U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER:
MICRON ENVIRO SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
98-0202-944
(I.R.S. Employer Identification No.)
17920-105 Avenue, Suite 200, Edmonton, Alberta, Canada T5S 2H5
(Address of principal executive offices) (Zip Code)
(780) 414-1525
(Issuer's Telephone Number, including Area Code)
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
1301 Dove Street, Suite 460
Newport Beach, California 92660
Telephone: 949.660.9700
Facsimile: 949.660.9010
(Name, Address and Telephone Number of Agent for Service)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date. As of June 30, 2000, there were
7,702,758 shares of the issuer's $.001 par value common stock issued and
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Board of Directors
Micron Enviro Systems, Inc.
Edmonton, Alberta
Canada
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying consolidated balance sheets of Micron Enviro
Systems, Inc. (a development stage company) as of June 30, 2000 and the related
consolidated statements of operations and comprehensive loss, consolidated cash
flows, and consolidated stockholders' equity (deficit) for the six months ended
June 30, 2000, and for the period from January 23, 1998 (inception) through June
30, 2000. These consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
The consolidated balance sheet for the year ended December 31, 1999 was audited
by us and we expressed an unqualified opinion on it in our report dated April
10, 2000, but we have not performed any auditing procedures since that date.
As discussed in Note 2 to the financial statements, the Company has been in the
development stage since its inception on January 23, 1998. Realization of a
major portion of the assets is dependent upon the Company's ability to meet its
future financing requirements, and the success of future operations.
Management's plans regarding those matters also are described in Note 2. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
August 11, 2000
1
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 9,340 $ 46,752
Accounts receivable 39,008 38,815
Inventory 80,785 137,351
Prepaid expenses -- 1,194
Notes receivable 2,759 13,848
GST receivable 4,629 --
--------- ---------
TOTAL CURRENT ASSETS 136,521 237,960
--------- ---------
PROPERTY AND EQUIPMENT
Machines and equipment 172,900 164,442
Molds 60,363 60,363
Less accumulated depreciation (27,508) (18,442)
--------- ---------
TOTAL PROPERTY AND EQUIPMENT 205,755 206,363
--------- ---------
OTHER ASSETS
Other assets 1,248 1,248
Manufacturing and technical licenses 225,052 225,052
Less accumulated amortization (33,634) (22,630)
--------- ---------
TOTAL OTHER ASSETS 192,666 203,670
--------- ---------
TOTAL ASSETS $ 534,942 $ 647,993
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 37,857 $ 81,999
Notes payable to related parties 182,961 181,741
Notes payable 320,344 309,546
Current portion of long-term debt 17,234 34,606
--------- ---------
TOTAL CURRENT LIABILITIES 558,396 607,892
--------- ---------
LONG-TERM LIABILITIES
Other long-term debt 131,168 131,691
--------- ---------
TOTAL LONG-TERM LIABILITIES 131,168 131,691
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 200,000,000 shares authorized,
$.001 par value; 7,702,758 and 7,620,000 shares
issued and outstanding, respectively 7,703 7,620
Additional paid-in-capital 284,987 264,380
Accumulated deficit during development stage (445,427) (362,269)
Other comprehensive income (loss) (1,885) (1,321)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (154,622) (91,590)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 534,942 $ 647,993
========= =========
</TABLE>
See accountant's review report and notes to financial statements.
