchange on which
to be so registered: each class is to be registered:
-------------------- -------------------------------
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile 949.660.9010
Page 1 of __
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Micron Enviro Systems, Inc.,
A Nevada corporation
Index to Amendment to Form 10-SB Registration Statement
Item Number and Caption Page
- - - ----------------------- ----
1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
3. Description of Property 9
10. Recent Sales of Unregistered Securities 10
11. Description of Securities 11
15. Financial Statements and Exhibits
15(a) Index to Financial Statements 11
Financial Statements F-1 through F-10
15(b) Index to Exhibits 11
Exhibits E-1 through E-17
Signatures 13
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Item 1. Description of Business.
Development of the Company. Strathcona Capital Corp., a Nevada corporation
("Company"), was incorporated in the State of Nevada on or about January 23,
1998. On or about January 22, 1999, the Company filed a Certificate of Amendment
to its Articles of Incorporation changing its name to Micron Enviro Systems,
Inc. The executive offices of the Company are located at 17920-105 Avenue, Suite
#200, Edmonton, Alberta, Canada T5S 2H5. The Company's telephone number is
780.414.1525.
Business of the Company. The Company was originally incorporated for the
purposes of manufacturing low cost housing and acquiring technology related to
the recycling of waste oil. Although remaining interested in the waste oil
recycling business, the Company has nonetheless directed its attention and
assets to acquiring an existing plastics manufacturing business. The Company
plans to develop its own filter and cleaning products.
On or about December 24, 1998, pursuant to a loan agreement, the Company
conditionally acquired from Tangle Creek Cattle Co., a Canadian corporation
("Tangle Creek"), all of the assets including, but not limited to, all of the
equipment and inventory of Dustcheck Filters, Inc. ("Dustcheck"). Tangle Creek
had previously purchased those assets from the judicially appointed
Receiver/Manager of Dustcheck. By separate agreement, the Company acquired the
right to technology and intellectual property relating to a re-usable,
non-mechanical electro-static air filter ("Filter"), as specified in Canadian
Patent application #2,002785-1 which is continuing and is currently in the
reference response period. The Filter was invented by Darrell Kosakewich,
previous President and member of the Board of Directors of Dustcheck and
currently a consultant for the Company. The Company has also researched and
developed an all-purpose cleaning mitt ("Mitt") invented by Mr. Kosakewich. The
Company anticipates that it will apply for United States patent protection for
both the Filter and the Mitt.
Dustcheck began operations in 1988 in Canada. Dustcheck's primary business
purpose was the research and development of a re-usable, non-mechanical
electro-static air filter to clean and sanitize circulated air at the supply
point of a building's heating, ventilating or air conditioning system.
Dustcheck's objective was to create a system which would remove dust and dust
particulate such as mold, fungi, bacteria and dust mites from air circulated by
furnaces and ventilating systems. Dustcheck set out to develop a filter which
would improve current filter systems, in that the Filter would eliminate
contaminants that current systems do not remove. The Company believes that
Dustcheck was able, with the assistance of the Province of Alberta Research
Council, to successfully develop a filtration system capable of removing minute
dust particles.
Standard furnace and air filters do not clean air adequately for people who
suffer from asthma, allergies, hay fever and related respiratory problems. The
Company believes that research indicates that the Filter, employing a re-usable
and easily removed blended fiber filter membrane encased in a polypropylene
support frame, efficiently removes dust particles one micron and larger. On or
about March 19, 1999, the Company completed negotiations with HRC Tool & Die
Mfg. Ltd. ("HRC"), the company that constructed the mold used to produce the
Filter. Pursuant to those negotiations, HRC has committed to provide injection
equipment to the Company and produce the Filter for the Company. The Company
anticipates that it will produce the Filter in four (4) distinct lines. One line
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will be a cold air return filter ("Cold Filter") which attaches directly to a
furnace. The other three lines of the Filter attach to a building's forced air
exit points.
The Mitt is a sleeve of blended synthetic fibers woven into a unique
pattern that functions as a durable cleaning utensil for various surfaces. The
Company anticipates that it will introduce the Mitt in trade shows in Canada and
the United States in 1999. The Company anticipates developing spin-off products
using the blended synthetic fibers used in both the Mitt and the Filter.
Prior to the Company's purchase of the assets of Dustcheck, the Alberta
Research Council and Dustcheck conducted tests on the Filter in accordance with
the guidelines of the American Society of Heating, Refrigerating and Air
Conditioning Engineers, Inc. ("A.S.H.R.A.E."). In the event any additional
domestic or foreign regulatory agency requires approval and testing of the
Filter prior to its commercial exploitation, the Company cannot provide any
assurance that testing procedures will be successfully completed or, if
completed, such tests will demonstrate that the Filter is safe and efficacious.
There can also be no assurance that any required government approvals will be
obtained. Accordingly, there can be no assurance that the Company will be able
to market the Filter in the United States or any foreign country, other than
Canada. The same is true for any other products that the Company may develop.
Any failure by the Company or its collaborators or licensees to obtain any
required regulatory approvals or licenses would adversely affect the ability of
the Company to market its products and would have a significant adverse affect
on the Company's revenues.
The Company's Subsidiary. In or about March, 1999, the Company issued
2,000,000 shares of its no par value common stock to Pinnacle Plastics Inc., a
private corporation incorporated in the Province of Alberta, Canada
("Pinnacle"), in exchange for 2,000,000 shares of Pinnacle's common stock. The
2,000,000 shares of Pinnacle stock represented, at the time, 100% of the issued
and outstanding common stock of Pinnacle. Pinnacle is now a wholly-owned
subsidiary of the Company.
Pinnacle in collaboration with Cultec Inc., of Brookfield, Connecticut
("Cultec") has built manufacturing equipment utilizing Pinnacle's technology
license and Cultec Inc.'s patented molds which are capable of manufacturing
plastic septic and storm chambers to Cultec's specifications. The Company
believes it has the ability to supply products to Cultec at a lower cost than
Cultec's present manufacturer-supplier and is currently negotiating a
manufacturing contract with Cultec.
Cultec Inc., is a major U.S. distributor of septic and storm water chambers
used in the management of septic systems and storm water run-off from commercial
construction sites, freeway and parking lot construction.
Based on negotiations with Cultec, Pinnacle has entered into an agreement
with RPC Manufacturing Inc., to supply Pinnacle with plastic sheet and have
sourced a secure, sufficient supply of regrind, recycle and virgin plastic resin
to fulfill Cultec's volume requirements.
The Company believes finalization of the Cultec contract will provide the
Company, through Pinnacle, a positive revenue source beginning in or around
September.
When finalized, the Company believes that the Cultec contract will provide
the Company with a positive revenue source beginning in or around September,
1999.
Employees. The Company currently has no employees; however, the Company has
entered into a letter of agreement with Mr. Kosakewich wherein Mr. Kosakewich
has agreed to provide month to month consulting services to the Company. The
letter of agreement anticipates the entering of a formal consulting agreement
containing the terms and conditions specified in the letter. Management of the
Company anticipates using consultants for business, accounting and engineering
services on an as-needed basis. Because the Company anticipates entering into
licensing and manufacturing
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agreements with third parties, the Company anticipates that it will require very
few employees during the next fiscal year.
Competition. The Company currently faces significant competition with
respect to the Cold Filter and this competition may increase as new competitors
enter the market. Several of these competitors may have longer operating
histories and greater financial, marketing and other resources than the Company.
With respect to all of the Company's products, there can be no assurance that
the Company will be able to compete successfully with existing or new entrant
companies. In addition, new product introductions or enhancements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Increased competitive pressure
could also lead to intensified price-based competition resulting in lower prices
and profit margins particularly with respect to the Cold Filter. Such increased
competitive pressure, lower prices and profit margins could adversely affect the
Company's business and results of operations.
The strategy of the Company for growth is substantially dependent upon its
ability to market and distribute products successfully. Other companies,
including those with substantially greater financial, marketing and sales
resources, compete with the Company, and have the advantage of marketing
existing products with existing production and distribution facilities. There
can be no assurance that the Company will be able to market and distribute
products on acceptable terms, or at all. Failure of the Company to market its
products successfully could have a material adverse effect on the Company's
business, financial condition or results of operations.
The strategy of the Company for growth may be substantially dependent upon
its ability to introduce successfully new products and expand into new markets.
