Notes to Financial Statements
December 31, 2016 and 2015
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The Enviromart Companies, Inc. and subsidiary (the Company), formerly known as Environmental Science and Technologies, Inc., was incorporated under the laws of the State of Delaware on June 18, 2012. On June 21, 2013, the Company completed an acquisition of intangible assets comprised of intellectual property and trademarks from its former Chief Executive Officer. In conjunction with the acquisition of the intangible assets, the Company commenced operations.
As of January 2, 2015, the Companys business was operated through its wholly-owned subsidiary, EnviroPack Technologies, Inc. Effective on or about January 15, 2015, the Company changed its name to The Enviromart Companies, and the Companys wholly-owned subsidiary, EnviroPack Technologies, Inc., changed its name to Enviromart Industries, Inc. The Companys other wholly owned subsidiaries are currently inactive.
On February 16, 2016, The Rushcap Group, Inc. (Rushcap), an affiliate of Mark Shefts (a significant shareholder), notified us that, effective March 31, 2016, it was discontinuing its funding of our wholly owned subsidiary under the Inventory Financing Agreement dated June 19, 2015.
On March 21, 2016, the Company entered into a Stock Purchase and Sale Agreement with Michael R. Rosa, founder and a significant shareholder, and Enviromart Industries, Inc., its sole operating subsidiary, pursuant to which the Company agreed to transfer to Mr. Rosa all the issued and outstanding capital stock of Enviromart Industries, Inc.
In consideration for the transfer of the operating subsidiary to Mr. Rosa, he surrendered to us all 13,657,500 shares of the Companys common stock then owned by him, which shares were returned to the status of authorized and unissued shares. In addition, Mr. Rosa and Enviromart Industries, Inc. agreed to assume and discharge any and all of the Companys liabilities existing as the closing date, of which there was none, as all of the Companys operations have been conducted through Enviromart Industries, Inc. (its sole operating subsidiary). The company accounted for the transaction as a split-off per the guidance at ASC 845-10-30-12.
The above described purchase and sale transaction closed on July 21, 2016, effective April 1, 2016, and was approved by a majority of the Companys shareholders by written consent on May 4, 2016. As a result of the completion of the purchase and sale transaction, the Companys operating business has been discontinued, and it is focusing on seeking to acquire an operating business with strong growth potential.
Accordingly, the Company now has only minimal assets and liabilities. Its operations are focused on seeking to acquire an operating business with strong growth potential. From and after the sale, unless and until the Company completes an acquisition, its expenses are expected to consist solely of legal, accounting and compliance costs, including those related to complying with reporting obligations under the Securities and Exchange act of 1934.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Enviromart Industries, Inc. (f/k/a EnviroPack Technologies, Inc.), which was consolidated through March 31, 2016 and the results of its operations are shown as discontinued operations. All inter-company accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original maturities of three months or less when acquired to be cash equivalents.
F-6
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentration of Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company has in the past occasionally maintained amounts on deposit with a financial institution that are in excess of the federally insured limits. The risk is managed by maintaining all deposits in high quality financial institutions.
Income Taxes
Deferred 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. As of December 31, 2016, all deferred tax assets continue to be fully reserved.
Basic Earnings (Loss) Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic earnings per share is computed by dividing net income/loss available to common stockholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Weighted average number of shares used to calculate basic and diluted loss per share is considered the same as the effect of dilutive shares is anti-dilutive for all periods presented. As of December 31, 2016 and, 2015, there were -0- common stock equivalents, not included in dilutive earnings per share as their effect is anti-dilutive.
Revenue Recognition
Revenue is recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery has occurred, price has been fixed or is determinable, and collectability is reasonably assured. Revenue is recognized at the time title passes and risk of loss is transferred to customers.
Discontinued Operations
Per the guidance at ASU 2014-10, the Company has presented discontinued operations related to the transfer of the former operating subsidiary (see Note 7) in the period in which either the discontinued operation has been disposed of or classified as held for sale.
Stock-Based Compensation
The Company expenses all stock-based payments to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for estimated forfeitures.
Recently Issued Financial Accounting Standards
Management believes the impact of recently issued standards and updates, which are not yet effective, will not have a material impact on the Companys financial position, results of operations or cash flows upon adoption.
