UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1999
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 0-25703
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 $0.001
(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 there is no disclosure of delinquent filers pursuant 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. [ ]
State issuer's revenues for its most recent fiscal year. $593,620
State the aggregate market value of 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 prices of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
rule 12b-2 of the Exchange Act.) $2,043,892
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 14,885,724
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc. )
into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990).
None.
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 Management's Discussion and Analysis.
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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INTRODUCTORY NOTE
This Annual Report on Form 10-KSB may be deemed to contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company intends that
such forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Annual Report contains forward-looking statements regarding
the financial condition, operating results, business prospects or any other
aspect of the Company, please be advised that the Company's actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, disadvantageous currency exchange rates, termination of
contracts, loss of suppliers, technological obsolescence of the Company's
products, technical problems with the Company's products, price increases for
supplies and components, inability to raise prices, failure to obtain new
customers, litigation and administrative proceedings involving the Company, the
possible acquisition of new businesses that result in operating losses or that
do not perform as anticipated, resulting in unanticipated losses, the possible
fluctuation and volatility of the Company's operating results, financial
condition and stock price, losses incurred in litigating and settling cases,
dilution in the Company's ownership of its business, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss or retirement
of key executives, changes in interest rates, inflationary factors, and other
specific risks that may be alluded to in this Annual Report or in other reports
issued by the Company. In addition, the business and operations of the Company
are subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
Rubber Technology International, Inc. ("RTEK") is a Florida corporation
that accepts waste tires from tire retailers, service stations, salvage yards
and from clean up jobs with governmental agencies, private individuals and
companies.
In the early 1990's, Raymond L. Webb and James Mason initiated a business
of cleaning up tire stock piles, collecting and receiving tires for shred and
land filling the remnant portions. This is the dominant business of the
majority of companies in the tire recycling business.
In late 1996, this business was incorporated in Nevada as Rubber Technology
International, Inc. ("RTI-Nevada"). RTEK initiated the preparation of a full
tire recycling facility in Los Angeles, CA. In February 1997, RTI-Nevada
purchased a Florida-based publicly traded corporation, Sunshine Capital, Inc.
(SCI), and through a reverse merger technique became company traded on the
over-the-counter bulletin board maintained by Nasdaq. Concurrently, SCI changed
its name to Rubber Technology International, Inc. ("RTEK").
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The common stock of RTI-Nevada was exchanged for the common stock of
Sunshine Capital, Inc. Concurrently, Sunshine changed its name to Rubber
Technology International, Inc. The transaction took the form of a reverse
merger, with the Webb family then owning 3,700,000 shares of RTI common stock
and the original incorporators owning a minor amount. A 300 for one reverse
stock split was effected in February 1997.
The Company raised additional capital in private placements effectuated in
accordance with Rule 504 promulgated by the Securities Exchange Commission in
1997 and 1998. These transactions resulted in approximately $1,907,985 in gross
proceeds. RTEK furthered its operations by making investments in plant,
production, design, product development and the sales. RTEK also developed a
reputation for quality products and timely production.
On March 12, 2000, the Company entered into a Securities Purchase Agreement
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.
RTEK uses 100% recycled, scrap rubber in a proprietary process to produce a
line of molded rubber products. The scrap tires are reduced in size with
shredders, grinders and cracker millsThe steel and nylon fluff are removed with
magnets and blowers at appropriate stages of the production. As a result of this
process, particles of rubber are produced. The particles are called "Crumb
Rubber", little pieces of rubber in varied sizes from 3/8 inch to 40 mesh.
These materials pass through sizing screens.
RTEK sells Crumb Rubber for use in rubberized running tracks, tennis
courts, rubber railroad crossings, earthquake isolators, traffic safety devices
and rubberized asphalt for roads and for other applications and to manufacturers
of molded products.
RTEK manufactures and sells high quality, recycled rubber for a variety of
applications within the transportation, agriculture, sports and fitness,
playground equipment and manufacturing industries. The Company uses recycled
rubber from scrap tires as the exclusive source of rubber for its own products.
RTEK also sells processed, recycled rubber as a raw material for use by others.
RTEK has increased production of its Crumb Rubber and molded products
through continuous improvements of its manufacturing processes. RTEK is
currently implementing new proprietary production methods that it believes will
permit it to increase production significantly by shortening of the production
cycle. These methods will permit the production of products with a wide variety
of potential applications. RTEK believes that these new processes will also
permit more efficient use of raw materials, thus expanding the use of scrap
tires as a raw material.
The key components of RTEK's expansion strategy include: (1) expanding
production of RTEK's existing product lines by improving the production process;
(2) focusing sales and marketing efforts on the higher value market segments;
(3) development of new products i.e. playground safety surfacing; and ( 4)
establishing additional plants in other locations where large quantities of
scrap tires are located.
