UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of The Securities Exchange Act of 1934
RHINO ECOSYSTEMS, INC.
(Name of Small Business Issuer in its charter)
Florida 65-0939751
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
40 Trowers Road, Woodbridge, Ontario, Canada L4L 7K6
-------------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number: (905) 264-0198
Securities to be registered under Section 12(g) of the Act:
Title of each class Name of each exchange on which each class
is to be registered
- --------------------- ------------------------------------------
Common OTC Bulletin Board
Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, $.0001 par value
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTORY STATEMENT............................................................................................1
ITEM 1. DESCRIPTION OF BUSINESS...............................................................................1
A. Business Development and Summary................................................................1
B. Principal Products..............................................................................3
C. Manufacturing...................................................................................5
D. The Market and Product Distribution ............................................................6
E. Marketing Strategy..............................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION.................................................................................8
A. General Discussion of the Company...............................................................8
B. Segment Data....................................................................................9
C. Governmental Approval, Regulation and Environmental Compliance .................................9
D. Risks Associated with Operations................................................................9
E. Competition....................................................................................10
F. Developing and Changing Market.................................................................11
G. Employees......................................................................................11
H. Risks Associated with Year 2000................................................................11
I. Additional Information.........................................................................11
ITEM 3. DESCRIPTION OF PROPERTY..............................................................................12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...........................................................................................12
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS..............................................................................................12
ITEM 6. EXECUTIVE COMPENSATION...............................................................................14
Key Officer Employment Agreements..............................................................14
Compensation of Directors......................................................................14
Stock Option Plan and Non-Employee Directors' Plan.............................................15
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................15
ITEM 8. DESCRIPTION OF SECURITIES............................................................................15
Transfer Agent.................................................................................16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
PART II ........................................................................................................16
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..............................................................................................16
ITEM 2. LEGAL PROCEEDINGS....................................................................................16
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS........................................................16
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES..............................................................16
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS............................................................17
FINANCIAL STATEMENTS.............................................................................................17
EXHIBITS ........................................................................................................18
</TABLE>
iii
<PAGE>
INTRODUCTORY STATEMENT
Rhino Ecosystems, Inc. (the "Company" or "Rhino") has elected to file this
Form 10-SB registration statement on a voluntary basis in order to become a
reporting company under the Securities Act of 1934. The primary purpose for this
is that the Company intends to be listed for trading on the OTC Electronic
Bulletin Board. Under the current NASD rules, in order to become listed on the
OTC Electronic Bulletin Board, a company now must be a reporting company under
the Securities Act of 1934.
This registration statement, including the information that may be
incorporated herein by reference, contains forward-looking statements including
statements regarding, among other items, the Company's business and growth
strategies, and anticipated trends in the Company's business and demographics.
These forward-looking statements are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a result of
factors described in this section "Risk Factors," including among others,
regulatory or economic influences.
ITEM 1. DESCRIPTION OF BUSINESS
A. Business Development and Summary
Rhino Ecosystems, Inc., hereinafter referred to as the "Company" or
"Rhino", was organized by the filing of Articles of Incorporation with the
Secretary of State of the State of Florida on April 7, 1999. The articles of the
Company authorized the issuance of twenty five million (25,000,000) shares of
Common Stock at a par value of $0.0001 per share. Rhino shall also include all
references to its majority owned subsidiary, Rhino Ecosystems, Inc., a company
subject to the provisions of the Business Corporations Act of Ontario.
Rhino has invented and tested a patented technology known as the RINO(TM)
System which stands for "Refuse In Nothing Out." Rhino has applied for a
trademark on the corporate logo and name "RINO" and has a Canadian patent
pending, Patent # 2,178,270, as well as an international PCT application No.
PCT/CA97/00377 on this innovative technology. The RINO system provides a simple,
inexpensive solution for all restaurants and food-related industries with
regards to compliance with existing and future environmental legislation. The
RINO(TM) System is design to work in conjunction with existing grease trap
filtration systems. The RINO(TM) System will serve as a pre-grease trap
filtration system which captures a large portion of greases and food solids,
that are typically sent down the drains of kitchen sinks, in a disposable
filtration bag.
Water is heavily used in industrial, commercial and residential settings
during the preparation of food including the cleaning of containers, cookware
and utensils used in cooking. This produces a consequent amount of waste water
which typically contains a substantial amount of organic matter, including
grease. Grease which enters the public sewage system may be treated at sewage
treatment plants at a substantial cost. In industrial and commercial settings,
some local
1
<PAGE>
governments mandate the use of grease trap collection units to minimize the
volume of grease entering the public sewage system.
Standard grease trap collection units consist of settling tanks for the
collection of grease and other waste solids. These tanks may form part of the
waste water flow path and accordingly may not separate grease and other organic
matter efficiently. Furthermore, standard grease trap collection units may
require the services of a grease removal specialist to empty the trap and
dispose of the grease. Grease traps also generally require regular maintenance
to prevent the build up of excessive grease in the trap and the pipes. Excessive
grease in waste water systems may result in excessive bacteria, which may
attract vermin or insects, may cause blocked pipes and reduced flow rates in
sinks, and may allow noxious odors to enter the kitchen and restaurant seating
areas through waste water drains.
The patent pending RINO(TM) System is in compliance with Canadian Federal
and Provincial Regulatory requirements. In fact, current studies and literature
are leaning towards mandatory implementation of pre-grease trap interceptors of
grease and waste solids (i.e. RINO(TM) System). Current Canadian study groups
such as the OPIA (Ontario Plumbing Inspectors Association) are also trying to
legislate mandatory implementation of grease interceptors in all industrial and
commercial locations where food is cooked, processed or prepared.
American study groups such as the PDI (Plumbing and Drainage Institute) and
the ASPE (American Society of Plumbing Engineers) also have identified the
problem with grease and waste solids entering the public sewage system.
Test data captured from RINO(TM) Systems installed in various locations has
been recently tested and audited by an independent engineering and consulting
company. Tests performed have proven the RINO(TM) System to be highly cost
effective. Preliminary observations based on the testing have identified the
following benefits:
1. reduces the amount of grease and waste solids which flow down the drain;
2. reduces the risk of the clogging or backing up of grease traps and
sinks;
3. reduces the number of grease trap cleanings required (which will reduce
down time associated with costly specialists required to clear the
drains);
4. reduces the odors associated with the grease trap (especially during
cleaning);
5. reduces the costs to the municipality for treating the sewage in the
public sewage system;
6. increase in overall management and environmental awareness;
7. reduces closure of restaurant and loss of revenue due to the backing up
of the grease trap, clogged sinks and plumbing.
During its initial phase of development, the Company intends to formulate
profitability budgets, and marketing plans with the intention to make
presentations to overseas manufacturing firms to become its marketing company in
the United States. To date, no manufacturing companies have signed a contract
with Rhino. A manufacturer/client needs to be identified and
2
<PAGE>
contracted with in order for Rhino to begin to receive revenues. The Company
intends to focus on achieving and maintaining profitability also ensuring tight
financial and systems control by 1) being fully prepared for cyclical sales
performance while still providing top quality customer service, 2) focusing on
quality, not quantity, of new staff, 3) instituting financial/accounting
software systems to enable much tighter cash flow and inventory control, and
minimizing long-term contractual arrangements with suppliers and keeping minimum
order quantities as low as possible.
