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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
(UNDER SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934)
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 06-1579072
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION IDENTIFICATION
NUMBER)
119 WEST 23RD STREET, NEW YORK, NEW YORK 10011
------------------------------------------------- ----------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER:
------------------------
SECURITIES TO BE REGISTERED UNDER SECTION 12 (b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE N/A
------------------------ -----------------------------------------
SECURITIES TO BE REGISTERED UNDER SECTION 12 (g) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON SHARES N/A
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TABLE OF CONTENTS
<TABLE>
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PART I - INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF BUSINESS ....................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ..... 14
ITEM. 3 DESCRIPTION OF PROPERTY ....................................... 17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . 18
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS .. 20
ITEM 6. EXECUTIVE COMPENSATION ......................................... 21
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................ 22
ITEM 8. DESCRIPTION OF SECURITIES ..................................... 22
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS ................................. 23
ITEM 2. LEGAL PROCEEDINGS ............................................. 24
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ................. 24
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES ....................... 24
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS ..................... 25
PART F/S FINANCIAL STATEMENTS ......................................... FS1-FS18
PART III
ITEM 1. INDEX TO EXHIBITS ............................................. 18
ITEM 2. DESCRIPTION OF EXHIBITS ........................................ 19
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Item 1. Description of Business
Enviro Industrial Technologies ("Enviro" or the "Company") was
incorporated in the State of Delaware on March 31, 2000 and plans to enter the
industrial mining business ("Industrial Mining Business"). It has not generated
any revenue to date and as of September 30, 2000 had an accumulated deficit of
($98,000) (see Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
for further information regarding Enviro's financial results). The core of
Enviro's business will be comprised of a vermiculite property owned by Enviro
consisting of a contiguous block of three (3) unpatented mining claims in
Canada, covering a total of 35 claim units which are in the process of being
patented (unpatented mining claims enable the holder to perform exploration work
and prospecting, but no ore may be removed from the claim sites while patented
mining claims enable the holder to process the ore in addition to exploration
and prospecting).
Vermiculite is the geological name given to a group of minerals which
are aluminum iron ore magnesium silicates resembling mica in appearance. Rock
and other impurities are removed from the crude ore which is crushed and sorted
into sizes. At high temperatures, the ore exfoliates (expands) to many times its
original volume, turning the flakes of ore into lightweight porous granules
containing millions of minute air layers. Exfoliation and its exceptional
thermal, chemical and acoustical insulating properties make vermiculite valuable
as a filler in lightweight concrete, agricultural products, insulation,
construction, metallurgy, chemistry and ceramics. In addition to becoming a
supplier of vermiculite, Enviro also plans to become a supplier of a high heat
industrial mineral and a manufacturer of a high performance filler for most
industries. The Company believes that with only nominal market penetration, it
can achieve its immediate capacity utilization. To achieve this goal, Enviro is
seeking to acquire not less than 80% of the issued and outstanding common shares
("Common Shares") of Hedman Resources Limited ("Hedman"), a Canadian publicly
traded company listed on the Canadian Venture Capital Exchange ("CDNX"). Enviro
and Hedman plan to combine their respective organizations in order to jointly
market a product using the trade name "Superfil" which has been shown to contain
no asbestos and to contain no other toxins or other known hazardous materials.
Enviro and Hedman believe that all currently manufactured asbestos products will
ultimately be replaced by environmentally safe products as the trend in the
United States and Canada has been to sharply limit the amount of asbestos that a
product may contain. Some countries, such as France, have outlawed completely
the use of asbestos. Neither Hedman nor Enviro have any reason to believe that
this trend won't continue. After the merger, Hedman will become a subsidiary of
Enviro.
Management of both Hedman and Enviro believe that the synergies between
the two companies will result in greater potential in terms of revenue and
profitability and that following the acquisition of Hedman, Enviro will become
the only commercial producer of vermiculite in North America.
Under the terms of the Letter of Intent by and between Enviro and
Hedman, Enviro will acquire up to 100% and no less than 80% of the outstanding
and issued securities of Hedman. Existing shareholders of Hedman will receive
one (1) share of Enviro Common Stock for every two (2) Common Shares of Hedman.
Outstanding warrants for the purchase of Hedman's Common Shares will also be
exchanged for shares of Enviro's Common Stock on the basis of one share of
Enviro Common Stock for each two Hedman Warrants. All shareholders and
warrantholders of Hedman will be able to participate in the exchange, including
promoters, officers and/or directors. New shares of Enviro will be issued in
exchange for the Hedman Common Shares and warrants. As of November 29,
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2000, Hedman had 28,283,035 issued and outstanding shares of its Common Stock,
8,608,334 warrants exercisable at $.20 Canadian and 5,305,319 warrants
exercisable at $.40 Canadian. After the exchange, Hedman shareholders will own
over 21,000,000 shares of Enviro.
As of December 1, 2000, the closing price of Hedman's Common Shares,
trading on the Canadian Venture Capital Exchange, was $.36 Canadian per share.
Enviro became a reporting company through the filing of its
Registration Statement on Form 10-SB, which was effective on November 14, 2000.
Enviro intends to apply for the approval of its common stock ("Common Stock") to
be traded on the NASD Over-the-Counter Bulletin Board ("OTC Bulletin Board").
Enviro cannot assure, however, that it will meet the qualifications of the OTC
Bulletin Board or that its application will otherwise be satisfactorily
processed by the OTC Bulletin Board to enable its Common Stock to be traded.
Hedman Resources Limited
Hedman Resources Limited was founded in 1956 as an exploration company.
Hedman is a publicly traded company incorporated under the laws of Ontario,
Canada and is listed on the Canadian Venture Exchange Capital (CDNX) with the
trading symbol "HDM." Hedman is in the Industrial Mining Business and has 29
lizardite claims in the Canadian Townships of Munro and Warden where it has an
open pit mining operation where any ore removed by Hedman is removed from the
surface of the earth rather than beneath it. Hedman's primary mining property is
located in Matheson, Ontario. In 1969, an 80,500 square-foot full-scale
processing mill expected to produce 50,000 tons per year went into production at
the mill site in Matheson. Hedman recently acquired new high technology
production equipment at a cost of $1.3 million Canadian affording it the
opportunity to produce more finely processed ore. It is in the process of being
installed and tested. Hedman expects full production to recommence in the first
quarter of 2001. Hedman's current sales are derived from materials that were
stockpiled in Hedman's warehouse.
Hedman's plant is located in the town of Matheson, Ontario, Canada. The
mining pit is located 22 miles north of the plant. The site on which the plant
is located is described as parcel 16089, being part of Lot 3, Concession 6,
Bowman Twp. in the Town of Matheson, containing 71.03 acres and zoned as General
Industrial. The buildings are made of concrete and steel and are in excellent
condition. The refurbishment of the milling equipment is underway in order that
Hedman may provide products that are -325 mesh, -400 mesh, and -500 mesh sizes
in order to service a larger number of industries.
SUPERFIL/LIZARDITE
Recently, Hedman successfully developed and began sending samples to
potential customers of a material called "Superfil," a trade name developed by
the company and used for lizardite ore after it has been processed. Lizardite
ore, derived from the geological serpentine family, was initially discovered on
certain of Hedman's mining properties in 1960. In 1959, exploration and
investigation on the bodies of various serpentine minerals on the Hedman
property had been undertaken. After an area constituting almost 13,000 cubic
feet was drilled, a large mineralized zone was found. Samples totaling
approximately 15,000 pounds were collected from the mineralized zone and sent to
the Quebec Department of Mines for analysis and identification. The Quebec
Department of Mines correctly identified the samples to be lizardite. Until
recently, Hedman used the lizardite mined to produce certain products it no
longer offers. Instead, having developed a new processing methodology for the
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of Superfil using lizardite, Hedman has opted to focus its resources primarily
on Superfil and is therefore about to begin full production, marketing and
distribution of Superfil. While Hedman owns its new processing equipment and the
methodology it employs for the extraction and further refinement of lizardite
into Superfil may be unique to Hedman, Hedman has no plans to apply for a patent
of its processing techniques as they are believed to be too generic to qualify
for patent protection.
According to Natural Resources Canada, Minerals and Metals Sector,
Hedman is the only extractor of lizardite ore in Canada and may be the only such
extractor in the world. Lizardite is characterized by high tensile strength,
flexibility, resistance to thermal, chemical and electrical conditions thereby
offering its highly desirable performance benefits when used as a formula
component in the production of a wide range of industrial and construction
properties. According to Robert A. Younker, a longstanding mining engineer and
geologist who conducted various analyses of the Hedman mining property, Hedman
was found to be the only producer in North America of lizardite. Fraser
Friction, Inc. has analyzed and conducted tests of Superfil and concluded that
Superfil is an environmentally safe, heat resistant industrial mineral filler
that possesses physical properties that enable it to blend well with most
industrial fillers and resins and may be used in numerous applications.
PRODUCT FEATURES
Lizardite is characterized by high tensile strength, and flexibility,
resistance to thermal, chemical and electrical conditions thereby offering its
highly desirable performance benefits when used as a formula component in the
production of a wide range of industrial and construction properties. Based on
the development of the proprietary processing technology discussed earlier,
Hedman's Superfil has been designed to be used by manufacturing and original
equipment manufacturing ("OEM") customers as an ingredient of such final
manufactured products as brake linings, construction materials,
plastics/polymers, asphalt, gaskets and more.
The key features offered by the Superfil addition to the manufacturer's
product mix are:
- Durability
- Heat Resistance
- Strength
- Flexibility
- Compatibility with other ingredients/components
Superfil has been analyzed and tested by Lakefield Research and found
not to contain any asbestos and to be environmentally safe, silica free and a
non-toxic mineral provider filler. Hedman, therefore, considers the Superfil it
markets to be safer than similar products which contain even trace amounts of
asbestos and believes that because it contains no asbestos, it should be
considered safer to use than those products because amounts of trace elements in
Hedman's Superfil, have been shown to be below the threshold levels set by OSHA
and European Directive 98/12/EC.
Until recently, the type of materials most commonly used by
manufacturers in, for example, the construction, automotive, and plastics
industries, contained asbestos and were especially favored for use in the
production of fire resistant products. The use of products containing asbestos
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has been reduced significantly because of the health concerns associated with
asbestos fibres. Asbestos-free products are being used as replacements. The
problem with many of the asbestos-free substitutes is that they do not generate
the same kind of durability and performance as asbestos designed or formulated
products had. Moreover, with the U.S. Department of Labor's implementation of
new OSHA standards, governments worldwide are taking steps to prohibit the use
of asbestos in products. Manufacturers are therefore facing an increasing demand
to seek substitute products and to compromise on the performance capabilities of
their products. As a result, Hedman no longer manufactures "Hedmanite" and
"Envirofil" as demand for these items has declined due to traces of fibre
elements. Currently, Superfil is the only product Hedman has in production,
which is still currently in test mode with samples currently being sent to
Hedman's customers to enable them to integrate Superfil into their own
processing and to test the results therefrom.
In summary, Superfil offers excellent heat resistance, strong
insulation, and low aggression against metal surfaces. In addition, while
providing good stable friction through a wide range of temperatures, it readily
combines with phenolic and other binder resins in common use and when used in a
friction material, the heat is dissipated at the rubbing surface and does not
penetrate to the steel backing plate where the heat could affect the strength of
the bond. Superfil also has good flow and mould-ability, and provides uniform
density to various compounds.
POTENTIAL LIABILITIES AND INSURANCE
Between 1974 and 1979, Hedman was a defendant in a number of lawsuits
which were brought because of the amount of asbestos in its ore. Hedman had
liability insurance under a number of insurance policies that were initially
subscribed to during the 1970's with Royal & Sun Alliance, ITT Hartford and
Travelers Property Casualty insurance companies. The indemnity limits of these
policies are not known as the liability coverage was terminated by the insurance
companies in 1979. Since that time, Hedman has not been eligible for any
liability coverage because its products contained asbestos. In addition, since
1979, Hedman completely disclosed the fact that its products contained asbestos
in order that anyone coming into contact with the product would know the risk
being assumed. Since 1979, no asbestos related litigation has been commenced
against Hedman.
The insurance policies referenced above have covered Hedman's costs
associated to date with the various lawsuits. Hedman's products contained
chrysotile, a type of asbestos (sometimes called "White Asbestos"), which at
that time was not known to be a health hazard. Nevertheless, to date
approximately $13 million Canadian has been expended by Hedman's various
insurance carriers for the payment of damages associated with claims against
Hedman. Legal expenses associated with these particular claims have totaled
approximately $7 million Canadian. However, there are an additional 2,715
asbestos claims in the states of Pennsylvania, West Virginia, Ohio and Michigan.
There is also an asbestos related personal injury lawsuit pending against Hedman
in New York State Supreme Court, Erie County in the case of Latko v. Acands,
Inc., et al. Hedman's insurance providers are unable to provide estimates of
what the total claims will amount to, but have assured Hedman that its liability
limits will likely be sufficient to cover these claims.
Hedman has completely eliminated chrysotile from its mining processes
and has ceased manufacturing Hedmanite and Envirofil because of the trace fibre
elements found in both products.
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Hedman is not aware of any litigation commenced or being contemplated regarding
Hedmanite or Envirofil. Finally, Hedman intends to become fully covered by
general and product specific liability insurance as soon as it has recommenced
its mining operation in early 2001.
MARKETING STRATEGY-SIMILAR LINES OF BUSINESS
Hedman is pursuing a marketing strategy that includes continued
Superfil application research and development, joint venture opportunities and
promotion of technical and specification dominance based on the primary fire,
heat and abrasion characteristics of Superfil. At the same time, Enviro had
entered into an Option Agreement with Krystar International Ltd., a company
organized under the laws of the Bahamas ("Krystar"), to acquire the vermiculite
claims owned by Krystar located in North Eastern Ontario. These claims were
shown by Constable Consulting Inc., a private Geological and Management
Consulting firm, to contain high grade vermiculite which is currently only
available in substantial quantities from sources in China and Europe.
Vermiculite has similar properties to lizardite in that it is also heat
resistant and can be used to enhance lizardite's natural properties as well as
used by itself for certain applications that require different grades of heat
resistance than that offered by Superfil such as brake linings for commercial
trucks. Because Enviro was aware of the joint marketing capabilities between
Enviro and Hedman, given the mining claims they respectively owned, Enviro
decided to exercise its option to purchase the vermiculite claims and did so in
September 2000 with the payment of $200,000 Canadian to Krystar. At the same
time, Hedman believed that a merger with Enviro would be beneficial because
Hedman would then be able to create an application formula combining Superfil
and the high-grade vermiculite available through the mining claims owned by
Enviro to enhance the fire, heat and strength performance of Hedman's existing
product. The resulting product would be marketed to Hedman's existing and
targeted markets.