RTEK is known for its innovation and production. RTEK is developing new
products and marketing these to industries that are currently using products
made from virgin (new) rubber. RTEK's industry focus is recycled rubber and
molded products. RTEK markets to customers in North America, Europe and the
Pacific Rim.
Products and Services
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The rubber tire recycling industry itself is less than twenty years old.
Over a dozen states in the United States have established methods, criteria and
support for the disposal of used tires. California is an industry leader. Not
only has it mandated requirements on the landfills within the state, eliminating
obligation to accept tires in the landfills, but the California Integrated Waste
Management Board has established grants and other supportive programs for the
businesses within California to foster the growth of all bona fide tire
recyclers. Further, the state has issued mandates allowing and requiring the
use of recycled products. Examples include the use of a mixed rubber and
asphalt slurry solution on most asphalt roads and their repair as well as the
use of rubber byproducts on school playgrounds in place of sand and/or wood
fibers. Rubber is safer, more resilient and less expensive than other
materials.
The Company's product mix includes:
Rubber for garden hose production Through a sub-contractor during the year
2000, the Company intends to commence to annually deliver 4.5 million pounds of
product. Management of the Company anticipates that these requirements could
increase in the event the Company successfully satisfies this contract.
Asphalt Rubber The Company currently delivers rubber to the asphalt
industry.
Playground Fill The Company delivers more than one million pounds annually
to local and out of state schools. This product is ground rubber and fiber to a
3/8" +/- size, without metal. The Company will be initiating an advertising
campaign to promote this product.
Molded Products .There are two forms of molded products, traffic and safety
products that the Company produces from its stockpiles and the Company prepares
on a service basis. Sales of traffic devices have increased to approximately
250,000 pounds annually.
Landscape products, principally comprised of tree rings and borders.
These are produced under contract and sold in WalMart and Target stores
Service Income
The Company receives used tires for shredding and grinding into other
products. For this service the Company is paid a "tipping fee". There is a fee
paid in all jurisdictions for tire recycling but the amount of the fee varies.
In Los Angeles the fee the Company receives ranges from $0.45 to $5.00 per tire.
Competition
There are very few full recyclers in any areas. For example, in Los
Angeles there are approximately eight companies that take in tires. Of these
companies, all but five simply shred the tires and land fill the shreds, and of
these shredding companies one has approached RTEK to accept shredded tires on a
wholesale basis. The stated goal of the California Governmental Board is to
eliminate the land filling of all tires and to cause all waste tires to be
recycled or reused in some way.
The two companies in Los Angeles that actually recycle tires are RTEK and a
company that only produces rubber for the rubberized asphalt industry. RTEK has
a purchase order from this competitor to cover volume short runs as they occur.
Only RTEK creates a final product from the tires it receives.
Last year, RTEK received almost three million pounds of tires. RTEK can
increase its receipts of tires without significant expense or revenue reduction
by increasing collection sites in other counties or states and thereby increase
its revenues and profits.
Trademarks, Patents, and Other Intellectual Property
RTEK's philosophy is to utilize existing technology in all its production
applications. There are no patents, etc. in RTEK's name and no additional
research and development costs have been incurred in the pursuit of new
processes. All research and development is applied to the research of new and
better products.
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Marketing Plan
Tire recycling is a relatively new industry. New products are being
created every day based on the creativity of the inventors and the inherent
characteristics and components of rubber. RTEK has recently identified several
recycled products that it intends to market in the future. Based on its ability
to produce these products, past sales, and discussions with current and
prospective customers, RTEK will concentrate its efforts in (i) mesh for various
products including garden hoses, (ii) playground fill, and (iii) molded
products. The receipt of tipping fees continues to increase as long as tires
are being taken in and products are produced to customers.
Governmental Regulations
Management of the Company is not aware of any significant governmental
regulations on the operation of its business, other than environmental
regulations. Most jurisdictions require a process permit to assure that tire
piles are not allowed to accumulate into a fire hazard and mosquitoes are
controlled. RTEK has permits for its Los Angeles facility.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently has only one production facility, located at 3185
East Washington Blvd, Los Angeles, CA 90023. The Company's telephone number is
(323) 268-6842 and its facsimile number is (323) 268-7328. The Company's
offices contain approximately 1,800 square feet and the Company's production
facility of 17,200 square feet houses all equipment necessary to store shred,
grind and mold used tires into marketable products.
