UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 May 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. 0-25703
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 $0.0001
(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 July 14, 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
Item 1. Financial Statements.
- Balance Sheets at May 31, 1999 and May 31, 2000 (Unaudited).
- Statements of Operations (Unaudited) for the three months ended
May 31, 1999 and for the three months ended May 31, 2000 and for
the six months ended May 31, 1999 and for the six-months ended
May 31, 2000.
- Statements of Cash Flows (Unaudited) for the three months ended
May 31, 1999 and for the three months ended May 31, 2000 and for
the six months ended May 31, 1999 and for the six-months ended
May 31, 2000.
Notes to Financial Statement Disclosures (Unaudited) at May 31, 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation
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.
1
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
BALANCE SHEET
ASSETS
<S> <C> <C>
MAY 31, 1999 MAY 31, 2000
-------------- --------------
CURRENT ASSETS
Cash $ 19,267 $ 385,270
Accounts Receivable 36,299 54,812
Inventory 73,635 28,432
-------------- --------------
Total Current Assets 129,201 468,514
PROPERTY AND EQUIPMENT
Property and Equipment, net of Accumulated Depreciation 839,284 787,925
OTHER ASSETS
Account Receivable 721,698 953,298
Deposit 10,500 10,813
Corporate reorganization and Debenture 330,000
Plant Design - Second Plant 92,816 92,816
-------------- --------------
Total Other Assets 825,014 1,386,927
-------------- --------------
TOTAL ASSETS $ 1,793,499 $ 2,643,366
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITES
Accounts Payable $ 97,800 $ 147,433
Current Portion of Long-Term Debt 57,180 57,180
Short Term Notes Payable 100,000 135,593
-------------- --------------
Total Current Liabilities 254,980 340,206
LEASE COMMITMENTS (NOTE 7)
LONG-TERM LIABILITIES (NOTES 4 AND 5)
Note Payable - Equipment 192,820 198,089
Notes Payable - Officers 36,100 87,588
Due Shareholders 306,802 869,066
Senior Subordinated Convertible Debentures 575,000
-------------- --------------
535,722 1,729,743
-------------- --------------
TOTAL LIABILITIES 790,702 2,069,949
SHAREHOLDERS' EQUITY
Common Stock, $0.0001 par value, authorized 75 million shares;
Issued and outstanding at May 31, 2000, 17,097,614 shares 982 1,709
Additional Paid-In Capital, from Sales of Common Shares 2,116,070 2,639,323
Retained Deficit (accumulated during initial operating stage) (1,114,255) (2,067,615)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 1,002,797 573,417
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,793,499 $ 2,643,366
============== ==============
</TABLE>
See accompanying notes to financial statement disclosures.
2
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<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C>
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
-------------- -------------- -------------- --------------
REVENUES
Revenues $ 110,509 $ 372,791 $ 174,916 $ 280,420
COST OF GOODS SOLD
Labor 55,198 97,157 111,267 158,584
Repairs and Maintenance 19,429 27,211 30,470 42,568
Trash 3,812 7,266 38,962 47,108
Raw Materials and Other 14,690 22,638 39,907 53,401
-------------- -------------- -------------- --------------
Total Cost of Goods Sold 93,129 154,272 220,606 301,661
-------------- -------------- -------------- --------------
GROSS MARGIN (LOSS) 17,380 218,519 (45,690) (21,241)
SELLING, GENERAL AND ADMINISTRATIVE
Premises Rent 26,010 44,030 38,438 76,564
Legal and Professional 21,157 80,052 40,682 98,288
Research and Development 12,758 32,258 39,014 67,513
Depreciation and Amortization 37,875 68,811 36,000 72,000
Utilities 14,047 25,786 25,716 37,780
Interest Expense 12,428 56,658 14,265 25,813
Other Expenses 31,114 60,201 57,856 74,148
-------------- -------------- -------------- --------------
155,389 367,796 251,971 452,106
-------------- -------------- -------------- --------------
NET INCOME (LOSS) BEFORE TAXES ON
INCOME (138,009) (149,277) (297,661) (473,347)
TAXES ON INCOME 947 947 800 800
-------------- -------------- -------------- --------------
NET ORDINARY INCOME (LOSS) $ (138,956) $ (150,224) $ (298,461) $ (474,147)
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,156,878 9,721,073 15,192,882 13,089,979
============== ============== ============== ==============
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ (0.02) $ (0.02) $ (0.04)
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statement disclosures.
