10-QSB
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM N/A TO __________
---------
Commission File Number 1-15497
RecycleNet Corporation
---------------------------------------------------
(Exact name of small business issuer in its charter)
Utah 87-0301924
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7 Darren Place, Guelph, ON N1H 6J2, CANADA
----------------------------------------------------------
(Address of principal executive offices, including Zip Code)
519-767-2913
--------------------------------
(Registrant's telephone number,)
Check whether the issuer (1) filed all reports required to be filed by
Sections 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 [ ]
The number of common shares outstanding at June 30, 2000: 10,782,647
The number of class N shares outstanding at June 30, 2000: 67,991,569
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RECYCLENET CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Condensed Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 (Unaudited) F-2
Condensed Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2000 and 1999 (Unaudited) F-3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 (Unaudited) F-4
Notes to Condensed Consolidated Financial Statements F-5
F-1
<PAGE>
RECYCLENET CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
---------- ----------
ASSETS
Current Assets
Cash $ 60,035 $ 61,167
Trade accounts receivable, net of $4,174 and
$2,168 allowance for bad debt 54,112 30,289
Note receivable 22,500 15,000
---------- ----------
Total Current Assets 136,647 106,456
---------- ----------
Computer Equipment 13,693 13,693
Less accumulated depreciation (6,638) (3,520)
---------- ----------
Net Equipment 7,055 10,173
---------- ----------
Total Assets $ 143,702 $ 116,629
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 4,899 $ 18,023
Accrued liabilities 12,690 2,650
Deferred revenue 49,913 43,328
---------- ----------
Total Current Liabilities 67,502 64,001
---------- ----------
Stockholders' Equity
Class N common shares (and Class X shares
of Amalco) - $0.01 par value; 70,896,789
shares authorized; 67,991,569 shares and
68,130,269 shares outstanding, respectively 679,916 681,303
Common shares - $0.01 par value; 79,103,211
shares authorized; 10,782,647 shares and
10,643,947 shares issued and outstanding,
respectively 107,826 106,439
Additional paid-in capital 447,926 447,926
Accumulated deficit (1,159,468) (1,183,040)
---------- ----------
Total Stockholders' Equity 76,200 52,628
---------- ----------
Total Liabilities and Stockholders' Equity $ 143,702 $ 116,629
========== ==========
See the accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
RECYCLENET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 607,734 $ 85,220 $ 902,339 $ 117,454
Cost of Sales 472,767 21,008 646,335 21,008
------------ ----------- ------------- ------------
Gross Profit 134,967 64,212 256,004 96,446
------------ ----------- ------------- ------------
Operating Expenses
General and administrative expenses 117,832 66,900 234,183 111,419
Exchange gain (76) (4,523) (1,751) (4,628)
Marketing expense (paid with stock) - - - 116,100
Professional fees (paid with stock) - - - 423,917
------------ ----------- ------------- ------------
Total Operating Expenses 117,756 62,377 232,432 646,808
------------ ----------- ------------- ------------
Net Income (Loss) $ 17,211 $ 1,835 $ 23,572 $ (550,362)
============ =========== ============= ============
Basic Income (Loss) Per
Common Share $ 0.00 $ 0.00 $ 0.00 $ (0.02)
============ =========== ============= ============
Diluted Income (Loss) Per
Common Share $ 0.00 $ 0.00 $ 0.00 $ (0.02)
============ =========== ============= ============
Weighted-Average Number of
Common Shares Used in Basic
Per Share Calculation 10,753,228 7,877,426 10,698,588 34,574,880
============ =========== ============= ============
Weighted-Average Number of
Common Shares Used in Diluted
Per Share Calculation 78,774,216 78,774,216 78,774,216 34,574,880
============ =========== ============= ============
</TABLE>
See the accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
RECYCLENET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
---------------------
2000 1999
---------- ---------
Cash Flows From Operating Activities
Net income (loss) $ 23,572 $(550,362)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 3,118 1,414
Marketing expense paid with common stock - 116,100
Common stock issued for services - 423,917
Exchange gain (1,675) (105)
Changes in assets and liabilities:
Accounts receivable (23,823) (17,852)
Receivable from supplier (7,500) -
Accounts payable (13,124) (1,166)
Accrued liabilities 10,040 -
Deferred revenue 6,585 3,861
--------- ----------
Net Cash Used in Operating Activities (2,807) (24,193)
--------- ----------
Cash Flows From Investing Activities
Purchase of equipment - (6,210)
--------- ----------
Net Cash Used in Investing Activities - (6,210)
--------- ----------
Cash Flows From Financing Activities
Proceeds of issuance of common shares - 109,476
--------- ----------
Net Cash Provided by Financing Activities - 109,476
--------- ----------
Effect of Exchange Rate Changes on Cash 1,675 105
--------- ----------
Increase (Decrease) in Cash (1,132) 79,178
Cash at Beginning of Period 61,167 55,257
--------- ----------
Cash at End of Period $ 60,035 $ 134,435
========= ==========
NON CASH INVESTING AND FINANCING ACTIVITIES -- During
March 1999, the Company issued 833,717 common shares
as compensation for services valued at $423,917. Also
during March 1999, the Company issued 386,900 shares
to acquire Andela Corporation and 7,877,421 shares to
acquire Garbalizer Machinery Corporation.
