INTRODUCTORY NOTE
This Amendment No. 1 to Rubber Technology International, Inc.'s Form 10-QSB
for the quarter ended August 31, 2000 filed on October 16, 2000 is being
filed to correct a typographical error contained on page three of that filing
whereby the column headings for the Company's balance sheet dated August 31,
2000 was inadvertently reversed.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-QSB
(Mark One)
[ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended August 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 0-30098
RUBBER TECHNOLOGY INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
FLORIDA 59-2728052
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
3185 E. WASHINGTON BLVD.,
LOS ANGELES, CALIFORNIA 90023
(Address of Principal Executive Offices) (Zip Code)
(323) 268-6842
(Issuer's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.0001
(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
----
Indicate the number of shares outstanding of each of the issuer's class of
common stock as of the latest practicable date:
Title of each class of Common Stock Outstanding as October 13, 2000
----------------------------------------- -----------------------------
Common Stock, $0.0001 par value 30,095,626
Transitional Small Business Disclosure Format (check one):
Yes No X
------
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TABLE OF CONTENTS
-----------------
PART I - FINANCIAL INFORMATION
INDEX
RUBBER TECHNOLOGY INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at August 31, 2000 (Unaudited) and
November 30, 1999
Consolidated Statements of Operations (Unaudited) three months
and nine months ended August 31, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) nine months
ended August 31, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Page 2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
ASSETS
<S> <C> <C>
AUGUST 31, NOVEMBER 30,
2000 1999
(AUDITED)
------------------- ------------
CURRENT ASSETS
Cash $ 59,749 $ 29,672
Accounts Receivable 124,239 25,574
Inventory 28,540 43,232
Prepaid Expenses 17,270
------------------- ------------
Total Current Assets 229,798 98,478
PROPERTY AND EQUIPMENT (NOTE 4)
Property and Equipment, net of Accumulated Depreciation 797,127 797,704
OTHER ASSETS
Account Receivable 1,118,665 807,084
Deposits 10,813 10,500
Corporate Reorganization Costs 250,000
Plant Design - Second Plant 92,816 92,816
------------------- ------------
Total Other Assets 1,472,294 910,400
------------------- ------------
TOTAL ASSETS $ 2,499,219 $ 1,806,582
=================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 235,665 $ 118,740
Current Portion of Long-Term Debt 80,692 57,180
Short-Term Notes Payable 9,000 114,229
------------------- ------------
Total Current Liabilities 325,357 290,149
LEASE COMMITMENTS (NOTES 4 AND 7)
LONG-TERM LIABILITIES (NOTES 4 AND 6)
Note Payable - Equipment 186,786 193,774
Notes Payable - Officers 66,673 69,437
Due Shareholders 956,752 729,570
1,210,211 992,781
------------------- ------------
TOTAL LIABILITIES 1,535,568 1,282,930
SHAREHOLDERS' EQUITY
Common Stock, $0.0001 par value, authorized 75 million shares;
Issued and outstanding at August 31, 2000, 30,095,626 shares 3,009 1,083
Additional Paid-In Capital, principally from Sales of Common Shares 3,220,243 2,116,037
Retained Deficit (accumulated during initial operating stage) (2,259,601) (1,593,468)
TOTAL SHAREHOLDERS' EQUITY 963,651 523,652
------------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,499,219 $ 1,806,582
=================== ============
</TABLE>
See accompanying notes to financial statement disclosures.
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<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 2000 AUGUST 31, 1999 AUGUST 31, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
REVENUES
Revenues $ 344,902 $ 625,322 $ 94,855 $ 467,646
COST OF GOODS SOLD
Labor 139,199 297,783 45,116 142,272
Repairs and Maintenance 16,733 59,301 4,720 31,931
Trash 22,352 69,460 2,223 9,489
Raw Materials and Other 66,676 120,077 5,093 27,732
----------------- ----------------- ----------------- -----------------
Total Cost of Goods Sold 244,960 546,621 57,152 211,424
----------------- ----------------- ----------------- -----------------
GROSS MARGIN 99,942 78,701 37,703 256,222
SELLING, GENERAL AND ADMINISTRATIVE
Premises Rent 38,438 115,002 26,010 70,040
Legal and Professional 27,085 82,873 6,299 50,195
Administrative Salaries 75,288 185,301 26,537 94,194
Depreciation and Amortization 36,000 108,000 37,875 106,686
Utilities 32,465 70,246 7,776 33,562
Interest Expense 25,411 51,224 7,499 64,156
Other Expenses 55,640 129,787 18,452 79,411
----------------- ----------------- ----------------- -----------------
290,327 742,434 130,448 498,244
----------------- ----------------- ----------------- -----------------
NET INCOME (LOSS) BEFORE TAXES ON
INCOME (190,385) (663,733) (92,745) (242,022)
TAXES ON INCOME 1,600 2,400 947
----------------- ----------------- ----------------- -----------------
NET ORDINARY INCOME (LOSS) $ (191,985) $ (666,133) $ (92,745) $ (242,969)
================= ================= ================= =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 26,958,718 17,711,466 10,156,878 9,501,051
================= ================= ================= =================
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ (0.04) $ (0.01) $ (0.03)
================= ================= ================= =================
</TABLE>
See accompanying notes to financial statement disclosures.