3
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<TABLE>
<CAPTION>
RUBBER TECHNOLOGY INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
<S> <C> <C> <C> <C>
THREE MONTHS SIX MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
MAY 31, 1999 MAY 31, 1999 MAY 31, 2000 MAY 31, 2000
-------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Operating Income (Loss) $ (138,957) $ (150,224) $ (298,460) $ (474,147)
ADJUSTMENTS TO RECONCILE NET LOSS
TO NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Changes in Operating Assets and Liabilities
Accounts Receivable (18,064) 36,792 (14,542) (29,238)
Inventory 35,000 35,000 14,800 14,800
Provision for Depreciation and Amortization 37,875 68,811 36,000 72,000
Accounts Payable 45,839 15,010 40,664 28,693
Short Term Notes Payable (4,819) (253,053) 3,364 21,364
-------------- -------------- -------------- --------------
Net Cash (Used in) Operating Activities (43,126) (247,664) (218,174) (366,528)
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and Installation of Equipment (11,183) (19,218) (39,989) (62,221)
Increase in Deposit (2,000) - (313)
Corporate Reorganization and Debenture Costs (330,000) (330,000)
Receipts From (Advances to) New Venture 12,113 (608,179) (101,208) (146,214)
-------------- -------------- -------------- --------------
Net Cash Provided by (Used in) Investing Activities 930 (629,397) (471,197) (538,748)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Debt Increase, Due Shareholders 8,778 296,592 65,045 139,496
Debt Increase, Equipment Loan Funding 4,544 4,315
Debt (Decrease) Increase, Notes Payable - Officers (8,664) 5,849 18,151
Proceeds from Sale of Securities 370 305,690 324,999 523,912
Proceeds from the Sale of Debentures 800,000 800,000
Conversion of Debentures into Common Shares (225,000) (225,000)
-------------- -------------- -------------- --------------
Net Cash Provided by Financing Activities 9,148 593,618 975,437 1,260,874
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH (33,048) (283,443) 286,066 355,598
CASH, BEGINNING OF PERIOD 52,315 302,710 99,204 29,672
-------------- -------------- -------------- --------------
CASH, END OF PERIOD $ 19,267 $ 19,267 $ 385,270 $ 385,270
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statement disclosures.
4
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RUBBER TECHNOLOGY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENT DISCLOSURES
MAY 31, 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. The Company had limited operations
from its operational 1977 inception to May 31, 2000. Operations have
substantially increased during the current fiscal period. Agreements for
continuing volume shipments are being executed and additional sales and
recurring profitable operations are now anticipated.
The Company is authorized to issue up to 75,000,000 shares of its $0.0001
par value common shares. Since corporate inception, the Company has completed
eleven offerings of its common shares resulting in $2,316,033 in gross proceeds
to the Company.
Until March 12, 2000 the Company was publically trading its common shares
but was not a "fully reporting" company under SEC regulations. On March 12,
2000, the Company acquired 100% of the common shares of Global Sight, Inc., a
Nevada Corporation, in exchange for 1,200,000 shares of its restricted common
stock. The acquisition was treated as a purchase.
Through a consultation agreement as an integral part of the acquisition of
Global Sight, Inc., the Company also issued 800,000 shares of its common shares,
which was subsequently registered on Form S-8. A Form 8-K was filed with the
SEC disclosing this acquisition. Full reporting of the Company's financial
statements was concurrently initiated.
The Company, in March 2000, entered into a Securities Purchase Agreement
providing the Company $800,000 in debenture funding.
During the period of these financial statements, the Company completed its
production lines and initiated recurring 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.
5
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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 are 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.
6
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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. As positive conditions exist, 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.
As further described in Note 6, it is the Company's opinion that this
financing substantially completes the required financing to establish continued
profitable rubber recycling operations.
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 original eighty-four month term at
$4,765 per month, terminating May 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 May 31
---------------------------------------------
2001 2002 2003
------ ------- -------
Note Payable - Equipment $ 57,180 $ 57,180 $ 57,180
Note Payable - Officers 24,000 24,000 24,000
Due Shareholders 90,000 72,000 72,000
------ ------- -------
$171,180 $153,180 $153,180
====== ======= =======
NOTE 5 - RELATED PARTY TRANSACTIONS
Due Shareholders consists of $869,066 due two shareholders, arising from
monetary investments, the guarantee described in Note 4, and minor services by a
shareholder, and $619,066 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.
7
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NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
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.
NOTE 6 - 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. As of May 31, 2000
the Debenture was fully funded. These debentures were purchased at ninety per
cent of the face amount. Interest is payable monthly and all unconverted
debentures are due March 10, 2002.
