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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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.
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(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
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(Address of Principal Executive Offices) (Zip code)
Issuer's Telephone Number:
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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
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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>
<S> <C>
PART I - INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business...............................................................3
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Item 2. Management's Discussion and Analysis or Plan of Operation........................... 9
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Item. 3 Description of Property..............................................................12
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Item 4. Security Ownership of Certain Beneficial Owners and Management.......................12
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Item 5. Directors, Executive Officers, Promoters and Control Persons.........................13
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Item 6. Executive Compensation...............................................................14
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Item 7. Certain Relationships and Related Transactions.......................................15
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Item 8. Description of Securities............................................................15
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PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters .......................................................16
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Item 2. Legal Proceedings....................................................................16
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Item 3. Changes in and Disagreements With Accountants. ......................................16
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Item 4. Recent Sales of Unregistered Securities..............................................17
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Item 5. Indemnification of Directors and Officers............................................17
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PART F/S Financial Statements..........................................................FS1-FS36
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PART III
Item 1. Index to Exhibits....................................................................18
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Item 2. Description of Exhibits..............................................................19
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</TABLE>
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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. Enviro plans to enter
the mining and industrial minerals processing business. The core of Enviro's
business will be comprised of a vermiculite property consisting of a contiguous
block of five (5) unpatented mining claims in Canada, covering a total of 25
claim units. 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. The Company 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, the Company 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 Exchange ("CDNX"). In order for the Company to meet its sales
projections for fiscal year 2001, the Company is focusing on Canada and the
United States to replace all currently manufactured asbestos products with
environmentally safe products. The Company believes it can generate business in
this market because it is customer-driven and it supplies its customers, agents
and distributors with continual sales aids and research development support
data.
The Company is becoming a reporting company to enable its common stock
("Common Stock") to be traded on the NASD Over-the-Counter Bulletin Board ("OTC
Bulletin Board"). After the share exchange, Hedman will no longer be a public
company and will become a subsidiary of the Company.
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. Hedman is listed on the Canadian Venture Exchange (CDNX) and its stock
is traded under the symbol "HDM." Hedman is in the mining and mining processing
business. Hedman has 29 claims in the Canadian Townships of Munro and Warden
where Hedman has an open pit mine. Hedman's primary mining property is located
in Matheson, Ontario. In 1969, an 80,500 square-foot full-scale processing mill
with a design capacity of 50,000 tons per year and an installed capacity of
25,000 tons per year went into production at the mill site in Matheson which is
located 40 miles East of Timmins.
SUPERFIL
Recently, Hedman successfully developed a material called "Superfil."
Hedman is the only producer in the marketplace of Superfil, which is an
environmentally safe, heat resistant industrial mineral filler that possesses
physical properties that enables it to blend well with most industrial fillers
and resins and is used in numerous applications. Based on the development of
proprietary processing technology, 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:
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- Durability
- Heat Resistance
- Strength
- Flexibility
- Compatibility with other ingredients/components
The Superfil properties ensure a lower overall risk to health and the
environment and are below the threshold levels set by OSHA and European
Directive 98/12/EC
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. Superfil is an environmentally safe, silica free
and nontoxic mineral powder filler.
LIZARDITE
Superfil is derived from a naturally occurring mineral known as
lizardite. The Company believes that Hedman is the only producer of lizardite
ore in North America and may be the only producer of lizardite ore 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.
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
has been reduced significantly because of the health concerns associated with
asbestos fibers. In its place asbestos-free products have been used as a
replacement. The problem with many of the asbestos-free substitutes is that they
do not deliver the same kind of material performance as asbestos designed or
formulated products. In addition, 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 thereof, Hedman, a
manufacturer of "Hedmanite" and "Envirofil" will eliminate the production
thereof as demand for these items declines due to traces of fibre elements.
MARKETING STRATEGY
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. Enviro entered into an Option
Agreement with Krystar International Ltd., a company organized under the laws of
the Bahamas ("Krystar"), to acquire the vermiculite claims located in North
Eastern Ontario from Krystar, These claims are believed to contain high grade
vermiculite which is currently only available in substantial quantities from
sources in China and Europe. Hedman believes that a merger with Enviro is
beneficial because Hedman intends to create an application formula combining
Superfil and high-grade vermiculite to enhance the fire, heat and strength
performance of its existing product.
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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
non-asbestos brakes)
- Clutch Facings & Industrial Linings For Equipment and
Appliances
- Gaskets ( Note: It is estimated that it takes 50-60
substances to replace the various types of chrysotile
used in the gasket industry and where chrysotile
content was almost as high as 80%, that chrysotile
has been replaced with substitutes which are only
about 20%-25% with the balance being made up with
filler; these new products are more susceptible to
sudden rupture, shattering and require more frequent
inspection, especially in high temperature, high
pressure applications.)
A summary of the above is as follows:
<TABLE>
<CAPTION>
Industry Superfil
<S> <C>
Brake pads & linings Average mfg uses up to 14 additives to
formulate brake pads
Environmentally safe
Provides heat and hardness performance
Reduces number of additives needed
Approx. 300 N.A. mfg facilities
Engineered Plastics Resin extender to provide bulk and
reinforcement
Environmental safe
Speciality Rubber and Does not need chemical pre-treatment
Elastomer Products Increases moulding fluidity, decreases power
demand
</TABLE>
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<TABLE>
<S> <C>
Eliminates gas formation during moulding
Enhanced compressive strength
Provides heat and hardness performance
Production cost savings
Building Materials Fire-resistant asbestos not used but
performance characteristics are needed
Environmentally safe
Specialty Rubber and Does not need chemical pre-treatment
Elastoner Products Increases moulding fluidity, decreases power
demand
Eliminates gas formation during moulding
Enhanced compressive strength
Provides heat and hardness performance
Resin cost savings
Production cost savings
Building Materials Fire-resistant asbestos not used but
performance characteristics are needed
Environmentally safe
Elimination of health issues
Non-flammable, asbestos-free
No toxic release
Excellent insulating properties
Can be used interior and exterior
Construction and Heat and fire resistant
Specialty Putty, Caulks Increases body and flow
and Sealant Products Inhibits crack, sagging with enhanced
weathering performance Annual N.A. filler
consumption estimated at 867,000 tons
Asphalt applications Reduces final material volume requirements
including building due to enhanced durability under temperature
products extremes, UV 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". Hedmanite is a heat
resistant industrial filler that possesses similar characteristics to those
found in asbestos.