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<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS NINE MONTHS
ENDED ENDED
AUGUST 31, 2000 AUGUST 31, 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Operating Income (Loss) $ (666,133) $ (242,969)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Changes in Operating Assets and Liabilities
Accounts Receivable (98,665) 47,517
Inventory 14,692 65,403
Prepaid Expenses (17,270)
Provision for Depreciation and Amortization 108,000 106,686
Accounts Payable 116,925 35,950
Current Portion of Long Term Debt 23,512
Short Term Notes Payable (105,229) (238,824)
----------------- -----------------
Net Cash (Used in) Operating Activities (624,168) (226,237)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and Installation of Equipment (107,423) (15,513)
Increase in Deposit (313) (2,000)
Corporate Reorganization and Debenture Costs (250,000)
Receipts from (Advances to) New Venture (311,581) (693,565)
----------------- -----------------
Net Cash (Used in) Investing Activities (669,317) (711,078)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt Increase (Decrease) Due Shareholders 227,182 719,360
Debt (Decrease) Equipment Loan (6,988)
Debt (Decrease) Notes Payable - Officers (2,764) 24,673
Issuance of Shares for Professional Services 114,000
Proceeds from Sale of Securities and Debenture Conversions 1,106,132 305,758
Proceeds and Interest from Debentures 807,220
Conversion of Debentures into Common Shares (807,220)
----------------- -----------------
Net Cash Provided by Financing Activities 1,323,562 1,163,791
----------------- -----------------
NET INCREASE (DECREASE) IN CASH 30,077 226,476
CASH, BEGINNING OF PERIOD 29,672 302,710
----------------- -----------------
CASH, END OF PERIOD $ 59,749 $ 29,672
================= =================
</TABLE>
See accompanying notes to financial statement disclosures.
Page 5
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RUBBER TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1999 AND 2000
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Rubber Technology International, Inc. (the "Company") was incorporated as
Sunshine Capital, Inc. on July 25, 1986 in the state of Florida. It commenced
operations in 1997 through the acquisition of a Nevada corporation, which had
then commenced operations in California. In March 2000 the Company acquired all
of the outstanding common shares of Global Sight, Inc., becoming the parent
corporation of that entity, and concurrently becoming a fully reporting
corporation under the Rules and Regulations of the Securities and Exchange
Commission.
The Company is authorized to issue up to 75,000,000 shares of its $0.0001
par value common shares. As of August 31, 2000, 30,095,626 shares of common
stock were issued and outstanding. There are no other authorized shares of
common or preferred stock.
The Company had limited operations from its operational 1977 inception to
November 30, 1999. During the fiscal 2000 periods of these financial
statements, the Company completed its production lines and initiated product
sales. The Company recycles whole tires and tire by-products into marketable
commodities such as crumb rubber for playground fill, rubberized asphalt and
rubber mats and molded products such as traffic safety devices, tree rings and
various landscape products.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
The consolidated financial statements of the Company are prepared using the
accrual basis of accounting. A portion of the raw materials placed into
production comes from whole tires received by the Company. A fee is normally
paid the Company on receipt of these tires, which is directly recognized as
revenue.
All inventory items are stated at the lower of cost (first-in, first-out)
or market value. Freight costs are included as expenses.
Repair and maintenance expenses individually exceeding $500 are amortized
over the ensuing six month period.
Property, including leasehold improvements, and equipment are carried at
cost. Depreciation is provided using the straight line method over the
estimated useful life of the equipment. Leasehold improvements are amortized
over the term of the applicable lease, assuming all extensions are exercised.