At the discretion of the holder and on notice to the Company, these
debentures are 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 May 31, 2000, $225,000 of the
debenture debt was converted by the holder into 2,099,390 shares of the
Company's common stock. Accordingly, the remaining Debenture outstanding was
$575,000.
NOTE 7 - LEASE COMMITMENTS
As of May 31, 2000, the Company is obligated under leases for its
production facilities. Future minimum lease payments, including option periods,
under these leases are:
Term Minimum Annual Payment
---- ------------------------
June 2000 - May 2001 $ 156,100
June 2001 - May 2002 160,700
June 2002 - May 2003 170,500
June 2003 - May 2004 180,900
June 2004 - May 2005 191,500
-------
$ 859,700
=======
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.
8
<PAGE>
ITEM 2. 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.
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.
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. 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.
9
<PAGE>
RESULTS OF OPERATIONS OF THE COMPANY
SIX MONTHS ENDED MAY 31, 2000 COMPARED TO SIX MONTHS ENDED MAY 31, 1999
REVENUES - Revenues totaled $280,420 and $372,791 for the six months ended May
31, 2000 and May 31, 1999, respectively. During the period ended May 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.
Revenues for the six months ended May 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 period ended
May 31, 2000 were solely from the receipt of tires into production and sales of
rubber based products.
COST OF SALES - Cost of sales totaled $301,661 and $154,272 for the six month
periods ended May 31, 2000 and May 31, 1999, respectively. Cost of sales for
the period ended May 31, 2000 were comprised primarily of direct labor costs of
$158,584, disposal costs of $47,108 and equipment reconfiguration and
maintenance of $42,568. Cost of sales for the period ended May 31, 1999 were
primarily comprised of direct labor costs of $97,157 and maintenance of
equipment totaling $27,211. As a percentage of total revenues, cost of sales
was a negative 107.5% and 41.3%, resulting in apparent gross margins of a
negative 7.5% and 58.7% for the periods ended May 31, 2000 and May 31, 1999,
respectively. Excluding the $225,000 of management revenues, the comparative
cost of sales percentages become a negative 107.5% and a negative 104.4% and the
gross margin comparative percentages become a negative 7.5% and a negative 4.4%.
The primary reasons for the cost of sales negative 7.5% for the six months ended
May 31, 2000 was the substantial increase of disposal costs from 4.9% (1999) to
16.8% (2000) and the increased equipment, expansion and supplies costs, which
was expensed, in the three months to May 31, 2000. These planned production
cost increases were in anticipation of increased production and sales for the
fiscal third quarter and are the first such expenses which the Company believes
will ultimately lead to increased production efficiencies. Increased disposal
costs are a direct result of inefficiencies in the current production equipment.
New equipment is on order to correct this situation. The primary reason for the
negative 4.4% for the period ended May 31, 1999 was the decision to maintain a
minimum, but experienced, production staff, when sales of rubber based products
at that time were inconsistent.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses totaled $452,106 and $367,796, for the six
month periods ended May 31, 2000 and May 31, 1999, respectively. In the period
ended May 31, 2000, the Company completed a debenture funding and two financing
transactions of the sale of common stock and incurred significant expenses in
these transactions. In the period ended May 31, 1999 the Company completed
equipment and one common stock financing transaction. SG&A expenses for the
period ended May 31, 2000 were comprised of $98,288 in legal and professional
fees related primarily to financing transactions, facilities rent of $76,564,
depreciation of $72,000, product development costs of $67,513 and officer
salaries of $57,604. SG&A expenses for the six month period ended May 31, 1999
were comprised primarily of professional fees of $80,052 relating to the
financing above referenced, facilities rent of $44,030, depreciation of $68,811,
product research of $32,258, officer salaries of $29,083, and interest and
related expense of $56,658 relating to the new equipment loan funding early in
the period. Premises rental expenses increased 73% due to the addition of
additional and contiguous yard space acquired in late 1999 to allow for more
production space and certain utilization efficiencies. The net loss was
$474,147and $150,224 for the six month periods ended May 31, 2000 and May 31,
1999, respectively.
ASSETS AND LIABILITIES - Assets increased from $1,806,582 as of November 30,
1999 to $2,643,366 as of May 31, 2000. The increase was attributable to a
$355,598 increase in cash, a $146,214 increase in the long-term investment in a
joint venture, a $330,000 capitalization of the costs of the acquisition of
Global Sight, Inc. and concurrent debenture funding and a decrease of property
and equipment of $62,221, net of $72,000 of accumulated equipment depreciation.
