U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
Commission file no. 0-26609
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL
f/k/a
GINSITE MATERIALS, INC.
--------------------------------------------
(Name of small business issuer in its charter)
Florida 65-0774999
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2870 Speer Boulevard, Suite 205, Denver, CO 80211
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (303) 455-3100
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on
which registered
None
- --------------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
-----------------------------------
(Title of class)
Copy of Communications to:
Donald F. Mintmire & Peter G. Futro
Mintmire & Associates Futro & Trauernicht, LLC
265 Sunrise Avenue Alamo Plaza
Suite 204 1401 Seventeenth Street, 11th Floor
Palm Beach, FL 33480 Denver, Colorado 80202
(561) 832-5696 (303) 295-3360
Indicate by 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
--- ---
As of November 22, 1999, there are 8,866,126 shares of voting stock of
the registrant issued and outstanding. There are a total of 59 active
shareholders.
PART I
Item 1. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Changes in Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 4,596 $ 360
Accounts receivable
Trade 0 1,323
Related party 0 18,696
Inventories 13,566 23,379
Advance to related party 5,000 0
Note receivable-related party
(net of allowance of $105,750 and $0, respectively) 109,788 0
------------------ -----------------
Total current assets 132,950 43,758
------------------ -----------------
PROPERTY AND EQUIPMENT
Equipment 124,606 128,624
Leasehold improvements 56,550 56,550
Less: Accumulated depreciation (38,164) (19,021)
------------------ ------------------
Total property and equipment 142,992 166,153
------------------ ------------------
OTHER ASSETS
Deposits 14,473 13,448
Intangible asset-patent pending 183,134 40,781
------------------- -------------------
Total other assets 197,607 54,229
------------------- -------------------
Total Assets $ 473,549 $ 264,140
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 110,062 $ 68,352
Accounts payable-related party 4,350 4,350
Salaries payable 0 4,816
Payroll taxes payable 92,574 14,834
Note payable-related party 267,676 47,007
------------------- ------------------
Total current liabilities 474,662 139,359
------------------- ------------------
LONG-TERM LIABILITIES
Notes payable 670,887 0
------------------- ------------------
Total long-term liabilities 670,887 0
------------------- ------------------
Total Liabilities 1,145,549 139,359
------------------- ------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value,
authorized 10,000,000; 0 issued and outstanding 0 0
Common stock, $0.001 par value,
authorized 50,000,000 and 100,000,000 shares,
respectively; with 10,977,636 and 13,783,662 issued and
outstanding, respectively 10,978 13,784
Additional paid-in capital 7,062,448 3,867,255
Deficit accumulated during the development stage (7,745,426) (3,756,258)
------------------- ------------------
Total stockholders' equity (672,000) 124,781
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 473,549 $ 264,140
=================== ==================
The accompanying notes are an integral part of the financial statements
F-2
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(unaudited)
Cumulative
since Inception
For the NineMonths Ended through
September 30, 1999 September 30, 1998 September 30, 1999
--------------------- ----------------------- ---------------------
Revenues
Product sales $ 26,788 $ 14,312 $ 42,618
Distributor fees 0 0 6,980
--------------------- ----------------------- ---------------------
Total revenues 26,788 14,312 49,598
--------------------- ----------------------- ---------------------
Costs and expenses
Compensation :
Officers 1,101,890 1,962,930 2,815,253
Other 340,182 1,220,411 1,519,989
Related party 255,250 0 274,990
Consultants 1,273,891 0 1,273,891
Depreciation and amortization 26,615 18,715 56,017
General and Administrative 576,450 519,245 1,506,387
Bad debt expense 10,000 0 227,817
--------------------- ----------------------- ---------------------
Total expense 3,584,278 3,721,301 7,674,344
--------------------- ----------------------- ---------------------
Loss from operations (3,557,490) (3,706,989) (7,624,746)
Other income (expense)
Interest income 3,030 17 4,690
Interest expense (115,435) (1,354) (125,370)
--------------------- ----------------------- ---------------------
Net loss $ (3,669,895)$ (3,708,326)$ (7,745,426)
===================== ======================= =====================
Net loss per weighted average share, basic $ (0.35)$ (1.52)$ (0.77)
===================== ======================= =====================
Weighted average number of shares, basic* 10,346,692 2,440,469 10,101,989
===================== ======================= =====================
The accompanying notes are an integral part of the financial statements
F-3
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Changes in Stockholders' Equity
Deficit
Accumulated
Additional Bene. During the Total
