UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB-A2
Amendment No. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
RecycleNet Corporation
--------------------------------------------------------------------------
(Name of Small business Issuer in its charter)
Utah 87-0301924
--------------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
7 Darren Place, Guelph, ON NIH 6J2 Canada
--------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (519) 767-2913
Securities to be registered under Section 12 (b) of the Act:
Title of each class Name of each exchange on which
to be so registered Each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Shares, Par value $0.01
(Title of Class)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this amendment to its registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
RecycleNet Corporation
Date: January 24, 2000 By: /s/ Mikael Prydz
----------------------------------
President
Date: January 24, 2000 By: /s/ Rick Ivanovick
----------------------------------
Vice President and Chief
Financial Officer
<PAGE>
RECYCLENET CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
RECYCLENET CORPORATION
Report of Independent Certified Public Accountants. . . . . . . . . . . .F-2
Consolidated Balance Sheets - September 30, 1999
(Unaudited) and December 31, 1998 . . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited), for the Year Ended
December 31, 1998 and for the Period from December 22, 1997
(Date of Inception) through December 31, 1997. . . . . . . . . . . . . .F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Period from December 22, 1997 (Date of Inception) through
December 31, 1997, for the Year Ended December 31, 1998 and for
the Nine Months Ended September 30, 1999 (Unaudited) . . . . . . . . . .F-5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited), for the Year Ended
December 31, 1998 and for the Period from December 22, 1997
(Date of Inception) through December 31, 1997. . . . . . . . . . . . . .F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .F-7
PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Statements of Operations . . .F-9
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the Year Ended December 31, 1998 and for the Nine Months
Ended September 30, 1999 . . . . . . . . . . . . . . . . . . . . . . . F-10
Notes to the Unaudited Pro Forma Condensed Consolidated Statements
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
GARBALIZER MACHINERY CORPORATION
Report of Independent Certified Public Accountants. . . . . . . . . . . F-11
Balance Sheets - December 31, 1998 and 1997 . . . . . . . . . . . . . . F-12
Statements of Operations for the Years Ended December 31,
1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
Statements of Stockholders' Deficit for the Years Ended
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . F-14
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-16
F-1
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors
RecycleNet Corporation
We have audited the balance sheet of RecycleNet Corporation as of December
31, 1998, and the related consolidated statements of operations, cash flows
and stockholders' deficit for the year ended December 31, 1998 and for the
period December 22, 1997 (Date of Inception) through December 31, 1997.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
RecycleNet Corporation as of December 31, 1998, and the results of their
operations and their cash flows for each of the year ended December 31, 1998
and for the period December 22, 1997 (date of inception) through December
31, 1997, in conformity with accounting principles generally accepted in the
United States.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has had
recurring losses from operations that raises substantial doubt about its
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
January 24, 2000
F-2
<PAGE>
RECYCLENET CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . $ 93,820 $ 55,257
Trade accounts receivable . . . . . . . . . . . 48,577 26,505
Receivable from supplier. . . . . . . . . . . . 15,000 -
------------ ------------
Total Current Assets . . . . . . . . . . . . . 157,397 81,762
------------ ------------
Equipment . . . . . . . . . . . . . . . . . . . 13,693 5,351
Less accumulated depreciation . . . . . . . . . (3,080) (762)
------------ ------------
Net Equipment . . . . . . . . . . . . . . . 10,613 4,589