Accordingly, the ability of the Company to compete may be dependent upon the
ability of the Company to continually enhance and improve its products. There
can be no assurance that competitors will not develop technologies or products
that render the products of the Company obsolete or less marketable. The Company
may be required to adapt to technological changes in the industry and develop
products to satisfy evolving industry or customer requirements, any of which
could require the expenditure of significant funds and resources, and the
Company does not have a source or commitment for any such funds and resources.
The Company might be required to refine and improve its products. Continued
refinement and improvement efforts remain subject to the risks inherent in new
product development, including unanticipated technical or other problems which
could result in material delays in product commercialization or significantly
increase costs.
The Company competes directly with other companies and businesses that have
developed and are in the process of developing technologies and products which
will be competitive with the products developed and offered by the Company.
There can be no assurance that other technologies or products which are
functionally equivalent or similar to the technologies and products of the
Company have not been developed or are not in development. The Company believes
that many of these competitors have greater financial and other resources, and
more experience in research and development, than the Company.
Compliance with Environmental Laws. The Company has not been materially
impacted by existing government regulation, nor is the Company aware of any
probable government regulation that would materially affect its operations.
However, the Company recognizes that its products and
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business may be significantly influenced by the constantly changing body of
environmental laws and regulations, which require that certain environmental
standards be met and impose liability for the failure to comply with such
standards. While the Company makes significant efforts to comply with all
applicable environmental laws and regulations, there can be no assurance that
the Company's operations or activities, or historical operations by others at
the Company's locations, will not result in civil or criminal enforcement
actions or private actions that could have a materially adverse effect on the
Company. The Company's costs in complying with environmental laws to date have
been negligible.
The Company's management believes that no toxic or hazardous materials will
be byproducts of the manufacturing processes of either the Mitt or the Filter;
accordingly, as the Company is not presently manufacturing any products,
management of the Company believes that the Company will not have material
expenditures related to the cost of compliance with applicable environmental
laws, rules or regulations. The Company believes that it is presently in
compliance with all applicable federal, state and local environmental laws,
rules and regulations. However, at some time in the future, the research,
development, manufacturing and production processes of the Company may involve
the controlled use of hazardous materials. The Company may be subject to various
laws and regulations governing the use, manufacture, storage, handling, and
disposal of such materials and certain waste products. The risk of accidental
contamination or injury from hazardous materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the financial
resources of the Company. In addition, there can be no assurance that in the
future the Company will not be required to incur significant costs to comply
with environmental laws and regulations relating to hazardous materials. The
Company cannot estimate the potential costs of complying with local, state, and
federal environmental laws.
Reports to Security Holders. The Company will become a reporting company
with the Securities and Exchange Commission ("SEC") when this Form 10-SB is
effective and will be obligated to provide an annual report to its security
holders, which will include audited financial statements. The public may read
and copy any materials filed with the SEC at the SEC's Public Reference Room at
450 Fifth Street N.W., Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC. The address of that site is http://www.sec.gov. The
Company does not currently maintain its own Internet address.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Filter. The Company anticipates initially marketing the Filter for use
in individual housing units with forced air furnaces and air conditioning units.
The Company intends to concentrate its initial marketing efforts in the United
States and Canada. The Company believes that the general filter market grows
each year with the increased installation of forced air heating and air
conditioning in new home construction. The Company expects to enlist the help of
professional marketers to design and implement a marketing program commensurate
with projected revenues and available capital. As set forth above, on or about
March 19, 1999, the Company completed negotiations whereby HRC has committed to
provide injection equipment and produce filters on a production contract basis.
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The Company has reviewed the market research findings of Criterion Research
Corp. ("Criterion"), a market research company retained by Dustcheck to conduct
market research on the Filter in both Edmonton, Alberta, Canada and Los Angeles,
California. The Company believes that Criterion's findings indicate a positive
response from consumers in both potential markets to the Filter. No formal
professional commissioned research has been conducted with regard to the Mitt.
However, samples of the Mitt utilized in Canada have resulted in positive
responses. The Company anticipates gathering information and advice from
established telemarketing, Internet marketing and trade show marketers in order
to determine market and advertising strategy for the commercial exploitation of
the Mitt. The Company anticipates that it will, either directly or through
agents, participate in trade shows in the United States and Canada with the hope
of introducing the Mitt to retailers, wholesalers, distributors and marketing
agents. The Company is currently negotiating, and hopes to finalize, a
distribution contract with Fine Plastics Mexico S.A. for the distribution of the
Mitt in Mexico and California.
The Mitt. The material for the Mitt is woven in a mill in North Carolina on
a contract basis utilizing weaving machines owned by the Company which are
specifically designed for the material and pattern. The synthetic yarn used in
the weaving is provided by a supplier located near the mill. The woven material
is shipped to Edmonton, Alberta, Canada where it is manufactured into the Mitt
by individuals paid on a per unit basis. The Company believes that this method
of production avoids unnecessary staffing, employee benefit costs, labor
management costs and production facility costs. The Company is currently
investigating the possibility of finishing the Mitt in North Carolina and then
shipping the finished product to Canada.
The Company contemplates establishing and maintaining staff and facilities
for the packaging, quality control and shipping of both the Filter and the Mitt.
Product Liability. The business of the Company will expose it to potential
product liability risks that are inherent in the testing, manufacturing and
marketing of cleaning and filtration products. The Company does not currently
have product liability insurance, and there can be no assurance that the Company
will be able to obtain or maintain such insurance on acceptable terms or, if
obtained, that such insurance will provide adequate coverage against potential
liabilities. The Company faces an inherent business risk of exposure to product
liability and other claims in the event that the development or use of its
technology or products is alleged to have resulted in adverse effects to
consumers. Such risk exists even with respect to those products that are
manufactured in licensed and regulated facilities or that otherwise possess
regulatory approval for commercial sale. There can be no assurance that the
Company will avoid significant product liability exposure. There can be no
assurance that insurance coverage will be available in the future on
commercially reasonable terms, or at all, that such insurance will be adequate
to cover potential product liability claims or that a loss of insurance coverage
or the assertion of a product liability claim or claims would not materially
adversely affect the Company's business, financial condition and results of
operations. Although the Company has taken, and will continue to take, what it
believes are appropriate precautions, there can be no assurance that it will
avoid significant liability exposure. An inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of products
developed by the Company. A product liability
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claim could have a material adverse effect on the Company's business, financial
condition and results of operations.
Impact of the Year 2000. The Company anticipates that the Year 2000 ("Y2K")
could impact the business of the Company. Many business software applications
use only the last two digits to indicate the applicable year. Unless these
programs are modified, computers running time-sensitive software may be unable
to distinguish between the year 1900 and the year 2000, resulting in system
failures or miscalculations and disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in other
normal business activities. Many Y2K problems might not be readily apparent when
they first occur, but instead could imperceptibly degrade technology systems and
corrupt information stored in computerized databases, in some cases before
January 1, 2000.
In order to improve operating performance and meet Y2K compliance, the
Company anticipates it will undertake a number of significant systems
initiatives. The Company has determined that the incremental cost of ensuring
that its computer systems are Y2K compliant is not expected to have a material
adverse impact on the Company. The Company has completed a preliminary
assessment of each of its operations and their Y2K readiness and feels that the
appropriate actions will be taken. The Company has determined that, with
modifications to existing software and conversions to new systems, the Y2K issue
will not pose significant operational problems for its computer systems. The
Company recognizes, however, that if such modifications are not completed, the
Y2K issue could have a material impact on the operations of the Company. The
Company has determined that, at this time, none of the Company's production
processes or technology systems are computer controlled. The Company anticipates
the initiation of formal communications with a number of its prospective
suppliers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remedy their own Y2K issues, and
anticipates it will initiate similar communications with prospective customers
in 1999. There is no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and will not have an adverse
effect on the Company's systems.
Liquidity and Capital Resources. The Company had inventory valued at
$13,018 at December 31, 1998 and no cash. The Company incurred a net loss of
$8,696 for 1998. At December 31, 1999, current liabilities exceeded current
assets by $5,636. For the period ended March 31, 1999, the Company had cash
reserves of $18,312 and inventory of $13,018. The influx of cash resulted
primarily from the sale of the Company's no par value common stock. For the
period ended March 31, 1999, the Company incurred a net loss of $27,980 and
current assets exceeded current liabilities by $6,648. For the period ended June
30, 1999, the Company had cash in the amount of $75,955, accounts receivable of
$11,103 and inventory of $103,610. For the period ended June 30, 1999, the
Company had a net operating loss of $110,621 and current assets exceeded current
liabilities by $160,790.