Number of Common Paid-in Conv. Development Stockholders'
Shares Stock Capital Feature Stage Equity
------------ ----------- -------------- ---------- ---------------- -----------------
BEGINNING BALANCE, December
31, 1997 $ 9,335,500 $ 9,336 $ 36,127 $ 0 $ (40,939) $ 4,524
First quarter - cash ($0.35/sh) 754,986 755 263,490 0 0 264,245
First quarter - services ($0.11/sh) 500,000 500 54,188 0 0 54,688
First quarter - services ($2.49/sh)* 200,000 200 498,238 0 0 498,438
First quarter - services ($2.73/sh)** 425,000 425 1,158,363 0 0 1,158,788
Second quarter - cash ($0.35/sh) 879,300 879 306,876 0 0 307,755
Second quarter - services ($2.56/sh)* 250,000 250 640,375 0 0 640,625
Third quarter - cash ($0.35/sh) 646,714 647 225,703 0 0 226,350
Third quarter - cash ($0.67/sh) 67,164 67 44,933 0 0 45,000
Third quarter - services ($2.13/sh)* 200,000 200 424,800 0 0 425,000
Fourth quarter - cash ($0.35/sh) 474,998 475 165,774 0 0 166,249
Fourth quarter - services ($0.97/sh)* 50,000 50 48,388 0 0 48,438
Net loss 0 0 0 0 (3,715,319) (3,715,319)
------------ ----------- -------------- --------- ---------------- -----------------
BALANCE, December 31, 1998 $ 13,783,662 $ 10,091 $ 3,867,255 0 $ (3,756,258) $ 124,781
------------ ----------- -------------- --------- ---------------- -----------------
Beneficial conversion feature creation 0 0 0 84,667 0 84,667
First quarter - cash/services($0.26/sh) 2,500,000 2,500 647,500 0 0 650,000
First quarter - services 301,000 301 436,340 0 0 436,641
First quarter - services ($1.58/sh)** 100,000 100 157,712 0 0 157,813
First quarter - services ($.26/sh)** 175,000 175 45,325 0 0 45,500
First quarter - services ($.41/sh)* 950,000 950 392,409 0 0 393,359
First quarter - debt conversion 427,908 428 144,572 0 0 145,000
First quarter - debt conversion 0 0 48,334 0 0 0
Second quarter - cash ($0.13/sh) 400,000 400 49,600 0 0 50,000
Second quarter - services 800,000 800 163,200 0 0 164,000
Second quarter - services ($0.25/sh)* 2,000,000 2,000 498,000 0 0 500,000
Second quarter - debt conversion 607,703 608 108,392 0 0 109,000
Second quarter - debt conversion 0 0 36,333 0 0 0
Third quarter - acquisition 32,842,909 32,843 423,565 0 0 137,135
Third quarter - reverse split (43,910,546) (43,911) 43,911 0 0 0
Net loss 0 0 0 0 (3,169,895) (3,669,895)
------------ ----------- -------------- --------- ---------------- -----------------
ENDING BALANCE,
September 30, 1999 (unaudited) $ 10,977,636 $ 10,978 $ 7,062,448 $ 0 $ (7,745,426) $ (671,999)
============ =========== ============== ========= ================ =================
The accompanying notes are an integral part of the financial statements
F-4
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Statements of Cash Flows
(unaudited)
Cumlitive
since
For the Nine Months Ended Inception
September 30, September 30, September 30,
1999 1998 1999
----------------- ---------------- ----------------
CASH FLOWS FROM DEVELOPMENT ACTIVITIES:
Net loss $ (3,669,895) $ (3,708,326) $ (7,745,426)
Adjustments to reconcile net loss to net cash used by
development activities
Amortization - beneficial conversion feature 84,667 0 84,667
Amortization - other 7,647 7,646 17,842
Depreciation 18,968 11,069 38,175
Stock issued in lieu of cash - third parties 1,995,891 54,688 2,050,578
Stock issued in lieu of cash - officers and employees 1,215,172 2,722,851 4,001,905
Bad debt 10,000 0 227,817
Changes in assets and liabilities
(Increase) decrease in accounts receivable - trade 1,323 0 0
(Increase) decrease in accounts receivable-related party 18,696 (29,247) (28,000)
(Increase) decrease in inventory 9,813 (15,185) (13,566)
(Increase) decrease in accrued interest on note receivable - related party 0 0 (1,250)
(Increase) decrease in deposits (1,025) (20,520) (14,473)
Increase (decrease) in accounts payable (29,971) 10,308 59,986
Increase (decrease) in accounts payable-related party 0 (20,000) 4,350
Increase (decrease) in salaries payable 0 332,174 4,816
Increase (decrease) in payroll taxes payable 64,949 25,109 79,783
Increase (decrease) in accrued interest on note payable - related party 0 1,354 3,949
----------------- ---------------- ----------------
Net cash used by development activities (273,765) (628,079) (1,228,847)
----------------- ---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Issuance of note receivable - related party (215,538) (66,500) (292,038)
Purchase of property and equipment 0 (150,766) (177,034)
Purchase of property and equipment - related party 0 0 (10,000)
----------------- ---------------- ----------------
(479,072)h used by investing activities (215,538) (217,266) (479,072)
----------------- ---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Loans from related parties 189,539 0 298,986
Proceeds from issuance of convertible debt 254,000 0 254,000
Proceeds from issuance of common stock, net 50,000 843,350 1,159,529
----------------- ---------------- ----------------
Net cash provided by financing activities 493,539 843,350 1,712,515
----------------- ---------------- ----------------
Net increase (decrease) in cash 4,236 (1,995) 4,596
CASH, beginning of period 360 7,791 0