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . $ 168,010 $ 86,351
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade accounts payable and accrued liabilities. $ 3,409 $ 4,460
Deferred revenue. . . . . . . . . . . . . . . . 43,648 31,525
------------ ------------
Total Current Liabilities . . . . . . . . . 47,057 35,985
------------ ------------
Stockholders' Equity
Common shares - $0.001 par value; 150,000,000
shares authorized; 78,774,210 and 69,462,602
shares issued and outstanding, respectively. . 78,774 69,463
Additional paid-in capital. . . . . . . . . . . 7,229,062 6,188,881
Accumulated deficit . . . . . . . . . . . . . . (7,186,883) (6,207,978)
------------ ------------
Total Stockholders' Equity. . . . . . . . . 120,953 50,366
------------ ------------
Total Liabilities and Stockholders' Equity . . . $ 168,010 $ 86,351
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
RECYCLENET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period from
December 22, 1997
(Date of
For the Nine Months For the Year Inception)
Ended September 30, Ended Through
------------------------- December 31, December 31,
1999 1998 1998 1997
----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . $ 316,280 $ 75,730 $ 100,974 $ -
Cost of sales. . . . . . . . . . . . 178,595 10,525 14,033 -
----------- ----------- ----------- ------------
Gross Profit . . . . . . . . . . . . 137,685 65,205 86,941 -
General and administrative expenses. (181,186) (71,363) (95,151) (6,719)
Exchange gain (loss) . . . . . . . . 4,628 - (1,250) (55)
----------- ----------- ----------- ------------
Loss Before Special Items. . . . . . (38,873) (6,158) (9,460) (6,774)
Special Items Paid with Common Stock
Marketing expense . . . . . . . . . (116,100) - - -
Professional fees . . . . . . . . . (423,932) - - -
Business development expense. . . . - - - (6,191,744)
Merger and acquisition expense. . . (400,000) - - -
----------- ----------- ------------ ------------
Net Loss . . . . . . . . . . . . . . $ (978,905) $ (6,158) $ (9,460) $(6,198,518)
=========== =========== ============ ===========
Basic and Diluted Loss Per
Common Share. . . . . . . . . . . . $ (0.01) $ (0.00) $ (0.00) $ (0.09)
=========== =========== ============ ===========
Weighted-Average Number of
Common Shares Used in Per
Share Calculation. . . . . . . . . 76,158,891 69,150,574 69,211,287 68,820,480
=========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
RECYCLENET CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional Stockholders'
--------------------------- Paid-In Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance - December 22, 1997
(Date of Inception) . . . . . . . . . . . . . - $ - $ - $ -
Issuance for services, December 23, 1997,
$0.09 per share . . . . . . . . . . . . . . 68,820,480 68,820 6,122,924 - 6,191,744
Distribution to a shareholder by
issuance of a note payable,
December 23, 1997 . . . . . . . . . . . . . . - - (10,443) - (10,443)
Issuance for cash, December 31, 1997,
$0.09 per share. . . . . . . . . . . . . . . 154,760 155 13,851 - 14,006
Net loss for the period. . . . . . . . . . . . - - - (6,198,518) (6,198,518)
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1997. . . . . . . . . . 68,975,240 68,975 6,126,332 (6,198,518) (3,211)
Issuance for cash, January 30, 1998,
$0.09 per share . . . . . . . . . . . . . . . 7,738 8 679 - 687
Issuance for cash, February through
October 1998, $0.13 per share . . . . . . . . 479,624 480 61,870 - 62,350
Net loss for the year. . . . . . . . . . . . . - - - (9,460) (9,460)
------------ ------------ ------------ ------------ ------------
Balance - December 31, 1998. . . . . . . . . . 69,462,602 69,463 6,188,881 (6,207,978) 50,366
Issuance for cash, February and March 1999,
$0.51 per share (unaudited) . . . . . . . . . 213,570 214 109,261 - 109,475
Issuance for services, March 1999,
$0.51 per share . . . . . . . . . . . . . . . 833,717 833 423,084 - 423,917
Issuance to acquire Andela Products Corporation,
March 11, 1999, $0.30 per share (unaudited) . 386,900 387 115,713 - 116,100
Issuance to acquire Garbalizer Machinery
Corporation, March 19, 1999, $0.00 per
share (unaudited) . . . . . . . . . . . . . . 7,877,421 7,877 (7,877) - -
Contribution of 2,000,000 shares by principal
shareholder and issuance for merger and
acquisition services, August 19, 1999,
$0.20 per share (unaudited) . . . . . . . . . - - 400,000 - 400,000
