1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001.
COMMISSION FILE NUMBER 000-31543
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 06-1579072
(State of incorporation) IRS Employer ID No.
119 West 23rd Street, Suite 508, New York, New York 10011
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 741-8512
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of May 11, 2001, there were 13,750,000
shares of common stock outstanding.
Transitional Small Business Disclosure Format: [ ] Yes [X ] No
2
Part I
Item 1. Financial Statements
See attached.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is a discussion of certain factors affecting the results of
operations, liquidity and capital resources of Enviro Industrial Technologies,
Inc. ("Enviro" or the "Company") and the results of operations, liquidity and
capital resources for Hedman Resources Limited ("Hedman"). As Enviro has entered
into a binding letter of intent to acquire up to 100% and no less than 80% of
the issued and outstanding securities of Hedman, the financial statements of
Hedman have been included in this Quarterly Report on Form 10-QSB as well. You
should read the following discussion and analysis in conjunction with both
companies' condensed financial statements and related notes that are included
herein under Item 1 above.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The statements contained in the section captioned Management's Discussion
and Analysis of Financial Condition and Results of Operations which are
historical are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability; the uncertainty as to the
demand for the Company's products; increasing competition in the markets in
which the Company does business; the Company's ability to hire, train and retain
sufficient qualified personnel; the Company's ability to obtain financing on
acceptable terms to finance its growth strategy; and the Company's ability to
develop and implement operational and financial systems to manage its growth.
OVERVIEW
NO OPERATIONS TO DATE OF ENVIRO INDUSTRIAL TECHNOLOGIES
Enviro was incorporated on March 31, 2000. To date, the Company's
operations have been limited to becoming a reporting company and the acquisition
of three unpatented mining claims in Ontario, Canada. Further, in the Company's
limited operations to date, it has incurred a net loss of approximately
$387,000. The Company has funded its operations principally with advances from
certain of its stockholders in the amount of approximately $802,000. As Enviro
has not yet begun its operations, it has not yet begun to generate any cash
flows. Enviro anticipates that it may not have sufficient cash to meet its
operating expenses during the next 12 months which is currently anticipated to
approximate $250,000 and may have to seek funds through financing activities
such as private placements or traditional bank financing.
Enviro does not plan to conduct any product research or development during
the next 12 months, but plans to further explore certain vermiculite claims it
purchased in September 2000 from Krystar International, Ltd., a company
organized under the laws of the Bahamas ("Krystar"), with Hedman Management
overseeing such exploration. Such exploration will consist of drilling of
the claim sites to pinpoint the precise location and size
3
of the vermiculite deposits. Drilling will be ongoing and should the merger
between Enviro and Hedman not occur, Enviro intends, subject to having the
requisite capital, for which no assurance can be given, to explore the claims by
retaining the services of other companies. The mining claims purchased from
Krystar by Enviro were transferred to Enviro upon completion of certain
administrative procedures at the Mining Recorder's office in Sudbury, Ontario.
While the claims are in good standing and are held under the Mining Act of
Ontario, any production development must be pursued under the Aggregate
Resources Act of Ontario ("ARA"). The ARA pertains to all surfaces industrial
mineral and sand gravel operations in Ontario except those on private land in
areas undesignated by the ARA. The ARA requires that an application for an
aggregate permit or license including a surveyed site plan, details of
production and a rehabilitation plan be submitted. Enviro intends to submit an
application to the ARA within the next 60 days. It is anticipated that it will
take approximately three months for Enviro's application to be cleared by the
ARA. What remains is for Enviro to strip the open pit areas of the vermiculite
property, exfoliate it and transport it to the end user. Enviro is in the
process of securing the necessary equipment in order to begin processing of the
vermiculite in the third or fourth quarter of 2001. As the claims are unpatented
(unpatented mining claims enable the holder to perform exploration work and
prospecting, but no ore may be removed from the claim sites while patented
mining claims enable the holder to process the ore in addition to exploration
and prospecting), Enviro will be required to obtain a bulk sample permit from
the Canadian government to remove and process this ore. As such permits are
issued routinely, Enviro anticipates that it will obtain the permit well in
advance of when it plans to begin processing the ore. Moreover, since Enviro
will be able to remove the ore, the fact that the claims are unpatented will
have no impact on these activities or Enviro's profits.
Enviro does not plan to add any significant equipment or to purchase or
sell any plant or other operations during the next 12 months.
Enviro intends to maintain the current level of its employees during the
next twelve months.