2
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
For the For the For the For the Period from
Three Months Three Months Six Months Six Months January 23, 1998
Ended Ended Ended Ended (Inception) to
June 30, June 30, June 30, June 30, June 30,
2000 1999 2000 1999 2000
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES $ 27,955 $ -- $ 27,955 $ -- $ 66,457
COST OF GOODS SOLD 32,382 -- 32,382 -- 70,184
----------- ----------- ----------- ----------- -----------
GROSS PROFIT (4,427) -- (4,427) -- (3,727)
----------- ----------- ----------- ----------- -----------
E X P E N S E S
Direct costs 2,045 -- 4,669 9,480 28,789
Office expense 2,573 1,535 11,095 3,801 66,458
Professional services 14,967 12,040 33,608 66,056 181,678
Research and development 4,453 -- 5,632 -- 71,929
Travel expense 906 8,567 2,665 20,262 25,354
Depreciation and amortization 10,044 2,332 20,070 2,332 61,517
----------- ----------- ----------- ----------- -----------
TOTAL EXPENSES 34,988 24,474 77,739 101,931 435,725
OTHER INCOME AND EXPENSE
Interest income -- -- 81 -- 81
Miscellaneous sales 5,017 -- 5,153 -- 5,153
Interest expense (3,783) -- (6,226) -- (11,209)
----------- ----------- ----------- ----------- -----------
TOTAL OTHER INCOME AND EXPENSES 1,234 -- (992) -- (5,975)
LOSS BEFORE INCOME TAXES (38,181) (24,474) (83,158) (101,931) (445,427)
INCOME TAX -- -- -- -- --
----------- ----------- ----------- ----------- -----------
NET LOSS (38,181) (24,474) (83,158) (101,931) (445,427)
OTHER COMPREHENSIVE LOSS
Foreign currency translation gain (loss) (154) -- (564) -- (1,885)
----------- ----------- ----------- ----------- -----------
NET COMPREHENSIVE LOSS $ (38,335) $ (24,474) $ (83,722) $ (101,931) $ (447,312)
=========== =========== =========== =========== ===========
BASIC AND DILUTED
NET LOSS PER COMMON SHARE $ (0.00) $ (0.00) $ (0.01) $ (0.02) $ (0.07)
=========== =========== =========== =========== ===========
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER OF
COMMON STOCK SHARES OUTSTANDING 7,702,758 5,174,666 7,675,172 5,582,222 6,366,587
=========== =========== =========== =========== ===========
</TABLE>
See accountant's review report and notes to financial statements.
3
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Common Stock Deficit
---------------------- Additional During Other Total
Number Paid-in Development Comprehensive Stockholders'
of Shares Amount Capital Stage Income/(Loss) Equity (Deficit)
--------- ---------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 23, 1998 (Inception) -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock
for cash at $0.002 per share 5,000,000 5,000 5,000 -- -- 10,000
Loss for period ending, December 31, 1998 -- -- -- (35,050) -- (35,050)
--------- ---------- ------------ ------------ ------------ ------------
Balance, December 31, 1998 5,000,000 5,000 5,000 (35,050) -- (25,050)
Issuance of common stock for cash
at $0.10 per share 620,000 620 61,380 -- -- 62,000
Issuance of common stock for acquisition
of subsidiary 2,000,000 2,000 198,000 -- -- 200,000
Net loss for year ended December 31, 1999 -- -- -- (327,219) -- (327,219)
Foreign currency translation loss -- -- -- -- (1,321) (1,321)
--------- ---------- ------------ ------------ ------------ ------------
Balance, December 31, 1999 7,620,000 7,620 264,380 (362,269) (1,321) (91,590)
Issuance of common stock for conversion
of accounts payable at $0.25 per share 82,758 83 20,607 -- -- 20,690
Net loss for six months ended June 30, 2000 -- -- -- (83,158) -- (83,158)
Foreign currency translation loss -- -- -- -- (564) (564)
--------- ---------- ------------ ------------ ------------ ------------
Balance, June 30, 2000 (unaudited) 7,702,758 $ 7,703 $ 284,987 $ (445,427) $ (1,885) $ (154,622)
========= ========== ============ ============ ============ ============
</TABLE>
See accountant's review report and notes to financial statements.