Net loss for the period (unaudited). . . . . . - - - (978,905) (978,905)
------------ ------------ ------------ ------------ ------------
Balance - September 30, 1999 (Unaudited) . . . 78,774,210 $ 78,774 $ 7,229,062 $ (7,186,883) $ 120,953
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
RECYCLENET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from
December 22, 1997
(Date of
For the Nine Months For the Year Inception)
Ended September 30, Ended Through
---------------------- December 31, December 31,
1999 1998 1998 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . $ (978,905) $ (6,158) $ (9,460) $(6,198,518)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation. . . . . . . . . . . 2,318 572 762 -
Marketing expense paid with
common stock . . . . . . . . . . 116,100 - - -
Common stock issued for services. 823,932 - - 6,191,744
Exchange (gain) loss. . . . . . . (4,628) (548) 1,250 55
Changes in assets and liabilities:
Accounts receivable . . . . . . . (24,513) (20,585) (27,447) -
Accounts payable. . . . . . . . . (1,239) 3,464 4,618 -
Deferred revenue. . . . . . . . . 10,451 24,484 32,645 -
---------- ---------- ---------- -----------
Net Cash Provided by (Used in)
Operating Activities . . . . . . . (56,484) 1,229 2,368 (6,719)
---------- ---------- ---------- -----------
Cash Flows From Investing Activities
Loan to related party . . . . . . . (15,000) - - -
Purchase of equipment . . . . . . . (8,342) (4,012) (5,351) -
---------- ---------- ---------- -----------
Net Cash Used in Investing Activities (23,342) (4,012) (5,351) -
---------- ---------- ---------- -----------
Cash Flows From Financing Activities
Payment of note payable to
shareholder. . . . . . . . . . . . - - (10,103) -
Proceeds of issuance of common
shares . . . . . . . . . . . . . . 109,475 30,854 63,036 14,006
---------- ---------- ---------- -----------
Net Cash Provided by Financing
Activities. . . . . . . . . . . . . 109,475 30,854 52,933 14,006
---------- ---------- ---------- -----------
Effect of Exchange Rate Changes
on Cash. . . . . . . . . . . . . . 8,914 - (1,980) -
---------- ---------- ---------- -----------
Increase in Cash . . . . . . . . . . 38,563 28,071 47,970 7,287
Cash at Beginning of Period. . . . . 55,257 7,287 7,287 -
---------- ---------- ---------- -----------
Cash at End of Period. . . . . . . . $ 93,820 $ 35,358 $ 55,257 $ 7,287
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
RECYCLENET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with Respect to September 30, 1999 and for the Nine Months
Ended September 30, 1999 and 1998 is Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements present the consolidated financial
position of RecycleNet Corporation and subsidiaries and the results of
their operations and their cash flows in accordance with accounting
principles generally accepted in the United States.
ORGANIZATION AND CONSOLIDATION -RecycleNet Corporation (RecycleNet), was
incorporated on December 22, 1997 under the laws of the Province of
Ontario, Canada. RecycleNet is in the business of designing Internet
sites, Internet advertising and Internet trading of consumable recyclable
goods. Its primary operations are conducted from Ontario. The accompanying
consolidated financial statements include the accounts of RecycleNet,
RecycleNet Corporation (formerly Garbalizer Machinery Corporation), a Utah
corporation, from the date of its acquisition and Andela Products
Corporation, from the date of its acquisition. Intercompany accounts and
transactions have been eliminated on consolidated.
REORGANIZATION AND BASIS OF PRESENTATION - On March 19, 1999, RecycleNet
was reorganized into a 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 the Ontario subsidiary and 3.869 Class N
(voting non-equity participating) shares of Garbalizer. The RecycleNet
shareholders were issued 70,896,789 Class X and Class N shares. The Class
X and Class N shares are convertible into common shares of Garbalizer on
the basis of one Class X share and one Class N share for each common share
of Garbalizer. Prior to closing the Agreement, the Garbalizer shareholders
held 7,877,421 common shares, after a 2-for-3 reverse stock split, which
remained outstanding after the reorganization. The RecycleNet shareholders
therefore received the equivalent of 90% of the common shares of
Garbalizer. Subsequent to the closing of the Agreement, the Garbalizer
changed its name to RecycleNet Corporation.