4
RESULTS OF OPERATIONS - HEDMAN (All results are in Canadian Dollars)
HEDMAN RECOGNIZES REVENUES FROM THE SALE OF PRODUCTS OF HEDMAN RESOURCES LIMITED
Hedman's revenues come from the sale of products of Hedman Resources
Limited including Superfil. Over 85% of all sales are exported to various
countries including Japan, India, South America (Venezuela) and the United
States. As of March 31, 2001 revenue has been generated from the sale of the
balance of the "Envirofil" that was in Hedman's warehouse and the Company's new
product, Superfil. The plant began production in the middle of March 2001.
THE PERIOD ENDED MARCH 31, 2001 COMPARED TO THE PERIOD ENDED MARCH 31, 2000.
Assets: Hedman's total assets were $5,222,061 as of the three months ended March
31, 2001, compared to the same period of 2000, an increase of $1,294,869, or
33%. This was primarily due to the construction of the new milling system and
its Firefelt production plant. Deferred development costs in the year 2000 were
written off as they were deemed to no longer have any value.
Revenues: Sales revenues totaled $90,000 for the period ended March 31, 2001
compared to $98,685 for the period ended March 31, 2000, a decrease of 9%. The
plant began Superfil production in the middle of March 2001.
Cost of Sales: The cost of sales increased to $229,235 for the period ended
March 31, 2001 from $109,642 in March 2000,
5
an increase of 109%. This was due to increased haulage costs, road maintenance
costs into the new pit, heating and hydro costs.
Expenses: General and administrative expenses increased 2% to $195,229 for the
three months ended March 31, 2001 from $191,615 for the comparable period in
2000. Professional fees increased to $71,429 for the three months ended March
31, 2001 from $12,000 for the comparable period of 2000 or 495%. This increase
was due to the Enviro transaction.
Interest Expense: Interest expense decreased from $15,836 in March 31, 2000 to
$9,852 in March 31, 2001.
Net Loss: Hedman had a net loss of ($259,017) for the period ended March 31,
2001, compared to ($202,572) for the same period in 2000. The increased loss was
due to increased costs for haulage, maintenance, and utilities. The net loss per
share resulted in ($0.009) on March 31, 2001, compared to ($0.007) on March 31,
2000.
Cash Flows: The large increase in accounts payable and accrued liabilities is a
result of including the total amount incurred for the new milling system in
accounts payable carried over from year end 2000. Approximately forty percent
(40%) of the increase of $2,693,777 in accrued liabilities and accounts payable
for the period ended March 31, 2001, as compared to the comparable period of
2000, was due to advances from Enviro in the amount of $1,084,192.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2001, Hedman had a deficit of $9,494,957 as compared to
$7,753,734 for the comparable period ended March 31, 2000. This is attributable
to unprofitable operations for the period.
The Company's ability to continue as a going concern is dependent upon its
ability to obtain additional debt and/or equity financing and to increase the
size of its revenues through the sale of its products.
CAPITALIZATION:
As of the end of the three months ended March 31, 2001, Hedman had 29,110,576
outstanding shares of common stock. Hedman also had 12,836,112 outstanding
warrants with a value of $3,617,445.
6
Part II
Item 1. Legal Proceedings
Enviro is not a party to, nor is Enviro 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 governmental
authorities.
Item 2. Changes in Securities
There were no changes in the instruments defining the rights of security
holders during the period covered by this Quarterly Report on Form 10-QSB.
Item 3. Defaults Upon Senior Securities
There were no defaults upon Registrant's senior securities during the
period covered by this Quarterly Report on Form 10-QSB.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to Registrant's security holders for a vote
during the period covered by this Quarterly Report on Form 10-QSB.
7
Item 5. Other Information
Registrant is not reporting any additional matters under this Item on
this Quarterly Report on Form 10-QSB.
Item 6. Exhibits and Reports on Form 8-K
EXHIBIT
NUMBER DESCRIPTION
3.1(1) Articles of Incorporation, as amended.
3.2(1) Bylaws.
4.1 Specimen Stock Certificate, Common Stock.
4.2(1) Form of Subscription Agreement.
10.1(1) Demand Promissory Note, dated September 1, 2000 between Louis
Lilling (as maker) and Registrant as Holder.
10.2(1) Option Agreement by and between Registrant and Krystar International Ltd.
10.3(2) Lease by and between Brovi Investments Limited and Hedman Resources Limited.
10.4(1) Letter of Intent for Acquisition of Hedman Resources Limited.
10.5(2) Amalgamation Agreement by and among Registrant, Hedman Resources
Limited, and Enviro Industrial Technologies (Canada), Inc.
10.6(1) Stock Option Plan
10.7(3) Sales Agency Agreement by and between Technology Development
Services Ltd. and Hedman Resources Limited
10.8(3) Sales Agency Agreement by and between Alliance Financial, Ltd.
and Hedman Resources Limited
10.9(3) Distribution Agreement by and between Contemporary Trading and
Investments Ltd. and Hedman Resources Limited.