See the accoanying notes to condensed consolidated financial statements.
F-4
<PAGE>
RECYCLENET CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1-ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by RecycleNet
Corporation and are unaudited. In the opinion of management, the
accompanying unaudited financial statements contain all necessary
adjustments for fair presentation in accordance with generally
accepted accounting principles in the United States.
The accompanying unaudited interim financial statements have been
condensed pursuant to the rules and regulations of the Securities and
Exchange Commission; therefore, certain information and disclosures
generally included in financial statements have been condensed or
omitted. These financial statements should be read in conjunction
with the Company's annual financial statements included in the
Company's annual report on Form 10-KSB as of December 31, 1999. The
financial position and results of operations of the interim periods
presented are not necessarily indicative of the results to be expected
for the year ended December 31, 2000.
Basis of Presentation - RecycleNet Corporation (RecycleNet) was
incorporated on December 22, 1997 under the laws of the Province of
Ontario, Canada. On March 19, 1999, RecycleNet was reorganized into
Amalco, a newly-formed, wholly-owned Ontario subsidiary of Garbalizer
Machinery Corporation (Garbalizer), a Utah corporation, under the
terms of a stock exchange agreement dated February 25, 1999 (the
Agreement). Under the terms of the Agreement, the shareholders of
RecycleNet exchanged each outstanding common share of RecycleNet for
3.869 Class X shares (equity participating and non-voting) of Amalco
and 3.869 Class N (voting non-equity participating) shares of
Garbalizer. The RecycleNet shareholders were issued 70,896,789 Class N
and Class X shares. The Class N and Class X shares are convertible
into common shares on the basis of one Class N share and one Class X
share for each common share. Prior to closing the Agreement, the
Garbalizer shareholders held 7,877,427 common shares, after a 2-for-3
reverse stock split, which remained outstanding after the
reorganization. The RecycleNet shareholders held the equivalent of 90%
of the common shares after the reorganization.
For financial reporting purposes, RecycleNet was considered the
accounting acquirer. These financial statements have been restated for
all periods presented for the effects of the 3.869-for-1 stock split
and for the conversion of the RecycleNet common shares into Class N
and Class X shares. In connection with the Agreement, Garbalizer
transferred all of its existing assets and operations to a corporation
under the control of its principal shareholder in exchange for the
assumption by that corporation of all of the liabilities of
Garbalizer. Garbalizer thereby became a shell corporation with no
operations and no assets prior to the transaction. The common shares
of Garbalizer which remained outstanding were accounted for as having
been issued in the transaction and were valued at zero which was the
fair value of the net assets of Garbalizer. The acquisition of
Garbalizer was accounted for under the purchase method of accounting.
Consolidation - On March 19, 1999, Garbalizer changed its name to
RecycleNet Corporation. The accompanying consolidated financial
statements include the accounts of RecycleNet Corporation (the Utah
corporation) from the date of its acquisition, the accounts of
RecycleNet (the Ontario corporation renamed Amalco) and the accounts
of Andela Products Corporation, from the date of its acquisition. The
consolidated entity is referred to hereafter as the Company.