The three product categories represented by Hedman's targeted
industries are as follows:
Building Products
- Cement Products (pipes, sheets, shingles, siding,
pre-cast products)
- Insulation & Drywall Products
Plastics Products
- Nylon, Polypropylene, PVC plastic products
- Moulding Compounds used in electronic, automotive,
printing industries
Automotive Brake Products
- Heavy truck brake shoes
- Brake linings (Note: One of the reasons automobile
manufacturers moved so fully to anti-locking brake
systems was to alleviate the problems of unbalanced
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non-asbestos brakes)
- Clutch Facings & Industrial Linings For Equipment and
Appliances
A summary of the above is as follows:
<TABLE>
<CAPTION>
Industry Serviced How Superfil Meets Requirements
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<S> <C>
Brake pads & linings Average brake pads and linings manufacturer up to 14
additives to formulate brake pads: Superfil reduces
the number of additives needed.
There are approximately 300 North American
manufacturing facilities of brakes pads and linings
to which Hedman will market its Superfil product.
Engineered Plastics Superfil contains a resin extender to provide bulk
and for reinforcement.
Speciality Rubber and Superfil does not need chemical pre-treatment.
Elastomer Products Superfil Increases moulding fluidity and eliminates
gas formation during moulding.
Superfil provides enhanced compression strength as
well as providing heat and hardness performance.
Superfil generates resin cost savings while
simultaneously resulting in production cost savings.
Building Materials Fire-resistant asbestos not used but performance
characteristics are needed for these products
therefore creating a target market.
Environmentally safe
Elimination of health issues.
Non-flammable, asbestos-free.
No toxins.
Excellent insulating properties.
Can be used for interior and exterior.
Specialty Rubber and Does not need chemical pre-treatment.
Elastoner Products Increases moulding fluidity and eliminates gas
formation during moulding.
Provides enhanced compression strength.
Provides heat and hardness performance.
Results in resin cost savings.
Generates production cost savings.
Construction and Heat and fire resistant.
Specialty Putty, Caulking Increases body and flow.
and Sealant Products Inhibits crack, sagging which enhance
weathering performance.
Annual N.A. filler consumption estimated
at 867,000 tons in this market.
</TABLE>
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<TABLE>
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Asphalt applications Reduces final material volume requirements due to
including building enhanced durability under temperature extremes.
products Ultra Violet exposure, stability and crack resistance
equals savings of material applications.
</TABLE>
HEDMAN RESOURCES LIMITED BUSINESS ACTIVITY
Hedman has historically been a material processing company pursuing a
sales strategy for the primary product "Hedmanite." Hedman recently ceased
producing Hedmanite, having acquired certain mining claims for the mining of
lizardite. Hedman also developed its processing methodology for lizardite, also
known as Superfil, which is actually processed lizardite.
Lizardite is not considered to be found widely in the earth's crust.
Hedman believes it is the only company in North America, if not the world, that
mines this mineral though there may be deposits of other serpentine minerals in
North America such as antigorite which do not have the properties of lizardite.
Market demand for Hedmanite has declined and world markets have moved away to
alternative products because of technological, regulatory and economic factors.
As this change in demand began to impact Hedman's revenues, Hedman decided it
was necessary to change its business focus from one that was mining-oriented to
one emphasizing product development. Therefore, Hedman transformed its ore
products into a processed form that better conforms to current environmental and
performance specifications. Hedman has developed new processing technologies
which would result in enhanced application formulas offering better performance
to manufacturing and OEM customers. It should be noted that processing
technology refers to the path the product takes during the milling process.
In processing the ore, the ore is drilled and blasted and then
transported to Hedman's processing facility in Matheson. The ore is then
further crushed to a 1/4 inch diameter. The ore is then transported via conveyor
belt to a magnetic separator where the magnetite is removed and directed to a
storage bin. The ore further moves along the process to a series of screen decks
where any further impurities are removed. The ore is then transported for
further crushing to a fine powder approximately -325 mesh. The product is then
transported to 20-ton storage bins where the final product is bagged and ready
for shipping to Hedman's customers. This final product (Superfil) is used by
Hedman's customers in their own application formulas which are determined by the
end product they themselves are producing. Thus, Hedman is attempting to
reposition the company from an ore supplier to a supplier of a processed product
ingredient (Superfil) that provides added value for manufactured products.
The major challenge for Hedman was to develop processing technologies
that would surpass the OSHA and EPA standard of a content of less than 1%
chrysotile (i.e., asbestos-the lowest content which is allowed to be stated in a
company's disclosure is one percent which is actually higher than the content
found in Hedman's product). This was a major development barrier but Hedman
believed if it could develop this technology, it would be in a unique position
to deliver a product with benefits being sought by its various target markets.
Hedman eliminated chrysotile from its product by using chrysotile-free ore
bodies and finely grinding the ore being processed and in doing so launched the
Superfil product. This processing technology has led to empirical results
wherein no detectable chrysotile has been found in Hedman's Superfil product
offerings as demonstrated in tests conducted by Lakefield Research. Moreover,
Lakefield Research was unable to find any hazardous characteristics associated
with lizardite in terms of its intended use as a mineral filler.
Marketing Opportunity & Marketing of Hedman's Line of Products
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Hedman will market Superfil through a series of worldwide distributors
including Kraft Chemical Company, USA, 123 Supply Inc., Canada, Alliance
Financial Ltd., USA, Ultra Chem Corporation (Taiwan), Aichi Sangyo Company
(Japan), Fermel Investment Corporation (South America), Hindustan Composites
Company (India), and Western Reserve Company, USA. These companies will
distribute Superfil to Hedman's current customers as well as to customers in
Hedman's target markets. Each distributor is believed to have its own highly
skilled technical sales force and compensation will be on a commission basis
based on the volume sold.
Market Opportunities
Market data available on the U.S. industrial consumption of chrysotile
filler materials (published by the U.S. Bureau of Mines and Bureau of Census
data) is from 1992 and shows a total U.S. market consumption level of 32,000
metric tons. A 1993 Bureau of Mines report indicated that about 68% of total
volume was used in construction type products (Hedman believes that with the
growth in construction through the early part of the 21st Century in North
America and foreign markets, there will be a higher demand for its Superfil.) Of
this volume, over 31,000 metric tons was imported. Worldwide production was
estimated at 3.1 million tons for 1992. Further data from 1992 shows that U.S.
export and re-export of products were valued at about $148 million with leading
importers being Canada, Japan, Mexico, the United Kingdom and German. For
Hedman, the volume level presents a significant opportunity for its Superfil
product with only modest market penetration projected.
Although the sales opportunities Hedman could pursue for Superfil are
significant, Hedman has decided to focus on the three sectors discussed above
for the sale of its asbestos/chrysotile replacement product including building
products, plastics products, and automotive brake products.
COMPETITION - WOLLASTONITE
In order to validate the Company's perspective on the market
opportunity for Superfil, the Company researched the recent market developments
for another mineral filler product called wollastonite. While it has broader use
in the construction and plastics products industries, and only little use in the
brake industry, the wollastonite business provides a 'footprint' for Superfil to
consider and selectively compete with. The Company expects that because
Superfil's economic and high-heat attributes are generally superior to
wollastonite, Superfil is likely to capture market share from wollastonite.
According to the 1998 U.S. Geological Survey Minerals Yearbook,
wollastonite imports into the United States in 1998 were estimated to be between
11,000 and 22,000 tons, in addition to the estimated 170,000 tons domestically
(U.S.) produced and consumed. Based on survey data prepared by Christopher H.
Lindsay in Wollstonite published in the 1999 U.S. Geological Survey Minerals
Yearbook, the 1999 production of wollastonite worldwide was estimated to be
between 575,000 and 625,000 tons with China's production accounting for
approximately half or approximately 300,000 tons.
The Company has also weighed the pricing levels for wollastonite in
considering its marketing strategy and based on 1998 data for the U.S.
marketplace trade in wollastonite, pricing was reported as follows:
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US$0.097 to $0.112 per pound for 325 mesh wollastonite and
US$0.282 per pound for ground or 10 micron material
Using this data for a U.S. market price guideline for -325 mesh
wollastonite, the Company believes it is in an excellent competitive position
with Superfil pricing at the CDN $0.13 per pound level (or US$0.093 per pound at
a 1.4 currency conversion rate).
Hedman's corporate headquarters consists of 1500 square feet of office
space located at 3875 Keele Street, Suite 400B, North York, Ontario, Canada.
Hedman has a one-year lease that is renewable for one year terms over the next
three years and the rent is $2000 per month. Hedman's telephone number at its
corporate headquarters is (416) 630-6991. Hedman has mill operations in
Matheson, Ontario, Canada in an 80,500 square foot facility which it owns. The
property has insurance coverage with a limit of liability of $4,203,000 and a
deductible of $5,000 for each loss.
PRODUCTION STAGE
Hedman is in its early production stage in terms of its sole product,
Superfil, and has available net carryforward losses of $5,200,442 which are
available to reduce future years earnings for income tax purposes. In addition,
Hedman had net losses in each of the last three fiscal years in the amount of
$756,722, $584,727, and $1,086,120 for 1999, 1998 and 1997, respectively.
Hedman's revenues have declined for each of the past three years. Due to its
lack of revenues, accumulated net losses and the need for additional working
capital, there is no assurance that Hedman's business plan will be successful
or that it will be able to continue as a going concern.
Hedman had an analysis of the mineral reserves of its mining claims
conducted by Robert Younker (the "Younker Report"). The Younker Report contained
the following information regarding mineralized materials:
Block A 372,500 tons
Block B 300,000 tons
Block D 125,000 tons
Total mineralized minerals: 797,500 tons
The Younker Report contained information regarding Hedman's mining
reserves. In accordance therewith, Hedman has the following reserves:
Block A 125,000 tons
Block B 300,000 tons
Block D 125,000 tons
Total mining reserves: 550,000 tons
RISK FACTORS
LIMITED HISTORY OF EARNINGS OF ENVIRO AND OF HEDMAN
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Enviro has a limited operating history and is subject to all of the
risks inherent in a developing business enterprise including lack of cash flow
and market acceptance. Although Hedman was incorporated in the 1950's, it has
not generated profits recently including the last three fiscal years. While
Hedman has discontinued offering certain unprofitable products, there can be no
assurance that Hedman will become profitable in the future or if it does,
precisely when such profitability shall commence.
NATURE OF MINERAL EXPLORATION AND MINING
At the present time, Enviro owns certain mining claims in Butler
Township, Ontario which are rich in vermiculite deposits. Enviro intends to
commence mining the vermiculite deposits after the completion of its acquisition
of Hedman. The vermiculite property consists of a contiguous block of three (3)
unpatented mining claims with a total of 35 claim units. Vermiculite is a
hydrous mica which forms from the alteration of primary micas. It is
characterized by excellent exfoliation action when heated, resulting in
exfoliated material which occupies up to 20 times the volume of the original
rock. This property of exfoliation and its thermal, chemical and acoustical
insulating properties, make vermiculite valuable as a filler in lightweight
concrete, agricultural products, insulation and construction materials.
Vermiculite in the North Bar-Mattawa-Perth area has been documented
since 1950. In 1958 Milldate Uranium Mines Limited optioned the claims. Also in
1958, another 148 claims were staked in Butler and Antoine townships. The claims
lapsed, but in December 1960, the original claim holders restaked their various
claims. There is no report on the vermiculite property until 1965 when a
vertical 104-foot diamond drill hole was drilled. The notes regarding this
drilling expedition stated that the hole had cut minor mica and vermiculite in a
homblendite unit.
Three additional diamond drill holes were drilled on the property in
1971. Vermiculite was found in two of the holes. There is no record of any
drilling between 1971 and 1996 when the former owner of these claims, Krystar
International, Ltd., identified three separate areas containing vermiculite
deposits.
Vermiculite is a hydrated mica which displays the basal cleavage of
biotite and Muscovite. Vermiculite also exhibits the thermal, chemical and
acoustical insulating characteristics of the mica family. Vermiculite can be
formed from other micas, usually through the displacement of the potassium ions
by calcium and magnesium. The latter two ions are generally accompanied by water
molecules which also occupy central positions within the crystal structure. It
is the presence and quantity of interstitial water which when heated to
temperatures between 1100(degree) and 1800(degree)C promotes rapid exfoliation
(expansion) of the vermiculite crystals. Exfoliated material can be in a volume
in excess of 20 times the original volume. Ordinary micas show little propensity
to exfoliate while vermiculite exfoliates rapidly and completely.
Vermiculite is a secondary mineral in nature usually formed from
primary micas. Thus, it is usually found in altered zones together with
serpentine, talc or hematite. Since most primary micas are really an alteration
of clay sediments, the host rock is usually a paragneiss of original clay-rich
sediments. Hydration of micas usually results from retrograde metamorphism and
the completeness of hydration varies from site to site.
12
<PAGE> 13
Sampling of the vermiculite property performed exposed consistent
vermiculite zones which had a vermiculite content of more than 60%, visually,
across 6 to 20 meter widths.
According to P.A.R. Brown, a Mining Geologist who analyzed and surveyed
the vermiculite property in Butler Township, the average grade of a 30-ton bulk
sample was vermiculite. These deposits were also analyzed by Lakefield Research
to determine whether any trace minerals might be present. The results of these
tests indicate that no trace minerals such as asbestos could be found in the
vermiculite deposits.
Enviro's viability and potential success lies in its ability to
develop, exploit and generate revenue from the vermiculite deposits. The
exploration and development of these mineral deposits involves significant
financial risks, over a significant period of time, which even a combination of
careful evaluation, experience and knowledge may not eliminate. While discovery
of a mine may result in substantial rewards, few properties which are explored
are ultimately developed into producing mines. Major expenses may be required to
establish reserves by drilling and to construct mining and processing facilities
at a site. It is impossible to ensure that the current or proposed exploration
programs on exploration properties in which the Company has an interest will
result in profitable commercial mining operations.
The operations of the Company are subject to all of the hazards and
risks normally incident to exploration and development of mineral properties,
any of which could result in damage to life or property, environmental damage
and possible legal liability for any or all damages. The activities of the
Company may be subject to prolonged disruptions due to weather conditions
depending on the location of operations in which the Company has interests.
Hazards, such as unusual or unexpected formation, rocks bursts, pressures,
cave-ins, flooding or other conditions may be encountered in the drilling and
removal of material. While the Company may obtain insurance against certain
risks in such amounts as it considers adequate, the nature of these risks is
such that liabilities could exceed policy limits or be excluded from coverage.
There are also risks against which the Company cannot insure or against which it
may elect not to insure. The potential costs which could be associated with any
liabilities not covered by insurance or in excess of insurance coverage or
compliance with applicable laws and regulations may cause substantial delays and
require significant capital outlays, adversely affecting the future earnings and
competitive position of the Company and, potentially, its financial position.