The Company's facility is leased for a monthly rental of $12,848 and has a
term until December 31, 2001, with a five year option to extend.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during year
ended November 30, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
MARKET INFORMATION
RTEK's common stock is presently traded on the OTC Bulletin Board operated
by Nasdaq under the symbol RTEKE. RTEK effected a stock exchange transaction
with Global Sight on March 12, 2000 and became a successor issuer thereto in
order to comply with the reporting company requirements implemented by the
over-the-counter bulletin board, and consequently anticipates that its symbol
will be changed to "RTEK".
The following table sets forth the high and low closing prices for shares
of RTEK common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CLOSING PRICES
YEAR PERIOD HIGH LOW
- ----- ---------------------------------------- ------- -----
2000 First quarter $ 0.43 $0.12
1999 First quarter $ 1.19 $0.27
Second quarter $ 0.31 $0.09
Third quarter $ 0.13 $0.07
Fourth quarter $ 0.27 $0.04
1998 Second quarter $ 1.21 $0.76
Third quarter $ 1.70 $0.90
Fourth quarter $ 1.98 $0.88
</TABLE>
In addition to freely tradeable shares, RTEK has numerous shares of common
stock outstanding which could be sold pursuant to Rule 144. In general, under
Rule 144, subject to the satisfaction of certain other conditions, a person,
including one of our affiliates, who has beneficially owned restricted shares of
common stock for at least one year is entitled to sell, in certain brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the same
class, or the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate for at least thre months immediately preceding the sale and
who has beneficially owned the shares of common stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the volume
limitations described above.
NUMBER OF SHAREHOLDERS
The number of beneficial holders of record of the Common Stock of the Company as
of the close of business on November 30, 1999 was approximately 90. Many of the
shares of the Company's Common Stock are held in a "street name" and
consequently reflect numerous additional beneficial owners.
DIVIDEND POLICY
To date, the Company has declared no cash dividends on its Common Stock, and
does not expect to pay cash dividends in the next term. The Company intends to
retain future earnings, if any, to provide funds for operation of its business.
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RECENT SALES OF UNREGISTERED SECURITIES
Please note that all references reflect a one for 300 reverse stock split
accomplished on January 30, 1998 as well as a three for two forward stock split
accomplished on September 8, 1998.
In February 1997, the Company (which at the time was designated Sunshine
Capital, Inc., a Florida corporation ("Sunshine")) acquired all of the
outstanding common stock of Rubber Technology International, Inc., a Nevada
corporation ("RTI-Nevada") in a business combination described as a "reverse
acquisition". As part of the reorganization, the Company issued 18,500 shares
of its Common Stock to the shareholders of RTI-Nevada in exchange for all of the
outstanding shares of Common Stock of RTI-Nevada. Such shares include the shares
owned by officers and directors of the Company as set forth in the Section
"Security Ownership of Certain Beneficial Owners and Management" hereunder.
This issuance was conducted under an exemption under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").
On January 31, 1997 the Company completed a private placement of 3,180 shares to
16 investors for total consideration of $158,984. This offering was completed
in accordance with Rule 504 promulgated under Regulation D of the Securities
Act.
On April 24, 1997 the Company completed a private placement of 46,688 shares to
31 investors for total consideration of $841,510. This offering was completed
in accordance with Rule 504 promulgated under Regulation D of the Securities
Act.
In March 1997, the Company issued 25,000 shares of common stock to 24
individuals who were its original incorporators for no consideration. This
issuance was conducted under an exemption under Section 4(2) of the Securities
Act.
On February 17, 1998 the Company issued 3,150,000 shares to one accredited
investor in consideration for cancellation of indebtedness. This issuance was
completed in accordance with Section 4(2) of the Securities Act.
On February 17, 1998, the Company issued 1,500,000 shares to a principal of the
Company in consideration for a personal guarantee of a Company debt obligation
and collateralization of a corporate debt. This issuance was completed in
accordance with Section 4(2) of the Securities Act.
From March 1998 through July 31, 1998, the Company completed a private placement
of 2,731,000 shares of common stock to a total of 27 individuals for total
consideration of $462,027. This offering was completed in accordance with Rule
504 promulgated under Regulation D of the Securities Act.
On September 22, 1998 the Company issued 39,000 shares to one accredited
investor for $38,996. This issuance was completed in accordance with Rule 504
promulgated under Regulation D of the Securities Act.
On November 24, 1998 the Company issued 70,000 shares to one accredited investor
for $97,993. This issuance was completed in accordance with Rule 504
promulgated under Regulation D of the Securities Act.
On November 12, 1998 the Company issued 100,000 shares to Preferred Financial
Services, Inc., an accredited investor and an investor relations firm. This
issuance was completed in accordance with Section 4(2) of the Securities Act.
In January and February 1999, the Company completed a private placement of
801,914 shares to 4 accredited investors for total consideration of $305,610.
This offering was completed in accordance with Rule 504 promulgated under
Regulation D of the Securities Act.