10.10(3) Sales Agency Agreement by and between Recon Industrial Products
Ltd. and Hedman Resources Limited
10.11(3) Distribution Agreement by and between Village Building Supplies
and Hedman Resources Limited.
(1) Filed with Registration Statement on Form 10-SB, (File No. 000-31543), on
September 15, 2000.
(2) Filed with Amendment No. 1 to Registration Statement on Form 10-SB, (File
No. 000-31543), on December 13, 2000.
(3) Filed with Amendment No. 2 to Registration Statement on Form 10-SB, (File
No. 000-31543), on January 31, 2001.
(b) Registrant did not file any Forms on 8-K during the quarterly period ended
March 31, 2001.
8
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(Registrant)
May 15, 2001
By: /s/ Teodosio V. Pangia
------------------------------------
Teodosio V. Pangia, Chairman,
CEO & Director
By: /s/ Thomas Franzone
------------------------------------
Thomas Franzone, President, CFO
& Director
9
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
MARCH 31, 2001 (UNAUDITED) F-2
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO MARCH 31, 2001
(UNAUDITED) F-3
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO MARCH 31, 2001
(UNAUDITED) F-4
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO MARCH 31, 2001
(UNAUDITED) F-5
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) F-6/9
* * *
F-1
10
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
CONDENSED BALANCE SHEET
MARCH 31, 2001
(Unaudited)
ASSETS
Current assets:
Cash $ 8,489
Advances to Hedman Resources Limited 752,694
---------
Totals $ 761,183
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 63,589
Advances from stockholders 801,786
---------
Total liabilities 865,375
---------
Stockholders' deficiency:
Preferred stock, par value $.001 per share; 10,000,000 shares
authorized; none issued --
Common stock, par value $.001 per share; 50,000,000 shares
authorized; 13,750,000 shares issued 13,750
Additional paid-in capital 998,750
Deficit accumulated during the exploration stage (387,217)
Subscriptions receivable for 7,294,750 shares of common stock (729,475)
---------
Total stockholders' deficiency (104,192)
---------
Totals $ 761,183
=========
See Notes to Condensed Financial Statements.
F-2
11
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO MARCH 31, 2001
(Unaudited)
Three
Months
Ended
March 31,
2001 Cumulative
----------- -----------
Revenues $ -- $ --
----------- -----------
Operating expenses:
Exploration costs 190,228
General and administrative expenses 64,846 196,989
----------- -----------
Totals 64,846 387,217
----------- -----------
Net loss $ (64,846) $ (387,217)
=========== ===========
Basic net loss per share $ (.01) $ (.09)
=========== ===========
Basic weighted average common shares outstanding 5,201,594 4,111,242
=========== ===========
See Notes to Condensed Financial Statements.
F-3
12
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2000
(Unaudited)
Deficit
Accumulated
Common Stock Additional During the Subscriptions Receivable
----------------------- Paid-in Exploration ------------------------
Shares Amount Capital Stage Shares Amount Total
---------- --------- ---------- ------------ ---------- ------------ ----------
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
Subscriptions for purchase of
common stock 10,000,000 10,000 990,000 10,000,000 $ (1,000,000)
Proceeds from issuance of
common stock (10,000) 1,000 1,000
Net loss $ (322,371) (322,371)
---------- --------- ---------- ------------ ---------- ------------ ----------
Balance, December 31, 2000 13,750,000 13,750 998,750 (322,371) 9,990,000 (999,000) (308,871)
Proceeds from issuance of
common stock (2,395,250) 239,525 239,525
Issuance of shares as payment
for legal services (300,000) 30,000 30,000
Net loss (64,846) (64,846)
---------- --------- ---------- ------------ ---------- ------------ ----------
Balance, March 31, 2001 13,750,000 $ 13,750 $ 998,750 $ (387,217) 7,294,750 $ (729,475) $ (104,192)
========== ========= ========== ============ ========== ============ ==========
See Notes to Condensed Financial Statements.
F-4
13
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND PERIOD FROM
MARCH 31, 2000 (DATE OF INCEPTION) TO MARCH 31, 2001
(Unaudited)
Three
Months
Ended
March 31,
2001 Cumulative
----------- -----------
Operating activities
Net loss $ (64,846) $ (387,217)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issued for services 30,000 42,500
Changes in operating assets and liabilities -
accounts payable 13,595 63,589
----------- -----------
Net cash used in operating activities (21,251) (281,128)
----------- -----------
Investing activities - advances to Hedman Resources Limited (269,614) (752,694)
----------- -----------
Financing activities:
Proceeds from issuance of common stock 239,525 240,525
Advances from stockholders 53,475 801,786
----------- -----------
Net cash provided by financing activities 293,000 1,042,311
----------- -----------
Net increase in cash 2,135 8,489
Cash, beginning of period 6,354 --
----------- -----------
Cash, end of period $ 8,489 $ 8,489
=========== ===========
See Notes to Condensed Financial Statements.
