**SECURITIES AND EXCHANGE COMMISSION       Washington, D.C. 20549**

**Form 10-KSB/A-2**

**[X]      Annual Report under Section 13 or 15(d) of the Securities       Exchange Act of 1934       For the fiscal year ended December 31, 2004       or       [  ]      Transitional Report under Section 13 or 15(d) of the       Securities Exchange Act of 1934**

| 000-26095              |
|------------------------|
|                        |
| Commission file number |

| **ENVIROKARE TECH INC.**                                          |
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|                                                                   |
| (Exact name of small business issuer as specified in its charter) |

| **Nevada**               |   | **88-0412549**                       |
|--------------------------|--------|--------------------------------------|
|                          |   |                                      |
| (State of incorporation) |   | (IRS Employer Identification Number) |

| **641 Lexington Avenue****, 14th Floor,******New York****, NY  10022**** |
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|                                                                               |
| (Address of principal executive office)                                       |

| **(212) 634-6333**          |
|-----------------------------|
|                             |
| (Issuer's telephone number) |

**Securities registered under Section 12(b) of the Exchange Act: NONE       Securities registered under to Section 12(g) of the Exchange Act:**

| **Common Stock (Par Value - $0.001)** |
|---------------------------------------|
|                                       |
| (Title of Class)                      |

                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 [  ]

                Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

                State issuer's revenues for its most recent fiscal year:  The issuer is a development stage company.  For the Fiscal Year ended 12-31-04, the issuer had revenues of $0.00

                The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of February 14, 2005 is $29,676,345.

(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

                Check whether the issuer has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  YES [  ]  NO [  ]

NOT APPLICABLE

APPLICABLE ONLY TO CORPORATE REGISTRANTS

                The number of shares outstanding of the issuer's Common Stock, $.001 par value, as of December 31, 2004 was 38,943,980. 

DOCUMENTS INCORPORATED BY REFERENCE

NOT APPLICABLE

Transitional Small Business Disclosure Format (check one): YES [  ]   NO [X]

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**TABLE OF CONTENTS**

| **Part I**

Item 1. Description of Business               Item 2. Description of Property               Item 3. Legal Proceedings               Item 4. Submission of Matters to a Vote of Security Holders

**Part II**

Item 5. Market for Common Equity and Related Stockholder Matters               Item 6. Plan of Operation               Item 7. Financial Statements               Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

**Part III**

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act               Item 10. Executive Compensation               Item 11. Security Ownership of Certain Beneficial Owners and Management               Item 12. Certain Relationships and Related Transactions               Item 13. Exhibits and Reports on Form 8-K |
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**CAUTIONARY INFORMATION ABOUT FORWARD-LOOKING STATEMENTS**

                This document contains forward-looking statements within the meaning of Section 27A of the Securities  Act and Section 21E of the Exchange Act. All  statements, other than  statements  of  historical  facts,  included in or  incorporated  by reference into this Form 10KSB which address activities,  events or developments which the  Company  expects,  believes or  anticipates  will or may occur in the future  are  forward-looking   statements.   The  words  "believes,"  "intends," "expects,"  "anticipates,"   "projects,"  "estimates,"  "predicts"  and  similar expressions  are also  intended  to  identify  forward-looking  statements. These forward-looking   statements  include,  among  others,   statements  concerning: expectations,   anticipations,  beliefs,  estimations,  projections,  and  other similar matters that are not historical facts, including such matters as future capital and development expenditures and expansion and growth of business operations.

                These  statements  are based on certain  assumptions  and  analyses  made by the management of Envirokare Tech Inc., ("ENVIROKARE") 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.

                Envirokare cautions the reader that these forward-looking  statements are subject to risks and  uncertainties,  including  those  associated  with:  the financial environment,  general economic,  market and business conditions,  the regulatory environment,  business  opportunities  that may be  presented  to and pursued by Envirokare,  changes in laws or regulations,  availability  to obtain  additional financing on favorable conditions, trend projections, and other factors, many of which are beyond the Company's control that could cause actual events or results to differ  materially from those  expressed or implied by the  statements.  Such risks and uncertainties include those risks and uncertainties  identified in the Description of the Business and Management's Discussion and Analysis sections of this  document and risk  factors  discussed  from time to time in the  Company's filings with the Securities and Exchange Commission.

                Significant factors that could prevent Envirokare from achieving its stated goals include: the inability of Envirokare to obtain financing for capital expenditures and acquisitions, declines or failure to develop in the market for the Company's products, development of superior products by competition, and adverse changes in the regulatory environment affecting the Company.

                The cautionary  statements  contained or referred to in this document  should be considered in connection  with any  subsequent  written or oral  forward-looking statements  that may be issued by  Envirokare  or persons  acting on its or their behalf.

                Envirokare undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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**PART I**

**Item 1. Description of Business**

**Business Development**

                Envirokare Tech, Inc., ("Envirokare" or the "Company") was incorporated under the laws of the State of Nevada on June 15, 1998.  The executive offices of the Company are located at 641 Lexington Avenue, 14th Floor, New York, NY  10022.

                On March 30, 2001, the Company, through its wholly-owned subsidiary, Envirokare Composite Corp. ("ECC"), entered into a licensing agreement with Thermoplastic Composite Designs, Inc. (("TCD") that, subject to certain limitations, allows the Company to commercially exploit TCD's proprietary  ThermoPlastic Flowforming (TPFTM) Process for itself  and on behalf of Company licensees.  In addition, Envirokare and ECC also entered into a merger agreement with TCD and its shareholders ("Shareholders"), which provided for the merger of TCD into ECC under certain terms and conditions.

                Subsequent to the end of the Company's fiscal year on March 3, 2005, the Company completed a merger of TCD, a Florida corporation into ECC, its wholly owned subsidiary resulting in the acquisition of TCD assets including real property, plant, equipment and intellectual property in exchange for cash and notes as outlined below.  These merger terms were modified from the March 30, 2001 agreement.

                The "Merger Consideration" equaled the sum of (i) fifteen million dollars ($15,000,000) (the "Fixed Merger Consideration") and (ii) the aggregate amounts payable in accordance with Section (h): (the "Contingent Merger Consideration").

                (a) At the Closing, ECC shall pay the Shareholders $2,500,000.

                (b) The balance of the Merger Consideration shall be paid to the TCD Shareholders in eight (8) annual installments following the Closing with the first such payment due on or prior to January 31, 2006 and the last such payment due on or prior to January 31, 2013 (and such payments shall be deemed to be distributed to the Shareholders of TCD in complete liquidation), with each annual payment to be equal to 2.5% of the "Consolidated EBIDTA" of LRM Industries, LLC ("LRM")  for each calendar year, commencing with the calendar year ending December 31, 2005, up to a maximum aggregate of $12,500,000 for all payments under this subsection (b).  LRM is the Company's Joint Venture Company with NOVA Chemicals, Inc.

                (c) "Consolidated EBIDTA" for the purposes of this paragraph 2.01 means: with respect to any fiscal period, LRM's and its subsidiaries' consolidated net earnings, if any, as determined before deduction for interest expense, taxes, depreciation and amortization for such period, as determined in accordance with generally accepted accounting principles as in effect from time to time in the United States, consistently applied ("GAAP") .

                (d) In the event that 2.5% of the Consolidated EBIDTA of LRM during the first four years after the Closing Date (ending on December 31, 2008) is less than an aggregate of $2,000,000, ECC shall pay to the Shareholders any amount by which $2,000,000 exceeds 2.5% of the aggregate Consolidated EBIDTA of LRM during this period within 31 days after the end of the fourth year.

                (e) In the event that 2.5% of the Consolidated EBIDTA of LRM during the years five six and seven after the Closing Date (ending on December 31, 2011) total less than an aggregate of $3,000,000, ECC shall pay to the Shareholders any amount by which $3,000,000 exceeds 2.5% of the aggregate Consolidated EBIDTA of LRM during the period, within 31 days after the end of the seventh year.

                (f) At the end of the eighth year (ending December 31, 2012), in the event that the TCD Shareholders have not been paid $15,000,000 by virtue of the payments set forth in Section 2.01 (a), (b), (d) and (e), ECC shall pay on or prior to January 31, 2013, any amount by which $15,000,000 exceeds all monies paid to the Shareholders to date under Section 2.01(a), (b), (d) and (e) so that the total payments made aggregate $15,000,000. In the event that a cash payment is due the Shareholders pursuant to this paragraph, any TCD Shareholder may elect to receive this payment in four equal annual payments beginning at the end of the eighth year set out above. Unpaid but due balances will carry interest equal to LIBOR plus one percent but not to the extent a Shareholder elects a deferral under the provisions of the prior sentence.

                (g) The assurance of any such payments to be made pursuant to this Section is provided only by ECC and guaranteed by LRM and Parent (Envirokare) as set forth below. The Parties acknowledge that no such assurance is being provided by NOVA or any of NOVA's affiliates or subsidiaries other than ECC, LRM and Parent.

                (h) Ongoing Payments. As additional Merger Consideration (the "Contingent Merger Consideration"), beginning January 1, 2013, the Shareholders shall be entitled to receive from ECC payments annually equal to their pro rata share of 1% of the Net Income of LRM payable to the extent of and at the time of distribution of such Net Income to ECC or 90 days after the end of each year, whichever is sooner; provided, however, that such obligation will cease if a majority of the equity in, or assets of, LRM are sold to an unaffiliated third-party of LRM, whether by merger, consolidation, exchange of interest or otherwise, excluding, however, any disposition by lease, license or any other similar transaction; further provided, that in connection with any such transaction, if such transaction is a sale of assets or equity by LRM, ECC will make a payment to the TCD Shareholders equal to 1% of the net proceeds of such transaction, or if such transaction takes the form of a sale by the Members of interests in LRM, ECC will make a payment to the TCD Shareholders equal to 1% of the aggregate net proceeds realized by all Members of LRM in such sale. In addition, in the event the ECC or any of its Affiliates (as defined below in 2.04) at any time sells any part of its interests in LRM in a transaction other than those described above, then ECC shall pay to the TCD Shareholders an amount equal to 1% of the gross proceeds of any such sale. "Net Income" means, with respect to any fiscal period, the consolidated net income of LRM and its subsidiaries for such period, as determined in accordance with GAAP.

                (i) Evidence of Obligation to Pay Guaranty; Security. ECC's obligation to pay the balance of the Fixed Merger Consideration is evidenced by a promissory note in favor of the Shareholders (the "Promissory Note"). The obligations of ECC to pay the Fixed Merger Consideration are secured by a lien and first interests in and to all of the assets acquired by LRM from ECC (the "TCD Assets") pursuant to that certain asset purchase agreement, such security interest evidenced by a security agreement executed and delivered by LRM in favor of the Shareholders.

                The obligations of ECC to pay the Fixed Merger Consideration and the Contingent Merger Consideration are guaranteed by LRM and the Company, to be evidenced by guaranties to be executed and delivered by the Company and LRM.

                As part of the transaction described above, ECC sold to LRM under an Asset Purchase Agreement, equipment and other personal property located in Mims, Florida and Intellectual Property acquired in the Merger transaction described in this paragraph. Other than real estate owned and leased to LRM these assets were substantially all of the assets of ECC sold to LRM as part of the transaction in which it acquired a 50% interest in the LRM, the joint venture company.

                On March the 3, 2005, the Company through it wholly owned subsidiary Envirokare Composite Corp. ("ECC") executed a Limited Liability Company Agreement with NOVA Chemicals, Inc.("NOVA) creating a Joint Venture Company, LRM Industries, LLC ("LRM") a Delaware limited liability company for the purpose of commercializing the Company's Thermoplastic Flowforming technology including but not limited to the manufacture, marketing, sales and/or licensing of the technology.

                LRM is owned one half each by ECC and NOVA and is capitalized as follows:

                1.1 Contribution of Envirokare. ECC shall make no Contributions to the Company, initially, and need not make any additional Contributions unless, in its sole discretion, it decides to do so, subject to approval. ECC is selling certain assets to the Company pursuant to the Asset Purchase Agreement and ECC shall be paid the amounts specified below as consideration for such transfer.

                1.2 Contributions of NOVA. NOVA has made and shall make Contributions to the Company as follows:

                On the date of this Agreement, NOVA will contribute five million dollars ($5,000,000.00) to the Company (the "NOVA Investment").

                                (a) In addition to the NOVA Investment, NOVA will also contribute one million dollars ($1,000,000.00) in services to the Company, pursuant to the NOVA Service Agreement, an exhibit to the Limited Liability Company Agreement.

                                (b) In no event will NOVA be required to make any additional Contributions to the Company, unless, in its sole discretion, it decides to make such additional contributions, subject to approvals as required of LLC.

                                (c) The Members by unanimous consent may also approve from time to time the payment by the Members, in proportion to their respective proportionate interests or otherwise, of further Contributions for any purpose deemed appropriate by the Members.

                1.3 Return of Capital. Except as provided in the Limited Liability Company Agreement, no Member shall have the right to demand or receive the return of any Contributions to the Company.

                1.4 No Interest on Contributions. Except as otherwise expressly provided herein, no Member shall receive any interest on its Contributions to the Company.

                1.5 Liability Limited to Contributions. The liability of each Member shall be limited to its Contributions. Except as provided in the Limited Liability Company Agreement and in the NOVA Service Agreement, neither of the Members shall have any further personal liability to make any Contributions to the Company or with respect to any liability or obligation of the Company.

                1.6 Advances Not Contributions. If either Member advances funds to the Company, other than as a contribution to capital pursuant to this Article, the amount of such advance shall not be deemed a Contribution. The amount of any such advance shall be a debt due from the Company to such Member and shall be repaid upon demand to such Member with interest at a rate agreed to by the Board of Managers and the Member making such advance.

                1.7 Capital Accounts. An individual capital account (the "Capital Account") shall be maintained by the Company for each Member as provided in the Tax Annex.

                1.8 No Deficit Restoration. No Member shall have any obligation to restore a deficit balance in its Capital Account.

                In addition to and as part of the Limited Liability Company Agreement ECC entered into a lease agreement providing for the lease of the plant property in Mims, Florida to LRM for a period of two years with an option to renew for an additional two years. Lease payments payable to ECC equal $84,000 per year for the first two years and $91,200 per year for the two year renewal period. In addition the property is subject to a cellular tower lease providing for additional payments to ECC as successor to TCD of $12,000 per year.

                In November 1999, the Company engaged TCD to design and supply a system to manufacture a pallet (the "Pallet", or sometimes referred to herein as the "E Pallet") and other contemplated materials handling products and to assist in making Pallet design modifications to meet product specifications provided by the Company.  The Company subsequently acquired licensing rights to the TPFTM Process in 2001

                On December 21, 2000, the Company, Electroship Acquisition Corp., a New York corporation and a wholly-owned subsidiary of Envirokare ("EAC"), and Electroship (N.Y.) Inc., a New York corporation ("Electroship") consummated the merger of Electroship with and into EAC with EAC continuing as the surviving corporation (the "Merger").  The consideration received by Electroship Partners, the former shareholder of Electroship, in the Merger consisted of 2,500,000 shares of the common stock, par value $.001 per share of Envirokare.  Electroship Partners has since dissolved and distributed its assets, including such shares, among its former partners.  Electroship was engaged in the business of developing wireless tracking technology for the shipping industry.

                As of the end of the Fiscal Year, the Company was in the development stage and had not yet generated material operating revenues. 

**Business of the Issuer**

                Envirokare's business is the exploitation of the proprietary Thermoplastic Flowforming TPFTM technology through manufacturing, marketing and sales of very large (10's to 100's of pounds) long-fiber-reinforced, thermoplastic products fabricated under its exclusive TPFTM technology license.  The end-use products of this process are currently fabricated using other materials (wood, metal, concrete or reinforced thermoset resins - fiber-glass). They often require costly fabrication or assembly operations. In other cases, the products do not exist today and have become feasible only because of the revolutionary TPFTM process capabilities. Envirokare intends to replace or enhance the existing products with more cost-effective, durable and lighter-weight materials which can be converted at low cost into highly functional and lower cost products.

                The second area of focus for the company is the licensing of the proprietary TPFTM process technology to manufacturers, converters or in strategic alliances when the products to be made or markets to be served are best addressed by such a licensee. Licensing to manufacturers or converters will include up-front license fees plus royalty payments. Fees and royalties will vary with the scope of the license and any exclusivity provisions afforded the licensee. License fees will also vary with the scope of the license granted. The Technology: The TPFTM process is a unique, patented and economically attractive process for producing very large (10-200lbs and greater 10 square feet) or very high volumes of medium sized parts from thermoplastic polymers blended with long (.5" to 3") reinforcing fibers such as glass, carbon, Kevlar and others. The products produced by this process are unique in that they contain long fiber strands, which impart high modulus and strength typical of high-performance reinforced plastics. These TPFTM products also possess the unique feature of having uniform mechanical properties in three dimensions. The TPFTM process can produce complex shapes with multiple functionality (features) molded in low-cost, low-pressure (less than 100 psi) molds (i.e. aluminum or ceramic).

                The heart of the technology involves a simple but elegant delivery system, which distributes the molten polymer and fiber mixture in a near-net-shape of the final molded article. As a result, the final molding step requires minimal movement of the molten reinforced polymer and requires exceptionally low pressure to complete the consolidation and surface finishing of the part. The benefits of this near-net-shape lay down of the molten polymer are low fiber breakage and random fiber orientation (anisotropic), providing maximum uniform strength in the final part. Lower capital costs in terms of the press tonnage required and low mold costs are additional benefits of TPFTM. The lower mold costs make possible the manufacture of low volume part runs resulting from the lower amortization costs of the mold. This translates into enhanced performance and lower cost for the products and higher value for the end-user.  The TPFTM process is robust in terms of the volumes and the variety of resins, fibers, fillers, pigments, stabilizers and coupling agents, which can be efficiently processed.  Resin throughputs for the process are variably designed based on application and range into the 1000s of pounds per hour.  Insert molding of reinforcing members, fasteners or attachments is also exceptionally simple in the TPFTM process. Consumer quality aesthetic finishes can be produced using the unique TPFTM process technology.

                The process readily uses recycled thermoplastic materials, in part or in whole, to generate the lowest possible materials cost in producing high performance products at the lowest possible cost. The TPFTM process enables resin manufacturers and product manufacturers to cost-effectively address market applications for large parts that have, here-to-for been difficult if not impossible to serve with long-fiber-reinforced thermoplastic materials.

                The finished products are generally recyclable after they have completed their useful life.

                Subsequent to the end of the Company's fiscal year the Company closed certain transactions set out in section (a) above so that its TPFTM business will be conducted through its interest in LRM Industries, LLC, a 50-50 joint venture with NOVA Chemicals, Inc.

                *TPF*TM *Defined Applications:*  Identified markets for the TPFTM process and long-glass-fiber reinforced thermoplastic resins include aerospace, communications, construction, housing, marine, material handling, medical, electrical, communications,  military and transportation. Identified and developing applications include, fieldable housing, door skins, piping, utility boxes, beams, marine decking, power pole cross-arms, pallets, medical backboards, radomes and flooring panels among others. Some applications have already been commercialized by TCD including fieldable shelters and stretchers. Still other applications have had TPFTM products tested and qualified such as the E-pallet and the automotive pallet. Numerous other applications are in the conceptual and design stages and appear highly attractive in terms of volume, pricing and feasibility.

                The company has current requests and inquiries to supply quantities of several different pallet products and beams. The combined requests for pallet products, in the first year, from materials handling industry participants, exceeds 7 million pounds of production. This volume alone would consume the start-up capacity of the initial Envirokare production line in the first full year of operation. These applications are forecasted to grow to more than 18 million pounds of demand in the second year of operation.  In addition, there are several application development activities that could generate additional volume demand in the second and third year of operation totaling more than 50 million pounds.  There is no assurance that contracts for this production will develop or if  it does develop that the Company will have sufficient resources to generate this production.

                Management believes that the recyclability of thermoplastic parts produced by TPFTM will become a significant factor in market attractiveness, especially in Europe where recycling is already mandated and promotes the recyclability of Envirokare products back into the same or other products, as a financial as well as an environmental advantage.

                TCD is currently manufacturing products for military and aerospace applications. Revenues are approximately $2 million per year. The average per pound selling price of its current products is in excess of $2.00 per pound using polypropylene and glass compositions.  This represents gross margins in excess of 50% based on material and conversion costs.

                In the more competitive materials handling market, Envirokare has been working closely with a leader in the materials handling industry to develop a plastic pallet application which in the worst case represents an average selling price of $1.05 - $1.14 per pound based a polypropylene and long glass fiber at a production cost of approximately $0.78 per pound.  The anticipated demand for pallet applications is estimated to exceed 5 million pounds per year based on current market usage.  This represents an opportunity for gross margins between 26-32% in one of the most competitive industries examined to date.  This sets a range of average selling prices for products produced by the TPFTM process between $1.05 and $2.00+ per pound.

                Additionally, Azdel (a GE Plastics & PPG joint venture) sells over 75 million pounds per year of Azdel; a polypropylene/glass mat which is oven heated and high-pressure compression molded. The material cost for the mat alone is in excess of $1.00 per pound before conversion. This translates to a market end-user average selling price, after conversion, of between $1.30 and $1.50 per pound.  Clearly this represents and opportunity for conversion to TPFTM where material costs are projected at $0.55 and processing costs at less than $0.30.

                These are estimates made by the management of the company and there is no assurance that the Company will be able to penetrate these markets to the degree which it estimates nor is there assurance that product can be manufactured and sold at the prices referred to above.  The only production to date has been limited production by the Company's Licensor, Thermoplastic Composite Designs, Inc.

**Products; Product Development**

                *The Pallet*

                The Company anticipates that one of its first products to be commercialized will be the E Pallet, made through the TPF Process (as discussed above).  The E Pallet is comprised of long-fiber reinforced recycled material and is 100% recyclable.

                Market comparisons and testing indicate that the E Pallet compares favorably with available plastic pallets both on composition and design criteria.  The Pallet is manufactured from plastic, which presents a preferable alternative to pallets made from wood and from non-wood materials such as metal and wood derivatives.  Plastic is becoming an increasing preferred pallet manufacturing material because it is more durable than wood.  Key advantages of the Company's E Pallet include superior strength and durability, environmental benefits (no lumber required, 100% recyclable, no fungicides/bacterial spraying required, no land fill dumping, and less energy to manufacture), increased safety (no splintering of wood or hazardous nails/bolts), ease of use (four way entry), longer life cycle, and lower cost per pallet-round-trip.  The Pallet is also designed to resist damage caused from use and to handle large loads when evenly loaded.

                Since inception, the Company has been actively engaged in the development of the Pallet.  The Company entered the pallet manufacturing business in December 1998, with the acquisition of assets including equipment, early-stage rubber mold technology and patent rights potentially applicable to the development of rubber mold technology for creating a pallet made of recycled materials.  The Company substantially improved on this purchased technology and developed, after more than two years of research and working with TCD, a molded Pallet composed of thermoplastic composite.  The Company believes that the acquired early-stage rubber mold technology is of marginal commercial value.  The Company is focusing its efforts on further developing the Pallet and it believes that the finished Pallet will meet the requirements of many end users.

                The Company has been involved in extensive testing and development of the Pallet.  The Company's development focus has been to ensure that the Pallet meets or exceeds current market standards and that the Pallet will be superior in performance and will be cost-effective to produce and sell.  In particular, the Company's development efforts have focused on the safety, structural integrity, reliability, and cost-effectiveness of the Pallet, involving in-depth analysis of compound variables and production methods. 

                In 1999, the Company and TCD entered into a product/technology development contract. TCD undertook to assist the Company in optimizing earlier versions of the Pallet design.  The contract required TCD to deliver a pallet that would meet design specifications including specified size and weight requirements and a customized composition matrix.  The contract also provided that TCD would supply an engineered mold for the Company's first production facility.  The Company's payments to TCD under this contract for the development of a first generation Pallet mold totaled $50,800 in 1999 and $83,000 in 2000.