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In February 1999, the Company issued 250,000 shares of common stock to Fred
Maidenburg, CPA, who provided a credit line and guarantee for the Company. This
issuance was completed in accordance with Section 4(2) of the Securities Act.
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.
ITEM 6. 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 to recycle 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 services at
the lowest possible 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.
Management believes 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 in the south
western United States. Sales are scheduled to expand to additional states and,
eventually, internationally.
The Company's revenues consist of fees received to accept tires into its
facility and sales of its produced products. 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. 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.
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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
FISCAL YEAR ENDED NOVEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1998
REVENUES - Revenues totaled $593,620 and $464,239 for the years ended
November30, 1999 and 1998, respectively. During the year ended November 30,
1999, the Company 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 molded goods arena, 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 the volume of its shipped products will significantly
increase its product deliveries in the near future in both its molded and crumb
rubber product lines. Revenues for the year ended November 30, 1999 included
$225,000 in management fees, pursuant to an agreement wherein the Company is
providing management expertise in the development of a potential joint venture.
Revenues in the year ended November 30, 1998 included a one-time fee of
$210,000, received for reserved for special production capabilities which were
partially utilized. This fee was fully recorded in the period received and
earned.
COST OF SALES - Cost of sales totaled $446,481 and $252,986 for the years ended
November 30, 1999 and 1998, respectively. Cost of sales for the year ended
November 30, 1999 were comprised primarily of direct labor costs of $267,807,
utilities of $74,956 and equipment reconfiguration and maintenance of $61,435.
Cost of sales for the year ended November 30, 1998 was comprised of expensed
direct labor costs of $99,259 and utilities of $41,085. As a percentage of
revenues, cost of sales was 75.21% and 54.50%, resulting in a gross margin of
24.79% and 45.50% for the years ended November 30, 1999 and 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("S,G&A") expenses totaled $632,015 and $543,828, for the years
ended November 30, 1999 and 1998 respectively. For the year ended November 30,
1999, the Company completed financing of equipment and operations and incurred
significant expenses in these transactions. S,G&A expenses for the year ended
November 30, 1999 were comprised primarily of financing related third party
expenses of $161,000, facilities rent of $104,960, depreciation of $144,560,
professional fees of $49,070, product development costs of $47,733 and officer
salaries of $71,573. In addition, 375,000 common shares were issued to third
party individuals for loan funds and guarantees provided the Company's lenders.
S,G&A expenses for the year ended November 30, 1998 were comprised primarily of
facilities rent of $98,724, depreciation of $144,560, product research of $75,
451, officer salaries of $36,917, professional fees of $36,049, and expenses
related to shareholder relations of $31,961. The net loss was $629,437and
$332,576 for the years ended November 30,1999 and 1998, respectively.
ASSETS AND LIABILITIES - Assets increased from $1,588,148 as of November 30,
1998 to $1,806,582 as of November 30, 1999. The increase was attributable to
increases in long-term assets, principally gross increases of property and
equipment of $53,387 and other long term assets of $693,565 in receivables from
advances to the formative joint venture, offset primarily by a decrease in cash
of $273, 038 and inventories of $65,403. Liabilities increased from $740,817 as
of November 30, 1998 to $1,282,930 as of November 30, 1999. This increase was
attributable to increases in accounts payable of $35,950, accrued expenses of
$$24,673 and advances from an officer and his family trust and one additional
shareholder of $719, 360 offset primarily by the reduction of current notes
payable of $238, 824.
STOCKHOLDERS' EQUITY - Stockholders' equity decreased from $847, 331 as of
November 30, 1998 to $523,652 as of November 30,1999. The decrease was
attributable to the current year net loss of $629,437, offset by amounts raised
in the Company's Rule 504 offerings of its common stock of $305,690.
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LIQUIDITY AND CAPITAL RESOURCES
GENERAL B Overall, the Company had negative cash flows of $273,038 in fiscal
year ending November 30,1999 resulting from $1,050,745 of cash provided by the
Company's financing activities including $719,360 in loans from shareholders,
offset by $574,831of cash used in operating activities and $748,952 of cash used
in investing activities.
CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $574,831in
the fiscal year ended November 30, 1999 was primarily due to a net loss of
$629,437 and decreases in operating assets principally accounts receivable of
$47,517 and inventory of $65,403 and the decrease of the short term portion of
notes payable offset partially by the increase of accounts payable of $35,950.
CASH FLOWS FROM INVESTING - Net cash used in investing activities of $748,952 in
fiscal year 1999 funded purchases of equipment of $53,387, and advances to a new
joint venture of $693,565.