F-7
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
NOTE 3. GOING CONCERN
The Company incurred losses from continuing operations of $150,778 and $104,219 for the years ended December 31, 2016 and 2015, respectively, and had working capital of $100 and a stockholders' equity of $100 at December 31, 2016. In addition, the Company had negative cash flows from continuing operating activities of $36,027 for the year ended December 31, 2016. These factors raise substantial doubt about the Companys ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or thereafter will be generated from any future operations or that funds will be available from external sources such as debt or equity financings or other potential sources. If the Company is unable to raise capital from external sources when required, there would be a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Companys existing stockholders. The Company is now seeking an operating company with which to merge or acquire. There is no assurance, however, that the Company will achieve its objectives or goals.
The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
During the year ended December 31, 2016, the Company received gross proceeds of $22,500 from the sale of common stock. There can be no assurances that the Company will be able to raise the additional funds it requires.
NOTE 4. RELATED PARTY TRANSACTIONS
On September 26, 2014, the Company entered into an agreement with Rushcap Group, Inc. (controlled by Mark Shefts (a significant shareholder) to provide a revolving line of credit to purchase inventory to the Company. The maximum borrowing amount under this agreement was originally $300,000, and was increased to $750,000 in May 2015.
As of December 31, 2016, $-0- had been advanced to the company under this agreement, as all amounts were advanced to the operating subsidiary, which we transferred to Michael R. Rosa, as described below.
On March 24, 2015, the Company awarded its then CFO warrants to purchase 750,000 shares of common stock, at an exercise price of $.10 per share, subject to vesting annually over a three year period commencing December 31, 2015. These warrants include a cashless exercise feature. As part of the transfer of the operating subsidiary, these warrants were cancelled. See Note 6 Stockholders Equity.
On March 21, 2016, the Company entered into a Stock Purchase and Sale Agreement with Michael R. Rosa, founder and then a significant shareholder, and Enviromart Industries, Inc., its sole operating subsidiary, pursuant to which the Company agreed to transfer to Mr. Rosa all the issued and outstanding capital stock of Enviromart Industries, Inc.
In consideration for the transfer of the operating subsidiary to Mr. Rosa, he surrendered to us all 13,657,500 shares which he controlled, which shares were returned to the status of authorized and unissued shares. In addition, Mr. Rosa and Enviromart Industries, Inc. have assumed and discharged any and all of the Companys liabilities existing as the closing date, of which there were none, as all of the Companys operations had been conducted through Enviromart Industries, Inc. (its sole operating subsidiary).
The above described purchase and sale transaction closed on July 21, 2016, effective April 1, 2016, and was approved by a majority of the Companys shareholders by written consent on May 4, 2016. As a result of the completion of the purchase and sale transaction, the Companys operating business has been discontinued, and it is focusing on seeking to acquire an operating business with strong growth potential. The Company accounted for this transaction as a split-off per the guidance at ASC 845-10-30-12 and recognized a gain of $1,328,175 on the difference between the fair value of the consideration received and the book value of the net assets of the subsidiary.
On July 19, 2016, the Company issued 5,000,000 shares valued at $30,000 to a related party in consideration for his agreement to fund the Companys audit and accounting fees and to provide office space for the Company.
F-8
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
NOTE 5. STOCKHOLDERS EQUITY
Private Offering
On January 22, 2015, the Company sold an aggregate of 1,848,571 shares of our common stock to two accredited investors for gross proceeds of $3,697 (a per share price of $0.002).
On December 31, 2015, the Company agreed to sell an aggregate of 2,100,000 shares of our common stock to three accredited investors for gross proceeds of $12,000 (an average per share price of $0.006).
During January, 2016, the Company issued 2,000,000 shares to accredited investors related to their stock purchase agreements dated December 31, 2015. These shares were sold at $0.0057 per share for proceeds of $11,400 and were originally reported as common stock to be issued at December 31, 2015.
On January 31, 2016, the Company agreed to sell 100,000 units, with each unit consisting of one share of our common stock and a warrant to purchase ½ shares of common stock at a price of $0.25, to an accredited investor for gross proceeds of $10,000 (a per unit price of $.10). As of March 31, 2016, the Company granted this accredited investor 100,000 warrants related to his unit purchase transactions. Under the terms of the Stock Purchase and Sale Agreement, these warrants were terminated.
On June 6, 2016, the Company sold an aggregate of 2,100,000 shares of our common stock to a related party accredited investor for gross proceeds of $12,500 (a per share price of $0.006).
Common Stock Issued for the Extinguishment of Liabilities
Effective September 30, 2015, the holder of a $50,000 note elected to convert the principal amount of the note as well as $2,384 of interest payable into 2,095,352 shares of Company common stock.
Effective September 30, 2015, the holders of two $100,000 notes elected to convert the principal amounts of their respective notes into 4,000,000 shares each of Company common stock.