B. Principal Products
The Product
The RINO(TM) System is the registered trademark name for the pre-grease
trap interceptor filtration system. An initial installation provides a collector
body and contains one removable filter. Refills of the removable filters are
then supplied to the customer as required.
Once the RINO(TM) unit is installed, the discharge water from the
establishments' sinks will be gravity fed into the cap (i.e. waterfeed OTM CAP)
of the RINO(TM) unit. The discharge water will pass through a collection bag
(i.e. filter bag) that will trap the waste materials while letting the water
pass through the discharge hole into a waste water collection area, which will
be emptied as follows:
1. Gravity Model - waste water will flow through the discharge outlet and
reenter the resident plumbing drainage lines prior to the resident grease trap
interceptor.
2. Pump Model -in height restricted areas, an electrical waste water pump
is used to pump the water out of the RINO(TM) prior to the resident grease trap
interceptor.
The filtration bag can be easily emptied and replaced via a front access
cover on the RINO(TM) unit by any staff member of the respective establishment.
Upon removal of the filtration bag, it can be disposed of through the normal
waste removal collection system. Numerous tests performed to date have proven
the existing filter bag to be the most efficient in terms of its filtering
capabilities. The existing filter bag specifications are as follows:
Needle count: 401
Cylinder size: 3-1/2
Start up yarn: 30/2 stretch nylon
Body yarn: 40/l/S stretch nylon 40/1/Z stretch nylon
Run out yarn: 60/1 cotton
Knit length: 16 inches
Finish length: 12 inches
These specifications have been determined as a result of numerous tests
performed.
3
<PAGE>
Problems with Existing Grease Traps
The prevailing method of intercepting and removing fats, oil and grease
from waste water is through the use of grease traps. Grease traps are intended
to provide some retention time to cool the warm liquefied grease for separation
in the form of a surface scum or oil layer. Unfortunately, most grease traps are
undersized and provide only minimal grease separation prior to discharge to
sewers. Additionally, emulsified oil, unless the emulsion breaks, will normally
not separate in grease traps. To make things worse, many facilities do not
adequately maintain or service the existing grease traps.
Grease and waste solids which are not removed in grease traps will cool
down in sewers, both private and municipal, and in this way result in gradual
grease build-up within the sewers, leading to flow restrictions or complete
blockages. These blockages lead to bad odors scented in the respective
facilities, increased number of grease trap cleanings, potential down-time (i.e.
shut downs) as a result of costly work required to hire specialists to clean any
blockages, and an overall negative effect on the facilities' operations.
Additional expenses may be incurred due to municipal cost recovery on
prosecutions (i.e. fines) for municipal blockages.
Rhino is committed to reduce and eventually eliminate the above noted
problems efficiently and most importantly cost-effectively. Efforts are being
made to create a low cost and highly effective biodegradable bag. This bag will
reduce any concerns raised by the currently used nylon bag to eliminate any
waste control issues.
Installation of the RINO(TM) System can be accomplished with a minimum of
disruptions to existing plumbing systems. Any local plumber will be able to
easily install a RINO(TM) relatively short period of time.
Rhino is experiencing growth in the demand for the RINO(TM) System that has
pushed the Company well beyond its current operating capabilities. A new
facility, the hiring and training of information technicians and engineers, and
the hiring of marketing and management staff are required immediately to allow
Rhino to fill product orders in an efficient manner.
Physical Requirements
To provide adequate office and storage space for growth, the company
requires a five to seven thousand square foot facility. The location of the
facility will be located in the central Greater Toronto Area near one of the 400
series highways to accommodate the anticipated high volume of traffic.
Staffing/Training
In addition to existing personnel, the Company intends to hire a full-time
marketing/sales manager who will work with Gordan Novak, the Vice President of
Sales and Marketing. Mr.
4
<PAGE>
Novak has previous experience in the area of pollution control. The Sales
Manager will be responsible for the training of a strong sales team, as well as
ensuring the maintenance of a client database.
The Company intends to hire two full-time administrative personnel. The
first staff member as a general bookkeeper, and the second as a secretarial
assistant/receptionist to provide general secretarial services to management.
Additional office personnel will be hired as needed to meet the needs of the
company as it grows.
Laboratory technicians/engineering firms will be contracted as required to
maintain the Company's commitment to research and development in the area of
eliminating waste water grease and solids and to develop new technology and/or
new product lines.
C. Manufacturing
The Company is dedicated to quality products. As such, the Company will be
seeking IS09000 accreditation and using IS09000 approved suppliers.
The Company does not intend to manufacture any of the products it sells.
All manufacturing is subcontracted with manufacturing companies who work towards
the Company's patented and registered designs. Blow Mold Engineering has been
contracted to perform the tooling. Cousins Currie Limited will be responsible
for the production of the plastic shells which in turn will be equipped with
Beckett Pumps. Therefore, the Company will not manufacture its own products but
will only perform sales and distribution, installations, redesigning, testing
and servicing.
Benefits of not manufacturing are as follows:
1. Decrease in working capital required to conduct business;
2. Increase focus on sales and marketing;
3. Able to increase capacity quickly with a reduction in capital costs;
4. Increase in overall flexibility.
The RINO(TM) System is a pre-grease trap interceptor filtration system.
Once the RINO(TM) System is sold and installed, RINO(TM) filter bags will be
sold to RINO(TM) users on a continual basis.
Product Positioning and Pricing
The use of the RINO(TM) System reduces the amount of grease and waste
solids entering into the public sewage system. The savings in reducing grease
and waste solids have been proven through a significant number of studies
performed. Studies have proven that existing grease traps normally require
cleaning frequency of once every two weeks without RINO(TM), and one cleaning
every six weeks with RINO(TM) This results in cleanings required approximately
three
5
<PAGE>
times less frequently. Since the cost per cleaning is $80 in the test market of
Metropolitan Toronto, an approximate annual saving of using the RINO(TM) System,
taking into consideration the cost of bags at $0.95 per bag, is expected to be
approximately $1,018 per year after installation.
Such a saving equates to a payback of approximately one year for the pump
unit and approximately eight months for the gravity unit based on the projected
installed sale price of a RINO(TM) System. Savings will also be in the form of
reduced down time, no loss of customers due to odors and no requirement to hire
a plumber to clean drains, and reduced risk of fines as a result of violations
of sewer use by-laws, which could cost up to $50,000 per violation.
The publication "Best Management Practices" from the Canadian Ministry of
Environment and Energy directed to the restaurant sector are recommending that
restaurants reduce the amount of solids that are flushed down the drain. Various
government regulations exist to prevent solids and grease from entering into the
sewage system.
D. The Market and Product Distribution
The potential markets are restaurants, and food producing and processing
facilities. The primary initial markets in Canada are Toronto, Montreal and
Vancouver. Upon successful entrance into the Canadian market, the Company
intends to focus its marketing efforts in American states such as California,
Florida and New York. Current test units, installed in various large food retail
chains are expected to decrease the time required to enter the large American
market.
E. Marketing Strategy
The RINO(TM) System will be marketed through an information campaign
directed at all public health and water pollution control officials, restaurants
and other food preparation or processing facilities, and to all plumbing
materials distribution outlets.
The Company's sales and technical representatives will also attend all
seminars and conferences held by the Federal, Provincial and Municipal
Ministries of Health and Environment in Canada to talk to decision makers in
each community. Representatives will also attend trade shows held by plumbing
associations to increase the overall awareness of the product. Contacts made and
requests developed through these sources will be followed up by the marketing
department.