For financial reporting purposes, RecycleNet was considered the accounting
acquirer. Accordingly, the accompanying financial statements present the
historical operations of RecycleNet for the periods prior to March 19,
1999. Those historical financial statements have been restated for all
periods presented for the effects of the 3.869-for-1 stock split. 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 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. The operations of
Garbalizer have been included in the accompanying consolidated financial
statements from March 19, 1999.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
BUSINESS CONDITION - The Company has experienced recurring operating losses
and has experienced negative cash flows from operations of $56,484 for the
nine months ended September 30, 1999. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
accompanying financial statements do not include any adjustments relative
to the recoverability and classification of the asset carrying amounts or
the amount and classification of liabilities that might result from the
outcome of this uncertainty.
F-7
<PAGE>
CURRENCY TRANSLATION - 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.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The amounts reported as cash, trade
accounts receivable, accounts payable, accrued liabilities and deferred
revenue are considered to be reasonable approximations of their fair
values. The fair value estimates were based on market information
available to management at the time of the preparation of the financial
statements.
BASIC AND DILUTED LOSS PER COMMON SHARE - Basic and diluted loss per common
share has been computed by dividing net loss by the weighted-average number
of common shares and Class N common equivalent shares outstanding during
the period.
NOTE 2 - ACQUISITION OF ANDELA PRODUCTS CORPORATION
At September 30, 1999, the Company has a receivable from Andela T&M as a
result of a $15,000 advance to Andela T&M. The Company intends to acquire
glass recycling equipment from Andela T&M. In addition, the Company
acquired Andela Products Corporation from Andela T&M in exchange for
386,900 shares of common stock on March 11, 1999. The acquisition was
primarily for the purpose of obtaining marketing rights to the 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 - INCOME TAXES
As of September 30, 1999, the Company had Canadian operating loss
carryforwards for tax purposes of $50,983 which expire if not used
beginning in 2005. In addition, the Company has U.S. operating loss
carryforwards of approximately $400,000 which expire if not used in 2014.
NOTE 4 - STOCKHOLDERS' EQUITY
On March 19, 1999, the articles of incorporation for the Company were
amended to authorize 150,000,000 common shares with a par value of $0.01
per share. The board of directors is authorized to create and designate
one or more series within the class of common shares and to designate
relative preferences, limitations and rights in accordance with Utah state
law. No separate series have been created or designated.
On December 23, 1997, the Company issued 68,820,480 shares of common stock
for various services rendered to the Company. The shares were recorded at
their fair value of $0.09 per share based upon the price shares were
issued for cash in December 1997.
During February through March 1999, the Company issued 213,570 shares of
common stock for cash. The proceeds from the issuance were $109,475 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
$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 common stock for the
acquisition of Andela Corporation. The value assigned to the shares was
$0.30 per share based on the market value at which the Company's shares
traded after the reorganization with Garbalizer.
F-8
<PAGE>
In conjunction with the reorganization of RecycleNet into Garbalizer, a
principal shareholder contributed 2,000,000 shares of common stock to the
Company on August 19, 1999 which were immediately reissued to an individual
for his assistance in the merger and acquisition of RecycleNet and
Garbalizer. The 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
shares were trading at the time of issuance. The cost of the related
services was charged to expense.
RECYCLENET CORPORATION
CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
On March 19, 1999, RecycleNet was reorganized into a wholly-owned Ontario
subsidiary of Garbalizer under the terms of a Stock Exchange Agreement
dated February 25, 1999. Under the terms of the agreement, the
shareholders of RecycleNet exchanged each outstanding common shares of
RecycleNet for 3.869 Class X shares (equity participating and non-voting)
of the Ontario subsidiary and 3.869 Class N (voting non-equity
participating) shares of Garbalizer. The RecycleNet shareholders were
issued 70,896,789 Class X and Class N shares. The Class X and Class N
shares are convertible into common shares of Garbalizer on the basis of one
Class X share and one Class N share for each common share of Garbalizer.
Prior to closing the agreement, the Garbalizer shareholders held 7,877,421
common shares which remained outstanding after the agreement. The
RecycleNet shareholders therefore received the equivalent of 90% of the
common shares of Garbalizer. The agreement was accounted for as the reverse
acquisition of Garbalizer by RecycleNet. The acquisition was accounted for
under the purchase method of accounting. The purchase price was determined
based upon the fair value of the net assets of Garbalizer, which was zero.