4
<PAGE>
MICRON ENVIRO SYSTEMS INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
For the For the Period from January 23,
Six Months Six Months January 23, 1998 1998
Ended Ended (Inception) to (Inception) to
June 30, June 30, June 30, December 31,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (83,158) $ (101,931) $ (445,427) (362,269)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 20,070 2,332 61,142 41,447
Stock issued for accounts payable 20,690 -- 20,690 --
(Increase) decrease in accounts receivable (193) (11,103) (39,008) (38,815)
(Increase) decrease in prepaid expenses 1,194 (4,694) -- (1,194)
(Increase)decrease in inventory 56,566 (86,022) (67,767) (124,332)
(Increase)decrease in receivables (4,629) -- (7,388) (272,770)
Increase(decrease) in accounts payable (44,142) 3,524 17,167 81,999
Increase(decrease) in loans payable -- -- -- 14,547
----------- ----------- ----------- -----------
Net cash used in operating activities (33,602) (197,894) (460,591) (661,387)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchased (8,458) (177,084) (229,696) (221,239)
Manufacturing and technical licenses purchased -- (25,052) (25,052) (25,052)
----------- ----------- ----------- -----------
Net cash used in investing activities (8,458) (202,136) (254,748) (246,291)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on related note payables 1,220 72,263 182,961 296,430
Issuance of long-term debt -- 172,065 172,065 172,065
Payment on long-term debt (17,895) -- (23,663) (5,768)
Proceeds on notes payable 21,887 188,312 320,344 417,927
Payments on notes payable -- (18,654) -- --
Proceeds from sale of common stock -- 62,000 72,000 72,000
----------- ----------- ----------- -----------
Net cash provided by financing activities 5,212 475,986 723,707 952,654
----------- ----------- ----------- -----------
Change in cash (36,848) 75,956 8,368 44,976
Adjustment for foreign currency (564) -- 972 1,331
Cash, beginning of period 46,752 -- -- --
----------- ----------- ----------- -----------
Cash, end of period $ 9,340 $ 75,956 9,340 46,307
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 2,443 $ -- $ 2,443 --
=========== =========== =========== ===========
Income taxes paid $ -- $ -- $ -- --
=========== =========== =========== ===========
NON-CASH TRANSACTIONS
Stock issued for accounts payable $ 20,690 $ -- $ 20,690 --
Stock exchanged for manfacturing and technical licenses
of subsidiary -- 200,000 200,000 200,000
In December 1998, the Company acquired the technology and
product lines being developed from another party as part of the
following non-cash transaction:
Inventory -- -- 13,018 13,018
Property, plant and equipment -- -- 3,567 3,567
Intangible assets -- -- 1,248 1,248
</TABLE>
See accountant's review report and notes to financial statements.
5
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
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 primarily for the purpose of owning and operating a low cost housing
project and acquiring technology related to the recycling of waste oil. While
maintaining a contractual interest in a waste oil recycling venture, the Company
has redirected its assets to acquiring an existing high tech manufacturing
business. In December 1998, the Company acquired the inventory and equipment of
a company in receivership (Dustcheck Filters, Inc.). The Company is currently
developing marketing and manufacturing plans for the products acquired. The
Company plans to sell an advanced cleaning mitt and a reusable non-mechanical
electrostatic air filter. The name change to Micron Enviro Systems, Inc. was
effective on January 22, 1999. The Company maintains an office in Edmonton,
Alberta, Canada. The Company has elected a December 31 fiscal year end.
On March 11, 1999, the Company acquired Pinnacle Plastics, Inc. as a wholly
owned subsidiary. Pinnacle Plastics Inc. (PPI) was incorporated in February 1999
under the Business Corporations Act of Alberta and commenced operations in the
month of February 1999. PPI will manufacture plastic storm and wastewater
recharging chamber systems. PPI has exclusive and enduring rights to technology
for the forming of the plastic chamber systems and has developed machinery to
make use of the new technology.
As of June 30, 2000, the Company was still in the development stage and had not
commenced full commercial production, although its subsidiary had minimal
revenues.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Micron Enviro Systems, Inc.
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Development Stage Activities
The Company has been in the development stage since its formation in January
1998. It is primarily engaged in developing and marketing a re-usable,
non-mechanical electro-static air filter and a cleaning mitt for household
purposes. The Company's subsidiary, PPI, has been in the development stage since
its formation in February 1999 and plans to manufacture plastic storm and waste
water recharging chamber systems.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
6
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loss Per share
Loss per share was computed by dividing the net loss by the weighted average
number of shares outstanding during the period. The weighted average number of
shares was calculated by taking the number of shares outstanding and weighting
them by the amount of time that they were outstanding. Diluted loss per share is
the same as basic loss per share, as there are no common stock equivalents
outstanding.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.
As shown in the accompanying financial statements, the Company incurred a net
loss of $83,158 for the six months ended June 30, 2000, and an accumulated
deficit from inception of $445,427. At June 30, 2000, the Company has negative
working capital and negative net worth. The Company, being a developmental stage
enterprise, is currently putting technology in place which will, if successful,
mitigate these factors which raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.
Management is currently exploring a number of opportunities for development of
its current product lines, and plans to extend the market for its products and
to expand and diversify production during the year 2000. Management registered
the Company with the Securities and Exchange Commission in 1999, and will
explore additional equity investments and debt financing in 2000.
Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
Use of Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Inventories
Inventories of raw materials are valued at the lower of cost (first-in,
first-out method) or replacement cost. Inventories of work in process and
finished goods are valued at the lower of cost (including appropriate overhead)
or net realizable value less normal profit margin.