Whether a mineral deposit will be commercially viable depends on a
number of factors, some of which are the particular attributes of the deposit,
such as its size and grade, proximity to infrastructure, financing costs and
governmental regulations, including regulations relating to prices, taxes,
royalties, infrastructure, land use, importing and exporting and environmental
protection. The effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not receiving an adequate
return on invested capital.
SHAREHOLDER APPROVAL REQUIRED FOR ENVIRO ACQUISITION OF HEDMAN
As Hedman is a publicly traded company on the Canadian Venture Capital
Exchange, Hedman is legally required to obtain majority shareholder consent in
order for it to be acquired by Enviro. Hedman cannot guarantee that a majority
of Hedman's shareholders will vote in favor of Enviro acquiring Hedman. Should
Enviro be unable to acquire Hedman, Enviro will not seek other acquisition
13
<PAGE> 14
candidates and will have to consider whether or not to incur the expenditures
associated with developing a completely new mining production facility for the
removal and processing of the vermiculite deposits which are located in the
various vermiculite claim sites owned by Enviro.
PENNY STOCK RULE
Should a market for the Company's common stock develop, the so called
"Penny Stock Rule" could make it cumbersome for brokers and dealers to trade in
the common stock, making the market for the common stock less liquid. Enviro
intends to apply for listing on the Nasdaq OTC Bulletin Board. As long as the
common stock is not quoted on the Nasdaq Market or at any time that we have less
than $2,000,000 in net tangible assets, trading in the common stock is covered
by Rule 15g-9 under the Securities Exchange Act of 1934 for non-Nasdaq and
non-exchange listed securities. Under that rule, broker-dealers who recommend
covered securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The following is a discussion of certain factors affecting Enviro's and
Hedman's results of operations, liquidity and capital resources. As Enviro was
incorporated on March 31, 2000 it has no operating history and no financial
results. Therefore, only the financial results of Hedman will be discussed
although currently there is no legal relationship between Enviro and Hedman
other than a binding letter of intent pursuant to which Enviro will acquire up
to 100%, but in no event less than 80% of Hedman. The following discussion and
analysis should be read in conjunction with Hedman's financial statements and
related notes that are included herein.
The following discussion regarding Enviro and Hedman and their business
and operations contains forward-looking statements. Such statements consist of
any statement other than a recitation of historical fact and can be identified
by the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
NO OPERATIONS TO DATE OF ENVIRO INDUSTRIAL TECHNOLOGIES
Enviro was incorporated on March 31, 2000 and has no operating results
to date. Enviro anticipates that it may not have sufficient cash to meet its
operating expenses during the next 12 months and may have to seek funds through
financing activities such as private placements or traditional bank financing.
Enviro does not plan to conduct any product research or development
during the next 12 months, but may further explore the vermiculite claims it
purchased in September 2000 from Krystar International.
14
<PAGE> 15
Enviro does not plan to add any significant equipment or to purchase or
sell any plant or other operations during the next 12 months.
Enviro intends to maintain the current level of its employees during
the next months.
RESULTS OF OPERATIONS - HEDMAN (All results are in Canadian dollars)
HEDMAN RECOGNIZES REVENUES FROM THE SALE OF PRODUCTS OF HEDMAN RESOURCES LIMITED
Hedman's revenues come from the sale of products of Hedman Resources
Limited including Superfil. Over 85% of all sales are exported to various
countries including Japan, India, South America (Venezuela) and the United
States.
YEAR ENDED DECEMBER 31, 1999 AS COMPARED WITH YEAR ENDED DECEMBER 31, 1998
During the year ended December 31, 1999, Hedman's total assets
increased $904,050 or 38% to $3,279,583 as compared to $2,375,533 for the year
ended December 31, 1998. This increase is attributable primarily to an increase
in the net book value of Hedman's property, plant and equipment especially in
the buildings category which increased from $645,519 at year end 1998 to
$1,187,719 at year end 1999 due to work beginning on the Firefelt plant.
Revenue Total revenue for Hedman for the year ended December 31, 1999 declined
9.4% to $394,083 as compared to $434,858 for the year ended December 31, 1999.
Revenues declined primarily because demand for Hedman's products decreased
during the period as Hedman changed its strategy so that it could begin to
focus on the production and marketing of its new Superfil product. Hedman's
cost of sales declined by 1.2% to $508,926 from $515,298 for the year ended
December 31, 1998. Hedman realized revenues of $354,675 from the sale of
Hedmanite as compared to $369,629 in Hedmanite sales the prior year or a
decrease of .4%. Revenues from the sale of Envirofil declined 39.6% from $65,229
for the year ended December 31, 1998 as compared to $39,408 for the year ended
December 31, 1998.
Operating Expense During the year ended December 31, 1999 Hedman experienced an
increase of approximately 27.3% in operating costs and expenses. Operating costs
increased to $641,879 from $504,287 from the year ended December 31, 1998. The
primary reason for the increase was that for the year ended December 31, 1998,
Hedman had a recovery of prior period expenses which was a credit to operating
expenses. Without that credit, Hedman's operating expenses would have been
virtually identical in each of the two years.
Net Loss Hedman had a loss of $(756,722) for the year ended December 31, 1999 as
compared to a loss of $(584,727) for the year ended December 31, 1998, an
increase of 29.4%. This loss was primarily attributable to a decrease in revenue
and a simultaneous increase in operating expenses. The net (loss) per Common
Share of the Company's stock,(basic and diluted) was ($0.04) in 1999, compared
to ($0.04) in 1998. Hedman's strategy is to achieve a level of sales adequate to
support its costs structure.
15
<PAGE> 16
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Assets. Hedman's assets were $4,336,418 as of the nine months ended September
30, 2000 as compared to assets of $3,279,583 as of the comparable period in
1999, an increase of 24.4% which was primarily the result of an increase in
Hedman's plant, property and equipment in that Hedman has continued the
construction of its new milling system and its Firefelt production plant.
Revenue. Sales revenues totaled $262,675 for the nine months ended September 30,
2000 as compared to $372,719 for the nine months ended September 30, 1999, a
decrease of 29.5%. This decrease in sales is due to a lack of demand for
Hedman's existing products.
Expenses selling, general and administrative expenses increased from $391,510
for the nine months ended September 30, 1999 to $548,910 for the nine months
ended September 30, 2000. Hedman had a large increase in amortization expense
during the period and a corresponding decrease in administration costs. Hedman
wrote off $583,094 in deferred development costs and $85,000 in equipment
during the period which pertained to development costs and equipment of the
previous mill. With the new mill under construction, Hedman will derive no
future benefit from these development costs and equipment and therefore these
costs were written off in the period. Hedman also settled a longstanding
lawsuit filed against the Company in Florida in 1994 for $112,762.
Financing Costs. Financing costs decreased from $50,000 for the nine months
ended September 30, 1999 to $48,636 for the nine months ended September 30,
2000.
Net loss. Hedman had a loss of $(1,499,457) for the nine months ended September
30, 2000 as compared to a loss of $(428,726) for the nine months ended
September 30, 1999, an increase of 249.7%. This loss was primarily attributable
to a decrease in revenue and a simultaneous increase in operating expenses. The
net (loss) per Common Share of the Company's stock, (basic and diluted) was
($0.05) for the period as compared to ($0.02) for the comparable period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000 Hedman had a deficit of $9,026,989 as compared to
$7,199,534 for the comparable period of 1999, an increase of 25.4% mainly
attributable to unprofitable operations for the period. The company has
experienced net losses of $1,045,364 from October 1, 1999 through September 30,
2000 and has also experienced non-operating losses totaling $782,091 for the
nine months ended September 30, 2000 pertaining to writedowns and the
settlement of a lawsuit.
The Company's ability to continue as a going concern is dependant upon its
ability to obtain additional debt and/or equity financing and to increase the
size of its revenues through products sold domestically and abroad.
CAPITALIZATION
As of the nine months ended September 30, 2000, Hedman had 28,283,035 issued
and outstanding shares of its Common Shares as compared to 22,667,716 issued and
outstanding shares as of December 31, 1999 having issued 5,615,319 shares
including 310,000 issued in connection with the exercise of options and warrants
16
<PAGE> 17
during the period. As of the nine months ended September 30, 2000, Hedman had
granted employees and directors options to purchase 295,000 shares of its Common
Shares at the fair market value or greater than fair market value.
SHARES OUTSTANDING
As of November 29, 2000, Enviro had 13,750,000 shares of Common Stock issued
and outstanding.
GOING CONCERN
Hedman currently has commitments for capital expenditures and estimates
that it will require $2,000,000 Canadian to support its planned activities over
the next twelve months. Hedman currently does not have adequate cash reserves
to meet its future cash requirements. Moreover, Hedman is in its exploration
stage and has incurred net losses in excess of an aggregate of $2.4 million for
the last three years which were in the amounts of $756,722, $584,727 and
$1,086,120 for 1999, 1998 and 1997, respectively. Hedman's revenues have
declined for each of the past three years. Due to its lack of revenues,
accumulated operating losses and the need for additional working capital, there
is no assurance that Hedman's business plan will be successful or that it will
be able to continue as a going concern.
ITEM 3. DESCRIPTION OF PROPERTY
Enviro does not own any real property. Enviro has its corporate headquarters
at 119 West 23rd Street in New York City. The space consists of approximately
700 square feet and is leased by Enviro on a month to month basis currently at
the rate of $1,000 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 29, 2000, the number of
shares of the Company's Common Stock beneficially owned by all persons known to
be holders of more than five percent (5%) of the Common Stock and by all
executive officers and directors of the Company individually and as a group.
Security Ownership of Certain Beneficial Owners of Enviro Industrial
Technologies, Inc. Title
Security Ownership of Certain Beneficial Owners of Enviro Technical
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Title Name and address Amount and Nature Percentage of
Class of beneficial owners of beneficial ownership class
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common TVP Capital Corp.*** 1,165,641 shares 8.5%
Stock 119 West 23rd Street
New York, New York 10011
Common Tom Franzone, Director* 823,953 shares 6%
Stock 63 Probst Drive
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Shirley, New York 11967
Total All Officers & Directors 1,989,594 shares 14.5%
as a group beneficially own
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The listed beneficial owners have no rights to acquire any shares
within 60 days of the date of this Form 10-SB from options, warrants, rights,
conversion privileges or similar obligations.
** All Shares of TVP Capital Corp. are owned by Ted Pangia.
(c) Change in Control
There are no arrangements, including any pledge by any person of
securities of Enviro Industrial Technologies, Inc., the operation of which may
at a subsequent date result in a change in control of the registrant.
Security Ownership of Certain Beneficial Owners of Hedman Resources Limited
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Amount and Nature
Title of Name and address of Beneficial Ownership Percentage of
Class of Beneficial Owner of Shares class
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common 510442 Ontario Limited(1) 6,000,000 (2) 14.32%
Shares 713 Beatrice Street
Sudbury ON
Common Contemporary Trading and 5,247,620 (3) 12.53%
Shares Investments Ltd
Trident Trust Company
(B.V.I.)
Trident Chambers
Wickhams Cay Road Town
Tortola British Virgin Islands
Common European Investment & 5,282,857 (4) 12.61%
Shares Trading Ltd.
Box 146 Road Town
Tortola, British Virgin Islands
Common Seeber Engineering GmbH 2,666,668 (5) 6.37%
Shares HaselbackstrBE 1A
Frankenbury Austria
Common Coval Properties 2,533,334 (6) 6.05%
Shares 400 North Ocean Drive Ste
303
Singer Island Florida
USA
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Edward Blanchard 130,395 .005%
Shares Director
106 Fielding Road
Lively, Ontario, Canada
Common Richard Bertrand 25,000 .0009%
Shares Director
P.O. Box
Matheson, Ontario, Canada
Common Claude Taillefer 265,000 .009%
Shares President
8111 Yonge Street
Toronto, Ontario, Canada
All Hedman Officers and Directors as a Group 420,395 1.5%
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following Table sets forth certain information regarding the
executive officers and directors of Enviro Industrial Technologies, Inc. as of
September 15, 2000.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Name Age Title Five Year Business Experience
---- --- ----- -----------------------------
<S> <C> <C> <C>
Teodosio V. Pangia 42 Director* Teodosio V. Pangia has been a Director of
Enviro Industrial Technologies, Inc. since July
2000. Mr. Pangia is also the Chairman of TVP
Capital Corp., a U.S.-based, recently formed,
venture capital company which has provided
consulting services to the Company since its
inception. Since June 1997, Mr. Pangia has
been President of Tyler Dylan, an Ontario based
investment company. In June 1997, Mr. Pangia
co-founded Environmental Solutions Worldwide,
a company that has developed and patented a
catalytic converter that does not require precious
metals. Mr. Pangia remained at Environmental
Solutions Worldwide until July 1999. From
July 1995 through July 1997, Mr. Pangia was
Director and Chief Executive Officer of Ecology
Pure Air International, a Canadian company
engaged in developing an automobile fuel
catalyst. A recent venture of Mr. Pangia is
Diamond Discoveries International Corp.
("DDII") of which he is
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Chairman and Chief Executive Officer. DDII is a
junior exploration company whose primary focus
is developing the company's mining claims for
the potential of diamonds in Northern Quebec
Canada. From 1992 to 1995, Mr. Pangia was a
Director and Chief Executive officer of EPA
Enterprises, a Canadian company engaged in
developing pre-combustion fuel technology. In
1997, a petition in bankruptcy was brought
against Mr. Pangia in the Ontario Court of
Justice. That petition, and a related order,
were dismissed.
Thomas Franzone 44 President Thomas Franzone has been the President and
Director Director of Enviro Industrial Technologies, Inc.
since its formation in March 2000. From 1998
until he joined Enviro, he was the President of
Franzone Consulting Corp., a sole proprietorship
located in Long Island, New York. From 1996 to
1999 Mr. Franzone held the position of
Controller at Direct Approach Marketing. He had
joined Direct Approach Marketing after being
employed at Patient Education Media/Time Life
Medical from March 1995 until March 1996 in the
position of Accounting Manager. From November
1989 to February 1995, Mr. Franzone was the
Controller of Empire Diamond Corp. Currently Mr.
Franzone is also secretary and treasurer of
Diamond Discoveries International Corp.
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Each Director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
Both Ted Pangia and Thomas Franzone, the Directors of Enviro Industrial
Technologies, Inc., hold directorships in Diamond Discoveries International Inc.
a reporting company. There are no family relationships among the directors or
persons nominated or chosen by the Company to become a director.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table below shows the compensation for
officers and employees of Hedman Resources Limited.