The Company anticipates that in 1999, it will enter into significant
contracts for the development and sale of its current product line. The Company
expects that, in the event it enters into such contracts, the Company's ability
to market and sell its products will enhance its ability to pursue other debt
and equity funding.
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As a point of clarification, as used in this Registration Statement the
word "Dollars" and the symbol "$" means and refers to the currency of the United
States of America, unless otherwise stated. As used in this Registration
Statement the term "CDN$" means and refers to the currency of Canada, in
Canadian dollars.
Results of Operations. The Company has not yet realized any revenue from
operations.
Manufacturing and Marketing the Company's Products. The Company anticipates
an expanding market for its products. The market study conducted by Criterion
and reviewed by the Company indicates that individuals in large metropolitan
cities are concerned with air quality. The Company plans to initially market the
Filter to those households with allergy or asthma sufferers due to those
households' increased emphasis on air quality. The Company believes by targeting
initial marketing and promotional efforts towards the allergy and asthma market,
the future market will evolve into a more generic market addressing general
health concerns.
The Company plans to market the Mitt to retailers, wholesalers,
distributors and marketing agents on a large scale. The Company hopes that
through product recognition and advertising, satisfaction with the Mitt will
create a word-of-mouth market expansion which will sustain the Company's sales
revenues.
The Company's current business plan, which is subject to the availability
of financing and other factors beyond the Company's control, anticipates: (i)
the conclusion of production contracts with regard to the commercial production
of the Mitt; (ii) the establishment of a warehouse and office for packaging,
shipping and quality control of the Company's products; (iii) association with a
marketing company to finalize the marketing strategy for the Mitt; (iv)
finalizing agreements with trade show contractors to expose the Mitt to
potential distributors and establish contracts for Filter distributors; (v) the
production and distribution of the Mitt; and (vi) the potential acquisition of
an existing plastics manufacturing company.
Item 3. Description of Property
Property held by the Company. As of the date specified in the following
table, the Company held the following property:
================================================================================
Property December 31, 1998 March 31, 1999 June 30, 1999
- - - --------------------------------------------------------------------------------
Inventory $ 13,018 $ 13,018 $103,610
- - - --------------------------------------------------------------------------------
Property and Equipment $ 3,567 $ 57,204 $180,651
- - - --------------------------------------------------------------------------------
Pre-patent rights $ 1,248 $ 1,248 $ 1,248
- - - --------------------------------------------------------------------------------
Manufacturing and Technology $ 0 $225.052 $225.052
License
- - - --------------------------------------------------------------------------------
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Item 10. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three
(3) years which would be required to be disclosed pursuant to Item 701 of
Regulation S-B, except for the following:
On or about January 29, 1998, the Company sold 10,000,000 shares of its
$.001 par value common stock for $0.001 per share. The shares were issued in
reliance upon the exemption from the registration requirements of the Securities
Act of 1933 ("Act") specified by the provisions of Section 3(b) of the Act and
Rule 504 of Regulation D promulgated by the Securities and Exchange Commission
pursuant to that Section 3(b). Specifically, the offer was made to "accredited
investors", as that term is defined under applicable federal and state
securities laws, and no more than 35 non-accredited investors. The offering
price for the shares was arbitrarily established by the Company and had no
relationship to assets, book value, revenues or other established criteria of
value. The Company realized proceeds of $10,000. The proceeds of the offering
were used to pay for organizational fees and provide working capital. On or
about January 22, 1999, the Company completed a reverse stock-split of one share
of the Company's $.001 par value common stock for every two shares of the
Company's $.001 par value common stock, reducing the issued and outstanding
common stock of the Company to 5,000,000 shares. Also on or about January 22,
1999, the Company changed the par value of its common stock from $.001 to no par
value.
Pursuant to the merger agreement with Pinnacle, in or about March, 1999,
the Company issued to Pinnacle shareholders 2,000,000 shares of its no par value
common stock for $.10 per share. The shares were issued in reliance upon the
exemption from the registration requirements of the Securities Act of 1933
("Act") specified by the provisions of Section 3(b) of the Act and Rule 504 of
Regulation D promulgated by the Securities and Exchange Commission pursuant to
that Section 3(b). Specifically, the offer was made to "accredited investors",
as that term is defined under applicable federal and state securities laws, and
no more than 35 non-accredited investors. The Company has valued the assets of
Pinnacle in excess of $200,000.
In or about March, 1999, the Company sold 620,000 shares of its no par
value common stock for $.10 per share. The shares were issued in reliance upon
the exemption from the registration requirements of the Securities Act of 1933
("Act") specified by the provisions of Section 3(b) of the Act and Rule 504 of
Regulation D promulgated by the Securities and Exchange Commission pursuant to
that Section 3(b). Specifically, the offer was made to "accredited investors",
as that term is defined under applicable federal and state securities laws, and
no more than 35 non-accredited investors. The offering price for the shares was
arbitrarily established by the Company and had no relationship to assets, book
value, revenues or other established criteria of value. The Company realized
proceeds of $62,000. The proceeds of the offering were used to pay for operating
costs and provide working capital.
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Item 11. Description of Securities
The Company is authorized to issue 200,000,000 shares of common stock, with
no par value, each share of common stock having equal rights and preferences,
including voting privileges. As of June 30, 1999, 7,620,000 shares of the
Company's common stock were issued and outstanding.
The shares of no par value common stock of the Company constitute equity
interests in the Company entitling each shareholder to a pro rata share of cash
distributions made to shareholders, including dividend payments. The holders of
the Company's common stock are entitled to one vote for each share of record on
all matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of directors of the Company or any other matter, with
the result that the holders of more than 50% of the shares voted for the
election of those directors can elect all of the Directors. The holders of the
Company's common stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors from funds legally available
therefor; provided, however, that cash dividends are at the sole discretion of
the Company's Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities of the Company and after provision has been made for each class
of stock, if any, having preference in relation to the Company's common stock.
Holders of the shares of the Company's common stock have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to the Company's common stock. All of the outstanding shares of the
Company's common stock are duly authorized, validly issued, fully paid and
non-assessable.
Item 15. Financial Statements and Exhibits
(a) Index to Financial Statements. Page
- - - ---------------------------------- ----
Unaudited Balance Sheet for Period Ended March 31, 1999 F-1
Unaudited Statement of Operations and Accumulated Deficit
For the Period Ended March 31, 1999 F-2
Unaudited Statement of Change in Financial Position
For the Period Ended March 31, 1999 F-3
Unaudited Consolidated Balance Sheet
For the Period Ended June 30, 1999 F-4
Unaudited Consolidated Statement of Operations and
Accumulated Deficit For Six Months
Ended June 30, 1999 F-5
Unaudited Consolidated Statement of Change of
Financial Position For Six Months
Ended June 30, 1999 F-6
Notes to Financial Statements F-7 through F-10
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(b) Index to Exhibits.
Copies of the following documents are filed with this Amendment to
Registration Statement of Form 10-SB as exhibits:
Index to Exhibits
1 Agreement between Pinnacle Plastics, Inc.,
The Shareholders of Pinnacle Plastics, Inc.,
and the Company E-1 through E-4
2 Agreement between Pinnacle Plastics, Inc.,
and RPC Manufacturing Inc. E-5 through E-17
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SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange Act
of 1934, the Company has duly caused this Amendment No. 1 to the Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Edmonton, Alberta, Canada, on August __, 1999.