7
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interim Financial Statements
The interim financial statements as of and for the six months ended June 30,
2000 included herein have been prepared for the Company, without audit. They
reflect all adjustments which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. All such adjustments
are normal recurring adjustments. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full fiscal year.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a statement
titled "Accounting for Impairment of Long-lived Assets." In complying with this
standard, the Company will review its long-lived assets quarterly to determine
if any events or changes in circumstances have transpired which indicate that
the carrying value of its assets may not be recoverable. The Company determines
impairment by comparing the undiscounted future cash flows estimated to be
generated by these assets to their respective carrying amounts. The Company does
not believe any adjustments are needed to the carrying value of its assets at
June 30, 2000, nor at December 31, 1999.
Translation of Foreign Currency
Monetary assets and liabilities denominated in foreign currencies are translated
into United States dollars at rates of exchange in effect at the balance sheet
date. Gains or losses are included in income for the year, except gains or
losses relating to long-term debt which are deferred and amortized over the
remaining term of the debt. Non-monetary assets and liabilities and items
recorded in income arising from transactions denominated in foreign currencies
are translated at rates of exchange in effect at the date of the transaction.
Research and Development
Research costs are expensed as incurred. Development costs are also expensed
unless they meet specific criteria related to technical, market and financial
feasibility, in which case they are deferred and amortized to operations over a
maximum period of three years from the date of completion of the project. Costs
are reduced by government grants and investment tax credits where applicable.
Year 2000 Issues
Like other companies, Micron Enviro Systems, Inc. could be adversely affected if
the computer systems the Company, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the "Year
2000" issue. Additionally, this issue could impact non-computer systems and
devices such as production equipment and elevators, etc. At this time, the
Company does not have any evidence of problems associated with the Year 2000
issue. Any expenses associated with the Year 2000 issue are expensed as
incurred.
8
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiary. All significant inter-company transactions and balances have
been eliminated in the consolidation.
Segment Reporting
The Company does not utilize segment information at this time as defined by SFAS
131. Currently, the Company is operating as a holding company with one operating
subsidiary all located in Canada.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight line method over the estimated useful lives of the
assets. Depreciation expense for the six months ended June 30, 2000 was $20,070,
and $41,072 for the year ended December 31, 1999. The useful lives of property,
plant and equipment for purposes of computing depreciation is as follows:
Equipment 5 - 10 years
Trailers 4 years
Molds and dies 3 - 4 years
Small tools 2 years
NOTE 4 - INTANGIBLE ASSETS
During the period ended December 31, 1998, Micron Enviro Systems, Inc. incurred
organization costs of $2,500. These organization costs were being amortized over
the useful life of sixty months beginning April 1, 1998. During the period
ending December 31, 1998, $375 was recorded as amortization of organization
costs. In accordance with SOP 98-5 (effective for fiscal years beginning after
December 15, 1998), the Company has written off its organization costs in the
year ending December 31, 1999, thereby incurring a charge of $2,125.
9
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 4 - INTANGIBLE ASSETS (Continued)
During the period ended December 31, 1998, Micron Enviro Systems, Inc. purchased
pre-patent rights of $1,248 from Dust Check Filters, Inc. These pre-patent
rights are being amortized over a useful life of ten years. During the period
ending December 31, 1999, the Company recorded amortization of $125.
Manufacturing and technical licenses were purchased for $225,052 during the year
ended December 31, 1999. These licenses are being amortized over a useful life
of ten years. Amortization of $11,004 was expensed in the six months ended June
30, 2000, and $22,505 in the year ended December 31, 1999. (See Note 9).
NOTE 5 - SHORT-TERM DEBT
Short-term notes payable consist of the following amounts for the dates shown:
June 30, December 31,
2000 1999
--------- ---------
Notes Payable to Related Parties:
S. A. Resources Management Ltd. $ 40,159 $ 40,159
Ideal Management Inc. -0- 40,159
Ninem 41,379 -0-
Tangle Creek Cattle Co. 86,876 86,876
Pinnacle Quality Transportation Accessories Ltd. 14,547 14,547
--------- ---------
Subtotal 182,961 181,741
Notes Payable:
Ian McIntyre 11,034 -0-
Great Plains, Inc. 309,310 309,546
--------- ---------
Total of short-term notes payable $ 503,305 $ 491,287
========= =========
The note to S.A. Resources Management Ltd., bears no interest or specified terms
of repayment, is secured by inventory, accounts receivable and a General
Security Agreement covering property and equipment. (See Note 8).