Effective September 30, 2015, the holder of a $15,000 related party note elected to convert the principal amount of the note into 188,663 shares of Company common stock.
Effective September 30, 2015, several persons owed in the aggregate $98,388 elected to convert their respective debt into an aggregate of 945,220 shares of Company common stock.
Stock-Based Compensation
On February 10, 2015, the Company issued 75,000 shares to a third party in recognition of services. These shares were valued at $0.002 per share for a total of $150.
On March 24, 2015 the Company granted 750,000 warrants to its then Chief Financial Officer (now President and CFO). The warrants vest over a three-year period with 250,000 warrants vesting each year. The warrants are exercisable at $.10 per share and expire on December 31, 2018. The Company recognizes stock-based compensation in the financial statements for all share-based awards to employees, including grants of warrants, based on their fair values. The Company uses the Black-Scholes valuation model to estimate the fair value of stock option grants. The Black-Scholes model incorporates calculations for expected volatility and risk-free interest rates and these factors affect the estimate of the fair value of the Companys stock option grants. The Company used the following variables in its Black-Scholes calculation. Exercise price of $0.10, stock price of $0.002, risk free rate of .5%, term of 3 years and volatility of 200%. The total fair value of the warrants is $750. Total stock based compensation expense for the year ended December 31, 2015 was $250.
On June 6, 2016, the Company issued 1,000,000 shares to a third party as settlement of liabilities valued at $8,500. There shares were valued at $0.006 per share or $5,605, resulting in a gain on settlement of $2,895.
On July 19, 2016, the Company issued 5,000,000 shares valued at $30,000 to an individual, who became a significant stockholder as a result of this transaction, in consideration for legal services.
F-9
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
On July 19, 2016, the Company issued 5,000,000 shares valued at $30,000 to a related party in consideration for his agreement to fund the Companys audit and accounting fees and to provide office space for the Company.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Except as disclosed herein, we are not a party to any pending legal proceeding. To the knowledge of our management, except as disclosed herein, no federal, state or local governmental agency is presently contemplating any proceeding against us.
NOTE 7. DISCONTINUED OPERATIONS
On February 16, 2016, The Rushcap Group, Inc. (Rushcap), an affiliate of Mark Shefts (then a significant shareholder), notified us that, effective March 31, 2016, it was discontinuing its funding of our wholly owned subsidiary under the Inventory Financing Agreement dated June 19, 2015. Rushcap reserved the right to discontinue the funding prior to March 31, 2016, if it so determined. The discontinuation of funding was expected to have a material adverse effect on our business, financial condition and results of operation, as we did not believe that we would be able to timely secure funding to replace the discontinued Inventory Financing.
In light of the discontinuation of funding, our Board of Directors spent approximately one month assessing the operating companys current business and funding prospects, including whether to transfer the operating subsidiary to Michael R. Rosa, our founder and a significant shareholder, in accordance with that certain Agreement between the Company, Mr. Rosa and Mr. Shefts, dated July 14, 2014 (Break-up Agreement). The Break-up Agreement was disclosed in the Companys Current Report on Form 8-K filed July 18, 2014, which is incorporated herein by this reference.
Our Board of Directors concluded that the discontinuation of funding would have a material adverse effect on our business, financial condition and results of operation, as it did not believe that it would be able to timely secure funding to replace the discontinued Inventory Financing.
On March 17, 2016, our Board of Directors approved the sale of our sole operating subsidiary, Enviromart Industries, Inc., to Michael R. Rosa, our founder and a significant shareholder, as contemplated by the Break-up Agreement.
On March 21, 2016, we entered into a Stock Purchase and Sale Agreement with Michael R. Rosa and Enviromart Industries, Inc., our sole operating subsidiary, pursuant to which we transferred to Mr. Rosa all the issued and outstanding capital stock of Enviromart Industries, Inc.
In consideration for the transfer of the operating subsidiary to Mr. Rosa, he surrendered to us all 13,657,500 shares of the Companys common stock then owned by him, which shares have been returned to the status of authorized and unissued shares. In addition, Mr. Rosa and Enviromart Industries, Inc. agreed to assume and discharge any and all of the Companys liabilities existing as the closing date, of which there were none, as all of the Companys operations had been conducted through Enviromart Industries, Inc. (its sole operating subsidiary). The Company accounted for this transaction as a split-off per the guidance at ASC 845-10-30-12 and recognized a gain of $1,328,175 on the difference between the fair value of the consideration received and the book value of the net assets of the subsidiary.