Promotional material, such as brochures, CD ROM, documentation videos and
an Internet web page is currently being prepared and will be available for
distribution by all Rhino sales staff. As well, there is a telephone marketing
program being implemented that will generate leads for all sales staff.
6
<PAGE>
A professional exhibit will be designed and built for use at various
conferences and trade shows. This information exhibit will focus on the
mechanics of the RINO(TM) System, the problems the system resolves, and the
spin-off benefits and savings that result from the use of the system. Research
papers supporting these benefits will be made available.
Sales
The Company has entered into an exclusive sales and distribution agreement
with Hamlet and Gameau Inc. ("H&G"). H&G is one of North America's leading
distributors of plumbing related products with a large and experienced sales
force.
Direct Sales
The Company expects that a portion of its sales will come from direct sales
to owner managed restaurants across Canada and the United States. These sales
will be achieved by commission only sales personnel who will be affiliated with
but not directly working for the Company. These sales people will acquire
RINO(TM) Units through the H&G product distribution channels at standard company
wide pre-set pricing.
Restaurant Chains
The large number of franchise restaurants chains in North America will
require a combined effort from all of the Company's senior management team as
well as H&G's sales agents to adequately service this potential sales market.
Most of the fast food chains have central purchasing and distribution for most
of their standard equipment and supply requirements. Selling to the head office
the need and benefits to the total organization will result in large quantity
orders to a customer.
Wholesale Plumbing Distributors
The Company anticipates the majority of its sales will be made through the
wholesale plumbing distribution chains in North America. H&G's current sales
force and sales agents currently serve the North American plumbing market place.
Through H&G's established distribution network, the Company's product line will
be shown, demonstrated and displayed in over 250 locations across North America.
These outlets are where plumbers go to purchase their supplies and equipment.
The Company's plan for sales and marketing literature, including print
advertisement in appropriate restaurant magazine and plumbing distribution
circulars will help create a demand for the product.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
The following discussion and analysis of the Company's consolidated
financial condition and results of operation for the fiscal year ended July 31,
1999, 1998 and 1997, should be read in conjunction with the Company's
consolidated financial statements included elsewhere herein. When used in the
following discussions, the words "believes," "anticipates," "intends,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause results to differ materially from those projected.
A. General Discussion of the Company
The Company is primarily engaged in the design, development, assembly,
marketing and sale of a unique patent-pending wet waste interceptor plumbing
product called the RINO(TM) System. During the fiscal years July 31, 1999
("fiscal 1999"), July 31, 1998 ("fiscal 1998"), and July 31, 1997 ("fiscal
1997"), the Company's management has concentrated its time and efforts on
ensuring that the Rhino wet waste interceptor product line be designed and
developed into a product line that can be manufactured efficiently and
consistently to meet a wide variety of end users needs.
During the above three fiscal year time periods, a sales and marketing
strategy has been developed and it is currently being introduced to the
world-wide market via the Company's attendance at various industry related trade
shows, trade print advertisements, and via the Company's Internet web site
"rhinoeco.com".
The Company intends to continue this sales and marketing approach to raise
the general public's awareness of the Rhino wet waste interceptor product line
and to obtain a distribution network of exclusive and non-exclusive dealers. The
Company intends to supply quality, manufactured product line to a professionally
trained and dedicated dealer network.
As of the end of fiscal 1999, the Company has had no significant revenue
derived from operations. The Company's cumulative net loss to the end of fiscal
1999 totals $1,0896,760. The Company expects to report positive results from
operations during its next fiscal year ending July 31, 2000 ("fiscal 2000").
Such results are intended to be derived from sales of the Company's products
through the establishment of exclusive and non-exclusive dealerships throughout
North America and the Caribbean. Establishment of such dealerships are intended
to commence during the first quarter of operations in fiscal 2000. The Company
intends to enlarge the dealership base and resulting sales throughout the
remainder of fiscal 2000.
8
<PAGE>
Liquidity and Capital Resources
During the past three fiscal years, the Company has financed its operations
primarily through cash provided through various short and long term credit
facilities and through the private sale of its securities. The Company intends
to complete its first public offering of shares during the second quarter of
fiscal 2000. The Company's management believes that sufficient funds will be
raised from future operations so as to minimize the need for future equity
capitalization.
In addition, management of the Company believes the needs for additional
capital going forward will be derived somewhat from internal revenues and
earnings generated from the sale of its products and services. If the Company is
unable to begin to generate revenues from its anticipated products, management
believes the Company will need to raise additional funds to meet its cash
requirements.
B. Segment Data
The Company has received only limited revenues from sales of its product
since its inception. Because of this limited revenue, no table showing
percentage breakdown of revenue by business segment or product line is included.
C. Governmental Approval, Regulation and Environmental Compliance
The operations of the Company are subject to regulations normally incident
to business operations. In addition, existing publications in the form of "Best
Management Practices" from the Ministry of Environment and Energy directed to
the restaurant sector are recommending to restaurants to reduce the amount of
solids that are flushed down the drain. Various government regulations exist to
prevent solids and grease from entering into the sewage system.
Proposed changes to the Ontario Buildings Code illustrate changes favorable
to mandating the use of RINO(TM) (i.e. a food scrap interceptor). Proposed
changes to the Ontario Building Code are mandating the use of grease
interceptors.
Joint Provincial Ministry of Environment and Energy and Municipal Metro
Works efforts, based on various studies, have concluded that a solids
accumulator and grease interceptor shall be required anywhere that food is
cooked, processed or prepared. Similar regulations exist or are proposed in the
United States. Although the Company will make every effort to comply with
applicable regulations, it can provide no assurance of its ability to do so, nor
can it predict the effect of such regulations on its proposed operations.
D. Risks Associated with Operations
The Company's long-term success is partially predicated on the strength of
developing a comprehensive sales and marketing program.
9
<PAGE>
Since Rhino does not intend to manufacture its product(s), it will rely on
the use of outside manufacturers. As such, there can be no assurance that the
product will be manufactured and delivered in a timely manner which would
adversely affect the Company's proposed operations.
While the Company's plan of operations is being developed thoroughly, there
is no assurance the plan will be accepted in or by the marketplace, nor, that if
it is accepted, that demand will be sufficient to make the Company profitable.
The Company cannot project with certainty the outcome of its operations, and
there are no assurances that the Company will operate profitably in either the
near or long term.
Local, national, and international economic conditions may have a
substantial adverse affect on the efforts of the Company. The Company cannot
guarantee against the possible eventuality of any potential adverse economic
conditions.
E. Competition
As the RINO(TM) System is patent pending, Rhino believes that the RINO(TM)
process is very difficult if not impossible to duplicate in the foreseeable
future.
Currently, there are no existing pre-grease trap interceptor filtration
systems comparable to the patented RINO(TM) System in place anywhere in North
America and as a result the lead time create by Rhino should protect the Company
from any future external developments. Other competitors, however, could develop
with greater financial and technical resources. Should such competition develop,
the Company's operations could be impaired.
Competitive Advantage
The Company's competitive advantages are numerous. The main advantage is
the technological lead the Company has taken in the study of the pre-grease trap
interceptor system problem which creates the opportunity for the RINO(TM)
System. The technology has also been granted pioneer status, meaning "first use
of scientific concept to solve a commercially valuable problem".