                Commencing in May 2000, additional Pallet testing and evaluation was conducted by the Pallet and Container Research Laboratory of Virginia Polytechnic Institute and State University, located in Blacksburg, Virginia.  This laboratory is recognized for its work in the area of testing and analysis of products designed for use in the materials handling industry.  Based on the initial test results, the Company and its product design contractor, TCD, made design adjustments to the Pallet.  Further Pallet testing and evaluation through 2001 resulted in further design adjustments.  As a result of the design adjustments and modifications, the first generation mold was deemed to be of no commercial value.  The Company built a second generation mold during 2001, at a cost of $43,000, incorporating design modifications based on technical information derived from tests of the previous mold.  Pallets produced from this mold were tested and evaluated at the Pallet and Container Research Laboratory during the second quarter of 2002.  The study of the second mold evaluated the strength, stiffness and durability of the Pallet as a general purpose pallet with a 2,800 pound weight capacity set as the standard.

                The study findings included the following: 

                · The Pallet could safely support a 2,800 pound, uniformly distributed load in warehouse storage racks as well as on conveyors;

                · The Pallet was found to be highly resistant to damage caused by rough handling, based on the drop test protocol carried out, which involved dropping empty Pallets from various heights after the Pallets were chilled to a temperature of -13 degrees Fahrenheit; and

                · Because the Pallet's performance was found to significantly exceed requirements for a 2,800-pound uniform load standard, the study recommended that the Company consider reducing the Pallet's glass loading (i.e. the percentage of glass fiber used in the composite), or refining its design, to further reduce Pallet weight and cost.

                Based on the results of testing conducted on the second generation E Pallet, the Company commenced redesign of certain features of the Pallet during the second quarter of 2002.  The Company engaged Metis Design to optimize this Pallet redesign.  Through this engagement, design element modifications were developed and proposed for certain aspects of the Pallet design.  The Pallet design modifications, as proposed by Metis Design, allow for a significant weight reduction of the Pallet thus making the Pallet more cost-effective and easier to handle, while structural features attributed to prior versions of the Pallet are not anticipated to be materially affected.  The Company is presently negotiating product development agreements with prospective partners pursuant to which the next generation Pallet prototypes will be produced. Following appropriate testing approvals and due diligence on Pallet prototypes, the Company will pursue a comprehensive production agreement for Pallet manufacture.

                *The Beam*

                The Company has also developed a mold for a first generation Beam anticipated to have commercial application in the housing construction and marine industries.  A prototype Beam mold was built for the Company by TCD during the first half of 2002, at a cost of $16,000.  The Beam is designed to carry specific weights, or loads, and to act as an interconnector for structural components within various designed systems such as docks and modular structures.  The Company continues to market to manufacturers that have expressed interest in incorporating the Beam into their various modular structure designs.

**               ***Schaefer Systems International, Inc. Components*

                The Company has been engaged in developing proprietary parts for SSI (see "Product Development and Purchase Agreement with Schaefer Systems International, Inc.", above).  Prototype molds were delivered during April 2003, and  testing of prototype parts have been successfully conducted.  

**Raw Materials**

                In the event that the Company develops its own manufacturing facilities, these facilities will utilize significant amounts of plastic, differing in grade and price per pound.  There are numerous recycled plastic suppliers in the United States including, K.W. Plastics and Image Products.  The TPFTM manufacturing process is flexible and allows for the inclusion of plastics of varying grades.  As such, access to raw material required for production of various products that utilize the TPFTM process in their manufacture is not anticipated to be more than a short term supply issue.  The Company's current cost projections and analysis indicate that there could be reasonable profit margins realized from sales of TPFTM designed and produced products manufactured using virgin or recycled plastics. 

                The Company is subject to risks in connection with proposed raw material procurement and use.  These risks may have a material effect on the Company's business.  Some of the possible risks relating to raw materials are (i) government legislation prohibiting the use of recycled plastic in all products; (ii) market resistance to recycled materials; and (iii) introduction of new, more sophisticated, methods of plastic recycling equipment rendering the Company's methodologies obsolete.

**Competition**

                The Company currently faces significant competition with respect products it develops, including the Pallet, and this competition may increase as new competitors enter the market.   The Company's growth strategy is substantially dependent upon its ability to develop, market and distribute its products successfully, and on the ability of its product development customers to successfully market and distribute TPFTM products developed on their behalf.  Other companies, including those with substantially greater financial, marketing and sales resources, compete with the Company, and, in contrast with the Company, have the advantage of marketing existing established products with existing production and distribution facilities.  There can be no assurance that the Company will be able to successfully develop and market and distribute products on acceptable terms, or at all.  Failure of the Company to develop and market its products successfully could have a material adverse effect on the Company's business, financial condition or results of operations.

                The Company's growth strategy may be substantially dependent upon its ability to expand into new markets.  Accordingly, the ability of the Company to compete may be dependent upon the ability of the Company to continually enhance and improve its products and/or manufacturing methods in order to develop and manufacture products for such market expansion.  There can be no assurance that competitors will not develop technologies or products that render the products of the Company obsolete or less marketable.  The Company may be required to adapt to technological changes in the industry and develop products to satisfy evolving industry or customer requirements, any of which could require the expenditure of significant funds and resources, and the Company might not have a source or commitment for any such funds and resources.  The Company might be required to refine and improve its products or products developed on behalf of clients.  Continued refinement and improvement efforts remain subject to the risks inherent in product development, including unanticipated technical or other problems, which could result in material delays in product commercialization or significantly increased costs.

**Compliance with Environmental Laws; Other Regulatory Compliance**

                The Company has not been materially impacted by existing government environmental regulation, as the Company is not presently manufacturing any products.  The Company recognizes, however, that products it develops and its business, in general, may be significantly impacted by constantly changing environmental laws and regulations, which may require that certain environmental standards be met and liabilities be imposed for the failure to comply with such standards.  The Company believes that it is presently in compliance with all applicable federal, state and local environmental laws, rules and regulations.  In the future, the Company may be subject to various laws and regulations governing the use, manufacture, storage, handling, and disposal of toxic materials and certain waste products.  While the Company anticipates taking all necessary steps to comply with all applicable environmental laws and regulations, there can be no assurance that the Company's operations or activities, or historical operations by others at the Company's locations, will not result in civil or criminal enforcement actions or private actions that could have a materially adverse effect on the Company.  The Company's costs in complying with environmental laws to date have been negligible. 

                As in the case with manufacturing companies in general, if damage to persons or the environment has been caused by the Company's use of hazardous solvents or by other hazardous substances located at the Company's facilities, the Company may be fined or held liable for the cost of remedying such damage.  The levying of such fines or the imposition of liability may have a material adverse effect on the Company's business, financial condition and results of operations.  Further, changes in environmental regulations in the future may require the Company to make significant capital expenditures to change methods of disposal of hazardous solvents or otherwise alter aspects of its operations.  The Company cannot estimate the potential costs of complying with local, state, and federal environmental laws.

                The Company's management believes that no toxic or hazardous materials will be by-products of the manufacturing processes of products that utilize the TPFTM process in their manufacture.  The TPFTM Process does not emit any VOCs, which are present in many thermoset composites.  Accordingly, management of the Company believes that the Company will not have material expenditures related to the cost of compliance with applicable environmental laws, rules or regulations.  However, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated.  In the event of such an accident, the Company could be held liable for any damages that result and any such liability could exceed the financial resources of the Company.

                In the event any domestic or foreign regulatory agency requires approval and testing of the products developed by the Company prior to their commercial exploitation, the Company cannot provide any assurance that testing procedures will be successfully completed or, if completed, such tests will demonstrate that the products meet the required guidelines.  There can also be no assurance that any required governmental approvals will be obtained.  Accordingly, there can be no assurance that the Company will be able to market developed products in the United States or in any foreign country.  Any failure by the Company or its collaborators or licensees to obtain any required regulatory approvals or licenses would adversely affect the ability of the Company to market its products and would have a significant adverse affect on the Company's revenues.

**Employees**

                The Company currently has two employees.  The Company's current policy is to utilize consultants for marketing, accounting and engineering services on an as-needed basis and these consultants accommodate the Company's current needs in handling all aspects of its operations.  The Company currently retains three consultants in the areas of marketing and administration.  As a result of the ECC/TCD Merger and the ECC/NOVA Chemicals, Inc. joint venture, two of these three consultants have become consultants of LRM.   In addition, 2 TCD employees and one consultant have become employed by LRM.  Contracts are entered into as required with respect to consultants who provide engineering and technical support for Company products in development.

**Patents**

                The Company has sought patent protection for its TPFTM technology through several USPTO and foreign patent filings.  The Company currently has two issued U.S. patents and two additional notices of allowance from the USPTO covering this technology.  Subsequent patent applications concerning this technology are pending and have not yet been acted upon.

                The Company has been assigned the rights to an invention for a Composite Pallet design.  Composite Pallet components include recycled plastics.  A patent application was filed on March 15, 2000 with the USPTO.  The Company was assigned the patent rights to the invention and this application (and any related rights) during the second quarter of 2000.  The application was abandoned during February 2002; the USPTO asserted patentability was barred by prior art pallet designs.  The Company is evaluating its patent filing options, which include refiling a new, more comprehensive patent application that would include both product design and product manufacturing and processing specifics and more clearly distinguish prior art.

                The Company also acquired rights in an invention and related provisional patent application entitled Apparatus and Method for Facilitating Shipping and Commerce, in connection with the merger with Electroship that was completed December 21 , 2000.  This application expired.  The Company refiled this application provisionally during October 2002 and is presently evaluating options to develop aspects of electronic technology as it relates to shipping and commerce applications, as contemplated by the provisional filing.

                The Company's success will depend in part on its ability to obtain patent protection for its products, both in the United States and abroad.  There can be no assurance that any particular patent will be granted or that patents issued to the Company will provide the protection contemplated.  Patents can be challenged, invalidated or circumvented.  It is also possible that competitors will develop similar products simultaneously.  The Company cannot be certain that it is the first to make the inventions to be covered by the patent applications it intends to file.  Litigation, interference proceedings or other governmental proceedings that the Company may become involved in with respect to its proprietary technologies or the proprietary technology of others could result in substantial cost to the Company and the Company may not have the required resources to pursue such litigation or proceedings or to protect its patent rights. An adverse outcome in litigation with respect to the validity of any of the Company's patents could subject it to significant liabilities to third parties, require disputed rights to be licensed from third parties or require the Company to cease using a product or technology.  The Company may not be able to license any such patent rights on acceptable terms, successfully challenge third party patent rights or meet its obligations under those licenses that it does enter into.

                The Company also relies upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive.  Third parties may independently develop such know-how or otherwise obtain access to the Company's technology to the Company's disadvantage.

**Item 2.    Description of Property**

                The Company leases corporate office space located at 5850 T. G. Lee Blvd., Suite 535, Orlando, FL  32822.  The leased  premises consist of 1600  square feet and are insured under public liability insurance.  The Company entered into a 36-month lease whose term began September 16, 2002, at an initial monthly rental of $2,595.  The Company's total lease payments for its Orlando office space for the fiscal year ended December 31, 2002 was $9,755.  The Company's total lease payments for the fiscal years ending December 31, 2003 and 2004 and for the nine and one-half month period ending September 15, 2005 will be $31,557, $32,819 and $22,455, respectively.

                During the first quarter of 2001, the Company leased additional office space at 2255 Glades Road, Suite 112E, Boca Raton, FL 33431.  The Company anticipated relocating its executive offices to the Boca Raton, FL office during 2001.  Company plans changed during 2001 resulting in the Company currently seeking a subleasee to assume the lease and office space at the Boca Raton location.  The Company's total lease payments for its Boca Raton office space for the fiscal year ended December 31, 2001 and 2002 were $33,375 and $33,534, respectively.  The Company's total lease payments for the fiscal year ending December 31, 2003 will be $34,876.  This lease expires on January 31, 2006.

**Item 3.    Legal Proceedings**

               The Company is a named defendant in an action filed by Mr. Real Morel in May 2000 in the Supreme Court of British Columbia, Canada. In this action, Mr. Morel alleges non-payment by the Company of amounts due pursuant to the aforementioned demand promissory notes.  After consultation with British Columbia legal counsel and a review of the circumstances surrounding the issuance of the notes, the Company has resolved to dispute this liability.  Management of the Company believes that the outcome will not have a material adverse effect on the financial position of the Company.  Although no further action has been taken with respect to this dispute, the Company intends to proceed to seek a dismissal of this matter through the Supreme Court of British Columbia, and pursue this matter during the first quarter of 2006.  Company management believes that it will prevail in this matter and that the outcome of the action will not have a material adverse affect on the Company's operations. Since the creation of the promissory notes as previously described, the Company has accrued interest on the notes.  As of December 31, 2004, the accrued interest balance on these promissory notes is $37,835, which amount is recorded in the Company's Balance Sheet under the accrued interest account.

               The Company has been made a defendant along with others, including Steve Pappas, a Director of the Company, in a proceeding filed in the Superior Court of Cumberland County, Maine by former employees of Sports Quest of New England LLC, for back wages and penalties which could total more than $300,000.  The Company has denied all liability, ownership or other involvement with Sport Quest LLC.  The Company has entered into a settlement agreement with the Plaintiffs in the case.   The settlement was fully executed during the quarter ended September 30, 2005, in the amount of $20,000, and the Company has no further legal exposure with respect to Sports Quest of New England LLC.

**Item 4.    Submission of Matters to a Vote of Security Holders**

                There were no matters submitted to a vote of shareholders by the Company during the Fiscal Year

----

**PART II**

**Item 5.    Market for Common Equity and Related Stockholder Matters**

              The approximate number of holders of record as at December 31, 2004 were 134, with issued and outstanding shares recorded as 38,943,980.           

            The Company's common shares trade from time to time, under the symbol ENVK, on the OTC Bulletin Board Electronic Quotation System maintained by the National Association of Securities Dealers, Inc.

| Quarter Ending:    |   | Closing |
|--------------------|--------|---------|
|               |   | High    |   | Low |
|               |   |         |   |  |
| March 31, 2003     |   | $0.25   |   | $0.16 |
| June 30, 2003      |   | $0.31   |   | $0.18 |
| September 30, 2003 |   | $0.30   |   | $0.20 |
| December 31, 2003  |   | $0.29   |   | $0.21 |
| March 31, 2004     |   | $0.29   |   | $0.21 |
| June 30, 2004      |   | $0.28   |   | $0.15 |
| September 30, 2004 |   | $0.25   |   | $0.09 |
| December 31, 2004  |   | $1.03   |   | $0.24 |

                These bid prices were obtained from OTCBB and do not necessarily reflect actual transactions, retail mark-ups, mark-downs or commissions.   The transactions include inter-dealer transactions.

                There have been no cash dividends declared on the Company's common stock in the last two fiscal years.  Dividends are declared at the sole discretion of the Company's Board of Directors.

**Securities Authorized for Issuance under Equity Compensation Plans**                                                                

| **Equity Compensation******Plans Approved by****Shareholders**** |   | **Shares Issuable******Upon Exercise of****Outstanding Options**** |   | **Weighted******Average****Exercise Price**** |   | **Available******for Issuance**** |
|------------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-----------------------------------------------|--------|-----------------------------------|
|                                                                  |   |                                                                    |   |                                               |   |                                   |
| 1999 Equity Incentive Plan                                       |   | 600,000                                                            |   | $0.43                                         |   | 3,300,000                         |
|                                                             |   |                                                               |   |                                          |   |                              |
| Total                                                            |   | 600,000                                                            |   | $0.43                                         |   | 3,300,000                         |

**Unregistered Sales of Securities during the Last Three Fiscal Years**

                There have been no sales of unregistered securities within the last three fiscal years which would be required to be disclosed pursuant to Item 701 of Regulation S-B and not previously reported, except for the following:

                During the year ended December 31, 2004, the Company received $780,750 from the private sale of 3,903,750 shares of its common stock at an average of $0.23 per share.   In addition, these purchasers received warrants to purchase additional shares of common stock, exercisable at $0.40 per share for a period of two to three years.   The warrants were valued at $238,560. Additionally, 647,836 shares were issued in consideration for $34,000 in accounts payable debt and $100,000 in related party debt.  The fair market value of the shares issued for accounts payable and related party debt were $0.23 and $0.18 respectively.  Also during 2004, the Company issued 1,400,000 shares of its common stock upon the exercise of warrants by NOVA Chemicals, Inc. with the payment of the exercise price of $280,000.

                During the first quarter of 2003, the Company completed a financing that raised $198,000 from current warrant holders in connection with an offering to amend outstanding warrants issued in equity private placement transactions during 2001 and 2002.  The offering was undertaken to improve the Company's cash position on terms approximating those that would have been required for a new equity private placement.  The warrants, prior to the amended warrant offering, had an exercise period of two years from the date of issue and exercise prices of $0.50 per share (as to warrants issued on June 15, 2001; exercisable for 1,000,000 shares of common stock), $0.25 per share (as to warrants issued between March 1 and June 27, 2002; exercisable for 3,000,000 shares of common stock) and $0.50 per share (as to warrants issued between August 14 and November 26, 2002; exercisable for 2,000,000 shares of common stock).  The warrant holders were offered the opportunity to amend their currently outstanding warrants to lower the exercise price to $0.15 per share, so long as such warrants were exercised on or before February 14, 2003.  Holders elected to amend warrants with concurrent exercise as to an aggregate 1,320,000 shares of common stock, generating $198,000 in cash for the Company.  Those holders who elected to amend their warrants were granted additional warrants, exercisable over a two year period, for the same number of shares of Company common stock that were issued on exercise of the amended warrants. Exercise prices for the new warrants were $0.75 per share (as to warrants issued in a 2001 equity private placement; exercisable for 720,000 shares of common stock) and $0.65 per share (as to warrants issued in a 2002 equity private placement; exercisable for 600,000 shares of common stock).

                During the fourth quarter of 2002, the Company completed a private placement of units priced at $0.15 per unit, each unit consisting of one share of the Company's common stock and a warrant to purchase one share of the Company's common stock, at an exercise price of $0.50 per share, exercisable for two years from the date of subscription.  The Company has raised $300,000 in this offering.  The securities are being offered and sold in reliance upon the exemption from registration provided by Rule 506 promulgated under Section 4(2) of the Securities Act of 1933 (the "Securities Act").

                During the first quarter of 2002, the Company granted options to purchase 100,000 shares of its common stock to consultants for services provided to the Company.  For accounting purposes, the common stock was valued at $12,173.

**Item 6.    Management's Discussion and Analysis or Plan of Operation:**

                Envirokare Tech, Inc. (the "Company", or "Envirokare") is engaged in the application design, development and manufacturing, utilizing proprietary thermoplastic composite technologies including Thermo Plastic Flowforming  for TPFTM.  Subsequent to end of the fiscal year and upon the closing of the  Merger Agreement between the Company's subsidiary Envirokare Composite Corp. and  Thermoplastic Composite Designs, Inc.  and of the Joint Venture Agreement  (LRM Industries, LLC) between Envirokare Composite Corp. and  NOVA Chemicals, Inc.  described below, the Company's TPFTM business is being conducted through it position in LRM Industries, LLC.

*                Technology:*  The TPFTM Process is a proprietary process developed by Thermo Composite Designs, Inc., that enables the manufacture of large structural parts using long-fiber reinforced thermoplastic resins. The Process utilizes recycled or virgin resins and is designed to reuse its own production scrap, thereby eliminating production waste by-products. TPFTM Process patents are pending.

                Historically, advanced composite materials were utilized almost exclusively by the military and aerospace industries where such usage was normally restricted to the manufacture of small parts due to the inordinate cost of hand application, i.e., the process of manually applying layers of composite materials to a mold or shape. Management believes that the TPFTM Process provides a cost-effective alternative for the in-line production of larger, long-fiber reinforced plastic parts at very low processing costs. The Process has key advantages over many manufacturing processes currently in use such as compression molding, injection molding and rotational molding,  including significantly,  cost savings realized in the reduced labor required to create larger parts made using the TPTMF Process. The cost required to assemble multiple smaller components to generate a complete larger part, which often occurs in current production environments, is higher than with the TPFTM Process.   Material costs will typically also be lower because of its use of recycled material, reuse of its own production scrap and in-line compounding, which is the process of mixing raw material components as an actual part of the production process.

                The TPFTM Process has  application in a broad range of industries including: agriculture, automotive, material handling, transportation, marine, medical, waste management and aerospace.   TPFTM composite products are an advantaged replacement for many wood, aluminum, steel, other metal alloys, concrete, other plastic and fiberglass products, by providing products that have corrosion resistance, are lighter and cost less to manufacture. As a thermoplastic process, TPFTM has an additional advantage in that it does not emit volatile organic contaminants  (VOCs).

                The Company entered into agreements acquiring this technology through License and Merger Agreements with Thermo Composite Designs, Inc. dated March 30, 2001, the Company, through its wholly-owned subsidiary, Envirokare Composite Corp. ("ECC"), entered into a licensing agreement with TCD that allows the Company to commercially exploit the TPFTM Process.

                Subsequent to the end of the Company's fiscal year on March 3, 2005, the Company completed a merger of Thermoplastic Composite Designs, Inc. ("TCD"), a Florida corporation into ECC, its wholly owned subsidiary resulting in the acquisition of TCD assets including real property, plant, equipment and Intellectual property in exchange for cash and notes as outlined below.  These merger terms were modified from the March 30, 2001 agreement.

                The "Merger Consideration" equaled the sum of (i) fifteen million dollars ($15,000,000) (the "Fixed Merger Consideration") and (ii) the aggregate amounts payable in accordance with Section (h): (the "Contingent Merger Consideration").

                (a) At the Closing, ECC shall pay the Shareholders $2,500,000.

                (b) The balance of the Merger Consideration shall be paid to the TCD Shareholders in eight (8) annual installments following the Closing with the first such payment due on or prior to January 31, 2006 and the last such payment due on or prior to January 31, 2013 (and such payments shall be deemed to be distributed to the Shareholders of TCD in complete liquidation), with each annual payment to be equal to 2.5% of the "Consolidated EBIDTA" of LRM Industries, LLC ("LRM")  for each calendar year, commencing with the calendar year ending December 31, 2005, up to a maximum aggregate of $12,500,000 for all payments under this subsection (b).  LRM is the Company's Joint Venture Company with NOVA Chemicals, Inc.

                (c) "Consolidated EBIDTA" for the purposes of this paragraph 2.01 means: with respect to any fiscal period, LRM's and its subsidiaries' consolidated net earnings, if any, as determined before deduction for interest expense, taxes, depreciation and amortization for such period, as determined in accordance with generally accepted accounting principles as in effect from time to time in the United States, consistently applied ("GAAP") .

                (d) In the event that 2.5% of the Consolidated EBIDTA of LRM during the first four years after the Closing Date (ending on December 31, 2008) is less than an aggregate of $2,000,000, ECC shall pay to the Shareholders any amount by which $2,000,000 exceeds 2.5% of the aggregate Consolidated EBIDTA of LRM during this period within 31 days after the end of the fourth year.

                (e) In the event that 2.5% of the Consolidated EBIDTA of LRM during the years five six and seven after the Closing Date (ending on December 31, 2011) total less than an aggregate of $3,000,000, ECC shall pay to the Shareholders any amount by which $3,000,000 exceeds 2.5% of the aggregate Consolidated EBIDTA of LRM during the period, within 31 days after the end of the seventh year.

                (f) At the end of the eighth year (ending December 31, 2012), in the event that the TCD Shareholders have not been paid $15,000,000 by virtue of the payments set forth in Section 2.01 (a), (b), (d) and (e), ECC shall pay on or prior to January 31, 2013, any amount by which $15,000,000 exceeds all monies paid to the Shareholders to date under Section 2.01(a), (b), (d) and

                (e) so that the total payments made aggregate $15,000,000. In the event that a cash payment is due the Shareholders pursuant to this paragraph, any TCD Shareholder may elect to receive this payment in four equal annual payments beginning at the end of the eighth year set out above. Unpaid but due balances will carry interest equal to LIBOR plus one percent but not to the extent a Shareholder elects a deferral under the provisions of the prior sentence.

                (g) The assurance of any such payments to be made pursuant to this Section is provided only by ECC and guaranteed by LRM and Parent (Envirokare) as set forth below. The Parties acknowledge that no such assurance is being provided by NOVA or any of NOVA's affiliates or subsidiaries other than ECC, LRM and Parent.