The lizardite mineral is not considered to be found widely in the
earth's crust. As mentioned above, Hedman believes it is the only company in
North America, if not the world, that produces this mineral. Market demand for
Hedmanite has declined and world markets have moved away to alternative products
due to 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
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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 which are generally more
demanding. Hedman also decided to develop new processing technologies as well as
application formulas that would offer a performance edge to manufacturing and
OEM customers. Thus, Hedman is attempting to reposition the company from an ore
supplier to a supplier of a processed product ingredient 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. 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 high performance benefits.
Marketing Opportunity & Marketing of Hedman's Line of Products
Hedman will market its products through a series of worldwide
distributors. Each distributor is believed to have its own highly skilled
technical sales force.
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.
Based on available data, the 1998 estimated production of wollastonite
(worldwide) was reported as being between 575,000 and 625,000 tons (with China's
production approximately half or 300,000 tons.) With two new plants coming on
stream (one in Mexico and one in Canada), global production of
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wollastonite has been projected to rise to almost one million tons annually.
According to a U.S. Geological Survey report for 1998, imports into the
U.S. 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. The Company
estimates that the current market demand for wollastonite is in the 200,000 ton
per year range with U.S. market sales growth projected at between 3% and 5% per
year through 2003. The greatest growth potential is considered to be in the
plastics sector.
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:
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 feels 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).
RISK FACTORS
LIMITED HISTORY OF EARNINGS
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.
NATURE OF MINERAL EXPLORATION AND MINING
At the present time, Enviro does not hold any interest in any mining
properties. The Company's viability and potential success lie in its ability to
develop, exploit and generate revenue from mineral deposits. The exploration and
development of mineral deposits involve 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 Corporation 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 are
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
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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.
Hedman is in its development stage and has incurred operating losses in
excess of $1.3 million from its inception to December 31, 1999 including losses
of $439,080, $389,017 and $511,407 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 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. 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.
RESULTS OF OPERATIONS
NO OPERATIONS TO DATE OF ENVIRO INDUSTRIAL TECHNOLOGIES
Enviro was incorporated on March 31, 2000 and has no operating results
to date.
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 Hedmanite and 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.
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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.
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.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Assets. Hedman's assets were $3,650,137 as of the six months ended June 30, 2000
as compared to assets of $3,026,390 as of the comparable period in 1999, an
increase of 20.6% which was primarily the result of an increase in Hedman's
plant, property and equipment.
Revenue. Sales revenues totaled $202,029 for the six months ended June 30, 2000
as compared to $236,430 for the six months ended June 30, 1999, a decrease of
14.6% attributable primarily to a large increase in Hedman's cost of sales
during the period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased
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from $300,625 for the six months ended June 30, 1999 to $418,160 for the six
months ended June 30, 2000. Hedman had a large increase in amortization expense
during the period and an offsetting decrease in interest on long-term debt.
Financing Costs. Financing costs decreased from $56,606 for the six months ended
June 30, 1999 to $26,716 for the six months ended March 31, 2000.
Liquidity and Capital Resources
As of June 30, 2000 the Company has a deficit in stockholders' equity of
approximately $8,048,716. 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 six months ended June 30, 2000, Hedman had 28,283,035 issued and
outstanding shares of its Common Shares as compared to 14,034,382 issued and
outstanding shares as of the comparable period in 1999, having issued 13,913,653
during the year. As of the six months ended June 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.
As of September 15, 2000, Enviro had 13,750,000 shares of Common Stock
issued and outstanding.
Hedman currently does not have commitments for capital expenditures and does
not expect to purchase property or equipment over the next twelve months that
cannot be financed in the ordinary course of business. Hedman estimates that it
will require $2,000,000 to support its planned activities over the next twelve
months. Hedman currently does not have adequate cash reserves to meet its future
cash requirements. These uncertainties raise substantial doubt about the ability
of Hedman 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.
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 renewal for one year terms over the next three
years. The rent for the space is $2000 per month. Hedman's telephone number at
its corporate headquarters is (416) 630-6991. Hedman is planning to move its
corporate headquarters to Toronto, Ontario, Canada in 2001. Hedman has mill
operations in Matheson, Ontario, Canada in an 80,500 square foot facility which
Hedman owns. The building has a replacement value of $10,500,000. The property
has insurance coverage with a limit of liability of $4,203,000. The deductible
for each loss is $5,000.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 15, 2000, the number of
shares of the Company's
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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 Technical
<TABLE>
<CAPTION>
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Title Name and address Amount and Nature Percentage of
Class of beneficial owners of beneficial ownership class
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<S> <C> <C> <C>
Common Louis Lilling 10,000,000 shares 74%
Stock 142 Wyckoff Way West
East Brunswick, New Jersey 08816
Common TVP Capital Corp.* 1,165,641 shares 8.5%
Stock 119 West 23rd Street
Suite 507
New York, New York 10011
Common Tom Franzone*, Director 823,953 shares 6%
Stock 63 Probst Drive
Shirley, New York 11967
Total All Officers & Directors 1,989,594 shares 14.5%
as a group beneficially own
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</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.
