<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-SB/A3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------------------
RECYCLING CENTERS OF AMERICA, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
COLORADO 84-0703717
(State of Incorporation) (IRS Employer ID No.)
</TABLE>
23832 ROCKFIELD BOULEVARD, SUITE 275
LAKE FOREST, CALIFORNIA 92630
(Address of Principal Executive Offices)
(949) 609-0590
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 6,389,304
COMMON SHARES $0.01 PAR VALUE
<PAGE> 2
PART I
ITEM 1: DESCRIPTION OF BUSINESS
I. INTRODUCTION
Recycling Centers of America, Inc., a Colorado corporation ("RCAI" or the
"Company" or the "Registrant") , is a development stage company with no
significant operating results to date, which is engaged in the business of the
sale, construction and servicing of chemical and petroleum waste stream
processing and recycling equipment to industries and municipalities.
Recycling Centers of America, Inc., is a Colorado corporation, originally
formed in 1976 under the name Vac-Tec Systems, Inc., and reorganized as a public
shell corporation without significant assets in early 1997, after the Company
ceased operations in the glass vacuum coating business.
In November of 1997, a merger transaction with Aquadynamic Technologies,
Inc. ("ATI"), was completed, and ATI, a Minnesota corporation, became a
wholly-owned subsidiary of RCAI. ATI had no operations of its own prior to this
merger, but conducted business through two wholly-owned subsidiaries, Aquatek,
Inc. ("AQT") and Wil-Flow, Inc. ("WFI"). WFI on March 8, 1999, was dissolved as
a result of the settlement of a lawsuit between Registrant and Jack Williams,
the former owner and President of WFI. Under the terms of the lawsuit
settlement, WFI assigned certain technology and patents originally developed for
it by Williams back to Williams and paid Williams a fee of $37,500, in exchange
for Williams' release of all claims alleged against the Registrant by Williams.
In November of 1997, RCAI entered into a joint venture agreement with Oil
Re-Refining Company ("ORRCO"), an Oregon corporation in order to enter the
re-refining industry, under the joint venture name of Energy & Material
Recovery. As management became more familiar with the oil re-refining business,
it determined that the environmental risks and licensing requirements of the
industry made it a far less attractive industry in which to operate than
initially anticipated. As a result, management decided to and did terminate the
oil re-refining joint venture in October of 1999, and the Company no longer has
activities in this industry.
As a result of negotiations with both Mr. Selk and Brody Special Projects,
Inc., in June of 1999, the Company acquired all of the business accounts of
Bruce Selk, dba Sierra Technologies, and in December of 1999, the Company
acquired all of the assets and business of Brody Special Projects, Inc. Under
the informal agreement with Mr. Selk, the Registrant assumed all of the
liabilities of Sierra Technologies $(82,805), and was assigned all of its
business assets, ($64,588), including its accounts receivable and its base of
customer accounts for brokered chemicals. The business customers acquired
included Newalta Corp., Great Western Chemical, Hci Holchem, Molex Company, MIH
International Pacific Epoxy Polymer, Destara Chemical, Tosco, Recycle Reuse and
Mid America Distillations. The businesses conducted by these two predecessor
companies now constitute the bulk of Registrant's current business.
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<PAGE> 3
II. BUSINESS
The Company's primary business is the marketing and sales, construction
and servicing of chemical and petroleum waste stream processing and recycling
equipment.
The Company has obtained a License from Pall Filter Corp. to market and
sell, and currently markets and sells PallSep(TM) Vibrating Membrane Treatment
Filters to the dairy industry, the food industry, the beverage industry, and the
pharmaceutical industry.
The Company also markets and sells VSEP(TM) Vibrating Membrane Filters
manufactured by New Logic International, Inc. ("New Logic") to non-food
industries, including water, wastewater, mining and chemical industries,
although the Company does not have a current License agreement in effect with
New Logic.
Through its wholly-owned subsidiary, Aquatek, Inc., the Company also
provides engineering services to wastewater treatment and potable water
treatment facilities.
The Company operates through ATI, its wholly-owned subsidiary, a small
wholesale chemical brokerage business, under the fictitious business name
"Sierra Technologies", shipping bulk chemicals and petroleum products to various
customers in the United States and Canada. A fictitious name is a name used by a
business, in this case the wholly-owned subsidiary, ATI, which is other than its
legal corporate name. As a part of this business, the company typically obtains
one rail car per week of residual oil waste products from Geneva Steel, a steel
mill, and provides to Tosco. This is a long standing business relationship, but
there is no formal written contract.
(a) Products and Services
(i) V*SEP Filtration. The Company markets, sells and acts as a
general contractor to install Filtration membranes manufactured by New
Logic and patented membrane type filtration systems, under the trade name
"VSEP" Systems. These systems filter out solids suspended in various
liquid material streams generated by various manufacturing processes.
Applications for the V*SEP system range through all industries where
efficient and rapid processing of wastewater and product streams is
required. V*SEP compete with evaporators, biological systems, crossflow
filters and centrifuges. Management believes the advantages of V*SEP over
its competitors are as follows:
- Filtration rates 10 x that of its competitors
- Incorporated Self-cleaning and anti-fouling characteristics
- Achieves high solids removal
- High efficiency (99% energy conversion)
- Dependability (self-repairing with only two moving parts)
- Compact design
- Low capital and operating costs
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The system can be used for a wide variety of industrial and waste streams
and applications. The Company does not currently have a license or Contract with
New Logic, but continues to sell their equipment under an informal working
arrangement with New Logic, whereby on a case by case basis the Company submits
a project protection form which assures the Company's position as the sales
representative in connection with analysis of filter equipment needs for a
specific consumer for the sale and installation of New Logic equipment..
For the nine months ended March 31, 2000, this business accounted for 0%
of the Company's revenues.
(ii) Pall-SEP(TM)Filtration. The Pall-SEP(TM)filtration system is similar
to the V*SEP technology, and is designed for use in the food processing and
pharmaceutical industries. It is manufactured by Pall Filter Corporation.