                (h) Ongoing Payments. As additional Merger Consideration (the "Contingent Merger Consideration"), beginning January 1, 2013, the Shareholders shall be entitled to receive from ECC payments annually equal to their pro rata share of 1% of the Net Income of LRM payable to the extent of and at the time of distribution of such Net Income to ECC or 90 days after the end of each year, whichever is sooner; provided, however, that such obligation will cease if a majority of the equity in, or assets of, LRM are sold to an unaffiliated third-party of LRM, whether by merger, consolidation, exchange of interest or otherwise, excluding, however, any disposition by lease, license or any other similar transaction; further provided, that in connection with any such transaction, if such transaction is a sale of assets or equity by LRM, ECC will make a payment to the TCD Shareholders equal to 1% of the net proceeds of such transaction, or if such transaction takes the form of a sale by the Members of interests in LRM, ECC will make a payment to the TCD Shareholders equal to 1% of the aggregate net proceeds realized by all Members of LRM in such sale. In addition, in the event the ECC or any of its Affiliates (as defined below in 2.04) at any time sells any part of its interests in LRM in a transaction other than those described above, then ECC shall pay to the TCD Shareholders an amount equal to 1% of the gross proceeds of any such sale. "Net Income" means, with respect to any fiscal period, the consolidated net income of LRM and its subsidiaries for such period, as determined in accordance with GAAP.

                (i) Evidence of Obligation to Pay Guaranty; Security. ECC's obligation to pay the balance of the Fixed Merger Consideration is evidenced by a promissory note in favor of the Shareholders (the "Promissory Note"). The obligations of ECC to pay the Fixed Merger Consideration are secured by a lien and first interests in and to all of the assets acquired by LRM from ECC (the "TCD Assets") pursuant to that certain asset purchase agreement, such security interest evidenced by a security agreement executed and delivered by LRM in favor of the Shareholders.

                The obligations of ECC to pay the Fixed Merger Consideration and the Contingent Merger Consideration are guaranteed by LRM and the Company, to be evidenced by guaranties to be executed and delivered by the Company and LRM.

                As part of the transaction described above, ECC sold to LRM under an Asset Purchase Agreement, equipment and other personal property located in Mims, Florida and Intellectual Property acquired in the Merger transaction described in this paragraph. Other than real estate owned and leased to LRM these assets were substantially all of the assets of ECC sold to LRM as part of the transaction in which it acquired a 50% interest in the LRM, the joint venture company.

                On March the 3, 2005, the Company through it wholly owned subsidiary Envirokare Composite Corp. ("ECC") executed a Limited Liability Company Agreement with NOVA Chemicals, Inc.("NOVA) creating a Joint Venture Company, LRM Industries, LLC ("LRM") a Delaware limited liability company for the purpose of commercializing the Company's Thermoplastic Flowforming technology including but not limited to the manufacture, marketing, sales and/or licensing of the technology.

                LRM is owned one half each by ECC and NOVA and is capitalized as follows:

                1.1 Contribution of Envirokare. ECC shall make no Contributions to the Company, initially, and need not make any additional Contributions unless, in its sole discretion, it decides to do so, subject to approval. ECC is selling certain assets to the Company pursuant to the Asset Purchase Agreement and ECC shall be paid the amounts specified below as consideration for such transfer.

                1.2 Contributions of NOVA. NOVA has made and shall make Contributions to the Company as follows:

                On the date of this Agreement, NOVA will contribute five million dollars ($5,000,000.00) to the Company (the "NOVA Investment").

                                (a) In addition to the NOVA Investment, NOVA will also contribute one million dollars ($1,000,000.00) in services to the Company, pursuant to the NOVA Service Agreement, an exhibit to the Limited Liability Company Agreement.

                                (b) In no event will NOVA be required to make any additional Contributions to the Company, unless, in its sole discretion, it decides to make such additional contributions, subject to approvals as required of LLC.

                                (c) The Members by unanimous consent may also approve from time to time the payment by the Members, in proportion to their respective proportionate interests or otherwise, of further Contributions for any purpose deemed appropriate by the Members.

                1.3 Return of Capital. Except as provided in the Limited Liability Company Agreement, no Member shall have the right to demand or receive the return of any Contributions to the Company.

                1.4 No Interest on Contributions. Except as otherwise expressly provided herein, no Member shall receive any interest on its Contributions to the Company.

                1.5 Liability Limited to Contributions. The liability of each Member shall be limited to its Contributions. Except as provided in the Limited Liability Company Agreement and in the NOVA Service Agreement, neither of the Members shall have any further personal liability to make any Contributions to the Company or with respect to any liability or obligation of the Company.

                1.6 Advances Not Contributions. If either Member advances funds to the Company, other than as a contribution to capital pursuant to this Article, the amount of such advance shall not be deemed a Contribution. The amount of any such advance shall be a debt due from the Company to such Member and shall be repaid upon demand to such Member with interest at a rate agreed to by the Board of Managers and the Member making such advance.

                1.7 Capital Accounts. An individual capital account (the "Capital Account") shall be maintained by the Company for each Member as provided in the Tax Annex.

                1.8 No Deficit Restoration. No Member shall have any obligation to restore a deficit balance in its Capital Account.

                In addition to and as part of the Limited Liability Company Agreement ECC entered into a lease agreement providing for the lease of the plant property in Mims, Florida to LRM for a period of two years with an option to renew for an additional two years. Lease payments payable to ECC equal $84,000 per year for the first two years and $91,200 per year for the two year renewal period. In addition the property is subject to a cellular tower lease providing for additional payments to ECC as successor to TCD of $12,000 per year.

**Product Research, Development and Testing:**

*                General Product Technology Testing:* During the second quarter of 2002, the Company engaged the Metis Design Corporation, Inc. ("Metis Design"), formerly Horizon Defense and Aerospace Solutions, Inc., to conduct a review of the TPFTM technology. Metis Design, based in Cambridge, Massachusetts, is an advanced technology firm specializing in composites consulting, damage monitoring and structural concept design and analysis.

                In September 2002, Metis Design presented the Company's management with final findings regarding the TPFTM technology. In its report, Metis Design noted that, as the utilization of advanced thermoplastic composite materials has extended into market segments such as military and aerospace, commercial manufacturers are increasingly demanding lower cost, quicker and more flexible reinforced thermoplastic processing techniques. Metis Design found that the TPFTM Process has significant potential to address this need. In addition, Metis Design reported that the TPFTM Process could represent a solution to a long-standing need in the long-fiber reinforced composite manufacturing process the TPFTM Process enables manufacturers to mass-produce at high rates and labor efficiencies compared to many current production techniques, while retaining accuracy and the ability to utilize low molding pressures. The report also noted that the TPFTM Process provides economic advantages over other thermoplastic composite molding methods through reduced labor, material, tooling and machine costs.

                Metis conducted narrow coupon tensile tests on composite material samples produced from the TPFTM Process. These tests are the standard procedure for determining certain mechanical properties of a material. The test results demonstrated that the material properties exhibited in the product, as formed by the TPFTM Process, are comparable to those from products formed through traditional processes, and are similar to those properties published by commercially available materials.

*               **Product Development - E Pallet:*  Since inception, the Company has been engaged in the development of a pallet (the "Pallet" or "E Pallet").  In December 1998, the Company acquired equipment, early-stage rubber mold technology and patent rights to the development of rubber mold technology for creating a pallet made of recycled materials.  In 1999, the Company and TCD entered into a product/technology contract for the continued development of the Pallet.  TCD undertook to assist the Company in optimizing earlier versions of the Pallet design.  The contract required TCD to deliver a pallet that would meet design specifications including specified size and weight requirements and a customized composition matrix.  The contract also provided that TCD would supply an engineered mold for the Company's first production facility.  The Company's payments for the development of a first generation Pallet mold totaled $50,800 in 1999 (i.e. first generation mold) and $83,000 in 2000 (i.e. second generation mold).  The Company wrote down the value of the first generation mold during 2001 and has recorded a write-down for the second generation mold during the period ended September 30, 2005.  The Company currently carries no values for these two molds on its books.  The commercialization of the E Pallet and the Company developed Beam has been slowed, as the Company's attention has been drawn to its establishment of a joint venture with a large chemical company and the execution of a merger agreement with its newly merger entity, TCD, Inc.  In connection with the E Pallet, any pallet products made and sold will require a more advanced model version, which will require an updated mold system. The Company will continue to work on fine tuning design features that apply to the E Pallet, with manufacture of a third generation mold anticipated.  The Company believes that the Beam molds have five years of life remaining and began depreciation of the Beam mold during the period ended September 30, 2005.  Work on commercializing both the E Pallet and Beam will be restarted as  the Company raises additional capital for installation of an additional product line(s) which will provide for expanded product development and manufacturing capabilities of product produced for sale.

                Commencing in May 2000, additional Pallet testing and evaluation was conducted by the Pallet and Container Research Laboratory of Virginia Polytechnic Institute and State University, located in Blacksburg, Virginia.  This laboratory is recognized for its work in the area of testing and analysis of products designed for use in the materials handling industry. Based on the initial test results, the Company and its product design contractor, TCD, made design adjustments to the Pallet. Further Pallet testing and evaluation through 2001 resulted in further design adjustments. As a result of the design adjustments and modifications, the first generation mold was deemed to be of no commercial value. The Company built a second generation mold during 2001, at a cost of $43,000, incorporating design modifications based on technical information derived from tests of the previous mold. Pallets produced from this mold were tested and evaluated at the Pallet and Container Research Laboratory during the second quarter of 2002. The study of the second mold evaluated the strength, stiffness and durability of the Pallet as a general purpose pallet with a 2,800 pound weight capacity set as the standard.

                The study findings included the following:

                a. The Pallet could safely support a 2,800 pound, uniformly distributed load in warehouse storage racks as well as on conveyors;

                b. The Pallet was found to be highly resistant to damage caused by rough handling, based on the drop test protocol carried out, which involved dropping empty Pallets from various heights after the Pallets were chilled to a temperature of -13 degrees Fahrenheit; and

                c. Because the Pallet's performance was found to significantly exceed requirements for a 2,800-pound uniform load standard, the study recommended that the Company consider reducing the Pallet's glass loading (i.e. the percentage of glass fiber used in the composite), or refining its design, to further reduce Pallet weight and cost.

                Based on the results of testing conducted on the second generation E Pallet, during the second quarter of 2002, the Company engaged Metis Design to optimize this Pallet redesign.  The Pallet design modifications, as proposed by Metis Design, allow for a significant weight reduction of the Pallet making the Pallet more cost-effective and easier to handle, while structural features are not anticipated to be materially affected. The Company is presently negotiating product development agreements with prospective partners to produce the next generation Pallet prototypes which the Company believes will lead to a comprehensive production agreement for Pallet manufacture.

                Once redesign work is completed by Metis Design, the Company will conduct further tests on the Pallet, with testing designed to provide information as to the longevity of the Pallet, as compared to pallets made from non-TPF processes, including pallets made from other materials. Information provided from this additional engineering analysis will further the development of marketing strategies for the Company. There can be no assurance that this additional engineering will not delay the Company's plans for the commercialization of the Pallet. The Company is presently negotiating with prospective clients who may complete development of the Pallet in cooperation with the Company and make it available for commercialization. The Company anticipates that the reengineered E Pallet will be available for sale sometime in early 2004.

                In addition to the second-generation Pallet discussed above, the Company is also evaluating pallets and other material handling devices incorporating wireless tracking capabilities, based on technology acquired in the Company's 2000 acquisition of Electroship (N.Y.) Inc.   Design work commenced on initial wireless Pallet prototypes during the first quarter of 2001.  The Company believes that initial Pallet designs that incorporate wireless tracking capabilities will prove marketable in multiple markets. Company plans for additional development of this wireless tracking technology are scheduled for late 2003.

*                Product Development - Beam*: The Company has initiated a product development for a structural beam having  application in the housing and marine industries.   A prototype mold was built by TCD for the company in 2002 at a cost of $16,000.  The Beam is designed to carry specific weights or loads and to act as an interconnector for structural components for modular structures and docks.  The Company expects to begin commercialization of the Beam during 2004.

*                Product Development - Schaefer Systems International, Inc.:* On March 28, 2003, the Company entered into a product development and purchase agreement with SSI replacing an earlier agreement dated August 6, 2002.  Under the terms of this agreement and pursuant to performance and dimensional criteria provided by SSI,  the Company will design and develop and produce a quantity of prototypes for field testing, field trials and related approvals. Payments to the Company for successful completion of product development will aggregate $185,500, with an additional $300,000 to be payable if SSI elects to develop an additional, similar product with different dimensions. The initial term of the contract is 26 weeks. A payment of $61,215 was made by SSI to the Company (at the time of the August 6, 2002 agreement) to facilitate the development of the proprietary product.  The balance of the development fee is payable: 47% upon completion of first parts off of the product and verification of performance and 20% within 30 days after Development Completion. SSI continued its right to order additional development for an additional payment of $300,000.

**Product Marketing and Market Exploitation:**

                The Company's plan for the marketing and exploitation of its technologies over the next twelve (12) months includes:

                a. direct development and manufacturing of products for materials handling (pallets), construction (beams), housing, marine and other commercial and consumer applications.

                b. 3rd party licensing  of TPFTM Technology for specific applications and products as well as for specific geographic areas.

                c. product development for 3rd parties applications and licensed manufacturing.

                The Company expects to continue to market its technology both directly through officers and directors and through third party marketing agreements. 

                The Company expects additional results from a broad range of continuing marketing and sales activities.   As well, the Company expects to close its merger with TCD during the next quarter and with it acquire additional marketing and sales opportunities.

**Expected Purchase of Plant and Significant Equipment and Expected Significant Changes in Number of Employees:**

                The closing of the Merger Agreement with TCD combining that company with its wholly owned subsidiary ECC brought into the Company an existing TPFTM production facility including equipment and leased premises. The size of this facility is limited and is used primarily for product development and small production runs. During the fiscal year, the Company  continued preliminary development work toward the end of creating a full scale production facility for manufacture of Company and third party products, however, no specific site has yet been contracted for. The Company's  business will be conducted through its position in LRM Industries, LLC.  (see above).  

                The Company expects that LRM Industries, LLC will add personnel required for the operation of the existing TCD facility and for expansion of the business.  Two of the  Company's consultants have become consultants of the Joint Venture.   The Company does not expect to add employees to its own staff during the year.

            Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities.  Our critical accounting policies are described in Note 2 of the Company's Consolidated Financial Statements.  This summary of critical accounting policies of the Company is presented to assist in the understanding of the Company's financial statements.  All accounting estimates are at risk to change because of internal and external factors, and when adjustments are adopted.  Most of our estimates are based upon historically known data and have remained stable over time.  Certain estimates are subject to market place conditions, and are discussed below.

            On a continuing basis, management evaluates estimates, including those related to the impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of the assets and liabilities that are not readily apparent from other sources.  Actual results may differ materially from these estimates under different assumptions or conditions.

            We believe the following critical estimates and policies, among others, involve the more significant judgments and estimates used in the preparation of our financial statements.

            Patents: The Company's accounting policy in connection with the "Apparatus and Method to Facilitate Shipping and Commerce" patent filing reflects the Company's assessment that during the period of time between which the Company acquired the provisional patent to present, valuation of the patent life and associated amortization was indeterminable, until such time as a patent would be issued by the US Patent and Trade Office. Amortization of the patent is calculated over the life of the cash flows derived from the patent, and the Company has realized no cash flows attributable to the pending patent intangible asset. Our normal expectation for a patent pending determination would be in the range of two to three years and the patent pending stage went beyond Company expectations. At present, the patent filing remains pending, and the Company relies on the guidance of legal counsel, with respect to the prospects for and status of the patent pending filing for the "Apparatus and Method for Facilitating Shipping and Commerce". The Company believes that there was a separation issue of the technology value and the inability to identify an amortizing period, which the Company since resolved. Accordingly, the Company commenced amortization of the patent during Fiscal year 2001, and the Company will amend its financial statements for the years ended December 31, 2001 and 2002 to provide for amortization of the Electroship patent. The Company also recorded amortization for the Electroship patent for the quarters ended March 31, June 30 and September 30, 2003, which amortization increased the charge to interest for the respective periods. Subsequent to amending the financial statements for the years ended December 31, 2001 and 2002, and the quarters ended March 31, June 30 and September 30, 2003, the Company has determined that the value of the Electroship patent is impaired. The Company believes that the impairment is primarily a result of the Company's inability to dedicate appropriate resources to develop and market the potential opportunities contained within the patent filing and also the inability of the Company to make a reasonable determination of cash flows and associated patent life, for the pending patent. The Company has recognized a reduction in the remaining intangible asset value of $1,613,603. The effect of this impairment created a charge to earnings during the fiscal year ended December 31, 2003 and is also recognized as an increase in the Company's accumulated deficit in subsequent reporting periods. The Company believes that this treatment and accounting of the patent is in accordance with SFAS No. 142 which deals with acquired intangibles. We continue to conduct impairment valuations on other material corporate assets, to determine that there exists no other reason(s) which would require an adjustment to the valuations carried on the Company's books.

               Warrants & Options:  The Company has and presently makes valuation determinations of warrants and options utilizing the Black-Scholes model.  These valuations are reviewed and revalued, where necessary, every audit year. Adjustments, if required, are made to the Company's records to reflect valuation changes that are made.

**Financial Position:**

                  The Company consolidates its activities for all financial reporting purposes.  For the period ended December 31, 2004, the Company had a cash balance of $432,155 compared to a cash balance of $65,809 for the period ended December 31, 2003.  The increase in cash was primarily due to subscription funds raised by the Company during 2004.  For the same respective periods, the Company reported $330,933 in accounts payable compared to $327,285 during the 2003 reporting period.  The Company received a deposit, in the amount of $280,000, from a prospective joint venture partner during the year ended December 31, 2004.  This deposit was subsequently realized by the Company as earned income upon completion of a joint venture agreement with the prospective partner during the first quarter of 2005.  The Company accrued compensation for the period ended December 31, 2005, in an amount of $182,325 compared to $47,085 for the same period during 2003.  The increase was primarily due to amounts accruing for the entire year of 2004 in comparison to accrual for a partial year during 2003.  The current portion of the notes payable to shareholders was $100,197 and $86,320 for the years ended December 31, 2004 and 2003, respectively.  The increase in these amounts are due to amounts that are coming due in a subsequent year that are calculated for an entire year in comparison to the 2003 reported figures which apply to notes that were rewritten for a portion of the year.  For the years ended December 31, 2004 and 2003, the Company has accrued interest payable on Promissory notes due, in the amounts of $37,835 and $31,578, respectively, which amounts are currently a subject of legal dispute (see Part I, Item 3, above).  Results from Operations:  There were no revenues to report for the year ended December 31, 2004, compared to deposit revenues reported by the Company during the year ended December 31, 2003, in the amount of $65,150.  Total expenses reported by the Company for the years ended December 31, 2004 and 2003 were $2,060,430 and $4,651,320, respectively. The comparative 44% decrease in expenses was primarily due to expensing of option grants and recognizing a loss on impairment to an intangible asset, each recorded during 2003 with the effect of increasing the expense accounts.

**Liquidity:**

                The Company has budgeted expenditures of $600,000 for the 12 months ending September 30, 2006.  During the fiscal year ended December 31, 2004, the Company raised $780,750 from the private placement of the Company's Common shares and had cash remaining at the end of the year of $432,155.  The Company expects to raise any additional funds required  through private placement of additional shares.   Although management believes these sources to be sufficient, there is no assurance that the Company will be successful in raising additional capital to fund operations.

**Item 7.    Financial Statements**

                Our audited financial statements, as amended and restated for the fiscal years ended December 31, 2004 and December 31, 2003, follow Item 14, beginning at page F-1.

**Item 8.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

                None.

**Item 8A. Controls and Procedures**

                The Company's management has evaluated, with the participation of its principal executive and principal financial officer, John Verbicky, the effectiveness of the issuer's disclosure controls and procedures, as of December 31, 2004 and determined those disclosure controls and procedures to be effective. Subsequent to the initial assessment concerning the Company's controls and procedures, the Company determined that a restatement of its financial reports was necessary.                                       a. Management of the issuer has evaluated, with the participation of its principal executive and principal financial officers, the effectiveness, as of December 31, 2004, of the issuer's internal control over financial reporting. The framework on which management's evaluation of the Company's internal control over financial reporting is based must be a suitable, recognized control framework that is established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment.                                       b. The management of the Company has evaluated, with the participation of the it's principal executive and principal financial officers, any change in the issuer's internal control over financial reporting, that occurred during the fiscal year ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting. The Company made no material changes to its internal controls and procedures for the fiscal year ended December 31, 2004.                                       c. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. These include, without limitation, disclosure controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.                                       d. Management of the issuer has evaluated, with the participation of its principal executive and principal financial officers, the effectiveness, as of December 31, 2004, of the issuer's internal control over financial reporting. The evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.                       Notwithstanding the Company's current disclosures concerning the TCD license, the Company has proposed to amend its filings for the Fiscal years ended December 31, 2004, 2003, 2002 and 2001, to reflect the amortization of the TCD license, with amortization of the license commencing on the date of acquisition and with the license being fully amortized by the end of the original license agreement date, September 30, 2003.  The Company also proposes to amend the financial statement note disclosure concerning the TCD license to reflect the amortization of that license.                       Notwithstanding the Company's prior statements and disclosures relating to the accounting treatment of the Company's acquired patent application entitled "Apparatus and Method for Facilitating Shipping and Commerce", the Company has proposed to amortize the value of the patent during the Fiscal years ended December 31, 2001, 2002 and the nine month period ending September 30, 2003 and to write down the remaining full value of the intangible asset during the fiscal year ended December 31, 2003 and restate its financial statements to reflect the effect of the write down against retained earnings for the periods ended December 31, 2003 and December 31, 2004, and to amend its note disclosures for the same periods to disclose the accounting treatment applied for the intangible asset.                       Notwithstanding the Company's prior statements and disclosures relating to the accounting treatment for 5,125,000 warrants issued in December 2003, as a part of a restructured debt offering by the Company, it has elected to amend its treatment of these warrants which results in an additional charge to earnings of $457,150 for the fiscal year ended December 31, 2003, the Company has proposed to file an amended Form 10-KSB, for the Fiscal years ended December 31, 2004 and 2003, to reflect this restatement, in conjunction with the amendment that flows from accounting treatment of the original issuance of debt.                       Notwithstanding the Company's prior statements and disclosures relating to the accounting treatment for 900,000 warrants issued in connection with a private debt offering undertaken by the Company in December 2003, the Company has elected to amend its treatment of these warrants which results in a charge to earnings of $110,813 for the fiscal year ended December 31, 2003 and which charge was recorded as a finance charge in the Company's Statement of Operations for the year then ended.                         Notwithstanding the Company's prior disclosures as contained in its prior financial reports related to a warrant exercise that took place during late 2003, the Company has elected to take a charge to earnings in the period ended December 31, 2003, the period in which the warrants were modified.                       Management believes that its treatment of assets subject to the restatements set out above was proper at the time of the reports referred to. Subsequent to the initial filing of the annual report on Form 10-KSB, Management performed another analysis and determined that changes were required to certain accounting records. As a result of these changes, Management believes its disclosure controls and procedures were not effective. During the year ended 12-31-04 there were no changes to internal controls. Management continues to evaluate its controls and procedures in light of the changes in its business and operations.                       Anticipated Changes to internal controls over financial reporting and to disclosure controls and procedures of the Company: The CFO and CEO have taken certain immediate steps which include (i) notification of the events causing the restatement to the Board of Directors at the Board's meeting of September 20, 2005, (ii) presentation of recommendations to the Board to strengthen the Company's controls and procedures, with such recommendations adopted by the board at the stated meeting, (iii) appointing new disclosure committee members, audit committee members and disseminating disclosure controls and procedures guidelines to all Board members, as well as a briefing on the duties and requirements of all Board members. Management continues to evaluate its controls and procedures in light of the changes in its business and operations.