** Shares are beneficially held jointly with other family members.
(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.
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>
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Name Age Title Five Year Business Experience
---- --- ----- -----------------------------
<S> <C> <C> <C>
Teodosio V. Pangia 41 Director* Among his many business affiliations, Mr.
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 venture
capital
</TABLE>
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<TABLE>
<S> <C> <C> <C>
company which has provided consulting
services to the Company since its
inception. Mr. Pangia is also President of
Tyler Dylan, an Ontario based investment
company. In addition, Mr. Pangia is
co-founder and was a consultant of
Environmental Solutions Worldwide, a
company that has developed and patented a
catalytic converter that does not require
precious metals. A recent venture of Mr.
Pangia is Diamond Discoveries International
Corp. ("DDII") of which he is 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 through 1997, Mr.
Pangia was Director and Chief Executive
Officer of Ecology Pure Air International,
a Canadian company engaged in developing an
automobile fuel catalyst. 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 Director* Mr. Franzone has been the President and
Director of Enviro Industrial Technologies,
Inc. since its formation in March 2000.
From 1999 to when he joined Enviro, he was
the President of Franzone Consulting Corp.,
located in Long Island, New York. From 1996
to 1999 Mr. Franzone held the position of
Controller at Direct Approach Marketing. He
came to Direct Approach Marketing after
spending a year at Patient Education
Media/Time Life Medical where he held the
position of Accounting Manager. From
November 1989 to 1995 he worked as
Controller for Empire Diamond Corp.
------------------------------------------------------------------------------------------------------------
</TABLE>
* Each Director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
The Directors of Enviro Industrial Technologies, Inc. hold no
directorships in any other 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.
13
<PAGE> 14
<TABLE>
<CAPTION>
Summary Compensation Table
-----------------------------------------------------------------------------------
Annual Compensation
---------------------------
Principal Position Year Salary* Bonus Other
------------------ ---- -------- ----- -------
<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
Up until recently, Hedman sub-let 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 arms-length
negotiations with unrelated third parties.
ITEM 8. DESCRIPTION OF SECURITIES
Hedman is authorized to issue an unlimited number of Common Shares of
which 28,283,035 are issued and outstanding as of September 15, 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
14
<PAGE> 15
value $0.001 of which 13,750,000 shares are issued and outstanding as of
September 15, 2000. 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 currently not publicly traded. The Company
intends to become listed on the Over-the-Counter Bulletin Board ("OTCBB") upon
the filing of the form 10-SB. The Company is presently not required to file
reports with the SEC pursuant to the Exchange Act.
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
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
The Company 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. To
date, Hedman has had sufficient liability insurance to cover settlement amounts
and legal fees in relation to these matters. It is not possible to estimate the
amount, if any, of Hedman's liability exposure.
A relatively small judgment against Hedman has been issued in the State
of Florida. Hedman is attempting to negotiate a resolution to the judgment. Any
settlement of this judgment will be accounted for in the year of settlement.
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:
15
<PAGE> 16
<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
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 May 2000, Enviro closed a private placement offering pursuant to
Rule 504 of Regulation D to a limited number of "accredited investors" 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.
16
<PAGE> 17
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEET
JUNE 30, 2000 F-3
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO JUNE 30, 2000 F-4
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO JUNE 30, 2000 F-5
NOTES TO FINANCIAL STATEMENTS F-6/8
</TABLE>
* * *
F-1
<PAGE> 18
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. as of June 30, 2000, and the related statements of changes in
stockholders' equity and cash flows for the period from March 31, 2000 (date of
inception) to June 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 June 30, 2000, and its cash flows for the period from March 31, 2000
(date of inception) to June 30, 2000, in conformity with generally accepted
accounting principles.
Roseland, New Jersey /s/ J. H. Cohn LLP
September 12, 2000
F-2
<PAGE> 19
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current assets - prepaid professional fees $ 32,500
Deferred acquisition costs 13,513
--------
Total $ 46,013
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities - advances from stockholders $ 33,513
--------
Stockholders' equity:
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; 3,750,000 shares issued and outstanding 3,750
Additional paid-in capital 8,750
--------
Total stockholders' equity 12,500
--------
Total $ 46,013
========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE> 20
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO JUNE 30, 2000
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital Total
------ ------ ------ ------ ------- -----
<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 12,500
------- --------- --------- -------- -------- -------
Balance, June 30, 2000 - $ - 3,750,000 $ 3,750 $ 8,750 $12,500
======= ========= ========= ======== ======== =======
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE> 21
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM MARCH 31, 2000 (DATE OF INCEPTION)
TO JUNE 30, 2000
<TABLE>
<S> <C>
Operating activities - cash used for prepaid professional fees $ (20,000)
Investing activities - cash used for deferred acquisition costs (13,513)
Financing activities - cash provided by advances from stockholders 33,513
---------
Net increase in cash
-
Cash, beginning of period
-
---------
Cash, end of period
$ -
=========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE> 22
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
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 plans to enter the mining and industrial minerals
processing business. The core of the Company's anticipated
business will be comprised of the mining of ore from a
vermiculite property consisting of a contiguous block of five
unpatented mining claims in Canada, covering a total of 25 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
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 plans to commence operations by becoming 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"), that owns the vermiculite
property and conducts the mining operations. This business
combination is expected to be accounted for as a "reverse
acquisition" in which Hedman will be the accounting acquirer (see
Note 6).
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.
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 June 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 June 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.