The Company has a non-exclusive license to sell Pall-SEP(TM) Filtration in
the Western Hemisphere to the following specified markets as part of integrated
systems: Food, Dairy, Beverage, Pharmaceutical, Biotech and Cosmetic Markets.
For the nine months ended March 31, 2000, this business accounted for none
of the Company's revenues.
(iii) Engineering Services to Waste Water Treatment Facilities. Through
its wholly-owned subsidiary, Aquatek, Inc., the Company provides engineering
services to wastewater treatment and potable water treatment facilities. These
services include detailed design layout, feasibility studies, specification and
instrumentation selection, contract programming, and some fabrication/assembly
of motor and process control centers.
Aquatek, Inc. markets its engineering expertise to other wastewater
treatment facilities, potable water treatment facilities, flood prevention
systems, water transfer pumping stations and private industrial processing
facilities requiring automated control systems, such as the automotive food
processing, packaging, textile and recycling industries.
For the nine months ended March 31, 2000, this business accounted for
54.5% of the Company's revenues. In 1998 and 1999, the majority of the Company
sales on a company wide basis were to a single customer of Aquatek, Inc., Cass
Water Engineers. Currently, they continue to be the main customer of Aquatek,
Inc., and any loss of this customer would have a serious adverse affect on the
business of Aquatek.
(iv) Brokerage of Chemicals. Through ATI, the Company's wholly-owned
subsidiary, the company, under the fictitious name, Sierra Technology, buys and
sells the following industrial chemicals. Methyl Ethyl
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<PAGE> 5
Ketone, Methylene Chloride, Methyl Ethyl Ketone, Ethylene Glycol,
Perchlorethylene, Diaethyltetraamine, Triethylene Glycol, Residual Fuel Oil,
Perchlorethylene, Methyl-Diethanolamine. The Company's current chemical
customers are: Newalta Corp., Great Western Chemical, Hci Holchem, Molex
Company, MIH International, Pacific Epoxy Polymer, Destara Chemical, Tosco,
Recycle Reuse, Mid-America Distillations. The Company acts purely as a broker
and receives a commission on the materials sold. This business was originally
established as a sole proprietorship by Bruce Selk in June of 1997, and the
business and accounts were transferred by Mr. Selk to the Company when he joined
the Company in June of 1997, pursuant to an informal agreement whereby the
Company acquired $64,588 in business assets from Mr. Selk, in exchange for its
assumption of $82,805 in business liabilities.
(b) Marketing and Sales
The Company's marketing program includes the development of compliance
data, sales materials, plant tours and daily phone leads. Compliance Data is
data performance generated from RCAI from on-site pilot testing. This data
specifically shows influent characteristics prior to the filtration process and
effluent data after the filtration process. The Company also utilizes three
sales representatives nationwide, who operate under contract to assist the
Company in locating prospective customers.
This is a two-step project. Step one - sale of unit. Step two -
installation of unit along with the sale and installation of ancillary
equipment. RCAI began marketing the VSEP/PALLSEP(TM) technology in June 1999.
RCAI has completed the sale of one unit to Dairy Farmers of America (DFA). A
separate installation contract for the unit is under negotiation but has not yet
been finalized. The application of this unit is in treatment of wastewater to a
milk condensing plant. This wastewater stream was a high BOD (biochemical oxygen
demand) stream. The high BOD is the result of some milk being generated as a
waste in the process and being released as discharge to the city wastewater
plant. The use of this technology allows the capture of those milk byproducts
from the water, thereby reducing the BOD. The treated water is then released to
the city wastewater facility.
The marketing of this technology is a sophisticated sale. The equipment is
typically a capital cost item, and at many companies may need to go through a
yearly capital costing budget process. Making a sale typically requires on-site
testing at the customer's operating facility and specific testing of a number of
different membranes trialed under an assortment of operating parameters.
RCAI has been conducting on-site tests at Leprino Foods in Colorado the
last three months. This potential customer is a manufacturer of mozzarella
cheese in the U.S.
The company also has ongoing testing at facilities operated by Safeway
(ice cream plant); Daisy Brand (yogurt); West Farm Foods (milk processing) and
Excide (metals/water)
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<PAGE> 6
and has agreements to start testing facilities operated by Wright Corp
(chemicals/water) and Dynachem Technologies, Inc. (antifreeze/water).
The Company has signed an Agreement with Membrane System Specialists, Inc.
("MSS"), designated as a Strategic Alliance Agreement, whereby MSS will be
selling PallSep(TM) Filter Systems, through the Company, at a markup over the
Company's costs expected to be 15%.
(c) Competition
The Company's two primary competitors are the two manufacturers of the two
systems, Pall Filter Corp. and New Logic International, each of whom market
their systems directly to users, as well as through OEMs such as the Company.
More generally, the Company competes with numerous other companies who
have competing technologies, many of whom are larger, with greater financial
resources and larger organizations.
Competition in this industry focuses on price, quality, features,
performance, specialization, expertise, reliability, technology, customer
relationships, marketing, advertising, sales, publicity, distribution, serving
particular market niches, and appealing to particular consumers.
(d) Raw Materials
The Company's filters are manufactured with off the shelf components
available from many sources, with the exception of the membranes themselves and
the patented vibrating mechanisms, which are proprietary to Pall and New Logic.
Pall Filter Corp. and New Logic International in each case manufacture
their own filters, and the Company is dependent on these firms for purchase of
the technology and for production of the membranes. The Company has no supply
contract for these membranes, but both companies appear willing to continue to
supply these membranes for use in the systems sold by the Company.
(e) Dependence on a Few Major Customers
The Company has in process over three jobs, one of which is for
installation, and two of which are for testing, and is in the process of bidding
on thirteen additional jobs, for installation of filtration systems products.
There is no single customer that currently or in the future is expected to
dominate the Company's business.
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<PAGE> 7
(f) Patents, Trademarks, Licenses, Etc.
(i) Patents and Trademarks
The Company has no patents and no trademarks.