----

**PART III**

**Item 9.     Directors, Executive Officers, Promoters and Control Persons;**

**Compliance with Section 16(a) of the Exchange Act**

                Directors and Executive Officers

                The following list identifies the members of the Company's Board of Directors as of December 31, 2002, as well as the Company's current executive officers and sets forth certain information regarding each person.  Each director serves in office until the next annual meeting of shareholders; the Company's President and Executive Vice President serve as such at the pleasure of the Board of Directors. 

| Name                    | Age    | Position                                     |
|-------------------------|--------|----------------------------------------------|
|                         |        |                                              |
| Dr. Nick Pappas         | 75     | Executive Chairman of the Board of Directors |
| Steve Pappas            | 61     | Director                                     |
| Jonathan Edelstein*     | 61     | Director                                     |
| Dr. Gary Cook**         | 60     | Director                                     |
| Dr. Walter Gerasimowicz | 52     | Director                                     |
| Dr. John Verbicky***    | 52     | Director, President and CEO                  |
| George Kazantzis        | 54     | Director, Chief Operating Officer            |
|                    |   |                                         |   |

                *Mr. Edelstein suffered an untimely death after the end of the Company's fiscal year.                       **Dr. Cook resigned as a Director of the Company in March of 2005 to become the independent director of LRM Industries, LLC, the Company's Joint Venture with NOVA Chemicals, Inc.                       ***Dr. Verbicky resigned as President and CEO of the Company in March of 2005 to become CEO of LRM, Industries, LLC.  He remains a Director of the Company

                **Dr. Nick Pappas**, Director and as Executive Chairman of the Board of Directors. Dr. Pappas retired from the DuPont Company after 34 1/2 years of service where he was Executive Vice President and Member of DuPont's  Executive Committee.  His background at DuPont was in coatings and polymers technology.  After DuPont, Dr. Pappas served as President and Chief Operating Officer of Rollins Environmental Services and later Vice Chairman of the Board from July 1991 to March 1996.

                He is a member of the Advisory Board for the Yale Institute for Biospheric studies,  Vice Chairman of the Board of Biotraces, Inc. and a member of the Boards of Directors of Yenkin Majestic Paint Co. and Integrated Environmental Technologies.  He is a former Director of Nova Chemicals,  Witco Chemicals and Chemfab Corporation where he was Chairman of the Board.

                Dr. Pappas has a Bachelor of Science degree in chemistry from Yale University and a Ph.D. degree in organic chemistry from Brown University.

                **Steve Pappas**, Director.  On March 26, 2001, Steve Pappas was elected as President and a director of the Company and served in that capacity until his resignation on March 5, 2003.  Mr. Pappas has over thirty years of entrepreneurial, corporate executive, real estate management and development experience, most recently, from July 1988 to the present, as Managing General Partner of SPL Associates ("SPL") based in Brooklyn, New York.  SPL has acquired and manages numerous large-scale residential and commercial real estate holdings in New York.  Mr. Pappas was the founder and President of Servco Leasing Corporation from 1970 to 1980, during which time it became the largest third party leasing company for Xerox equipment.

**                Jonathan Edelstein** became a Director of the Company in 2001 and was appointed Treasurer by the Board of Directors as of December 14, 2002.  Mr. Edelstein has over twenty-five years experience in investment banking, finance and mergers and acquisitions, in both senior management and board-level positions.  His responsibilities have included the acquisition, restructuring and management of small and mid-sized companies, major takeovers, dispositions, real estate development and financing.  Mr. Edelstein is a Senior Advisor to the WestSphere Group, a private equity and fund manager focused in Latin America.  Prior to his association with WestSphere, he was in partnership with Merrill Lynch Inter-Funding Inc. , from 1988 to 1993, where he was involved in the acquisition and merger of a number of companies to create Pacific Outlook, Inc..

**                George Kazantzis**, Director and Chief Operative Officer of the Company since March 5, 2003.  Mr. Kazantzis was appointed Executive Vice President of Envirokare on July 1, 2002 and served in that capacity until his resignation on March 5, 2003.  Mr. Kazantzis was also appointed Assistant Treasurer by the Board of Directors as of December 14, 2002.  Mr. Kazantzis joined the Company bringing over twenty-five years of executive management and consulting experience in marketing, corporate structuring, finance, mergers and acquisitions.  His marketing background includes the creation and launch of a successful license-merchandising program under the Team Gear USA® brand, in conjunction with Time Warner Sports Merchandising, World Cup USA and US Soccer Federation, from 1990 to 1994.   Subsequently in 1998, Mr. Kazantzis, in a joint venture in conjunction with Merrill Lynch Inter-Funding Inc., facilitated a complex merger and acquisition transaction involving several Southern California clothing companies and brands to create Pacific Outlook, Inc., a U.S. sportswear manufacturer.  At Pacific Outlook he was responsible for product licensing, trademarks and registrations, in addition to handling sales and marketing both domestically and internationally.  Previously, he managed several successful corporate restructurings, most recently as a managing director of SLC Leasing Co. Ltd., working with Corporate Performance Advisors Ltd., Thailand, where he oversaw the restructuring of an automotive finance company with 42 offices and 400 employees, from 1998 to 1999.  Mr. Kazantzis resigned his position as Executive Vice President of the Company and was appointed President and interim Chief Executive Officer of the Company, effective March 5, 2003.

                **Dr. Gary Cook**,  Director. Dr. Cook  joined E. I. DuPont in 1969 as a Research Chemist.  Remaining with DuPont for 23 years, he held  a number of senior management positions, including Vice President of Medical Products, Vice President and General Manager of Publishing and Printing, and Vice President-Corporate Plans.

                He joined Ethyl Corporation as Senior Vice President and President-Chemicals Group and Director in 1992.    Dr. Cook later  served as President and Chief Operating Officer of Albemarle Corporation, the former Chemicals Group spun off from Ethyl. as the Albemarle Corporation as an independently traded specialty chemical company.   He was named Chairman, President and Chief Executive Officer of Witco Corporation in 1996.  He served in that capacity until the merger of Witco and Crompton and Knowles in 1999, at which time he was named Chairman of the merged company, CKWitco.

                Dr. Cook has served on numerous industry association boards, including those of the Chemical Manufacturers Association, the Soap and Detergent Association, the Graphic Arts Technical Foundation, and the Health Industry Manufacturers Association..  He is currently a director of Trimeris Corporation, a biopharmaceutical company and Louisiana-Pacific Corporation, a building products company.  Dr. Cook is also currently serving as Executive Chairman of Integrated Environmental Technologies, LLC, a private company providing proprietary waste-to-energy and waste-to- hydrogen systems.

                Dr. Cook received his B.S. in Chemistry from the University of Virginia and his Ph.D. in Chemistry from Virginia Polytechnic Institute and University.

                **Dr. Walter V. Gerasimowicz,** Director, served as a Director of Advisory Services and Chief Investment Strategist for high net worth investors in Lehman's Private Client Services Division. As a Senior Vice-President he was responsible for portfolio allocation, construction and rebalancing both on a global and on a domestic basis, as well as for risk management and performance attribution. In his work he deals with all security classes (fixed-income and equity), as well as with index, derivative products and alternative investments such as private equity and hedge funds, which can be utilized both to diversify and implement long and/or short-term allocation decisions. Additionally, tax and monetization strategies are an integral part of his work.

                Prior to assuming his duties at Lehman Brothers, Dr. Gerasimowicz was Head of the International Portfolio Advisory Group at J.P. Morgan where he pioneered state-of-the art risk management techniques including downside risk measures and methodologies. He also specialized in global and international fixed-income strategies as it related to benchmark design, replication and out-performance for major institutions including central banks, state pension funds and large endowment funds. Additionally, he has worked closely with sovereign entities in managing debt (re) issuance on liability side of the balance sheet. Prior to joining J.P. Morgan he worked as a Senior Scientist for the U.S.D.A. and the Naval Research Laboratories (NLR) in Washington, D.C. where he specialized in multiple-quantum nuclear magnetic resonance and solid-state thermodynamic research.

                Dr. Gerasimowicz has a B.S. in Chemistry from Ursinus College, MS and PhD degree in Physical Chemistry from Villanova University and an MBA in Finance from Wharton School of the University of Pennsylvania.

                None of the persons specified above share any familial relationship.  Other than the persons specified above, there are currently no significant employees expected by the Company to make a significant contribution to the business of the Company. 

**Section 16(a) Beneficial Ownership Reporting Compliance**

                To the company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2004, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with.

**Item 10.   Executive Compensation**

**Executive Compensation**

                The Company is required to set out particulars of compensation paid for each of the last three (3) completed fiscal years, or for such shorter period since the Company's inception, to the following persons (the "Named Executive Officers"):

                (a)  All persons serving as the Company's chief executive officer during the most recently completed fiscal year;

                (b)  Each of the Company's four most highly compensated executive officers who were serving as executive officers at the end of the most recently completed fiscal year and whose total salary and bonus exceeds $100,000 per year; and

                (c) Up to two additional individuals for whom disclosure would have been provided under (b), except that the individual was not serving as an executive officer of the Company at the end of the most recently completed fiscal year.

                Steve Pappas was elected President of the Company, effective March 26, 2001, and served the Company in that capacity until March 5, 2003.  Mr. Pappas resigned from the position of President of the Company and was elected Chairman of the Board of Directors of the Company, effective March 5, 2003.  George Kazantzis resigned from the position as Executive Vice President of the Company and was elected President and interim Chief Executive Officer of the Company, effective March 5, 2003.  From September, 2003 through December 31, 2004 John Verbicky served as President and CEO of the Company and although he was not paid a salary, he was paid consulting fees and deferred compensation as set out in the following table. During that same period, George Kazantzis served as Chief Operating Officer.  No other persons fall within the above-listed categories (a), (b) or (c).

*Summary of Compensation*

                The following table (the "Summary Compensation Table") sets forth certain information regarding compensation paid to each of the Company's Named Executive Officers.

|                                  |     |                    | **Long Term Compensation** |                                        |
|---------------------------------------|----------|-------------------------|----------------------------|---------------------------------------------|
|                                  |     |                    |                            |                                        |
|                                  |     | **Annual Compensation** | **Awards**                 | **Payouts**                                 |   |
|                                  |     |                         |                            |                                             |   |
| **Name and Principal Position**       | **Year** | **Salary ($)**          | **Bonus ($)**              | **Other Annual******Compensation****($)**** | **Securities Under******Options/SARs****Granted (#)**** | **Restricted Shares******or Restricted Share****Units ($)**** | **LTIP******Payouts****($)**** | **All Other******Compensation****($)**** |
|                                       |          |                         |                            |                                             |  |  |  |  |
| Steve Pappas,               President | 2001     | 54,500                  | -                          | -                                           | - | - | - | - |
| 2002                                  | 82,000   | -                       | -                          | -                                           | - | - | - |
|                                  |     |                    |                       |                                        |   |   |   |   |
| John Verbicky,               CEO      | 2003     | 140,000                 | -                          | -                                           | 1,000,000 | - | - | - |
| 2004                                  | 175,000  | -                       | -                          | 1,000,000                                   | - | - | - |
|                                  |     |                    |                       |                                        |   |   |   |   |
| George Kazantzis,               COO   | 2003     | 110,000                 | -                          | -                                           | 600,000 | - | - | - |
| 2004                                  | 140,000  | -                       | -                          | 600,000                                     | - | - | - |

Of Salary Amounts for Verbicky and Kazantzis one half was deferred as of December 31, 2004.

*Options and Stock Appreciation Rights Granted During the Most Recently Completed Fiscal Year*

**               ** The Company did not grant options or stock appreciation rights to Named Executive Officers during the most recently completed Fiscal Year other than as set out in *Compensation of Directors and Remuneration of Senior Officers* below.

*Long-Term Incentive Plans -- Awards in Most Recently Completed Fiscal Year*

                The Company has no long-term incentive plan in place.  A "Long-Term Incentive Plan" is a plan under which awards are made based on performance over a period longer than one fiscal year.  It is different from a plan for options, stock appreciation rights, or restricted share compensation. 

*Compensation of Directors and Remuneration of Senior Officers*

*               * Dr. Nick Pappas was granted warrants to purchase the Company's common stock at a price of $0.23, 600,000 exercisable from October 1, 2003 until October 1, 2013 and 600,000 exercisable beginning October 1, 2004 until October 1, 2014.  One third of the warrants are subject to forfeiture in each of the second and third years in the event that Dr. Pappas resigns or refuses to stand for re election.

                Dr. Walter V. Gerasimowicz was granted warrants to purchase the Company's common stock at a price of $0.23, 200,000 exercisable from November 1, 2003 until November 1, 2013 and 200,000 exercisable beginning November 1, 2004 until November 1, 2014.  One third of the warrants are subject to forfeiture in each of the second and third years in the event that Dr. Gerasimowicz resigns or refuses to stand for re election.

                Dr. Gary Cook was granted warrants to purchase the Company's common stock at a price of $0.23, 200,000 exercisable from November 1, 2003 until November 1, 2013 and 200,000 exercisable beginning November 1, 2004 until November 1, 2014.  One third of the warrants are subject to forfeiture in each of the second and third years in the event that Dr. Cook resigns or refuses to stand for re election.

                Dr. John Verbicky  President, CEO and Director was granted warrants to purchase the Company's common stock at a price of $0.23, 2,000,000 exercisable from October 24, 2003 until October 24, 2013.  A portion of these warrants are subject to forfeiture under certain conditions in Dr. Verbicky 's contract.

                Mr. George Kazantzis, Chief Operating Officer and Director was granted warrants to purchase the Company's common stock at a price of $0.23, 600,000 exercisable from October 1, 2003 until October 1, 2013 and 600,000 exercisable beginning October 1, 2004 until October 1, 2014.  A portion of these warrants are subject to forfeiture under certain conditions in Mr. Kazantzis' contract.

                The Company granted as compensation to Jonathan Edelstein, a director of the Company, an option to acquire 250,000 shares of the Company's Common Stock as consideration for services provided as a director during Fiscal 2002.  For accounting purposes the Company  valued the stock option granted to Mr. Edelstein at $40,000. The Company made no other payments to any director for services provided as a director during Fiscal 2002.  During 2003 Mr. Edelstein Dr. was granted additional warrants to purchase the Company's common stock at a price of $0.23, 200,000 exercisable from November 1, 2003 until November 1, 2013 and 200,000 exercisable beginning November 1, 2004 until November 1, 2014. 

*               * The grants directors an Honorarium of $1,000 per meeting attended in person, with the Chairman receiving an Honorarium in the amount of $1,500 per meeting attended in person, in addition to the options set out above.

*               * Other than as discussed above, in respect of a payment made to Jonathan Edelstein, there has been no arrangement pursuant to which Directors were compensated by the Company in their capacity as Directors or for services rendered as consultants or experts during Fiscal 2004.

*Employment Contracts and Termination of Employment and Change-in-Control Arrangements*

*               * Dr. John Verbicky as President and CEO entered into a contract with the Company that provides for an initial base salary at the annual rate of One Hundred Forty Thousand Dollars ($140,000) for the first 12 months hereof ($70,000 of which will be accrued as deferred compensation); One Hundred Seventy five Thousand Dollars ($175,000) for the second 12 months hereof ($85,000 of which will be accrued as deferred compensation) and Two Hundred Thousand Dollars ($200,000) or industry standard, whichever is greater, for the third 12 months hereof (the "Base Salary"), which shall be payable at least as frequently as weekly and not subject to deductions and withholding taxes. The Company, on the basis of Dr. Verbicky's performance and the Company's financial success and progress, shall review this salary level at least annually. All deferred compensation and interest is due and payable to the Dr. Verbicky 36 months from the date of this agreement or sooner subject to any termination provisions herein. Deferred compensation will accrue interest at an annual rate two percentage points (2%) above the prime lending rate as published in the Wall Street Journal (compounded quarterly). The relevant deferred amount and all interest so accrued thereon shall be an unsecured general obligation of the Company.  Dr. Verbicky is entitled to expenses reimbursements and certain incentives as they are voted by the Board.

*               * Mr. George Kazantzis as COO entered into a contract with the Company that provides for an initial base salary shall be at the annual rate of One Hundred Ten Thousand Dollars ($110,000) for the first 12 months hereof ($50,000 of which will be accrued as deferred compensation); One Hundred Forty  Thousand Dollars ($140,000) for the second 12 months hereof ($60,000 of which will be accrued as deferred compensation) and One Hundred Sixty Thousand Dollars ($160,000) or industry standard, whichever is greater, for the third 12 months hereof (the "Base Salary"), which shall be payable at least as frequently as weekly and not subject to deductions and withholding taxes. The Company, on the basis of Mr. George Kazantzis' performance and the Company's financial success and progress, shall review this salary level at least annually. All deferred compensation and interest is due and payable to the contractor 36 months from the date of this agreement or sooner subject to any termination provisions herein. Deferred compensation will accrue interest at an annual rate two percentage points (2%) above the prime lending rate as published in the Wall Street Journal (compounded quarterly). The relevant deferred amount and all interest so accrued thereon shall be an unsecured general obligation of the Company, due and payable according to the terms herein.

*               * Mr. Erwin Pruefer as Director of Operations entered into a contract with the Company that provides for an initial base salary shall be at the annual rate of  Ninety Six Thousand Dollars ($96,000) for the first 12 months hereof ($36,000 of which will be accrued as deferred compensation); One Hundred Thousand Dollars ($100,000) for the second 12 months hereof ($30,000 of which will be accrued as deferred compensation) and One Hundred Twenty Thousand Dollars ($120,000)  or industry standard, whichever is greater, for the third 12 months hereof (the "Base Salary"), which shall be payable at least as frequently as weekly and not subject to deductions and withholding taxes. The Company, on the basis of Mr. Pruefer's performance and the Company's financial success and progress, shall review this salary level at least annually. All deferred compensation and interest is due and payable to the contractor 36 months from the date of this agreement or sooner subject to any termination provisions herein. Deferred compensation will accrue interest at an annual rate two percentage points (2%) above the prime lending rate as published in the Wall Street Journal (compounded quarterly). The relevant deferred amount and all interest so accrued thereon shall be an unsecured general obligation of the Company, due and payable according to the terms herein.

**Item 11.**  **Security Ownership of Certain Beneficial Owners and Management**

*               * To the knowledge of the Company's management, as of February 28, 2003, no person beneficially owned more than five percent of any class of the Company's voting securities other than as set forth below.  The following table sets forth the total amount of any class of the Company's voting securities owned by each of its executive officers, directors and director nominees and by its executive officers, directors and director nominees, as a group, as of February 28, 2003.

| Name and Address (1)                                          |   | Amount and Nature of               Beneficial Ownership(2) |   | Percentage                of Class |
|---------------------------------------------------------------|--------|------------------------------------------------------------|--------|-----------------------------------------|
|                                                               |   |                                                            |   |                                         |
| James Pappas                                                  |   |   3,300,000                                           | (3)    |                                    | 6.95% |   |
| Vanessa Houiris                                               |   |   3,300,000                                           | (3)    |                                    | 6.95% |   |
| Adrian Alexandru                                              |   |   3,930,000                                           | (4)    |                                    | 10.69% |   |
|                                                          |   |                                                       |   |                                    |   |   |
| Steve Pappas                                                  |   |   8,933,400                                           | (5)    |                                    | 23.08% |   |
| Jonathan Edelstein                                            |   |      250,000                           | (6)    |                                    | 1.37% |   |
| Leo G. Kapakos                                                |   |      170,000                           | (7)    |                                    | 1.47% |   |
| George Kazantzis                                              |   |   1,420,000                                           | (8)    |                                    | 6.29% |   |
| Nicholas Pappas                                               |   | 1,612,000                                                  | (9)    |                                    | 3.39% |   |
|                                                          |   |                                                       |   |                                    |   |
| All executive officers and directors               as a group |   | 28,573,400                                                 | (2)    |                                    |      30.8% | (2) |

*               * (1) The address for each of the persons listed is 5850 T. G. Lee Blvd., Suite 535, Orlando, FL  32822.

*               * (2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.  In computing the number of shares owned by a person and the percentage ownership of that person, shares of common stock subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of February 28, 2003, are deemed outstanding.  Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.

*               * (3) Includes a warrant to purchase 100,000 shares of Common Stock of the Company exercisable immediately and until February 10, 2005.

*               * (4) Includes warrants to purchase 1,450,000 shares of Common Stock of the Company exercisable immediately and until varying dates up to February 17, 2005. 

*               * (5)  Includes warrants to purchase 2,775,000 shares of Common Stock of the Company exercisable immediately and until varying dates up to February 13, 2005.  Includes 250,000 shares of Common Stock of the Company owned by the reporting person's wife, to which the reporting person disclaims beneficial ownership.

*               * (6)  Includes an option to purchase up to 250,000 shares of Common Stock of the Company immediately exercisable.

*               * (7) Includes 170,000 shares of Common Stock of the Company owned by the reporting person's wife, to which the reporting person disclaims beneficial ownership.

*               * (8)  Includes warrants to purchase 700,000 shares of Common Stock of the Company exercisable immediately and until varying dates up to October 10, 2004.

*               * The Company's management is not aware of any arrangements which may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B, other than those changes detailed as follows:

**Item 12. Certain Relationships and Related Transactions**

*               * On April 3, 2002, Steve Pappas invested $100,000 in a private offering of Company units at a price of $0.10 per unit.  Each unit is comprised of one share of Company Common Stock and a warrant to purchase one share of Company Common Stock at a price of $0.25 per share, with the warrant exercisable at any time up to April 2, 2004. On June 27, 2002, the same shareholder invested $50,000 in a private offering of Company units at a price of $0.10 per unit.  Each unit is comprised of one share of Company Common Stock and a warrant to purchase one share of Company Common Stock at a price of $0.25 per share, with the warrant exercisable at any time up to June 26, 2004.  During November, 2002, the same shareholder invested $60,000 in a private offering of Company units at a price of $0.15 per unit.  Each unit is comprised of one share of Company Common Stock and a warrant to purchase one share of Company Common Stock at a price of $0.50 per share, with the warrant exercisable at any time up to November, 2004.  On February 14, 2003, the same shareholder invested $82,500 by participating in an amended warrant offering by the Company to current warrant holders of equity private placement transactions conducted by the Company during 2001 and 2002.  The shareholder acquired 650,000 shares of Company common stock at a price of $0.15 per share.  The shareholder acquired new warrants, exercisable at any time up to February 13, 2005, at a price of $0.65 (as to warrants issued in this offering to purchase up to 150,000 shares) and $0.75 (as to warrants issued in this offering to purchase up to 400,000 shares).

*               * On March 3, 2002, George Kazantzis, Executive Vice President of the Company, invested $50,000 in a private offering of Company units at a price of $0.10 per unit.  Each unit is comprised of one share of Company Common Stock and a warrant to purchase one share of Company Common Stock at a price of $0.25 per share, with the warrant exercisable at any time up to March 2, 2004.  On October 10, 2002, the same shareholder invested $30,000 in a private offering of Company units at a price of $0.15 per unit.  Each unit is comprised of one share of Company Common Stock and a warrant to purchase one share of Company Common Stock at a price of $0.50 per share, with the warrant exercisable at any time up to October 9, 2004.

*               * During the year ended December 31, 2004, the Company granted 2,750,000 common stock options in consideration for directors fees. In addition, the Company granted 287,500 options to related party consultants.