Micron Enviro Systems, Inc.,
a Nevada corporation
By: /s/ Rodney Hope
-------------------------
Rodney Hope
Its: President
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MICRON ENVIRO SYSTEMS INC
(A Development Stage Company)
BALANCE SHEET (UNAUDITED)
March 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 18,312
Inventory 13,018
---------
TOTAL CURRENT ASSETS 31,330
---------
PROPERTY & EQUIPMENT
Machines and Equipment 3,543
Dustcheck Molds 1,783
Pinnacle Molds 51,878
Less: Depreciation Allowances (1,221)
---------
TOTAL PROPERTY & EQUIPMENT 57,204
---------
INTANGIBLE ASSETS
Pre-Patent Rights 1,248
Manufacturing & Technology License 225,052
---------
TOTAL INTANGIBLE ASSETS 226,300
---------
OTHER ASSETS
Organizational Costs 18,843
Loss: Amortization Allowance (94)
---------
TOTAL OTHER ASSETS 18,749
---------
---------
TOTAL ASSETS $ 335,583
=========
LIAB1LITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 24,682
---------
TOTAL CURRENT LIABILITIES 24,682
---------
LONG TERM LIABILITIES
Notes Payable 73,577
STOCKHOLDERS' EQUITY
Common Stock. 200000,000 shares authorized: no par
5,000000 shares issued and outstanding @ $.002 10,000
2,620,000 shares issued and outstanding @ $.10 262,000
Accumulated Deficit 1998 (Development Stage) (8,896)
Accumulated Deficit 1st Quarter 1999 (Development Stage) (27,980)
---------
TOTAL STOCKHOLDERS' EQUITY 235,324
---------
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 333,583
=========
</TABLE>
F-1
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (UNAUDITED)
For the Period Ended March 31, 1999
REVENUES $
----------
COST OF GOODS SOLD
GROSS MARGIN ON SALES
EXPENSES
Professional Fees 15,646
Bank Charges 25
Telephone 278
Travel 10,715
Amortization 94
Depreciation 1,221
----------
TOTAL EXPENSES 27,980
==========
NET LOSS FROM OPERATIONS (27,980)
ACCUMULATED DEFICIT 1ST QUARTER 1999 (27,980)
==========
EARNINGS PER SHARE nil
==========
WEIGHTED NUMBER OF
COMMON STOCK SHARES OUTSTANDING 5,174,666
==========
F-2
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
STATEMENT OF CHANGE OF FINANCIAL POSITION (UNAUDITED)
For the Period Ended March 31, 1999)
Cash from Operating Activities
Net Loss $(27,980)
Adjustments to reconcile for Cash Basis
Amortization 94
Depreciation 1,221
--------
Net Cash used in Operating Activities (26,665)
--------
Cash flows from Investing Activities
Purchase of Assets (53,638)
Organizational Cost (16,343)
Cash flows from Financing Activities
Notes Payable 52,958
Proceeds from sale of common stock 62,000
--------
Cash beginning of period $ 0
--------
--------
Cash ending of period $ 18,312
--------
F-3
<PAGE>
MICRON ENVIRO SYSTEMS INC
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET (UNAUDITED - PREPARED BY MANAGEMENT)
June 30, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 75,955
Accounts Receivable 11,103
Inventory 103,610
Prepaid Legal Expenses 6,819
---------
TOTAL CURRENT ASSETS 190,668
---------
PROPERTY & EQUIPMENT
Machines and Equipment 126,990
Dies & Molds 53,661
Less: Depreciation Allowances (2,249)
---------
TOTAL PROPERTY & EQUIPMENT 180,651
---------
INTANGIBLE ASSETS
Pre-Patent Rights 1,248
Manufacturing & Technology License 225,052
Less: Amortization Allowance (83)
---------
TOTAL INTANGIBLE ASSETS 226,217
---------
OTHER ASSETS
Organizational Costs 19,474
Less: Amortization Allowance (1,809)
---------
TOTAL OTHER ASSETS 17,665
---------
---------
TOTAL ASSETS $ 615,201
=========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 29,878
---------
TOTAL CURRENT LIABILITIES 29,878
---------
LONG TERM LIABILITIES
Notes Payable 432,640
STOCKHOLDERS' EQUITY
Common Stock: 200,000,000 shares authorized @ $.001 par value
5,000,000 shares issued and outstanding @ $.002 10,000
2,620,000 shares issued and outstanding @ $.10 262,000
Retained Earnings
Accumulated Deficit 1998 (Development Stage) (8,696)
Accumulated Deficit Current Year (Development Stage) (110,621)
---------
(119,317)
---------
TOTAL STOCKHOLDERS' EQUITY 152,683
---------
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 615,201
=========
</TABLE>
F-4
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
AND ACCUMULATED DEFICIT (UNAUDITED - PREPARED BY MANAGEMENT)
For the Six Months Ended June 30, 1999
DEVELOPMENT EXPENSES
Professional Fees $ 72,937
Shop Supplies 1,951
Rent 7,429
Bank Charges 37
Telephone 2,910
Travel 20,262
Office Expenses 954
Amortization 1,892
Depreciation 2,249
----------
TOTAL EXPENSES 110,621
----------
ACCUMULATED DEFICIT END OF 2ND QUARTER 1999 $ 110,621
==========
NET LOSS PER COMMON SHARE -0.01
WEIGHTED NUMBER OF COMMON SHARES OUTSTANDING 5,582,222
F-5
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGE OF FINANCIAL POSITION
(UNAUDITED - PREPARED BY MANAGEMENT)
(For the Six Months Ended June 30, 1999)
Cash from Operating Activities
Net Loss $(110,621)
Adjustments to reconcile for Cash Basis
Amortization 1,892
Depreciation 2,249
Accounts Payable 29,878
---------
Net Cash used in Operating Activities (76,602)
---------
Cash flows from Investing Activities
Purchase of Assets (499,547)
Organizational Cost (33,692)
Payment of Prior Year Expenses in 1999 (6,908)
Cash flows from Financing Activities
Notes Payable 430,704
Proceeds from sale of common stock 262,000
Cash beginning of period 0
Cash ending of period 75,955
F-6
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
Notes to the Financial Statements (Unaudited - Prepared by Management)
June 30, 1999
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS
Micron Enviro Systems Inc., formerly Strathcona Capital Corp., (hereinafter the
"Company"), was incorporated in January 1998 under the laws of the State of
Nevada. Although originally incorporated for the primary purpose of owning and
operating the manufacture of a low cost housing project and to acquire a
technology related to the recycling of waste oil, the company has redirected its
assets to acquiring new technology manufacturing operations.
In December 1998, the Company acquired the inventory and equipment of a company
in receivership and as a result of that acquisition, the Company is developing
marketing and manufacturing plans for an advanced reusable cleaning mitt and a
reusable non-mechanical electrostatic air filter for domestic and industrial
applications.
In March 1999, the company acquired, through a one-for-one exchange of shares, a
wholly owned subsidiary, Pinnacle Plastics Inc., which will manufacture plastic
storm and waste water recharging chamber systems under contract to a US company.
Details of the acquisition transaction are more fully disclosed in Note 6 -
COMMON STOCK. The subsidiary has exclusive and enduring rights to a new
technology for the forming of plastic and has developed patented machinery to
make use of the new technology. The Company states that the new technology and
manufacturing process significantly reduces the cost of production when compared
to conventional methods.
The Company maintains an office in Edmonton, Alberta, Canada.
The Company is in the development stage, and as of June 30, 1999 had not
realized any revenues from its planned operations. It is expected that the
commercial production will commence in the 3rd Quarter of the current year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Financial Statements and Notes were prepared by the Company and are
unaudited Statements as no audit has been undertaken for the period January 1 to
June 30, 1999. The financial statements have been prepared in conformity with
generally accepted accounting principles.
Development Stage Activities
The Company has been in the development stage since its formation in January
1998. However, the Company anticipates commencing commercial operations by the
end of the 3rd Quarter of 1999.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
F-7
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
Notes to the Financial Statements (Unaudited - Prepared by Management)
June 30, 1999
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
Provision for Taxes
For 1998, the Company had a net operating loss of approximately $8,696. As at
June 30, 1999, the Company recorded a net operating loss of approximately
$110,621 for the current year. No provision for taxes or tax benefit has been
reported in the financial statements, as there is not a measurable means of
assessing future profits or losses.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles required the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates have been made using careful judgements and 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.
Translation of Foreign Currency
The Company has adopted Financial Accounting Standard No 52. The Canadian
foreign exchange rate has remained approximately the same since inception.
Therefore, there are no material exchange rate transaction gains or losses. In
the future, the Company will record such transactions in the Statement of
Stockholders' Equity.
All amounts in these Statements are expressed in US Dollars.
NOTE 3 PROPERTY & EQUIPMENT
Capital Assets are recorded at cost. Amortization is recorded on a straight-line
basis using the following annual rates without residual values:
Equipment 10%
Automotive 25%
License 10%
Organizational Costs 20%
In the year of acquisition, amortization is calculated at one-half of the annual
rates.