(ii) License of Technology
In June of 1999, the Company's predecessor, Brody Special Projects
Company, a Utah corporation ("Brody"), entered into an OEM Agreement with Pall
Filtron, Inc. (`Pall"), having a three year terms, and covering various
proprietary filtration products manufactured by Pall. Pursuant to this
Agreement, Pall granted Brody a nontransferable license to integrate, market,
sell, install and support Pall's proprietary filtration products, as an
integrated system only, on a nonexclusive basis, limited to certain specified
markets and certain specified territories.
The markets are fixed as the food, beverage, dairies, pharmaceutical,
biotech and cosmetics applications, including intermediates and wastewaters
resulting from their processing. Drinking water is excluded from the defined
market. The specified territory is the Western Hemisphere, consisting of North,
Central and South America.
The system must be sold in a configuration which includes a feed pump,
piping and valves and an integrated control system. Brody is specifically
precluded from selling the Pall filtration products without integrating the
products into a system.
Pall is permitted under the contract to compete with Brody, and market its
products direct in the designated markets and territory. Brody is assigned the
responsibilities under the contract to run samples and field trials, purchase
membranes at discount for certain systems, and design and specify and quote
prices for purchase and installation of an integrated system using the
filtration products.
The assets of Brody were acquired by RCAI in December of 1999, including
an assignment of Brody's rights under this Pall OEM Agreement. Subsequently, in
December of 1999, Pall approved the assignment of Brody's rights under the Pall
OEM Agreement to RCAI.
Brody also had a License Agreement to sell VSEP(TM) filtration systems
manufactured by New Logic. However, New Logic declined to grant the required
consent in order for Brody to transfer this License to the Company. As a result,
the Company now continues to market and sell VSEP(TM) products under an informal
understanding with New Logic that is not embodied in a written contract, and
handled on a case by case basis.
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(g) Government Regulation
There are certain FDA (Food and Drug Administration) regulations which
regulate the installation and operation of the Company's Filtration Systems,
primarily in the food industry. The Company's two filtration manufacturers, Pall
Corp. and New Logic, are responsible for compliance with these regulations, and
the Company has not assumed any responsibility or liability for compliance.
However, the Company remains subject to the risk that claims could be asserted
against it based upon liability associated with filtrating systems which it has
sold.
(h) After Market Sales Responsibility
Pall provides the customer with a one year performance warranty that the
equipment will be free from defects in material and workmanship and
substantially conform to the specifications and user documentation provided by
Pall. New Logic provides a similar warranty for its equipment. The Company has
no responsibility with respect to these warranties, which are provided in full
by the manufacturer.
(i) Research and Development
The technology sold by the company is in the early stages of market
acceptance. As a result, in order to accomplish a sale, a customer will
typically require a significant research and development effort, in the form of
testing and trials of different types of membranes and differing operating
parameters. These costs are funded in part by the Company, and expensed as sales
expense. To date the Company has expended $20,000 in research and development
costs in an effort to develop sales of the filtration systems.
In addition, there are many undiscovered applications for the PallSep(TM)
system that are currently being explored by RCAI through onsite pilot testing.
These specific tests determine the feasibility of the prospective project and
allow RCAI's engineers to select specific operating parameters and a selection
of usable membranes. This information is used in preparing sales proposals for
the customer's consideration. Typically, RCAI charges $4,750 per week for onsite
testing, although if RCAI management believes that the prospective tests will
benefit RCAI for other sales opportunities, RCAI may choose to undertake these
tests without charge. Each proposal for onsite testing is negotiated with the
customer on a case by case basis.
(j) Compliance with Environmental Laws
RCAI, including all of its wholly-owned subsidiaries, is not responsible
for systems (PALLSEP/VSEP(TM)) that do not meet specific environmental discharge
standards. Both PALL and New Logic International issue performance guarantees
that their units, based on certain influent characteristics, will meet all
environmental standards for discharge.
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However, the Company remains subject to the potential for being cited under such
laws as the marketing agent for the equipment and the one responsible to oversee
its installation.
(k) Employees
The Company has 8 full time employees, including 2 located in California,
3 located in Utah, 1 located in Colorado, and 2 located in Savannah, Georgia
(Aquatek).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The Company during the last two fiscal years ending June 30, 1999 and
1998, has unsuccessfully attempted to form a group of operating companies that
were to offer the marketing and advanced technologies to become the leader in
the recycling of liquid wastes. The results of operations reflect the
significant costs associated with the unsuccessful ventures including Wil-Flow,
Inc. and Energy & Material Recovery, Inc. (EMRI). The Company has incurred
significant losses which have resulted in accumulated deficits which raise
doubts about the Company's ability to continue as a going concern.
The Company has become revitalized with the change in management effective
June 1, 1999 and the incorporation of revenue producing entities. On June 1,
1999, the Company purchased the business of Sierra Technologies, a company that
operates in the purchasing, treatment and brokerage of chemical and petroleum
products throughout North America. In addition, in December 1999, the Company
completed a buyout of Brody Special Projects Company a supplier of advance
filtration technologies. The Buyout Agreement with Brody Special Projects
Company provides for a cash price purchase price for its assets of $150,000,
payable $50,000 on March 30, 2000, $50,000 on June 30, 2000, and $50,000 on
September 30, 2000. The first and second $50,000 payments have been made. In
addition, the Company assumed $210,897 in liabilities.
During the first six months of fiscal year 2000, in an effort to become a
leader in the development of market opportunities for the VSEP(TM) and
PALLSEP(TM) technologies RCAI continued the implementation of its business
strategy to form a group of companies that will offer the marketing of advanced
liquid process technologies. In December 1999 Brody Special Projects Company
(Brody) was purchased. Brody holds the marketing rights from Pall Filtration
Corporation to supply advanced filtration technology to be used to decontaminate
liquid wastes. Two key marketing personnel of Brody were hired by RCAI to
forward key projects in the dairy industry.
RCAI has also begun to realize revenues form Sierra Technologies, Inc.
(Sierra), a Company purchased on June 1, 1999. Sierra began to generate revenues
from the treatment and brokerage of chemical petroleum products during the first
six months of fiscal year 2000.