Summary Compensation Table
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Annual Compensation
------------------------------
Principal Position Year Salary* Bonus Other
------------------ ---- -------- -------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C>
Claude Taillefer President & CEO 1999 $ 73,968
Richard Bertrand Employee 1999 $ 51,240
David Howle Employee 1999 $ 42,000
Edward Blanchard Director 1999 $3,200**
</TABLE>
* Amounts listed represent amounts forgiven under employment contracts
which terminated during 1999. There was no annual compensation paid or owing to
the officers and directors of the Company for fiscal 1999 other than as
described in "Employment Agreements" below.
** Paid to Erana Mines of which Mr. Blanchard is the controlling
shareholder.
As of January 1, 2000, no executive officer of the Company held any
stock appreciation rights with respect to the stock of the Company. Furthermore,
as of January 1, 2000, no named executive officer of the Company (as defined in
SEC Regulation S-B Item 402(a)(2)) has held any stock options with respect to
the stock of the Company. The authorization and/or granting of stock options to
directors of the Company and to other executive officers of the Company is
discussed below. See "Stock Option Agreements."
EMPLOYMENT AGREEMENTS
The Company does not have employment agreements for any of the officers
and Directors of the Company.
STOCK OPTION AGREEMENTS
Enviro has no stock option agreements.
Hedman has enacted has a stock option plan for employees, officers and
directors and service providers of Hedman. The amount of options is determined
by the Board of Directors each year. Employees may be awarded options the total
of which may not exceed five (5%) percent of the outstanding issue each year.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Teodosio Pangia, Chairman of Enviro, is also the Chairman of TVP
Capital Corp. TVP Capital Corp. is the owner of 1,165,641 shares of Enviro, or
8.4% of Enviro's total issued and outstanding shares.
Until moving its corporate headquarters to North York, Ontario in
September 2000, Hedman sublet its facilities on a month-to-month basis from
Erana. Edward Blanchard, a Director of Hedman, is a director of Erana as well
and arranged for Erana to forgive all rent payments due Erana although Erana was
under no obligation to do so. The forgiveness of the rent obligation of $2,400
for the years ended December 31, 1999 and December 31, 1998 has been credited to
additional paid in capital. See "FINANCIAL STATEMENTS NOTE 8."
The Company believes that the terms of the above transactions were at
least as favorable to the Company as could have been obtained from arm's-length
negotiations with unrelated third parties.
ITEM 8. DESCRIPTION OF SECURITIES
21
<PAGE> 22
Hedman is authorized to issue an unlimited number of Common Shares of
which 28,283,035 are issued and outstanding as of September 30, 2000. Each
holder of record of Common Shares is entitled to one vote for each share held on
all matters properly submitted to the shareholders for their vote. The holders
of the shares are entitled to dividends when, and if, declared by the Board of
Directors. No dividends have ever been declared nor is there any intent to
declare or pay any dividends in the foreseeable future. There are currently no
preemptive rights connected with the Common Shares. As of September 15, 2000,
there were 526 shareholders of record of Hedman's Common Shares.
The authorized capital stock of Enviro consists of 50,000,000 shares of
Common Stock, par value $0.001 of which 13,750,000 shares are issued and
outstanding as of September 15, 2000 and owned by 27 shareholders of record. The
Company is also authorized to issue 10,000,000 shares of Preferred Stock, par
value $0.001 per share. No Preferred Stock has been issued to date. Each share
of Preferred Stock is entitled to dividends when, and if, declared by the Board
of Directors. There are currently no voting, conversion and liquidation rights,
nor redemption or sinking fund provisions for the preferred stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Enviro's Common Stock is not publicly traded. The Company intends to
apply for listing on the Over-the-Counter Bulletin Board ("OTCBB"). The Form
10-SB became effective on November 14, 2000 and the Company is required to begin
filing reports with the SEC pursuant to the Exchange Act within 45 days of such
effective date. No assurance can be given that the Company will have its shares
approved for listing on the OTCBB.
THE HIGH AND LOW BID SALES PRICES FOR THE EQUITY OF HEDMAN RESOURCES
LIMITED FOR EACH FULL QUARTERLY PERIOD WITHIN THE TWO MOST RECENT FISCAL YEARS
AND ANY SUBSEQUENT INTERIM PERIOD FOR WHICH FINANCIAL STATEMENTS ARE INCLUDED
ARE AS FOLLOWS:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Year Quarter High Bid Low Bid Year Quarter High Bid Low Bid
<S> <C> <C> <C> <C> <C> <C> <C>
1998 3rd* .32 .01** 1999 3rd* .50 .10
1998 4th* .15 .05 1999 4th .46 .25
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1st* .15 .04 2000 1st .87 .30
1998 2nd* .45 .11 2000 2nd .60 .33
----------------------------------------------------------------------------------------
</TABLE>
* Prior to the merger Hedman securities were inactive. Hedman expects trading to
resume under the symbol HDM soon after the filing of this Form 10-SB.
** Figures shown are denominated in Canadian dollars.
ITEM 2. LEGAL PROCEEDINGS
Enviro is not a party to or involved in any material litigation, nor is
it aware, to the best of its knowledge, of any pending or contemplated
proceedings against it by any third party or any government authorities.
Hedman has been named as a co-defendant in a number of class action
suits in the United states relative to sales made between 1974 and 1979 (see
POTENTIAL LIABILITIES). To date, Hedman has had sufficient liability insurance
to cover settlement amounts and legal fees in relation to these matters.
However, it is not possible to estimate the amount, if any, of Hedman's
liability.
A judgment in the amount of $112,762 Canadian against Hedman has been
entered in the State of Florida. Hedman is attempting to negotiate a resolution
to that judgment and is accounting for the anticipated amount of the settlement
on an accrual basis.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 2000, the Company sold 3,750,000 shares of its common
stock in the aggregate to the following persons in the amount indicated opposite
each person's name:
<TABLE>
<S> <C>
TVP Capital Corp. 1,165,641
Bondy & Schloss 112,500
Tom Franzone 823,953
Vasilik Kalantzkos 100,000
Tunku Mudzaffar Bin Tunku Mustapha 200,000
Romeo DiBattista Jr. 100,000
R DiBattista Investments Inc. 623,953
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
Delf Investments and Construction Ltd. 623,953
</TABLE>
These shares were sold pursuant to Section 4(2) of the Securities Act
and were not issued in connection with any public offering.
In September 2000, Enviro closed a private placement offering pursuant
to Rule 504 of Regulation D to one "accredited investor"in which Enviro raised
$1,000,000 in a combination of cash and promissory notes. Pursuant to the
offering, Enviro sold a total of 10 million shares of Common Stock at $ .10 per
share.
In February 2000, Hedman raised $1,856,862 in a private offering
pursuant to applicable Canadian law. Pursuant to the offering, Hedman sold a
total of 5,305,319 shares of Hedman's Common Shares at $.35 per share and
5,305,319 warrants to purchase shares of Hedman's Common Shares. The warrants
are exercisable for two years from the date of issuance at a price of $.40 per
share. In July 1999, Hedman raised $1,261,250 in a private offering under
Canadian law. In that offering, Hedman sold a total of 8,408,334 shares of
Hedman's Common Shares at $.15 per share and 8,408,334 warrants to purchase
shares of Hedman's Common Shares. The warrants are exercisable for two years
from the date of issuance at a price of $.20 per share.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law "DGCL," in general, allows
corporations to indemnify their directors and officers against expenses actual
and reasonable in connection with a proceeding, if a person acted in good faith
and in a manner the person reasonably believed to be in, or not opposed to, the
best interests of the corporation. In the case of a criminal action or
proceeding, the director or officer must have no reasonable cause to believe
that the person's conduct was unlawful. The DGCL also provides that
indemnification is not exclusive, and a corporation may make any other or
further indemnification under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, however no indemnification shall be made
in respect of any claim which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the Court of Chancery or
the court in which such action was brought shall determine that, despite the
adjudication of liability but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. However, according to the certificate of incorporation a
director will be liable (i) for breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law (iii) for
liability under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived any improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
24
<PAGE> 25
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Pursuant to the terms of a letter of intent dated May 19, 2000 and a proposed
plan of reorganization and merger (the "Plan"), Enviro Industrial Technologies,
Inc. ("Enviro") will become the legal acquirer of up to 100% but not less than
80% of the issued and outstanding shares of common stock of Hedman Resources
Limited ("Hedman"), a Canadian company, by issuing one share of its common stock
for every two shares of Hedman's common stock outstanding on the date of
consummation. The consummation of the Plan is subject to, among other things,
stockholder, regulatory and exchange approvals. Management expects that after
the consummation of the Plan, Hedman will not be listed on the CDNX and its
shares will not be publicly traded. However, it also expects that Enviro's
shares will be publicly traded in the over-the-counter market.
If the Plan is consummated based on the proposed terms, management expects that
the present stockholders of Hedman will own in excess of 50% of the outstanding
shares of the combined companies. Since Hedman is a Canadian operating company
and its stockholders will control the combined companies, the merger will be
accounted for as a purchase business combination and a "reverse acquisition" in
which Enviro will be the legal acquirer and Hedman will be the accounting
acquirer. Accordingly, the financial statements of the combined companies will
primarily reflect the operations of Hedman before and after the consummation of
the Plan and the accompanying unaudited pro forma condensed combined financial
statements are stated in Canadian dollars and in accordance with generally
accepted accounting principles in Canada.
The accompanying unaudited pro forma condensed balance sheet combines the
historical unaudited balance sheet of Enviro and the historical unaudited
balance sheet of Hedman as of September 30, 2000 as if the Plan had been
consummated on that date. The accompanying unaudited pro forma condensed
combined statements of operations for the year ended December 31, 1999 and the
nine months ended September 30, 2000 are, effectively, those of Hedman since
Enviro has had no significant operations during those periods.
The accompanying unaudited pro forma condensed combined financial statements are
based on the assumptions and adjustments described in the accompanying notes
which management believes are reasonable. The unaudited pro forma condensed
combined financial statements do not purport to represent what the combined
financial position and results of operations actually would have been if the
acquisitions referred to above had occurred as of the dates indicated instead of
the actual dates of consummation or what the financial position and results of
operations would be for any future periods. The unaudited pro forma condensed
combined financial statements and the accompanying notes should be read in
conjunction with the audited and unaudited historical financial statements of
Enviro and Hedman included elsewhere herein.
PF-1
<PAGE> 26
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
(In Canadian Dollars)
<TABLE>
<CAPTION>
Historical
Pro Forma Pro Forma ------------------------------
ASSETS Combined Adjustments Enviro Hedman
------ ------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 69,071 $ 69,071
Accounts receivable, net 78,451 $ 78,451
Inventory 74,624 74,624
Advances to Hedman $ (382,455)(B) 382,455
Other current assets 120,137 20,160 99,977
------------ ------------ ------------ ------------
Total current assets 342,283 (382,455) 471,686 253,052
Property, plant and equipment, net 3,949,084 3,949,084
Mining properties 134,282 134,282
------------ ------------ ------------ ------------
Totals $ 4,425,649 $ (382,455) $ 471,686 $ 4,336,418
============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Note payable to bank $ 7,131 $ 7,131
Current portion of long-term debt 105,600 105,600
Accounts payable and accrued expenses 1,309,595 $ (382,455)(B) $ 15,665 1,676,385
Advances from stockholder 782,110 582,110 200,000
------------ ------------ ------------ ------------
Total current liabilities 2,204,436 (382,455) 597,775 1,989,116
Long-term debt, net of current portion 413,600 413,600
------------ ------------ ------------ ------------
Total liabilities 2,618,036 (382,455) 597,775 2,402,716
------------ ------------ ------------ ------------
Stockholders' equity:
Common stock:
Enviro (13,750,000 shares outstanding,
par value $.001492 per share;
27,891,518 shares to be outstanding) 41,610 21,097(A) 20,513
Hedman (28,283,036 shares outstanding) (10,960,691)(A) 10,960,691
Additional paid-in capital 10,792,992 9,302,988(A) 1,490,004
Accumulated deficit (9,026,989) 145,725(A) (145,725) (9,026,989)
Subscriptions receivable for 9,990,000 shares
of common stock 1,490,377(A) (1,490,377)
Accumulated other comprehensive income -
foreign currency translation loss 504(A) (504)
------------ ------------ ------------ ------------
Total stockholders' equity (deficiency) 1,807,613 -- (126,089) 1,933,702
------------ ------------ ------------ ------------
Totals $ 4,425,649 $ (382,455) $ 471,686 $ 4,336,418
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
PF-2
<PAGE> 27
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(In Canadian Dollars)
<TABLE>
<CAPTION>
Historical
Pro Forma Pro Forma --------------------------
Combined Adjustments Enviro Hedman
------------ -------------- ------ ------------
<S> <C> <C> <C> <C>
Sales $ 394,083 $ 394,083
Cost of sales 508,926 508,926
------------ ------------
Gross loss (114,843) (114,843)
------------ ------------
Operating expenses:
Selling, general and administrative 399,693 399,693
Depreciation and amortization 175,452 175,452
------------ ------------
Totals 575,145 575,145
Other expense - interest 66,734 66,734
------------ ------------
Totals (641,879) (641,879)
------------ ------------
Net loss $ (756,722) $ (756,722)
============ ============
Basic net loss per share $ (.06) $ (.04)
============ ============
Weighted average common shares
outstanding 12,763,025 (5,488,025)(C) 18,251,050
============ ========== ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
PF-3
<PAGE> 28
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
(In Canadian Dollars)
<TABLE>
<CAPTION>
Historical
Pro Forma Pro Forma -----------------------------
Combined Adjustments Enviro Hedman
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 262,675 $ 262,675
Cost of sales 431,131 431,131
------------ ------------
Gross loss (168,456) (168,456)
------------ ------------
Operating expenses:
Selling, general and administrative 562,101 $ 145,725 416,376
Depreciation and amortization 83,898 83,898
------------ ------------ ------------
Totals 645,999 145,725 500,274
------------ ------------ ------------
Other expenses:
Interest 48,636 48,636
Other 782,091 782,091
------------ ------------
Totals 830,727 830,727
------------ ------------
Net loss $ (1,645,182) $ (145,725) $ (1,499,457)
============ ============ ============
Basic net loss per share $ (.10) $ (.04) $ (.06)
============ ============ ============
Weighted average common shares
outstanding 16,904,653 (13,153,131)(C) 3,751,522 26,306,262
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
PF-4
<PAGE> 29
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
Pro Forma Adjustments to the Unaudited Condensed Combined Financial Statements:
(A) To record the assumed exchange of 100% of the shares of common stock of
Hedman outstanding as of September 30, 2000 for shares of common stock
of Enviro on the basis of the issuance of one share of Enviro for every
two shares of Hedman. Since this exchange will be accounted for as a
purchase business combination and a "reverse acquisition" in which
Enviro will be the legal acquirer and Hedman will be the accounting
acquirer: (i) the accompanying unaudited pro forma condensed combined
financial statements are stated in Canadian dollars and in accordance
with generally accepted accounting principles in Canada (information as
to the effects of differences in generally accepted accounting
principles in Canada and the United States is included in the
historical financial statements of Hedman included elsewhere herein);
(ii) the assets and liabilities and expenses of Enviro have been
reflected at their historical values; (iii) the shares of common stock
of the combined companies reflect the par value of the shares of
Enviro, the legal acquirer; and (iv) the accumulated deficit of Enviro
has been eliminated.