F-6
<PAGE> 23
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Advances from stockholders:
Advances from stockholders of $33,513 at June 30, 2000 were
noninterest bearing and due on demand.
Although management does not believe that there is a practical
method that can be used to specifically determine the fair value
of the advances from stockholders because of the relationship of
the Company and its stockholders, it believes that the advances
will be repaid on a short-term basis and, accordingly, the
carrying value of the advances approximated fair value as of June
30, 2000.
Note 4 - Preferred stock:
As of June 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 June 30, 2000.
Note 5 - Common stock issued for services:
During the period from March 31, 2000 to June 30, 2000, the
Company issued 112,500 shares of common stock as payment for
legal services to be provided subsequent to June 30, 2000.
Accordingly, the Company increased prepaid professional fees and
stockholders' equity by the estimated fair value of the shares
which was $12,500. This was a noncash transaction that is not
reflected in the accompanying statement of cash flows.
Note 6 - 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 each
outstanding share of Hedman's common stock on the date of
consummation. As explained in Note 1, Hedman conducts vermiculite
mining operations and its shares are publicly traded in Canada.
The consummation of the Plan is subject to, among other things,
Hedman effecting a 1-for-2 reverse split of its common stock and
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.
F-7
<PAGE> 24
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 - Plan of reorganization and merger (concluded):
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.
Note 7 - Subsequent private placement:
On September 2, 2000, the Company completed the sale of
10,000,000 shares of common stock for $1,000,000, or $.10 per
share, through a private placement intended to be exempt from
registration under the Securities Act of 1933. The consideration
the buyer paid for the shares consisted of cash in the amount
of $1,000 and the issuance of a 10% promissory note in the
amount of $999,999 with a stated due date of March 1, 2001, that
is subject to payment at any time prior thereto upon demand by
the Company.
* * *
F-8
<PAGE> 25
HEDMAN RESOURCES LIMITED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY INFORMATION F-10 - F-11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-12
BALANCE SHEETS
JUNE 30, 2000, DECEMBER 31, 1999 AND DECEMBER 1998 F-13 - F-14
STATEMENT OF OPERATIONS AND DEFICIT
SIX MONTHS ENDED JUNE 30, 2000
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 F-15 - F-16
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 F-17
STATEMENT OF CHANGES IN FINANCIAL POSITION
SIX MONTHS ENDED JUNE 30, 2000 F-18
NOTES TO FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 30, 2000 F-19 - F-24
FOR YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 F-25 - F-31
</TABLE>
* * *
F-9
<PAGE> 26
HEDMAN RESOURCES LIMITED
Company Information
June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Trading Symbol (CDNX): HDM
Outstanding Shares: 28,283,035
Close Price June 30, 2000 Halt Trade ($0.50)
Directors: Claude G. Taillefer, President & C.E.O.
Richard F. Bertrand, Director
David M. Houle, Treasurer
Anthony Kramreither, Secretary
Edward Blanchard, Director
Transfer Agent: Montreal Trust, Calgary, Alberta, Canada
Legal Firm: Donahue, Ernst, Young, Toronto, Ontario, Canada
Auditors: KPMG, Sudbury, Ontario, Canada
Website: Hedmanresourceslimited.com
Email: [email protected]
</TABLE>
F-10
<PAGE> 27
Financial Statements of
HEDMAN RESOURCES LIMITED
Years ended December 31, 1999 and December 31, 1998
F-11
<PAGE> 28
[KPMG LETTERHEAD]
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheets of HEDMAN RESOURCES LIMITED as 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. 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 as at December 31, 1999 and
December 31, 1998 and the results of its operations and cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Sudbury, Canada
March 18, 2000
F-12
<PAGE> 29
HEDMAN RESOURCES LIMITED
BALANCE SHEET (Unaudited)
As at June 30, 2000
(With Comparative figures for June 30, 1999
<TABLE>
<CAPTION>
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 20,294 $ 506,411
Accounts Receivable 46,303 172,838
Inventory (notes 1 and 2) 157,185 208,740
Prepaid Expenses --- ---
-----------------------------------------------------------------------------------------------
223,782 887,989
Plant, Property and Equipment (net of amortization) (note 3) 2,708,734 1,415,976
Mining Properties (note 4) 134,282 134,282
Deferred Development Costs (note 5) 583,340 588,144
-----------------------------------------------------------------------------------------------
$ 3,650,137 $ 3,026,390
===============================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Subscriptions Payable --- 1,289,184
Accounts payable and accrued liabilities 193,463 299,603
Long term Debt 501,600 520,600
current portion of long-term debt 52,800 51,400
Advances from related parties --- 69,583
Shareholders Equity:
Share Capital: Authorized and Outstanding 9,165,902 6,033,012
Contributed Surplus 1,785,089 1,785,089
Deficit (8,048,716) (7,022,081)
-----------------------------------------------------------------------------------------------
$ 3,650,137 $ 3,026,390
===============================================================================================
</TABLE>
see accompanying note to financial statements
On behalf of the board of Directors
/s/ Claude Taillefer President
--------------------------------------------
Director
--------------------------------------------
F-13
<PAGE> 30
HEDMAN RESOURCES LIMITED
Balance Sheets
December 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 450,086 $ 1,378
Accounts receivable 62,218 35,618
Inventory (note 2) 171,049 204,505
Prepaid expenses -- 831
---------- ----------
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
Subscriptions payable (note 14) 882,372 --
Current portion of long-term debt (note 6) 79,200 102,800
---------- ----------
1,210,197 773,487
Long-term debt (note 6) 492,800 469,200
Advances from related parties (note 7) 13,083 115,555
Shareholders' equity:
Share capital (note 8) 7,305,946 6,003,012
Contributed surplus 1,785,089 1,785,089
Deficit (7,527,532) (6,770,810)
---------- ----------
1,563,503 1,017,291
Contingent liabilities (note 10)
Subsequent events (note 14)
---------- ----------
$3,279,583 $2,375,533
========== ==========
</TABLE>
See accompanying notes to financial statements.