** Item 13.  Exhibits and Reports on Form 8-K**

*               * (a)           Exhibits
| **Exhibit******Number**** |   | **Description of Document**                                                                                                                                                                                                                      |   |
|---------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| 3.1                       |   | Company's Articles of Incorporation, as amended October 12, 1999                                                                                                                                                                                 | (1)    |
| 3.2                       |   | Company's By-laws as amended and restated December 11, 2000                                                                                                                                                                                      | (2)    |
| 10.1                      |   | Merger Agreement by and among the Company, Electroship Acquisition Corp., Electroship (N.Y.) Inc., Electroship Partners, John Gremmo, John A. Notarianni, Leo J. Mangan, Raymond Anthony Joao and Richard Reichler, dated as of December 1, 2000 | (3)    |
| 10.2                      |   | Assignment of Patent Application from Electroship Partners to Electroship (N.Y.) Inc. and Defined Field of Use License Agreement between Electroship Partners and Electroship (N.Y.) Inc. dated as of September 20, 2000                         | (3)    |
| 10.3                      |   | License Agreement between Envirokare Composite Corp. and Thermoplastic Composite Designs, Inc., dated March 30, 2001                                                                                                                             | (2)    |
| 10.4                      |   | Merger Agreement by and among the Company, Envirokare Composite Corp., Thermoplastic Composite Designs, Inc., Dale Polk, Sr. and Dale Polk, Jr., dated March 30, 2001                                                                            | (2)    |
| 10.5                      |   | Letter Agreement between the Company and Charles H. Stein, dated May 8, 2001                                                                                                                                                                     | (4)    |
| 10.6                      |   | Agreement and General Release between the Company and Charles H. Stein, dated November 27, 2001                                                                                                                                                  | (5)    |
| 10.7                      |   | SSI Product Development and Purchase Agreement, dated August 6, 2002                                                                                                                                                                             |   |
| 10.8                      |   | New Age Shelters Letter Agreement, dated October 1, 2002                                                                                                                                                                                         |   |
| 21                        |   | Subsidiaries of the Company (incorporated herein by reference to Exhibit 21 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, filed with the Commission on April 16, 2001)                                     |   |
| 31.1                      |   | Certification -18 USC 1350 Section 302                                                                                                                                                                                                           |   |
| 31.2                      |   | Certification -18 USC 1350 Section 906                                                                                                                                                                                                           |   |

*               * (1) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, filed with the Commission on April 7, 2000, and incorporated herein by reference.

*               * (2) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2000, filed with the Commission on April 16, 2001, and incorporated herein by reference.

*               * (3) Filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on January 3, 2001, and incorporated herein by reference.

*               * (4) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB for the period ended March 31, 2001, filed with the Commission on June 15, 2001, and incorporated herein by reference.

*               * (5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001, filed with the Commission on March 28, 2002, and incorporated herein by reference.

*               * (b)  Reports on Form 8-K

*               * A report on Form 8-K regarding Item 5 was filed by the Company on June 14, 2004.

**Item 14. Principal Accountant Fees and Services**

| For                | Year Ended               12-31-03 | Year Ended               12-31-04 |
|--------------------|-----------------------------------|-----------------------------------|
|               |                                   |                                   |
| Audit Fees         | $                                 | 27,967                            | $ | 24,981 |
| Audit Related Fees | $                                 | 0                                 | $ | 0 |
| Tax Fees           | $                                 | 0                                 | $ | 0 |
| All Other Fees     | $                                 | 0                                 | $ | 0 |

*               * The Audit Committee of the Board of Directors  has concluded that fees charged to the Company by the principal accountant  in categories other than audit fees, if any are compatible with maintaining the principal accountant's independence.

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)**

TABLE OF CONTENTS
| REPORT OF INDEPENDENT REGISTERED PUBLIC                   ACCOUNTING FIRM |   | F-1    |
|------------------------------------------------------------------------------------------|--------|--------|
|                                                                                     |   |   |
| CONSOLIDATED FINANCIAL STATEMENTS                                                        |   |   |
|       Consolidated Balance Sheets                                         |   | F-2    |
|       Consolidated Statements of Operations                               |   | F-3    |
|       Consolidated Statement of Stockholders' Equity                      |   | F-4    |
|       Consolidated Statements of Cash Flows                               |   | F-6    |
|                                                                                     |   |   |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                                           |   | F-7    |
|                                                                                     |   |   |

 

----

 

The Board of Directors       Envirokare Tech, Inc.       Orlando, FL

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We have audited the accompanying consolidated balance sheets of Envirokare Tech, Inc. (a Nevada corporation and a development stage company) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended, and for the period from June 15, 1998 (inception) to December 31, 2004.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Envirokare Tech, Inc. as of December 31, 2004 and 2003, and the results of its operations, stockholders' equity and its cash flows for the years then ended, and for the period from June 15, 1998 (inception) to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company's significant operating losses raise substantial doubt about its ability to continue as a going concern.  Management's plans regarding those matters also are described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 14 to the financial statements, an error resulting in the incorrect reporting of intangible assets and related amortization and impairment as well as the number of stock options granted and the corresponding valuation thereof was discovered by management during the 2005 fiscal year.  Accordingly, the financial statements for the year ended December 31, 2004 and 2003 have been restated to correct this error. 

Williams & Webster, P.S.***Certified Public Accountants***       Spokane, Washington

March 31, 2005, except for Note 14 which is dated January 18, 2006.

F-1

----

| **ENVIROKARE TECH, INC.**               (A Development Stage Company)               CONSOLIDATED BALANCE SHEETS         |
|-------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                    |   |   |   |   |   |     |   |   |   |
|                                                                                                                    |   |   |   |   |   | **December 31, ** |   |   | **December 31, ** |
|                                                                                                                    |   |   |   |   |   | **2004 ** |   |   | **2003 ** |
|                                                                                                                    |   |   |   |   |   | **(Restated)** |   |   | **(Restated) ** |
|                                                                                                                    |   |   |   |   |   |  |   |   |  |
|  A S S E T S                                                                                                  |   |  |  |  |  |  |
|                                                                                                                    | CURRENT ASSETS |   |  |  |  |  |  |
|                                                                                                                    |   | Cash and cash equivalents |   | $ |                  432,155 |  | $ |                    65,809 |
|                                                                                                                    |   | Deposits and retainers  |   |  |                    22,466 |  |  |                    22,466 |
|                                                                                                                    |   | Employee receivable |   |  |                      1,864 |  |  |                             - |
|                                                                                                                    |   | Prepaid expenses |   |  |                             - |  |  |                      5,916 |
|                                                                                                                    |   | Inventory |   |  |                    43,216 |  |  |                    43,216 |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   | TOTAL CURRENT ASSETS |   |  |                  499,700 |  |  |                  137,407 |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    | PROPERTY AND EQUIPMENT |   |  |  |  |  |  |
|                                                                                                                    |   | Furniture and fixtures |   |  |                      7,129 |  |  |                      7,129 |
|                                                                                                                    |   | Office equipment |   |  |                    25,292 |  |  |                    18,167 |
|                                                                                                                    |   | Molds |   |  |                  170,912 |  |  |                  170,912 |
|                                                                                                                    |   |   Less accumulated depreciation |   |  |                  (12,538) |  |  |                    (8,050) |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   | TOTAL PROPERTY AND EQUIPMENT |  |                  190,795 |  |  |                  188,158 |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    | OTHER ASSETS |   |  |  |  |  |  |
|                                                                                                                    |   | License agreement |   |  |                  525,000 |  |  |                  525,000 |
|                                                                                                                    |   |   Less amortization |   |  |                (525,000) |  |  |                (525,000) |
|                                                                                                                    |   | Patent acquisition costs and technology rights (net) |  |                    33,939 |  |  |                    33,939 |
|                                                                                                                    |   |   |  |  |  |  |  |
|                                                                                                                    |   |   | TOTAL OTHER ASSETS |   |  |                    33,939 |  |  |                    33,939 |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    |   | TOTAL ASSETS |   | $ |                  724,435 |  |  $  |                  359,504 |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
| L I A B I L I T I E S   &   S T O C K H O L D E R S '   E Q U I T Y    |  |  |  |  |  |
|                                                                                                                    | CURRENT LIABILITIES |   |  |  |  |  |  |
|                                                                                                                    |   | Accounts payable |   | $ |                  330,933 |  |  $  |                  327,285 |
|                                                                                                                    |   | Deposits from customers |   |  |                    61,215 |  |  |                    61,215 |
|                                                                                                                    |   | Deposit owed on exclusivity agreement |  |                  280,000 |  |  |                             - |
|                                                                                                                    |   | Accrued compensation |   |  |                  182,325 |  |  |                    47,085 |
|                                                                                                                    |   | Accrued interest  |   |  |                    37,835 |  |  |                    31,578 |
|                                                                                                                    |   | Accrued interest to stockholders |   |  |                      8,936 |  |  |                    16,258 |
|                                                                                                                    |   | Capital equipment lease payable, current portion |  |                      5,200 |  |  |                      3,144 |
|                                                                                                                    |   | Notes payable, current portion |   |  |                    64,902 |  |  |                    61,965 |
|                                                                                                                    |   | Notes payable to shareholders, current portion |  |                  100,197 |  |  |                    86,320 |
|                                                                                                                    |   |   |  |  |  |  |  |
|                                                                                                                    |   |   | TOTAL CURRENT LIABILITIES |  |               1,071,542 |  |  |                  634,850 |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    | LONG-TERM LIABILITIES |   |  |  |  |  |  |
|                                                                                                                    |   | Capital equipment lease payable, net of current portion |  |                      5,791 |  |  |                      5,196 |
|                                                                                                                    |   | Notes payable, net of current portion  |  |                    10,499 |  |  |                    15,825 |
|                                                                                                                    |   | Notes payable to shareholders, net of current portion |  |               1,476,594 |  |  |               1,584,566 |
|                                                                                                                    |   |   Discount on notes payable - other |   |  |                (467,588) |  |  |                (703,205) |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   | TOTAL LONG-TERM LIABILITIES |  |               1,025,296 |  |  |                  902,382 |
|                                                                                                                    |   |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    | COMMITMENTS AND CONTINGENCIES |  |                             - |  |  |                             - |
|                                                                                                                    |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    | STOCKHOLDERS' EQUITY |   |  |  |  |  |  |
|                                                                                                                    |   | Convertible preferred stock, 10,000,000 shares authorized, |  |  |  |  |  |
|                                                                                                                    |   |   | $0.001 par value; 0 shares issued and outstanding |  |                             - |  |  |                             - |
|                                                                                                                    |   | Common stock, 200,000,000 shares authorized, |  |  |  |  |  |
|                                                                                                                    |   |   | $0.001 par value; 38,943,980 and 32,992,394 shares |  |  |  |  |  |
|                                                                                                                    |   |   | issued and outstanding, respectively |  |                    38,944 |  |  |                    32,992 |
|                                                                                                                    |   | Additional paid-in capital |   |  |               5,917,517 |  |  |               4,985,201 |
|                                                                                                                    |   | Stock options and warrants |   |  |               3,663,397 |  |  |               2,735,905 |
|                                                                                                                    |   | Accumulated deficit during development stage |  |           (10,992,260) |  |  |             (8,931,826) |
|                                                                                                                    |   |   |  |  |  |  |  |
|                                                                                                                    |   | TOTAL STOCKHOLDERS' EQUITY |  |             (1,372,403) |  |  |             (1,177,728) |
|                                                                                                                    |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |
|                                                                                                                    |   | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ |                  724,435 |  |  $  |                  359,504 |
|                                                                                                                    |   |   |  |  |  |  |  |
|                                                                                                                    |   |   |   |   |  |  |  |  |  |

F-2

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| **ENVIROKARE TECH, INC.**             |
|---------------------------------------|
| (A Development Stage Company)         |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
|                                  |   |   |   |   |   |   |
|                                  |   |   |   |   |   |   |   | **Period from** |
|                                  |   |   |   |   |   |   |   | **June 15,1998** |
|                                  |   |   |   | **Year Ended ** |   | **Year Ended ** |   | **(inception) to** |
|                                  |   |   |   | **December 31,** |   | **December 31,** |   | **December 31,** |
|                                  |   |   |   | **2004** |   | **2003** |   | **2004** |
|                                  |   |   |   | **(Restated)** |   | **(Restated)** |   | **(Restated)** |
|                                  |   |   |   |  |   |  |   |  |
|                                  |   |   |   |   |   |   |   |   |
| REVENUES                              |  $  |                                  -   |  $  |                          62,150 |  $  |                          62,150 |
|                                  |   |   |  |  |  |  |  |  |
| COST OF GOODS SOLD                    |  |                                  -   |  |                        (17,500) |  |                        (17,500) |
|                                  |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
|                                  | GROSS PROFIT |  |                                  -   |  |                          44,650 |  |                          44,650 |
|                                  |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
| E X P E N S E S                       |  |  |  |  |  |  |
|                                  | Consulting fees - related parties |  |                        436,823 |  |                        799,462 |  |                     1,500,928 |
|                                  | Consulting fees - other  |  |                                  -   |  |                          44,650 |  |                     1,090,087 |
|                                  | Board of directors fees |  |                        487,090 |  |                        367,689 |  |                     1,384,590 |
|                                  | Rent |  |                          94,742 |  |                          71,522 |  |                        393,207 |
|                                  | General and administrative |  |                        236,346 |  |                        222,062 |  |                     1,028,646 |
|                                  | Depreciation and amortization |  |                            4,488 |  |                        246,555 |  |                        851,897 |
|                                  | Professional fees |  |                        287,350 |  |                        278,868 |  |                     1,123,099 |
|                                  | Research and development |  |                            6,909 |  |                          64,816 |  |                          89,768 |
|                                  | Wages and salaries |  |                          44,332 |  |                          43,625 |  |                        219,836 |
|                                  |   |  |  |  |  |  |  |
|                                  |   | TOTAL EXPENSES |  |                     1,598,080 |  |                     2,139,249 |  |                     7,682,058 |
|                                  |   |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |     |
| LOSS FROM OPERATIONS                  |  |                   (1,598,080) |  |                   (2,094,599) |  |                   (7,637,408) |
|                                  |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
| OTHER INCOME (EXPENSES)               |  |  |  |  |  |  |
|                                  | Loss on impairment of asset |  |                                  -   |  |                   (1,613,603) |  |                   (1,613,603) |
|                                  | Gain on sale of assets |  |                                  -   |  |                               577 |  |                               577 |
|                                  | Financing costs |  |                                  -   |  |                      (633,885) |  |                      (633,885) |
|                                  | Interest expense |  |                      (226,736) |  |                      (196,343) |  |                      (649,035) |
|                                  | Discount on debt |  |                      (235,617) |  |                      (113,467) |  |                      (458,905) |
|                                  |   |  |  |  |  |  |  |
|                                  |   | TOTAL OTHER EXPENSE |  |                      (462,353) |  |                   (2,556,721) |  |                   (3,354,851) |
|                                  |   |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
| LOSS BEFORE INCOME TAXES              |  |                   (2,060,434) |  |                   (4,651,320) |  |                 (10,992,260) |
|                                  |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
| INCOME TAXES                          |  |                                  -   |  |                                  -   |  |                                  -   |
|                                  |  |  |  |  |  |  |
|                                  |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
| NET LOSS                              | $ |                   (2,060,434) | $ |                   (4,651,320) |  $  |                 (10,992,260) |
|                                  |  |  |  |  |  |  |
|                                  |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
|                                  | BASIC AND DILUTED NET LOSS  |  |  |  |  |  |  |
|                                  | PER COMMON SHARE | $ | (0.06) | $ | (0.15) |  |  |
|                                  |   |  |  |  |  |  |  |
|                                  |   |   |  |  |  |  |  |  |
|                                  | WEIGHTED AVERAGE NUMBER  |  |  |  |  |  |  |
|                                  | OF BASIC AND DILUTED COMMON |  |  |  |  |  |  |
|                                  | STOCK SHARES OUTSTANDING |  |                   35,811,303 |  |                   31,570,042 |  |  |
|                                  |   |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |  |  |

F-3

----

 
| **ENVIROKARE TECH, INC.**                                |
|----------------------------------------------------------|
| (A Development Stage Company)                            |
| CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY           |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                          |  |  | ** Preferred Stock** |  | **Common Stock** |  |  |   |  |  | **Stock** |  |  |  |  |  |  |  |   |  |   |
|                                                     |   |   |  |  |  |  |  | **Additional ** |  |  | **Options ** |  |  |  |  |  |  |  | **Other ** |  | ** Total ** |
|                                                     |   |   | ** Number ** |  |  |  | ** Number ** |  |  |  |  | **Paid-in** |  |  | **and** |  |  | **Subscriptions** |  |  | ** Accumulated ** |  |  | ** Comprehensive ** |  | ** Stockholders' ** |
|                                                     |   |   | ** of Shares ** |  | **Amount** |  | ** of Shares ** |  | **Amount** |  |  | **Capital** |  |  | **Warrants** |  |  | **Receivable** |  |  | ** Deficit ** |  |  | ** Income ** | ** Equity ** |
|                                                          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   |  |  |  |  |  |
| Issuance of common stock in June, 1998                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                     |    for cash at $0.001 per share |   | -   |  | $ | -   |  | 10,000,000 |  | $ | 10,000 |  | $ | -   |  | $ | -   |  | $ |    -   |  | $ |    -   |  |  $  |     -   |  | $ | 10,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net loss for period ended December 31, 1998              |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |     (34,427) |  |  |     -   |  |  |     (34,427) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance, December 31, 1998                          |   | -   |  |  | -   |  | 10,000,000 |  |  | 10,000 |  |  | -   |  |  | -   |  |  |    -   |  |  | (34,427) |  |  |     -   |  |  |     (24,427) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of common stock at an average of $0.45          |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    per share for cash |   | -   |  |  | -   |  | 746,140 |  |  | 746 |  |  | 334,053 |  |  | -   |  |  | (105,000) |  |  |    -   |  |  |     -   |  |  | 229,799 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of  preferred stock at $0.50 per share     |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    for cash |   | 500,000 |  |  | 500 |  |      -   |  |  |     -   |  |  | 249,500 |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 250,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of stock options for services                   |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | 552,000 |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 552,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Contribution of capital by shareholders in the form      |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    of foregone payment of accounts payable |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  |       1,847 |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 1,847 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net loss for year ended December 31, 1999                |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  | (893,173) |  |  |     -   |  |  | (893,173) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign currency translation loss                        |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |    -   |  |  |     (1,202) |  |  | (1,202) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance, December 31, 1999                               |   | 500,000 |  |  | 500 |  | 10,746,140 |  |  | 10,746 |  |  | 585,400 |  |  | 552,000 |  |  | (105,000) |  |  | (927,600) |  |  | (1,202) |  |  | 114,844 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Cash received for subscriptions receivable               |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  | 105,000 |  |  |    -   |  |  |     -   |  |  | 105,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of common stock at an average of $0.66          |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    per share for cash |   | -   |  |  | -   |  | 543,338 |  |  | 543 |  |  | 356,957 |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 357,500 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Expiration of stock options                              |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  |   120,000 |  |  |        (120,000) |  |  |    -   |  |  |    -   |  |  |     -   |  |  |   -   |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of stock options for services                   |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  |         121,000 |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 121,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Stock options exercised at $0.58 per share               |   | -   |  |  | -   |  | 100,000 |  |  | 100 |  |  | 81,400 |  |  | (24,000) |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 57,500 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Stock issued for acquisition of Electroship Acquisition  |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    Corporation, a wholly-owned subsidiary, at |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    $0.77 per share |   | -   |  |  | -   |  | 2,500,000 |  |  | 2,500 |  |  | 1,922,500 |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 1,925,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net loss for the year ended December 31, 2000            |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |   (611,329) |  |  |     -   |  |  | (611,329) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign currency translation loss                        |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |    -   |  |  | (2,846) |  |  | (2,846) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance, December 31, 2000                          |   | 500,000 |  |  | 500 |  | 13,889,478 |  |  | 13,889 |  |  | 3,066,257 |  |  | 529,000 |  |  |    -   |  |  | (1,538,929) |  |  | (4,048) |  |  | 2,066,669 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Expiration of stock options                         |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  |   132,000 |  |  |        (132,000) |  |  |    -   |  |  |    -   |  |  |     -   |  |  |   -   |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of stock options for services              |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  |         164,000 |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 164,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Issuance of common stock at $0.14 per share for cash     |   |     |  |  |  |  |     |  |  |     |  |  |     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                     |    with attached warrants at $0.06 per share for cash |   | -   |  |  | -   |  |    1,000,000 |  |  |      1,000 |  |  |   139,000 |  |  |   60,000 |  |  |    -   |  |  |    -   |  |  |     -   |  |  | 200,000 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |     |  |  |  |
| Conversion of preferred stock into common stock          |   | (500,000) |  |  |    (500) |  | 10,000,000 |  |  |    10,000 |  |  |     (9,500) |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  |   -   |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Common stock repurchase at $0.02 per share               |   | -   |  |  | -   |  |     (533,334) |  |  |       (533) |  |  |     (6,967) |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  |       (7,500) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Warrants issued for financing expense                    |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |    -   |  |  |     -   |  |  |   -   |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Foreign currency translation gain                        |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |    -   |  |  |      4,048 |  |  |        4,048 |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net loss for the year ended December 31, 2001 (restated) |   | -   |  |  | -   |  |      -   |  |  |     -   |  |  | -   |  |  | -   |  |  |    -   |  |  |        (1,273,162) |  |  |  |  |  |        (1,273,162) |
|                                                     |   |   |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Balance, December 31, 2001 (restated)                    |   | -   |  | $ | -   |  | 24,356,144 |  | $ | 24,356 |  | $ | 3,320,790 |  | $ | 621,000 |  | $ | -   |  | $ | (2,812,091) |  | $ | -   |  | $ | 1,154,055 |
|                                                     |   |  |   |   |  |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |
|                                                          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-4