CASH FLOWS FROM FINANCING - Net cash provided by financing activities of
$1,050,745 in fiscal year 1999 was primarily due to the proceeds from sales of
the Company's common stock of $305,758 and proceeds from borrowings from
shareholders of $719,360.
SHORT-TERM FINANCING - On February 12, 1999, the Company completed a private
placement offering of 801,914 shares of the Company's Common Stock at a average
price of $0.38 per share, resulting in $305,690 raised.
CAPITAL EXPENDITURES
The Company expended $53,387 to purchase additional equipment in connection with
the expansion of its business.
GOING CONCERN
The Company's independent certified public accountants have stated in their
report included in this Form 10-KSB, that the Company has incurred operating
losses in the last two years and has not established a long-term source of
revenue. These conditions raise 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.
YEAR 2000 DISCLOSURE
11
<PAGE>
The Company has completed a review of its computer systems and non-information
technology ("non-IT") systems to identify all systems that could be affected by
the inability of many existing computer and microcontroller systems to process
time-sensitive data accurately beyond the year 1999, referred to as the Year
2000 or Y2K issue. The Company is dependent on third-party computer systems and
applications, particularly with respect to such critical tasks as accounting.
The Company also relies on its own computer and non-IT systems (which consists
of personal computers, internal telephone systems, Internet server and
associated software and operating systems). In conducting the Company's review
of its internal systems, the Company performed operational tests of its systems
which revealed no Y2K problems. As a result of its review, the Company has
discovered no problems with its systems relating to the Y2K issue and believes
that such systems are Y2K compliant. Additionally, the Company has obtained
written assurances from all of its major suppliers of third-party computer
systems and applications, indicating that they have completed a review of their
respective computer systems and that such systems are Y2K compliant. Costs
associated with the Company's review were not material to its results of
operations.
While the Company believes that its procedures have been designed to be
successful, because of the complexity of the Year 2000 issue and the
interdependence of organizations using computer systems, there can be no
assurances that the Company's efforts, or those of third parties with whom the
Company interacts, have fully resolved all possible Year 2000 issues. Failure
to satisfactorily address the Year 2000 issue could have a material adverse
effect on the Company. The most likely worst case Y2K scenario which management
has identified to date is that, due to unanticipated Y2K compliance problems,
the Company may be unable to bill its customers, in full or in part, for
services used. Should this occur, it would result in a material loss of some or
all gross revenue to the Company for an indeterminable amount of time, which
could cause the Company to cease operations.
EMPLOYMENT
As of November 30, 1999, the Company had 16 full time employees.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements and supplementary financial information
which are required to be filed under this item are presented under "Item 13.
Exhibits, Financial Statement Schedules and Reports on Form 10-KSB" in this
document, and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between James E. Slayton, CPA, and Management
of the type required to be reported under this Item 8 since the date of his
engagement
12
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth the names and ages of the current directors
and executive officers of RTEK, their principal offices and positions and the
date each such person became a director or executive officer. Our executive
officers are elected annually by the Board of Directors. Our directors serve
one year terms until their successors are elected. The executive officers serve
terms of one year or until their death, resignation or removal by the Board of
Directors. There are no family relationships between any of the directors and
executive officers. In addition, there was no arrangement or understanding
between any executive officer and any other person pursuant to which any person
was selected as an executive officer.
Our directors and executive officers are as follows:
Our directors and executive officers are as follows:
Name Age Positions
- ---- --- ---------
Raymond L. Webb 62 President and Director
James Mason 54 Vice President, Production
Fred Schmidt 55 Chief Financial Officer
Terrence Burke 53 Director
RAYMOND L. WEBB. PRESIDENT /CHAIRMAN OF THE BOARD
Raymond L. Webb, the founder of Rubber Technology International, graduated
from U.C.L.A. having majored in Business Administration and Economics. Prior to
the tire recycling business, Mr. Webb founded and operated Webb Development
Company, which developed Emery Bay Cove Marina, a 430 slip marina in the San
Francisco Bay, high-rise office and commercial buildings, apartment and
condominium complexes, government buildings, manufacturing facilities, modular
jail cells to accommodate over-crowding of detention centers, residential
dwellings from individual custom homes to housing tracts throughout the Western
United States.
FRED SCHMIDT. CHIEF FINANCIAL OFFICER
Fred Schmidt received his Bachelors of Science degree in Business
Administration with a minor in Mathematics from California State Polytechnic
University, Pomona. From 1966-1975 he was Supervisor, Audit Department for
Deloitte & Touche. In 1976, Mr. Schmidt founded a CPA practice in Orange
County, California which he sold in 1980. Mr. Schmidt worked in the real estate
industry since 1980, first as the Chief Financial Officer of Urban West
Communities, and since 1988 as Chief Financial Officer for Webb Development
Company. Mr. Schmidt now serves as Chief Financial Officer for Rubber
Technology International.