F-5
14
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business:
Enviro Industrial Technologies, Inc. (the "Company") was incorporated
in the State of Delaware on March 31, 2000. The Company is in the
process of developing a mineral exploration and industrial mining
business. The core of the Company's business will be comprised of the
mining of vermiculite from a block of three unpatented mining claims in
Canada, covering a total of 25 vermiculite claim units. Vermiculite is
the geological name given to a group of minerals which are aluminum
iron ore magnesium silicates resembling mica in appearance. Vermiculite
is used as a filler in lightweight concrete, agricultural products,
insulation, construction, metallurgy, chemistry and ceramics.
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position
of the Company as of March 31, 2001, its results of operations, changes
in stockholders' deficiency and cash flows for the three months ended
March 31, 2001 and the related cumulative amounts for the period from
March 31, 2000 (date of inception) to March 31, 2001. Pursuant to the
rules and regulations of the United States Securities and Exchange
Commission (the "SEC"), certain information and disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed in or omitted from these financial statements unless
significant changes have taken place since the end of the most recent
fiscal year. Accordingly, these unaudited condensed financial
statements should be read in conjunction with the audited financial
statements as of December 31, 2000 and for the period from March 31,
2000 (date of inception) to December 31, 2000 and the notes thereto
(the "Audited Financial Statements") and the other information included
in the Company's Annual Report on Form 10-KSB (the "Form 10-KSB") for
the period from March 31, 2000 (date of inception) to December 31, 2000
that was previously filed with the SEC.
The results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the results to be expected for the full
year.
The Company plans to become the legal acquirer of 100% but not less
than 80% of the issued and outstanding shares of common stock of Hedman
Resources Limited ("Hedman") through a business combination that is
expected to be accounted for as a "reverse acquisition" in which Hedman
will be the accounting acquirer (see Note 6 herein).
As of March 31, 2001, the Company's operations had been limited to
organizational activities, the acquisition of mining claims and the
negotiation of agreements related to the business combination with
Hedman. It had not generated any revenues from operations as of that
date. Accordingly, it is considered a "development stage company" for
accounting purposes.
F-6
15
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Business (concluded):
The accompanying Condensed financial statements have been prepared
assuming the Company will continue as a going concern. However, as of
March 31, 2001, the Company had not generated any revenues from its
operations and, as a result, it had a working capital and a
stockholders' deficiency of $104,192. Management believes that the
Company will not generate any revenues until the reverse acquisition
with Hedman is consummated. However, Hedman has also been sustaining
operating losses and, as a result, it had a working capital deficiency
as of March 31, 2001 and needed additional debt or equity financing to
be able to continue its operations. Management believes that the
Company will need total additional financing of approximately $250,000
to continue to operate as planned during the twelve-month period
subsequent to March 31, 2001. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management plans to obtain such financing through private offerings of
debt and equity securities. As of March 31, 2001, the Company had
subscriptions receivable of $729,475 for the purchase of shares of its
stock. However, management cannot assure that the Company will be able
to obtain any or all of the additional financing it will need if the
reverse acquisition is not consummated, or any or all of the additional
financing Hedman and the Company will need if the reverse acquisition
is consummated, in order to continue to operate through at least March
31, 2002 or that, ultimately, it will be able to generate any
profitable mining operations. If the Company is unable to obtain the
required financing, it may have to curtail its operations or terminate
its operations and liquidate its remaining assets and liabilities.
The accompanying Condensed financial statements do not include any
adjustments related to the recoverability and classification of assets
or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue its operations as a
going concern.
Note 2 - Net earnings (loss) per share:
The Company presents "basic" earnings (loss) per share and, if
applicable, "diluted" earnings per share pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"). Basic earnings (loss) per share is calculated by
dividing net income or loss by the weighted average number of common
shares outstanding during each period. The calculation of diluted
earnings per share is similar to that of basic earnings per share,
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon the
exercise of stock options, were issued during the period. The Company
did not have any potentially dilutive common shares outstanding during
the three months ended March 31, 2001 and the period from March 31,
2000 (date of inception) to March 31, 2001.
F-7
16
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Private placement:
On September 2, 2000, the Company entered into agreements to sell a
total of 10,000,000 shares of common stock for total consideration of
$1,000,000 or $.10 per share through private placements intended to be
exempt from registration under the Securities Act of 1933. As of
December 31, 2000, it had received aggregate gross proceeds of $1,000
from sales of shares pursuant to the private placements and had issued
10,000 shares and, as a result, it had a balance receivable of $999,000
as of that date attributable to subscriptions for the sale of the
remaining 9,990,000 shares.