The report of the Company's outside accountants accompanying the Company's
Financial Statements included in this Registration Statement, contains the
following qualification: The accompanying Financial Statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note L to the Financial Statements, the Company has no equity and
has no significant operating results to date that together raise substantial
doubt about its inability to continue as a going concern. Management's plans in
regard to these matters are also described in Note L. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. As a result, the financial future of the Company at this date is
uncertain.
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Statement of Operations
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
The Company has incurred net losses of $796,916 for the fiscal year ended
June 30, 1999, as compared to a net loss of $466,788 for the period ended June
30, 1998. These losses can be primarily attributed as stated above to
significant costs incurred in both years from the dissolution of Wil-Flow, Inc.
in March 1999, and the termination of the joint venture with EMRI in October
1999. Not only were the costs associated with the winding up of these ventures
significant, the effect on Retained Earnings because of the write-off of Patents
and Goodwill was $182,226. The dissolution of Wil-Flow contributed to
approximately $400,000 of the loss in fiscal year 1998 and the dissolution of
EMRI contributed to approximately $700,000 of the loss in fiscal year 1999.
The Company realized all of its revenues in fiscal years ending June 30,
1999 and 1998 from the consulting services of Aquatek, Inc., a wholly-owned
subsidiary which consulted with Cass Engineers on various projects where it
supplied automated process control systems for wastewater treatment
applications. The Contract Revenues in fiscal years ending June 30, 1999 and
1998 of $685,360 and $605,680 respectively, has been to Cass Water Engineers.
The Cost of Goods sold represents fifty eight percent (58%) of sales for
the fiscal year ending June 30, 1999 as compared to sixty nine percent (69%) as
of June 30, 1998. The Costs of Goods are not consistent between years because
the varying nature of the consulting projects in any given year. In fiscal year
1998 there were more material components purchased for the consulting projects
and as a consequence the Cost of Goods were greater than 1999 where less
components were purchased.
Operating expenses consist primarily of general and administrative
expenses. For the fiscal year ended June 30, 1999 operating expenses totaled
$945,242 as compared to $646,559 for the fiscal year ended June 30, 1998. This
substantial increase in operating expenses between years can be attributed to an
increase in wages of $385,929 and an increase in Professional fees of $41,997.
The increase in wages was caused by substantial management fees due to fees paid
to investment advisors to raise capital investment for the Company in 1999, and
the hiring of management personnel because of joint venture with EMRI. The
increase in Professional Fees can be attributed to legal costs associated with
the Wil-Flow, Inc. litigation and the termination of the joint venture with
EMRI.
Interest expense and other finance charges increase from $4,403 for the
fiscal year ended June 30, 1998 to $17,438 for the fiscal year ended June 30,
1999. The increase between years can be attributed to the increase in Notes
payable from $130,500 in 1998 to $260,000 in 1999 and the accrual of interest
relating to the Notes payable from the dissolution of Wil-Flow, Inc.
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Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
The Company has incurred net losses of $417,011 for the six months ended
December 31, 1999, as compared to a net loss of $204,594 for the six months
ended December 31, 1998. These losses can be primarily attributed to significant
costs incurred in both years from the dissolution of Wil-Flow, Inc. in March
1999 and the termination of the joint venture with EMRI in October 1999.
Approximately $350,000 of the loss in fiscal year 1999 can be attributed to the
dissolution of EMRI and $200,000 of the loss in fiscal year 1998 can be
attributed to the dissolution of Wil-Flow, Inc. There should be no further
financial impact after the dissolution of the aforementioned companies on the
operations of the Companies. Management has been restructured and has focused
its efforts in providing comprehensive services to the recycling industry. In
addition, expenses have exceeded revenues in the start-up phases of the
operations of Brody and Sierra.
The Company realized the majority of its revenues for the six months
ending December 31, 1999 and 1998 of $342,323 and $236,481, respectively, from
Aquatek, Inc., a wholly owned subsidiary which specializes in automated process
control systems for wastewater treatment applications. The Contract Revenue for
the six months ending December 31, 1999 and 1998 has been primarily to Cass
Water Engineers. In 1999 approximately $122,000 of revenues were generated from
Sierra.
The Cost of Goods sold represents fifty eight percent of sales for the six
months ending December 31, 1999, as compared to sixty nine percent as of
December 31, 1998. The Costs of Goods are not consistent between years as a
result of the varying nature of the projects in any given year and the fact that
the gross margins from the brokerage of chemicals and petroleum products are
less than the profit margins generated by Aquatek, Inc.'s business.
Operating expenses consist primarily of general and administrative
expenses. For the six months ended December 31, 1999 operating expenses totaled
$563,417 as compared to $337,349 for the six months ended December 31, 1998.
This substantial increase in operating expenses between years of $226,068 can be
primarily attributed to an increase in Wages of $157,963 and an increase in
Professional fees of $27,787. The increase in Wages was caused by management
fees due to promotional programs designed to attract capital investment toward
the Company in 1999, the acquisitions of key personnel from the acquisition of
Sierra and Brody and the hiring of management personnel because of joint venture
with EMRI. The increase in Professional Fees can be attributed to legal costs
associated with the termination of the joint venture with EMRI.
Interest expense and other finance charges decreased from $3,905 for the
six months ended December 31, 1998 to $1,508 for the six months ended December
31, 1999. The decrease between years can be attributed to the decrease in Notes
payable from $195,600 in 1998 to $152,500 in 1999. Certain Notes Payable were
converted to common stock of the Company in 1999.
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Liquidity and Capital Resources
As of December 31, 1999 the Company has cash and cash equivalents of
$39,393 as compared to cash and cash equivalents of $107,204 as of December 31,
1998. At December 31, 1999, the company had a working capital deficiency (total
current liabilities in excess of total current assets) of $279,728 as compared
to a working capital deficit (total current liabilities in excess of total
current assets) of $251,072 as of December 31, 1998. The decrease in working
capital in 1999 is due to the acquisition of Sierra and Brody which was offset
by the forgiveness of payment on the Note Payable to the President of Wil-Flow,
Inc. of $360,000, of which $160,000 was included in short-term liabilities.
The principal use of cash for the six months ended December 31, 1999 and
1998 was to fund the net loss from operations. The Company raised a total of
$564,955 and $209,198 in the six months ended December 31, 1999 and 1998
respectively from the issuance of common stock to fund the loss from operations.