JAMES C. MASON. VICE-PRESIDENT, PRODUCTION
James Mason received his Bachelors Degree in Business Management and
Administration from Brigham Young University, Provo, Utah. Mr. Mason founded
and operated a Utah construction company specializing in industrial and
commercial projects utilizing pre-engineered components and concrete tilt-up
processes. Since 1984, Mr. Mason served as Vice President for Webb Development
Company and now serves as Vice President, Production for Rubber Technology
International.
13
<PAGE>
TERRENCE T. BURKE, DIRECTOR
Terrence Burke joined Webb Development Company as Vice President of Finance
in 1983. His education included the School of Mortgage Banking at the
University of Maryland and the University of California at Los Angeles, with
specific emphasis in finance, construction and construction law. During 18
years with The Colwell Company, a Los Angeles based mortgage banking firm, he
was elected to the office of Vice President of the parent company and four real
estate construction subsidiaries. Since 1988 he has been the owner of Burke's
Country Pine which now owns three retail stores.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than ten percent of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than
ten percent shareholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on the review of copies of such reports furnished to the Company
and written representations that no other reports were required, the Company has
been informed no such officer, director or shareholder failed timely to file any
of the required reports. To the best of the Company's knowledge, during the
years ended June 30, 1999 and 1998, all Section 16(a) filing requirements
applicable to the Company's officers, directors and greater than ten percent
shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following RTEK summary compensation table shows certain compensation
information for services rendered in all capacities for the three fiscal years
ended December 31, 1998 and 1999. No executive officer's salary and bonus
exceeded $100,000 in any of the applicable years. The following information
includes the dollar value of base salaries, bonus awards, the number of stock
options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
--------------------- ------------------------
Awards Payouts
--------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Salary Bonus Compensation Stock Awards Options Payouts ($) Compensation
Principal Position Year ($) ($) ($) ($) SAR's (#) ($)
Raymond L. Webb 1999 $0.00 -0- -0- -0- -0- -0- -0-
1998 $0.00 -0- -0- -0- -0- -0- -0-
Fred Schmidt 1999 $68,448 -0- -0- -0- -0- -0- -0-
1998 $29,470 -0- -0- -0- -0- -0- -0-
James C. Mason 1999 $47,733 -0- -0- -0- -0- -0- -0-
1998 $53,985 -0- -0- -0- -0- -0- -0-
</TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
-------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Securities Percent of Total
Underlying Options/SAR's
Options/SAR's Granted to Employees Exercise of Base Price
Name Granted (#) In Fiscal Year ($/Sh) Expiration Date
- -------------------------------------------------------------------------------------------------------------------
Raymond L. Webb -0- - - -
Fred Schmidt -0- - - -
James C. Mason -0- - - -
</TABLE>
14
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Unexercised
Securities Underlying Value of Unexercised In-
Options/SAR's At FY-End The-Money Option/SAR's
Shares Acquired (#) At FY-End ($)
Name On Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
($)
- ---------------------------------------------------------------------------------------------------------------------------
Raymond L. Webb -0- -0- -0- -0-
Fred Schmidt -0- -0- -0- -0-
James C. Mason -0- -0- -0- -0-
</TABLE>
Compensation of Directors
To date, Directors of the Company have not received any compensation for
serving in such capacity.
Employment Agreements
The Company has no existing employment agreements with its officers or key
employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the common stock of RTEK as of December 31, 1999 by:
each person or entity known to own beneficially more than 5% of the common
stock;
each of RTEK's directors;
each of RTEK's named executive officers; and
all executive officers and directors of RTEK as a group.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner (1) Beneficial Ownership Class
- -------------- --------------------------------- --------------------- ------------
Common Stock Raymond L. Webb (2) 2,862,833 22.2%
- -------------- ----------------------------------- --------- -----
Common Stock James Mason 0 0%
- -------------- ----------------------------------- -------- -----
Common Stock Fred Schmidt 0 0%
- -------------- ----------------------------------- --------- -----
Common Stock Terrence Burke 0 0%
- -------------- ----------------------------------- ---------- -----
Common Stock All Officers and Directors as
a Group (4 persons)
2,862,833 22.2%
========= =====
</TABLE>
1. The address for each of these shareholders is c/o Rubber Technology
International, Inc., 3185 E. Washington Blvd., Los Angeles, CA 90023
2. Such shares are held by the Webb Family Trust, of which Mr. Webb is a
trustee.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owes $268,000 to two shareholders, arising from monetary
investments and a guarantee, and in consideration for minor services by a
shareholder. The Company also owes $461,570 to Raymond Webb, our President and
a director, arising from monetary investments into the Company. Certain current
liabilities have been personally guaranteed by Raymond Webb.