(B) To eliminate the amount owed to Enviro by Hedman.
(C) To retroactively adjust Hedman's historical weighted average number of
common shares outstanding to reflect the issuance of one share of
Enviro for every two shares of Hedman and (ii) the inclusion of
Enviro's shares assuming Enviro had been acquired as of January 1,
1999.
PF-5
<PAGE> 30
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEET
SEPTEMBER 30, 2000 F-3
STATEMENT OF OPERATIONS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000 F-4
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000 F-5
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000 F-6
NOTES TO FINANCIAL STATEMENTS F-7/10
</TABLE>
* * *
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Enviro Industrial Technologies, Inc.
We have audited the accompanying balance sheet of ENVIRO INDUSTRIAL
TECHNOLOGIES, INC. (A Development Stage Company) as of September 30, 2000, and
the related statements of operations, changes in stockholders' deficiency and
cash flows for the period from March 31, 2000 (date of inception) to September
30, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enviro Industrial Technologies,
Inc. as of September 30, 2000, and its results of operations and cash flows for
the period from March 31, 2000 (date of inception) to September 30, 2000, in
conformity with generally accepted accounting principles.
Roseland, New Jersey
November 11, 2000
F-2
<PAGE> 32
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 46,298
Advances to Hedman Resources Limited 256,377
Prepaid geologist fees 13,513
---------
Total $ 316,188
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 10,500
Advances from stockholders 390,188
---------
Total liabilities 400,688
---------
Stockholders' deficiency:
Preferred stock, par value $.001 per share; 10,000,000 shares
authorized; none issued --
Common stock, par value $.001 per share; 50,000,000 shares
authorized; 13,750,000 shares issued and outstanding 13,750
Additional paid-in capital 998,750
Deficit accumulated during the development stage (98,000)
Subscriptions receivable for 9,990,000 shares of common stock (999,000)
---------
Total stockholders' deficiency (84,500)
---------
Total $ 316,188
=========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 33
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000
<TABLE>
<S> <C>
Revenues $ --
General and administrative expenses 98,000
-----------
Net loss $ (98,000)
===========
Basic net loss per share $ (.03)
===========
Basic weighted average common shares outstanding 3,751,522
===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 34
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
Preferred Stock Common Stock Additional During the
------------------------- ------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of shares to founders
effective as of March 31, 2000 -- $ -- 3,637,500 $ 3,638 $ (3,638)
Issuance of shares as payment
for legal services 112,500 112 12,388
Subscription for purchase of
common stock 9,990,000 9,990 989,010
Proceeds from issuance of
common stock 10,000 10 990
Net loss $ (98,000)
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 2000 -- $ -- 13,750,000 $ 13,750 $ 998,750 $ (98,000)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Subscriptions
Receivable Total
------------- ----------
<S> <C> <C>
Issuance of shares to founders
effective as of March 31, 2000
Issuance of shares as payment
for legal services $ 12,500
Subscription for purchase of
common stock $ (999,000)
Proceeds from issuance of
common stock 1,000
Net loss (98,000)
---------- ----------
Balance, September 30, 2000 $ (999,000) $ (84,500)
========== ==========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 35
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO SEPTEMBER 30, 2000
<TABLE>
<S> <C>
Operating activities
Net loss $ (98,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issued for services 12,500
Changes in operating assets and liabilities:
Prepaid geologist fees (13,513)
Accounts payable 10,500
---------
Net cash used in operating activities (88,513)
---------
Investing activities - advances to Hedman Resources Limited (256,377)
---------
Financing activities:
Proceeds from issuance of common stock 1,000
Advances from stockholders 390,188
---------
Net cash provided by financing activities 391,188
---------
Net increase in cash 46,298
Cash, beginning of period --
---------
Cash, end of period $ 46,298
=========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE> 36
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business:
Enviro Industrial Technologies, Inc. (the "Company") was
incorporated in the State of Delaware on March 31, 2000. The
Company is in the process of developing a mineral exploration and
industrial mining business. The core of the Company's business
will be comprised of the mining of vermiculite from a block of
three unpatented mining claims in Canada, covering a total of 25
vermiculite claim units. Vermiculite is the geological name given
to a group of minerals which are aluminum iron ore magnesium
silicates resembling mica in appearance. Vermiculite is used as a
filler in lightweight concrete, agricultural products,
insulation, construction, metallurgy, chemistry and ceramics.
The Company plans to become the legal acquirer of 100% but not
less than 80% of the issued and outstanding shares of common
stock of Hedman Resources Limited ("Hedman"), a Canadian
publicly-traded company listed on the Canadian Venture Exchange
("CDNX"). This business combination is expected to be accounted
for as a "reverse acquisition" in which Hedman will be the
accounting acquirer (see Note 8).
As of September 30, 2000, the Company's operations had been
limited to organizational activities, the acquisition of mining
claims and the negotiation of agreements related to the business
combination with Hedman. It had not generated any revenues from
operations as of that date. Accordingly, it is considered a
"development stage company" for accounting purposes. The
Company's year-end will be December 31st.
Hedman is a mineral processing company whose principal product
had been "Hedmanite," which is a high heat industrial filler
similar to asbestos. However, Hedman has been focusing its
activities on the development and production of "Superfil," an
asbestos-free, high heat industrial mineral filler that blends
well with most industrial fillers and is used in manufactured
products such as brake linings and construction materials.
Superfil is derived from a mineral known as "lizardite." Hedman
is believed to be the only producer of lizardite in North
America. Hedman intends to enhance the performance of Superfil by
creating a formula that combines it with vermiculite.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Concentrations of credit risk:
The Company maintains its cash in bank deposit accounts, the
balances of which, at times, may exceed Federal insurance
limits. Exposure to credit risk is reduced by placing such
deposits with major financial institutions and monitoring
their credit ratings.
F-7
<PAGE> 37
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed annually for temporary
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to
the amount expected to be realized. The income tax provision
or credit is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets
and liabilities.
Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the
provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"). Basic earnings (loss)
per share is calculated by dividing net income or loss by the
weighted average number of common shares outstanding during
each period. The calculation of diluted earnings per share is
similar to that of basic earnings per share, except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable
upon the exercise of stock options, were issued during the
period. The Company did not have any potentially dilutive
common shares outstanding during the period from March 31,
2000 (date of inception) to September 30, 2000.
Recent accounting pronouncements:
The Financial Accounting Standards Board and the Accounting
Standards Executive Committee of the American Institute of
Certified Public Accountants had issued certain accounting
pronouncements as of September 30, 2000 that will become
effective in subsequent periods; however, management of the
Company does not believe that any of those pronouncements
would have significantly affected the Company's financial
accounting measurements or disclosures had they been in effect
during the period from March 31, 2000 to September 30, 2000,
and it does not believe that any of those pronouncements will
have any significant impact on the Company's financial
statements at the time they become effective.
Note 3 - Advances to and from related parties:
As of September 30, 2000, the Company had a receivable of
$256,377 as a result of advances made to Hedman and a payable of
$390,188 as a result of advances from stockholders. The advances
were noninterest bearing and due on demand.
F-8
<PAGE> 38
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 3 - Advances to and from related parties (concluded):
Although management does not believe that there is a practical
method that can be used to specifically determine the fair value
of the advances to Hedman and the advances from stockholders
because of the relationship of the Company and those related
parties, it believes that the advances will be repaid on a
short-term basis and, accordingly, the carrying values of the
advances approximated their respective fair values as of
September 30, 2000.
Note 4 - Preferred stock:
As of September 30, 2000, the Company was authorized to issue up
to 10,000,000 shares of preferred stock with a par value of $.001
per share. The preferred stock may be issued in one or more
series with dividend rates, conversion rights, voting rights and
other terms and preferences to be determined by the Company's
Board of Directors, subject to certain limitations set forth in
the Company's Articles of Incorporation. No shares of preferred
stock had been issued by the Company as of September 30, 2000.
Note 5 - Common stock issued for services:
During the period from March 31, 2000 to September 30, 2000, the
Company issued 112,500 shares of common stock as payment for
legal services. Accordingly, the Company recorded a charge to
professional fees and an increase in stockholders' equity of
$12,500, which was equal to the estimated fair value of the
shares at the date of issuance.
Note 6 - Income taxes:
As of September 30, 2000, the Company had net operating loss
carryforwards of approximately $98,000 available to reduce future
Federal taxable income which will expire in 2020. The Company had
no other material temporary differences as of that date. Due to
the uncertainties related to, among other things, the changes in
the ownership of the Company, which could subject those loss
carryforwards to substantial annual limitations, and the extent
and timing of its future taxable income, the Company offset the
deferred tax assets attributable to the potential benefits of
approximately $39,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of
September 30, 2000 and did not recognize a credit for Federal
income taxes for the period from March 31, 2000 (date of
inception) to September 30, 2000.
F-9
<PAGE> 39
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Private placement:
On September 2, 2000, the Company entered into agreements to sell
a total of 10,000,000 shares of common stock for total
consideration of $1,000,000 or $.10 per share through private
placements intended to be exempt from registration under the
Securities Act of 1933. As of September 30, 2000, it had received
aggregate gross proceeds of $1,000 and had issued 10,000 shares.
The balance receivable of $999,000 attributable to the sale of
the remaining 9,990,000 shares must be paid no later than March
1, 2001. The balance has been included in common stock and offset
by a subscription receivable in the same amount in the
accompanying unaudited condensed balance sheet as of September
30, 2000.
Note 8 - Plan of reorganization and merger:
Pursuant to the terms of a letter of intent dated May 19, 2000
and a proposed plan of reorganization and merger (the "Plan"),
the Company will become the legal acquirer of up to 100% but not
less than 80% of the issued and outstanding shares of Hedman's
common stock by issuing one share of its common stock for every
two shares of Hedman's common stock outstanding on the date of
consummation. As explained in Note 1, Hedman is a mineral
processing company. Its shares are publicly traded in Canada. The
consummation of the Plan is subject to, among other things,
stockholder, regulatory and exchange approvals. Management
expects that after the consummation of the Plan, Hedman will not
be listed on the CDNX and its shares will not be publicly traded.
However, it also expects that the Company's shares will be
publicly traded in the over-the-counter market.
If the Plan is consummated based on the proposed terms,
management expects that the present stockholders of Hedman will
own in excess of 50% of the outstanding shares of the combined
companies. Since Hedman is an operating company and its
stockholders will control the combined companies, the merger will
be accounted for as a purchase business combination and a
"reverse acquisition" in which the Company will be the legal
acquirer and Hedman will be the accounting acquirer. Accordingly,
the financial statements of the combined companies will reflect
the operations of Hedman before and after the consummation of the
Plan and the accompanying financial statements will not be
comparable to the financial statements of the combined companies
after the merger.
* * *
F-10
<PAGE> 40
Financial Statements of
HEDMAN RESOURCES LIMITED
Nine months ended September 30, 2000
<PAGE> 41
AUDITORS' REPORT TO THE DIRECTORS
We have audited the balance sheet of HEDMAN RESOURCES LIMITED at September 30,
2000 and December 31, 1999 and the statements of operations and deficit and
cash flows for the nine month period ended September 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 2000 and
December 31, 1999 and the results of its operations and cash flows for the nine
month period ended September 30, 2000, in accordance with Canadian generally
accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the nine month period ended
September 30, 2000, and shareholders' equity at September 30, 2000 and
December 31, 1999 to the extent summarized in note 22 to the financial
statements.
/s/KPMG LLP
Chartered Accountants
Sudbury, Canada
October 31, 2000
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the company's ability to
continue as a going concern, such as those described in note 1 to the financial
statements. Our report to the directors dated October 31, 2000 is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditor's report when they are adequately
disclosed in the financial statements.