The following condensed pro forma consolidated statements of operations
have been prepared to present the operations of the combined entities as
though the agreement had been completed on January 1, 1998. Pro forma
adjustments have been provided to eliminate non-recurring expenses directly
attributable to the agreement.
The following financial information was derived from, and should be read in
conjunction with the consolidated statements of operations of RecycleNet
and of Garbalizer for the year ended December 31, 1998 and of RecycleNet
for the nine months ended September 30, 1999. The operations of Garbalizer
were included in the consolidated results of operations of RecycleNet from
March 19, 1999. The condensed consolidated pro forma statement of
operations has been included herein for comparative purposes only and does
not purport to be indicative of the results of operations which actually
would have been obtained had the agreement been completed on January 1,
1998, or the results of operations which may be obtained in the future. In
addition, future results may vary significantly from the results reflected
in this pro forma financial statement.
F-9
<PAGE>
RECYCLENET CORPORATION
CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
RecycleNet Garbalizer Adjustments Results
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . 100,974 $ 195,599 (A)$ (195,599) $ 100,974
Cost of sales. . . . . . . . . . . . 14,033 134,730 (A) (134,730) 14,033
----------- ----------- ----------- -----------
Gross profit . . . . . . . . . . . . 86,941 60,869 (60,869) 86,941
General and administrative expenses. (95,151) (93,016) (A) 93,016 (95,151)
Exchange gain (loss) . . . . . . . . (1,250) - - (1,250)
----------- ----------- ----------- -----------
Loss from operations . . . . . . . . (9,460) (32,147) 32,147 (9,460)
Interest expense . . . . . . . . . . - (19,564) (A) 19,564 -
----------- ----------- ----------- -----------
Net Loss from Continuing Operations. $ (9,460) $ (51,711) $ 51,711 $ (9,460)
=========== =========== =========== ===========
Basic and diluted loss per
common share. . . . . . . . . . . . $ (0.00) $ (0.00)
=========== ===========
Weighted-average number of common
shares used in per share
calculation . . . . . . . . . . . . 69,211,287 77,088,708
=========== ===========
</TABLE>
CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
RecycleNet Garbalizer Adjustments Results
----------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . $ 316,280 $ - $ - $ 316,280
Cost of sales. . . . . . . . . . . . 178,595 - - 178,595
----------- ----------- ----------- -----------
Gross profit . . . . . . . . . . . . 137,685 - - 137,685
General and administrative expenses. (181,186) (37,519) (A) 37,519 (181,186)
Exchange gain (loss) . . . . . . . . 4,628 - - 4,628
----------- ------------ ----------- -----------
Loss before special items. . . . . . (38,873) (37,519) 37,519 (38,873)
Special items paid with common stock (940,032) - (B) 400,000 (540,032)
----------- ------------ ----------- -----------
Loss from operations . . . . . . . . (978,905) (37,519) (A) 437,519) (578,905)
Interest expense . . . . . . . . . . - (4,747) (A) 4,747 -
----------- ------------ ----------- -----------
Net loss . . . . . . . . . . . . . . $ (978,905) $ (42,266) $ 442,266 $ (578,905)
=========== ============ =========== ===========
Basic and diluted loss per
common share. . . . . . . . . . . . $ (0.01) $ (0.00) $ (0.01)
=========== ============ ===========
Weighted average number of common
shares used in per share calculation 76,158,891 11,816,132 (A) 11,816,132 76,158,891
=========== ============ =========== ===========
</TABLE>
NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
A - The operations of Garbalizer were discontinued upon the
reorganization with RecycleNet and have therefore been excluded
from continuing operations.
B - Merger and acquisition costs were paid by the Company issuing
common stock. The costs were non-recurring and were directly
attributable to the reorganization of RecycleNet into Garbalizer.
Accordingly, the related expense has been eliminated from the pro
forma net loss from continuing operations.