15
<PAGE>
RTEK has a management agreement and has made investments into a venture
which is initiating operations in the greater Las Vegas area. This business
will be excavating and selling sand. Other investors in this Las Vegas venture
include a son of Raymond Webb, the Webb Family Trust and an unaffiliated CPA
who, as a part of a greater agreement with RTEK, has lent money to RTEK, has
lent money to RTEK for the investment in Las Vegas and who has received 250,000
shares of RTEK common stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
INDEX TO EXHIBITS
The Company undertakes to furnish to any shareholder so requesting a copy of any
of the following exhibits upon payment to the Company of the reasonable costs
incurred by the Company in furnishing any such exhibit.
EXHIBIT NO. DESCRIPTION
- ------------ -----------
*3.1 Articles of Incorporation of the Company
*3.2 Bylaws of the Company
*10.1 Exchange Agreement between MRC Legal Services Corporation and
Rubber Technology International, Inc., dated as of March
12, 2000.
*10.2 Consulting Agreement between Rubber Technology International,
Inc. and certain consultants dated as of March 12, 2000.
*23.1 Consent of James E. Slayton, CPA, independent public accountant
- ------------------------------
* Incorporated herein by reference to the Company's Form 8-K filed on March 14,
2000.
REPORTS ON FORM 8-K
On March 14, 2000 the Company filed a Form 8-K reflecting a share exchange
between the Company and Global Sight, Inc. pursuant to which the Company
acquired Global Sight. The Company's audited financial statements for the two
fiscal years ended November 30, 1998 and 1998 were included in the 8-K.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 29, 2000
Rubber Technology International, Inc.
-------------------------------------
(Registrant)
By: /s/ Raymond L. Webb
----------------------
Raymond L Webb
President and Director
By: /s/ Fred Schmidt
------------------
Fred Schmidt
Chief Financial Officer
By: /s/ James Mason
-----------------
James Mason
Vice President, Production
By: /s/ Terrence Burke
--------------------
Terrence Burke
Director
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
FINANCIAL STATEMENTS
--------------------
NOVEMBER 30, 1998
AND
NOVEMBER 30, 1999
17
F-1
<PAGE>
- ------
JAMES E. SLAYTON, CPA
- ------------------------
3867 WEST MARKET STREET
SUITE 208
AKRON, OHIO 44333
INDEPENDENT AUDITORS' REPORT
----------------------------
BOARD OF DIRECTORS JANUARY 17, 2000
RUBBER TECHNOLOGY INTERNATIONAL, INC. (THE COMPANY)
LOS ANGELES, CALIFORNIA 90023
I have audited the Balance Sheet of Rubber Technology International, Inc.
as of November 30, 1998 and November 30, 1999, and the related Statements of
Operations, Shareholders' Equity and Cash Flows for the periods December 1,
1997 to November 30, 1998 and the period ended November 30, 1999. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 statement presentation. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rubber Technology
International, Inc., at November 30, 1998 and November 30, 1999, and the results
of its operations and cash flows for the period December 1, 1997 to November 30,
1998 and the period ended November 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has had limited operations and has not
established a long term source of revenue. The Company has had operating losses
for the two operating periods reported. This raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters is described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
James E. Slayton, CPA
Ohio License ID #04-1-15582
F-2
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
NOVEMBER 30, 1998 AND 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
NOVEMBER 30, 1998 NOVEMBER 30, 1999
------------------- --------------------
CURRENT ASSETS
Cash $ 302,710 $ 29,672
Accounts Receivable 73,091 25,574
Inventory 108,635 43,232
--------- ---------
Total Current Assets 484,436 98,478
PROPERTY AND EQUIPMENT
Property and Equipment, net of depreciation 888,877 797,704
--------- --------
Total Property and Equipment 888,877 797,704
OTHER ASSETS
Accounts Receivable 113,519 807,084
Deposits 8,500 10,500
Plant Design - Second Plant 92,816 92,816
-------- --------
Total Other Assets 214,835 910,400
-------- --------
TOTAL ASSETS $ 1,588,148 $1,806,582
=========== ============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
NOVEMBER 30, 1998 AND 1999
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
NOVEMBER 30, 1998 NOVEMBER 30, 1999
CURRENT LIABILITIES
Accounts Payable $ 82,790 $ 118,740
Current Portion of Long Term Debt 57,180 57,180
Short Term Notes Payable 353,053 114,229
------------------- ------------
Total Current Liabilities 493,023 290,149
LEASE COMMITMENTS (NOTE 6)
LONG TERM LIABILITIES (NOTES 4 AND 5)
Note Payable - Equipment 192,820 193,774
Note Payable - Officer 44,764 69,437
Due Shareholders 10,210 729,570
------------------- ------------
Total Other Liabilities 247,794 992,781
------------------- ------------
Total Liabilities 740,817 1,282,930
SHAREHOLDERS' EQUITY
Common Stock, $0.0001 par value, authorized
75,000,000 shares; issued and outstanding at