F-8
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
Notes to the Financial Statements (Unaudited - Prepared by Management)
June 30, 1999
The following is a summary of Property and Equipment:
Machines & Equipment
Press Former $118,991
Vehicles $ 4,948
Knitting Machine $ 1,793
Welder $ 362
Drill Press $ 551
Band Saw $ 345
Dies & Molds
C-100 Molds $ 51,868
Dustcheck Molds $ 1,793
Depreciation Allowance for Machines & Equipment and Dies and Molds is $1,574 and
$675 respectively.
NOTE 4 INTANGIBLE ASSETS
Through its subsidiary company, the Company has acquired the right to
manufacture plastic storm and waste water recharging chamber systems under
contract to a US company. In addition, the Company has through its subsidiary,
acquired the exclusive right to use a new technology for the forming of the
chambers. The conservative estimate of the value of the manufacturing and
technology license is assessed at approximately $225,052. This asset will be
amortized over a 10 year period, using the straight line method.
NOTE 5 DETAILS OF LONG TERM DEBT
Long-term notes payable consist of the following as at March 31, 1999:
Tangle Creek Cattle Company $ 67,880
Great Plain Inc $350,622
Ian McIntyre $ 14,138
The notes payable are unsecured, bear no interest, and will be payable
contingent on the Company making sufficient profit from operations and upon the
resolution of its Board of Directors.
Tangle Creek Cattle Co. is a related party. (See NOTE 7)
F-9
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
Notes to the Financial Statements (Unaudited - Prepared by Management)
June 30, 1999
NOTE 6 COMMON STOCK
Upon incorporation, 10,000,000 shares of common stock were sold at $.001 per
share, under Regulation D, Rule 504. On January 22, 1999, the Company completed
a reversed stock split of one share of common stock for every two shares held,
reducing the Company's outstanding Common Stock to 5,000,000 shares
By a pooling of interests, the Company's wholly owned subsidiary, Pinnacle
Plastics Inc., was acquired on March 11, 1999 by the exchange of 2,000,000
shares valued at $.10 for the same number of shares of Pinnacle at the same
value which represented all of Pinnacle's issued shares.
Of the total capital contributed of $ 270,000, an amount of $200,000 was used to
acquire all of the issued and outstanding shares of Pinnacle Plastics Inc., and
the balance was used to fund the operations of the company.
NOTE 7 RELATED PARTIES
The President of the Company is also the president and stockholder of Tangle
Creek Cattle Co., which has advanced funds to the Company for the purchase of
assets and operating costs.
An amount of $6,704 was paid to Ideal Management Inc., representing Management
Fees of $4,828 and duly authorized reimbursement of expenses of $1,876. The
President and stockholder of Ideal Management Inc is also the President of the
Company.
NOTE 8 ECONOMIC DEPENDENCE
All of the company's production of storm and waste water recharging systems
manufactured by the company's wholly owned subsidiary will be sold, under
contract, to a single buyer. In effect, the company will function as a
contractor to the buyer and will be manufacturing the product to the buyer's
specification.
F-10
This agreement made this 11th day of March 1998
Between: Pinnacle Plastic Inc. (hereafter referred to as "PPI")
and
The Shareholders of PPI (as appearing on the signature page hereto)
and
Micron Enviro Systems Inc. (hereafter referred to as "Micron":)
Whereas Micron is desirous of purchasing from the shareholders of PPI all of the
issued and outstanding shares of PPI on certain terms and conditions as
hereafter set out; and
Whereas the shareholders of PPI and PPI are agreeable to sell all of the issued
and outstanding shares of PPI on certain terms and conditions as hereafter set
out.
Now therefore witnessed:
1. The Parties agree that in consideration of the transfer of 100% of the
issued and outstanding shares of PPI (2 million shares) by the shareholders
of PPI to Micron, Micron will cause to be issued to the shareholders of PPI
two million (2,000,000) shares of Micron, free trading and unrestricted at
issue (subject to clause 7 hereafter set out).
2. The Parties agree that the value of the aforesaid shares of Micron to be
issued are $.10 U.S. per share and PPI represent that the assets of PPI net
of debt are valued at $200,000 U.S. and the shareholders of PPI represent
that their total shareholding represent 100% of the equity and securities
of PPI.
3. Micron having examined the books and records of PPI are satisfied the
shares of PPI have a value of $200,000 U.S. independent of any
representation by PPI or PPI shareholders.
4. PPI represents and warrants the following:
a) (i) PPI has by written agreement been granted an exclusive license
form 815969 Alberta Ltd. (operating as Global Plastics, hereafter
referred to as "Global") to manufacture in Canada for sale to Cultec
Inc. (of Brookfield Conn.) and for distribution in the U.S. and Canada
a product known as Septic and Stormwater Chambers; and
E-1
<PAGE>
2
(ii) In the event the product demands of Cultec and good business
practice require the establishment of one or more manufacturing
facilities in the U.S.A. PPI (its subsidiary or parent) shall have the
exclusive license from Global to manufacture and sell in the U.S.A. as
a joint venture partner with Global. The joint venture shall provide
that PPI (its subsidiary or parent) shall provide all capital required
to fund the joint venture's interest and receive all revenues of the
joint venture interest until PPI recovers twice its capital investment
and thereafter share profit from the U.S. facility with Global,
seventy percent (70%) to PPI and thirty percent (30%) to Global. The
agreement shall further provide a proviso with the purpose of
protecting the market of PPI acquired under its exclusive license to
manufacture in Canada and sell in Canada and U.S.A. for distribution
as set out in 4(a)(i).
b) PPI has by written agreement with Global the exclusive right to
participate with Global as a partner or joint venture partners in any
license granted by Global to use Global technology in the manufacture
and marketing of any other Cultec products (other than those
identified in 4(a) license) in the U.S.A. and Canada; the terms of the
partnership specifying that the partnership shall hold no less than a
70% interest, PPI (its subsidiary or parent) shall be responsible for
Capital financing of the partnership interest with a right to recover
two times its capital contribution before sharing partnership revenues
with Global; and
c) PPI (its subsidiary or Parent) has by written agreement with Global
the exclusive license to manufacture and sell plastic pallets in
Canada with exclusive delivery territory of Canada using Global
technology. The license shall allow PPI to sell the product to any
other jurisdiction until Global licenses or sells for other
jurisdictions; and
d) PPI (its subsidiary or Parent) has by written agreement with Global
the exclusive right to participate with Global as a partner in any
license granted by Global to use Global's technology in the
manufacture and sale of plastic pallets in the U.S.A. and
internationally the terms of partnership to be the same as in 4(a)ii)
above; and
e) The royalties payable to Global for the licensing rights referred to
in 4(a), b), c), and d) above shall be seven percent 7% of that amount
represented by deducting "cost of sales" from "Sales Revenue".
f) PPI has a written agreement with Cultec Inc. of Brookfield Conn. to
provide specific lines of product to Cultec on a progressive delivery
to manufacturing capability of up to 15,000 units per month with
delivery commencing May 1, 1999;
E-2
<PAGE>
3
g) PPI has by written agreement with Global the first right of refusal
for the exclusive or non exclusive license to manufacture products
other than those hereinbefore identified, royalties attributed shall
be negotiated within reasonable industry standards having regard to
reasonable return on investment and reasonable profit.
5. Micron in consideration of the aforesaid share sale and transfer of PPI
shares by PPI shareholders undertakes and agree as follows:
a) to raise by equity and debt sufficient capital to finance PPI's
present projected budget on a best-efforts basis; failure to raise
less than $450,000 as required may at the sole option of Global result
in PPI having the licensing rights granted in 4(a)ii, (b), c), d) and
e) amended or terminated; and
b) to direct its capital on a priority basis to the Pinnacle project; and
c) to not dilute it's shares by issue of stock beyond full dilution of
7,620,000 shares prior to raising the capital referred to in 5(a)
above.
6. Micron acknowledges and affirms Pinnacle have or shall enter into a
contract management agreement with 3 shareholders of PPI Contract
Management Company to collectively provide for PPI management and
supervision of Research and development, production operations, marketing,
logistics and strategic development of Pinnacle Cultec agreement as
contemplated in 4(a)i). The term for such service shall be for a period of
5 years with provision for penalty in the event of termination without
cause. Remuneration shall be 15% of profits of Pinnacle before tax
provision or $216,000 whichever is the lesser in Phase 1, such payments to
accrue from April 1, 1999 and be paid commencing June 1, 1999;
In addition to the remuneration set out for Phase I, thee shall be a
provision of additional incentive remuneration by way of bonus related to
increase in pre-tax profit in subsequent years and to workload and scope of
management contract.