The advantages of the RINO(TM) System over existing grease traps are:
1. reduces the amount of grease and waste solids which flow into the public
sewage system
2. expensive costs associated with hiring a specialist to pump out backed
up material from the drain and resulting in potential down-time
3. reduces the number of grease trap cleanings
4. reduces odors associated with the grease trap, particularly during
cleaning
5. reduction in costs to the municipality for treating the sewage in the
public sewage system. The Company is quite hopeful that the RINO(TM)
System will be endorsed by all water pollution control governmental
bodies
10
<PAGE>
6. ncrease in overall environmental awareness.
F. Developing and Changing Market
The market conditions for the Company's product is evolving and changing
with respect to current and expected future legislative changes. The Company
believes the current conditions will continue favorably for this type of
venture. There can be no assurance that the Company's assessment of the
situation is correct, nor that the products it selects will be accepted by the
consumer.
G. Employees
As of the current date, the Company has seven full time employees. As the
Company increases its operations, additional employees will be required. The
Company's future success depends on its ability to attract and retain other
qualified personnel, for which competition is intense. The loss of Mr. Wiertzema
or Mr. Novak or the Company's inability to attract and retain other qualified
employees could have a material adverse affect on the Company.
H. Risks Associated with Year 2000
The Year 2000 issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
I. Additional Information
The Company intends to provide an annual report to its security holders,
and to make quarterly reports available for inspection by its security holders.
The annual report will include audited financial statements.
The Company will, as a result of this filing, become subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Act")
and, in accordance the Commission, such reports, proxy statements and other
information may be inspected at public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World
Trade Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los
Angeles, California
11
<PAGE>
90036. Copies of such material can be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549, at prescribed rates. For further information, the SEC maintains a website
that contains reports, proxy and information statements, and other information
regarding reporting companies at http://www.sec.gov.
ITEM 3. DESCRIPTION OF PROPERTY
The Company maintains its principal business operations at 40 Trowers Road,
Woodbridge, Ontario, Canada L4L 7K6. The Company's toll free telephone number is
(877) 746-6224 and the web site address is www.rhinoeco.com.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of November 19, 1999,
with respect to the beneficial ownership of Common Stock by (i) each person who,
to the knowledge of the Company, beneficially owned or had the right to acquire
more than 5% of the outstanding Common Stock, (ii) each Director of the Company,
and (iii) all executive Officers and Directors of the Company as a group:
<TABLE>
<CAPTION>
Name of Beneficial Owner(1) Number of Shares Percent of Class(2)
- --------------------------- ---------------- -------------------
<S> <C> <C>
Mark Wiertzema 894,885 16%
Gordan Novak 53,333 1%
Jan Walsh 12,000 0%
Harjit Singh 0 0%
ABT International SA 350,000 5%
All Directors and Officers
as a group 960,218 17%
</TABLE>
- ----------------
(1) As used in this table "beneficial ownership" means the sole or shared power
to vote, or to direct the voting of a security or the sole or shared
investment power with respect to a security (i.e., the power to dispose of,
or to direct the disposition of, a security).
(2) Figures are rounded to the nearest percentage.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS
The following table sets forth the names and positions with the Company and
ages of the executive Officers and Directors of the Company. Directors will be
elected at the Company's annual meeting of shareholders and serve for one year
or until their successors are elected and
12
<PAGE>
qualify. Officers are elected by the Board and their terms of office are, except
to the extent governed by employment contract, at the discretion of the Board.
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Mark Wiertzema 49 President and Chief Financial Officer
Gordan Novak 50 Vice President
Jan Walsh 43 Secretary/Treasurer
Harjit Singh 39 Director
</TABLE>
Duties, Responsibilities and Experience
Mark Wiertzema, President and Chief Financial Officer
Mark Wiertzema currently serves as President and Chief Financial Officer of
the Company. Mr. Wiertzema graduated from the University of Iowa, where he
received both his graduate (B.B.A.) and post-graduate (MBA) degrees. Mr.
Wiertzema has over 25 years of experience in financial and strategic management
of regional, national and international corporations. During the last 10 years,
Mr. Wiertzema has had a managerial position in an independent company that
collects, transports, re-directs, re-deploys, re-uses and recycles non-hazardous
solid and liquid waste products from large municipalities.
Gordan Novak, Vice President
Since February, 1999, serves as Vice President of the Company. Mr. Novak is
Vice President of Light Steel Technologies, Inc., which licenses proprietary
light steel building technology and has established a number of joint ventures
in Czech Republic, Croatia, Germany, Russia and Ukraine. Mr. Novak was an
advisor to Queen of Diamonds Resources, Inc., where he negotiated the purchase
of mineral rights in Guyana. He also negotiated exclusive first right of refusal
for all mineral resources (excluding oil) in Somalia, and signed exclusive
contract for export of that country's scrap metal. In 1996, he acted as advisor
to Alba Resources, Inc., negotiating 50% joint venture agreements for two base
metal properties in Newfoundland. Mr. Novak has had over 28 years of business
experience.
Jan Walsh, Secretary/Treasurer
Jan Walsh, since March, 1999, has served as Secretary/Treasurer of the
Company. Ms. Walsh works extensively on the development and maintenance of
corporate images through imaginative corporate logo design, print literature and
corporate informational videos. Ms. Walsh is a graduate of the Ontario College
of Art & Design and is an accomplished professional caricature artist. Her
professional objective is to create a better future in the world's ecology
through waste management efficiencies, practices and industrial pollution
prevention.
13
<PAGE>
Harjit Singh
Harjit Singh currently serves as Director of the Company. Mr. Singh
received his Bachelor of Arts degree in 1980. From 1981 to 1988, Mr. Singh was
Assistant Manager for Perwira Harib Bank where he was responsible for overseeing
daily banking operations and investors portfolios. From 1988 to 1991, he served
as a personal banking representative for the Canadian Imperial Bank of Commerce.
Mr. Singh specialized in recovery of non-performing loans. From 1991 to present,
Mr. Singh works for Toronto Police Services as a Police Constable. Mr. Singh
intends to utilize his acquired skills and experience while serving as a
Director of the Company.
ITEM 6. EXECUTIVE COMPENSATION
Mark Wiertzema has received total compensation and benefits of $92,502 for
serving in the capacity of President and Chief Financial Officer. In addition,
Mr. Wiertzema is the beneficial owner of 894,885 shares of the Company's common
stock.
Should the Company become profitable and produce commensurate cash flows
from operations, compensation may be paid to key additional personnel, however,
this will be subject to approval by the Company's Board of Directors. It is the
responsibility of the Company's Officers and its Board of Directors to determine
the timing of any remuneration for key personnel. Such determination and timing
thereof will be based upon such factors as positive cash flow to include equity
sales, operating cash flows, capital requirements, and a positive cash flow
balance. At the time cash flow reaches this point, and appears to be
sustainable, the Officers and Board of Directors will again readdress the
compensation of its key personnel and set forth a more formal and complete plan
for remuneration in line with operations of the Company. At present, the
Company's management cannot accurately estimate the point when revenues and
operating cash flows will be sufficient enough to implement this compensation
plan, nor are they able to estimate the exact amount of compensation at this
time.
There are no annuity, pension, or retirement benefits proposed to be paid
to Officers, Directors, or employees of the Company in the event of retirement
at normal date pursuant to any presently existing plan provided or contributed
to by the Company, or any of its subsidiaries, if any.
Key Officer Employment Agreements
No employment contracts have been negotiated or signed as yet. However, the
Company plans on having all key employees and officers sign a detailed
employment contract as appropriate.