On behalf of the Board:
/s/ Claude Taillefer Director
---------------------------
/s/ Ed Blanchard Director
---------------------------
F-14
<PAGE> 31
HEDMAN RESOURCES LIMITED
STATEMENT OF OPERATIONS AND DEFICIT, (Unaudited)
For the six Months Ended June 30, 2000
(With Comparative figures for June 30, 1999)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
<S> <C> <C>
REVENUES
Sales Revenue (note 11) $ 202,029 $ 236,430
Other Revenues
Cost of Sales (281,423) (189,762)
=======================================================================
(79,394) 46,668
EXPENSES
Administration Costs 122,652 114,503
Administration Wages and Benefits 88,756 74,377
Sales, Marketing and Research 23,026 7,413
Amortization and Depreciation 101,638 35,727
Municipal Taxes 22,869 -----
Interest on Long-term debt 26,716 56,606
Professional Fees 32,502 12,000
-------------------------------------------------------------------------
418,160 300,625
=========================================================================
Loss for the period (497,554) (251,273)
Deficit, beginning of the period (7,551,163) (6,770,808)
-------------------------------------------------------------------------
Deficit, at the end of the period $ (8,048,716) $ (7,022,081)
=========================================================================
-------------------------------------------------------------------------
Gain/(Loss) per Share $ (0.018) $ (0.018)
=========================================================================
</TABLE>
see accompanying notes to financial statements
F-15
<PAGE> 32
HEDMAN RESOURCES LIMITED
Statement of Operations and Deficit
<TABLE>
<CAPTION>
Years ended December 31, 1999 and December 31, 1998
================================================================================
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 394,083 $ 434,858
Cost of Sales 508,926 515,298
--------------------------------------------------------------------------------
(114,843) (80,440)
Expenses:
Depreciation and amortization 175,452 158,408
Administration wages and benefits 133,837 156,763
Administration 126,206 104,832
Interest on long-term debt 66,734 68,284
Municipal taxes 61,625 59,820
Professional fees 32,755 23,602
Travel 24,716 5,599
Sales, marketing and research 20,554 68,441
Recovery of prior period expenses -- (141,462)
------------------------------------------------------------------------------
641,879 504,287
--------------------------------------------------------------------------------
LOSS FOR THE YEAR (756,722) (584,727)
Deficit, beginning of year (6,770,810) (6,186,083)
--------------------------------------------------------------------------------
DEFICIT, END OF YEAR $(7,527,532) $(6,770,810)
================================================================================
LOSS PER SHARE (note 13) $ (0.04) $ (0.04)
================================================================================
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 33
HEDMAN RESOURCES LIMITED
Statement of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31, 1999 and December 31, 1998
================================================================================
1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the year $ (756,722) $(584,727)
Adjustments for:
Depreciation and amortization 175,452 158,408
----------------------------------------------------------------------------
(581,270) (426,319)
Change in non-cash working capital:
Accounts receivable (26,600) 70,815
Inventory 33,456 57,829
Prepaid expenses 831 13,348
Accounts payable and accrued liabilities (422,062) 49,696
------------------------------------------------------------------------------
(995,645) (234,631)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of share capital 1,302,934 164,316
Advances from related parties (102,472) 87,283
Subscriptions payable 882,372 --
Payments on long-term debt -- (28,000)
------------------------------------------------------------------------------
2,082,834 223,599
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (638,481) (21,060)
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 448,708 (32,092)
Cash, beginning of year 1,378 33,470
--------------------------------------------------------------------------------
CASH, END OF YEAR $ 450,086 $ 1,378
================================================================================
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 34
HEDMAN RESOURCES LIMITED
STATEMENT OF CHANGES IN FINANCIAL POSITION, (Unaudited)
For the six months ended June 30, 2000
(With Comparative figures for June 30, 1999)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN): OPERATIONS
Loss for the period $ (497,554) $ (251,273)
Items not involving cash:
Depreciation and amortization 101,638 38,681
---------------------------------------------------------------------------------------
(395,916) 212,592
=======================================================================================
Change in non-cash operating working capital:
Accounts receivable 15,915 (137,220)
Inventory 13,864 (4,235)
Prepaid Expenses -- 831
Accounts Payable and accrued liabilities (55,162) (371,082)
---------------------------------------------------------------------------------------
(25,383) (511,706)
=======================================================================================
FINANCING:
Issue of Share Capital 1,859,956 --
Subscriptions (Private Placement) (882,372) 1,289,184
Short term Loans (27,914) (18,231)
Advances from related parties -- (7,273)
Cost of Subscriptions -- (50,000)
Current Portion of Long term Debt (26,400) 51,400
---------------------------------------------------------------------------------------
923,270 1,265,081
=======================================================================================
INVESTMENTS:
Purchase of capital assets (931,763) (35,750)
---------------------------------------------------------------------------------------
(931,763) (35,750)
=======================================================================================
Increase (decrease) in cash position (429,792) 505,033
Cash ( bank indebtedness), beginning of the period 450,086 1,378
---------------------------------------------------------------------------------------
CASH (BANK INDEBTEDNESS), END OF THE PERIOD $ 20,294 $ 506,411
=======================================================================================
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 35
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 1
For the six months ended June 30, 2000
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
Hedman Resources Limited is an Ontario incorporated public company and its
principal business activity is the production of heat resistant fillers.