Where possible the principals of the Contract Management Company will
participate in any employee benefit plan of Pinnacle.
The Contract Management Company shall be reimbursed for allowable and
authorized expanses.
E-3
<PAGE>
4
Provision shall be made for compensation or incompetence adjustment in
event of death, disability or incapacity of individuals designated as
service providers in the Contract Management agreement.
7. It is understood and agreed by MATTSTAN, #615967 Alberta Ltd., and 815966
Alberta Ltd. that because of their Construction Management agreement, (in 6
above) shares held by them may be designated as "insider" shares and
restricted as to trading by the Securities and Stock Exchange or they may
be restricted as to trading due to the close affiliation as "a control
block" representing collectively more than 10% of the issued stock of
Micron.
8. This agreement is conditional on Pinnacle providing the agreements referred
to in clause 4 hereof in form and content agreeable by Micron.
9. The technology of Global herein referred to is that technology, process and
procedure as set out in the existing patent application of Global, any
amendments or extensions thereto.
10. This agreement may be executed in counterpart and by fax upon each page
being initialed by Micron and Pinnacle.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
--------------------- -------------------------
[ILLEGIBLE] Mattstan
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
--------------------- -------------------------
[ILLEGIBLE] 815967 ALTA LTD.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
--------------------- -------------------------
Mcintyre, C 815966 ALTA LTD.
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
--------------------- -------------------------
[ILLEGIBLE] Pinnacle
/s/ [ILLEGIBLE]
-------------------------
Micron
E-4
This Agreement made effective this 1st day of May, 1999
Between:
Pinnacle Plastics Inc. (referred to as "PPI")
and
RPC Manufacturing Inc. (referred to as "RPC")
BACKGROUND
1. RPC is an Alberta corporation whose business is the manufacture and
wholesale selling of plastic sheeting.
2. RPC currently leases industrial commercial space at 53323 Range Road 2323,
Sherwood Park, Alberta (the "RPC Premises").
3. PPI is an Alberta corporation and licensee of Plastic Forming Technology
(the "Forming Technology") owned by 815969 Alberta Ltd. and used to produce
industrial receptacles for supply throughout the US and Canadian plastics
market.
4. PPI and RPC (collectively referred to as the "Parties") desire to enter
into a Purchase and Supply Agreement whereby RPC will manufacture and
supply plastic sheeting to PPI on a continuing basis. The terms and
conditions of supply are set out in this Agreement.
5. In order to facilitate the efficient operation of the respective Parties
business activities, RPC has agreed to sub-lease a portion of RPC Premises
to PPI (the "PPI Premises").
The Parties for consideration and upon the terms and conditions set out
below, agree as follows:
ARTICLE 1 - MANUFACTURE AND SUPPLY OF PLASTIC SHEETING
6. At the request of PPI, RPC agrees to produce and supply PPI with plastic
sheeting in accordance with the pricing, specifications, quantities and
delivery schedule set out in this Agreement and the Schedules thereto.
E-5
<PAGE>
Price
7. RPC will sell and PPI will purchase from RPC plastic sheet in accordance
with the specifications set out in Schedule "A" (the "Specifications") to
this Agreement at a price of six dollars ($6.00 CND) per sheet (the
"contract price") plus GST and any or all applicable manufacturing taxes
for a period of three (3) years from the date of this Agreement.
Resin
8. PPI shall be responsible for and shall pay all costs associated with the
supply and delivery of resin to the RPC Premises in accordance with the
Specifications or any change requested by PPI thereto agreed between the
Parties thereto.
9. PPI shall, on a best efforts basis establish and maintain at RPC Premises
an inventory of resin in an amount sufficient to allow for production of
the plastic sheets for the following 14 days. PPI shall at all times
including start up of manufacturing operations maintain a minimum resin
inventory of seven (7) days in advance of manufacture at the RPC Premises.
10. PPI shall be responsible for and pay costs associated with outdoor storage
of resin.
11. Legal title and risk associated with resin supplied to RPC by or at the
instruction of PPI shall at all times be vested in PPI and may be removed
from the RPC Premises only in the event if default by RPC pursuant to
paragraph 38 herein.
12. Legal title to all sheeting manufactured by RPC which incorporates in whole
or in part resin supplied by PPI shall at all times be vested in PPI. PPI
hereby grants to RPC a security interest in the plastic sheets manufactured
and delivered by RPC pursuant to the terms of this Agreement until payment
of the purchase price in full has been made and agrees to do all things and
execute all documents necessary to protect and perfect such security
interest pursuant to the Personal Property Security Act (Alberta).
Notwithstanding the proceeding sentence, RPC agrees that it will not
enforce its security interest as provided herein against bona fide
purchasers for value from PPI. PPI appoints RPC as its attorney to execute
any documents or other instruments necessary to perfect or enforce RPC's
security interest. RPC shall provide PPI with copies of all documents so
executed and RPC shall have the right to register such security interest at
the Personal Property Registry (Alberta) from time to time and at any time
during the term of this Agreement.
13. It is contemplated by the Parties that PPI may from time to time request
variation in resin components and specifications; including use of offspec,
regrind and oil bottle. Unless otherwise waived by RPC, PPI shall provide
request for variation in resin components and the Specifications in writing
to RPC forty-five (45) days in advance of manufacture to allow RPC
sufficient opportunity to review and approve requests for change. RPC
retains the sole right to refuse changes in resin composition and
specifications which in its opinion may either cause damage to RPC
equipment or compromise the fitness of plastic sheet supplied to PPI.
14. The parties acknowledge that the impact of a change in resin or the
Specifications may increase or reduce the rate of production due to change
in resin flow and density factors. In the
E-6
<PAGE>
event rate of production is affected by changes requested by PPI and
approved by RPC, the per sheet price charged to PPI for plastic
manufactures and supplied by RPC will be adjusted on a pro rata basis using
the following benchmark formula:
No of units produced in 1 hour x $6.00
--------------------------------------
Average* units of production per month
* Average units of production shall be determined at the end of the first
four months of full production of fifteen thousand (15,000) sheets based
upon the greater of:
i) the average number of plastic sheets of production produced in one
hour during any given month of the first four (4) months of full
production; and
ii) the average number of plastic sheets produced in one hour averaged
over the first four (4) months of production.
15. PPI acknowledges that RPC may from time to time improve or replace its
manufacturing equipment which may have the effect of increasing the average
units of production referred to above. In the event of any significant
improvement in the determination of the average units of production for the
purposes set out in this agreement shall be adjusted accordingly.
16. PPI may at any reasonable time request independent verification of RPC
determination of average units of production.
Delivery
17. F.O.B. RPC Premises.
18. PPI may at its cost and expense request out of building delivery of the
plastics sheets to a location other than the PPI Premises.
Quantity
19. PPI warrants that upon expiry of a four month proving period wherein PPI
will complete testing of the validity of resin formulations and supply
agreements with Cultec Inc, it warrants that it will accept and purchase
minimum annual delivery of forty-eight thousand (48,000) plastics sheets
per year during the term of this Agreement in accordance with the
Specifications herein or any approved changes thereto.
20. Notwithstanding paragraph 19 herein, PPI agrees that it shall accept and
pay for fifteen thousand (15,000) plastic sheets per month commencing
September 1, 1999 and for each and every month thereafter during the term
of this Agreement. PPI shall be at liberty to reduce its minimum monthly
purchase of sheets from RPC but only upon sixty (60) day written notice to
RPC.
21. In the event that PPI shall require delivery of plastics sheets in excess
of fifteen thousand (15,000) per month PPI shall provide RPC with thirty
(30) day written notice (the "Notice Period") and RPC shall have the first
right of refusal to supply such excess sheets to PPI
E-7
<PAGE>
pursuant to the terms and conditions contained in this Agreement
exercisable by advising PPI of its election in writing during the Notice
Period. The right of first refusal shall not apply any products that RPC
is not capable of manufacturing.