----------------- ---------------- ----------------
CASH, end of period $ 4,596 $ 5,796 $ 4,596
================= ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Acquisition of patent from shareholder $ 0 $ 0 $ 50,976
================= ================ ================
Issuance of common stock for patent $ 0 $ 0 $ 7,918
================= ================ ================
Due to shareholder for patent $ 0 $ 0 $ 43,058
================= ================ ================
Conversion of convertible debt $ 254,000 $ 0 $ 254,000
================= ================ ================
Debt issued to acquire technology $ 0 $ 150,000 $ 150,000
================= ================ ================
The accompanying notes are an integral part of the financial statements
F-5
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(Information with respect to periods ended September 30, 1999 and 1998 is
unaudited)
(1) Summary of Significant Accounting Principles
TheCompany Ginsite Materials, Inc., is a Florida chartered development
stage corporation which conducts business from its headquarters in Fort
Lauderdale, Florida. The Company was incorporated on August 7, 1997.
The Company is principally involved in the manufacturing, marketing and
sales of the Ginsite formulation, a material that enhances or replaces
wood, concrete and similar construction materials. Current activities
include raising additional equity and negotiating with potential
national distributors. The Company is in the development stage and has
just begun to acquire the necessary operating assets to carry on its
proposed business. While the Company is negotiating with potential
customer distribution channels, there is no assurance that any benefit
will result from such activities. The Company will not receive
significant operating revenues until the commencement of operations,
but will nevertheless continue to incur expenses until then.
The financial statements for the nine months ended September 30, 1999
and 1998 include all adjustments which, in the opinion of management,
are necessary for fair presentation. The following summarize the more
significant accounting and reporting policies and practices of the
Company:
a) Use of estimates The financial statements have been prepared
in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, as of the date of the statements of
financial condition, and revenues and expenses for the period
then ended. Actual results may differ significantly from those
estimates.
b) Start-up costs Costs of start-up activities, including
organization costs, are expensed as incurred.
c) Net loss per share Basic net loss per share is computed by
dividing the net loss by the weighted average number of common
shares outstanding during the period.
d) Compensation for services rendered for stock The Company
issues shares of common stock in exchange for services rendered
and in payment of shareholder loans. The costs of the services
are valued according to generally accepted accounting principles
and have been charged to operations.
e) Inventories Inventories are valued at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method for substantially all inventory.
f) Basis of presentation The consolidated financial statements
include the accounts of Envirocon Corp., its wholly owned
subsidiary. Intercompany accounts and transactions have been
eliminated in the consolidation.
g) Intangible asset - patent pending Patents are recorded at
historical cost and amortized, beginning the date the patents are
placed in service over their estimated useful lives, using the
straight-line method.
h) Property and equipment All property and equipment are recorded
at cost and depreciated over their estimated useful lives, using
the straight-line method. Upon sale or retirement, the costs and
related accumulated depreciation are eliminated from their
respective accounts, and the resulting gain or loss is included
in the results of operations. Repairs and maintenance charges
which do not increase the useful lives of the assets are charged
to operations as incurred.
F-6
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(2) Significant Acquisitions On August 13, 1999, the Company acquired 100%
of the issued and outstanding common shares of Environcon Corp., a
Nevada corporation headquartered in Denver, Colorado. The Company
issued 32,842,909 shares of its common stock to effect this
transaction. This acquisition has been accounted for as a pooling of
interests.
(3) Intangible Asset - Patent Pending On August 7, 1997, a majority
shareholder formally assigned to the Company a certain patent pending
with the United States Patent and Trademark Office of the Department of
Commerce. The patent was recorded at its historical cost of $50,976,
which represents the accumulated expenditures of the majority
shareholder to refine the patent process. The patent is being amortized
over a period of five years, its estimated useful life, which began in
1998, the year the patent process was placed in service. Amortization
expense for the periods ended September 30, 1999 and 1998 was $7,647
and $7,646, respectively.