Compensation of Directors
All directors will be reimbursed for expenses incurred in attending Board
or committee meetings.
14
<PAGE>
Stock Option Plan and Non-Employee Directors' Plan
No stock option plan has been set forth, and no non-employee directors'
plan has been instituted. The Company may decided, at a later date, and reserves
the right to, initiate these plans as deemed necessary by the Board.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain family members of the Company's President and the
Secretary/Treasurer own shares of the Company's common stock as set forth below:
Mark Wiertzema, President and CFO, is related to the following
shareholders:
<TABLE>
<CAPTION>
Name # of Shares Relationship Acquired
- ---- ----------- ------------ --------
<S> <C> <C> <C>
Nathan & Amber Wiertzema 10,000 Nephew & wife 01/99
Nicole Wiertzema 5,000 Niece 01/99
Jonathan Wiertzema 5,000 Son 01/99
Ollie Wiertzema 10,000 Father 03/99
</TABLE>
Jan Walsh, Secretary/Treasurer, is related to the following shareholders:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Marie Walsh 5,000 Sister 01/98
Douglas Koch 14,000 Brother-in-law 01/98
Zuanna Koch 10,000 Sister-in-law 03/99
</TABLE>
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation authorizes the issuance of
25,000,000 shares of common stock, $.0001 par value per share, of which
6,524,539 shares were outstanding as of the date of this filing. The Company is
not authorized to issue shares of preferred stock. Holders of shares of Common
Stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in dividends, if
any, as may be declared, from time to time by the Board of Directors in its
discretion, from funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of shares of
Common Stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of Common Stock have no preemptive rights to
purchase the Company's Common Stock. There are no conversion rights or
redemption or sinking fund provisions with respect to the Common Stock. All of
the outstanding shares of Common Stock are validly issued, fully paid and
non-assessable. The Company has not authorized any Preferred Stock, Convertible
Stock, or Warrants as of the date of this filing.
15
<PAGE>
Transfer Agent
The transfer agent for the common stock is Florida Atlantic Stock Transfer,
Inc., 7130 Nob Hill Road, Tamarac, Florida 33321.
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock are not registered with the U.S.
Securities and Exchange Commission under the Securities Act of 1933, as amended
(hereinafter referred to as the "Act") and are restricted securities with the
exception of 1,000,000 shares issued pursuant to Rule 504, Regulation D. The
Company intends to file a Form 15c2-11 with the NASD so that it can be listed on
the OTC Electronic Bulletin Board for trading.
Since its inception April 7, 1999, the Company has not paid cash dividends
on its Common Stock. It is the present policy of the Company not to pay cash
dividends and to retain future earnings to support the Company's growth. Any
payments of cash dividends in the future will be dependent upon, among other
things, the amount of fund available therefor, the Company's earnings, financial
condition, capital requirements, and other factors which the Board of Directors
deem relevant.
As of November 19, 1999, there were approximately 113 common shareholders
of record.
ITEM 2. LEGAL PROCEEDINGS
The Company is not presently a party to any litigation nor to the knowledge
of management is any litigation threatened against the Company which would
materially affect the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Private Placements
In April, 1999, the Company received subscriptions for the purchase of
shares of common stock in a private placement pursuant to Rule 504 of Regulation
D of the Securities Act of 1933, as amended, at a price of $1.00 per share for a
total of $1,000,000. There are 113 shareholders. Only the Company's President
and Chief Financial Officer owns greater than 5% of the shares.
16
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Chapter 607 of the Florida Statutes provides for the indemnification of
officers and directors under certain circumstances against expenses incurred in
successfully defending against a claim and authorizes Florida corporations to
indemnify their officers and directors under certain circumstances against
expenses and liabilities incurred in legal proceedings involving such persons
because of their being or having been an officer or director.
Section 607.0850 of the Florida Statutes permits a corporation, by so
providing in its certificate of incorporation, to eliminate or limit director's
liability to the corporation and its stockholders for monetary damages arising
out of certain alleged breaches of their fiduciary duty. Section 607.0850
provides that no such limitation of liability may affect a director's liability
with respect to any of the following: (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not made
in good faith or which involve intentional misconduct of knowing violations of
law; (iii) liability for dividends paid or stock repurchased or redeemed in
violation of the Florida General Corporation Law; or (iv) any transaction from
which the director derived an improper personal benefit. Section 607 does not
authorize any limitation on the ability of the corporation or its stockholders
to obtain injunctive relief, specific performance or other equitable relief
against directors.
Article IX of the Company's Articles of Incorporation and the Company's
By-laws provide that all persons who the Company is empowered to indemnify
pursuant to the provisions of Section 607 of the Corporation laws of the State
of Florida (or any similar provision or provisions of applicable law at the time
in effect), shall be indemnified by the Company to the fullest extent permitted
thereby. The foregoing right of indemnification is not deemed to be exclusive of
any other rights to which those seeking indemnification may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
Article IX of the Company's Articles of Incorporation provides that no
director of the Company will be personally liable to the Company or its
stockholders; (i) for any monetary damages for breaches of fiduciary duty of
loyalty to the Company or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 607 of the Florida Statutes, or (iv) for any
transaction from which the director derived an improper personal benefit.
PART F/S
FINANCIAL STATEMENTS
The Audited Financial Statement of the Company, prepared by KPMG, LLP,
Chartered Accountants, Commerce Court West, P.O. Box 31 Stn Commerce Court,
Suite 3300, Toronto, Ontario M5L 1B2, required by Regulation S-X commence on
page F/S 1 hereof in response to
17
<PAGE>
this Item of this Registration Statement on Form 10-SB and are incorporated
herein by this reference.
EXHIBITS
2 Reorganization Agreement*
3 (i) Articles of Incorporation*
3 (ii) By-Laws*
4 Instruments defining the rights of holders (refer to exhibit 3)
9 Voting Trust agreement (not applicable)
10 Material contracts (not applicable)
11 Statement re: Computation of per share earnings (not applicable)
21 Subsidiary of the Registrant*
24 Power of Attorney (not applicable)
27 Financial Data Schedule (not applicable)
99 Additional Exhibits (not applicable)
- -----------------
* Previously filed.
18
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: November 22, 1999 Rhino Ecosystems, Inc.
By: /s/ Mark Wiertzema
-------------------------------
Mark Wiertzema, President & CFO
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange act of 1934, this
registration statement has been signed below by the followings persons on behalf
of the registrant and in the capacities and on the dates indicated.
Date: November 20, 1999 By: /s/ Gordon Novak
------------------------------
Gordon Novak, Vice President
Date: November 20, 1999 By: /s/ Jan Walsh
------------------------------
Jan Walsh, Secretary/Treasurer
Date: November 20, 1999 By: /s/ Harjit Singh
------------------------------
Harjit Singh, Director
19
<PAGE>
Financial Statements of
(Stated in United States dollars)
RHINO ECOSYSTEMS INC.
A Development Stage Company
Years ended July 31, 1999, 1998 and 1997
<PAGE>
kpmg
KPMG LLP
Chartered Accountants Telephone (416) 777-8500
Commerce Court West Telefax (416) 777-8818
PO Box 31 Stn Commerce Court www.kpmg.ca
Suite 3300
Toronto ON M5L 1B2
AUDITORS' REPORT
To the Directors of Rhino Ecosystems Inc.