/s/KPMG LLP
Chartered Accountants
Sudbury, Canada
October 31, 2000
<PAGE> 42
HEDMAN RESOURCES LIMITED
Balance Sheet
September 30, 2000, with comparative figures for December 31, 1999
(in Canadian $'s)
<TABLE>
<CAPTION>
===================================================================================================================================
2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................. $ -- 450,086
Accounts receivable .............................................. 78,451 62,218
Inventory (notes 2 and 3) ........................................ 74,624 91,769
Supplies and prepaid expenses .................................... 99,977 79,280
------------------------------------------------------------------------------------------------------------------------------
253,052 683,353
Property, plant and equipment (net of depreciation) (note 4) .......... 3,949,084 1,877,825
Mining properties (note 5) ............................................ 134,282 134,282
Deferred development costs (note 6) ................................... -- 584,123
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,336,418 3,279,583
===================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank indebtedness ................................................ $ 7,131 --
Accounts payable and accrued liabilities (note 7) ................ 1,676,385 248,625
Advances from shareholders (note 8) .............................. 200,000 13,083
Current portion of long-term debt (note 9) ....................... 105,600 79,200
------------------------------------------------------------------------------------------------------------------------------
1,989,116 340,908
Long-term debt (note 9) ............................................... 413,600 492,800
Shareholders' equity:
Share capital (note 10):
Authorized and outstanding .................................... 9,175,602 7,305,946
Contributed surplus .............................................. 1,785,089 1,785,089
Subscriptions (note 10 (f)) ...................................... -- 882,372
Deficit .......................................................... (9,026,989) (7,527,532)
------------------------------------------------------------------------------------------------------------------------------
1,933,702 2,445,875
Going concern (note 1)
Commitments (note 20)
-----------------------------------------------------------------------------------------------------------------------------------
$ 4,336,418 3,279,583
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
On behalf of the Board:
__________________________________________ Director
__________________________________________ Director
1
<PAGE> 43
HEDMAN RESOURCES LIMITED
Statement of Operations and Deficit
Nine months ended September 30, 2000, with comparative figures for the nine
months ended September 30, 1999
(in Canadian $'s)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Sales (note 14) $ 262,675 372,719
Cost of sales 431,131 409,935
---------------------------------------------------------------------------------------------------------------------
(168,456) (37,216)
Expenses:
Administration wages and benefits 141,042 78,406
Administration (note 19) 95,911 180,722
Depreciation and amortization 83,898 53,711
Professional fees 64,215 -
Interest on long-term debt 48,636 50,000
Municipal taxes 38,915 13,396
Travel 28,156 -
Sales, marketing and research 28,137 15,275
Mine reclamation 20,000 -
---------------------------------------------------------------------------------------------------------------------
548,910 391,510
---------------------------------------------------------------------------------------------------------------------
Loss before undernoted items (717,366) (428,726)
Other expenses:
Write-off of deferred development costs (note 6) 583,094 -
Loss on disposal of equipment 1,235 -
Judgement (note 23) 112,762 -
Write down of equipment 85,000 -
--------------------------------------------------------------------------------------------------------------------
782,091 -
---------------------------------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD (1,499,457) (428,726)
Deficit, beginning of period (7,527,532) (6,770,808)
---------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD $ (9,026,989) (7,199,534)
---------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (note 15) $ (0.05) $ (0.02)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 44
HEDMAN RESOURCES LIMITED
Statement of Cash Flows
Nine months ended September 30, 2000, with comparative figures for the
nine months ended September 30, 1999
(in Canadian $'s)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Loss for the period $ (1,499,457) (428,726)
Adjustments for:
Depreciation and amortization 83,898 53,711
Write-off of deferred development costs (note 6) 583,094 -
Write down of equipment 85,000 -
Loss on disposal of equipment 1,235 -
-------------------------------------------------------------------------------------------------------------------
(746,230) (375,015)
Change in non-cash working capital:
Accounts receivable (16,233) (83,193)
Inventory 17,145 1,093
Supplies and prepaid expenses (20,697) (469)
Accounts payable and accrued liabilities 493,838 (430,919)
-------------------------------------------------------------------------------------------------------------------
(272,177) (888,503)
Cash flows from financing activities:
Issue of share capital 1,869,656 1,307,934
Subscriptions (882,372) 117,844
Short-term loans - (18,231)
Advances from shareholders 186,917 (42,273)
Cost of subscriptions - (50,000)
Principal payments on long-term debt (52,800) 82,800
-------------------------------------------------------------------------------------------------------------------
1,121,401 1,398,074
Cash flows from investing activities:
Change on working capital relating to investing activities 933,922 -
Purchase of property, plant and equipment (2,242,363) (35,750)
Proceeds on disposal of equipment 2,000 -
-------------------------------------------------------------------------------------------------------------------
(1,306,441) (35,750)
-------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (457,217) 473,821
Cash, beginning of period 450,086 1,378
-------------------------------------------------------------------------------------------------------------------
CASH (BANK INDEBTEDNESS), END OF PERIOD $ (7,131) 475,199
====================================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 68,497 50,000
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 45
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
Hedman Resources Limited is an Ontario incorporated public company and its
principal business activity is the production of heat resistant fillers.
1. GOING CONCERN:
These financial statements have been prepared on a going concern basis and
do not include any adjustments to the measurement and classification of
the recorded asset amounts and classification of liabilities that might be
necessary, should the Company be unable to continue as a going concern.
The Company has experienced several continuous years of operating losses,
is in a negative working capital position and has significant capital
purchase commitments which will come due within the next year. The
Company's ability to realize its assets and discharge its liabilities in
the normal course of business is dependent upon continued support from its
lenders and creditors including new financing. The Company is also
dependent on an infusion of equity from potential shareholders. The
Company is currently attempting to obtain additional financing from its
existing shareholders and other strategic investors to continue its
operations. However, there can be no assurance that the Company will
obtain sufficient additional funds from these sources.
2. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements are prepared by management in accordance with
Canadian generally accepted accounting principles and, except as described
in note 22, conform in all material respects with the accounting
principles generally accepted in the United States. This summary of
significant accounting policies is a description of the accounting methods
and practices that have been used in the preparation of these financial
statements and is presented to assist the reader in interpreting the
statements contained herein.
(a) Revenue recognition:
Revenue from sales is recognized when goods are shipped to
customers.
(b) Mining properties and deferred development costs:
Mining properties represent the cost of acquisition, less recoveries,
of non-producing resource properties. These costs will be charged
against income if the properties are brought into commercial
production. The carrying values of non-producing properties are
periodically assessed by management and if management determines that
the carrying values cannot be recovered, the unrecoverable amounts
are written off against current earnings.
Deferred development costs represent costs incurred to bring the
operation into commercial production. These costs are being amortized
on a unit of production basis.
4
<PAGE> 46
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Inventory:
Inventories of broken ore and refined and converted products are
valued at the lower of average cost and net realizable value.
(d) Supplies and prepaid expenses:
Consumable supplies and spares are valued at the lower of weighted
average cost or replacement value.
(e) Property, plant and equipment:
Property, plant and equipment are being amortized on a straight-line
basis using the following annual rates:
<TABLE>
<CAPTION>
===============================================================================
<S> <C>
Buildings 4%
Equipment 4%
Office equipment 20%
Vehicles 30%
Computers 30%
===============================================================================
</TABLE>
Assets are carried at cost. Costs of additions and improvements are
capitalized. When assets are retired or sold, the resulting gains and
losses are reflected in current earnings. Maintenance and repair
expenditures are charged to cost of production. The carrying values
of property, plant and equipment are periodically assessed by
management and if management determines that the carrying values
cannot be recovered, the unrecoverable amounts are written off
against current earnings.
(f) Foreign currency translation:
Foreign currencies are translated to Canadian dollars as follows -
monetary assets and liabilities at the rates of exchange prevailing
at the balance sheet date, non-monetary assets and liabilities are
translated at historical exchange rates and revenue and expenditures
at the rate of exchange prevailing on the dates of transactions. The
resulting gains and losses are included in income.
(g) Reclamation costs:
Estimated future reclamation costs, including site restoration where
reasonably determinable, will be charged against earnings as
incurred.
5
<PAGE> 47
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Future income taxes:
In December 1997, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants ("CICA") issued Section 3465 of
the CICA Handbook, Income Taxes ("Section 3465"). Effective January
1, 1999, the Company adopted Section 3465. Section 3465 requires a
change from the deferred method of accounting for income taxes to the
asset and liability method of accounting for income taxes.
Under the assets and liability method of Section 3465, future tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. Under Section 3465, the effect on future
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Pursuant to the deferred method, which was applied in 1999 and prior
years, deferred income taxes are recognized for income and expense
items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for
the year of the calculation. Under the deferral method, deferred
taxes are not adjusted for subsequent changes in tax rates.
There is no effect of this change in accounting for income taxes on
prior periods. Prior years' financial statements have not been
restated to apply the provisions of Section 3465.
(i) Use of estimates:
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses during the reported period. These estimates are
reviewed periodically, and, as adjustments become necessary, they are
reported in earnings in the period in which they become known.
6
<PAGE> 48
\HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
3. INVENTORY:
The inventory consists of:
<TABLE>
<CAPTION>
================================================================================
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Raw material
$ 70,079 $ 84,079
Processed ore 4,545 7,690
--------------------------------------------------------------------------------
$ 74,624 $ 91,769
================================================================================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
==============================================================================================================
2000 1999
Accumulated Accumulated
Cost depreciation Cost depreciation
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Land $ 5,236 $ - $ 5,236 $ -
Buildings 1,144,965 498,664 1,067,624 476,747
Equipment 2,621,615 2,077,637 2,696,344 2,024,951
Office equipment 4,173 3,589 3,283 3,283
Vehicles 21,060 12,636 21,060 9,477
Computers 18,677 8,448 8,541 6,647
Buildings not available for use 899,371 - 596,842 -
Equipment not available for use 1,834,961 - - -
--------------------------------------------------------------------------------------------------------------
6,550,058 2,600,974 4,398,930 2,521,105
Less accumulated depreciation 2,600,974 2,521,105
--------------------------------------------------------------------------------------------------------------
$ 3,949,084 $1,877,825
==============================================================================================================
</TABLE>
5. MINING PROPERTIES:
The mining properties consist of:
<TABLE>
<CAPTION>
================================================================================
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Township of Warden and Munro, Ontario
- 21 leased mining claims $134,282 $ 134,282
================================================================================
</TABLE>
7
<PAGE> 49
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
6. DEFERRED DEVELOPMENT COSTS:
The amount reported as deferred development costs relate to costs incurred
to bring the operation into commercial production. Commencing in 1972, the
deferred development expenditures were being amortized using a
units-of-production method based on tons of product shipped. During the
period the costs were written-off as they were deemed to have no value
with the substantial investment the Company was making in the new mill
production system.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities includes $382,455 (1999 - $nil)
advanced from Enviro Industrial Technologies Inc. which is unsecured,
bears no interest and has no specified terms of repayment.
8. ADVANCES FROM SHAREHOLDERS:
The advances from shareholders are unsecured, bear interest at 9.25% and
are to be repaid within one year.
9. LONG-TERM DEBT:
<TABLE>
<CAPTION>
=============================================================================================================
Interest Due
Rate Date 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Floating
Business Development Bank of Canada Base + 2.50% 2005 $ 519,200 $ 572,000
Current portion of long-term debt 105,600 79,200
-------------------------------------------------------------------------------------------------------------
$ 413,600 $ 492,800
=============================================================================================================
</TABLE>
The loan payable to the Business Development Bank of Canada ("BDC") is
secured by a first mortgage on land, buildings and equipment, a first
mortgage on the mining leases and by an assignment of $600,000 insurance
on the life of the President of the Company.
At September 30, 2000, the Company was in contravention of the covenants
imposed by the BDC. The BDC has provided a waiver for this covenant
contingent upon loan payments remaining current and no other events
occurring to adversely affect loan security.
8
<PAGE> 50
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
9. LONG-TERM DEBT (CONTINUED):
Principal payments required to retire the outstanding long-term debt are
as follows:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
2000 $ 105,600
2001 105,600
2002 105,600
2003 105,600
2004 96,800
--------------------------------------------------------------------------------
$ 519,200
================================================================================
</TABLE>
10. SHARE CAPITAL:
(a) Authorized:
Unlimited common shares
Unlimited special shares
(b) Issued - common:
<TABLE>
<CAPTION>
==============================================================================================================
Number of
Shares Amount
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1998 13,834,382 $ 6,003,012
Issued during fiscal year 1999:
Issued during the year for cash consideration
(net of issuance costs of $58,706) 8,608,334 1,269,184
Options exercised 225,000 33,750
---------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 22,667,716 7,305,946
Issued during period ended September 30,1999:
Issued during the period for cash consideration
(net of issuance costs of $58,706) 5,305,319 1,798,156
Options exercised 110,000 31,500
Warrants exercised 200,000 40,000
--------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 28,283,035 $ 9,175,602
==============================================================================================================
</TABLE>
9
<PAGE> 51
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
10. SHARE CAPITAL (CONTINUED):
(c) The Company has a stock option plan available to its employees,
officers and directors which options may be granted on a maximum of
1,200,000 common shares.
The number of shares reserved for issuance to any one insider, within
a one-year period, pursuant to options must not exceed 5% of the
outstanding issue.
The number of shares reserved for issuance to insiders, within a one
year period, pursuant to options must not exceed 10% of the
outstanding issue.
The option price of the shares shall be fixed by the Board but must
not be less than the maximum discount permitted by the Canadian
Venture Exchange.
Options have a maximum term of five years and vest immediately.
The stock options outstanding at September 30, 2000 expire at various
dates to May 30, 2004.
A summary of the status of the Plan and changes during the periods
then ended is presented below:
<TABLE>
<CAPTION>
================================================================================================================
2000 1999
----------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options, beginning of period 405,000 $ 0.53 320,000 $ 0.68
Granted during the period - - 335,000 0.15
Exercised during the period (110,000) 0.29 (225,000) 0.15
Expired - - (25,000) 1.50
--------------------------------------------------------------------------------------------------------------
Options, end of period 295,000 $ 0.45 405,000 $ 0.48
==============================================================================================================
</TABLE>
(d) The following table summarizes information about the stock options
outstanding at September 30, 2000.
<TABLE>
<CAPTION>
==================================================================================================================
Weighted
Number of Average Weighted
Range of Options Remaining Average
Exercise Prices Outstanding Contractual Life Exercise Price
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 0.15 100,000 1.4 years $ 0.15
$ 0.60 - 0.75 195,000 0.1 years $ 0.61
==============================================================================================================
</TABLE>
10
<PAGE> 52
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
10. SHARE CAPITAL (CONTINUED):
(e) As at September 30, 2000, there are 13,713,653 (1999 - 8,608,334) share
purchase warrants outstanding as follows:
<TABLE>
<CAPTION>
========================================================================
Expiry Date Price No. of Shares
------------------------------------------------------------------------
<S> <C> <C>
July 12, 2001 $0.20 8,608,334
February 22, 2002 $0.40 5,105,319
========================================================================
</TABLE>
During the year, no warrants expired (1999 - 456,924).
(f) Certain funds related to a share issuance were received prior to
year-end and were classified in shareholders' equity.
11. RELATED PARTY TRANSACTIONS:
During the period, the Company incurred office expenses of nil (1999 -
$3,000) with a corporation controlled by a director of Hedman Resources
Limited.
At September 30, 2000, the Company was indebted to related parties in the
amount of nil (1999 - $23,846).
The Company leased its office space from a company controlled by a
shareholder of the Company (note 20(b)).
12. CONTINGENT LIABILITIES:
The Company has been named as a co-defendant in a number of class action
suits in the United States relative to sales of product made between 1974
and 1979. To date, the Company's insurance company's have paid for legal and
settlement amounts in relation to these matters. Should the total indemnity
limits of the Company's insurance policies become exhausted, it is the
position of the insurance company that its defence obligation will come to
an end. The total amount of claims outstanding significantly exceeds the
remaining insurance coverage. However, it is not possible to estimate the
amount, if any, of the Company's liability exposure.
11
<PAGE> 53
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
13. INCOME TAXES:
The Company has available non-capital losses for income tax purposes in the
aggregate of $5,200,442 which are available to reduce future years earnings
for income tax purposes. No tax benefit pertaining to the losses has been
recognized in the accounts. These losses will expire, if not utilized, as
follows:
<TABLE>
<CAPTION>
========================================================================
<S> <C>
2000 $ 579,832
2001 510,521
2002 871,174
2003 576,921
2004 933,177
2005 426,319
2006 581,270
2007 721,228
------------------------------------------------------------------------
$5,200,442
============================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 2000 and December 31, 1999 are presented below.
<TABLE>
<CAPTION>
============================================================================
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,321,539 $ 1,998,625
Less valuation allowance (2,280,135) (1,848,695)
----------------------------------------------------------------------------
$ 41,404 $ 149,930
============================================================================
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation $ (41,404) $ (77,829)
Deferred development costs, due to
differences in amortization -- (72,101)
----------------------------------------------------------------------------
$ (41,404) $ (149,930)
============================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income of approximately $5,200,442
prior to the expiration of the net operating loss carryforwards.