Liabilities increased from $1,292,320 as of November 30, 1999 to $2,069,949 as
of May 31, 2000. This increase was attributable to increases in accounts
payable of $28,693, increases of short-term debt of $21,364, increases in notes
due Company officers of $18,151, advances from an officer and his family trust
and one additional shareholder of $139,496 and the March 2000 funding of an
$800,000 convertible debenture due March 2002, net of $225,000 in converted
debentures.
10
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SHAREHOLDERS' EQUITY - Shareholders' equity increased from $523,652 as of
November 30, 1999 to $573,417 as of May 31, 2000. The increase was attributable
to amounts raised in the Company's Rule 504 offerings of its common stock of
$298,912 and the conversion of $225,000 in outstanding debentures, offset by the
operating net losses for the six months ended May 31, 2000 of $474,147.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL - Overall, the Company had a positive cash flow of $355,598 in the six
month period ending May 31, 2000 resulting from $1,260,874 of cash provided by
the Company's financing activities offset by $366,528 of cash used in operating
activities and $538,748 of cash used in investing activities.
CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $366,258
in the six month period ended May 31, 2000 was primarily due to a net loss of
$474,147 and an increase of accounts receivable of $29,238, offset partially by
an increase of accounts payable of $28,693 and an increase of short term notes
payable of $21,364.
CASH FLOWS FROM INVESTING - Net cash used in investing activities of $538,748 in
the six month period ended May 31, 2000 funded $330,000 of costs involved in the
March 2000 corporate purchase of Global Sight, Inc. and the concurrent debenture
funding, $146,214 invested in the venture project and $62,221 invested in new
production equipment.
CASH FLOWS FROM FINANCING - Net cash provided by financing activities of
$1,260,874 in the six month period ended May 31, 2000 was primarily due to the
proceeds from sales and issuances of the Company's common stock of $523,912,
proceeds from the $800,000 debenture funding, of which $225,000 were converted
to common shares, and proceeds from borrowings from a shareholder of $139,496.
CAPITAL EXPENDITURES
The Company expended $62,221 in the six months ended May 31, 2000 to purchase
additional equipment in connection with the expansion of its business.
THREE MONTHS ENDED MAY 31, 2000 COMPARED TO THREE MONTHS ENDED MAY 31, 1999
REVENUES - Revenues totaled $174,916 and $110,509 for the three months ended May
31, 2000 and May 31, 1999, respectively. During the period ended May 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 totaled $220,606 and $93,129 for the three month
periods ended May 31, 2000 and May 31, 1999, respectively. Cost of sales for
the three month period ended May 31, 2000 were comprised primarily of direct
labor costs of $111,267, disposal costs of $38,962 and equipment reconfiguration
and maintenance of $30,470. Cost of sales for the period ended May 31, 1999
were primarily comprised of direct labor costs of $55,198 and maintenance of
equipment totaling $19,429. As a percentage of total revenues, cost of sales,
respectively, were a negative 126.1% and a positive 84.2%, resulting in apparent
respective gross margins of a negative 26.1% and 15.8% for the periods ended May
31, 2000 and May 31, 1999. The primary reasons for the cost of sales negative
26.1% for the three months ended May 31, 2000 was the substantial increase of
disposal costs from 3.4% (1999) to 22.2% (2000) and the increased equipment,
expansion and supplies costs, which were currently expensed, in the three months
to May 31, 2000. Labor increased $56,069 in the comparable three month periods
1999 to 2000 from $55,198 (49.9% of revenues) to $111,267 (63.6% of revenues).