We have audited the balance sheets of Rhino Ecosystems Inc. as at July 31, 1999,
1998 and 1997 and the statements of earnings, shareholders' equity (deficiency)
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 Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 1999, 1998 and
1997 and the results of its operations and its cash flows for the years then
ended in accordance with United States generally accepted accounting principles.
On September 7, 1999 and September 16, 1998, we reported separately to the
shareholders of Rhino Ecosystems Inc. on the financial statements for the same
periods, prepared in accordance with Canadian generally accepted accounting
principles.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
September 7, 1999
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in note 1 to the financial
statements. Our report to the directors dated September 7, 1999 is expressed in
accordance with Canadian reporting standards which does not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
September 7, 1999
<PAGE>
RHINO ECOSYSTEMS INC.
Balance Sheets
(Stated in United States dollars)
July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $ - $ 24,827 $ 173
Goods and services tax recoverable 6,298 45,135 5,431
Investment tax credits 26,675 26,576 27,071
Inventory (note 3) 37,917 20,483 -
Prepaid expenses and deposits 11,402 35,343 -
Due from related parties (note 8) - 38,233 23,267
- --------------------------------------------------------------------------------------------------------------
82,292 190,597 55,942
Fixed assets (note 4) 277,647 342,604 -
Patent 77,691 29,305 -
Due from Le Group De Recuperation O'Energie
P.H. Inc. (note 5) - 99,213 22,713
- --------------------------------------------------------------------------------------------------------------
$ 437,630 $ 661,719 $ 78,655
- --------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
Bank indebtedness $ 34,532 $ - $ -
Accounts payable and accrued liabilities 181,376 219,962 56,281
Loans payable (note 6) - - 72,553
Current portion of long-term debt (note 7) 20,746 17,225 -
Due to related parties (note 8) 111,468 2,023 31,533
- --------------------------------------------------------------------------------------------------------------
348,122 239,210 160,367
Long-term debt (note 7) 127,935 148,130 -
Other obligation (note 9) 311,946 - -
Shareholders' equity (deficiency):
Share capital (note 10) 736,387 736,387 73
Deficit accumulated during development stage (1,081,316) (448,618) (82,467)
Accumulated other comprehensive income (loss) (5,444) (13,390) 682
- --------------------------------------------------------------------------------------------------------------
(350,373) 274,379 (81,712)
Commitments and contingencies (note 11)
Future operations (note 1)
- --------------------------------------------------------------------------------------------------------------
$ 437,630 $ 661,719 $ 78,655
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
RHINO ECOSYSTEMS INC.
Statements of Earnings
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Cumulative
total during
development
1999 1998 1997 stage
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales and other income $ 28,998 $ - $ - $ 28,998
Expenses:
Cost of goods sold 13,384 - - 13,384
Marketing 156,788 113,750 - 270,538
Professional and consulting fees 115,454 77,530 21,500 214,484
Amortization of fixed assets 115,253 8,616 - 123,869
Office salaries, benefits and
services 92,502 55,374 - 147,876
Research and product
development (note 14) 45,087 2,183 21,004 68,274
Rent 37,505 38,593 8,369 84,467
Travel and promotion 25,925 21,576 18,397 65,898
Interest on long-term debt 15,679 5,012 - 20,691
Bank charges and interest 14,104 11,428 75 25,607
Office and general 13,667 25,252 9,989 48,908
Telephone 10,475 5,167 3,080 18,722
Utilities 3,563 1,124 53 4,740
Insurance 2,310 546 - 2,856
- --------------------------------------------------------------------------------------------------------------
661,696 366,151 82,467 1,110,314
- --------------------------------------------------------------------------------------------------------------
Loss for the year $ 632,698 $ 366,151 $ 82,467 $ 1,081,316
- --------------------------------------------------------------------------------------------------------------
Loss per common share $ 0.11 $ 0.11 $ 824.67 $ 0.74
- --------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 5,525,539 3,327,005 100 1,450,905
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
RHINO ECOSYSTEMS INC.
Statements of Shareholders' Equity (Deficiency)
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Deficit
accumulated Accumulated
during other
Common development comprehensive
shares stage income (loss) Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued on incorporation $ 73 $ - $ - $ 73
Loss for the year - (82,467) - (82,467)
Foreign currency translation
adjustment - - 682 682
- -----------------------------------------------------------------------------------------------------
Balance, July 31, 1997 73 (82,467) 682 (81,712)
Shares issued:
Issued for cash 609,117 - - 609,117
Issued for services 14,015 - - 14,015
Issued for cash and
conversion of loan 157,871 - - 157,871
- -----------------------------------------------------------------------------------------------------
781,003 - - 781,003
Less share issue costs (44,689) - - (44,689)
- -----------------------------------------------------------------------------------------------------
736,314 - - 736,314
- -----------------------------------------------------------------------------------------------------
Loss for the year - (366,151) - (366,151)
Foreign currency translation
adjustment - - (14,072) (14,072)
- -----------------------------------------------------------------------------------------------------
Balance, July 31, 1998 736,387 (448,618) (13,390) 274,379
Loss for the year - (632,698) - (632,698)
Foreign currency translation
adjustment - - 7,946 7,946
- -----------------------------------------------------------------------------------------------------
Balance, July 31, 1999 $ 736,387 $ (1,081,316) $ (5,444) $ (350,373)
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
RHINO ECOSYSTEMS INC.
Statements of Cash Flows
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Cumulative
total during
development
1999 1998 1997 stage
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows provided by (used in):
Operations:
Loss for the year $ (632,698) $ (366,151) $ (82,467) $ (1,081,316)
Adjustments to reconcile
loss for the year to net cash:
Amortization of fixed assets 115,253 8,616 - 123,869
Goods and services tax
recoverable 38,837 (39,704) (5,431) (6,298)
Investment tax credits (99) 495 (27,071) (26,675)
Inventory (17,434) (20,483) - (37,917)
Prepaid expenses and deposits 23,941 (35,343) - (11,402)
Due from related parties 38,233 (14,966) (23,267) -
Accounts payable and accrued
liabilities 59,231 65,864 56,281 181,376
Due to related parties 109,445 (29,510) 31,533 111,468
- -----------------------------------------------------------------------------------------------------
(265,291) (431,182) (50,422) (746,895)
Financing:
Bank indebtedness 34,532 - - 34,532
Loans payable (note 6) - (2,471) 72,553 70,082
Proceeds from long-term loan - 165,355 - 165,355
Principal payments on long-term
debt (16,674) - - (16,674)
Other obligation (note 9) 311,946 - - 311,946
Issuance of share capital - 710,921 - 710,994
Share issue costs - (44,689) - (44,689)
- -----------------------------------------------------------------------------------------------------
329,804 829,116 72,553 1,231,546
Investments:
Due from Le Group De Recuperation
O'Energie P.H. Inc. (note 5) 99,213 (99,213) - -
Expenditures on fixed assets (50,296) (351,220) - (401,516)
Accounts payable for fixed assets (97,817) 97,817 - -
Expenditures on patent (48,386) (6,592) (22,713) (77,691)
- -----------------------------------------------------------------------------------------------------
(97,286) (359,208) (22,713) (479,207)
- -----------------------------------------------------------------------------------------------------
Other:
Foreign currency translation
adjustment 7,946 (14,072) 682 (5,444)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash (24,827) 24,654 100 -
Cash, beginning of year 24,827 173 73 -
- -----------------------------------------------------------------------------------------------------
Cash, end of year $ - $ 24,827 $ 173 $ -
- -----------------------------------------------------------------------------------------------------
Interest paid $ 18,165 $ 11,859 $ - $ 30,024
- -----------------------------------------------------------------------------------------------------
Income taxes paid $ - $ - $ - $ -
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
Rhino Ecosystems Inc. (the "Company") is incorporated under the provisions of
the Business Corporations Act (Ontario). The Company is considered to be a
development stage company, as from inception, it has been primarily engaged in
developing the manufacturing process for a food scrap interceptor and has had no
significant revenue derived from operations.