F-10
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
Member of AICPA Division of Firms Fax (801) 532-7944
Member of SECPS 345 East Broadway, Suite 200
Member of Summit International Associates Salt Lake City, Utah 84111-2693
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
Garbalizer Machinery Corporation
We have audited the accompanying balance sheets of Garbalizer Machinery
Corporation as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' deficit, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Garbalizer
Machinery Corporation as of December 31, 1998 and 1997 and the results of
its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's operating losses, working capital
deficiency, negative cash flows from operating activities and the lack of
consistent revenues raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans concerning these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
November 17, 1999
F-11
<PAGE>
GARBALIZER MACHINERY CORPORATION
BALANCE SHEETS
December 31,
-----------------------
1998 1997
----------- ----------
ASSETS
Current Assets
Inventory . . . . . . . . . . . . . . . . . . . . $ - $ 30,000
----------- ----------
Total Current Assets . . . . . . . . . . . . . . - 30,000
Patents, net of accumulated amortization of $46,458 - -
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $ - $ 30,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank overdraft. . . . . . . . . . . . . . . . . . $ 7,144 $ 259
Notes payable . . . . . . . . . . . . . . . . . . 190,708 156,406
Accrued interest. . . . . . . . . . . . . . . . . 56,635 48,363
Payroll taxes payable . . . . . . . . . . . . . . 3,845 -
Accounts payable. . . . . . . . . . . . . . . . . 20,740 31,747
Account payable related party . . . . . . . . . . 180,071 200,657
----------- ----------
Total Current Liabilities. . . . . . . . . . . . 459,143 437,432
----------- ----------
Stockholders' Deficit
Common stock - $0.01 par value; 15,000,000
shares authorized; 11,816,132 shares issued
and outstanding. . . . . . . . . . . . . . . . . 118,161 118,161
Additional paid-in capital. . . . . . . . . . . . 543,692 543,692
Accumulated deficit . . . . . . . . . . . . . . . (1,120,996) (1,069,285)
----------- ----------
Total Stockholders' Deficit. . . . . . . . . . . (459,143) (407,432)
----------- ----------
Total Liabilities And Stockholders' Deficit. . . . $ - $ 30,000
=========== ==========
F-12
<PAGE>
GARBALIZER MACHINERY CORPORATION
STATEMENTS OF OPERATIONS
December 31,
-----------------------
1998 1997
----------- ----------
Revenues. . . . . . . . . . . . . . . . . . . . . . $ 195,599 $ 1,242
Cost of sales, including write-down of carrying
value of inventory of $30,000 during 1998. . . . . 134,730 -
----------- ----------
Gross Profit. . . . . . . . . . . . . . . . . . . . 60,869 1,242
General and Administrative Expenses . . . . . . . . 93,016 22,587
----------- ----------
Loss From Operations. . . . . . . . . . . . . . . . (32,147) (21,345)
Interest Expense. . . . . . . . . . . . . . . . . . 19,564 27,576
----------- ----------
Net Loss. . . . . . . . . . . . . . . . . . . . . . $ (51,711) $ (48,921)
=========== ==========
Basic and Diluted Loss Per Share of Common Stock. . $ (0.00) $ (0.00)
=========== ==========
Weighted Average Number of Common Shares
Used in Per Share Calculation. . . . . . . . . . . 11,816,132 11,816,132
=========== ==========
F-13
<PAGE>
GARBALIZER MACHINERY CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1996. . . . . 11,816,132 $ 118,161 $ 543,692 $(1,020,364)
Net loss for the year. . . . . . . . - - - (48,921)
----------- ----------- ----------- -----------
Balance - December 31, 1997. . . . . 11,816,132 118,161 543,692 (1,069,285)
Net loss for the year. . . . . . . . - - - (51,711)
----------- ----------- ----------- -----------
Balance - December 31,1998 . . . . . 11,816,132 $ 118,161 $ 543,692 $(1,120,996)
=========== =========== =========== ===========
</TABLE>
F-14
<PAGE>
GARBALIZER MACHINERY CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1997 1998
---------- ----------
Cash Flows From Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . . . $ (51,711) $ (48,921)
Adjustments to reconcile net loss to
net cash used by operating activities:
Non cash interest expense . . . . . . . . . . - 8,767
Changes in operating assets and liabilities:
Inventory . . . . . . . . . . . . . . . . . . 30,000 56,900
Accounts payable . . . . . . . . . . . . . . . . (11,007) (63,574)
Accrued interest payable. . . . . . . . . . . 8,272 8,569