----

| **ENVIROKARE TECH, INC.**                                                                                   |
|-------------------------------------------------------------------------------------------------------------|
| (A Development Stage Company)                                                                               |
| CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (continued)                                                  |
|                                                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                        | ** Preferred Stock** |  | ** Common Stock ** |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                                        |  |  |  |  | **Additional ** |  |  | **Stock Options ** |  |  |  |  |  | **Other ** |  | ** Total ** |
|                                                                                                        | ** Number ** |  |  |  | ** Number ** |  |  |  | **Paid-in** |  |  | **and** |  |  | ** Accumulated ** |  |  | ** Comprehensive ** |  |  | ** Stockholders' ** |
|                                                                                                        | ** of Shares ** |  |  | **Amount** |  |  | ** of Shares ** |  |  | **Amount** |  |  | **Capital** |  |  | **Warrants** |  |  | ** Deficit ** |  |  | ** Income ** |  | ** Equity ** |
|                                                                                                        |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |
| Balance forward, December 31, 2001                                                                          | -   |   | $ | -   |   |  |    24,356,144 |   | $ | 24,356 |   | $ |    3,320,790 |   | $ |   621,000 |   | $ |    (2,812,091) |   | $ |     -   |  | $ |     1,154,055 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of common stock for services                                                                  | -   |   |  | -   |   |  |    700,000 |   |  | 700 |   |  | 111,300 |   |  | -   |   |  | -   |   |  |     -   |  |  | 112,000 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of common stock at an average of $0.06 per share for                                               |  |   |  |  |   |  |     |   |  |     |   |  |     |   |  |     |   |  |  |   |  |  |  |  |     |
|    cash with attached warrants at an average of $0.04 per share for cash                          | -   |   |  | -   |   |  |   3,000,000 |   |  |    3,000 |   |  | 168,950 |   |  |   128,050 |   |  | -   |   |  |     -   |  |  | 300,000 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of common stock at an average of $0.10 per share for                                               |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
|    cash with attached warrants at an average of $0.05 per share for cash                          | -   |   |  | -   |   |  |   2,000,000 |   |  |    2,000 |   |  | 196,050 |   |  |   101,950 |   |  | -   |   |  |     -   |  |  | 300,000 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of stock options for services                                                                      | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | 52,173 |   |  | -   |   |  |     -   |  |  |    52,173 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Expiration of stock options                                                                                 | -   |   |  | -   |   |  | -   |   |  |   -   |   |  | 476,000 |   |  |       (476,000) |   |  | -   |   |  |     -   |  |  | -   |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Net loss for the year ended December 31, 2002 (restated)                                                    | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | -   |   |  |    (1,468,415) |   |  |     -   |  |  |   (1,468,415) |
|                                                                                                        |  |   |   |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |
| Balance, December 31, 2002                                                                             | -   |   |  | -   |   |  | 30,056,144 |   |  | 30,056 |   |  | 4,273,090 |   |  | 427,173 |   |  | (4,280,506) |   |  |     -   |  |  | 449,813 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of options for board of directors fees                                                        | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   367,689 |   |  | -   |   |  |     -   |  |  | 367,689 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of options to related party consultants (restated)                                                 | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   529,811 |   |  | -   |   |  |     -   |  |  | 529,811 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of warrants at $0.1163 vs. prior value $0.0271              /5,125,000 shares (restated) | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   457,150 |   |  | -   |   |  |     -   |  |  | 457,150 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Reinstate 600,000 shares;$0.0163/200,000 shares;$0.0245              /400,000 shares (restated)   | -   |   |  | -   |   |  | -   |   |  |   -   |   |  | (13,060) |   |  | 13,060 |   |  | -   |   |  |     -   |  |  | -   |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issue 250,000 options @ $.1786 per share (YE 2003) (restated)                                               | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | 44,650 |   |  | -   |   |  |     -   |  |  |    44,650 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Adjust warrant issaunce valuation 720,000 shares,              YE 2003 (restated)                 | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |    (6,200) |   |  | 6,200 |   |  | -   |   |  |     -   |  |  | -   |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Record discount on debt 5,125,000 shares              @ $0.1163 per share (restated)              | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   596,038 |   |  | -   |   |  |     -   |  |  | 596,038 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |     |   |  |  |   |  |  |   |  |  |  |  |     |
| Modification of 720,000 warrants;               average price of $0.053 per share (restated)      | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | 37,900 |   |  | -   |   |  |     -   |  |  |    37,900 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Options and warrants and APIC issued for debt finance (restated)                                            | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |    22,279 |   |  |   197,363 |   |  | -   |   |  |     -   |  | # | 219,642 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of common stock at an average price of $0.19 per share for                                    |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
|    cash with attached warrants at an average of $0.05 per share (restated)                        | -   |   |  | -   |   |  |   2,216,250 |   |  |    2,216 |   |  | 300,221 |   |  |   110,813 |   |  | -   |   |  |     -   |  |  | 413,250 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Exercise of stock warrants (restated)                                                                       | -   |   |  | -   |   |  |    720,000 |   |  | 720 |   |  | 172,429 |   |  |   (65,148) |   |  | -   |   |  |     -   |  |  | 108,001 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of warrants for debt financing costs                                                               | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   249,648 |   |  | -   |   |  |     -   |  |  | 249,648 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Expiration of stock warrants                                                                                | -   |   |  | -   |   |  | -   |   |  |   -   |   |  | 236,442 |   |  |       (236,442) |   |  | -   |   |  |     -   |  |  | -   |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Net loss for the year ended December 31, 2003 (restated)                                                    | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | -   |   |  |    (4,651,320) |   |  |     -   |  |  |   (4,651,320) |
|                                                                                                        |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |
| Balance, December 31, 2003 (restated)                                                                       | -   |   |  | -   |   |  |    32,992,394 |   |  | 32,992 |   |  |    4,985,201 |   |  |      2,735,905 |   |  |    (8,931,826) |   |  |     -   |  |  |   (1,177,728) |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of common stock with attached warrants                                                             |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
|  at an average of $0.23 per share, less issuance costs of $122,118                                     |     |   |  | -   |   |  |   3,903,750 |   |  |    3,904 |   |  | 538,286 |   |  |   238,560 |   |  | -   |   |  |     -   |  |  | 780,750 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
| Issuance of options for consulting services                                                            | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | 57,094 |   |  | -   |   |  |     -   |  |  |    57,094 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Issuance of common stock and warrants for                                                              | -   |   |  | -   |   |  |    647,836 |   |  | 648 |   |  | 117,432 |   |  | 15,920 |   |  | -   |   |  |     -   |  |  | 134,000 |
|   retirement of debt                                                                              |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Issuance of options for directors fees                                                                 | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  |   487,090 |   |  | -   |   |  |     -   |  |  | 487,090 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Issuance of warrant term extension at $0.02 per share, less                                                 |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
|   issuance costs of $18,002                                                                            | -   |   |  | -   |   |  | -   |   |  |   -   |   |  | (18,002) |   |  |   144,827 |   |  | -   |   |  |     -   |  |  | 126,825 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Exercise of stock warrants                                                                                  | -   |   |  | -   |   |  |   1,400,000 |   |  |    1,400 |   |  | 278,600 |   |  | -   |   |  | -   |   |  |     -   |  |  | 280,000 |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Expiration of stock warrants                                                                                | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |    16,000 |   |  |   (16,000) |   |  | -   |   |  |     -   |  |  |     |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |     |
| Net loss for the year ended December 31, 2004 (restated)                                                    | -   |   |  | -   |   |  | -   |   |  |   -   |   |  |      -   |   |  | -   |   |  |    (2,060,434) |   |  |     -   |  |  |   (2,060,434) |
|                                                                                                        |  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |  |
| Balance, December 31, 2004 (restated)                                                                       | -   |   | $ | -   |   |  | 38,943,980 |   | $ | 38,944 |   | $ | 5,917,517 |   | $ | 3,663,396 |   | $ | (10,992,260) |   | $ |     -   |  | $ | (1,372,403) |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |
|                                                                                                        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |  |  |  |

F-5

----

 
| **ENVIROKARE TECH, INC.**                      |
|------------------------------------------------|
| (A Development Stage Company)                  |
| CONSOLIDATED STATEMENTS OF CASH  FLOWS    |
|                                           |   |   |   |   |   |   |   |   |   |
|                                           |   |   |   |   |   |   |   |   |   |   |   | **Period from** |
|                                           |   |   |   |   |   |   |   |   |   |   |   |   |   | **June 15,1998** |
|                                           |   |   |   |   |   |   |   | **Year Ended** |   |   | **Year Ended** |   |   | **(Inception) to** |
|                                           |   |   |   |   |   |   |   | **December 31,** |   |   | **December 31,** |   |   | **December 31,** |
|                                           |   |   |   |   |   |   |   | **2004** |   |   | **2003** |   |   | **2004** |
|                                           |   |   |   |   |   |   |   | **  (Restated) ** |   |   | ** (Restated) ** |   |   | **(Restated)** |
|                                           |   |   |   |   |   |   |   |  |   |   |  |   |   |  |
| CASH FLOWS FROM OPERATING ACTIVITIES:          |   |  |  |  |  |  |  |  |  |
|                                           | Net loss |   |   |   |  $  |                  (2,060,434) |  | $ |                  (4,651,320) |  | $ |                 (10,992,260) |
|                                           | Adjustments to reconcile net loss to |   |  |  |  |  |  |  |  |  |
|                                           |   net cash used by operating activities: |   |  |  |  |  |  |  |  |  |
|                                           |   | Depreciation and amortization |   |     |                           4,488 |  |  |                       246,555 |  |  |                        851,897 |
|                                           |   | Discount on debt |   |  |                       235,617 |  |  |                       113,467 |  |  |                        458,905 |
|                                           |   | Intangible asset expensed |   |     |                                -   |  |  |                                -   |  |  |                            9,520 |
|                                           |   | Impairment of molds |   |  |                                -   |  |  |                                -   |  |  |                          27,000 |
|                                           |   | Impairment of patent |   |  |                                -   |  |  |                    1,613,603 |  |  |                     1,613,603 |
|                                           |   | Gain on sale of assets |   |  |                                -   |  |  |                            (577) |  |  |                             (577) |
|                                           |   | Stock options issued for consulting fees |   |     |                                -   |  |  |                       574,461 |  |  |                     1,463,637 |
|                                           |   | Stock options issued for directors fees |   |  |                       487,090 |  |  |                       367,689 |  |  |                        854,779 |
|                                           |   | Common stock issued for consulting fees |   |     |                         57,094 |  |  |                                -   |  |  |                        169,094 |
|                                           |   | Common stock issued for payment of expenses |   |  |                       134,000 |  |  |                                -   |  |  |                        134,000 |
|                                           |   | Warrants issued for financing expenses |   |     |                                -   |  |  |                       633,885 |  |  |                        633,885 |
|                                           |   | Warrant term extension granted for accrued compensation |   |  |                         24,000 |  |  |                                -   |  |  |                          24,000 |
|                                           |   | Interest paid with refinance of debt |   |  |                                -   |  |  |                       350,890 |  |  |                        350,890 |
|                                           | Changes in assets and liabilities: |   |  |  |  |  |  |  |  |  |
|                                           |   | Customer deposits |   |  |                                -   |  |  |                                -   |  |  |                          61,215 |
|                                           |   | Inventory |   |   |  |                                -   |  |  |                       (43,216) |  |  |                        (43,216) |
|                                           |   | Related party receivable  |   |  |                         (1,864) |  |  |                                -   |  |  |                          (1,864) |
|                                           |   | Prepaid expenses |   |  |                           5,916 |  |  |                         (5,916) |  |  |                                 -   |
|                                           |   | Accounts payable |   |     |                           3,648 |  |  |                       260,226 |  |  |                        330,933 |
|                                           |   | Accrued compensation |   |  |                       135,240 |  |  |                                -   |  |  |                        182,325 |
|                                           |   | Accrued interest payable  |   |  |                         (1,065) |  |  |                     (146,550) |  |  |                          61,524 |
|                                           |   | Deposit owed on exclusivity agreement |   |  |                       280,000 |  |  |                                -   |  |  |                        280,000 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   | Net cash used by operating activities |   |  |                    1,364,164 |  |  |                    3,964,517 |  |  |                     7,461,550 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| CASH FLOWS FROM INVESTING ACTIVITIES:          |   |  |  |  |  |  |  |  |  |
|                                           |   | Deposits and retainers |   |  |                                -   |  |  |                         39,888 |  |  |                        (22,465) |
|                                           |   | Purchase of molds |   |  |                                -   |  |  |                     (111,912) |  |  |                      (197,912) |
|                                           |   | Payments on license agreement |   |  |                                -   |  |  |                                -   |  |  |                      (525,000) |
|                                           |   | Patent costs |   |  |                                -   |  |  |                                -   |  |  |                        (10,129) |
|                                           |   | Purchase of equipment |   |  |                            (993) |  |  |                            (968) |  |  |                        (17,268) |
|                                           |   | Proceeds from sale of equipment |   |  |                                -   |  |  |                           1,275 |  |  |                            1,275 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   | Net cash used in investing activities |   |  |                            (993) |  |  |                       (71,717) |  |  |                      (771,499) |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| CASH FLOWS FROM FINANCING ACTIVITIES:          |   |  |  |  |  |  |  |  |  |
|                                           |   | Payment of capital equipment lease |   |  |                         (3,481) |  |  |                         (1,123) |  |  |                          (4,604) |
|                                           |   | Payment of notes payable |   |  |                       (96,485) |  |  |                         (5,304) |  |  |                      (101,789) |
|                                           |   | Proceeds from sale of preferred stock |   |  |                                -   |  |  |                                -   |  |  |                        250,000 |
|                                           |   | Proceeds from sale of common stock  |   |  |                    1,060,750 |  |  |                       521,250 |  |  |                     3,141,797 |
|                                           |   | Proceeds from sale of warrant term extension |   |  |                       102,825 |  |  |                                -   |  |  |                        102,825 |
|                                           |   | Repurchase of common stock |   |  |                                -   |  |  |                                -   |  |  |                          (7,500) |
|                                           |   | Proceeds from notes payable, related parties |   |  |                                -   |  |  |                       300,000 |  |  |                     1,353,635 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   | Net cash provided by financing activities |   |  |                    1,063,609 |  |  |                       814,823 |  |  |                     4,734,364 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   |  |  |  |  |  |  |  |  |
| Net increase in cash                           |   |  |                       366,346 |  |  |                         56,303 |  |  |                        432,155 |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| Cash and cash equivalents, beginning of period |   |  |                         65,809 |  |  |                           9,506 |  |  |                                 -   |
|                                           |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| Cash and cash equivalents, end of period       |   | $ |                       432,155 |  | $ |                         65,809 |  | $ |                        432,155 |
|                                           |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| SUPPLEMENTAL CASH FLOW INFORMATION:            |   |  |  |  |  |  |  |  |  |
|                                           |   | Interest paid |   | $ |                         39,346 |  | $ |                           8,316 |  | $ |                          54,335 |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   | Income taxes paid |   | $ |                                -   |  | $ |                                -   |  | $ |                                 -   |
|                                           |   |   |   |  |  |  |  |  |  |  |  |
|                                           |   |   |   |   |   |   |  |  |  |  |  |  |  |  |
| NON-CASH TRANSACTIONS:                         |   |  |  |  |  |  |  |  |  |
|                                           |   | Common stock issued for acquisition of subsidiary |   | $ |                                -   |  | $ |                                -   |  | $ |                     1,925,000 |
|                                           |   | Note issued for purchase of property, equipment, |   |  |  |  |  |  |  |  |  |
|                                           |   |   |  and operating expenses |   | $ |                                -   |  | $ |                                -   |  | $ |                            3,635 |
|                                           |   | Note issued for pending patent to related party |   | $ |                                -   |  | $ |                                -   |  | $ |                          33,330 |
|                                           |   | Note issued for deposit for stock |   | $ |                                -   |  | $ |                                -   |  | $ |                        100,000 |
|                                           |   | Impairment of intangible asset  |   | $ |                                -   |  | $ |                    1,613,603 |  | $ |                     1,613,603 |
|                                           |   | Warrants issued for financing (restated) |   | $ |                                -   |  | $ |                         44,650 |  | $ |                          44,650 |
|                                           |   | Warrants issued for financing expenses |   | $ |                                -   |  | $ |                       249,648 |  | $ |                        469,290 |
|                                           |   | Stock options issued for consulting fees |   | $ |                                -   |  | $ |                       529,811 |  | $ |                     1,418,987 |
|                                           |   | Stock options issued for directors fees |   | $ |                       487,090 |  | $ |                       367,689 |  | $ |                        854,779 |
|                                           |   | Common stock issued for consulting fees |   | $ |                         57,094 |  | $ |                                -   |  | $ |                        169,094 |
|                                           |   | Common stock issued for payment of expenses |   | $ |                       134,000 |  | $ |                                -   |  | $ |                        134,000 |
|                                           |   | Warrant term extension granted for accrued compensation |   | $ |                         24,000 |  | $ |                                -   |  | $ |                          24,000 |
|                                           |   | Interest paid with refinance of debt |   | $ |  |  | $ |                       350,890 |  | $ |                        350,890 |
|                                           |   | Stockholder's contribution for equipment  |   | $ |                                -   |  | $ |                                -   |  | $ |                            1,847 |
|                                           |   | Equipment acquired via capital lease |   | $ |                           6,132 |  | $ |                           9,463 |  | $ |                          15,595 |
|                                                |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

F-6

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION**

Envirokare Tech, Inc. (hereinafter, "the Company" or "Envirokare") was incorporated in June 1998 under the laws of the State of Nevada.  In December 1998, the Company acquired assets of a business engaged in developing a rubber mold technology and patent rights potentially applicable to future development of a pallet made of recycled materials.  The Company believes the early-stage rubber mold technology to be of marginal commercial value.

During 2001, the Company acquired, via license agreement, extensive rights to a proprietary thermoplastic processing technology, the Thermoplastic Flow forming process (variously referred to herein as "TPF Process", the "Process" or "TPF technology").  The licensing agreement provides the Company with the ability to utilize the TPF technology to design, develop, manufacture, market, license and sublicense a wide range of large structural parts, including the Company's proprietary pallet.  The pallet is now composed of long-fiber reinforced thermoplastic composite and will be manufactured using the acquired TPF technology.

The Company's current operating strategy is based on developing products to be manufactured by the TPF Process, as well as marketing the TPF technology to potential sublicensees of the Company.  The Company maintains offices in Orlando, Florida. The Company has elected a fiscal year-end of December 31.

The Company includes the assets and investment in Electroship Acquisition Corporation and Envirokare Composite Corp., wholly-owned non-operating subsidiaries, in these financial statements.

The Company is in the development stage and has not realized any significant revenues from planned operations.

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

This summary of significant accounting policies is presented to assist in understanding the financial statements.  The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the U.S. and have been consistently applied in the preparation of the financial statements.

Accounting Method

The Company's financial statements are prepared using the accrual method of accounting.

F-7

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Advertising

The Company expenses advertising costs as incurred.  The Company did not recognize advertising expenses during the years ending December 31, 2004 and 2003.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all bank accounts, certificates of deposit, money market accounts and short-term debt securities purchased with a maturity of three months or less to be cash equivalents.

Compensated Absences

Employees of the Company are not entitled to paid vacation, paid sick days or other personal time off.  Accordingly, the accompanying financial statements do not include an accrual for such expenses.   

Comprehensive Income and Loss

In June of 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounts Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 establishes standards for reporting and displaying comprehensive income, its components and accumulated balances.  The adoption of SFAS 130, related to comprehensive income, is disclosed in the accompanying financial statements.  In past years, the Company had activity that resulted in required disclosure of comprehensive income and/or loss.  The Company is no longer involved in these activities and therefore no longer is required to have financial statement disclosure regarding comprehensive income.  

Concentration of Risk

The Company maintains its cash in various commercial depository accounts in the United States.  At December 31, 2004, the Company's cash balance exceeded the Federal Deposit Insurance Corporation's insurability limits in the amount of $332,155.

Derivative Instruments

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (hereinafter "SFAS No. 133") as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities".  These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities.   They require that an entity recognize all derivatives

F-8

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Derivative Instruments (continued)

as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. 

During the years ended December 31, 2004 and 2003, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.

Development Stage Activities

The Company has been in the development stage since its formation in June of 1998.  It is primarily engaged in the marketing of the TPF technology.  During 2003, the Company received an initial payment on a product development agreement and the purchase of one mold, but this was not sufficient for recognition as an operating company. 

Earnings Per Share

Statement of Financial Accounting  Standards No. 128, "Earnings Per Share" (hereinafter "SFAS No. 128"), requires the reporting of basic and diluted earnings/loss per share.  Basic loss per share is calculated by dividing net loss by the weighted average number of outstanding common shares during the year.  Outstanding options and warrants have been excluded from the calculation of diluted loss per share as they would have been antidilutive.  Accordingly, basic and diluted net loss per share are the same.

Fair Value of Financial Instruments

The Company's financial instruments as defined by Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," include cash and cash equivalents, receivables, accounts payable, notes payable and accrued liabilities and expenses.  All instruments are accounted for on a historical basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2004 and 2003.

F-9

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As shown in the accompanying financial statements, as amended and restated, the Company has incurred an accumulated deficit of **$**10,992,260, which includes a net loss of **$**2,060,434 for the year ended December 31, 2004, and has a working capital deficit and no revenues.  The Company, a development stage enterprise, is currently marketing the TPF technology which will, if successful, mitigate these factors which raise substantial doubt about the Company's ability to continue as a going concern.  Management plans to fund operations from sales of its debt and equity in the near-term and from product sales, product development agreements and proceeds realized from licensing the TPF technology on an ongoing basis.  The Company has historically raised equity capital through the sale of its common and preferred stock.  The Company has also raised debt capital through private placement offerings.  Management has proceeded as planned in the ongoing development of numerous products, including a proprietary pallet composed of long-fiber reinforced thermoplastic composite.  Management is also marketing the TPF technology to various potential clients with the intent of establishing product development agreements, with the agreements to include provisions for manufacturing and marketing successfully developed products.  Management anticipates that the Company will realize licensing fee revenues in the near future.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in its present form.

Impaired Asset Policy

In August 2001, the Financial  Accounting  Standards  Board issued  Statement of Financial  Accounting  Standards  No. 144,  "Accounting  for the  Impairment  or Disposal  of  Long-Lived  Assets"  (hereinafter  "SFAS No. 144").  SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."  This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations.  SFAS No. 144 requires that these long-lived assets be measured  at the  lower of  carrying  amount  or fair  value  less cost to sell, whether  reported in continuing  operations  or  discontinued  operations.  This statement is effective beginning for fiscal years after December 15, 2001, with earlier application encouraged.  See Note 4. 

Inventory

Inventories, consisting of products available for sale, are recorded using the specific- identification method and valued at the lower of cost or market.  

F-10

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Principles of Consolidation

The Company's financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All material intercompany transactions and accounts have been eliminated in the financial statements. 

Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes."  Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS 109 to allow recognition of such an asset.  See Note 11.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153 (hereinafter "SFAS No. 153").  This statement addresses the measurement of exchanges of nonmonetary assets.  The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.  The guidance in that opinion, however, included certain exceptions to that principle.  SFAS No. 153 amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  This statement is effective for financial statements for fiscal years beginning after June 15, 2005.  Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued.  Management believes the adoption of this statement will not impact the financial statements of the Company. 

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, which amends SFAS Statement No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions."  This statement also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," to state that the guidance for (a) incidental operations and (b)

F-11

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Recent Accounting Pronouncements (continued)

costs incurred to sell real estate projects, does not apply to real estate time-sharing transactions.  The accounting for those operations and costs is subject to the guidance in SOP 04-2.  This statement is effective for financial statements for fiscal years beginning after June 15, 2005.  Management believes the adoption of this statement will not impact the financial statements of the Company.

In November 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, "Inventory Costs— an amendment of ARB No. 43, Chapter 4" (hereinafter "SFAS No. 151").  This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Under some circumstances, SFAS No. 151 mandates that items such as idle facility expense, excessive spoilage, double freight, and re-handling costs be recognized as current-period charges.  In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  Management has not yet determined how the adoption of this statement will impact the financial statements of the Company.

In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No. 150"). SFAS No. 150 establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously, many of those instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The adoption of SFAS No. 150 did not impact the financial position or results of operations of the Company.

Reclassification and Restatement

Certain amounts from prior periods have been reclassified to conform to the current period presentation.  This reclassification has resulted in no changes to the Company's accumulated deficit or net losses presented.  Additionally, the Company has restated its financial statements for the year ended December 31, 2003 and 2004.  See Note 14.

Research and Development

Research and development costs are expensed as incurred. 

F-12

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

Revenue Recognition

The Company recognizes revenue from sales when there is persuasive evidence that an arrangement exists, services have been rendered, the seller's price to the buyer is determinable, and collectibility is reasonably assured. 

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues and expenses.  Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. 

**NOTE 3 – PROPERTY AND EQUIPMENT**

Property and equipment are stated at cost.  Depreciation is provided using the straight line method over the estimated useful lives of the assets, which range from five to seven years.  Molds will be depreciated over their estimated useful lives once placed in service. Depreciation expense for the year ended December 31, 2004 and 2003 was $4,488 and $4,128, respectively.

The following is a summary of the Company's equipment and related accumulated depreciation at December 31, 2004 and 2003:
|                                 |   |                              |                                                   |                                        | 2004                                         |                                                   |                                        | 2003                             |
|--------------------------------------|--------|-----------------------------------|--------------------------------------------------------|---------------------------------------------|----------------------------------------------|--------------------------------------------------------|---------------------------------------------|----------------------------------|
|                                 |   |                              |                                                   |                                        |                                              |                                                   |                                        |                                  |
| Furniture and fixtures               |   | $                                 |          7,129 |                                        | $                                            |          7,129 |
| Office equipment                     |   |                              |                                                   |        25,292 |                                         |                                                   |        18,167 |
| Molds                                |   |                              |                                                   |                                        |      170,912             |                                                   |                                        |      170,912 |
|                                 |   |                              |                                                   |                                        |                                              |                                                   |                                        |                                  |
|                                 |   |                              |                                                   |                                        |      203,333             |                                                   |                                        |      196,208 |
| Less:  Accumulated depreciation |   |      (12,538) |                                                   |                                        |        (8,050) |
|                                 |   |                                   |                                                   |                                        |                                              |
|                                 |   |                              |                                                   | $                                           |      190,795             |                                                   | $                                           |      188,158 |
|                                 |   |                              |                                                   |                                        |                                              |                                                   |                                        |                                  |

**NOTE 4 – INTANGIBLE ASSETS**

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (hereinafter "SFAS No. 141") and Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (hereinafter "SFAS No. 142"). SFAS No. 141 provides for the elimination of the pooling-of-interest method of accounting for business combinations with an acquisition date of July 1, 2001 or later. SFAS No. 142 prohibits the amortization

F-13

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 4 – INTANGIBLE ASSETS (continued)**

of goodwill and other intangible assets with indefinite lives and requires periodic reassessment of the underlying value of such assets for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.  The Company adopted SFAS No. 142. Application of the nonamortization provision of SFAS No. 142 is expected to result in no change to the Company's reported results of operations.