The notes payable to Ideal Management Inc., Tangle Creek, and Great Plains, Inc.
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. It is anticipated that no payments will be made in the next year.
Tangle Creek Cattle Co. is a related party. (See Note 8). As of June 30, 2000,
the Company is currently finalizing an agreement to exchange 799,948 shares of
common stock for the note payable to Great Plains, Inc. and 256,696 shares for
the note payable to Tangle Creek.
10
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 5 - SHORT-TERM DEBT (Continued)
The note with Pinnacle Quality Transportation Accessories Ltd. was created in
the normal course of operations, which is the amount of consideration
established and agreed to by the related parties.
The note with Ninem, which bears no stipulated interest rate or specified terms
of repayment is secured by accounts receivable and fixed assets.
As of June 30, 2000, the Company was owed $282,426 by PPI for inter-company
borrowings which were eliminated in the consolidation.
NOTE 6 - LONG-TERM DEBT
Pinnacle Plastics Inc. has a Small Business Loan secured by a general security
agreement covering inventory and equipment, assignment of insurance proceeds,
and the limited personal guarantees of two directors. The loan is payable in
monthly installments of $2,884 plus interest at prime plus 2.5% per annum, with
a maturity date of October 2004 and a principal balance of $148,402.
Principal repayments of long-term debt over the next five years as of June 30,
2000 for the periods ending as of December 31 are as follows:
2000 $17,304
2001 $34,606
2002 $34,606
2003 $34,606
2004 $27,280
NOTE 7 - COMMON STOCK
Upon incorporation, 10,000,000 shares of common stock were sold at $0.001 per
share, under Regulation D, Rule 504. On January 22, 1999, the Company completed
a reverse 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. For the
year ended December 31, 1998, the consolidated balance sheets and statements of
operations and comprehensive loss have been restated reflecting the reverse
stock split.
During the year ended December 31, 1999, the Company issued 620,000 common stock
shares for cash at $0.10 per share. Common stock shares were also issued for the
acquisition of subsidiary (PPI). A total of 2,000,000 shares were issued for the
acquisition valued at $0.10 per share. (See Note 9).
11
<PAGE>
MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 7 - COMMON STOCK (Continued)
During the quarter ended March 31, 2000, the Company converted debt of $20,690
arising from operating expenses to 82,758 common stock shares.
NOTE 8 - RELATED PARTIES
The president of the Company is also the president and stockholder of Tangle
Creek Cattle Co. and Ideal Management, Inc., both of which have, subsequent to
1998, advanced funds to the Company. Tangle Creek Cattle Co. advanced funds for
the Company to acquire the inventory and equipment for the Company in return for
a note payable. The Company occupies office space provided by Tangle Creek
Cattle Co. (See Note 5).
S. A. Resources Management Ltd. is a company in which the president of PPI has a
significant interest, but less than majority. (See Note 5).
Pinnacle Quality Transportation Accessories Ltd. is a company in which a
director of PPI has a significant interest, but less than majority. (See Note
5).
NOTE 9 - ACQUISITION OF PINNACLE PLASTICS, INC.
In March 1999, the Company acquired all of the outstanding common stock of the
recently formed Pinnacle Plastics, Inc. (PPI) in exchange for 2,000,000 shares
of its common stock valued at $.10 per share. PPI had no significant operations
at the time of the combination, nor had it recognized any sales, revenues or
earnings prior to the combination. The combination was accounted for as a
purchase with the $200,000 value of the common stock being assigned to the
manufacturing rights and licenses held by PPI. These rights grant PPI the
exclusive license to manufacture and distribute in the U. S. and Canada a
product known as Septic and Storm Water Chambers. Management has determined that
the value of this manufacturing and licensing agreement is to be amortized over
ten years.
NOTE 11 - INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $360,000 that may be offset against future taxable income. No tax
benefit has been reported in the financial statements, as the Company believes
there is a 50% or greater chance that the net operating loss carryforwards will
expire unused. Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount. The
Company's Canadian subsidiary's losses of approximately $165,000, included in
the above amount, may result in tax benefits in Canada.