(4) Property and Equipment Depreciation expense for the periods ended
September 30, 1999 and 1998 was $18,968 and $11,069, respectively.
(5) Long Term Debt In February 1999, the Company issued a 9% convertible
note due on February 1, 2001 for $254,000 cash. The note is convertible
into shares of the Company's common stock at a conversion price equal
to the lesser of 100% of the lowest of the closing bid prices for the
common stock for the five trading days prior to the date of the note,
or 75% of the lowest of the closing bid prices for the common stock for
the five trading days immediately prior to the conversion date. As of
September 30, 1999, the debt was converted into 1,035,611 shares of
common stock at prices ranging from $0.17 to $0.66 per share.
The Company recognized a beneficial conversion feature discount, in
accordance with EITF Topic D-60 amounting to $84,665. The discount was
immediately amortized as the notes were immediately convertible. The
amount of reclassification from beneficial conversion feature to
additional paid-in capital due to conversion of the related debt for
the period ended September 30, 1999 was $84,665.
In March 1999, the Company was offered debt financing in the form of
non-interest bearing loans for up to $581,000, to be loaned on an as
needed basis throughout the remainder of 1999. There is no formal
written agreement regarding the repayment of these loans.
(6) Stockholders' Equity The shareholders, in January 1999, consented to
increase the number of authorized common shares, $0.001 par value, from
17,250,000 to 50,000,000 shares and to 100,000,000 shares in September
1999. Concurrently, 10,000,000 shares of preferred stock with no
determined par value were authorized. In September 1999, the Company
completed a one for five reverse split of the issued and outstanding
common shares. The Company had 10,977,636 and 13,783,662 shares of
common stock issued and outstanding at September 30, 1999 and December
31, 1998, respectively. There were no shares of preferred stock issued
as of September 30, 1999.
During the first quarter of 1999, the Company issued a total of
1,226,000 shares of restricted common stock for services rendered at a
total value of $598,438, the current market price less any applicable
marketability discount. 1,050,000 of these shares were issued to
officers, 175,000 to employees of the Company and 1,000 to a third
party. The Company issued a total of 150,000 shares of unrestricted
common stock to third parties for services rendered at a total value of
$181,750.
Also during the first quarter of 1999, the Company issued 2,500,000
shares of unrestricted common stock for $75,000 in cash. In accordance
with generally accepted accounting principles, these shares have been
recorded at the market value on the date of obligation of $0.26 per
share. Compensation expense of $575,000 has been charged to operations.
During the second quarter of 1999, the Company issued a total of
2,800,000 shares of restricted common stock for services rendered at a
total value of $664,000, the current market price less any applicable
marketability discount. These shares were all issued to officers of the
Company. During the second quarter, 400,000 shares were issued for
$50,000 in cash.
F-7
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(6) Stockholders' Equity (Continued) In August 1999, the Company issued
32,842,909 shares of restricted common stock, in exchange for 100% of
the issued and outstanding common stock of Environcon Corp.
During the nine months, $254,000 of convertible debt was converted to
1,035,611 shares of unrestricted common stock. The number of shares
issued under the conversion was determined according to the terms of
the note (Note 5), with conversion prices ranging from $0.17 per share
to $0.66 per share.
(7) Operating Lease The Company leases warehouse and office space located
in the Fort Lauderdale area. Total rent expense for the period ended
September 30, 1999 and 1998 was $124,120 and $104,855, respectively.
Future minimum lease payments under the noncancellable operating lease
at December 31, 1998 are as follows:
1999 $ 133,866
2000 140,560
2001 147,588
2002 154,967
2003 162,715
Thereafter 710,593
----------
$1,450,289
==========
(8) Income Taxes Deferred income taxes (benefits) are provided for certain
income and expenses which are recognized in different periods for tax
and financial reporting purposes. The Company had net operating loss
carry-forwards for income tax purposes of approximately $802,745, which
expire beginning December 31, 2117.
The amount recorded as deferred tax assets, cumulative as of December
31, 1998, is $157,940 which represents the amount of tax benefits of
loss carry-forwards. The Company has established a valuation allowance
for this deferred tax asset of $164,254, as the Company has no history
of profitable operations.
(9) Related parties In January 1999, the Company advanced funds in the
amount of $30,000 to Progressive Technology, Inc., a company under
common control. These funds are considered a temporary advance and are
expected to be repaid within the subsequent year. As of September 30,
1999, the unpaid amount was $30,000 and is presented in Note receivable
- related party.