Intangible assets are tested for impairment on an annual basis. At December 31, 2003, the Company has impaired the carrying value of its intangible assets, as more fully described below.

License Agreement

In March 2001, the Company obtained the rights to its Thermoplastic Flow forming process ("TPF technology") in exchange for cash consideration of $525,000.  The licensing agreement provides the Company with the ability to utilize the TPF technology to design, develop, manufacture, market, license and sublicense a wide range of large structural parts, including the Company's proprietary pallet.  The Company agreed to extend the license agreement term to March 10, 2005, wherein no additional consideration was required for the term extension.  The Company has determined that it was appropriate to amortize the value of the license over the initial period of the license grant, which expired September 30, 2003.  Accordingly, the Company has amended its financial statements for the periods ended December 31, 2001, 2002 and 2003 to reflect the full amortization of the license value.  The amortization of the license increased the accumulated deficit for the years ended December 31, 2001 and 2002 by $157,500 and $210,000, respectively.  The charge to earnings for the period ended December 31, 2003 was $157,500.  

Patent Acquisition Costs and Technology Rights

On December 1, 2000 the Company through its wholly-owned subsidiary, Electroship Acquisition Corporation, acquired technology rights, in exchange for common stock shares in the Company.  See Note 7.  The acquired technology rights relate to an application stage patent for an invention that is expected to facilitate shipping commerce and/or for processing information regarding shipping services in a network environment.  This acquisition was valued using the trading price of the Company's common stock at the date of acquisition.  The Company amended its financial statements for the years ended December 31, 2001 and 2002 to provide for amortization of the Electroship patent.  The effects of the amortization for the prior years ended resulted in an increased charge to amortization in the amount of $113,235 in each year ended.  The effect of the amortization also increased the accumulated deficit in the amount of $113,235 in each of the years ended.  The Company also recorded amortization for the Electroship patent in the amount  

F-14

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 4 – INTANGIBLE ASSETS (continued)** 

Patent Acquisition Costs and Technology Rights (continued)

of $28,309 for the quarters ended March 31, June 30 and September 30, 2003, which amortization increased the charge to amortization for the respective periods. 

Subsequent to amending the financial statements for the years ended December 31, 2001 and 2002, and the quarters ended March 31, June 30 and September 30, 2003, the Company has determined that the value of the Electroship patent is impaired.  The Company believes that the impairment is primarily a result of the Company's inability to dedicate appropriate resources to develop and market the potential opportunities contained within the patent filing and also the inability of the Company to make a reasonable determination of cash flows and associated patent life, for the pending patent.  The Company has recognized a reduction in the remaining intangible asset value of $1,613,603.  The effect of this impairment created a charge to earnings during the fiscal year ended December 31, 2003 and is also recognized as an increase in the Company's accumulated deficit in subsequent reporting periods.

**NOTE 5 – NOTES PAYABLE TO SHAREHOLDERS**

During the year ended December 31, 2003, the Company entered into a promissory note arrangement with two Company shareholders, in the principal amount of $100,000.  The note bears an interest rate of 15% per annum with principal and interest payment payable in 36 equal monthly installments of $3,467 commencing September 1, 2003.  Three common stock warrants are attached to each dollar of debt, with an exercise price of $0.20 per share, with each warrant being valued at $0.11 per share.  These warrants are fully exercisable for up to three years from the dates of issuance.  The Company used the assumptions of a 4% interest rate, volatility of 69% and a three-year period to calculate the warrant value.   The calculated fair value of the warrants, in the amount of $32,810, has been recorded as a discount on the debt issued and is being amortized over the life of the debt.  During the years ended December 31 2003 and 2004, the Company has amortized this discount on debt, in the amounts of $3,646 and $10,938, respectively.  The accumulated amortization for the respective years is $3,646 and $14,584.  The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 9.

During the year ended December 31, 2003, the Company entered into a promissory note with a director and shareholder, in the principal amount of $200,000.  The note bears an interest rate of 15% per annum, with principal and interest payment payable in 36 equal monthly installments of $6,933, commencing January 1, 2003.  Three common stock warrants are attached to each dollar of debt, with an exercise price of $0.20 per share, with each warrant being valued at $0.13 per share.  These warrants are fully exercisable for up to three years.  The Company used the assumptions of a 4% interest rate, volatility

F-15

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 5 – NOTES PAYABLE TO SHAREHOLDERS (continued)**

of 69% and a three-year period to calculate the warrant value.  The calculated fair value of the warrants, in the amount of $78,000, has been recorded as a discount on the debt

issued and is being amortized over the life of the debt.  During the year ended December 31 2004, the Company has amortized this discount on debt, in an amount of $26,000.  This amortized amount increased accumulated amortization for the year ended December 31, 2004 in the amount of $26,000.  The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 9.

In December 2003, with the exception of the notes discussed in the two paragraphs above, the Company rolled all of its remaining outstanding notes payable and accrued interest to related parties into new notes.  These notes bear an interest rate of 12% per annum, with interest payments made in equal monthly installments of varying amounts, commencing on January 1, 2004.  Common stock warrants to purchase up to an aggregate of 5,125,000 shares of Company common stock were attached to these loans, with an exercise price of $0.24 per share.  The Company calculated a fair value for these warrants, in the amount of $138,888.  The Company used the assumptions of a 4% interest rate, volatility of .69% and a three-year term to calculate the warrant value.  Subsequent to reporting the original transaction as previously described, the Company discovered a defect in the assumptions utilized to calculate the fair value of the newly issued and extended warrants.  The revised assumptions utilized to calculate the warrant value are a 4% interest rate, volatility of 69% and a three-year term.  The restated warrant valuation of $596,038 has been recorded as a discount on the debt issued and is being amortized over the life of the debt.  During the year ended December 31 2004, the Company has amortized this discount on debt, in an amount of $198,679.  This amortized amount increased accumulated amortization for the year ended December 31, 2004 in the amount of $198,679.  The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 9.

During 2001, $1,025,000 was raised in a private debt offering.  The notes attached to this debt were subsequently rolled into new notes (see discussion above concerning the issuance of new notes).  Three warrants were attached to each dollar of debt, with an exercise price of $0.195 per share.  These warrants were fully exercisable for up to two years from the dates of issuance.  These warrants were valued at $0.07 per share, for a total of $219,642, using the valuation assumptions of 4% interest and a volatility of 91.25%.  The warrant value has been recorded as a discount on the debt issued and the discount was amortized over the two year life of the debt.  Accordingly, interest expense was recognized in the amount of $109,821, in each of the years ended December 31, 2002 and 2003.  The valuation previously described required the Company to amend and restate its financial statements for the years ended December 31, 2001, 2002 and 2003, to reflect the amortization of the discount on debt, versus the prior accounting treatment which showed the value of the warrants as an immediate charge to earnings and recorded as a finance charge.  See Note 9.

F-16

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 6 – LONG-TERM DEBT**

Summarized information about the Company's long-term debt at December 31, 2004 and 2003, is as follows: 
|                                          |   |   |   |                                                                                              |                                                                                   | 2004                                                                   |                                                                                                         |                                                                                   | 2003                                                                   |
|-----------------------------------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|------------------------------------------------------------------------|
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                        |                                                                                                         |                                                                                   |                                                                        |
| Shareholder notes, monthly principal and      |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   interest payments at 12% and 15%,      |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   maturing July and December, 2006,      |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   uncollateralized                       |   |   |   | $                                                                                                 |               200,901 |                                                                   |  $                                                                                                      |               294,997 |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |                                                                                   |                                                                   |
| Shareholder notes, monthly interest           |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   payments at 12%, maturing December,    |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   2006, uncollateralized                 |   |   |   |                                                                                              |            1,375,890                 |                                                                   |                                                                                                         |            1,375,890                 |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |                                                                                   |                                                                   |
| Note payable, interest accrued at 10%,        |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   payable at an undetermined date        |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |
|   (see Note 9), uncollateralized         |   |   |   |                 61,965 |                                                                                   |                                                                   |                 61,965            |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |                                                                                   |                                                                   |
| Capital lease agreements, maturing at         |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   various date in 2006 and 2007,         |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |
|   collateralized by equipment            |   |   |   |                 10,991 |                                                                                   |                                                                   |                   8,340 |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |                                                                                   |                                                                   |
| Note payable, monthly principal               |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |
|   and interest payments at 12%, maturing |   |   |   |                                                                                              |                                                                                   |                                                                   |
|   October, 2008, uncollateralized        |   |   |   |                 13,436 |                                                                                   |                                                                   |                 15,825            |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                   |                                                                                                         |                                                                                   |                                                                   |
| Less:  Current portion                   |   |   |   |                                                                                              |             (170,299)           |                                                                   |                                                                                                         |             (151,430)           |
|                                          |   |   |   |                                                                                              |                                                                                        |                                                                   |                                                                                                         |                                                                                        |
|                                          |   |   |   |                                                                                              | $                                                                                      |            1,492,884 |                                                                                                         |  $                                                                                |            1,605,587 |
|                                          |   |   |   |                                                                                              |                                                                                   |                                                                        |                                                                                                         |                                                                                   |                                                                        |

Loan maturities for each of the five years following December 31, 2004 are as follows:
| 2005   |   | $      |          170,299                                                             |
|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------|
| 2006   |   |   |       1,484,758                                                                             |
| 2007   |   |   |              4,667                                       |
| 2008   |   |   |              3,459                                       |
| 2009   |   |   |                     - |
|   |   |   |                                                                                                                      |
|   |   | $      |       1,663,183                                                                             |
|   |   |   |                                                                                                                      |

F-17

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 7 – COMMON STOCK**

During the year ended December 31 , 2004, the Company received $780,750 from the private sale of 3,903,750 shares of its common stock at an average of $0.23 per share.  In addition, these purchasers received warrants to purchase additional shares of common stock, exercisable at $0.40 per share for a period of two to three years.  The warrants were valued at $238,560.  Additionally, 647,836 shares were issued in consideration for $34,000 in accounts payable debt and $100,000 in related party debt.  The fair market value of the shares issued for accounts payable and related party debt were $0.23 and $0.18, respectively.  Also during 2004, the Company issued 1,400,000 shares of its common stock upon the exercise of warrants by Nova Chemicals, Inc.  See Note 13.

During the year ended December 31 , 2003, existing warrant holders were offered a reduction in their respective warrant exercise prices from $0.50 to $0.15 per share if exercised on or before February 14, 2003.  This offer resulted in the Company raising $108,001 in cash and issuing 720,000 shares of common stock.  Participants were issued replacement warrants, exercisable over a two-year period, for the same number of shares of the Company's common stock as issued on exercise of the amended warrants. Additionally, the Company received $413,250 from the private sale of 2,216,250 shares of its common stock at an average of $0.19 per share.  The purchasers received warrants to purchase one additional share of common stock for each share purchased, exercisable at $0.40 per share for a period of one year.

During the second two quarters of 2002, the Company sold 2,000,000 "units" for aggregate cash consideration of $300,000.  The units, which consisted of 2,000,000 shares of common stock with one warrant attached to each common share, were issued at $0.15 per unit.  Each warrant is exercisable at $0.50 per share for two years from the dates of issuance. 

During the first two quarters of 2002, the Company sold 3,000,000 "units" for aggregate cash consideration of $300,000.  The units, which consisted of 3,000,000 shares of common stock with one warrant attached to each common share, were issued at $0.10 per unit.  Each warrant is exercisable at $0.25 per share for two years from the dates of issuance.

During the first quarter of 2002, the Company issued 700,000 shares of its common stock, with an aggregate value of $112,000, as payment for services provided by consultants. 

During June 2001, 1,000,000 units of the Company, consisting of 1,000,000 shares of common stock with one warrant attached to each common share, were issued at $0.20 per unit.  Each warrant is exercisable at $0.50 per share until June 30, 2003.

F-18

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 7 – COMMON STOCK (continued)**

On December 1, 2000, Electroship Acquisition Corporation, a wholly-owned subsidiary of the Company, acquired Electroship (N.Y.) Inc. in exchange for 2,500,000 common stock shares of Envirokare.  These shares were valued at $0.77 per share, which was fair market value on the date of the acquisition agreement.  See Note 4.  Electroship Acquisition Corporation acquired the intellectual property previously held by Electroship (N.Y.) Inc., whose predecessor organization was a partnership created to hold the intellectual property rights.  Neither Electroship (N.Y.) Inc. nor its predecessor partnership were considered operating entities.  Neither entity had material transactions during 2000.  

During December 2000, 100,000 stock options were exercised at $0.575 per common stock share.  These stock options were granted under the Envirokare Tech, Inc. 1999 Stock Option Plan.

During September 2000, 200,000 shares of common stock were issued at $0.50 per share.

During the month of February 2000, 343,338 shares of common stock were issued at $0.75 per share.  The Company's common stock was split 2-for-1 in March 2000.  The split was effected as a 100% stock dividend payable March 6, 2000 to holders of record at March 1, 2000.  All references in the accompanying financial statements to the number of common shares and per share amounts for the year ended December 31, 2000 have been restated to reflect the stock split.

During the year ended December 31, 1999, 746,140 shares of common stock were issued for cash.  At December 31, 1999, the balance of stock subscriptions was $105,000.  Stock subscriptions were paid and stock issued February 16, 2000 for these common stock shares.

On February 22, 1999 the Company's board of directors authorized a 1-for-2 reverse split of the Company's $0.001 par value common stock. 

Upon incorporation on September 15, 1998, 10,000,000 shares of common stock were issued at $0.001 per share.  At December 31, 1998, this common stock was held by 30 shareholders, none of whom held in excess of ten percent of the total.

F-19

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 8 – PREFERRED STOCK**

During the year ended December 31, 1999, 500,000 shares of preferred stock were issued for $250,000 cash.  The preferred stock has no dividend rights, but was convertible to common stock at the rate of ten shares of common for each preferred share.  This conversion feature was modified to twenty shares to one by the stock split effective March 1, 2000.  The preferred shareholders elected to exercise the conversion feature attached to the preferred stock and, accordingly, 10,000,000 shares of Company's common stock were issued on November 9, 2001 to the preferred stockholders of record on that date.

**NOTE 9 – STOCK OPTIONS AND WARRANTS**

Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (hereinafter "SFAS No. 123"), defines a fair value-based method of accounting for stock options and other equity instruments.  The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period. In accordance with SFAS No. 123, the fair value of stock options and warrants granted are estimated using the Black-Scholes Option Price Calculation.  The following assumptions were made to value the stock options and warrants for the year ended December 31, 2004: risk-free interest rate of 4%, volatility of 53%, and terms of three to nine years.  The following assumptions were made to value the stock options and warrants for the year ended December 31, 2003: risk-free interest rate of 4%, volatility of 69% and 91%, and terms of one to ten years. 

Stock Options

In September 1999, the board of directors of the Company adopted the Envirokare Tech, Inc. 1999 Stock Option Plan (the "Plan") for the purpose of attracting, retaining and motivating employees, directors and consultants of the Company.  The shareholders approved the Plan at their annual meeting in May 2000.  As adopted, the Plan provides for authorization of 2,000,000 shares of common stock for issuance pursuant to awards under the Plan.  In September 1999, the board of directors had approved the granting of non-qualified options under the Plan to purchase an aggregate 1,150,000 shares of common stock.  In June 2000, the board of directors voted to adjust the number of shares of common stock authorized for issuance under the Plan from 2,000,000 to 4,000,000, pursuant to the anti-dilution provisions of the Plan, to reflect the 2-for-1 split of the Company's common stock effected in March 2000.  The board of directors also voted to make corresponding adjustments to the number of shares subject to previous option grants and to the exercise prices for such options.

All of the options granted by the Company are exercisable upon issuance.  The Plan restricts sales for shares received upon exercise of non-qualified options, limiting each optionee to sales in any year of option shares equal to 25% of the total number of shares

F-20

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Stock Options (continued)

received under the optionee's grant.  The Plan requires early exercising of the stock options for various reasons, including employment termination, separation from services, and cancellation or completion of consulting contracts. 

The Company filed a Form S-8 under the Securities Act with the Securities and Exchange Commission in March 2000 to register 1,150,000 shares (2,300,000 as adjusted for the stock split) of common stock authorized for issuance under the Plan.  In September 2000, the Company filed Post-Effective Amendment No. 1 to the Form S-8, to register the remaining 1,700,000 shares under the Securities Act. 

Summarized information about stock options outstanding and exercisable at December 31, 2004 is as follows:
|   | Options Outstanding |   | Options Exercisable |
|--------|---------------------|--------|---------------------|
|   | Exercise Price      |   | Number Outstanding  |   | Weighted Average Remaining Contractual Life (Years) |   | Weighted Average Exercise Price |   | Number  Exercisable |   | Weighted Average Exercise Price |
|   |                     |   |                     |   |  |   |  |   |  |   |  |
| $      | 0.23                |   | 7,775,000           |   | 7.85 | $ | 0.23 |   | 7,775,000 | $ | 0.23 |
|   | 0.30                |   | 100,000             |   | 4.75 |   | 0.30 |   | 100,000 |   | 0.30 |
|   | 0.40                |   | 250,000             |   | 4.75 |   | 0.40 |   | 250,000 |   | 0.40 |
|   | 0.575               |   | 250,000             |   | 4.75 |   | 0.575 |   | 250,000 |   | 0.575 |
|   |                     |   |                     |   |  |   |  |   |  |   |  |
| $      | 0.23 - 0.575        |   | 8,375,000           |   | 7.62 | $ | 0.25 |   | 8,375,000 | $ | 0.25 |
|   |                     |   |                     |   |  |   |  |   |  |   |  |
| Equity Compensation Plans Approved by Shareholders |   | Shares Issuable Upon Exercise of Outstanding Options |   | Weighted Average Exercise Price |   | Shares Available for Issuance |
|----------------------------------------------------|--------|------------------------------------------------------|--------|---------------------------------|--------|-------------------------------|
|                                                    |   |                                                      |   |                                 |   |                               |
| 1999 Equity Incentive Plan                         |   |  600,000                                        |   | $0.43                           |   |  3,300,000               |
|                                                    |   |                                                      |   |                                 |   |                               |

F-21

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Stock Options (continued)

Following is a summary of the Company's stock option activity during the years ending December 31, 2004 and 2003:
|                                     |   |   |                                                                             |   |   |  Shares                                                                                                                                 |   |   |  Weighted Average             Exercise Price                                                                                                              |
|------------------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |   |   |                                                                             |   |   |                                                                                                                                              |   |   |                                                                                                                                                                |
| Options outstanding at January 1, 2003   |   |   |              700,000 |   | $      |                      0.37                |
| Granted                                  |   |   |                                                                             |   |   |           4,737,500                                                                             |   |   |                      0.23                                  |
| Canceled                                 |   |   |                                                                             |   |   |                         - |   |   |                          -   |
| Exercised                                |   |   |                                                                             |   |   |                         - |   |   |                          -   |
|                                     |   |   |                                                                             |   |   |                                                                                                                                              |   |   |                                                                                                                                                                |
| Options outstanding at December 31, 2003 |   |   |           5,437,500                 |   |   |                      0.24                |
|                                     |   |   |                                                                                  |   |   |                                                                                                                                              |
| Granted                                  |   |   |                                                                             |   |   |           3,037,500                                                                             |   |   |                      0.23                                  |
| Canceled                                 |   |   |                                                                             |   |   |            (100,000)                                                                       |   |   |                      0.50                                  |
| Exercised                                |   |   |                                                                             |   |   |                         - |   |   |                          -   |
|                                     |   |   |                                                                             |   |   |                                                                                                                                              |   |   |                                                                                                                                                                |
| Options outstanding at December 31, 2004 |   |   |           8,375,000                 |   | $      |                      0.25                |
|                                     |   |   |                                                                                  |   |   |                                                                                                                                              |

The weighted average fair market value of stock options granted for the years ended December 31, 2004 and 2003 was $0.28 and $0.26, respectively. 

During 2004, the Company granted options to purchase 2,750,000 shares of common stock in consideration for directors' fees valued at $487,090.  Additionally, the Company granted options to purchase 287,500 shares of common stock in consideration for consulting services valued at $57,094.  Also during 2004, 100,000 options expired. 

During 2003, the Company granted options to purchase 1,787,500 shares of common stock to members of the board of directors, valued at $367,689.  In addition, the Company granted 2,700,000 options to related party consultants, valued at $529,811. 

The Company discovered an error in not recognizing certain stock options granted in 2003.  As a result of correcting this error in the Company's balances and presentation, the Company has incurred an additional charge against earnings, in the amount of $44,650, arising from the expense calculated on the fair value of the options issued to purchase up to 250,000 common stock shares at a purchase price of $0.23 per share.  The assumptions used to calculate the value of the options were a risk-free interest rate of 4%, volatility of 69%, with an exercise period of ten years.

During 2002, the Company issued 350,000 stock options valued at $52,173, and 2,300,000 stock options expired, which were valued at $476,000. 

During 2001, the Company issued 1,000,000 stock options valued at $164,000, and 550,000 stock options expired, which were valued at $132,000.

F-22

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Common Stock Warrants

Summarized information about common stock warrants outstanding and exercisable at December 31, 2003 and 2004 is as follows:
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
|-----------------------------------|--------|------------------------------------------------------------|--------|--------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------|
|                              |   |  Common Shares             Under Warrants             |   | Exercise Price             Per Share |   | Weighted Average             Fair Value Per Share             At Grant Date |   | Expiration Date |
|                              |   |                                                            |   |                                      |   |                                                                             |   |                 |
| Outstanding at 1/1/03             |   |         9,075,000       |   | $0.20 - $0.50                        |   | $0.16                                                                       |   | 6/05 - 2/06     |
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
| Warrants issued in connection     |   |                                                       |   |                                 |   |                                                                        |   |            |
|   with stock issuance        |   |         2,936,250       |   | $0.40 - $0.75                        |   | $0.23                                                                       |   | 2/05 - 7/08     |
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
| Warrants issued for debt          |   |                                                       |   |                                 |   |                                                                        |   |            |
|   financing costs            |   |         6,025,000       |   | $0.20 - $0.24                        |   | $0.23                                                                       |   | 2/05 - 7/08     |
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
| Exercise of warrants              |   |       (720,000)                   |   | $0.15                                |   | $0.15                                                                       |   | 6/03            |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |
| Expiration of warrants            |   |       (3,355,000)                 |   | $0.195 - $0.50                       |   | $0.18                                                                       |   | 6/03 - 11/03    |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |
| Outstanding at 12/31/03           |   |       13,961,250                  |   |                                 |   |                                                                        |   |            |
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
| Warrants issued in connection     |   |                                                       |   |                                 |   |                                                                        |   |            |
|   with stock issuance        |   |         7,428,750       |   | $0.40                                |   | $0.21                                                                       |   | 1/08-9/08       |
|                              |   |                                                       |   |                                 |   |                                                                        |   |            |
| Warrants issued in connection     |   |                                                       |   |                                 |   |                                                                        |   |            |
|   with exclusivity agreement |   |         1,400,000       |   | $0.20                                |   | $0.20                                                                       |   | 9/14            |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |
| Exercise of warrants              |   |       (1,400,000)                 |   | $0.20                                |   | $0.20                                                                       |   | 9/14            |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |
| Expiration of warrants            |   |          (400,000) |   | $0.50                                |   | $0.28                                                                       |   | 9/04            |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |
| Outstanding at 12/31/04           |   |       20,990,000                  |   |                                 |   |                                                                        |   |            |
|                              |   |                                                            |   |                                 |   |                                                                        |   |            |

During the year ended December 31, 2004, the Company issued 7,428,750 warrants valued at $376,598, less issuance costs of $122,118.  In October of 2004, the Company issued an extension offer to existing holders of the Company's warrants that expired after January 1, 2004.  The extension offer, provided at a price of $0.02 per warrant, increased the exercise period of the related warrants by fifteen months from the current date of expiration.   The Company received cash proceeds of $102,825 from participants to the warrant extension offering.  Additionally, the Company issued 1,400,000 warrants under an exclusivity agreement with Nova Chemicals, Inc.  These warrants were immediately

F-23

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Common Stock Warrants (continued)

exercised in December 2004; therefore no value was assigned (see Note 13).  Also during 2004, 400,000 warrants expired.