Inspection
22. PPI acting reasonably, shall have the right to reject any plastic sheeting
delivered by RPC in the event that such sheets do not conform with the
Specifications as set out herein, however PPI shall have no right of
rejection in the event that defects in the sheets are due to the quality,
purity or other matters related to the resin comprising the sheets. Reasons
for rejection by PPI must be communicated to PPI in writing no later than
72 hours after delivery to the PPI Premises. In the event PPI rejects
delivery of plastic sheeting for reasons other than those arising from the
resin content of the sheets RPC shall be responsible for all costs
associated with return and regrinding of plastic sheeting.
Terms
23. Payment in whole forty-five (45) days from the last day of the month in
which delivery is received by PPI (hereafter the "regular terms of
payment").
24. Interest shall accrue on all payments due and owing and outstanding
pursuant to paragraph 23 above at an annual interest rate of 18% calculated
and charged at 1.5% per month compounded annually.
25. Notwithstanding paragraph 23 herein, during the first four (4) months of
the term of this Agreement, PPI shall pay RPC three ($3.00) dollars for
each sheet delivered during that month on the 15th day of such month with
the remaining three dollars ($3.00) plus GST and any and all applicable
manufacturing taxes to be payable in full forty five (45) days from the
last day of each month. During the last eight months of the first year of
the term of this Agreement, PPI shall pay RPC three ($3.00) dollars per
sheet for each sheet to be delivered during that month to RPC on the 30th
day of such month with the balance to be paid in full within forty five
(45) days thereafter.
The balance owing after partial payment shall be paid by PPI to RPC in
accordance with the regular terms of payment. Interest penalty shall not
accrue on partial advance payments.
Regrinding
26. PPI may from time to time provide RPC with resin trimmings and floor
sweepings from the manufactured plastic sheeting as well as other pre-cut
resin, all of which shall not be of a width greater than five (5) inches
and will be clean and free of all contaminants RPC shall regrind such resin
(the "regrind") and PPI shall pay RPC the price of eight ($0.08) cents per
pound for the regrind resin. Payment by PPI for the regrind shall be made
within thirty (30) days of the receipt of invoice from RPC. The regrind
shall, unless otherwise requested by RPC shall be stored at the RPC
Premises in such volume as shall be agreed to by the parties hereto.
27. RPC shall have the right to reject any resin based materials provided by
PPI for regrinding on the basis that such materials may damage or adversely
affect RPC's equipment.
E-8
<PAGE>
Production and Delivery Schedule
28. Within seven (7) days after delivery of the first installment of resin by
PPI to RPC pursuant to paragraph 9 herein, RPC will manufacture and deliver
fifty (50) plastic sheets ("test sheets") in accordance with the
Specifications in this Agreement for inspection, testing and approval by
PPI. Rejection by PPI shall be communicated in writing no later than
seventy two (72) hours after the date of delivery to PPI. In the event that
PPI rejects the initial test order other than for reasons of resin
composition RPC agrees to take reasonable steps to correct in a timely
manner all deficiencies and to continue to manufacture test sheets until
approved by PPI.
29. Immediately upon approval of the test sheets by PPI, RPC will unless
otherwise instructed by PPI commence production and delivery of plastic
sheeting in accordance with the Specifications and Delivery Schedule set
out in Schedule "A" and Schedule "B" to this Agreement.
ARTICLE 2 - PRECONDITIONS
30. As a condition of PPI entering onto this Agreement each of the Directors,
Shareholders and Employees shall execute Non-Disclosure and Confidentiality
Agreements to be prepared by PPI.
31. As a condition of this Agreement and subject to the consent and approval by
the Landlord of the RPC Premises, RPC and PPI shall execute a sub-lease for
portion of the RPC Premises on the terms and conditions consistent with the
head lease between RPC and its Landlord which terms and conditions shall
include those set out in Schedule C attached hereto.
32. As a condition of PPI entering into this Agreement, RPC shall deliver a
unanimous resolution of the shareholders of RPC consenting to the terms and
conditions as set out in Schedule "D" hereto.
33. 815969 Alberta Ltd. shall acknowledge and become bound by the terms of
RPC's Unanimous Shareholders Agreement dated effective September 7, 1994.
34. As a condition of PPI entering into this Agreement, RPC shall obtain and
deliver to PPI the release of Gerry Baker ("Baker") front the personal
guarantee granted by Baker in favour of the Bank of Montreal.
ARTICLE 3 - FINANCIAL COMMITTMENT BY RPC
35. RPC shall unless otherwise agreed in writing by PPI repay all RPC
indebtedness including commercial facilities, operating lines of credit,
conventional loans, shareholders loans and reasonable expense accounts
recorded on the financial statements of RPC from net income after taxes in
such amounts and times as its Board of Directors deem prudent and in the
best interests of RPC.
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36. Notwithstanding the generality of the above RPC shall in any event repay
all financial indebtedness of RPC referred to above no later than May lst,
2002.
ARTICLE 4 - RENEWAL
37. This Agreement shall automatically renew for two successive two-year
periods on the same terms and conditions continued herein, unless otherwise
agreed to in writing by the parties.
Miscellaneous Terms and Conditions
Confidentiality Agreements
38. Termination: If RPC shall fail to deliver plastic sheet in accordance with
the request of PPI as set forth in this agreement for reasons other than
PPI's failure to provide resin pursuant to paragraph 9 herein or for
reasons other than those relating to the composition of the resin or in
fulfilling any of the other obligations herein, and such default shall not
be cured within fifteen (15) days after written notice by PPI, PPI shall
have the right to terminate/cancel this Agreement by giving written notice
of termination/cancellation to RPC.
39. If PPI shall fail to accept delivery of the minimum quantity of plastic
sheet to be delivered pursuant to paragraph 19 herein, shall fail to
deliver resin pursuant to paragraph 9 herein, or shall fail to make timely
payment as set forth in this agreement and such default shall not be cured
within thirty (30) days after written notice by RPC, or the sublease
contemplated in Schedule "C" herein shall be terminated or breached by PPI,
RPC shall have the right to terminate/cancel this Agreement by giving
written notice of termination/cancellation to PPI.
40. Either Party shall have the right to terminate/cancel this Agreement by
giving written notice of termination/cancellation to the offending Party in
the event of any one of the following, such termination/cancellation being
effective upon receipt of such notice or five (5) days after such notice is
mailed, whichever is earlier:
i) Liquidation;
ii) Insolvency or bankruptcy whether voluntary or involuntary;
iii) Appointment of a trustee or receiver; and
iv) The institution by or against either party of any formal or informal
proceeding with respect to the dissolution or liquidation or winding
up of the affairs of either party.
41. The waiver of any default under this Agreement by either Party shall not
constitute a waiver of the right to terminate/cancel this Agreement for any
subsequent or like default, and the exercise of the right of
termination/cancellation shall not impose any liability by reason of
termination/cancellation nor have the effect of waiving any damages to
which the Parties might otherwise be entitled.
42. Force Majeure: Either RPC or PPI shall be released from its obligations
hereunder to the extent that performance thereof is delayed, hindered, or
prevented by force majeure as defined below, provided that the party
claiming hereunder shall notify the other with all possible
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speed specifying the cause, probable duration of the delay or
non-performance and shall minimize the effects of such delay or
non-performance. Force majeure shall mean any circumstances beyond the
reasonable control of the party affected. Without thereby being limited,
force majeure includes any one or more of the followings:
(a) acts or restraints of government or public authority;
(b) wars, revolution, riot or civil commotion;
(c) strikes, lock outs or other industrial actions;
(d) failure of supplies, power or fuel, damage to the premises or storage
facility of RPC by explosion, fire, corrosion, ionizing, radiation,
radio active contamination, flood, natural disaster, malicious or
encroach acts or accidents; and
(e) break down or failure of equipment whether of the affected party or
others.
If delivery by RPC is delayed and prevented for any reasons beyond its
reasonable control, PPI reserves the right to defer the delivery date.
Arbitration: In the case of any dispute arising between RPC and PPI as to
their respective rights and obligations pursuant to paragraphs 9, 13, 14,
15, 22, 27 and 28 only, the parties agree to negotiate in good faith toward
resolution of such dispute and in the event that such dispute cannot be
resolved through negotiations the parties agree to appoint a mutually
agreeable arbitrator who shall arbitrate the dispute in accordance with the
Arbitration Act (Alberta) and such arbitration and decision shall be final
and binding upon the parties.
43. Governing Law and Jurisdiction: This Agreement shall be construed in
accordance with the laws of the Province of Alberta, Canada and the Parties
agree to attorn to the jurisdiction of the courts in the Province of
Alberta, Canada for the purpose of this Agreement.