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MICRON ENVIRO SYSTEMS, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements to lease real property for a period of 2
years expiring in 2001. The future minimum lease payments as of June 30, 2000
for periods ending as of December 31, are as follows:
2000 $ 9,123
2001 3,635
----------
$ 12,758
==========
In addition to the above, the Company is also committed to pay its pro rata
share of operating expenses related to the lease.
NOTE 13 - SUBSEQUENT EVENTS
The Company will exchange 799,948 shares of common stock for the note payable to
Great Plains, Inc. and 256,696 shares for the note payable to Tangle Creek.
Also, the Company will exchange 41,936 shares of common stock for subsidiary
debt of $21,604, less credit for a note receivable of $11,078 on the Company's
books.
NOTE 14 - STOCK OPTIONS
In an October 1999 resolution, the Company's board of directors became
authorized at its discretion to issue stock options on 760,000 common stock
shares of the Company to board members, officers, and employees. As of June 30,
2000 there were no stock options issued. In the event that certain options are
not issued by May 31, 2000, the authorization to issue shall be reduced by
210,000 shares. The other options must be issued sometime in the twelve to
twenty-four months following the resolution.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Registrant was originally incorporated for the purposes of manufacturing low
cost housing in Argentina and to develop waste oil recycling technology in
Canada and the United States. After conducting its due diligence, the Registrant
decided to shift the focus of its business. The Registrant has completed the
research and development of technology designed to recycle hydraulic oil. The
Registrant is currently conducting a market analysis and feasibility study
regarding that technology.
On or about December 24, 1998, pursuant to a loan agreement, the Registrant
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 Registrant acquired
the right to technology and intellectual property relating to a re-usable,
non-mechanical electro-static air filter ("Filter") that cleans and sanitizes
circulated air at the supply point of a building's heating, ventilating, or air
conditioning system. The Filter is comprised of a filter membrane encased in a
plastic from and capable of removing dust and dust particulate, molds, fungi,
and bacteria that have a particular negative impact on individuals suffering
from asthma and allergies. The Registrant has also researched and developed an
all-purpose cleaning mitt ("Mitt").
The Registrant currently utilizes former staff of Dustcheck as consultants. In
conjunction with these consultants, Registrant is in the process of finalizing
patent applications and developing a marketing strategy and distribution for
both the Filter and the Mitt.
The Registrant's Subsidiary. In or about March, 1999, the Registrant issued
2,000,000 shares of its $.001 par value common stock to Shareholders of 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 Registrant.
Plan of Operation. Although the Registrant is continuing to pursue the marketing
and sale of the Filter and Mitt as well as the marketing of the oil recycling
technology, the Registrant's immediate focus will involve the production,
through Pinnacle, of plastic septic and wastewater drainage chambers.
Pinnacle acquired, from 815969 Alberta Ltd., the exclusive right to license a
patented plastics forming technology that allows forming of plastic from
reground and recycled plastic. Pinnacle is currently manufacturing patented
plastic drainage chambers for Cultec Inc. of Brookfield, Connecticut ("Cultec"),
holders of the patents for the products Pinnacle is manufacturing to direct
purchase orders of Cultec.
Traditionally, Cultec products have been manufactured through thermoforming.
Thermoforming requires the use of relatively high heat and expensive machinery
including vacuum suction equipment and high cost molds and dies. These costs are
reflected in the price of the product from Cultec's manufacturers. The
Registrant hopes that Pinnacle, through a new patented process of plastic
forming, will become the low-cost manufacturer of Cultec products in North
America. Pinnacle derives its cost advantage from the new patented technology
which allows plastic to be formed at considerably lower temperatures utilizing
regrind and recycled plastic, without expensive thermoforming equipment.
Pinnacle, as licensee, has received from the patent holders, assurance that
Pinnacle holds an exclusive position in Canada and the United States to utilize
the technology in relation to the requirements of Cultec. A number of prototypes
have already been manufactured by Pinnacle and approved by Cultec as meeting or
exceeding their specifications.
Cultec is the primary producer of plastic septic and waste storm water systems.
Registrant believes that the main competition will be from conventional
pipe/gravel and concrete systems. The Registrant believes that the unique design
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and features of the Cultec drainage systems offers it a competitive advantage
over its competition. The Registrant believes that the Cultec products
outperform older methods of drainage, are less expensive to transport and
install and save on labor costs. Last year, Cultec sold approximately 900,000
drainage chambers in the United States and Canada and expects to increase that
output in 2000.