In addition, the Company borrowed $120,100 from shareholders in the six months
ended December 31, 1998: $75,000 note to Jones Gable was repaid in December 1999
and $45,000 to Donna Stein has not been repaid and is bearing interest at 10
percent per annum..
The management of the Company is endeavoring to cover the operating
expenses of the Company until adequate sales are generated. It is anticipated
that the Company will become profitable and begin to generate sufficient cash
flow to meet its monthly operating expenses, including lease commitments, of
$75,000 by January 2001. In October 1999, the Company through a Private
Placement Memorandum in accordance with SEC Regulation D, began to raise one
million dollars in equity capital. In June 2000, the Company began a new SEC
Regulation D private offering in an effort to raise additional capital. There is
no assurance that this effort will be successful or that enough capital will be
brought into the Company. The Company operating expenses currently average
approximately $75,000 per month.
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ITEM 3. DESCRIPTION OF PROPERTY
Facilities
The Company maintains corporate offices in Lake Forest, California, in a
900 square foot facility, under a 36 month lease, expiring in April, 2002, at a
rent of $1533 per month.
The Company maintains a shop and office facility in Linden, Utah, in a
1000 square foot facility, under a 36 month lease, expiring in January, 2002, at
a rent of $475 per month.
The Company's wholly owned subsidiary, Aquatek, maintains an office
facility in Savannah Georgia, in a 1500 square foot facility, under a month to
month lease, at a rent of $1350 per month.
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the holdings of common stock by each person
who, as of February 1, 2000, held of record, or was known by the Company to own
beneficially, more than 5% of the outstanding common stock of the company, by
all directors individually, and by all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name & Address of Beneficial Percent
Class Beneficial Owner Ownership of Class
-------- ----------------- ---------- --------
<S> <C> <C> <C> <C>
Common Stock Michael C. Davies(1) 871,366 13.64
Common Stock Gordon W. Davies(2) 971,900 15.21
Common Stock Bruce Selk(3) 1,300,000 20.34
Common Stock Canvasback Company, 450,000 7.04
Ltd.(4)
Common Stock Kurt Baum 599,835 9.39
------------------ --------- -----
All Officers and
Directors as a Group 3,013,266 47.16
</TABLE>
Footnote Warrants and Options
1 Includes 200,000 Vested Options and 550,000 Unvested Options held by Michael
C. Davies, pursuant to the terms of his Employment Contract.
2 Includes 200,000 Vested Options and 550,000 Unvested Options held by Gordon W.
Davies, pursuant to the terms of his Employment Contract.
3 Includes 780,000 Vested Options and 520,000 Unvested Options held by Bruce
Selk, pursuant to the terms of his Employment Contract.
4 Canvasback Company, Ltd. is an Anguilla corporation whose Chief Executive
Officer is Bernidine Romney, a resident of Anguilla.
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ITEM 5. DIRECTORS, EXECUTIVE OFFICERS
PROMOTERS AND CONTROL PERSONS
The names, ages and positions of the directors and executive officers of
the Company as of February 1, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position Since
---- --- -------- -----
<S> <C> <C> <C>
O. Bruce Selk 44 Chief Executive Officer and June 1999
a Director
Michael C. Davies 30 Chief Financial Officer, Dec. 1997
Vice President and a Director
Gordon W. Davies 31 Vice President and a Director Dec. 1997
</TABLE>
The Directors serve until the next annual meeting of shareholders, or
until their successors are elected.
MR. O. BRUCE SELK
Bruce Selk, the Company's Chief Executive Officer and a Director, joined
the Company in June of 1999, and transferred his wholesale chemicals business
accounts from his sole proprietorship, Sierra Technologies, to the Company. Mr.
Selk owned and operated Sierra Technologies from July of 1997 to May when he
joined the Company on a full time basis. From November of 1996 through June of
1999, he was the President of International Products Group, Inc., a Company
which manufactured and marketed innovative concrete block. From November of 1994
through July of 1995, Mr. Selk served as an opportunity specialist with
Kingsfield Capital Corporation, a company which marketed different technologies
to the chemical industry. From January 1993 to October 1994, Mr. Selk was a team
leader with Tri Waste Technisol, Inc., a full service environmental firm.
Mr. Selk has a Certificate as Masters Electrician from Lethbridge
Community College, Lethbridge, Alberta, Canada, and later attended the Southern
Alberta Institute of Technology.
MR. MICHAEL C. DAVIES
From 1988 to 1991 Mr. Davies was the Owner/Manager of Fuel Oil Polishing
Company located in Vancouver, British Columbia, Canada. Mr. Davies' company was
in the sales, marketing and project management of fuel oils polishing within the
Province of British Columbia.
From 1991 to 1993 he was an Accounts Executive with Innovative
Environmental Services, Ltd. in Vancouver, a company in the business of sales
and marketing of wastewater treatment equipment.
16
<PAGE> 17
From 1993 to 1994 he was the Marketing Manager for Transenviro, Inc.,
located in Irvine, California. Transenviro is an international supplier of
wastewater treatment equipment and process design engineering.
From 1994 to 1996 Mr. Davies was the Marketing Manager for Babcock
King-Wilkinson, LP, Irvine, California, a wastewater treatment business.
From 1996 to the present Mr. Davies has held the positions of Vice
President and a Director for Aquadynamic Technologies, Inc. and Aquatek, Inc.,
which is a wholly-owned subsidiary of Aquadynamic Technologies. Aquadynamic
Technologies, Inc. was acquired by Registrant and became Registrant's
wholly-owned subsidiary in November of 1997.
From 1996 to 1998 Mr. Davies held the position of Vice President,
Sales/Director for Wil-Flow, Inc., the sole supplier of its patented RGD (Rapid
Gravity Dewatering) wastewater sludge dewatering system.
From 1997 to the present, Mr. Davies has been the Vice President and a
Director of RCAI. Mr. Davies is the brother of Gordon Davies.