During the three months ended March 31, 2001, the Company received
payments from subscribers totaling $239,525 which were attributable to
the sale of 2,395,250 shares, and a subscriber provided the Company
with legal services in lieu of cash payments of $30,000 for the
issuance of 300,000 shares. As a result, the Company had subscriptions
receivable of $729,475 as of March 31, 2001 for 7,294,750 shares of
common stock which must be paid no later than September 1, 2001. The
balance receivable has been included in common stock and offset by a
subscription receivable in the same amount in the accompanying
condensed balance sheet as of March 31, 2001.
Note 4 - Advances to and from related parties:
As of March 31, 2001, the Company had a receivable of $752,694 as a
result of advances made to Hedman and a payable of $801,786 as a result
of advances from stockholders. Advances of $189,000 made to Hedman were
subject to a note receivable that is due on demand and bears interest
at the prime rate. The balance of the advances receivable from Hedman
of $612,786 and all of the advances payable to stockholders were
noninterest bearing and due on demand.
Note 5 - Income taxes:
As of March 31, 2001, the Company had net operating loss carryforwards
of approximately $387,000 available to reduce future Federal taxable
income which will expire in 2020 and 2021. The Company had no other
material temporary differences as of that date. Due to the
uncertainties related to, among other things, the changes in the
ownership of the Company, which could subject those loss carryforwards
to substantial annual limitations, and the extent and timing of its
future taxable income, the Company offset the deferred tax assets of
approximately $155,000 attributable to the potential benefits from the
utilization of those net operating loss carryforwards by an equivalent
valuation allowance as of March 31, 2001.
F-8
17
ENVIRO INDUSTRIAL TECHNOLOGIES, INC.
(An Exploration Stage Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Income taxes (concluded):
The Company had also offset the potential benefits from net operating
loss carryforwards by an equivalent valuation allowance as of December
31, 2000. As a result of the increases in the valuation allowance of
$26,000 and $129,000 during the three months ended March 31, 2001 and
the period from March 31, 2000 (date of inception) to December 31,
2000, respectively, no credits for income taxes are included in the
accompanying condensed statements of operations.
Note 6 - Plan of reorganization and merger:
As explained in Notes 1 and 8 of the notes to the Audited Financial
Statements in the Form 10-KSB, pursuant to the terms of a letter of
intent dated May 19, 2000 and a proposed plan of reorganization and
merger (the "Plan"), the Company will become the legal acquirer of up
to 100% but not less than 80% of the issued and outstanding shares of
Hedman's common stock by issuing one share of its common stock for
every two shares of Hedman's common stock outstanding on the date of
consummation. The consummation of the Plan is subject to, among other
things, stockholder, regulatory and exchange approvals.
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 condensed financial statements will not
be comparable to the financial statements of the combined companies
after the merger.
* * *
F-9
18
HEDMAN RESOURCES LIMITED
BALANCE SHEET (Unaudited)
As at March 31, 2001
(With Comparative figures for March 31, 2000 (in Canadian $'s)
- ----------------------------------------------------------------------------------------------------
2001 2000
====================================================================================================
ASSETS
Current Assets:
Cash -- $ 673,071
Accounts Receivable 89,978 120,849
Inventory (notes 2 and 3) 270,230 180,041
Prepaid Expenses 13,040 --
- ----------------------------------------------------------------------------------------------------
370,247 973,960
Plant, Property and Equipment (net of amortization)(note 4) 4,662,598 2,235,201
Mining Properties (note 5) 189,215 134,282
Deferred Development Costs (note 6) -- 583,749
- ----------------------------------------------------------------------------------------------------
$ 5,222,061 $3 ,927,192
====================================================================================================
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities:
Bank Indebtness 218,764 --
Accounts payable and accrued liabilities 2,876,012 182,235
Long term Debt -- 492,800
current portion of long-term debt 475,200 79,200
Advances from related parties -- --
Shareholders Equity:
Share Capital: Authorized and Outstanding 9,361,952 9,141,602
Contributed Surplus 1,785,089 1,785,089
Deficit (9,494,957) (7,753,734)
- ----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTE TO FINANCIAL STATEMENTS $ 5,222,061 $ 3,927,192
====================================================================================================
On behalf of the board of Directors
Director
Director
F-10
19
HEDMAN RESOURCES LIMITED
STATEMENT OF OPERATIONS AND DEFICIT, (Unaudited)
For the three months ended March 31, 2001
(With Comparative figures for March 31, 2000) (in Canadian $'s)
- ---------------------------------------------------------------------------
2001 2000
===========================================================================
REVENUES
Sales Revenue (note 14) $ 165,446 $ 98,685
Other Revenues
Cost of Sales (229,235) (109,642)
===========================================================================
(63,788) (10,957)
EXPENSES
Administration Costs 42,338 42,618
Administration Wages and Benefits 61,922 40,419
Sales, Marketing and Research 9,687 7,353
Amortization and Depreciation -- 50,520
Municipal Taxes -- 22,869
Interest on Long-term debt 9,852 15,836