Pinnacle, with the financial support of the Registrant, completed fabrication of
its manufacturing equipment and molds and has installed the equipment in a
manufacturing facility in Edmonton, Alberta, Canada. The manufacturing facility
is located adjacent to the premises of RPC Manufacturing Inc. RPC is the primary
supplier of plastic sheet used by Pinnacle to form and manufacture the drainage
chambers.
During the 4th Quarter of 1999, Pinnacle at the request of Cultec, experimented
with several different recycled high-density plastic resigns to form the plastic
sheet. Under purchase order from Cultec, Pinnacle produced and shipped 1,000
units of the plastic chambers to Cultec for delivery to Cultec's network of
distributors in the United States. Cultec, utilizing the initial shipment,
exposed the product to distributors and end users and profiled the product at
industry trade shows with the expressed purpose of measuring market acceptance
and size for the products manufactured by Pinnacle.
During the 1st Quarter of 2000, Pinnacle was required to make minor
modifications to its production line to overcome deficiencies. Production
recommenced and a new shipment of product was delivered early in the 2nd Quarter
of 2000. Production has again been shut down due to Cultec's failure to pay for
the product and cancellation by Cultec of existing purchase orders. During the
2nd Quarter, Pinnacle's supplier of plastic sheet underwent modification to its
production line and has been unable to provide plastic sheet to Pinnacle.
It is possible normal business relations with Cultec have been severed and
Pinnacle is examining other products to produce for new clients. Pinnacle is
continuing to negotiate with a distributor of storm and wastewater drainage
products in the Pacific Northwest and United States, and collect accounts from
Cultec.
Liquidity. The Registrant has been in the development stage since January 23,
1998 (inception). As of June 30, 2000, Registrant had not realized any profits
from its planned operations. The Consolidated Statement of Cash Flows for the
three-month period ended June 30, 2000 indicates an accumulated deficit of
$445,427.00 compared to accumulated deficit of $362,269.00 for the corresponding
period in 1999.
At June 30, 2000, the Registrant had total current assets of $136,521.00,
compared to total current assets of $170,425.00 at March 31, 2000. The majority
of which was represented by $80,785.00 in inventory; $9,340.00 in cash and cash
equivalents; and $46,396.00 in receivables. At June 30, 2000, the Registrant had
total current liabilities of $558,396.00, compared to total current liabilities
of $564,009.00 at March 31, 2000. At March 31, 2000, total current liabilities
exceeded total current assets by $393,584. At June 30, 2000, total current
liabilities exceeded total current assets by $421,875.00.
The Registrant currently holds notes payable in the amount of $651,707.00,
however, those notes are unsecured, bear no interest and are payable only upon
Registrant's realization of sufficient profits or within 36 months, whichever
occurs first. Alternatively, the Registrant may convert such debt to common
shares of Registrant at its discretion.
In 1999, Registrant's subsidiary, Pinnacle Plastics, Inc., a Canadian
corporation ("Pinnacle"), qualified and obtained a loan for $171,175 from the
Canadian Federal Government. The Canadian Federal Government has guaranteed 85%
of loan and the Directors of the Registrant have personally guaranteed 25% of
the loan. The loan will bear a floating interest rate of prime plus 2.5%, and
has a 5-year term. The Registrant believes it will be able to meet its payment
obligations with its current cash resources until revenue is produced.
Currently the Registrant's only source of liquidity is through the sale of its
common stock and loans. The Registrant is actively seeking out the possibility
of a merger or acquisition of revenue producing assets. The Registrant has
curtailed its operations to reduce costs and to insure sufficient operational
capital to continue operations into the 3rd Quarter of 2000. The Registrant is
currently evaluating two acquisitions. The Registrant may be required to
relinquish rights the Registrant would not otherwise relinquish to collaborative
partners to maintain liquidity. No assurance can be given that funds will be
available on acceptable terms to satisfy the cash needs of the Registrant.
15
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
In or about March 2000, the Registrant issued 82,758 shares of its common stock
in settlement of $20,690.00 of debt and accounts payable. The Registrant's
payables were reduced accordingly, and no commission was paid in this
transaction. However, with the consent and collaboration of the debt holders the
stock has not yet been issued and the contemplated transaction will be
reconsidered by the Registrant and debtors in the 3rd Quarter.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August __, 2000 MICRON ENVIRO SYSTEMS, INC.
By: /s/ Rodney Hope
-----------------------------------
Rodney Hope
Its: President
17