The Company's main operating facility is located in an Enterprise Zone
within the City of Los Angeles. This allows for tax advantages such as labor
and investment credits and extended tax carry-overs, which are included herein.
The Company has experienced operating losses to date and evaluates its need for
a provision for federal income tax after each quarter. Income taxes for the
current years are offset by prior years losses and tax credits principally
arising from the stated Enterprise Zone credits and provisions. Its rubber
recycling facility is operated by the Nevada corporation.
All exchanges of common stock for services rendered, as more fully
described in the Statement of Shareholders' Equity, were recorded at the fair
value of the services.
The Company has not adopted any policy regarding payment of dividends. No
dividends have been paid since inception.
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions which affect the reported amounts of assets and liabilities as of
the date of the financial statements and revenues and expenses for the period
reported. Actual results may differ from these estimates.
The Company has adopted November 30 as its fiscal year end.
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NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. However, the Company's current operations are not sufficient to cover
all its costs. Without realization of additional capital or increased
operational revenues, it would be unlikely for the Company to continue as a
going concern. It is management's plan to seek additional capital from
qualified investors under loans and private placement provisions available to it
and to increase the level of recurring revenues to cover its costs.
NOTE 4 - LONG TERM LIABILITIES
The Company is obligated under a loan which is secured by its production
assets. The loan is fully amortizing over an eighty-four month term at $4,765
per month, terminating November 2006. This loan has been personally guaranteed
by a shareholder.
Under the provisions of long-term third party other, single unit, personal
property debt agreements, the Company has the following additional minimum
annual payment obligations:
Year Ended August 31
------------------------------------
2001 2002 2003
--------- ---------- -----------
Note Payable - Equipment $ 57,200 $ 57,200 $ 57,200
Notes and Leases Payable - Other 23,500 16,300 14,900
--------- ---------- -----------
$ 80,700 $ 73,500 $ 72,100
========= ========== ===========
Notes due officers and shareholders do not have a current demand element
within he repayment terms. If the note terms required repayment over a five year
term, the annual principal maintenance for the aggregate of the loans would
approximate $120,000 per year.
NOTE 5 - SENIOR SUBORDINATED CONVERTIBLE DEBENTURES
On March 10, 2000, the Company funded an 8% Senior Subordinated Convertible
Redeemable Debenture in the aggregate amount of $800,000, payable $400,000 at
closing and $400,000 sixty days later. These debentures were purchased at
ninety per cent of the face amount. Interest was payable monthly and the
debentures were all due March 10, 2002.
At the discretion of the holder and on notice to the Company, these
debentures were convertible into common shares of the Company at seventy five
per cent of the closing bid price as of the close of trading the day prior to
exercise of any conversion by the holder. As of August 31, 2000, the debentures
were fully funded and fully converted into 15,097,402 shares of the Company's
common stock.
NOTE 6 - RELATED PARTY TRANSACTIONS
Due shareholders includes $250,000 due one non-officer shareholder, arising
from monetary investments, the guarantee described in Note 5, and minor services
by that shareholder, and $706,752 due the trust of an officer and shareholder,
arising from monetary investments into the Company. Certain current liabilities
have been personally guaranteed by this officer.
Other than the loans from officers and shareholders, the Company has not
engaged in related party transactions.
The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the resolution
of such conflicts.
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NOTE 7 - LEASE COMMITMENTS
As of August 31, 2000, the Company is obligated under leases for its
production facilities. Future minimum lease payments under these leases are:
Term Minimum Annual Payment
---- ----------------------
September 1, 2000 - August 31, 2001 $ 145,700
September 1, 2001 - August 31, 2002 107,700
September 1, 2002 - August 31, 2003 108,900
September 1, 2003 - August 31, 2004 111,100
September 1, 2004 - August 31, 2005 112,200
----------
$ 585,600
The primary term of the core facility lease ends December 2001. The
Company has an option to extend the term of this lease for an additional five
years. A second lease for a contiguous parcel expires July 2001. The leases
and the options provide for cost of living increases between 3-6% per year on
the lease anniversary dates in 2002 and 2004, if extended. Additionally, the
Company is required to pay any property tax increases over the base year.