As of January 1, 1998, the Company provides personnel services for and
shares certain building expenses with Progressive Technology, Inc., a
company under common control. The Company is reimbursed for the cost of
providing these items and records the reimbursements as a reduction of
operating expenses. Unpaid amount at September 30, 1999 is $215,538 and
is presented net of allowance for doubtful accounts of $105,750 in
Notes receivable - related party.
During 1997, the Company paid $10,000 to Progressive Technology, Inc.,
a company under common control, for the design, labor and material
necessary to build certain property and equipment. This purchase is
presented in property and equipment at historical cost, net of
accumulated depreciation. During the period ended December 31, 1998,
the Company was advanced funds from Y2K Medical, Inc., a company under
common control. Unpaid amounts were $4,350 at March 31, 1999 and
December 31, 1998 and are presented in Accounts payable - related
party. Y2K Medical, Inc. is currently inactive and awaiting a formal
dissolution with the State of Florida.
During 1997, a majority shareholder formally assigned a certain patent
pending (Note 3) to the Company in exchange for a note bearing interest
of 6.343% annually. The note is unsecured and is due within one year.
The shareholder has the option to permit an extension of the repayment
period for an additional year if the Company so requests. The unpaid
principal amount was $43,058 at March 31, 1999 and December 31, 1998.
Accrued interest at September 30, 1999 was $5,125.
F-8
Environmental Construction Products International
f/k/a Ginsite Materials, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
(10) Going Concern The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's financial position and operating results raise substantial
doubt about its ability to continue as a going concern, as reflected by
the net loss of $7,745,426 accumulated from August 7, 1997 (Inception)
through March 31, 1999. The ability of the Company to continue as a
going concern is dependent upon developing sales and obtaining
additional capital and financing. The financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern. The Company is currently
negotiating with potential national distributors and seeking additional
capital and financing to allow it to continue its planned operations.
F-9
Item 2. Management's Discussion and Analysis or Plan of Operation
General
Environmental Construction Products International, Inc., f/k/a/ Ginsite
Materials, Inc. a Florida corporation, ("ECPI") was formed for the initial
purpose of manufacturing GINSITE(TM), a resin-bound innovative coating material
which is non-porous, waterproof and bonds directly to various surfaces. The
product is manufactured exclusively for the construction and marine markets. The
founding philosophy arose from a concern regarding the continued destruction of
the world's natural resources and specifically trees.
The Company was in the development stage until August 1999 when it entered
into an Agreement and Plan of Reorganization("Agreement") with Envirocon, Inc.,
a Nevada corporation. Envirocon possesses similar construction and building
industry skills and presented additional managerial skills which the Company
believes will enhance its ability to successfully market its GINSITE(TM) product
and accomplish its founding philosophy. From the date of the Agreement in August
1999 through September 30, 1999, the Company has not generated significant
revenues due to its reorganization efforts. Since the date of the Agreement
through September 30, 1999, the Company has generated cumulative losses of
approximately $____________. Although the Company has entered into a joint
venture agreement which may prove to be very positive to future growth there can
be no assurance that profitability or significant revenues on a quarterly or
annual basis will occur in the future.
On August 13, 1999, Ginsite Materials, Inc. (the "Company"), a Florida
corporation, and Envirocon Corporation("ECORP"), a Nevada corporation, and the
individual holders of at least 80%(Eighty Percent) of the outstanding capital
stock of ECORP (the "Holders") consummated a re- organization(the
"Reorganization") pursuant to a certain Agreement and Plan of Reorganization
("Agreement") of such date. Pursuant to the Agreement, the Holders tendered to
the Company at least 80% of the issued and outstanding 3,800,000 shares of
common stock of ECORP in exchange for 60% of the Shares of common stock of the
Company issued and outstanding immediately after completion of the
reorganization. Upon closing, ECORP became a subsidiary of Ginsite. The
reorganization is being accounted for as a reverse acquisition.
Simultaneously with the closing of the Reorganization, all of the then
officers and directors of the Company tendered their respective resignations in
accordance with the terms of the Agreement. Frank Glinton, George Anagnost,
Murray Ginsberg and Wayne Doss were elected to serve on the Board of Directors
of the newly reorganized Company (the "Board"). The fifth position on the Board
of Directors will be filled by agreement of the new Directors. The new Board
appointed Frank Glinton as the President and George Anagnost as senior
vice-president, secretary and treasurer of the Company.
Upon the execution of the Agreement, the Board of Directors of the newly
reorganized company transferred the operations and assets of Ginsite as they
existed prior to the reorganization to a wholly owned subsidiary of the newly
organized company(the "Subsidiary"), and appointed a five member board to
oversee the operations and management of the Subsidiary. The Subsidiary's Board
of Directors is made up of George Anagnost, Frank Glinton, Murray Ginsberg,
Wayne Doss with a fifth board member to be mutually agreed upon by the
Subsidiary's Board of Directors.
