Note 4 - PROPERTY AND EQUIPMENT
As of September 30, 2000 plant and equipment consisted of the
following:
Furniture, fixtures and equipment $ 196,339
Leasehold improvements 171,940
Construction in progress - equipment 2,000,000
----------
2,368,279
Less accumulated depreciation and amortization 144,481
----------
$2,223,798
==========
Depreciation and amortization expense charged to operations was $67,717
and $42,770 for the years ended June 30, 2000 and 1999, respectively.
For the three-month period ended September 30, 2000, depreciation and
amortization amounted to $17,247.
NOTE 5 - LONG-TERM DEBT SEPTEMBER 30, 2000 Federal Office of Regional
Development (Ford-Q) Loan payable under the Industrial
Recovery Program amounting to 20% of certain eligible
costs incurred (maximum loan $340,252) repayable in
annual installments over a forty- eight month period
following completion of the project, unsecured and
non-interest bearing. (If the Company defaults the loans
become interest bearing) $ 340,252
Loans payable under the Program for the Development of
Quebec SME's based on 50% of approved eligible costs for
the preparation of market development studies in certain
regions. Loans are unsecured and non-interest bearing.
(If the Company defaults the loans become interest
bearing).
Loan payable over five years commencing June 2000 due
June 2004 64,648
Loan payable over five years, commencing June 2001, due
2005 60,020
Loan payable in amounts equal to 1% of annual sales in
Spain through June 30, 2007 13,610
Loan payable in amounts equal to 11/2% of annual sales
in Spain and Portugal through June 30, 2004 46,079
----------
524,609
Less: current portion 204,754
$ 319,855
==========
Minimum principal repayments of each of the next five years as follows:
2000 $ 204,754
2001 157,033
2002 29,243
2003 37,555
2004 96,024
----------
$ 524,609
==========
9
Note 6 - CAPITALIZED LEASE OBLIGATIONS
The Company leases certain equipment under agreements classified as
capital leases. The cost and the accumulated amortization for such
equipment as of June 30, 2000 and 1999 was $90,233 and $122,609,
respectively.
The following is a schedule by years of future minimum lease payments
under capital leases of equipment together with the obligations under
capital leases (present value of future minimum rentals) as of June 30,
2000.
Years Ended
June 30,
2001 $ 21,056
2002 28,075
2003 28,075
2004 20,955
-----------
Total minimum lease payments 98,161
Less amount representing interest 8,731
-----------
Total obligations under capital lease 89,460
Less current installments of obligations
under capital leases 22,762
-----------
Long-term obligation under capital leases,
with interest rate of 9.3% $ 66,668
===========
Note 7 - CONVERTIBLE SUBORDINATED DEBENTURES
Convertible subordinated debentures consist of the following:
TYPE B
Balance at September 30, 2000 $ 55,000
Interest rate 10%
Maturity Earlier of (i)-two years from
the issue date or (ii)-the
completion of a public
offering of its securities by
the Maker. These debentures
are subordinated to all
current and future bank debt.
Redemption rights If not converted the holder
may require the Company to
redeem at any time after
maturity for the principal
amount plus interest
Conversion ratio $.20 per share. During the
year ended June 30, 2000,
$305,000 of convertible
debentures were converted to
common stock.
During the three months ended September 30, 2000, $20,000 of
convertible debentures were converted.
10
Note 8 - RELATED PARTY TRANSACTIONS
The Company entered into various employment agreements with former
executive officers and general Counsel whereby the Company was
obligated to pay a total of $565,000 a year plus benefits. All of the
employment agreements called for terms ranging from 3 - 8 years. In
addition to the employment services, the officers agree not to compete
with the Company for the two year period following the termination of
employment. If an officer is terminated other than for cause or for
"good reason", the terminated officer will be paid twice the amount of
their base salary for twelve months. During the year ended June 30,
1999, two employees were terminated and received severance pay
totaling $500,000 which was paid in shares of the company's common
stock. The employees also received options to buy 4,000,000 shares of
stock for par value or $4,000. The options were exercised July 31,
1999. The value of the options were recorded as paid in capital at
June 30, 1999 for 50% of the average price of the stock or $381,600.
Various loans are due to the officers totaling $1,244,957. In the
past, such loans have been repaid through the issuance of stock.
Various Notes Receivable from officers separately reported on the
audited Balance Sheet as of June 30, 2000, plus accrued interest
thereon, were offset against amounts due to these officers as of
September 30, 2000.
Deposits payable included an amount of $118,500 which are payable to
companies which are owned by a director of the Company.