These planned production cost increases were in anticipation of increased
production and sales for the fiscal third quarter and are the first such
expenses which the Company believes will ultimately lead to increased production
efficiencies. Increased disposal costs are a direct result of inefficiencies in
the current production equipment. New equipment is on order to correct this
situation. The primary reason for the negative 4.4% for the period ended May
31, 1999 was the decision to maintain a minimum, but experienced, production
staff, when sales of rubber based products at that time were inconsistent.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative ("SG&A") expenses totaled $251,971 and $155,389, for the three
month periods ended May 31, 2000 and May 31, 1999, respectively. In the three
month period ended May 31, 2000, the Company completed the debenture funding and
incurred significant expenses in these transactions. In the three month period
ended May 31, 1999 the Company completed equipment and one common stock
financing transactions. SG&A expenses for the period ended May 31, 2000 were
comprised of $40,682 in legal and professional fees related primarily to
financing transactions, facilities rent of $38,438, depreciation of $36,000,
product development costs of $39,014 and officer salaries of $36,354. SG&A
expenses for the three month period ended May 31, 1999 were comprised primarily
of professional fees of $21,157 relating to the financing referenced above,
facilities rent of $26,010, depreciation of $37,875, product research of
$12,758, officer salaries of $14,167, and interest and related expense of
$12,428 relating to the new equipment loan funding early in the period. The
$22,187 quarterly increase in officer salaries from the comparable periods of
1999 and 2000 reflects the addition of new officers to the Company. Premises
rental expenses increased 47.8% due to the addition of additional and contiguous
yard space acquired in late 1999 to allow for more production space and certain
utilization efficiencies. The net loss was $298,461 and $138,956 for the three
month periods ended May 31, 2000 and May 31, 1999, respectively.
ASSETS AND LIABILITIES - Assets increased from $1,922,362 as of February 29,
2000 to $2,643,366 as of May 31, 2000. The increase was attributable to an
increase in cash of $286,246, a $101,208 increase in the long-term investment in
a joint venture and capitalization of $330,000 in corporate reorganization and
debenture costs generally attributable to the purchase of Global Sight, Inc. in
March 2000. Liabilities increased from $1,375,483 as of February 29, 2000 to
$2,069,949 as of May 31, 2000. This increase was attributable to increases in
accounts payable of $40,664, increases of short-term debt of $3,364, advances
from an officer and his family trust and one additional shareholder of $65,045
and the March 2000 funding of an $800,000 convertible debenture due March 2002,
net of $225, 000 in converted debentures.
SHAREHOLDERS' EQUITY - Shareholders' equity increased from $546,879 as of
February 29, 2000 to $573,417 as of May 31, 2000. The increase was attributable
to $100,000 in shares issued pursuant to the consultation for and purchase of
Global Sight, Inc. and the conversion of $225,000 in outstanding debentures,
offset by the operating net losses for the six months ended May 31, 2000 of
$298,461.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL - Overall, the Company had a positive cash flow of $286,066 in the three
month period ending May 31, 2000 resulting from $975,437 of cash provided by the
Company's financing activities offset by $218,174 of cash used in operating
activities and $471,197 of cash used in investing activities.
CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $218,174
in the three month period ended May 31, 2000 was primarily due to a net
operating loss of $298,460 and an increase of accounts receivable of $14,800,
offset partially by a decrease in inventory of $14,800, an increase of accounts
payable of $40,664 and depreciation of $36,000.
CASH FLOWS FROM INVESTING - Net cash used in investing activities of $471,197 in
the three month period ended May 31, 2000 funded $330,000 of costs involved in
the March 2000 corporate purchase of Global Sight, Inc. and the concurrent
debenture funding, $101,208 invested in the venture project and $39,989 invested
in new production equipment.
CASH FLOWS FROM FINANCING - Net cash provided by financing activities of
$975,437 in the three month period ended May 31, 2000 was primarily due to the
proceeds from sales and issuances of the Company's common stock of $324,999,
proceeds from the $800,000 debenture funding, of which $225,000 were converted
into common shares, and proceeds from borrowings from a shareholder of $65,045.
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CAPITAL EXPENDITURES
The Company expended $39,989 in the three months ended May 31, 2000 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 Form 10-KSB as of November 30, 1999, that the Company has
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 May 31 2000, the Company had 22 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 that it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2 - CHANGES IN SECURITIES
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.
On March 12, 2000, the Company entered into a Stock Exchange Agreement with an
unrelated accredited third party to acquire 100% of Global Sight, Inc., a Nevada
Corporation, in exchange for 1,200,000 shares of its restricted common stock.
The issuance was an isolated transaction not involving a public offering
pursuant to section 4(2) of the Securities Act of 1933.
During March 2000, the Company issued 800,000 shares of common stock in exchange
for consultation services rendered in connection with the acquisition of Global
Sight, Inc. The issuance was an isolated transaction not involving a public
offering pursuant to section 4(2) of the Securities Act of 1933.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders for a vote during the period
covered by this report
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On March 14, 2000, the Company filed a current report on Form 8-K dated
March 12, 2000 reporting its acquisition of Global Sight, Inc.
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SIGNATURES
In accordance with 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/ Raymond Webb
----------------------------------
Raymond Webb
President & CEO
By /s/ Fred Schmidt
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Fred Schmidt
Chief Financial Officer
Dated: July 14, 2000
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