44. Survival: If any provision of this Agreement is declared invalid, illegal
or unenforceable by a Court of competent jurisdiction such provision shall
be severed from this Agreement and all other provisions of the Agreement
shall remain of full force and effect.
45. Amendments: This Agreement may be amended, modified, released, discharged
or abandoned only by an instrument executed buy the duly authorized
officers of the Parties.
46. Further Assurances: The Parties shall execute, acknowledge and deliver all
such further assurances, instruments and documents and do all such other
acts as may be necessary or appropriate in order to carry out the intent
and purposes of this Agreement.
47. Assignment: This agreement and the rights and obligations hereunder may not
be assigned by the Parties without prior written consent of the Parties.
48. Effective Date: the effective date of this agreement shall be May 1, 1999.
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49. Notices: Any communication required to be given under this Agreement shall
be in writing and may be given by personal delivery, registered mail or
facsimile:
To: Pinnacle Plastics Inc.
Attention: Mr. Kenneth M. Bateman
Telephone No.: (403) 201-5707
Facsimile No: (403) 201-2411
To: RPC Manufacturing Ltd.
Attention: Peter Moritz
Telephone No.: (780) 489-8929
Facsimile No.: (780) 486-1270
Attention: Lou Zaccardelli
Telephone No.: (780) 453-3555
Facsimile No.: (780)451-4679
IN WITNESS WHEREOF THE PARTIES TO THIS AGREEMENT HAVE EXECUTED THIS AGREEMENT BY
AFFIXING THEIR CORPORATE SEALS AND SIGNATURES OF THEIR AUTHORIZED OFFICERS
RPC MANUFACTURING INC.
Per: [ILLEGIBLE]
----------------------
PINNACLE PLASTICS INC.
Per: /S/KENNETH M. BATEMAN
----------------------
Kenneth M. Bateman
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<PAGE>
SCHEDULE "A"
- - - --------------------------------------------------------------------------------
SPECIFICATIONS - PLASTIC SHEET
DESCRIPTION
Dimension* A surface area not to exceed 5,200 square inches
Resin High Density Polyethylene
Gauge" .130-.150
- - - --------------------------------------------------------------------------------
Unless otherwise requested by PPI:
* plastic sheet dimension shall be 48* inches x 108 inches untrimmed
** plastic sheet gauge shall be .140
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- - - --------------------------------------------------------------------------------
SCHEDULE "B"
DELIVERY SCHEDULE
-----------------
DATE MINIMUM QUANTITY FOR DELIVERY
- - - --------------------------------------------------------------------------------
May 1999 4,000 sheets
June " 8,000 sheets
July " 10,000 sheets
August " 12,000 sheets
September 1999 - May 2001 15,000 sheets
- - - --------------------------------------------------------------------------------
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SCHEDULE "C"
TO THE MANUFACTURING AGREEMENT DATED EFFECTIVE MAY 1, 1999
BETWEEN RPC MANUFACTURING INC. AND
PINNACLE PLASTICS INC.
Sub-lease Premises: 53323 Range Road 2323 Sherwood Park Alberta T8A 4V2
Tenants Name: Pinnacle Plastics Inc.
Square footage: 2500 Square Feet
Term: Three (3) years
Occupancy Date: June 1, 1999
Rent: Two Thousand ($2,000) dollars in advance of the first day of
each and every month of the term plus the proportionate
share of occupancy costs, plus all applicable GST
Renewal Options: Two lease renewal options at the written request of PPI (6
months in advance) for two year periods for a total renewal
period of four (4) years
Insurance: In accordance with the provisions of insurance contained in
the lease agreement between RPC and its Landlord
1. Lunchroom and washroom facilities located in the RPC Premises. The sublease
premises are divided by a common wall and are as shown and outlined in red
on the floor plan attached as Schedule "C" to this Agreement.
2. Interior access to the PPI Premises shall be restricted to protect the
proprietary nature of the Forming Technology. Arrangements for lock box
access shall be made in advance in the event emergency entrance to PPI
premises is required. Access to the common areas by PPI shall not be
restricted by RPC.
3. RPC consents to the construction of an access through the common interior
wall to facilitate convenient delivery of plastic sheeting by RPC and PPI.
PPI shall be responsible for and pay all costs associated with the
construction of the access.
4. PPI shall be responsible for and pay costs associated with the hook-up,
installation and recorded monthly use charges for:
a) gas and power check meters; and
b) utilities on the sublease premises
5. RPC will give uninterrupted exterior passage across or along outside RPC
leasehold building including access along lanes, entrances and exits.
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6. RPC shall provide on its premises without charge interior storage for resin
in a space approximately thirty (30) feet by one hundred and thirty (130)
feet. RPC shall be responsible to feed resin from the said storage area
into RPC's extruder.
7. In the event that PPI requests interior bulk storage of resin significantly
greater than the area described above PPI will be responsible to provide a
suitable storage tank and auger, pump or other appropriate mechanical
feeder to transfer resin from the interior storage container to the RPC
extruder.
8. The Parties will share equally the responsibility for costs, use and
maintenance where applicable for:
i) Construction of a common loading dock (contractor and cost to
construct to be agreed between the Parties);
ii) Forklift leasing and fuel (costs not to exceed eight hundred ($800.00)
dollars per month) The parties hereto confirm that at all times, title
to and legal ownership of the forklift shall vest in RPC;
iii) Forklift Operator wages if operator services are requested by PPI
(operator to be selected by PPI and hourly wage to be agreed to by the
Parties);
9. PPI shall hire and pay for the services of a Production Manager. As
circumstances and common purposes may permit the Parties may share the
services and salary of the Production Manager. Where the services of the
Production Manager are shared, the Parties shall jointly select and approve
the name of the Production Manager and shall agree in advance and in
writing to a description of the respective duties to be performed by the
Production Manger which writing shall be attached to and form part of this
Agreement. Such schedule to be amended in writing from time to time as
manager responsibilities and requirements change between the Parties. The
Production Manger shall at all times and in any event be an employee of
PPI.
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<PAGE>
SCHEDULE "D"
TO THE MANUFACTURING AGREEMENT DATED EFFECTIVE MAY 1, 1999
BETWEEN RPC MANUFACTURING INC. AND
PINNACLE PLASTICS INC.
1. The Shareholders of RPC shall consent to the transfers of shares in RPC by
Tradeseas Corporation and Gerry Baker to 815969 Alberta Ltd.;
2. 815969 Alberta Ltd. shall be exempted from any cash call made by the
Corporation or the Shareholders pursuant to the terms of RPC's Unanimous
Shareholders Agreement dated September 7, 1994 (the "USA") or any amendment
thereto or replacement thereof;
3. 815969 Alberta Ltd. shall be granted the right to appoint one director to
the board of directors of RPC at each annual general meeting of the
Shareholders of RPC during the term of the Manufacturing Agreement;
4. 815969 Alberta Ltd. shall be granted an option (the "Option") to acquire up
to 39.1% of the issued and outstanding common shares in the capital of the
Corporation exercisable as of May 1, 2002, on a pro rata basis from each of
the Shareholders, for a purchase price of $1,000.00 per share. The Option
shall only be exercisable by 815969 Alberta Ltd. in the event that the
total number of plastic sheets purchased by PPI during the term of the
Manufacturing Agreement is not less than 360,000. In the event that RPC
fails to have extinguished all of its financial indebtedness by May 1, 2002
the existing indebtedness shall be apportioned pro rata to all the issued
and outstanding shares of the Corporation and 815969 Alberta Ltd. shall be
entitled to set off such amounts against the purchase price pursuant to the
exercise of the Option;
5. In the event PPI renews the Manufacturing Agreement pursuant to the terms
contained therein, 815969 Alberta Ltd. shall be granted a continuous right
of first refusal ("ROFR") with respect to the purchase of all remaining
issued and outstanding shares in the capital of the Corporation exercisable
as of May 1, 2002 for a purchase price to be determined by an independent
valuator;
6. Upon 815969 Alberta Ltd. exercising the Option and acquiring 39.1% of the
issued and outstanding common shares in the capital of the Corporation, the
Unanimous Shareholders Agreement dated effective September 7, 1994 (the
"USA") shall be terminated and be of no further force and effect; and
7. There shall be no further amendment to the USA without 815969 Alberta
Ltd.'s written consent.
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