(a) 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, or written off is the properties are abandoned or if the
associated costs are considered to be not economically recoverable.
Deferred development costs represent costs incurred to bring the
operation into commercial production. These costs are being amortized
on a unit of production basis.
(b) Inventory:
i) Stores inventory is recorded at average cost.
ii) Processed ore is recorded at the lower of cost and estimated
realizable value.
iii) Raw material is recorded at the direct mining cost.
(c) Property, plant and equipment:
Property, plant and equipment are being amortized on a straight-line
basis using the following annual rates:
--------------------------------------------------------------------------------
Buildings 4%
Equipment 4%
Office Equipment 20%
Vehicles 30%
Computers 30%
--------------------------------------------------------------------------------
(d) 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.
(e) Reclamation Costs:
Estimated future reclamation costs, including site restoration where
reasonably determinable, will be charged against earnings as incurred.
F-19
<PAGE> 36
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 2
For the six months ended June 30, 2000
--------------------------------------------------------------------------------
(f) Uses of estimates:
The preparation of financial statements in accordance with 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 amounts 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.
2. INVENTORY: The inventory consists of:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Processed Ore 9,472 8,992
Stores 77,634 84,549
Magnetite --- 40,000
Raw Materials 70,079 75,200
--------------------------------------------------------------------------------
$ 157,185 $ 208,740
================================================================================
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
2000 1999
Accumulated Net Book Net Book
Assets at cost Depreciation Value Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LAND 5,236 5,236 5,236
BUILDINGS 1,095,877 (486,728) 609,149 631,755
FIREFELT BUILDINGS 899,372 (29,924) 869,448 ---
EQUIPMENT 3,288,811 (2,077,637) 1,211,174 758,505
COMPUTERS 13,166 (8,448) 4,718 3,706
OFFICE EQUIPMENT 4,173 (3,589) 584 355
VEHICLES 21,060 (12,636) 8,424 16,419
---------------------------------------------------------------------------------------
$ 5,327,695 $ (2,618,962) $ 2,708,733 $ 1,415,976
=======================================================================================
</TABLE>
F-20
<PAGE> 37
HEDMAN RESOURCES LIMITED
Notes to the financial statements, Page 3
For the six months ended June 30, 2000
--------------------------------------------------------------------------------
4. MINERAL PROPERTY ACQUISITIONS:
The mineral property acquisitions consist of:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Townships of Warden and Munro, Ontario, 21 leased mining 134,282 134,282
claims, 8 options
</TABLE>
5. 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 are being amortized using a units-of-production method
based on tons of product shipped. Accumulated amortization at June 30, 2000 is
$300,768 (1999- $298,852).
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
--------------------------------------------------
Interest Rate Due Date 2000 1999
--------------------------------------------------
<S> <C> <C> <C> <C>
Business Development Bank of Floating 2005 554,400 572,000
Canada Base + 2.50%
Current Portion on long-term 52,800 51,400
-------------------
501,600 520,600
===================
</TABLE>
The loan payable to the Business Development Bank of Canada is secured by a
first mortgage on land, buildings and equipment, a first mortgage on the mining
leases and an assignment of $600,000 insurance on the life of the president of
the Company.
Principal payments required to retire the outstanding long-term debt are as
follows:
<TABLE>
<S> <C>
2000 105,600
2001 105,600
2002 105,600
2003 105,600
2004 and subsequent years 79,200
=======================================
$501,600
=======================================
</TABLE>
F-21
<PAGE> 38
HEDMAN RESOURCES LIMITED
Notes to the financial statements, Page 4
For the six months ended June 30, 2000
--------------------------------------------------------------------------------
7. SHARE CAPITAL
a) Authorized
unlimited number of common shares
unlimited special shares
b) Issued - common
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Shares 2000 Shares 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For Cash 14,034,382 $ 6,063,012 13,834,382 $ 6,033,012
For Leased Mineral Property
For Debt Settlement
==============================================================================================
13,834,382 $ 6,033,012
Issued during the year for cash:
common shares 13,913,653 3,027,640
(net of issuance costs $51,206)
warrants exercised 200,000 40,000
options exercised 135,000 35,250 200,000 30,000
----------------------------------------------------------------------------------------------
28,283,035 $ 9,165,902 14,034,382 $ 6,063,012
==============================================================================================
</TABLE>
All stock options to employees and directors were granted at the then fair
market value or greater than fair market value.
c) As at June 30, 2000 there are 295,000 outstanding options to purchase
common shares of the Company.
The outstanding options to purchase common shares are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Expiry Date Price No. of Shares
--------------------------------------------------------------------------------
<S> <C> <C>
December 15, 2000 0.60 185,000
July 25, 2000 0.75 10,000
May 30, 2004 0.15 100,000
================================================================================
295,000
================================================================================
</TABLE>
F-22
<PAGE> 39
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 5
For the six months ended June 30, 2000
--------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
d) As at June 30, 2000 there are 13,713,653 share purchase warrants
outstanding.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Expiry Date of Warrants Price Number of Shares
--------------------------------------------------------------------------------
<S> <C> <C>
July 12, 2001 0.20 8,408,334
February 22, 2002 0.40 5,305,319
--------------------------------------------------------------------------------
13,713,653
================================================================================
</TABLE>
8. ADVANCES FROM RELATED PARTIES
The advances from related parties are unsecured, bear no interest and have no
specified terms of repayment.
9. RELATED PARTY TRANSACTIONS
During the period, the company incurred office leasing costs totalling $1,500
(1999 - $1,500) to corporations which are controlled by a director of Hedman
Resources Limited.