Inter-company accounts and transactions have been eliminated in
consolidation.
F-5
Operations - The Company is in the business of designing Internet
sites, Internet advertising and Internet trading of consumable
recyclable goods. Its primary operations are conducted from Ontario.
However, the U.S. dollar is the functional currency for the Company's
consolidated operations. All gains and losses from currency
translations are included in the results of operations.
Business Condition - The Company has experienced an operating profit
of $23,572 for the six months ended June 30, 2000 compared to an
operating loss of $550,362 for the six months ended June 30, 1999.
Cash flows from operating activities during the six months ended June
30, 2000 used $2,807. During the similar period in 1999, cash flows
from operating activities used $24,193.
Basic and Diluted Income (Loss) Per Common Share - Basic income (loss)
per common share was calculated by dividing the net income (loss) by
the weighted-average number of common shares that were converted into
Class N (and Class X) shares through the date of the merger plus the
weighted-average number of common shares outstanding thereafter.
Diluted income (loss) per common share was calculated to give effect
to potentially issuable common shares except during loss periods when
those potentially issuable shares would be anti-dilutive. There were
67,991,569 and 70,896,789 potentially issuable common shares at June
30, 2000 and 1999, respectively.
Note Receivable - At June 30, 2000, the Company had loaned a total of
$22,500 to Andela Tool & Machine as a loan towards their immediate
working capital needs. Repayment is expected by December 31, 2000. The
loan is unsecured. The loan is non-interest bearing and payment terms
have not been established.
NOTE 2--ACQUISITION OF ANDELA PRODUCTS CORPORATION
The Company acquired Andela Products Corporation by issuing 386,900
shares of Class N and Class X common stock on March 11, 1999. The
acquisition was primarily for the purpose of obtaining marketing
rights to glass recycling equipment. The common shares issued were
recorded at their fair value of $116,100 and were accounted for as
marketing expense. The operations of Andela Products Corporation have
been included in the accompanying consolidated financial statements
from March 11, 1999.
NOTE 3--STOCKHOLDERS' EQUITY
On March 19, 1999, the articles of incorporation were amended to
change the authorized capital to 150,000,000 common shares with a par
value of $0.01 per share. The Board of Directors is authorized to
designate one or more series within the class of common shares and to
F-6
<PAGE>
designate relative preferences, limitations and rights. The Board has
designated 70,896,789 common shares as Class N common shares. The
Class N common shares have voting rights of one vote per share and are
non-equity participating. Amalco, the Ontario subsidiary, is
authorized to issue an unlimited number of Class X common shares. The
Class X common shares of Amalco are non-voting but equity
participating. The Class N and Class X shares are convertible into
common shares on the basis of one Class N share and one Class X share
of Amalco for each common share of the Company.
During February through March 1999, the Company issued 213,570 shares
of common stock for cash. The proceeds from the issuance were $109,476
or $0.51 per share. During March 1999, the Company issued 833,717
shares of common stock for services. The shares were recorded at their
fair value of $423,917, or $0.51 per share, based upon the price
shares were issued for cash during that same time.
On March 11, 1999 the Company issued 386,900 shares of Class N and
Class X common stock to acquire Andela Corporation, as explained in
Note 2. The value assigned to the shares was $0.30 per share based on
the market value at which the Company's common shares traded after the
reorganization of RecycleNet.
In conjunction with the reorganization of RecycleNet, a principal
shareholder converted 2,000,000 Class N and Class X common shares into
2,000,000 common shares on August 19, 1999. The shareholder
contributed the common shares to the Company. The shares were then
reissued to an individual for his assistance in the merger and
reorganization. The common shares issued were recorded at their fair
value of $400,000 or $0.20 per share based upon the market value at
which the Company's common shares were trading at the time of
issuance. The cost of the related services was charged to expense.
During the six months ended June 30, 2000, 138,700 shares of Class N
common shares and (Class X shares of Amalco) were exchanged for
138,700 common shares of the Company.