Payroll taxes payable . . . . . . . . . . . . 3,845 -
---------- ----------
Net Cash Used In Operating Activities. . . . . . (20,601) (38,259)
---------- ----------
Cash Flows From Financing Activities
Advances from related party . . . . . . . . . . . (20,586) 35,242
Proceeds from notes payable . . . . . . . . . . . 42,040 6,245
Payments on notes payable . . . . . . . . . . . . (7,738) (2,297)
Increase (decrease) in bank overdraft . . . . . . 6,885 (931)
---------- ----------
Net Cash Provided By Financing Activities. . . . 20,601 38,259
---------- ----------
Increase (Decrease) in Cash. . . . . . . . . . . . - -
Cash at Beginning of Year. . . . . . . . . . . . . - -
---------- ----------
Cash at End of Year. . . . . . . . . . . . . . . . $ - $ -
========== ==========
Supplemental Cash Flow Information:
Cash paid for interest. . . . . . . . . . . . . . $ 10,798 $ 10,240
========== ==========
F-15
<PAGE>
GARBALIZER MACHINERY CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1--NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS -The Company is a subsidiary of
Garbalizer Corporation of America. The Parent Corporation owns 60 percent
of the Company's common stock. The Company manufactures and sells tire
shredders to buyers both in the United States and throughout the world.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BUSINESS CONDITION - The Company has experienced recurring operating
losses, has negative cash flows from operations and has a stockholders'
deficit of $459,143 and a working capital deficiency of $459,143 as of
December 31, 1998. The Company is past due on its debt obligations at
December 31, 1998. These situations raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying
financial statements do not include any adjustments relative to the
recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result from the outcome of
this uncertainty. See Note 5 for management's actions regarding the
Company to continue as a going concern.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The amounts reported as cash, trade
accounts payable, accrued liabilities and notes payable are considered to
be reasonable approximations of their fair values. The fair value
estimates were based on market information available to management at the
time of the preparation of the financial statements.
INVENTORY - Inventory is valued at the lower of cost or market, with cost
determined by the first-in first-out method. Inventory consists of gear
reducers. All inventory is considered finished goods.
REVENUE RECOGNITION - Revenue from sales is recognized upon shipment and
installation of a shredder. An allowance for returns and discounts is
provided at the time of shipment when needed.
PATENTS - The patents were being amortized over a 17-year period by the
straight-line method.
ADVERTISING COSTS - The Company expenses its advertising costs as incurred.
The Company incurred $0 and $6,700 in advertising costs for the years ended
December 31, 1998 and 1997.
RENTAL COMMITMENTS - The Company rents its office building on a
month-to-month basis. The Company paid $11,228 and $1,268 in rent expense
for the years ended December 31, 1998 and 1997, respectively. The Company
shares office space with another company under common control. The total
rent expense is allocated between the two companies.
RECLASSIFICATIONS - Certain items in the 1997 financial statements have
been reclassified to conform to the current year classifications. Such
reclassifications had no effect on previously reported net income.
BASIC AND DILUTED LOSS PER COMMON SHARE - In 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. Under SFAS 128, loss per common share is computed by dividing net
loss available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted loss per share
reflects the potential dilution which could occur if all contracts to issue
common stock were exercised or converted into common stock or resulted in
the issuance of common stock. In the Company's present position, diluted
loss per share is the same as basic loss per share.
F-16
<PAGE>
NOTE 2--RELATED PARTY TRANSACTIONS
The Company's parent corporation advanced monies on behalf of/or to the
Company in past years. These monies were accounted for as capital
contributions.
The Company received advances of $0 and $35,242 from a publicly traded
company during 1998 and 1997. The amount due this company was $180,071 and
$200,657 at December 31, 1998 and 1997, respectively. There were no terms
of repayment. The companies are related due to common ownership.