Professional Fees 71,429 12,000
- ---------------------------------------------------------------------------
195,229 191,615
===========================================================================
Loss for the period (259,017) (202,572)
Deficit, beginning of the period (9,235,940) (7,551,163)
- ---------------------------------------------------------------------------
Deficit, at the end of the period $(9,494,957) $(7,753,734)
===========================================================================
- ---------------------------------------------------------------------------
Loss per Share $ (0.009) $ (0.007)
===========================================================================
see accompanying notes to financial statements
F-11
20
HEDMAN RESOURCES LIMITED
STATEMENT OF CHANGES IN FINANCIAL POSITION, (Unaudited)
For the Three months ended March 31, 2001 (in Canadian $'s)
(With Comparative figures for March 31, 2000)
- ----------------------------------------------------------------------------------------------
2001 2000
==============================================================================================
CASH PROVIDED BY (USED IN): OPERATIONS
Loss for the period $(259,017) $ (202,572)
Items not involving cash:
Depreciation and amortization -- 50,520
- ----------------------------------------------------------------------------------------------
(259,017) (172,100)
==============================================================================================
Change in non-cash operating working capital:
Accounts receivable (49,463) (58,631)
Inventory (50,448) (8,992)
Prepaid Expenses -- --
Accounts Payable and accrued liabilities 715,550 (66,390)
- ----------------------------------------------------------------------------------------------
356,622 (134,013)
==============================================================================================
FINANCING:
Issue of Share Capital 106,683 1,835,656
Subscriptions (Private Placement) -- (882,372)
Short term Loans -- (23,630)
Advances from related parties (390,000) (13,083)
Loan Payments (17,600) --
Current Portion of Long term Debt -- --
- ----------------------------------------------------------------------------------------------
(300,917) 916,571
==============================================================================================
INVESTMENTS:
Purchase of capital assets (317,113) (407,523)
- ----------------------------------------------------------------------------------------------
Mineral Properties (2,000) --
==============================================================================================
(319,113) (407,523)
==============================================================================================
Increase (decrease) in cash position (263,408) 222,984
Cash (bank indebtedness), beginning of the period 44,644 450,086
- ----------------------------------------------------------------------------------------------
CASH (BANK INDEBTEDNESS), END OF THE PERIOD $(218,764) $ 673,071
==============================================================================================
See accompanying notes to financial statements.
F-12
21
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 1
For the three months ended March 31, 2001 (in Canadian $'s)
1. GOING CONCERN:
These financial statements have prepared on a going concern basis and
do not include any adjustments to the measurement and classification of recorded
asset amounts and classification of liabilities that might be necessary, should
the Company be unable to continue as a going concern. The Company has
experienced several continuous years of operating losses, is in a negative
working capital position and has significant capital purchase commitments which
will come due within one year. The Company's ability to realize its assets and
discharge its liabilities in the normal course of business is dependent upon
continued support from its lenders and creditors including new financing. The
Company is also dependent on an infusion of equity from potentials shareholders.
The Company is currently attempting to obtain additional financing from its
existing shareholders and other strategic investors to continue its operations.
However, there can be no assurance that the Company will obtain sufficient
additional funds from these sources.
During the year (2000) the Company has entered into a binding letter of intent
with Enviro Industrial Technologies Inc. ("Enviro"), a U.S. company. Enviro
agreed to acquire up to all of the issued and outstanding common shares of the
Company in exchange for common stock of Enviro on a one for one basis after a
two for one share consolidation by the Company. Enviro was incorporated in the
State of Delaware on March 31, 2000 and plans to enter the mining and industrial
mineral processing business.
2. SIGNIFICANT ACCOUNTING POLICIES:
The financial statements are prepared by management in accordance with
Canadian generally accepted accounting principles and, except as described in
note 21, conform in all material respects with accounting principles generally
accepted in the United States. This summary of significant accounting policies
is a description of the accounting methods and practices that have been used in
the preparation of these financial statements and is presented to assist the
reader in interpreting the statements contained herein.
(A) Revenue recognition:
Revenue from sales is recognized when goods are shipped to customers
and title transfers.
(B) Inventory:
Inventories of broken ore and refined and converted products are valued
at the lower of average cost and net realizable value.
(C) Supplies and Prepaid Expenses:
Consumable supplies and spares are valued at the lower of weighted
average cost or replacement value.