On September 8, 1999, the newly reorganized Company announced that it had
approved by majority consent of its shareholders, in lieu of a shareholder
meeting, a name change to ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL
("ECPI")and a five to one reverse split of its common stock as of the record
date of September 30, 1999.
On September 9, 1999, the Company also restated its Articles of
Incorporation on in order to increase the number of shares of common stock
authorized to be issued from Fifty Million (50,000,000) to One Hundred Million
(100,000,000) and to name its new board members.
Copies of the Agreement are incorporated herein by reference [See: Part II.
Item6.(b) Reports on Form 8-K] The foregoing descriptions are qualified in their
entirety by reference to the full text of such agreements.
Subsequent to the closing of the Agreement the former directors and
officers (including Murray Ginsberg) challenged the validity of the Agreement.
On October 19, 1999, the Company entered into a verbal Stipulation For
Settlement agreement with Murray Ginsberg, Henry Max and Audrey Max which also
joined Henry Lione and S. Barry Grieper ratifying and affirming the Plan of
Reorganization and acknowledging their respective resignations as directors as
well as the appointment of Frank Glinton as President and director, George
Anagnost as Vice President, Secretary, Treasurer and director, and Wayne Doss as
a director. The Settlement was approved by the parties and subsequently affirmed
by court order. [See: Part II. Item 6. Index to Exhibits. No. 4.3 - Order of the
Circuit Court.]
In August 1999, the Company entered into a Joint Venture Agreement with
Modular Homes Limited, a company incorporated in the country of India, to
jointly manufacture, market and produce ECPI's Panel Technology in India and
other countries of mutual interest under a license from ECPI (USA) [See. Part
II, Index to Exhibits, Exhibit No. 10.3 - Joint Venture Agreement]
Discussion and Analysis
The Company is currently marketing product, and expects to introduce other
products by the end of 2000.
Since execution of the agreement with ENVIROCON the Company has begun to
make preparations for a period of growth, which may require it to significantly
increase the scale of its operations. This increase will include the hiring of
additional personnel in all functional areas and will result in significantly
higher operating expenses. The increase in operating expenses is expected to be
matched by a concurrent increase in revenues. However, the Company's net gain
may not continue even if revenues increase and operating expenses may still
continue to increase. Expansion of the Company's operations may cause a
significant strain on the Company's management, financial and other resources.
The Company's ability to manage recent and any possible future growth, should it
occur, will depend upon a significant expansion of its accounting and other
internal management systems and the implementation and subsequent improvement of
a variety of systems, procedures and controls. There can be no assurance that
significant problems in these areas will not occur. Any failure to expand these
areas and implement and improve such systems, procedures and controls in an
efficient manner at a pace consistent with the Company's business could have a
material adverse effect on the Company's business, financial condition and
results of operations. As a result of such expected expansion and the
anticipated increase in its operating expenses, as well as the difficulty in
forecasting revenue levels, the Company expects to continue to experience
significant fluctuations in its revenues, costs and gross margins, and therefore
its results of operations.
Results of Operations for the Three Months Ended September 30, 1999 and
1998
Overview
From its inception, the Company has incurred losses from operations. As of
September 30, 1999, the Company had cumulative net losses totaling approximately
$_____________ as compared with cumulative net losses totaling approximately
$________________ for the period ending September 30, 1998. Through fiscal 1998,
the Company focused primarily on developing its products, marketing and
organizational structure. During fiscal year 1999, management continued to
perfect its product and, in addition, sought out additional synergies to enhance
its managerial capabilities.
Financial Position
Working capital as of September 30, 1999 was a deficit of approximately
$____________, as compared to working capital deficit of approximately
$______________ at September 30, 1998. This increase is primarily due to receipt
of additional investor proceeds from the sale of the company's common stock.
Revenues
For the three months ended September 30, 1999 and 1998, the Company had
total net revenues of approximately $___________ and $____________,
respectively. For the three months ended September 30, 1999, revenues were
comprised primarily of __________________sales of its _______________ product.
The increase of approximately $________________is due to ______________ and its
ancillary sales.
Selling, General, and Administrative Expenses
For the three months ended September 30, 1999, operating expenses increased
by approximately $_____________ or _____% from $______________ for the three
months ended September 30, 1998. This increase is primarily related to costs
associated with _____________ as well as organizational and infrastructure
enhancements. In accordance with the Company's marketing plan for fiscal 1999
year, expenses related to promotion, trade shows, and conventions were increased
to enhance the industry awareness of the Company's products and services.