The lease provides the Company an option to purchase the property under
market conditions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
GENERAL OVERVIEW
The Company's principal line of business is the recycling of used tire and other
used rubber products into crumb rubber (small rubber particles of various sizes)
and molded rubber products, generally on a wholesale basis. These products are
delivered throughout the south western United States. To date, the Company's
strategy has been to build a concentrated customer base in approximately four
product lines of the many and various products available; molded goods, crumb
rubber for resale, crumb rubber for playground and arena fill and mesh rubber
for use in rubberized asphalt concrete. This strategy has allowed for an
expanding market in terms of both customers and products and has allowed the
Company to expand production levels beyond a minimum equipment level without
being limited by capacity or geographic considerations. In order to remain
competitive, the Company believes that it must continue to offer its common
products and services at competitive market prices. The Company believes that
in order to continue to offer its products at the lower prices, the Company will
need to acquire additional equipment and institute operational efficiencies.
Accordingly, the Company is obtaining additional machinery through additional
financing and consulting with efficiency and industry experts in their
installation and operation.
It is believed that the market for the Company's existing products and
additional products currently being researched will be of sufficient quantity to
deliver all the rubber products the Company can produce against sales orders.
The Company intends, on a short term basis, to continue sales principally in the
south western United States. Sales are scheduled to expand to additional states
and, eventually, internationally.
In addition to sales of its products and services, the Company's revenues
include a fee to accept tires into its facility. Acceptance fees, called
"tipping fees", are recorded as revenue when the tires are received. All sales
and revenues are recorded on the accrual basis, where revenues are recorded when
earned/shipped to its customers. There are no advance fee or significant volume
discount arrangements.
Cost of sales includes the operation, including maintenance, of the Company's
light and heavy equipment, the direct labor to operate this machinery and the
supplies incident to the sales and plant operations. Selling, general and
administrative expenses consist of the cost of research and development of new
or enhanced existing products, corporate expenses and all administrative
personnel and expenses to support the Company's operations and growth.
The Company, depending on the extent of its future growth, may experience
significant strain on its management, personnel, and information systems. The
Company will need to implement and improve operational, financial, and
management information systems. In addition, the Company is implementing
expanded information systems that will provide better production record-keeping,
customer service and billing. However, there can be no assurance that the
Company's management resources or information systems will be sufficient to
manage any future growth in the Company's business, and the failure to do so
could have a material adverse effect on the Company's business, results of
operations and financial condition.
RESULTS OF OPERATIONS OF THE COMPANY
NINE MONTHS ENDED AUGUST 31, 2000 COMPARED TO NINE MONTHS ENDED AUGUST 31, 1999
REVENUES - Revenues increased 33.7%, or $157,676, from $467,646 for the nine
months ended August 31, 1999 to $625,322 for the nine months ended August 31,
2000. Revenues for the nine months ended August 31, 1999 included $225,000 in
management fees, pursuant to an agreement wherein the Company provided
management expertise in the development of a potential joint venture. Revenues
in the nine months ended August 31, 2000 were solely from the receipt of tires
into production and sales of rubber based products. Revenue comparisons based
solely on the revenues of rubber based production and products reflect an
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increase of 157.7%, or $382,676, from the nine months ended August 31, 1999 to
the nine months ended August 31, 2000. During the period ended August 31, 2000,
the Company further expanded its products to additionally include playground
fill and expanded its shipped merchandise in all other categories pursuant to
its plan of operations. Primarily in the area of molded goods, certain customer
relationships have required a period of mutual research to determine the best
product materials mixture. The Company expects that product deliveries in both
its molded and crumb rubber product lines will increase in the near future.
COST OF SALES - Cost of sales increased 158.5%, or $335,197, from $211,424 for
the nine months ended August 31, 1999 to $546,621 for the nine months ended
August 31, 2000. Cost of sales is primarily composed of labor, equipment
repairs and maintenance, disposal costs, and other more minor expenses. Cost of
sales for the period ended August 31, 1999 was primarily comprised of direct
labor costs of $142,272, maintenance of equipment totaling $31,931, and disposal
costs of $9,489. As a percentage of sales and excluding the $225,000 in
management revenues which did not incur cost of sales expenses, these 1999 nine
month cost of sales components were 58.6%, 13.2% and 3.9%, respectively. Cost
of sales for the period ended August 31, 2000 were comprised primarily of direct
labor costs of $297,783 (47.6% of revenues), equipment reconfiguration and
maintenance of $59,301 (9.5% of revenues), disposal costs of $69,460 (11.1% of
revenues) and purchases of raw material for processing and resale of $44,109
(7.1% of revenues). In whole dollars, all costs of sales increased in the
comparative nine months ended August 31, 2000 as a result of the production
leading to the increased revenues. On a percentage of revenues basis, labor and
equipment maintenance decreased 11.0% and 3.7%, respectively, and disposal costs
and raw material purchases increased 7.2%, and 7.1%, respectively. The
increased disposal costs and material purchases are a result of production
equipment deficiencies identified in the 2000 period incurred in increasing
production volume. There were additional planned production cost increases in
anticipation of increased production and sales for the fiscal third quarter, the
first such expenses which the Company believes will ultimately lead to increased
production efficiencies. In management's opinion, the Rasper rental equipment
now installed, and scheduled to be replaced in December 2000 with a new, higher
production Rasper unit will substantially increase production efficiencies,
decrease disposal costs and eliminate the need to purchase interim feed stock.