MR. GORDON W. DAVIES
From 1991 to 1994 Mr. Davies was an Accounts Executive for Innovative
Environmental Services, Ltd., located in Vancouver, British Columbia, which is a
company in the business of wastewater treatment equipment.
From 1993 to 1994 he held a Sales Manager position at Transenviro, Inc. in
Irvine, California. From 1994 to 1996, Mr. Davies was the Sales/Marketing &
Proposals Manager for Babcock King-Wilkinson, LP in Irvine, California, and in
1996 he was the acting CEO for this company. Babcock King-Wilkinson, LP is in
the business of process design/engineering and equipment supply operations on a
worldwide basis.
From 1996 to the present Mr. Davies has been the President and a Director
of Aquadynamic Technologies, Inc. He is also a Director of Aquatek, Inc., the
wholly-owned subsidiary of Aquadynamic Technologies, Inc. Aquatek, Inc. is an
engineering design house and supplier of computer-automated process and motor
control systems for water and wastewater treatment systems.
From 1996 to 1998 Mr. Davies was the General Manager of Wil-Flow, Inc.
From 1997 to the present, Mr. Davies has held the position of Vice
President and a Director for RCAI. Gordon Davies is the brother of Michael
Davies.
17
<PAGE> 18
ITEM 6. EXECUTIVE COMPENSATION
(a) The following table sets forth the annual compensation paid and
accrued by the Company during its last three fiscal years to its Chief Executive
Officer. No other executive officer received annual salary and bonus in excess
of $100,000.
SUMMARY COMPENSATION
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
------------------- ------ -------
Other Secur-
Annual Restricted ities All Other
Name Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) $ ($) SARs(#) ($) ($)
--------- ---- ------ ----- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
O. Bruce
Selk,
CEO 1999 $72,916 0 0 260,000 0 0
Gordon
Davies,
Pres. 1998 $60,000 0 0 0 0 0
1997 $60,000 0 0 0 0 0
</TABLE>
The Company has no stock option program, long term incentive plans, and no
Awards were made in its last fiscal year. The only options, warrants or rights
outstanding and in the hands of the Company's officers or directors are options
granted to them pursuant to the terms of their Employment Contracts..
The Company has no Long-Term Incentive Plans and no Awards were made
in its Last Fiscal Year.
(b) The Company has entered into the following 5 Employment
Contracts with Senior Management.
Bruce Selk
The Company entered into a 3 year Employment Agreement with Bruce
Selk on May 26, 1999, which provided for a salary of $125,000 for the
first year, and $150,000 per year thereafter. Mr. Selk also receives a
vehicle allowance of $550 per month.
In addition, the contract grants Mr. Selk options to purchase
1,300,000 shares of the Company's Common Stock, which vest and become
exercisable based on the Company's stock trading in the public markets at
certain levels as set forth below:
18
<PAGE> 19
<TABLE>
<CAPTION>
Market Price Options
Of Stock Which Vest
------------ ----------
<S> <C>
$1.00 130,000
$1.50 130,000
$2.00 130,000
$2.50 130,000
$3.00 130,000
$3.50 130,000
$4.00 130,000
$4.50 130,000
$5.00 260,000
</TABLE>
At February 1, 2000, 780,000 of these options had vested, and -0- options
had been exercised. The options are exercisable at an option exercise price of
$0.30 per share, and expire if not exercised by one year beginning from the
vesting date.
Michael Davies
The Company entered into a 5 year Employment Agreement with Michael Davies
in June of 1999, which provides for a salary of $96,000 per year, and a car
allowance of $550 per month.
In addition, the contract grants Mr. Michael Davies options to purchase
750,000 shares of the Company's Common Stock, which vest, become exercisable,
and have an option exercise price as follows:
<TABLE>
<CAPTION>
No. Of Options Date of Vesting Option Exercise Price
-------------- --------------- ---------------------
<S> <C> <C>
200,000 June 1, 1999 $0.30
275,000 June 1, 2000 $0.40
275,000 June 1, 2001 $0.40
</TABLE>
At February 1, 2000, 200,000 of these options had vested, and -0- options
had been exercised. The options expire, if not exercised, by one year beginning
from the vesting.
Gordon Davies
The Company entered into a 5 year Employment Agreement with Gordon Davies
in June of 1999, which provides for a salary of $96,000 per year, and a car
allowance of $550 per month.
19
<PAGE> 20
In addition, the contract grants Mr. Gordon Davies options to purchase
750,000 shares of the Company's Common Stock, which vest, become exercisable,
and have an option exercise price as follows:
<TABLE>
<CAPTION>
No. Of Options Date of Vesting Option Exercise Price
-------------- --------------- ---------------------
<S> <C> <C>
200,000 June 1, 1999 $0.30
275,000 June 1, 2000 $0.40
275,000 June 1, 2001 $0.40
</TABLE>
At February 1, 2000, 200,000 of these options had vested, and -0- options
had been exercised. The options expire, if not exercised, by one year beginning
from the vesting date.
Steve Madsen
The Company entered into a 3 year Employment Contract with Steve Madsen in
December, of 1999, which provides for a salary of $120,000 per year, plus a
vehicle allowance of $550 per month.
In addition, the contract grants 450,000 options to purchase shares of the
Company's Common Stock at an exercise price of $0.40 per share. The options vest
in each year in lots of 150,000 options per year, starting January 1, 2001, and
expire if they are not exercised within one year after the vesting date.
John Ewing
The Company entered into a 3 year Employment Contract with John Ewing in
November, of 1999, which provides for a salary of $120,000 per year, plus a
vehicle allowance of $550 per month.
In addition, the contract grants 450,000 options to purchase shares of the
Company's Common Stock at an exercise price of $0.40 per share. The options vest
in each year in lots of 150,000 options per year, starting January 1, 2001, and
expire if they are not exercised within one year after the vesting date.
20
<PAGE> 21
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1. Joint Venture with Oil Re-Refining Company
RCAI and Oil Re-Refining Company established a joint venture partnership
called Energy and Material Recovery, Inc. in November of 1997. RCAI issued and
contributed 1,500,000 shares of its Common Stock at an agreed valuation of $2.00
per share, to the Energy and Material Recovery Joint Venture Oil Re-Refining,
contributed operating equipment, buildings, trucks, land and other assets having
an agreed value of $3,000,000 to the Joint Venture.