In the past, the Company has focused on the design and development of
proprietary products. For fiscal 2000, the Company anticipates launching an
aggressive marketing plan that is designed to increase worldwide sales of its
products. The Company believes that the increased operating expenses incurred
during the three months ended September 30, 1999 will position the Company to
generate increased revenue in the second quarter and throughout its fiscal year
2000.
Liquidity and Capital Resources
The Company's operations are being funded primarily from
______________________, debentures and equity transactions.
It is the Company's intention to pursue additional debt and or equity
financing in the range of $___________________ to $__________________ during the
remainder of fiscal 1999, however, there can be no assurance that they will be
successful in their efforts. The Company believes that cash flows generated from
operations and borrowing capacity, combined with proceeds from future debt or
equity financing will provide adequate flexibility for funding the Company's
working capital obligations.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company determined that the Year 2000 impact is not material to ECPI
and that it will not impact its business, operations or financial condition
since all of the internal software utilized by the Company has the capability of
being upgraded to support Year 2000 versions.
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely also will be timely converted or that any such failure to
convert by another company would not have an adverse affect on the Company's
systems.
Forward-Looking Statements
This Form 10-QSB includes "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. All statements, other than
statements of historical facts, included or incorporated by reference in this
Form 10-QSB which address activities, events or developments which the Company
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), demand
for the Company's products and services, expansion and growth of the Company's
business and operations, and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
or developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, general economic market and
business conditions; the business opportunities (or lack thereof) that may be
presented to and pursued by the Company; changes in laws or regulation; and
other factors, most of which are beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form 10-QSB are
qualified by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be realized or,
even if substantially realized, that they will have the expected consequence to
or effects on the Company or its business or operations. The Company assumes no
obligations to update any such forward-looking statements.
PART II
Item 1. Legal Proceedings.
Subsequent to the closing of the Agreement the former directors and
officers (including Murray Ginsberg) challenged the validity of the Agreement.
On October 19, 1999, the Company entered into a verbal Stipulation For
Settlement agreement with Murray Ginsberg, Henry Max and Audrey Max which also
joined Henry Lione and S. Barry Grieper ratifying and affirming the Plan of
Reorganization and acknowledging their respective resignations as directors as
well as the appointment of Frank Glinton as President and director, George
Anagnost as Vice President, Secretary, Treasurer and director, and Wayne Doss as
a director. On October 19, 1999, the Company appeared with counsel in the
Circuit Court for Broward County, Florida Case No.: 99-017314 to enter into open
court the Stipulation For Settlement as agreed to by all parties on October 19,
1999. The court entered an order on November 15, 1999 reaffirming the
Stipulation For Settlement with few exceptions.[See: Part II., Item 6., Index to
Exhibits, Exhibit No. 4.2 - Stipulation For Settlement] A motion to set aside
this order is pending. It is the opinion of Counsel for the Company that the
pending motion is without merit.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
For the quarter ending September 30, 1999, covered by this report the
following matters were submitted to a vote of the Company's shareholders,
through the solicitation of consents from shareholders:
1. On August 13, 1999 a majority of the Company's shareholder's voted to
approve the Share Exchange and Reorganization pursuant to a Plan of
Reorganization signed by the board of directors August 13, 1999.
2. On August 13, 1999 a majority of the Company's shareholder's voted to
approve the appointment of new members to the board of directors:
Frank Glinton, George Anagnost, Wayne Doss and Murray Ginsberg. A
fifth position on the board shall be filled upon a convening of the
newly appointed board of directors.
3. On September 9, 1999, by majority consent of its shareholders, in lieu
of a shareholder meeting, the Company changed its name to
Environmental Products International, Inc. and approved a five to one
reverse stock split.
Item 5. Other Information
On July 6,1999, the Company filed its initial Form 10SB with the Securities
and Exchange Commission and became a fully reporting public company as of
September 7, 1999. Prior to becoming effective, on August 13, 1999, the Company
entered into an Agreement and Plan of Reorganization. This Agreement resulted in
a change of control of the Company's management. The Company filed a Form 8-K
with the Securities and Exchange on October 12, 1999 and will be providing
amendments to its original Form 10SB to accurately disclose all material
developments and information relating to the aforementioned reorganization .
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of Regulation
S-B, as described in the following index of exhibits, are incorporated
herein by reference, as follows:
(b) See attached Form 8-K filed with the U.S. Securities and Exchange
Commission on October 12, 1999 regarding events occurring during the
quarter ended September 30, 1999.