The August 2000 production dramatically declined, however, when the two 3 ton
machined rolls being refurbished for a strategic mill were heavily damaged in
transit back to the Company. The delay in fully refurbishing this mill extended
over six weeks.
As a percentage of total revenues, cost of sales was 45.2% in 1999 and 87.4% in
2000, resulting in apparent gross margins of 54.8% and 12.6% for the periods
ended August 31, 1999 and August 31, 2000, respectively. Excluding the $225,000
of management revenues in the period ended August 31, 1999, the comparative cost
of sales percentages become 87.1% in 1999 and 87.9% in 2000, and the gross
margin comparative percentages become 12.9% and 12.1%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses increased 49.0%, or $244,189, from the $498,244
incurred in the nine months ended August 31, 1999 to the $742,434 incurred in
the nine months ended August 31, 2000. SG&A expenses for the nine month period
ended August 31, 1999 were comprised primarily of facilities rent of $70,040
(15.0% of revenues), administrative salaries of $94,194 (20.1% of revenues),
professional fees of $50,195 (10.7% of revenues), depreciation of $106,686
(22.8% of revenues), and interest and related expenses of $64,156 (13.7% of
revenues). All SG&A expenses increased in relation to the costs of increased
revenues, except that administrative and management salaries increased $91,107
or 96.7% relating to the addition of two corporate officers in mid 2000 and
starting from a low nine month 1999 base of $94,194. The resulting net loss
increased 174.1%, or $423,164, from the $242,969 for the nine month period ended
August 31, 1999 to the results reported for the nine months ended August 31,
2000.
ASSETS AND LIABILITIES - Assets increased 37.8%, or $682,637, from $1,806,582 as
of November 30, 1999 to $2,499,219 as of August 31, 2000. The increase is
primarily attributable to a $98,665 increase in accounts receivable, a $311,581
increase in the long-term investment in a joint venture and a $250,000
capitalization of the costs of the acquisition of Global Sight, Inc.
Liabilities increased from $1,282,930 as of November 30, 1999 to $1,535,568 as
of August 31, 2000. This increase is primarily attributable to increases in
accounts payable and accrued expenses of $116,925, a $105,229 decrease in
short-term debt and advances from an officer and his family trust and one
additional shareholder of $227,182.
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SHAREHOLDERS' EQUITY - Shareholders' equity increased 84.0% from $523,652 as of
November 30, 1999 to $963,651as of August 31, 2000. This $439,999 increase is
attributable to amounts raised in the Company's Rule 504 offerings of its common
stock of $198,913, the issuance of common shares for the acquisition of Global
Sight, Inc. and legal services rendered in completing the acquisition, the
debenture funding and the conversion of $807,220 in outstanding debentures and
accrued interest, offset by the operating net losses for the nine months ended
August 31, 2000 of $666,133.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL - Overall, the Company had a positive cash flow of $30,077 in the nine
month period ending August 31, 2000 resulting from $1,323,562 of cash provided
by the Company's financing activities offset by $624,168 of cash used in
operating activities and $669,317 of cash used in investing activities.
CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $624,168
in the nine month period ended August 31, 2000 was primarily due to a net loss
of $666,133, an increase of accounts receivable of $98,665 and a $105,229
decrease in short-term debt, all partially offset by an increase of accounts
payable of $116,925, $108,000 in depreciation and amortization.
CASH FLOWS FROM INVESTING - Net cash used in investing activities of $669,317 in
the nine month period ended August 31, 2000 funded $250,000 of costs involved in
the March 2000 corporate purchase of Global Sight, Inc., $311,581 invested in
the venture project and $107,423 invested in new production equipment.