10. CONTINGENT LIABILITIES:
The Company has been named as a co-defendant in a number of class actions suits
in the United States relative to sales of product made between 1974 and 1979. To
date, the Company's insurance company's have collectively expended approximately
$7.2 million in defence costs 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. 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.
11. SEGMENTED INFORMATION:
Exported sales during the period amounted to $178,601, (1999 - $193,108).
F-23
<PAGE> 40
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 6
As at June 30, 2000
--------------------------------------------------------------------------------
12. INCOME TAXES:
The company has available non-capital losses carry forward for income tax
purposes in the aggregate of $4,479,214 which are available to reduce future
years earnings. No tax benefits pertaining to these losses has been recognized
in the accounts. These losses expire 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>
The potential future tax benefits of the Company's resource related expenditures
have not been recorded in these financial statements. Of the costs capitalized
as mining interests, approximately $556,000 is available for deduction against
future taxable income.
13. NET LOSS PER SHARE:
The net loss per share is calculated by dividing the net loss by the
weighted-average number of common shares outstanding during the period, 2000 -
28, 283,035, (1999 - 13,834,382).
14. FUTURE SITE RESTORATION AND REMOVALS:
The Company in conjunction with the Ministry of Northern Development and Mines
has reached an agreement for a closure plan regarding future site restoration.
The cost of such activity consists of $20,000 dollars deposit and $2.25 per
milled ton as financial assurance to a maximum of $261,567 dollars over a 10
year period.
15. COMPARATIVE FIGURES:
Certain of the 1999 figures have been restated to conform with the presentation
adopted in 2000.
16. MILL REFURBISHMENT:
The Company is currently replacing all of its' processing equipment to a fine
grind system that will allow material to be processed to -325 mesh, with -400
mesh and -500 mesh materials being made available at a later date. This is to
meet the demand of clients and to penetrate new markets.
F-24
<PAGE> 41
HEDMAN RESOURCES LIMITED
Notes to Financial Statements
Years ended December 31, 1999 and December 31, 1998
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:
(a) 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, or written off if the properties are abandoned or if the
associated costs are considered to be not economically recoverable.
Deferred development costs represent costs incurred to bring the
operation into commercial production. These costs are being amortized
on a unit of production basis.
(b) Inventory:
(i) Stores inventory is recorded at average cost.
(ii) Processed ore is recorded at the lower of cost and estimated
realizable value.
(iii) Raw material is recorded at the direct mining cost.
(c) 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>
(d) 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.
F-25
<PAGE> 42
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 2
Years ended December 31, 1999 and December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Reclamation costs:
Estimated future reclamation costs, including site restoration where
reasonably determinable, will be charged against earnings as incurred.
(f) 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.
2. INVENTORY:
The inventory consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C> <C> <C>
Stores $ 79,280 $ 97,957
Raw Material 84,079 75,356
Processed Ore 7,690 31,192
---------- ----------
$ 171,049 $ 204,505
========== ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
1999 1998
---- ----
Accumulated Net book Net book
Cost depreciation value value
---- ------------ -------- --------
<S> <C> <C> <C> <C>
Land $ 5,236 $ -- $ 5,236 $ 5,236
Buildings 1,664,466 476,747 1,187,719 645,519
Equipment 2,696,344 2,024,951 671,393 739,288
Office equipment 3,283 3,283 -- 244
Vehicles 21,060 9,477 11,583 17,901
Computers 8,541 6,647 1,894 4,995
---------- ---------- ---------- ----------
$4,398,930 $2,521,105 $1,877,825 $1,413,163
========== ========== ========== ==========
</TABLE>
F-26
<PAGE> 43
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 3
Years ended December 31, 1999 and December 31, 1998
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).
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
Interest Due
Rate Date 1999 1998
-------- ---- -------- --------
<S> <C> <C> <C> <C>
Business Development Floating
Bank of Canada Base + 2.50% 2005 $572,000 $600,000
Current portion of
long-term debt 79,200 102,800
-------- --------
$492,800 $497,200
======== ========
</TABLE>
The loan payable to the Business Development Bank of Canada 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 Business Development Bank of Canada.
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 138,000
--------
$548,400
========
</TABLE>
F-27
<PAGE> 44
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 4
Years ended December 31, 1999 and December 31, 1998
7. ADVANCES FROM RELATED PARTIES:
The advances from related parties are unsecured, bear no interest and have
no specified terms of repayment.
8. 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>
F-28
<PAGE> 45
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 5
Years ended December 31, 1999 and December 31, 1998
8. SHARE CAPITAL (CONTINUED):
(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.
An option's maximum term is five years.
The stock options outstanding at December 31, 1999 expire at various
dates to May 30, 2004.
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 -- 25,000 1.50
285,000 .60 185,000 .60
10,000 .75 10,000 .75
Granted during the year 110,000 .15 100,000 .60
------- --- ------- ----
Outstanding at end of year 405,000 .48 320,000 .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.
F-29
<PAGE> 46
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 6
Years ended December 31, 1999 and December 31, 1998
9. 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. 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. 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.
11. 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>
<CAPTION>
<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>
The potential future tax benefits of the Company's resource related
expenditures have not been recorded in these financial statements. Of the
costs capitalized as mining interests, approximately $556,000 is available
for deduction against future taxable income.
F-30
<PAGE> 47
HEDMAN RESOURCES LIMITED
Notes to Financial Statements, page 7
Years ended December 31, 1999 and December 31, 1998
12. 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.
13. 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.
14. 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 are disclosed at December 31, 1999 as subscriptions payable.
15. COMPARATIVE FIGURES:
Certain of the 1998 figures have been restated to conform with the
presentation adopted in 1999.
16. 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.