This partnership was dissolved due to disagreements among management as to
the best course for future operations of the Joint Venture, in October of 1999.
The 1,500,000 shares of the Company's Common Stock contributed to the Joint
Venture were returned to RCAI and have been designated treasury shares.
2. Acquisition of Business Customers of Bruce Selk, dba Sierra Technologies
Sierra Technologies was established by Bruce Selk in June 1997 and was in
the business of buying and selling industrial chemicals. In June of 1999, RCAI
offered Mr. Selk a position of CEO. As part of these negotiations, Mr. Selk
transferred all of his business done under the name, Sierra Technologies, into
RCAI. Under the informal agreement with Mr. Selk, the Registrant assumed all of
the liabilities ($82,805) of Sierra Technologies, and was assigned all of its
business assets ($64,588), including its accounts receivable, and its base of
customer accounts for brokered chemicals.
3. Acquisition of Brody Special Projects, Inc.
In December of 1999, the Company acquired from Steve Madsen and John Ewing
certain of the assets formerly belonging to Brody Special Projects Company, a
Utah corporation, which were utilized by Brody in the business of marketing,
selling and leasing VSEP and Pall Sep Systems. Also transferred and assigned to
the Registrant were the rights to sell and lease VSEP and Pall Sep Units under
OEM Agreements originally held by Brody with New Logic International and Pall
Filtron, Inc., respectively. Under the purchase agreement with Messrs. Madsen
and Ewing, the Company paid $300,000 in staged cash payments to Brody on behalf
of Messrs. Madsen and Ewing, and agreed to assume and pay to Brody, $300,000 out
of future sales. The cash payments based on future sales are payable as follows:
<TABLE>
<S> <C> <C>
December 13, 1999 100,000 Paid
December 31, 1999 50,000 Paid at the Closing
</TABLE>
The balance of the cash payment is payable in three installments
of $50,000 each, payable on March 30, 2000, June 30, 2000 and
September 30, 2000. The $50,000 March 30,2000 payment has been
made.
21
<PAGE> 22
The $300,000 to be paid out of future sales is to be paid (i) at the rate
of 25% of net sales proceeds, or (ii) the sum of $6,250, whichever is greater,
on each Pall Sep and VSEP Unit sold to certain specified customers. The
Registrant also assumed approximately $212,000 in liabilities of Brody that had
been assumed by Messrs. Madsen and Ewing.
The assets acquired under this Agreement are being used by the Registrant,
but title to the assets has been escrowed, and the assets pledged to secure
performance of the Company's obligation under the Agreement.
New Logic subsequently declined to approve a transfer of the New Logic OEM
Agreement to the Company, because they were in the process of changing their
marketing strategy for the use of OEMs to the use of marketing representatives,
and did not wish to permit transfer of an OEM Agreement. However, New Logic
continues to sell its VSEP Units to RCAI under an informal relationship.
As a part of the consideration for this acquisition, the Company agreed to
pay Steve Madsen, an owner of Brody, the sum of $36,000 over a six month period,
in six equal payments of $6,133, beginning January 15, 2000, and issued 50,000
stock options to Steve Madsen and $50,000 stock options to John Ewing (also an
owner of Brody), to acquire shares of the Company's Common Stock at $0.40 per
share. The options are vested, and have a five year term, and expire on November
15, 2004. In addition, Messrs. Madsen and Ewing were each issued 200,000
additional options, at an exercise price of $0.40 per share, in 50,000
increments to each individual, for each $4,000,000 in gross sales which are
generated by the Company's Membrane Filtration business. These options also
expire, if not vested and exercised by November 15, 2004.
4. Issuance of Common Stock and/or Options to Officers, Directors and Others
In September of 1999, the Company privately issued 50,000 common shares,
valued at $0.50 per share to Michael Davies, in satisfaction of $25,000 in
corporate debt owed to Mr. Davies.
In September of 1999, the Company privately issued 50,000 common shares to
Gordon Davies, in satisfaction of $25,000 in corporate debt owed to Mr. Davies.
In August of 1999, the company privately issued 358,720 shares to Fred
Davies (the father of Michael Davies and Gordon Davies), in satisfaction of
$179,360 in consulting fees the Company owned to Mr. Frederick S. Davies for
consulting services fully performed.(1)
In October of 1999, the Company privately issued 325,000 shares to
Canvasback Company, Ltd., in satisfaction of $65,000 in corporate debt owed to
Canvasback Company, Ltd. The debt was created as a result of Canvasback's loan
of $50,000 to the Company on September 14, 1999 of $50,000, at an interest rate
of 10% per annum, creating a balance due in October of 1999 of $15,000.
22
<PAGE> 23
In June of 1999, the Company privately issued 100,000 shares of Common
Stock to Fred Davies, in satisfaction of $50,000 in consulting fees owed to Mr.
Davies.(1)
In June of 1999, the Company privately issued 50,000 shares of its Common
Stock to Gordon Davies in satisfaction of $25,000 in compensation owed to Mr.
Davies.
In June of 1999, the Company privately issued 50,000 shares of its Common
Stock to Michael Davies in satisfaction of $25,000 in compensation owed to Mr.
Davies.
In June of 1999, the Company privately issued 100,000 shares of its Common
Stock to Fred Davies in satisfaction of $50,000 in compensation owed to Mr.
Davies.(1)
In June of 1998, the Company privately issued 56,800 shares of its Common
Stock to Gordon Davies in satisfaction of $16,050 in personal loans owed to Mr.
Davies.
The only outstanding options issued to officers and directors are those
provided for as a part of their Employment Contracts (see "Compensation of
Executive Officers").
(1) With respect to the consulting services rendered by Fred Davies, Mr. Davies'
consulting services for RCAI began in February of 1996, and continued through
June of 2000, at an agreed rate of $5,000 per month. Mr. Davis' services
included his successful efforts to arrange for loans for RCAI, allowing RCAI to
continue its business. Mr. Davies was responsible for the incorporation of
Aquatek, Inc. and for RCAI's participation as a 50% partner in Energy & Material
Recovery, Inc. Mr. Davies was directly responsible for RCAI's discovery of the
VSEP & PallSep(TM) filtration technologies leading to the company's current
direction. Mr. Davies also assisted RCAI with the management of receivables and
payables.