CASH FLOWS FROM FINANCING - Net cash provided by financing activities of
$1,323,562 in the nine month period ended August 31, 2000 was primarily due to
the proceeds from sales and issuances of the Company's common stock of $198,913,
proceeds from the $800,000 debenture funding which was fully converted into
common shares during the period and proceeds from borrowings from a shareholder
of $227,182.
CAPITAL EXPENDITURES
The Company expended $107,423 in the nine months ended August 31, 2000 to
purchase additional equipment in connection with the expansion of its business.
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED TO THREE MONTHS ENDED AUGUST 31,
1999
REVENUES - Revenues increased 263.6%, or $250,047, from $94,855 for the three
months ended August 31, 1999 to $344,902 for the three months ended August 31,
2000. During the period ended August 31, 2000, the Company further expanded its
products to additionally include playground fill and expanded its shipped
merchandise in all other categories pursuant to its plan of operations.
Primarily in the area of molded goods, certain customer relationships have
required a period of mutual research to determine the best product materials
mixture. Based on these positive relationships, the Company is of the opinion
that there will be significant increases in its product deliveries in the near
future in both its molded and crumb rubber product lines.
COST OF SALES - Cost of sales increased 328.6%, or $187,808, from $57,152 for
the three month period ended August 31, 1999 to $244,960 for the three months
ended August 31, 2000. Cost of sales is primarily composed of labor, equipment
repairs and maintenance, disposal costs, and other more minor expenses. Cost of
sales for the period ended August 31, 1999 were primarily comprised of direct
labor costs of $45,116, maintenance of equipment totaling $4,720, and disposal
costs of $2,223. As a percentage of sales, these 1999 three month costs of
sales were 47.6%, 5.0% and 2.3%, respectively. Cost of sales for the period
ended August 31, 2000 were comprised primarily of direct labor costs of $139,199
(40.4% of revenues), equipment reconfiguration and maintenance of $16,733 (4.9%
of revenues), disposal costs of $22,352 (6.5% of revenues) and purchases of raw
material for processing and resale of $44,109 (12.8% of revenues). In whole
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dollars, all costs of sales increased in the comparative three months ended
August 31, 2000 as a result of the production leading to the increased revenues.
On a percentage of revenues basis, labor and maintenance decreased 7.2% and .1%,
respectively, and disposal costs and raw material purchases increased 4.1%, and
12.8%, respectively. The increased disposal costs and material purchases are a
result of production equipment deficiencies identified in the 2000 period
incurred in increasing production volume. There were additional planned
production cost increases in anticipation of increased production and sales for
the fiscal third quarter, the first such expenses which the Company believes
will ultimately lead to increased production efficiencies. In management's
opinion, the Rasper rental equipment now installed, and scheduled to be replaced
in December 2000 with a new, higher production Rasper unit will substantially
increase production efficiencies, decrease disposal costs and eliminate the need
to purchase interim feed stock. The August 2000 production dramatically
declined, however, when the two 3 ton machined rolls being refurbished for a
strategic mill were heavily damaged in transit back to the Company. The delay
in fully refurbishing this mill extended over six weeks.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses increased 122.6%, or $159,879, from the
$130,448 incurred in the three months ended August 31, 1999 to the $290,327
incurred in the three months ended August 31, 2000. SG&A expenses for the three
month period ended August 31, 1999 were comprised primarily of facilities rent
of $26,010 (27.4% of revenues), administrative salaries of $26,537 (27.9% of
revenues), professional fees of $6,299 (6.6% of revenues), depreciation of
$37,875 (40.0% of revenues), and interest and related expenses of $7,499 (7.9%
of revenues). All SG&A expenses increased in relation to the costs of increased
revenues, except that administrative and management salaries increased $48,751,
or 183.7%, relating to the addition of two corporate officers in mid 2000 and
starting from a low three month 1999 base of $26,537. The resulting net loss
increased 107.0%, or $99,240, from the $92,745 for the three month period ended
August 31, 1999 to the $191,985 loss for the three months ended August 31, 2000.
ASSETS AND LIABILITIES - Assets decreased 5.5%, or $144,147, from $2,643,366 as
of May 31, 2000 to $2,499,219 as of August 31, 2000. This decrease was
primarily attributable to an decrease in cash of $325,521 offset by an increase
in trade accounts receivable of a $69,427 and a $165,367 increase in the
long-term investment receivable in a joint venture. Liabilities decreased
$534,381 from $2,069,949 as of May 31, 2000 to $1,535,568 as of August 31, 2000.