November 30, 1999, 10,831,878 shares 910 1,083
Additional Paid-In Capital, from sales of
Common Shares 1,810,452 2,116,037
Retained Earnings (Deficit accumulated during
initial operating stage) (964,031) (1,593,468)
------------------- ------------
Total Shareholders' Equity 847,331 523,652
------------------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,588,148 $ 1,806,582
================== =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1999
------------------- -------------------
REVENUES
Revenues $ 464,239 $ 593,620
COSTS AND EXPENSES
Selling, General and Administrative 405,115 850,102
Consulting Expenses 90,836 75,702
Depreciation 144,560 144,560
Engineering Expenses 57,580 47,733
Rent Expense 98,724 104,960
-------- --------
Total Costs and Expenses 796,815 1,223,057
-------- ---------
NET ORDINARY INCOME OR (LOSS) $ (332,576) $ (629,437)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,122,870 10,060,239
============= ============
NET (LOSS) PER COMMON SHARE $ (0.06) $ (0.06)
=============== ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1999
-------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Operating (Loss) $(332,576) $ (629,437)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Changes in Operating Assets and Liabilities
Accounts Receivable (128,112) 47,517
Inventory (108,635) 65,403
Provision for Depreciation and Amortization 144,560 144,560
Accounts Payable 13,704 35,950
Short Term Notes Payable 100,000 (238,824)
---------- -----------
21,517 54,606
---------- -----------
Net Cash Provided by (Used in) Operating Activities (311,059) (574,831)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and Installation of Equipment (170,766) (53,387)
Increase in Deposits (2,000)
Advances in New Venture (156,262) (693,565)
---------- -----------
Net Cash Provided by (Used in) Investing Activities (327,028) (748,952)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt (Decrease) Increase - Due Shareholders (29,460) 719,360
Debt Increase - Equipment Loan Funding 250,000 954
Debt Increase - Officer 44,764 24,673
Proceeds from Sale of Securities 680,000 305,758
---------- -----------
Net Cash Provided by (Used in) Financing Activities 945,204 1,050,745
---------- -----------
NET INCREASE (DECREASE) IN CASH 307,117 (273,038)
CASH, BEGINNING OF YEAR (4,407) 302,710
---------- -----------
CASH, END OF YEAR $ 302,710 $ 29,672
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1999
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. The Company has had limited operations
from its operational 1977 inception to November 30, 1999.
The Company is authorized to issue up to 75,000,000 shares of its $0.0001
par value common shares. As more fully described in the Statement of
Shareholders' Equity, the Company has completed nine offerings of its common
shares which were exempt from federal registration under the provisions of
Regulation D, Rule 504 of the Securities Act of 1933, as amended. In the
aggregate, the Company has obtained $1,907,185 through these offerings. There
are no other authorized shares of common or preferred stock.
During the period 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.
F-7
<PAGE>
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES (CONTINUED)
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 and Note 5 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.
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.
F-8
<PAGE>
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 the long term debt agreements, the Company has the
following minimum annual payment obligations:
Year Ended November 30
------------------------------------
2000 2001 2002
------ ------- -------
Note Payable - Equipment $ 57,180 $ 57,180 $57,180
Note Payable - Officer 12,000 12,000 12,000
Due Shareholders 90,000 72,000 72,000
$159,180 $141,180 $141,180
======== ======== ========
NOTE 5 - RELATED PARTY TRANSACTIONS
Due shareholders consists of $268,000 due two shareholders, arising from
monetary investments, the guarantee described in Note 5, and minor services by a
shareholder, and $461,570 due an officer and shareholder, arising from monetary
investments into the Company.
Certain current liabilities have been personally guaranteed by an officer of the
Company.
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.
F-9
<PAGE>
NOTE 6 - LEASE COMMITMENTS
As of November 30, 1999, the Company is obligated under leases for its
production facilities. Future minimum lease payments under these leases are:
Term Minimum Annual Payment
- ---- ------------------------
December 1999 - November 2000 $ 153,700
December 2000 - November 2001 156,700
December 2001 - November 2002 160,300
December 2002 - November 2003 161,800
December 2003 - November 2004 387,600
-------
$ 1,020,100
============
The primary term of the facility leases ends December 2001. The Company
has an option to extend the term of these leases for an additional five years.
The leases and the options provide for cost of living increases between 3-6% per
year on the lease anniversary dates in 2000, 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.