The Company's cumulative net loss and comprehensive loss for the period from
incorporation on June 7, 1996 to July 31, 1999 totalled $1,086,760.
1. FUTURE OPERATIONS:
These financial statements have been prepared on the going concern basis
notwithstanding the effect of significant losses since incorporation;
negative working capital and deficiency in shareholders' equity at July
31, 1999. The application of the going concern concept which assumes the
realization of assets and liquidation of liabilities in the normal course
of business, is dependent on the Company's ability to attain profitable
operations and obtain sufficient cash from external financing to meet the
Company's liabilities and commitments as they become payable. Management
is of the opinion that sufficient working capital will be obtained from
operations and external financing to meet the Company's liabilities and
commitments as they become payable.
A failure to continue as a going concern would then require that stated
amounts of assets and liabilities be reflected on a liquidation basis
which could differ from the going concern basis.
2. SIGNIFICANT ACCOUNTING POLICIES:
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, the more
significant of which are outlined below:
(a) Inventory:
Inventory is valued at the lower of cost, determined on a first-in,
first-out basis and market. For materials, market is defined as
replacement cost; for work-in-process and finished goods, market is
defined as net realizable value.
5
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Fixed assets:
Fixed assets are stated at cost less related investment tax credits.
Amortization is provided on a straight-line basis from the date the
asset is put in use using the following annual rates:
- ---------------------------------------------------------------------------
Asset Rate
- ---------------------------------------------------------------------------
Moulds and dies 3 years
Manufacturing equipment 3 years
Furniture and fixtures 3 years
Office equipment 3 years
Computer equipment 3 years
Vehicle 2 years
- ---------------------------------------------------------------------------
(c) Patent:
Patent is stated at the cost incurred to date with respect to a
Patent Cooperation Treaty International Application to apply for
letters of patent. It is anticipated that amortization will be
provided by the straight-line basis over seventeen years when the
Company attains a commercial level of production and sales.
(d) Income taxes:
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the year that includes the enactment date.
(e) Investment tax credits:
Investment tax credits relating to fixed asset purchases and
research and development expenses are accounted for as a reduction
of the cost of such assets and expenses respectively.
6
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Research and product development:
Research and product development costs are expensed as incurred.
(g) Foreign currency translation:
The Canadian dollar is the functional currency of the Company's
business. The financial statements are translated into United States
dollars using the average rates for the year for items included in
the statements of earnings and the current rate for items included
in the balance sheets. The translation gains or losses are included
in the statements of shareholders' equity (deficiency) as other
comprehensive income or loss.
(h) Use of estimates:
The presentation 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 and disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses
for the year reported. Actual results could differ from those
estimates.
3. INVENTORY:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Materials $ 28,291 $ 20,483 $ -
Work-in-process and finished goods 9,626 - -
- --------------------------------------------------------------------------------------------------------------
$ 37,917 $ 20,483 $ -
- --------------------------------------------------------------------------------------------------------------
4. FIXED ASSETS:
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Accumulated Net book Net book Net book
Cost amortization value value value
- --------------------------------------------------------------------------------------------------------------
Moulds and dies $ 324,447 $ 98,553 $ 225,894 $ 287,097 $ -
Manufacturing equipment 35,273 5,609 29,664 23,991 -
Furniture and fixtures 19,388 6,464 12,924 18,412 -
Office equipment 6,721 2,241 4,480 5,525 -
Computer equipment 6,140 2,078 4,062 6,415 -
Vehicle 1,247 624 623 1,164 -
- --------------------------------------------------------------------------------------------------------------
$ 393,216 $ 115,569 $ 277,647 $ 342,604 $ -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
5. DUE FROM LE GROUP DE RECUPERATION O'ENERGIE P.H. INC.:
During March 1998, in the course of negotiations to acquire all of the
outstanding and issued shares of Le Group De Recuperation O'Energie P.H.
Inc., the Company advanced to Le Group De Recuperation O'Energie P.H.
Inc. $99,213. The advance was non-interest bearing and was to be
recovered upon either the favourable or unfavourable conclusion of the
negotiations. On August 26, 1999, the negotiations were concluded with
the transaction not proceeding. The recovery of the $99,213 was recorded
in the financial statements as an offset to amounts payable to affiliated
companies of Le Group De Recuperation O'Energie P.H. Inc., as at July 31,
1999.
Imputed interest computed at comparable market rates on the interest free
advance is considered not to be material to the financial statements.
Consequently, the financial statements do not include any income for
imputed interest on the interest free advance.
6. LOANS PAYABLE:
In the fiscal year ended July 31, 1997, the Company received interest
free loans in the aggregate amount of $72,553. In the fiscal year ended
July 31, 1998, the lenders acquired in aggregate 758,710 common shares of
the Company for consideration consisting of cash $87,789 and conversion
of the loans of $70,082 to share capital.
Imputed interest computed at comparable market rates on the interest free
loans prior to conversion to share capital is considered not to be
material to the financial statements. Consequently, the financial
statements do not include a charge for imputed interest on the interest
free loans.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Term loan bearing interest at the bank's
prime rate plus 2.5%, repayable in principal
monthly instalments of $2,604 plus
interest, due October 2008 $148,681 $ 165,355 $ -
Current portion of long-term debt (20,746) (17,225) -
- ----------------------------------------------------------------------------------------------------
$127,935 $ 148,130 $ -
- ----------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
7. LONG-TERM DEBT (CONTINUED):
The term loan is secured by a security agreement on specific equipment
and by a shareholder's guarantee in the amount of $41,339.
The aggregate maturities on long-term debt for each of the five years
subsequent to July 31, 1999 are as follows: 2000 - $20,746; 2001 -
$20,746; 2002 - $20,746; 2003 - $20,746 and 2004 - $20,746.
8. RELATED PARTY TRANSACTIONS:
The Company purchases products, administrative, consulting and marketing
services from its officers, shareholders, individuals and companies
related to the shareholders ("related parties"). The cost of these
products and services, aggregating 1999 - $136,498; 1998 - $81,964 and
1997 - $18,472 was charged as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of goods sold $ 14,842 $ - $ -
Professional and consulting fees 51,642 44,061 -
Office salaries, benefits and services 47,008 30,521 -
Travel and promotion 15,724 7,382 -
Research and product development - - 18,472
Expenditures on fixed assets 7,282 - -
- --------------------------------------------------------------------------------------------------
$ 136,498 $ 81,964 $ 18,472
- --------------------------------------------------------------------------------------------------
</TABLE>
These transactions are in the normal course of business and are measured
at the exchange amount, which is the amount of consideration established
and agreed to by the related parties.
The Company also transfers and receives funds from the related parties.
During the year, the Company incurred interest of nil (1998 - $6,847;
1997 - nil) on amounts due to related parties.