12
<PAGE> 54
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
14. SEGMENTED INFORMATION:
Details of the Company's financial information segmented geographically is
as follows:
<TABLE>
<CAPTION>
================================================================================
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Segmented revenue:
Canada $ 31,758 $ 25,441
Other 230,917 347,278
--------------------------------------------------------------------------------
$262,675 $372,719
================================================================================
</TABLE>
All assets of the Company are located in Canada.
15. LOSS PER SHARE AMOUNTS:
Basic earnings per share are based on the weighted-average number of common
shares outstanding during the period. The effects of the exercise of the
options and warrants outstanding at September 30, 2000 and 1999 are
antidilutive; therefore, the fully diluted loss per share is not presented.
16. SUBSEQUENT EVENTS:
Subsequent to year end, the Company received a loan from a shareholder and
officer of the Company in the amount of $30,000.
17. COMPARATIVE FIGURES:
Certain of the 1999 figures have been restated to conform with the
presentation adopted in 2000.
18. FUTURE SITE RESTORATION AND REMOVALS:
The Company, in conjunction with the Ministry of Northern Development and
Mines, has agreed to a future site restoration plan. The plan requires the
Company to make an initial payment of $20,000, pledge certain equipment
assets as security and make payments of $2.25 per ton milled to a maximum of
approximately $262,000.
13
<PAGE> 55
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
19. ADMINISTRATION COSTS:
The administration costs consist of finders fees ($4,000) regarding the
private placement and interest charges on unremitted payroll taxes
($16,560), over and above normal administration costs. The Company is now
current with all government agencies.
The municipal taxes with the Corporation of The Township of Black River
Matheson are in arrears. As part of the loan agreement with the Business
Development Bank of Canada, ("BDC") property taxes must remain current.
However, the Company has obtained a waiver from the BDC (see note 9).
20. COMMITMENTS:
(a) The Company has signed a contract to acquire a firefelt production plant
from an overseas supplier for an estimated cost of $3,200,000. The
Company has advanced approximately $900,000 of the estimated cost to the
supplier and is awaiting delivery and installation of the plant in early
2001. The Company has secured with Bank Austria Aktiengesellschaft an
Export Credit Facility to finance a maximum of 75%, or $2,250,000 CDN of
the sales contract from the supplier. The credit facility is repayable
in ten equal semi-annual instalments, commencing six months after the
plant is put into production. The initial rate is based on a floating
interest rate of three month LIBOR + 1.5% payable quarterly on the
drawn-down balance of the credit facility. Upon full drawing of the
credit facility, the Company has the option to switch to a fixed
interest rate to be negotiated at such time.
(b) The Company has leased office space in North York, Ontario for a period
of five years ending August 2005. The annual rent, excluding common area
costs and municipal taxes, to be paid for this space is $22,000.
21. FINANCIAL INSTRUMENTS:
The fair values of the accounts receivable and accounts payable and accrued
liabilities approximate their carrying values due to the short period to
maturity. The carrying value of the long-term debt approximates its value
based on borrowing rates presently available to the Company for loans with
similar terms and maturities.
14
<PAGE> 56
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES:
The financial statements of the Company are expressed in Canadian dollars in
accordance with Canadian generally accepted accounting principles (Canadian
GAAP). The following adjustments and disclosures would be required in order
to present these financial statements in accordance with accounting
principles generally accepted in the United States (US GAAP).
(a) Reconciliation of loss in accordance with Canadian GAAP to loss
determined in accordance with US GAAP.
<TABLE>
<CAPTION>
============================================================================
2000 1999
----------------------------------------------------------------------------
<S> <C> <C>
Net loss under Canadian GAAP $(1,499,457) $(756,722)
Add (deduct) adjustments for:
Amortization of deferred developments costs 1,029 1,633
Write-off of deferred development costs 583,094 --
----------------------------------------------------------------------------
Net loss under US GAAP $ (915,334) $(755,089)
============================================================================
Net loss per share under US GAAP $ (0.03) $ (0.02)
============================================================================
</TABLE>
(b) Comparison of balance sheet items determined in accordance with Canadian
GAAP to balance sheet items determined in accordance with US GAAP.
<TABLE>
<CAPTION>
================================================================================================
2000 1999
Canadian US Canadian US
GAAP GAAP GAAP GAAP
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 253,052 $ 253,052 $ 683,353 $ 683,353
Property, plant and equipment 3,949,084 3,949,084 1,877,825 1,877,825
Mining properties 134,282 134,282 134,282 134,282
Deferred development costs -- -- 584,123 --
------------------------------------------------------------------------------------------------
Total assets $ 4,336,418 $ 4,336,418 $ 3,279,583 $ 2,695,460
------------------------------------------------------------------------------------------------
Current liabilities $ 1,989,116 $ 1,989,116 $ 327,825 $ 327,825
Long-term debt 413,600 413,600 492,800 492,800
Advances from related parties -- -- 13,083 13,083
------------------------------------------------------------------------------------------------
2,402,716 2,402,716 833,708 833,708
Shareholders' equity:
Share capital 9,175,602 9,175,602 8,188,318 8,188,318
Contributed surplus 1,785,089 1,785,089 1,785,089 1,785,089
Deficit (9,026,989) (9,026,989) (7,527,532) (8,111,655)
------------------------------------------------------------------------------------------------
1,933,702 1,933,702 2,445,875 1,861,752
------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 4,336,418 $ 4,336,418 $ 3,279,583 $ 2,695,460
================================================================================================
</TABLE>
15
<PAGE> 57
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Nine months ended September 30, 2000
22. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED STATES
(CONTINUED):
(c) The effects of these adjustments would result in the consolidated
statements of cash flows reporting the following:
<TABLE>
<CAPTION>
===========================================================================
2000 1999
---------------------------------------------------------------------------
<S> <C> <C>
Cash used in operations $ (272,177) $ (995,645)
Cash used in investing (1,306,441) (638,481)
Cash provided by financing 1,121,401 2,082,834
============================================================================
</TABLE>
There is no change to consolidated statement of cash flows.
(d)Write-down of Mineral Properties:
Under both Canadian and US GAAP, property, plant and equipment must be
assessed for potential impairment. Under Canadian GAAP, the impairment
loss is the difference between the carrying value of the asset and its
recoverable amount calculated as undiscounted estimated future net cash
flows. Under US GAAP, if the undiscounted estimated future net cash flows
are less than the carrying value of the asset, the impairment loss is
calculated as the amount by which the carrying value of the asset exceeds
its fair value. Fair value has been calculated as the present value of
estimated future net cash flows. The resulting difference in the
write-down between US and Canadian GAAP causes a change in the amount of
depreciation, depletion and reclamation costs charged to earnings.
23. JUDGEMENT:
A judgement against the Company has been issued in the state of Florida
regarding a lawsuit filed against the Company in 1994. The Company incurred
costs in the amount of $112,762 to settle the claim.
24. OTHER INFORMATION:
The Company has entered into a binding letter of intent with Enviro
Industrial Technologies Inc. ("Enviro"), a U.S. company. Enviro agreed to
acquire up to all of the issued and outstanding common shares of the Company
in exchange for common stock of Enviro on a one for one basis after a two
for one share consolidation by the Company. Enviro was incorporated in the
State of Delaware on March 31, 2000 and plans to enter the mining and
industrial mineral processing business.
16
<PAGE> 58
Financial Statements of
HEDMAN RESOURCES LIMITED
Years ended December 31, 1999 and December 31, 1998
<PAGE> 59
AUDITORS' REPORT TO THE DIRECTORS
We have audited the balance sheets of HEDMAN RESOURCES LIMITED at December 31,
1999 and December 31, 1998 and the statements of operations and deficit and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 1999 and
December 31, 1998 and the results of its operations and cash flows for each of
the years in the three year period ended December 31, 1999 in accordance with
Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
would have affected results of operations for the years December 31, 1999 and
1998 and shareholders' equity at December 31, 1999 and 1998 to the extent
summarized in note 19 to the financial statements.
/s/ KPMG LLP
Chartered Accountants
Sudbury, Canada
March 18, 2000
<PAGE> 60
HEDMAN RESOURCES LIMITED
Balance Sheet
December 31, 1999 and December 31, 1998
(in Canadian $'s)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 450,086 1,378
Accounts receivable 62,218 35,618
Inventory (note 2) 91,769 106,548
Supplies and prepaid expenses 79,280 98,788
------------------------------------------------------------------------------------------------------------
683,353 242,332
Property, plant and equipment (note 3) 1,877,825 1,413,163
Mining properties (note 4) 134,282 134,282
Deferred development costs (note 5) 584,123 585,756
-----------------------------------------------------------------------------------------------------------------
$ 3,279,583 2,375,533
=================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 248,625 670,687
Current portion of long-term debt (note 6) 79,200 102,800
------------------------------------------------------------------------------------------------------------
327,825 773,487
Long-term debt (note 6) 492,800 469,200
Advances from related parties (note 7) 13,083 115,555
Shareholders' equity:
Share capital (note 9) 7,305,946 6,003,012
Subscriptions (note 15) 882,372 -
Contributed surplus 1,785,089 1,785,089
Deficit (7,527,532) (6,770,810)
------------------------------------------------------------------------------------------------------------
2,445,875 1,017,291
Contingent liabilities (note 11)
Subsequent events (note 15)
-----------------------------------------------------------------------------------------------------------------
$ 3,279,583 2,375,533
=================================================================================================================
</TABLE>
See accompanying notes to financial statements
On behalf of the Board:
Director
-----------------------------------------
Director
-----------------------------------------
1
<PAGE> 61
HEDMAN RESOURCES LIMITED
Statement of Operations and Deficit
Years ended December 31, 1999, December 31, 1998 and December 31, 1997 (in
Canadian $'s)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 394,083 434,858 735,076
Cost of sales 508,926 515,298 996,426
--------------------------------------------------------------------------------------------------------------------
(114,843) (80,440) (261,350)
Expenses:
Depreciation and amortization 175,452 158,408 156,730
Administration wages and benefits 133,837 156,763 173,600
Administration 126,206 104,832 135,284
Interest on long-term debt 66,734 68,284 177,927
Municipal taxes 61,625 59,820 25,138
Professional fees 32,755 23,602 78,455
Travel 24,716 5,599 54,187
Sales, marketing and research 20,554 68,441 23,449
Recovery of prior period expenses (note 8) -- (141,462) --
---------------------------------------------------------------------------------------------------------------
641,879 504,287 824,770
--------------------------------------------------------------------------------------------------------------------
LOSS FOR THE YEAR (756,722) (584,727) (1,086,120)
Deficit, beginning of year (6,770,810) (6,186,083) (5,099,963)
--------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $ (7,527,532) (6,770,810) (6,186,083)
====================================================================================================================
LOSS PER SHARE (note 14) $ (0.04) (0.04) (0.09)
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 62
HEDMAN RESOURCES LIMITED
Statement of Cash Flows
Years ended December 31, 1999, December 31, 1998 and December 31, 1997 (in
Canadian $'s)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the year $ (756,722) (584,727) (1,086,120)
Adjustments for:
Depreciation and amortization 175,452 . 158,408 156,730
Gain on disposal of property, plant
and equipment -- -- (3,789)
-------------------------------------------------------------------------------------------------------
(581,270) (426,319) (933,179)
Change in non-cash working capital:
Accounts receivable (26,600) 70,815 15,908
Inventory 14,779 57,829 67,910
Supplies and prepaid expenses 19,508 13,348 (12,303)
Accounts payable and accrued liabilities (422,062) 49,696 109,819
----------------------------------------------------------------------------------------------------------
(995,645) (234,631) (751,845)
Cash flows from financing activities:
Issue of share capital 1,302,934 164,316 631,810
Subscriptions 882,372 -- -
Advances from related parties (102,472) 87,283 (18,719)
Payments on long-term debt -- (28,000) -
Long-term debt extinguished -- -- (306,552)
Subscriptions received -- -- (346,715)
Long-term debt incurred -- -- 600,000
Cash - restricted -- -- 346,715
----------------------------------------------------------------------------------------------------------
2,082,834 223,599 906,539
Cash flows from investing activities:
Purchase of property, plant and equipment (638,481) (21,060) (18,063)
Proceeds on disposal of property, plant
and equipment - - 8,407
----------------------------------------------------------------------------------------------------------
(638,481) (21,060) (9,656)
---------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 448,708 (32,092) 145,038
Cash (bank indebtedness), beginning of year 1,378 33,470 (111,568)
---------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 450,086 1,378 33,470
===============================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 95,112 68,284 177,927
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 63
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
Hedman Resources Limited is an Ontario incorporated public company and its
principal business activity is the production of heat resistant fillers.
1. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements are prepared by management in accordance with
Canadian generally accepted accounting principles and, except as described
in note 19, conform in all material respects with the accounting
principles generally accepted in the United States. This summary of
significant accounting policies is a description of the accounting methods
and practices that have been used in the preparation of these financial
statements and is presented to assist the reader in interpreting the
statements contained herein.
(a) Revenue recognition:
Revenue from sales is recognized when goods are shipped to customers.
(b) Mining properties and deferred development costs:
Mining properties represent the cost of acquisition, less recoveries,
of non-producing resource properties. These costs will be charged
against income if the properties are brought into commercial
production. The carrying values of non-producing properties are
periodically assessed by management and if management determines that
the carrying values cannot be recovered, the unrecoverable amounts
are written off against current earnings.
Deferred development costs represent costs incurred to bring the
operation into commercial production. These costs are being amortized
on a unit of production basis.
(c) Inventory:
Inventories of broken ore and refined and converted products are
valued at the lower of average cost and net realizable value.
(d) Supplies and prepaid expenses:
Consumable supplies and spares are valued at the lower of weighted
average cost or replacement value.
4
<PAGE> 64
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Property, plant and equipment:
Property, plant and equipment are being amortized on a straight-line
basis using the following annual rates:
<TABLE>
<S> <C>
Buildings 4%
Equipment 4%
Office equipment 20%
Vehicles 30%
Computers 30%
</TABLE>
Assets are carried at cost. Costs of additions and improvements are
capitalized. When assets are retired or sold, the resulting gains and
losses are reflected in current earnings. Maintenance and repair
expenditures are charged to cost of production. The carrying values
of property, plant and equipment are periodically assessed by
management and if management determines that the carrying values
cannot be recovered, the unrecoverable amounts are written off
against current earnings.
(f) Foreign currency translation:
Foreign currencies are translated to Canadian dollars as follows:
monetary assets and liabilities at the rates of exchange prevailing
at the balance sheet date, non-monetary assets and liabilities are
translated at historical exchange rates and revenue and expenditures
at the rate of exchange prevailing on the dates of transactions. The
resulting gains and losses are included in income.