F-13
22
Hedman Resources Limited
Notes to the financial statements, page 2
For the three months ended March 31, 2001 (in Canadian $'s)
(D) 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%
===================================================================================================
(E) 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) Reclamation Costs:
Estimated future reclamation costs, including site restoration where
reasonably determinable, will be charged against earnings as incurred.
(G) Uses 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 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.
(H) Future income taxes:
In December 1997, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants ("CICA") issued Section 3465 of the CICA
Handbook, Income Taxes ("Section 3465"). Effective January 1, 1999, the Company
adopted Section 3465. Section 3465 requires a change from the deferral method of
accounting for income taxes to the asset and liability method of accounting for
income taxes.
Under the assets and liability method of Section 3465, future tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Future tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Section 3465, the
effect on future tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-14
23
HEDMAN RESOURCES LIMITED
Notes to the financial statements, Page 3
For the three months ended March 31, 2001 (in Canadian $'s)
3. INVENTORY: The inventory consists of:
- -----------------------------------------------------------------------------------------------------------
March 2001 March 2000
Processed Ore 12,984 7,078
Stores 70,692 93,084
Raw Materials 186,553 79,878
- -----------------------------------------------------------------------------------------------------------
$ 270,230 $ 180,041
===========================================================================================================
4. PROPERTY, PLANT AND EQUIPMENT:
2001 2000
Accumulated Net Book Net Book
Assets at cost Depreciation Value Value
======================================================================================================================
Land 5,236 5,236 5,236
Buildings 1,223,371 (507,515) 715,856 620,108
Firefelt Building 899,372 (20,930) 878,442 878,442
Equipment 5,127,150 (2,078,956) 3,048,194 717,740
Computers 20,192 (10,731) 9,461 3,380
Office Equipment 4,173 (4,029) 144 292
Vehicles 21,060 (15,795) 5,265 10,004
- ----------------------------------------------------------------------------------------------------------------------
$ 7,291,562 $ (2,637,956) $ 4,662,598 $ 2,235,201
======================================================================================================================
5. MINERAL PROPERTY ACQUISITIONS:
The mineral property acquisitions consist of:
- ----------------------------------------------------------------------------------------------------------------------
2001 2000
======================================================================================================================
Townships of Warden and Munro, Ontario, 21 leased mining $ 189,215 $ 134,282
claims. Township of Horwood, Ontario, 2 leased mining claims.
======================================================================================================================
F-15
24
HEDMAN RESOURCES LIMITED
Notes to the financial statements, Page 4
For the three months ended March 31, 2001 (in Canadian $'s)
6. DEFERRED DEVELOPMENT COSTS:
The amount reported as deferred development costs relate to costs incurred to
bring the operation into commercial production. Commencing in 1972, the deferred
development expenditures were being amortized using a units-of-production method
based on tons of product shipped. The deferred costs were written-off as they
were deemed to have no value with the new pit and substantial investment the
Company made in the new milling production system.
7. LONG-TERM DEBT:
- ----------------------------------------------------------------------------------------------------------------------
Interest Rate Due Date 2001 2000
======================================================================================================================
Business Development Bank of Canada Floating 2005 475,200 572,000
Base + 2.50%
Current Portion on long-term -- 79,200
- ----------------------------------------------------------------------------------------------------------------------
475,200 492,800
======================================================================================================================
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.
At December 31, 2000, the Company was in contravention of the covenants imposed
by the BDC. Subsequent to year-end, the BDC has provided a waiver for this
covenant contingent upon loan payments remaining current and no other events
occurring to adversely affect loan security. The entire balance outstanding has
been classified as a current obligation as the waiver does not extend beyond one
year.
Principal payments required to retire the outstanding long-term debt are as
follows:
2001 $ 105,600
2002 105,600
2003 105,600
2004 105,600
2005 52,800
------------------------------------------------------
$ 475,200
======================================================
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities includes $1,084,192 (2000 - $ 819,812)
advanced from Enviro Industrial Technologies Inc., which is unsecured, bears no
interest, and has no specified terms of repayment.
9. ADVANCES FROM SHAREHOLDERS:
The advances from shareholders are unsecured, bear interest at 9.25% and are to
be paid within one year.
F-16
25
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 5
For the three months ended March 31, 2000 (in Canadian $'s)
10. SHARE CAPITAL
a) Authorized
unlimited number of common shares
unlimited special shares
b) Issued - common
- -------------------------------------------------------------------------------------------------------------------
Shares 2001 Shares 2000
===================================================================================================================
For Cash 28,631,368 9,255,269 22,667,716 7,305,946
For Leased Mineral Property
For Debt Settlement
===================================================================================================================
22,667,716 7,305,946
Issued during the year for cash:
common shares 5,305,319 1,835,656
warrants exercised 479,208 106,683
options exercised
- -------------------------------------------------------------------------------------------------------------------
29,110,576 $9,361,952 28,703,035 $ 9,141,602
===================================================================================================================
All stock options to employees and directors were granted at the then fair
market value or greater than fair market value.
c) As at March 31, 2001 there are no outstanding options to purchase
common shares of the Company.
d) As at March 31, 200 there are 12,986,112 share purchase warrants
outstanding.