Note 9 - EXCHANGE OF DEBT FOR COMMON STOCK
During the three-month period ended September 30, 2000, the Company
recorded an increase in common stock and additional paid-in capital of
$1,825,527 representing issuances of stock in lieu of cash payments
for debts owed. During the year ended June 30, 2000, the Company
recorded increases in common stock and paid-in capital of $389,898,
which was in recognition for the exchange of common stock for debts
owed.
Note 10 - COMMON STOCK
During the three-month period ended September 30, 2000, the Company
issued common stock to individuals in exchange for services performed
totaling $470,063. During the years ended June 30, 2000 and 1999, the
Company issued common stock to individuals in exchange for services
performed totaling $2,246,631 and $2,759,744, respectively. Included
in these amounts are payments to officers of the Company and for
present and former legal counsel in exchange for salary and consulting
in the amount of $1,115,784 and $2,210,502, respectively. Also
included in the amounts paid in stock during the year ended June 30,
1999 was an amount paid to an officer totaling $406,250 in respect of
an officer's release of rights to serve as a distributor of TCS-1
Plants in North America or to receive commissions in connection with
sales of TCS-1 Plants made by the Company in North America. The dollar
amounts assigned to such transactions have been recorded at the fair
value of the services received, because the fair value of the services
received was more evident than the fair value of the stock
surrendered.
Note 11 - STOCK OPTION
On May 19, 1995, the Company sold to a director of the Company an
option to purchase 20,000 shares of Cumulative Convertible Preferred
Stock at an exercise price of $10 per share, exercisable during the
two-year period beginning May 19, 1995, and ending May 18, 1997. The
director paid $20,000 for the option. The terms of the Preferred Stock
purchasable under the option call for cumulative cash dividends at a
rate of $1.20 per share and conversion into 2,000,000 or more shares
of common stock. The conversion to common stock ratio varies depending
on when the conversion is made. At May 29, 1997, the exercise period
was extended until May 18, 1999. During the year ended June 30, 1999,
the director exercised the option to buy 1,234,567 shares of common
stock for $40,000. The balance of these options have expired.
11
During the three-month period ended September 30, 2000, the Company
issued stock options in compensation for services rendered valued at
COMPENSATORY COMMON STOCK OPTIONS Compensation
Cost For the
Three Months
Ended
Number of Shares September 30, 2000
-------------------- ------------------
Balance at July 1, 2000 -- --
Stock options expiring during the
three months ended September 30, 2000 1,694,447 365,306
-------------------- ------------------
Balance at June 30, 2000 1,694,447 365,306
-------------------- ------------------
An Employee Stock Option, Awards and Grants Plan was adopted in June
of 2000. In the three-month period ended September 30, 2000, the
Company issued stock options to purchase an aggregate amount of
1,694,447 shares for an aggregate of $365,306. In addition, the
Company issued 7,000,000 shares of Common Stock in the form of grants
for an aggregate of $712,343. No awards have been given to date.
Note 12 - ACQUISITION BY MERGER OF RPM INCORPORATED
During November 1997, the Company entered into a merger agreement with
RPM Incorporated ("RPM"). The Company acquired all of the assets and
liabilities of RPM by acquiring all of the outstanding common stock of
RPM in exchange for common stock in the Company on a unit for unit
basis. RPM ceased to exist following the exchange.
The assets and liabilities acquired by the Company from RPM consisted
of the proceeds from the sale of debentures as well as the debentures
of $535,000. The financing fees on the issuance of the debentures
totaling $61,755 were included in the statement of operations for the
year ended June 30, 1998. A total of 535,000 shares were issued as a
result of the merger valued at $16,050. A total of $16,050 was
received for this stock.
The Company entered into an additional agreement with the former
shareholders of RPM for a consulting agreement for a period of 5 years
expiring in June, 2002. In exchange for this consulting agreement,
3,000,000 shares of common stock were issued valued at $240,000. Other
than the consulting agreement and the issuance of the debentures, RPM
was inactive.
For accounting purposes the Company recorded the merger as a purchase
and not as a pooling of interests.
Note 13 - GOVERNMENT ASSISTANCE
The Company received financial assistance from Revenue Canada and
Revenue Quebec in the form of scientific research tax credit. During
the year ended June 30, 2000 the Company received approximately
$395,683, which has been recorded as paid in capital. During the
three-month period ended September 30, 2000, the Company recorded
additional tax credits receivable in the amount of $84,485, bringing
the reported balance of tax credits receivable from $475,221 as of
June 30, 2000 to $559,706 as of September 30, 2000.
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