The above described purchase and sale transaction closed on July 21, 2016, effective April 1, 2016, and was approved by a majority of the Companys shareholders by written consent on May 4, 2016.
As a result of the completion of the purchase and sale transaction, the Companys operating business has been discontinued, and it is focusing on seeking to acquire an operating business with strong growth potential.
F-10
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
NOTE 7. DISCONTINUED OPERATIONS
(Continued)
The assets and liabilities held for discontinued operations presented on the balance sheet as of March 31, 2016 and December 31, 2015 consisted of the following:
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|
|
|
|
|
|
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March 31,
2016
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|
December 31, 2015
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|
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ASSETS
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Current Assets
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|
|
|
|
|
Cash
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$
|
111
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$
|
16,743
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|
Accounts receivable, net
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|
217,616
|
|
262,068
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|
Inventory, net
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|
226,062
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|
212,240
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|
Prepaid Expenses & Other Current Assets
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|
22,448
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|
8,644
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Total Current Assets
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|
466,237
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499,695
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|
|
|
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Non-Current Assets
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|
|
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Equipment, net
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|
22,495
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|
29,807
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TOTAL ASSETS
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$
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488,732
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$
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529,502
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LIABILITIES
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Current Liabilities
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|
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Bank Overdraft
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$
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27,276
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$
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-
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Accounts payable and accrued expenses
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|
968,818
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903,077
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Line of Credit - related party
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|
695,000
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|
719,845
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Total Current Liabilities
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$
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1,691,094
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$
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1,622,922
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The income (loss) from discontinued operations presented in the income statement for the years ended December 31, 2016 and 2015, consisted of the following:
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For the years ended
December 31,
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2016
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2015
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Revenue
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$
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538,629
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$
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2,268,504
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Cost of goods sold
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|
339,914
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|
1,535,910
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Gross profit
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|
198,715
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|
732,594
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Operating Expenses
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(263,066)
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(1,097,014)
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Other Expenses
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(31,172)
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(118,862)
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Income (Loss) from Discontinued Operations
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$
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(95,523)
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$
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(483,282)
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As a result of this transaction, the Company has recorded a gain on disposition of discontinued operations of $1,328,175. The Company considers this transaction to be a tax-free reorganization and accordingly there is no provision for income taxes.
F-11
THE ENVIROMART COMPANIES, INC.
Notes to Financial Statements
NOTE 8. INCOME TAXES
A reconciliation of the expected income tax benefit (provision) computed using the federal statutory income tax rate of 34% and New Hampshire statutory income tax rate of 8.5% to the Companys effective income tax rate is as follows:
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2016
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2015
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Book income (loss) from operations
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$
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(64,081)
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$
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(249,688)
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Stock/options issued for services
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-
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143
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Depreciation and amortization
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|
-
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10,265
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Change in valuation allowance
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64,081
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239,279
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Income Tax Expense
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$
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-
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$
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-
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The tax effects of temporary differences that give rise to significant portions of the Companys deferred tax assets and deferred tax liabilities are presented below:
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2016
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2015
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Cumulative NOL
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$
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(1,520,830)
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$
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(1,826,853)
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Deferred Tax assets:
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(34% Federal, 8.5% Avg. Corp. Rate)
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Net operating loss carry forwards
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(768,420)
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(898,479)
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Stock/options issued for services
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71,941
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|
71,941
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Depreciation and amortization
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24,625
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|
24,625
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Impairment Expense
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25,500
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|
25,500
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Valuation allowance
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|
646,354
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|
776,413
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Income tax provision
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$
|
-
|
$
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-
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Deferred income taxes result from temporary differences between income tax and financial reporting computed at the effective income tax rate. The Company has established a valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets. At such time, if it is determined that it is more likely than not that deferred tax assets are realizable, the valuation allowance will be reduced.
The Company files U.S. federal and New Hampshire income tax returns. Our major tax jurisdictions are U.S. federal and the State of New Hampshire and are subject to tax examinations for the open years from 2014 through 2016.
As of December 31, 2016 and 2015, the Company had net operating loss carry-forwards for federal and state income tax purposes of approximately $1,521,000 and $1,827,000, respectively. Such carry-forwards may be used to reduce taxable income, if any, in future years subject to limitations of Section 382 of the Internal Revenue Code for federal income and New Hampshire tax purposes.
NOTE 9. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date the financial statements were issued and up to the time of filing with the Securities and Exchange Commission.
On April 10, 2017, Laurence H. King, CEO and Chairman, was appointed President of the Company.
F-12