- --------------------------------------------------------------------------------------------------------------------
Expiry Date of Warrants Price Number of Shares
===================================================================================================================
July 12, 2001 0.20 7,680,793
February 22, 2002 0.40 5,305,319
- --------------------------------------------------------------------------------------------------------------------
12,986,112
===================================================================================================================
11. RELATED PARTY TRANSACTIONS
During (2000), the Company incurred office expenses of $nil (1999 - $3,000) and
also incurred $52,983 of expenses for site preparation and maintenance with a
corporation controlled by a director of Hedman Resources Limited.
The Company leased its office space from a company controlled by a shareholder
of the Company.
F-17
26
HEDMAN RESOURCES LIMITED
Notes to the financial statements, page 6
As at March 31, 2000 (in Canadian $'s)
12. 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 companies 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 defense obligation will come to an end. The total
amount of claims outstanding significantly exceeds the remaining insurance
coverage. However, it is not possible to estimate the amount, if any, of the
Company's liability exposure.
13. INCOME TAXES:
The company has available non-capital losses carry forward for income tax
purposes in the aggregate of $5,853,522 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:
2001 510,521
2002 871,174
2003 576,921
2004 933,177
2005 426,319
2006 581,270
2007 $ 1,954,140
=================================
$ 5,853,522
=================================
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future tax
assets will not be realized. The ultimate realization of future tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of future tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the future tax asset, the Company will need to generate future taxable income of
approximately $5,853,522 prior to the expiration of the net operating loss
carryforwards.
14. SEGMENTED INFORMATION:
Exported sales during the period amounted to $71,500 (2000 - $88,500).
15. LOSS PER SHARE AMOUNTS:
Basic earnings per share are based on the weighed average number of common
shares outstanding calculated on an annual basis. The effects of the exercise of
the options and warrants outstanding at the end of the period are antidilutive;
therefore, the fully diluted loss per share is not presented.
F-18
27
HEDMAN RESOURCES LIMITED
Notes to the financial statements page 7
As at March 31, 2001 (in Canadian $'s)
16. FUTURE SITE RESTORATION AND REMOVALS:
The Company, in conjunction with the Ministry of Northern Development and Mines,
has agreed to a future site restoration plan. The plan requires the Company to
make an initial payment of $20,000, pledge certain equipment assets as security
and make payments of $2.25 per ton milled to a maximum of $262,000.
17. COMPARATIVE FIGURES:
Certain of the 2000 figures have been restated to conform with the presentation
adopted in 2001.
18. ADMINISTRATION COSTS:
The municipal taxes with the Corporation of The Township of Black River Matheson
are in arrears. As part of the loan agreement with the Business Development Bank
of Canada, ("BDC") property taxes must remain current. However, the Company has
obtained a waiver from the BDC for a period of one year.
19. COMMITMENTS:
The Company has signed a contract to acquire a firefelt production plant from an
overseas supplier for an estimated cost of $3,200,000. The Company has advanced
approximately $900,000 of the estimated cost to the supplier and is awaiting
delivery and installation of the plant in late 2001. The Company has negotiated
to finance a maximum of 75%, or $2,250,000 CDN of the sales contract from the
supplier. The proposed credit facility is to be repayable in ten equal
semi-annual instalments, commencing six months after the plant is put into
production. The proposed initial rate is based on a floating interest rate of
three month LIBOR plus 1.5% payable quarterly on the drawn-down balance of the
credit facility. Upon drawing of the credit facility, the Company has the option
to switch to a fixed interest rate to be negotiated at such time.
(B) The Company has leased office space in North York , Ontario for a period of
five years ending in August 2005. The annual rent, excluding common area costs
and municipal taxes, to be paid for this space is $22,000.
20. FINANCIAL INSTRUMENTS:
The fair values of the accounts receivable and accounts payable and accrued
liabilities approximate their carrying values due to the short period to
maturity. The carrying value of the long-term debt approximates its fair value
based on borrowing rates presently available to the Company for loans with
similar terms and maturities.
21. SUBSEQUENT EVENTS:
Subsequent to the end of the period, the Company issued a Convertible Debenture
valued at $1, 060,948 in exchange for loans from certain shareholders. This
Debenture matures April 27, 2003 and bears interest at the rate of prime plus
2%. The Debenture is convertible to Company shares at $0.38 per share.
F-19