NOTE 4 - SUBSEQUENT EVENTS
On July 14, 2000, the Company entered into an agreement whereby the
Company issued 27,322,608 shares of common stock for the acquisition
metalworld.com, Inc.
F-7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Section and elsewhere in this
Form 10-QSB regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Because such
forward-looking statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. All statements that address operating
performance, events or developments that management expects or
anticipates to incur in the future, including statements relating to
sales and earnings growth or statements expressing general
optimism about future operating results, are forward-looking
statements. The forward-looking statements are based on management's
current views and assumptions regarding future events and operating
performance. Many factors could cause actual results to differ
materially from estimates contained in management's forward-looking
statements. The differences may be caused by a variety of factors,
including but not limited to adverse economic conditions,
competitive pressures, inadequate capital, unexpected costs, lower
revenues, net income and forecasts, the possibility of fluctuation
and volatility of our operating results and financial condition,
inability to carry out marketing and sales plans and loss of key
executives, among other things.
General
RecycleNet Corporation (an Ontario Private Corporation) was
incorporated on December 22, 1997 and purchased the ongoing business
proprietorship of Mr. Paul Roszel. The Company operated its business
activities and continued to expand its operations throughout the
following period. On March 19, 1999, RecycleNet Corporation (an
Ontario Private Corporation) completed a reverse share acquisition
with the Garbalizer Machinery Corporation, A Utah Corporation.
RecycleNet Corporation (Ontario) since its inception, has provided
Internet services and has received all of its sales revenue from these
activities. All of the previous business activities of Garbalizer
Machinery Corporation have not continued on in the new parent.
Consequently, all of the following financial data being discussed will
not compare any Garbalizer Machinery Corporation figures with its
relevant comparisons.
Throughout the reporting periods shown hereafter, common stock was
issued for various items (ie. business & start-up costs; merger costs;
professional fees and marketing expenses). United States generally
accepted accounting principles requires that we value these shares at
reasonable current values when issued. Consequently, the
paid-in-capital of the Company recorded as received a substantial
paid-in capital and the Accumulated Deficit recorded a correspondingly
large deficit.
<TABLE>
<CAPTION>
Sales Revenues
Apr 1 to Apr 1 to Jan 1, 2000 to Jan 1, 1999 to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Sales Revenues USD $607,700 $85,200 $902,300 $117,500
</TABLE>
Sales revenues recorded for the 2nd quarter of 2000 of $607,700 were
$522,500 over the same period in 1999 of $85,200. Correspondingly,
six months revenues to June 30, 2000 of $902,300 was substantial over
the same period of 1999 of $117,500.
Revenue from our portal business continues to increase at a very
favorable rate reaching $225,400 for the six months of 2000, compared
to $96,500 for the similar period of 1999. Our first dedicated
full-time sales person was hired in January of 1999 and we have been
hiring additional personnel slowly as each one matures in their
responsibilities. Progress of both our sales force and our sales
revenue is quite encouraging and we look forward to continued progress
in our sales efforts in the future.
<TABLE>
<CAPTION>
Gross Profit
Apr 1 to Apr 1 to Jan 1, 2000 to Jan 1, 1999 to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Gross Profit USD $135,000 $64,200 $256,000 $96,500
</TABLE>
Gross profit of $256,000 for the six months ended June 30, 2000 was
$159,500 over the similar period in 1999, while the three months gross
profit from April 1 to June 30, 2000 of $135,000 was $70,800 or 210%
over the same period of 1999. This gross profit improvement is a
direct result of our correspondingly higher sales revenues in each of
the comparable periods and is being generated from our portal
business. Although we are recording increased revenues in our Andela
Products business, we are not recording any significant gross profit
from these activities as yet.
We continue to focus our activities at generating revenues associated
with our web site services and graphic advertising.
<TABLE>
<CAPTION>
Operating Expenses
Apr 1 to Apr 1 to Jan 1, 2000 to Jan 1, 1999 to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
General and
Administration
Expenses USD $117,800 $66,900 $234,200 $111,400
</TABLE>
General and Administrative expenses increased from $111,400 for the
six months ended June 30, 1999 to $234,200 for the similar period of
2000. The largest expenditure in this category is salaries and
related benefits and represents $159,300 of the $234,200 total.