The Company's president has advanced monies to the Company. No set terms
were established but the Company has been making payments against loans of
the president, including interest at rates ranging from 8% to 18%. See Note 3.
NOTE 3--NOTES PAYABLE
During 1992 the Company borrowed $150,000 from an individual. The note
carried a 12% interest rate and was due on May 7, 1992. The balance on the
note was $68,493 at December 31, 1998 and 1997.
As mentioned in Note 2, the Company is indebted to its president in the
amount of $102,215 at December 31, 1998 and $82,912 at December 31, 1997,
which includes interest and is due on demand.
During 1997, a $4,000 short-term note was loaned to the Company by a
shareholder. This note bears no interest and is due on demand. During 1997,
a $5,000 short-term note was loaned to the Company. This note carries a 12%
interest rate and is due on demand. The note and interest were paid in
1997. During 1998 two short-term notes for $10,000 each were loaned to the
Company. These notes carry a 12% interest rate and are due on demand.
NOTE 4--INCOME TAXES
The major components of the net deferred tax asset as of December 31, 1998
and 1997 are as follows:
1998 1997
---------- ----------
Operating loss carry forwards . . . . . . $ 147,462 $ 135,051
---------- ----------
Total Deferred Tax Asset. . . . . . . . . 147,462 135,051
Valuation allowance . . . . . . . . . . . (147,462) (135,051)
---------- ----------
Net Deferred Tax Asset. . . . . . . . . . $ - $ -
========== ==========
The net change in the valuation allowance was an increase of $12,411 and
$11,741 for the years ended December 31, 1998 and 1997, respectively. The
Company has operating loss carry forwards at December 31, 1998 of $726,965
which expire in 2005 through 2013 if unused.
The components of the provision for income taxes were immaterial for all
periods presented. The following is a reconciliation of the income tax at
the federal statutory tax rate with the provision for income taxes for the
years ended December 31, 1998 and 1997:
F-17
<PAGE>
1998 1997
---------- ----------
Income tax benefit at statutory rate (34%) . . . $ (17,581) $ (16,633)
Change in valuation allowance. . . . . . . . . . 12,411 11,741
State tax net of federal benefit . . . . . . . . (1,706) (1,614)
Benefit from lower tax rates . . . . . . . . . . 6,876 6,506
---------- ----------
Provision for Income Taxes . . . . . . . . . . . $ - $ -
========== ==========
When the Company changes ownership as discussed in Note 5, the net
operating losses will be subject to limitations under Section 382 of the
Internal Revenue Code.
NOTE 5--SUBSEQUENT EVENTS
On March 19, 1999, the Company and its shareholders entered into a
reorganization agreement with the shareholders of RecycleNet Corporation
(RecycleNet), an Ontario corporation, whereby the Company agreed to
transfer all of its existing assets and liabilities to a company controlled
by the Company's parent corporation, reverse split its common stock on a
2-for-3 basis, increase the authorized common shares to 150,000,000 shares
and agreed to merge a newly-formed, wholly-owned subsidiary with and into
RecycleNet. In the reorganization, the RecycleNet shareholders exchanged
all of the outstanding common shares of RecycleNet for 70,896,789 shares
(post-split) of equivalent common stock of the Company.
The reorganization with RecycleNet has been accounted for as a
reorganization of RecycleNet (RecycleNet being the accounting acquirer) and
the issuance of 7,877,421 shares of common stock (post-split) to the parent
corporation for no consideration. The distribution of the assets, net of
liabilities, was accounted as a capital contribution to the Company and
recorded at the historical cost of the assets and liabilities transferred,
as follows:
Cash. . . . . . . . . . . . . . . . . $ (899)
Accounts receivable . . . . . . . . . (11,645)
Accounts payable. . . . . . . . . . . 10,584
Accrued expenses. . . . . . . . . . . 61,359
Payable to related parties. . . . . . 103,215
Payable to Garb Oil & Power . . . . . 221,953
Notes payable . . . . . . . . . . . . 88,493
---------
Net Liabilities Transferred . . . . . $ 473,060
=========
F-18
<PAGE>