Exhibit No. Description
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Item 1. Index to Exhibits
3.(i).1 Articles of Incorporation of Ginsite Materials, Inc.
filed August 7, 1997(1)
3.(i).2 Articles of Amendment to the Articles of Incorporation of Ginsite
Materials, Inc., filed April 16, 1999(1)
3.(i).3 * Restated Articles of Incorporation of Ginsite Materials,
Inc. filed September 9, 1999, superseding the original
Articles of Incorporation increasing the authorized Capital
Stock and appointing new directors.
3.(i).4 * Articles of Amendment to the Articles of Incorporation of
Ginsite Materials, Inc., changing the Name of Corporation to
Environmental Construction Products International, Inc., filed
September 16, 1999.
3.(i).5 * Articles of Share Exchange and Reorganization pursuant to a
Plan of Reorganization adopted August 13, 1999 and filed
October 13, 1999.
3.(ii).1 Bylaws of Ginsite Materials, Inc.(2)
4.1A Form of Private Offering(1)
4.1B Note Purchase Agreement, The Augustine Fund, L.P., (1)
4.2 Agreement and Plan of Reorganization Ginsite Materials, Inc.'s
Acquisition of ENVIROCON Corporation dated August 13, 1999. (2)
10.1 Form Of Distributorship Agreement(1)
10.1A Distributorship Agreement, M J INNOVATIONS, Jean-A. Medici,
Michael Alderman(1)
10.1B Distributorship Agreement, Marcus Dean Rogozinski(1)
10.1C Distributorship Agreement, Fred Roneker(1)
10.2 Form Of License Agreement (1)
10.2A License Agreement, Concession Management of Palm Beach, Inc.(1)
10.3 Lease Agreement, Steven J. Cooperman, Trustee(1)
10.4A Employment Agreement Murray Ginsberg(1)
10.4B Employment Agreement Audrey Max(1)
10.4C Employment Agreement Henry Lione(1)
10.4D Employment Agreement Eugene Ladin(1)
10.4E Employment Agreement Barry Grieper(1)
10.4F Employment Agreement Henry Max(1)
10.5 Indemnification Agreement & Covenant Not To Sue
Murray Ginsberg(1)
10.6 Independent Marketing Services Agreement Wayne A. Doss(1)
10.7 Purchase & Sale Agreement with ECO Marine Materials, Inc.(1)
10.8A Consulting Agreement, Intercontinental Capital Corp.(1)
10.8B Consulting Agreement, Monetary Advancement International, Inc.(1)
10.8B.1 Consulting Agreement Termination & Mutual Release,
Monetary Advancement International, Inc.(1)
10.9A Assignment of Patent by Murray Ginsberg(1)
10.9B Patent Application & Status; Trademark Application & Status(1)
10.10.A.1 Promissory Note , Murray Ginsberg and Ginsite,
patent assignment.(1)
10.10.A.2 Promissory Note, Ginsite and Progressive Technology(1)
10.10.A.3 Promissory Note, Ginsite and Progressive Technology(1)
10.11 * Original License Agreement to Intellectual Property between
Paul Artzer, an individual, and ENVIROCON Corporation, a
Nevada corporation, October 13, 1998.
10.12 * Renewal of License Agreement to Intellectual Property
between Paul Artzer, an individual, and ENVIROCON Corporation,
a Nevada corporation, October 13, 1998..
10.13 * Joint Venture Agreement between Environmental Construction
Products International, Inc.(USA) and Modular Homes
Limited(INDIA) for the purpose of jointly manufacturing,
marketing and promoting ECPI Panel Technology in India dated
August 19, 1999.
27.1 * Financial Data Schedule
99.1 * Order of the Circuit Court of the Seventeenth Judicial
Circuit for Broward County, Florida Enforcing Settlement
between Environmental Construction Products International,
Inc., a Florida corporation, and Murray Ginsberg, Henry Max
and Audrey Max, dated November 15, 1999.
- -------------------
(1) Incorporated herein by reference to the Registration Statement on Form
10-SB of Ginsite Materials, Inc. (File No. 0-26609), filed with the U.S.
Securities and Exchange Commission.
(2) Incorporated herein by reference to the Form 8-K of ENVIRONMENTAL
CONSTRUCTION PRODUCTS INTERNATIONAL f/k/a GINSITE MATERIALS, INC. (File No.
0-26609), filed with the U.S. Securities and Exchange Commission.
* Filed herewith
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIRONMENTAL CONSTRUCTION PRODUCTS INTERNATIONAL
f/k/a
GINSITE MATERIALS, INC.
(Registrant)
Date: November 22, 1999 By: /s/ Frank Glinton
------------------------
Frank Glinton, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date Signature Title
---- --------- -----
November 22, 1999 By: /s/ Frank Glinton President & CEO
--------------------
Frank Glinton
November 22, 1999 By: /s/ George Anagnost Treasurer & CFO
--------------------
George Anagnost