The amounts due from and to related parties that have arisen from these
transactions are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due from related parties:
Flow Clean Environmental Systems Inc. $ - $ 10,120 $ 8,885
Due from shareholders - 28,113 14,382
- ----------------------------------------------------------------------------------------------
$ - $ 38,233 $ 23,267
- ----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Due to related parties:
Due to shareholders $ 111,468 $ 2,023 $ -
865331 Ontario Limited - - 31,533
- ---------------------------------------------------------------------------------------------------
$ 111,468 $ 2,023 $ 31,533
- ---------------------------------------------------------------------------------------------------
</TABLE>
The amounts due from and to related parties are unsecured with no fixed
terms of payment.
Imputed interest computed at comparable market rates on the amounts due
to related parties is considered not to be material to the financial
statements. Consequently, the financial statements do not include a
charge for imputed interest on the amounts due to related parties.
9. OTHER OBLIGATION:
During the year, the Company engaged Hermitage House Investment Company
("Hermitage") a United States merchant bank to prepare and file a Rule
504, Regulation D offering under the United States Securities Act of 1933
(the "Offering"). Pursuant to the Offering, an unrelated United States
Corporation was incorporated under the laws of the State of Florida,
United States ("U.S. Company") and one million common shares of the U.S.
Company were offered at a price of (USD) $1.00 each. As at July 31, 1999,
share subscription agreements for 700,000 common shares of the U.S.
Company had been executed. The remaining 300,000 common shares of the
Offering were provided to Hermitage as compensation for their services.
As at July 31, 1999, there were subscription agreements receivable in the
aggregate amount of $318,737.
The Company intends to enter into an agreement, subject to the
satisfaction of certain conditions including shareholders' approval, for
the shareholders of the Company to convert each common share of the
Company into one common share of the U.S. Company. Upon completion of
this arrangement, management anticipates that the shareholders of the
Company will own approximately 84% of the issued common shares of the
U.S. Company. Consequently, on the completion of this transaction, the
Company will become a subsidiary of the U.S. Company.
10
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
9. OTHER OBLIGATION (CONTINUED):
In fiscal 1999, the funds received for the share subscriptions were
transferred to the Company and the Company incurred legal costs related
to the Offering. These transactions are summarized as follows and the net
amount thereon is classified as a non-current other obligation in the
financial statements as it is anticipated no payment will be required
within the next fiscal year.
- ------------------------------------------------------------------------------
Proceeds received from Offering $ 323,517
Less legal costs paid by the Company 11,571
- ------------------------------------------------------------------------------
$ 311,946
- ------------------------------------------------------------------------------
Imputed interest computed at comparable market rates on the interest free
obligation is considered not to be material to the financial statements.
Consequently, the financial statements do not include a charge for
imputed interest on the other obligation.
10. SHARE CAPITAL:
(a) Authorized:
Unlimited common shares.
(b) Issued and outstanding share capital:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Number of Number of Number of
shares Stated value shares Stated value shares Stated value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5,525,539 $ 736,387 5,525,539 $ 736,387 100 $ 73
- --------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES:
(a) Lease commitments:
The Company rents premises and equipment under operating leases with
minimum aggregate payments as follows:
-----------------------------------------------------------
2000 $ 27,316
2001 18,571
2002 1,077
2003 987
-----------------------------------------------------------
$ 47,951
-----------------------------------------------------------
(b) Supply agreement:
The Company has in place an exclusive supply agreement with Filterco
Inc. which expires April 30, 2003. Pursuant to the agreement,
Filterco Inc. is the exclusive supplier to the Company of the
disposable filtration bags utilized in its food scrap interceptor.
(c) Royalties:
Sales of the Company's food scrap interceptor are subject to
royalties at a rate of 3% of the sales price. The royalties are
payable to the inventor of the food scrap interceptor who is also a
shareholder, as consideration for the inventor's assignment of all
rights, title and interest in the invention.
(d) Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems
may recognize the year 2000 as 1900 or some other date, resulting in
errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use
certain dates in 1999 to represent something other than a date. The
effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant systems failure which could affect an entity's ability
to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
12
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
12. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES:
The fair value of a financial asset and financial liability is the amount
at which the asset or liability could be exchanged in a current
transaction between willing parties. Fair value estimates are made as at
a specific point in time, using available information about the financial
instrument.
The fair values of goods and services tax recoverable, investment tax
credits and accounts payable and accrued liabilities approximate their
carrying amounts due to the relatively short periods to maturity or
because they are receivable or payable on demand.
The fair value of long-term debt approximates its carrying amount as the
terms and conditions are similar to the market conditions and similar
types of borrowings.
The fair values of the amounts due to related parties and the other
obligation are not determinable as comparable financial instruments are
not readily available.
13. INCOME TAXES:
The tax effects of temporary differences and loss carryforwards that give
rise to deferred tax assets at July 31, 1999, 1998 and 1997 are presented
below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Deductible temporary differences $ 31,000 $ 7,000 $ -
Loss carryforwards 175,000 91,000 18,000
- -------------------------------------------------------------------------------------------------------
206,000 98,000 18,000
Less valuation allowance 206,000 98,000 18,000
- -------------------------------------------------------------------------------------------------------
$ - $ - $ -
- -------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as at July 31, 1999, 1998
and 1997 was $206,000, $98,000 and $18,000 respectively. The net change
in the total valuation allowance for the years ended July 31, 1999, 1998
and 1997 was an increase of $108,000, $80,000 and $18,000 respectively.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which these
temporary differences and loss carryforwards become deductible.
13
<PAGE>
RHINO ECOSYSTEMS INC.
Notes to Financial Statements
(Stated in United States dollars)
Years ended July 31, 1999, 1998 and 1997
- --------------------------------------------------------------------------------
13. INCOME TAXES (CONTINUED):
In order to fully realize the deferred tax assets, the Company will need
to generate future taxable income of approximately $460,000, $1,500,000
and $2,200,000 prior to 2005, 2006 and 2007 respectively. Based upon the
level of historical taxable income and that the Company is considered a
development stage company, it cannot be reasonably estimated at this time
if its more likely than not the Company will realize the benefits of the
deferred tax assets. Consequently, the deferred tax assets have been
reduced by an equivalent valuation allowance. The valuation allowance
will be adjusted in the period that is determined with reasonable
certainty that it is more likely than not that some portion or all of the
deferred tax assets will be realized.
At July 31, 1999, 1998 and 1997, the Company has the following amounts
available to reduce future years' income for tax purposes.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
Non-capital losses carried for tax purposes expiring:
<S> <C> <C> <C>
2004 $ 75,925 $ 75,645 $ 82,976
2005 339,705 338,448 -
2006 378,395 - -
- ------------------------------------------------------------------------------------------------------
794,025 414,093 82,976
Excess of undepreciated capital cost over net book
value of fixed assets 115,569 8,616 -
Unamortized share issue costs 25,400 33,740 -
- ------------------------------------------------------------------------------------------------------
$ 934,994 $ 456,449 $ 82,976
- ------------------------------------------------------------------------------------------------------
14. RESEARCH AND PRODUCT DEVELOPMENT:
- ------------------------------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------
Research and product development $ 45,087 $ 3,913 $ 48,593
Less investment tax credits - 1,730 27,589
- ------------------------------------------------------------------------------------------------------
$ 45,087 $ 2,183 $ 21,004
- ------------------------------------------------------------------------------------------------------
</TABLE>
14