During the period ended December 31, 2003, warrants to purchase common stock of the Company, in the amount of 600,000 shares, were reported as canceled in error.  The warrants have been reinstated to reflect proper disclosure and account allocation  for the periods ended December 31, 2003 and 2004.  The assumptions utilized to estimate the fair value of warrants issued by the Company were specific to the issuance dates of the warrants and the assumptions ranged according to the following: risk-free interest rate of 3 to 4%, terms of 2 to 5 years, strike prices of $0.20 to $0.75 and volatilities of 53% to 101%.

During the year ended December 31, 2003, the Company entered into a promissory note arrangement with two Company shareholders, in the principal amount of $100,000.  The note bears an interest rate of 15% per annum with principal and interest payment payable in 36 equal monthly installments of $3,467 commencing September 1, 2003.  Three common stock warrants are attached to each dollar of debt, with an exercise price of $0.20 per share, with each warrant being valued at $0.11 per share.  These warrants are fully exercisable for up to three years from the dates of issuance.  The Company used the assumptions of a 4% interest rate, volatility of 69% and a three-year period to calculate the warrant value.   The calculated fair value of the warrants, in the amount of $32,810, has been recorded as a discount on the debt issued and is being amortized over the life of the debt.  During the years ended December 31 2003 and 2004, the Company has amortized this discount on debt, in the amounts of $3,646 and $10,938, respectively.  The accumulated amortization for the respective years is $3,646 and $14,584.  The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 5.

During the year ended December 31, 2003, the Company entered into a promissory note with a director and shareholder, in the principal amount of $200,000.  The note bears an interest rate of 15% per annum, with principal and interest payment payable in 36 equal monthly installments of $6,933, commencing January 1, 2003.  Three common stock warrants are attached to each dollar of debt, with an exercise price of $0.20 per share, with each warrant being valued at $0.13 per share.  These warrants are fully exercisable for up to three years.  The Company used the assumptions of a 4% interest rate, volatility of 69% and a three-year period to calculate the warrant value.  The calculated fair value of the warrants, in the amount of $78,000, has been recorded as a discount on the debt issued and is being amortized over the life of the debt.  During the year ended December 31 2004, the Company has amortized this discount on debt, in an amount of $26,000.  This amortized amount increased accumulated amortization for the year ended December 31, 2004 in the amount of $26,000.

F-24

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Common Stock Warrants (continued)

The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 5.

In December 2003, with the exception of the notes discussed in the two paragraphs above, the Company rolled all of its remaining outstanding notes payable and accrued interest to related parties into new notes.  These notes bear an interest rate of 12% per annum, with interest payments made in equal monthly installments of varying amounts, commencing on January 1, 2004.  Common stock warrants to purchase up to an aggregate of 5,125,000 shares of Company common stock were attached to these loans, with an exercise price of $0.24 per share.  The Company calculated a fair value for these warrants, in the amount of $138,888.  The Company used the assumptions of a 4% interest rate, volatility of .69% and a three-year term to calculate the warrant value.  Subsequent to reporting the original transaction as previously described, the Company discovered a defect in the assumptions utilized to calculate the fair value of the newly issued and extended warrants.  The revised assumptions utilized to calculate the warrant value are a 4% interest rate, volatility of 69% and a three-year term.  The restated warrant valuation of $596,038 has been recorded as a discount on the debt issued and is being amortized over the life of the debt.  During the year ended December 31 2004, the Company has amortized this discount on debt, in an amount of $198,679.  This amortized amount increased accumulated amortization for the year ended December 31, 2004 in the amount of $198,679.  The amortization previously described is reflected in the financial statements as a charge to interest for the respective periods.  See Note 5.

During the year ended December 31, 2003, the Company sold 2,216,250 shares of its common stock at $0.19 per share to purchasers who received warrants to purchase one additional share of common stock for each share purchased, exercisable at $0.40 per share for a period of one year.  The warrants were valued at $68,935 and were recorded in the Company's operating expenses as a finance charge.

In February 2003, the exercise price of 720,000 warrants was adjusted from $0.50 to $0.15.  All of these warrants were subsequently exercised, resulting in the issuance of 720,000 shares of common stock for $108,000.  As the new warrants were modified and exercised on the same date, the effect of these transactions was to create a charge to earnings, in the amount of $37,900, which charge has been included in the Company's amended and restated financial statements for the period ended December 31, 2003.  The modified fair value of the exercised warrants ranged from $0.1041 - $0.1379 per share.  The assumptions used to calculate the $37,900 modified fair value of warrants exercised are: risk free interest rate of 4%, volatility of 85.67%, terms between 602 - 613 days, strike price of $0.15 per share, and market prices between $0.20 - $0.24 per share.   In addition, the Company issued 720,000 warrants to these investors which have an exercise price of $0.75 and expire during May of 2006.  The amount charged to earnings, and recorded as a finance charge in the amount of $25,816, has been included in the

F-25

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Common Stock Warrants (continued)

Company's amended and restated financial statements for the period ended December 31, 2003.  The assumptions used to calculate the $25,816  modified fair value of warrants granted are: risk free interest rate of 4%, volatility of 85.67%, term of two years, strike price of $0.75 per share, and market prices between $0.20 - $0.24 per share.      

At December 31, 2003, 3,355,000 warrants expired, which were valued at $236,422.

During October and November 2002, 1,200,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.50 per share until October and November 2004.  These warrants were valued at an average price of $0.04 per share, for a total of $41,950.

During August and September 2002, 800,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.50 per share until August and September 2004.  These warrants were valued at an average price of $0.08 per share, for a total of $60,000.

During June 2002, 1,500,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.25 per share until late June 2004.  These warrants were valued at an average price of $0.03 per share, for a total of $42,000.

During April 2002, 1,000,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.25 per share until April 3, 2004.  These warrants were valued at an average price of $0.06 per share, for a total of $55,000.

During March 2002, 500,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.25 per share until March 12, 2004.  These warrants were valued at an average price of $0.06 per share, for a total of $31,050.

During 2001, $1,025,000 was raised in a private debt offering.  The notes attached to this debt were subsequently rolled into new notes (see discussion above concerning the issuance of new notes).  Three warrants were attached to each dollar of debt, with an exercise price of $0.195 per share.  These warrants were fully exercisable for up to two years from the dates of issuance.  These warrants were valued at $0.07 per share, for a total of $219,642, using the valuation assumptions of 4% interest and a volatility of 91.25%.  The warrant value has been recorded as a discount on the debt issued and the discount was amortized over the two year life of the debt.  Accordingly, interest expense was recognized in the amount of $109,821, in each of the years ended December 31, 2002 and 2003.  The valuation previously described required the Company to amend and

F-26

----

**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 9 – STOCK OPTIONS AND WARRANTS (continued)**

Common Stock Warrants (continued)

restate its financial statements for the years ended December 31, 2001, 2002 and 2003, to reflect the amortization of the discount on debt, versus the prior accounting treatment which showed the value of the warrants as an immediate charge to earnings and recorded as a finance charge.  

During June 2001, 1,000,000 shares of common stock with one warrant attached to each common stock share were issued.  Each warrant is exercisable at $0.50 per share until June 30, 2003.  These warrants were valued at $0.06 per share, for a total of $60,000. 

**NOTE 10 – RELATED PARTIES**

During the year ended December 31, 2004, the Company granted 2,750,000 common stock options in consideration for directors fees.  In addition, the Company granted 287,500 options to related party consultants.    

During the year ended December 31, 2003, the Company granted 1,787,500 common stock options in consideration for directors fees.  In addition, the Company granted 2,700,000 options to related party consultants.

The Company hired a chief executive officer in 2003 and agreed that a portion of his compensation in the first and second year of his employment will be recorded as deferred compensation and will earn interest.  Accordingly, the Company has accrued $94,999 of deferred compensation and interest in the financial statements at December 31, 2004.  Additionally, the Company granted to this officer 2,000,000 options to purchase shares of common stock at a price of $0.23 per share.

The Company hired a new director of operations in 2003 and agreed that a portion of his compensation in the first and second year will be recorded as deferred compensation and will earn interest.  Accordingly, the Company has accrued $52,863 of deferred compensation and interest in the financial statements at December 31, 2004. 

Additionally, the Company granted to this director 500,000 options to purchase shares of common stock at a price of $0.23 per share.

The Company hired a new chief operating officer in 2003 and agreed that a portion of his compensation in the first and second year will be recorded as deferred compensation and will earn interest.  Accordingly, the Company has accrued $43,399 of deferred compensation and interest in the financial statements at December 31, 2004.  Additionally, the Company granted to this director 1,200,000 options to purchase shares of common stock at a price of $0.23 per share.

F-27

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 10 – RELATED PARTIES (continued)**

A former officer and director of the Company received $32,000 in cash from the Company for consulting services rendered during the year ended December 31, 2003.  A former executive vice president of the Company received $65,920 in cash for consulting fees during the year ended December 31, 2003. 

On November 5, 2002, the Company granted 250,000 stock options enabling the option holder to purchase an equivalent number of common stock shares to a director of the Company.

On March 14, 2001, the Company granted 100,000 stock options enabling the option holder to purchase an equivalent number of common stock shares to the then president of the Company.  See Note 9.  Effective May 1, 2001, this individual resigned as president of the Company and remained a member of the board of directors until November 27, 2001.  The options granted to him expired unexercised on May 27, 2002.

On March 14, 2001, the Company granted 300,000 stock options enabling the option holder to purchase an equivalent number of common stock shares each to the former vice president of administration of the Company, and the former executive vice president of the Company.  These gentlemen resigned their respective positions with the Company on November 28, 2001.  The options granted to them expired unexercised on May 28, 2002.

On January 16, 2001, the Company granted 100,000 stock options enabling the option holder to purchase an equivalent number of common stock shares to a member of the board of directors of the Company.  Effective September 13, 2001, this person resigned as a member of the board of directors of the Company.  The options granted to this person expired unexercised on March 13, 2002.

Stock options in the amount of 2,300,000 were issued enabling the option holder to purchase an equivalent number of common stock shares during the year ended December 31, 1999.  Of these stock options, 1,000,000 were issued to related parties.  Of these related party stock options, 500,000 expired unexercised during September 2000 and 500,000 expired unexercised during June 2002.  During the year ended December 31, 2000, the Company granted 200,000 stock options enabling the option holder to purchase an equivalent number of common stock shares to the then president of the Company.  On December 11, 2000, the president of the Company resigned and remained a member of the board of directors of the Company until December 8, 2001.  The stock options that were granted to this former president of the Company expired unexercised during June 2002.

On August 8, 2000, the Company authorized a shareholder's loan to in the amount of $15,000.  This loan was retired during December 2001 in consideration of consulting services provided to the Company by this individual.  See Note 5 for related party notes payable.

F-28

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 11 – INCOME TAXES**

At December 31, 2004, the Company had net deferred tax assets of approximately $2,040,000, principally arising from net operating loss carryforwards for income tax purposes.  The Company calculates its deferred tax asset using a combined State and Federal tax rate of 39.5%.  As the Company's management cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at December 31, 2004. 

The significant components of the deferred tax asset at December 31, 2004 and 2003 are as follows:  
|                                   |   |   |                                                 |   |                                                 |  December 31,                                   |   |                                                 |  December 31, |
|----------------------------------------|--------|--------|------------------------------------------------------|--------|------------------------------------------------------|------------------------------------------------------|--------|------------------------------------------------------|--------------------|
|                                   |   |   |                                                 |   |                                                 |  2004                                           |   |                                                 |  2003         |
|                                   |   |   |                                                 |   |                                                 |                                                      |   |                                                 |                    |
| Net operating loss carryforward        |   | $      |         5,170,000 |   | $                                                    |         3,840,000 |
|                                   |   |   |                                                 |   |                                                 |                                                      |   |                                                 |                    |
| Deferred tax asset                     |   |   |                                                 | $      |         2,040,000 |                                                 | $      |         1,520,000 |
|                                   |   |   |                                                 |   |                                                      |                                                 |   |                                                      |
| Deferred tax asset valuation allowance |   | $      |       (2,040,000)           |   | $                                                    |       (1,520,000)           |
|                                   |   |   |                                                      |   |                                                 |                                                      |

At December 31, 2004, the Company had net operating loss carryforwards of approximately $5,170,000, which expire in the years 2018 through 2024.  The change in the allowance account from December 31, 2003 to December 31, 2004 was $520,000. 

The Company recognized $544,184 and $897,500 of losses from the issuance of stock options during the years ended December 31, 2004 and 2003, respectively, which were not deductible for tax purposes.     

**NOTE 12 – COMMITMENTS AND CONTINGENCIES**

Operating Lease Agreements

The Company entered into a lease for office space in Orlando, Florida on September 16, 2002 for a period of 36 months.  Lease payments are currently $3,021 per month, with additional charges for common area.  A security deposit was paid in the amount of $2,600.  Total Orlando lease payments for the years ended December 31, 2004 and 2003 were $38,243 and $34,047 respectively. 

The Company entered into a lease for office space in Boca Raton, Florida on February 7, 2001 for sixty months.  Lease payments, including charges for common area, are currently $4,942.  A security deposit and last month's rent were paid in the amount of $8,412.  A portion of this office space is being subleased, with the sublessee reimbursing the Company $3,000 per month.  The Company's net lease payments amount to $1,942. 

F-29

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 12 – COMMITMENTS AND CONTINGENCIES (continued)**

Operating Lease Agreements (continued)

Total net lease payments for the years ended December 31, 2004 and 2003 were $27,344 and $24,692, respectively. 

The future minimum lease payments below for the Boca Raton office are the total amount of the payments as if there was no sublease.  The Company anticipates the sublease to continue through the end of the lease term.

The Company also records as rent expense, payments to officers and directors for lodging reimbursement.   The Company is not contractually bound by lease agreements to make such payments.  For the year ended December 31, 2004, the Company recorded $29,155 related to these transactions.

Future annual minimum operating lease payments for the terms of the Orlando and  Boca Raton lease agreements are as follows for the years ending December 31:
|   |   |   | Orlando             Office |   |   | Boca Raton             Office |   |   | Total                                |
|--------|--------|--------|----------------------------|--------|--------|-------------------------------|--------|--------|--------------------------------------|
|   |   |   |                            |   |   |                               |   |   |                                      |
| 2005   |   | $      | 27,189                     |   | $      | 23,304                        |   | $      | 50,493                               |
| 2006   |   | $      |    -             |   | $      |    3,884            |   | $      |       3,884 |

Capital Leases Agreements

During the year ended December 31, 2003, the Company acquired computer equipment through two capital leases.  The Company recognizes the value of the equipment in property, plant and equipment in the financial statements and the lease liability in both current liabilities and long-term liabilities on the financial statements.  The leases, totaling $9,463, are for 36 months, with interest and principal payments of $345 per month.  Interest of $982 and $348 was paid during the years ended December 31 , 2004 and 2003, respectively.

During year ended December 31, 2004, the Company acquired additional computer equipment under capital lease agreements.  These leases, totaling $6,132, are for 36 months, with interest and principal payments of $222 per month.  Interest of $489 was paid during the year ended December 31, 2004.  Future minimum capital lease payments are as follows:
| 2005   |   | $      |     5,200                                       |
|--------|--------|--------|----------------------------------------------------------------|
| 2006   |   |   |     4,854                                       |
| 2007   |   |   |        937                       |
| 2008   |   |   |            - |
| 2009   |   |   |            - |
|   |   |   |                                                                |
|   |   | $      |   10,991                                                  |
|   |   |   |                                                                |

F-30

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 12 – COMMITMENTS AND CONTINGENCIES (continued)**

Litigation

The Company is a named defendant in an action filed by Mr. Real Morel in May 2000 in the Supreme Court of British Columbia, Canada. In this action, Mr. Morel alleges non-payment by the Company of amounts due pursuant to the aforementioned demand promissory notes.  After consultation with British Columbia legal counsel and a review of the circumstances surrounding the issuance of the notes, the Company has resolved to dispute this liability.  Management of the Company believes that the outcome will not have a material adverse effect on the financial position of the Company.

The Company is a named defendant along with others including a director of the Company in a proceeding filed in the Superior Court of Cumberland County, Maine by former employees of Sports Quest of New England LLC, for back wages and penalties, which could total more than $300,000.  The Company has denied all liability, ownership, or other involvement with Sport Quest LLC.  The matter is in the pleading stage. 

The Company is the defendant in an action commenced by its former law firm for unpaid legal services in the amount of $18,952.  The Company has filed a motion to dismiss.  The motion is still pending. Although the Company intends to vigorously defend the action, there have been discussions with the plaintiff concerning a settlement.  The Company has included in the accompanying financial statements a liability for $18,952.  

Schaefer Systems International, Inc.

On March 28, 2003, the Company entered into a product development agreement with Schaefer Systems International, Inc., (hereinafter "SSI") wherein the Company would design, develop and produce a quantity of prototypes for field testing.  An initial payment of $61,215 was made by SSI to the Company to facilitate the development of a proprietary product. 

The Company has delivered part of the first run of development parts.  The initial period of the development contract has expired.  Due to changes from both SSI and the company that is constructing the prototypes, the final product has not been finished.  At such time as the product is delivered to SSI in its final form, the Company will recognize the initial deposit as revenue.

F-31

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 13 – EXCLUSIVITY AGREEMENT**

In June 2004, the Company entered into a short-term exclusivity agreement with Nova Chemicals, Inc. (hereinafter "Nova") related to the use, license or sublicense of the Company's TPF Technology.  Under the agreement, Nova paid the Company $250,000 and the Company issued to Nova a common stock purchase warrant for 1,250,000 shares at a purchase price of $0.20 per share.

During the third quarter of 2004, the Company received an additional $30,000 from Nova and announced that the term of its exclusivity agreement with Nova had been extended to December 1, 2004 and that Nova was entitled to receive 150,000 additional common stock purchase warrants exercisable at $0.20 per share.

In December of 2004, the Company received $280,000 from Nova when the aforementioned common stock purchase warrant was exercised.  The Company announced that it was negotiating definitive agreements with Nova to form a joint venture for the purpose of commercializing new Thermoplastic Flow forming ("TPF") technology.  This joint venture was subsequently formed in March 2005 and is more fully described in Note 15.

**NOTE 14 – CORRECTION FOR ERRORS**

The accompanying consolidated financial statements have been restated to correct information concerning certain transactions that are described in general in this Note 14 and in more detail in respective Notes above. 

Amortization of TCD License

In March 2001, the Company obtained the rights to its Thermoplastic Flow forming process ("TPF technology") in exchange for cash consideration of $525,000.  The Company has determined that it was appropriate to amortize the value of the license over the initial period of the license grant, which expired September 30, 2003.  See Note 4. 

Impairment of Patent Value

On December 1, 2000 the Company acquired technology rights, in exchange for common stock shares in the Company.  The Company has determined that it was appropriate to amortize the value of the patent commencing from the date of acquisition of the patent and has amended its financial statements to recognize amortization during the fiscal years ended 2001 and 2002 and for nine months ended September 30, 2003.  The Company also has determined that impairment exists on the value of the patent and has amended its financial statements for the period ended December 31, 2003 to recognize this impairment.  See Note 4.

F-32

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 14 – CORRECTION FOR ERRORS**** (continued)**

Notes Payable to Shareholders

During 2003, the Company raised $300,000 in a private debt offering.  The notes included attached warrants.   The warrant value has been recorded as a discount on the debt issued and the discount has been amortized over the life of the debt as a charge to interest expense.  The valuation previously described required the Company to amend and restate its financial statements for the years ended December 31, 2003 and 2004, to reflect the amortization of the discount on debt.  See Note 5 and Note 9. 

During 2001, the Company raised $1,025,000 in a private debt offering.  The notes, including attached warrants, were subsequently rolled into new notes with attached additional warrants.  The warrant value has been recorded as a discount on the debt issued and the discount has been amortized over the life of the debt as a charge to interest expense.  The valuation previously described required the Company to amend and restate its financial statements for the years ended December 31, 2001, 2002 and 2003, to reflect the amortization of the discount on debt.  See Note 5 and Note 9. 

In December 2003, the Company rolled all of its outstanding notes payable and accrued interest to related parties, as described in the previous paragraph and relating to the 2001 debt offering, into new notes, which contained attached warrants.  Subsequent to reporting the original transaction, the Company discovered a defect in the assumptions utilized to calculate the accounting exposure of the newly issued and extended warrants.  Based on the revised assumptions, the Company has revalued the newly issued and extended warrants and has amended its financial statements for the years ended December 31, 2003 and 2004 to recognize amortization of the discount.  See Note 5 and Note 9.

Stock Options and Warrants

The accompanying consolidated financial statements had been restated to correct information concerning stock options granted during 2003, and the Company's valuation thereof.  The effect of the restatement was to increase related party consulting fees as reported and stock options and warrants in the amount of $529,811.  Accordingly, the Company's accumulated deficit at December 31, 2003 had been restated to reflect this correction.  The correction increased the Company's loss per share by $0.02.** **

Additionally, the Company has reclassified various expenses for the year ended December 31, 2003.

Subsequent to the consolidated financial restatement to record changes in accounting treatment of various items, as previously described, the Company made certain adjustments to its financial statements for the year ended December 31, 2003, to correct errors in calculating its previously stated expense arising from the reissuance of certain warrants, the effect of which carry forward to ensuing reporting periods.  The post 2003 financial reporting effects of the previously described adjustments also appear in the

F-33

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**ENVIROKARE TECH, INC.****(A Development Stage Company)****Notes to the Consolidated Financial Statements****DECEMBER 31, 2004**

**NOTE 14 – CORRECTION FOR ERRORS (continued)**

Company's accumulated deficit, additional-paid-in capital and stock options and warrants accounts. See Note 9. 

The cumulative effects of the financial statement amendments and the correction for an accounting error, as described above in this Note 14, resulted in the following changes to the Company's financial statements:  For the year ended December 31, 2004, the Company had originally reported a net loss of $1,824,817, and the corrected net loss is $2,060,434.  The Company had reported an accumulated deficit of $7,874,110, which is now recognized as $10,992,260.  The Company's losses per share increased by $.01 per share, from $.05 to the corrected value of $.06 per share.

**NOTE 15 – SUBSEQUENT EVENTS**

In March, 2005, the Company announced that it had executed a definitive merger agreement in which Thermoplastic Composite Design (hereinafter "TCD") will merge with and into the Company's wholly-owned subsidiary, Envirokare Composites Corp. (hereinafter "ECC").  The transaction will combine all of TCD's business, including its intellectual property, assets and contracts with ECC.  The merger agreement provides for an initial payment of $2.5 million to TCD shareholders and a subsequent schedule of payments over a seven-year period which in total will amount to $15 million. 

Also in March, 2005, the Company announced that ECC has executed a 50:50 joint venture agreement with Nova Chemicals, Inc., to create a new company, LRM Industries LLC, to commercialize the Company's Thermoplastic Flow forming technology ("TPF").  The Company will contribute its intellectual property rights, technology, manufacturing equipment and all TPF business activities which were acquired through the merger with TCD into the joint venture, while Nova Chemicals will contribute certain specified capital and services.  

Additionally, the Company's chief executive officer resigned in order to take the position of chief executive officer of LRM Industries, LLC.  The Company has elected a new chief executive officer.

F-34

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**SIGNATURES**

                In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,  on January 23, 2006.         
| Registrant                |   | ENVIROKARE TECH, INC.                        |
|--------------------------------|--------|----------------------------------------------|
|                           |   |                                              |
|                           |   |                                         |
| By:                            |   | /s/ Nicholas Pappas                          |
|                           |   |                                              |
| Name:             Title:  |   | Nicholas Pappas             Chairman and CEO |
| By:                            |   | /s/ George Kazantzis                                                |
|--------------------------------|--------|---------------------------------------------------------------------|
|                           |   |                                                                     |
| Name:             Title:  |   | George Kazantzis             President, Principal Financial Officer |