This liability decrease was primarily attributable to the conversion of $575,000
of senior convertible debentures into common shares of the Company, a decrease
of short-term debt of $126,593, offset by increased advances from an officer's
family trust and one additional shareholder of $87,686 and by an $88,232
increase in accounts payable and accrued expenses.
SHAREHOLDERS' EQUITY - Shareholders' equity increased 68.0%, or $390,234, from
$573,417 as of May 31, 2000 to $963,651 as of August 31, 2000. This increase
was primarily attributable to the conversion of $575,000 in outstanding
debentures offset by net operating losses for the three months ended August 31,
2000 of $191,985.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL - Overall, the Company had a negative cash flow of $325,521 in the three
month period ending August 31, 2000 resulting from $257,639 of cash used in
operating activities, $130,569 of cash applied in investing activities and all
offset by $62,688 provided by the Company's financing activities.
CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $257,639
in the three month period ended August 31, 2000 was primarily due to a net
operating loss of $191,985, an increase of accounts receivable of $69,427 and a
$126,593 decrease of short-term notes payable, offset partially by a decrease of
accounts payable of $88,232 and depreciation of $36,000.
CASH FLOWS FROM INVESTING - Net cash used in investing activities of $130,569 in
the three month period ended August 31, 2000 funded $165,367 in advances to the
new venture and $45,202 in purchases of equipment, offset by an $80,000
debenture cost reduction.
CASH FLOWS FROM FINANCING - Net cash provided by financing activities of $62,688
in the three month period ended August 31, 2000 was primarily obtained from the
$87,686 increase in long-term debt due shareholders. Debentures totaling
$575,000 and an interest component of $7,220 were fully converted to common
shares in the three months ended August 31, 2000.
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CAPITAL EXPENDITURES
The Company expended $45,202 in the three months ended August 31, 2000 to
purchase additional equipment in connection with the expansion of its business.
The Company's significant equipment acquisition plans include the acquisition of
a new Rasper tire shredder in the last calendar quarter of 2000, up to seven
cracker mills and molding machines in the second and third fiscal quarters of
2001 and an additional Rasper in the third fiscal quarter of 2001. Approximate
costs for the acquisition and installation of a Rasper is $300,000 and the
estimated costs for the aggregate remaining equipment is approximately $750,000.
Traditional bank financing has been arranged for the Rasper unit being installed
in the last calendar quarter of this year.
The Company believes that its anticipated funds from operations and funds from
the recent sale of its 8% Convertible Debenture will be insufficient to fund its
capital expenditures, working capital, and other cash requirements for the
foreseeable future. Therefore, the Company will be required to seek additional
funds to finance its long term operations ("Additional Funds"). Should the
Company fail to raise the Additional Funds, the Company will have insufficient
funds for the Company's intended operations and capital expenditures for the
next 12 months which may have a material adverse effect on the Company's
long-term results of operations.
GOING CONCERN
The Company's independent certified public accountants have stated in their
report included in Form 10-KSB as of November 30, 1999, that the Company
incurred operating losses in the last two years and has not established a
long-term source of revenue. These conditions raised substantial doubt about
the Company's ability to continue as a going concern.
INFLATION
Management believes that inflation has not had a material effect on the
Company's results of operations.
EMPLOYMENT
As of August 31, 2000, the Company had 29 full time employees.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 10, 2000, the Company entered into a Securities Purchase Agreement with
one accredited institutional investor pursuant to which it agreed to issue
$800,000 aggregate amount of convertible debentures. These debentures are
convertible at 75% of the bid price of the Company's common stock on the trading
day preceding the date of conversion. This offering was conducted under Rule
504 of Regulation D promulgated under Section 4(2) of the Securities Act of
1933. As of June 30, 2000, all $800,000 of the Debentures had been converted,
resulting in the issuance of an aggregate of 15,097,404 of the Company's Common
stock pursuant to the terms of the Debenture.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the three
month period ended August 31, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934. The
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RUBBER TECHNOLOGY INTERNATIONAL, INC.
By /s/ Trevor Webb
-----------------------------
Trevor Webb
President & Chief Executive Officer
By /s/ Fred Schmidt
-----------------------------
Fred Schmidt
Chief Financial Officer
Dated: October 19, 2000
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