Starting in January of 1999 we commenced hiring sales personnel and
along with increased telephone expenditures, we have been achieving
corresponding strong sales revenue increases.
Traveling expenditures in the year 2000 were slightly higher as we
continue our efforts to attend trade shows, web-related conventions
and continued promotional activities regarding RecycleNet's progress
in the business community.
Management is monitoring its costs closely and will increase
expenditures only when we can see some benefits from doing so.
<TABLE>
<CAPTION>
Net Profit (Loss)
Apr 1 to Apr 1 to Jan 1, 2000 to Jan 1, 1999 to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Net Profit (Loss) USD $17,200 $1,800 $23,600 ($550,400)
</TABLE>
RecycleNet recorded a $23,600 profit for the first six months of the
year 2000, $6,400 in the first quarter and $17,200 in the second
quarter. This $10,800 increase over the first quarter is primarily a
result of increased sales revenues without a corresponding increase in
expenditures.
RecycleNet is now operating in a profit position and as our revenues
increase, our profits should increase at a very favorable rate. Each
additional dollar of sales revenue does not have a high cost of
expenditure associated with it, and thus most of this revenue will
flow into net profit.
The large losses recorded in 1999 were primarily related to marketing
and professional fees, which were paid for by the issuance of stock.
Please note that the $540,000 of the total of $550,400 expenditure was
a non-cash expenditure and did not reduce our cash and bank balances.
Without the $540,000, our loss for the six months to June 30, 1999
would have been recorded at $10,400. Management at RecycleNet will
continue to improve its operations in our continuing effort to
increase shareholder value by improving our bottom line.
Liquidity and Capital Resources
As at June 30, 2000, the company's cash position improved from $49,200
at March 31, 2000 to $60,000, an increase of $10,800. Profit during
this period of $17,200 and depreciation of $1,500 accounted for
$18,700 of this improvement. Additional funds were used to fund
increased accounts receivable and reduce accounts payable, while
additional funds were generated from increased accrued liabilities.
Our balance sheet records no bank indebtedness, nor any long-term
debt. Profit of $6,400 in the first quarter ended March 31, 2000,
along with the profit of $17,200 recorded during the next quarter
ended June 30, 2000 will strengthen our financial position, as
management will be prudent on the application of these funds generated.
Management expects that our operations will now generate profits and
correspondingly, positive cash flow. We will continue to find ways to
improve our profitability and thus increase shareholder value.
Deferred Revenue
Deferred revenue at June 30, 2000 of $49,900 was slightly lower than
the $51,700 recorded at March 31, 2000. Deferred revenue results from
RecycleNet customers who pay for their services or advertising in
advance, either quarterly, half yearly or annually. The Company
records deferred revenue as payments are received. The revenues are
recognized proportionately each month as the services are performed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Competition for Internet products and services, advertising and
e-commerce is intense. The Company expects that competition will
continue to intensify. Barriers to entry are minimal, and competitors
can launch new Web sites at a relatively low cost. It competes for a
share of a customer's advertising/promotional budget with online
services and traditional off-line media, such as print and trade
associations.
Competitors may develop Internet products or services that are
superior to or have greater market acceptance than the Company's
solutions. If it is unable to compete successfully against its
competitors, business condition, financial condition, and operating
results will be adversely affected.
Many of the Company's competitors have much greater brand recognition
and greater financial, marketing and other resources. This may place
it at a disadvantage in responding to its competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
A report on form 8-K was filed on July 7, 2000. The Company reported
Item 5: The Appointment of Keith A. Deck as a new Officer and Director
of the company.
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RECYCLENET CORPORATION
August 09, 2000
BY: /s/ Paul Roszel
----------------------------------
Paul Roszel, Chairman of the
Board of Directors
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
August 09, 2000
BY: /s/ Paul Roszel
-----------------------------------
Paul Roszel, Chairman of the
Board of Directors
August 09, 2000
BY: /s/ Richard Ivanovick
-----------------------------------
Richard Ivanovick, C.A., CFO
August 09, 2000
BY: /s/ Keith A. Deck
-----------------------------------
Keith A. Deck, Director