F-31
<PAGE> 48
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. (the "Company" or "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") by issuing one share of its common stock for
each outstanding share of Hedman's common stock on the date of consummation. The
consummation of the Plan is subject to, among other things, Hedman effecting a
1-for-2 reverse split of its common stock and 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 historical financial statements will not be comparable to the
financial statements of the combined companies after the merger.
The accompanying unaudited pro forma condensed balance sheet combines the
historical unaudited balance sheet of the Company and the historical unaudited
balance sheet of Hedman as of June 30, 2000 as if the Plan had been consummated
on that date. The accompanying unaudited pro forma condensed statements of
operations for the year ended December 31, 1999 and the six months ended June
30, 2000 are, effectively, those of Hedman since the Company has had no
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.
F-32
<PAGE> 49
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Historical
Pro Forma Pro Forma ----------------------
ASSETS Combined Adjustments Enviro Hedman
------ --------- ----------- ------ ------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 20,294 $ 20,294
Accounts receivable, net 46,303 46,303
Inventory 157,185 157,185
Prepaid professional fees $ (32,500) (A) $ 32,500
---------- --------- --------- ----------
Total current assets 223,782 (32,500) 32,500 223,782
Property, plant and equipment, net 2,708,734 2,708,734
Mining properties 134,282 134,282
Deferred costs 596,853 13,513 583,340
---------- --------- --------- ----------
Totals $3,663,651 $ (32,500) $ 46,013 $3,650,138
========== ========= ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Current portion of long-term debt $ 52,800 $ 52,800
Accounts payable and accrued expenses 193,463 193,463
Advances from stockholder 33,513 $ 33,513
---------- --------- ----------
Total current liabilities 279,776 33,513 246,263
Long-term debt, net of current portion 501,600 501,600
---------- --------- ----------
Total liabilities 781,376 33,513 747,863
---------- --------- ----------
Stockholders' equity:
Common stock:
Enviro (3,750,000 shares out-
standing; par value $.001 per share;
17,786,517 shares to be outstanding) 17,787 14,037 (B) 3,750
Hedman (14,036,517 shares outstanding
as adjusted for 1-for-2 split) (10,950,991) (B) 10,950,991
Additional paid-in capital 2,896,988 2,888,238 (B) 8,750
Accumulated deficit (32,500) 8,016,216 (A)(B) (8,048,716)
---------- --------- --------- ----------
Total stockholders' equity 2,882,275 (32,500) 12,500 2,902,275
---------- --------- --------- ----------
Totals $3,663,651 $ (32,500) $46,013 $3,650,138
========== ========= ======= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-33
<PAGE> 50
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<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 $ (.04) $ (.08)(C)
========== =========
Weighted average common shares
outstanding 17,786,517 8,327,492(D) 9,459,025 (C)
========== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-34
<PAGE> 51
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
AND HEDMAN RESOURCES LIMITED
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Historical
Pro Forma Pro Forma -------------------------
Combined Adjustments Enviro Hedman
--------- ----------- ------ ------
<S> <C> <C> <C> <C>
Sales $ 202,029 $ 202,029
Cost of sales (281,423) (281,423)
--------- ---------
Gross loss (79,394) (79,394)
--------- ---------
Operating expenses:
Selling, general and administrative 289,806 289,806
Depreciation and amortization 101,638 101,638
--------- ---------
Totals 391,444 391,444
Other expense - interest 26,716 26,716
--------- ---------
Totals (418,160) (418,160)
--------- ---------
Net loss $(497,554) $(497,554)
========= =========
Basic net loss per share $ (.03) $ (.04)(C)
========= =========
Weighted average common shares
outstanding 17,786,518 3,965,574(D) 13,820,944(C)
========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
F-35
<PAGE> 52
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 write-off the prepaid professional fees associated with the
cost of the registration statement which is to be filed on
Form 10-SB whereby the Company will become a publicly-traded
reporting company as required by the Plan.
(B) To record the effect of the one-for-one share exchange,
assuming the Company will acquire 100% of Hedman's outstanding
common shares.
(C) To retroactively restate the number of outstanding shares of
Hedman's common stock for the effect of a 1-for-2 reverse
split required by the Plan.
(D) To increase the weighted average number of Enviro's common
shares outstanding based on the assumptions that the
one-for-one share exchange would have been consummated as of
the beginning of the year ended December 31, 1999.
(E) Does not reflect the sale on September 2, 2000, of 10,000,000
shares of common stock for $1,000,000, or $.10 per share, by
the Company through a private placement intended to be exempt
from registration under the Securities Act of 1933. The buyer
paid for the shares in cash in the amount of $1,000 and
through the issuance of a 10% promissory note in the amount
of $999,999 with a stated due date of March 1, 2001, that is
subject to payment at any time prior thereto upon demand by
the Company.
F-36
<PAGE> 53
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>
3.1* Articles of Incorporation of Enviro Industrial Technologies, Inc. as filed on
March 31, 2000
3.2* Bylaws
10.1* Form of Subscription Agreement
10.2* Demand Promissory Note dated September 1, 2000 with Louis Lilling as
Maker and Enviro Industrial Technologies, Inc. as Holder
10.3* Letter of Intent - Acquisition of Hedman Resources Limited
10.4* Option Agreement - Krystar International Ltd. and Enviro Industrial
Technologies, Inc.
10.5* Stock Option Plan of Hedman Resources Limited
27.1* Financial Data Schedule
</TABLE>
* Filed herewith.
ITEM 2 - DESCRIPTION OF EXHIBITS
The required exhibits are attached hereto, as noted in Item 1 above.
<PAGE> 54
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, Chairman
September 15, 2000 --------------------------------------
Teodosio V. Pangia, Chairman