(g) Reclamation costs:
Estimated future reclamation costs, including site restoration where
reasonably determinable, will be charged against earnings as
incurred.
5
<PAGE> 65
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Future income taxes:
In December 1997, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants ("CICA") issued Section 3465 of
the CICA Handbook, Income Taxes ("Section 3465"). Effective January
1, 1999, the Company adopted Section 3465. Section 3465 requires a
change from the deferred method of accounting for income taxes to the
asset and liability method of accounting for income taxes.
Under the assets and liability method of Section 3465, future tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. Under Section 3465, the effect on future
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Pursuant to the deferred method, which was applied in 1999 and prior
years, deferred income taxes are recognized for income and expense
items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for
the year of the calculation. Under the deferral method, deferred
taxes are not adjusted for subsequent changes in tax rates.
There is no effect of this change in accounting for income taxes on
prior periods. Prior years' financial statements have not been
restated to apply the provisions of Section 3465.
(i) Use of estimates:
The preparation of financial statements in accordance with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of
revenues and expenses during the reported period. These estimates are
reviewed periodically, and, as adjustments become necessary, they are
reported in earnings in the period in which they become known.
6
<PAGE> 66
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
2. INVENTORY:
The inventory consists of:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------
<S> <C> <C>
Raw material $ 84,079 $ 75,356
Processed ore 7,690 31,192
-------------------------------------------
$ 91,769 $106,548
===========================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
====================================================================================================
1999 1998
----------------------------------------------------------------------------------------------------
Accumulated Accumulated
Cost depreciation Cost deprecation
<S> <C> <C> <C> <C>
Land $ 5,236 $ -- $ 5,236 $ --
Buildings 1,067,624 476,747 1,067,624 422,105
Equipment 2,696,344 2,024,951 2,657,169 1,917,881
Office equipment 3,283 3,283 3,068 2,844
Vehicles 21,060 9,477 21,060 3,159
Computers 8,541 6,647 9,081 4,086
Buildings not available for use 596,842 -- -- --
----------------------------------------------------------------------------------------------------
4,398,930 2,521,105 3,763,238 2,350,075
Less accumulated depreciation 2,521,105 2,350,075
----------------------------------------------------------------------------------------------------
$1,877,825 $1,413,163
====================================================================================================
</TABLE>
4. MINING PROPERTIES:
The mining properties consist of:
<TABLE>
<CAPTION>
===================================================================================
1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
Township of Warden and Munro, Ontario
- 21 leased mining claims $134,282 $134,282
===================================================================================
</TABLE>
5. DEFERRED DEVELOPMENT COSTS:
The amount reported as deferred development costs relate to costs incurred
to bring the operation into commercial production. The deferred
development costs are being amortized using a units-of-production method
based on tons of product produced. Accumulated amortization at December
31, 1999 is $299,985 (1998 - $298,432).
7
<PAGE> 67
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
===============================================================================================================
Interest Due
Rate Date 1999 1998
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Floating
Business Development Bank of Canada Base + 2.50% 2005 $ 572,000 $ 572,000
Current portion of long-term debt 79,200 102,800
---------------------------------------------------------------------------------------------------------------
$ 492,800 $ 469,200
===============================================================================================================
</TABLE>
The loan payable to the Business Development Bank of Canada ("BDC") is
secured by a first mortgage on land, buildings and equipment, a first
mortgage on the mining leases and by an assignment of $600,000 insurance
on the life of the President of the Company.
At December 31, 1999, the Company was in contravention of the covenants
imposed by the BDC. Subsequent to year-end, BDC has provided a waiver for
this covenant contingent upon loan payments remaining current and no other
events occurring to adversely affect loan security.
Principal payments required to retire the outstanding long-term debt are
as follows:
<TABLE>
<S> <C>
=============================================================================================
1999 $ 79,200
2000 82,800
2001 82,800
2002 82,800
2003 82,800
2004 and subsequent years 161,600
---------------------------------------------------------------------------------------------
$ 572,000
=============================================================================================
</TABLE>
7. ADVANCES FROM RELATED PARTIES:
The advances from related parties are unsecured, bear no interest and have
no specified terms of repayment.
8. RECOVERY OF PRIOR PERIOD EXPENSES:
The recovery resulted from the favourable settlement of a previous
accrual.
8
<PAGE> 68
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
9. SHARE CAPITAL:
(a) Authorized:
Unlimited common shares
Unlimited special shares
(b) Issued - common:
<TABLE>
<CAPTION>
==============================================================================================================
Number of
Shares Amount
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1997 13,234,382 $5,838,696
Issued during fiscal year 1998:
Issued during the year for cash consideration 500,000 135,516
Warrants exercised 100,000 28,800
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 13,834,382 6,003,012
Issued during fiscal year 1999:
Issued during the year for cash consideration
(net of issuance costs of $50,000) 8,608,334 1,269,184
Options exercised 225,000 33,750
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 22,667,716 $7,305,946
==============================================================================================================
</TABLE>
(c) The Company has a stock option plan available to its employees,
officers, directors and service providers under which options may be
granted on a maximum of 1,200,000 common shares.
The number of shares reserved for issuance to any one insider, within
a one-year period, pursuant to options must not exceed 5% of the
outstanding issue.
The number of shares reserved for issuance to insiders, within a one
year period, pursuant to options must not exceed 10% of the
outstanding issue.
The option price of the shares shall be fixed by the Board but must
not be less than the maximum discount permitted by the Canadian
Venture Exchange.
Options have a maximum term of five years and vest immediately.
The stock options outstanding at December 31, 1999 expire at various
dates to May 30, 2004.
9
<PAGE> 69
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
9. SHARE CAPITAL (CONTINUED):
(c) The outstanding options to purchase common shares are as follows:
<TABLE>
<CAPTION>
============================================================================================================
1999 1998
-------------------- -------------------
Weighted Weighted
Average Average
No. of Exercise No. of Exercise
Shares Price Shares Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 320,000 $ 0.68 220,000 $ 0.71
Granted during the year 335,000 .15 100,000 .60
Exercised during the year (225,000) .15 -- --
Expired 25,000 1.50 -- --
------------------------------------------------------------------------------------------------------------
Outstanding at end of year 455,000 $ 0.53 320,000 $ 0.68
============================================================================================================
</TABLE>
(d) As at December 31, 1999, there are 8,608,334 (1998 - 456,924) share
purchase warrants outstanding as follows:
<TABLE>
<CAPTION>
=============================================================================================================
Expiry Date Price No. of Shares
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
July 12, 2001 $0.20 8,608,334
=============================================================================================================
</TABLE>
During the year, 456,924 warrants expired.
10. RELATED PARTY TRANSACTIONS:
During the year, the Company incurred office expenses of $3,000 (1998 -
$1,536) with a corporation controlled by a director of Hedman Resources
Limited.
At December 31, 1999, the Company was indebted to related parties in the
amount of $23,846 (1998 - $126,318).
10
<PAGE> 70
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
11. CONTINGENT LIABILITIES:
The Company has been named as a co-defendant in a number of class action
suits in the United States relative to sales of product made between 1974
and 1979. To date, the Company's insurance company's have paid for legal
and settlement amounts in relation to these matters. Should the total
indemnity limits of the Company's insurance policies become exhausted, it
is the position of the insurance company that its defence obligation will
come to an end. The total amount of claims outstanding significantly
exceeds the remaining insurance coverage. However, it is not possible to
estimate the amount, if any, of the Company's liability exposure.
A judgement against the Company has been issued in the state of Florida.
The Company is currently attempting to negotiate a resolution to the
judgement. Any settlement of this judgement will be accounted for in the
year of settlement.
The Company is presently negotiating with the Ministry of Northern
Development and Mines on a future site restoration plan. Negotiations are
in the preliminary phase and no estimate of any future liability can be
made.
12. INCOME TAXES:
The Company has available non-capital losses for income tax purposes in the
aggregate of $4,479,214 which are available to reduce future years earnings
for income tax purposes. No tax benefit pertaining to the losses has been
recognized in the accounts. These losses will expire, if not utilized, as
follows:
<TABLE>
================================================================================
<S> <C>
2000 $ 579,832
2001 510,521
2002 871,174
2003 576,921
2004 933,177
2005 426,319
2006 581,270
--------------------------------------------------------------------------------
$4,479,214
================================================================================
</TABLE>
11
<PAGE> 71
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
12. INCOME TAXES (CONTINUED):
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below.
<TABLE>
<CAPTION>
=================================================================================================================
1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 1,998,625 $ 1,739,263
Less valuation allowance (1,848,695) (1,512,285)
-----------------------------------------------------------------------------------------------------------------
$ 149,930 $ 226,978
=================================================================================================================
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation $ (77,829) $ (154,148)
Deferred development costs, due to differences
in amortization (72,101) (72,830)
-----------------------------------------------------------------------------------------------------------------
$ (149,930) $ (226,978)
=================================================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company
will need to generate future taxable income of approximately $4,479,214
prior to the expiration of the net operating loss carryforwards.
13. SEGMENTED INFORMATION:
Details of the Company's financial information segmented geographically is
as follows:
<TABLE>
<CAPTION>
================================================================================
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Segmented revenue:
Canada $ 25,441 $ 51,570
Other 368,642 383,288
--------------------------------------------------------------------------------
$394,083 $434,858
================================================================================
</TABLE>
All assets of the Company are located in Canada.
12
<PAGE> 72
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
14. LOSS PER SHARE AMOUNTS:
Basic earnings per share are based on the weighted average number of common
shares outstanding calculated on an annual basis. The effects of the
exercise of the options and warrants outstanding at December 31, 1999 and
1998 are antidilutive; therefore, the fully diluted loss per share is not
presented.
15. SUBSEQUENT EVENTS:
Subsequent to year end, the Company issued 5,305,319 common shares at $.35
per share.
Certain of the funds related to this issuance were received prior to year
end and are disclosed at December 31, 1999 as subscriptions.
16. COMPARATIVE FIGURES:
Certain of the 1998 figures have been restated to conform with the
presentation adopted in 1999.
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to the customers,
suppliers, or other third parties, will be fully resolved.
13
<PAGE> 73
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
18. FINANCIAL INSTRUMENTS:
The fair values of the accounts receivable and accounts payable and accrued
liabilities approximate their carrying values due to the short period to
maturity. The carrying value of the long-term debt approximates its fair
value based on borrowing rates presently available to the Company for loans
with similar terms and maturities.
19. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
STATES:
The financial statements of the Company are expressed in Canadian dollars
in accordance with Canadian generally accepted accounting principles
(Canadian GAAP). The following adjustments and disclosures would be
required in order to present these financial statements in accordance with
accounting principles generally accepted in the United States (US GAAP).
(a) Reconciliation of loss in accordance with Canadian GAAP to loss
determined in accordance with US GAAP.
<TABLE>
<CAPTION>
===================================================================================================
1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss under Canadian GAAP $(756,722) $(584,727)
Add (deduct) adjustments for:
Write down of deferred developments costs 1,633 2,920
---------------------------------------------------------------------------------------------------
Net loss under US GAAP $(755,089) $(581,807)
===================================================================================================
Net loss per share under US GAAP $ (0.04) $ (0.04)
===================================================================================================
</TABLE>
14
<PAGE> 74
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
(in Canadian $'s)
19. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THE UNITED
STATES (CONTINUED):
(b) Comparison of balance sheet items determined in accordance with
Canadian GAAP to balance sheet items determined in accordance with US
GAAP.
<TABLE>
<CAPTION>
==================================================================================================================================
1999 1998
Canadian US Canadian US
GAAP GAAP GAAP GAAP
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 683,353 $ 683,353 $ 242,332 $ 242,332
Property, plant and equipment 1,877,825 1,877,825 1,413,163 1,413,163
Mining properties 134,282 134,282 134,282 134,282
Deferred development costs 584,123 -- 585,756 --
----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 3,279,583 $ 2,695,460 $ 2,375,533 $ 1,789,777
==================================================================================================================================
Current liabilities $ 327,825 $ 1,210,197 $ 773,487 $ 773,487
Long-term debt 492,800 492,800 469,200 469,200
Advances from related parties 13,083 13,083 115,555 115,555
----------------------------------------------------------------------------------------------------------------------------------
833,708 1,716,080 1,358,242 1,358,242
Shareholders' equity:
Share capital 8,188,318 7,305,946 6,003,012 6,003,012
Contributed surplus 1,785,089 1,785,089 1,785,089 1,785,089
Deficit (7,527,532) (8,111,655) (6,770,810) (7,356,566)
----------------------------------------------------------------------------------------------------------------------------------
2,445,875 979,380 1,017,291 431,535
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 3,279,583 $ 2,695,460 $ 2,375,533 $ 1,789,777
==================================================================================================================================
</TABLE>
(c) The effects of these adjustments would result in the consolidated
statements of cash flows reporting the following:
<TABLE>
<CAPTION>
====================================================================================================================================
1999 1998
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by operations $ (995,645) $(234,631)
Cash provided by (used in) investing (638,481) (21,060)
Cash provided by (used in) financing 2,082,834 223,599
====================================================================================================================================
</TABLE>
15
<PAGE> 75
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Enviro Industrial Technologies, Inc.
By: /s/ Teodosio V. Pangia
--------------------------------------
Teodosio V. Pangia, Chairman
Date December 12, 2000
-----------------
<PAGE> 76
PART III
Item 1. Index to Exhibits
The Following list describes the exhibits filed as part of this Registration
Statement on Form 10-SB:
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
2.1* Articles of Incorporation of Enviro Industrial Technologies,
Inc. as filed on April 27, 2000
2.2* Bylaws
4.1* Form of Subscription Agreement
4.2* Demand Promissory Note dated September 1, 2000 with Louis
Lilling as Maker and Enviro Industrial Technologies, Inc. as
Holder
4.3* Stock Option Plan of Hedman Resources Limited
6.1* Option Agreement by and between Krystar International Ltd. and
Enviro Industrial Technologies, Inc.
6.2** Lease by and between Brovi Investments Limited and Hedman
Resources Limited
8.1* Letter of Intent - Acquisition of Hedman Resources Limited
8.2** Amalgamation Agreement by and between Hedman Resources
Limited, Enviro Industrial Technologies, Inc. and Enviro
Industrial Technologies (Canada), Inc.
12.1** Map of Location of Vermiculite Mining Claims
12.2** Map of Location of Hedman Mining Claims
12.3** Press Release of Hedman Resources Limited Announcing planed
acquisition by Enviro Industrial Technologies, Inc.
27.1** Financial Data Schedule
</TABLE>
* Previously filed with Registration Statement on Form 10-SB (File No.
000-31543) on September 15, 2000.
** Filed herewith.
ITEM 2 - DESCRIPTION OF EXHIBITS
The required exhibits are attached hereto, as noted in Item 1 above.