5. Outstanding Loans Owed to Officers, Directors and Principal Shareholders
Michael C. Davies is currently owed $2,044 as of September 24, 1999, and
is currently an account payable. This figure represents past management salaries
from 1998 to 1999.
Gordon Davies is currently owed $4,782 as of September 24, 1999, and is
currently an account payable. This figure represents past management salaries
from 1998 to 1999.
23
<PAGE> 24
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of Recycling Centers of America, Inc.,
consists of 75,000,000 shares of common stock, $0.01 par value, and 100,000
shares of preferred stock, par value $1.00 per share. The Articles of
Incorporation authorize the Company's Board of Directors to establish by
resolution different classes or series of the undesignated shares and to fix the
relative rights and preferences of such shares in any class or series. Under
Colorado law, no further action by the Company's shareholders is necessary and
only the action of the Board of Directors is required to authorize the issuance
of any undesignated shares. There is currently no Preferred Stock outstanding.
COMMON STOCK
As of February 1, 2000, there were 6,389,304 shares of Common Stock
outstanding and held of record by 608 stockholders. The holders of Common Stock
are entitled to one vote for each share held of record on all matters submitted
to a vote of the holders of Capital Stock. Holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preference of any preferred stock that might be issued in
the future. Holders of Common Stock have no preemptive or subscription rights,
and there are no redemption or conversion rights with respect to such shares.
All outstanding shares of Common Stock are fully paid and nonassessable.
This summary of certain provisions of the Common Stock of the Company is
subject to, and qualified in its entirety by the Company's Articles of
Incorporation, as amended, and its Bylaws (which documents are available and
will be supplied upon request).
WARRANTS
The Company has 222,670 Warrants outstanding to acquire 222,670 Shares of
its Common Stock, at a warrant exercise price of $3.50 per share. These warrants
expire on June 14, 2000.
24
<PAGE> 25
PART II
ITEM 1. MARKET PRICE AND DIVIDENDS
ON REGISTRANT'S COMMON STOCK
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades over-the-counter on the NASD Bulletin
Board Market under the symbol "RCAI". The closing sales price as of February 22,
2000, was $2.00.
Set forth below is the high and low bid information for the Company's
Common Stock for each full quarterly period within the two most recent fiscal
years.
<TABLE>
<CAPTION>
High Low High Low
Period Bid Bid Ask Ask
------ ---- --- ---- ---
<S> <C> <C> <C> <C>
4th Quarter 1999 1.2500 0.3125 1.3750 0.5313
3rd Quarter 1999 0.7500 0.2500 1.0000 0.3125
2nd Quarter 1999 0.9375 0.8125 1.4375 1.4375
1st Quarter 1999 1.9375 0.5313 2.1875 0.9375
4th Quarter 1998 0.8750 0.2500 1.0625 0.4375
3rd Quarter 1998 1.00 0.5625 1.0625 0.75
2nd Quarter 1998 1.75 0.6875 2.125 1.00
1st Quarter 1998 2.3125 0.3125 2.50 1.0625
4th Quarter 1997 4.00 1.00 5.00 2.625
3rd Quarter 1997 4.50 2.00 7.25 2.50
</TABLE>
At January, 2000, the Company had approximately 600 Shareholders of
record.
The Company has not paid a dividend since its incorporation, and
management does not anticipate the Company will pay dividends in the near
future.
ITEM 2. LEGAL PROCEEDINGS
There is no litigation outstanding, and management is not aware of any
potential claims which might be asserted.
25
<PAGE> 26
ITEM 3. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS.
None.
26
<PAGE> 27
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
All Common Stock ("com.")
<TABLE>
<CAPTION>
Sales of Shares For Cash
Date or Period Title Shares Class to Offering Total Capital Total Exemption
of Offering Sold Whom Sold Price Raised Comm. Relied Upon
<S> <C> <C> <C> <C> <C> <C> <C>
09/03/98 - 04/14/99 com. 570,816 9 Accredited $0.60 $342,490 $0.0 4(2)
30 Sophisticated
03/15/99 com. 2,000 1 Sophisticated $0.80 $2,000 $0.0 4(2)
03/16/99 com. 176,786 3 Accredited $0.70 $123,750 $0.0 4(2)
03/17/99 com. 11,111 1 Accredited $0.90 $10,000 $0.0 4(2)
04/14/99 com. 2,667 1 Sophisticated $0.75 $2,000 $0.0 4(2)
04/19/99 - 4/29/00 com. 102,000 1 Accredited $0.70 $50,000 $0.0 4(2)
05/01/99 - 07/02/99 com. 314,180 2 Accredited $0.45 $141,381 $0.0 504
2 Sophisticated
07/03/99 - 07/06/99 com. 132,500 1 Accredited $0.40 $53,000 $0.0 4(2)
1 Sophisticated
10/12/99 - 02/15/00 com. 1,551,463 11 Accredited $0.45 $698,159 $0.0 504
28 Sophisticated
</TABLE>
<TABLE>
Shares issued for services:
<S> <C> <C>
27-Jan-00 Dewey Lake 80,000 shares valued at $1.00 per share for services, Section 4(2) exemption
(construction EMRI)
12-Feb-99 Rocky Baisch 37,000 shares valued at $0.60 per share for services, Section 4(2) exemption
(consulting services)
12-Feb-00 Scott Carpenter 4,125 shares valued at $0.60 per share for services, Section 4(2) exemption
(consulting services)
25-Feb-00 First Capital 28,000 shares valued at $0.45 per share for services, Section 4(2) exemption
(consulting /504 doc)
Below are shares issued for loans
15-Jun-99 Mike Davies 100,000 shares in lieu of $50,000 cash payment owed to Mr. Davies by
the company. Section 4(2) exemption
15-Jun-99 Gordon Davies 100,000 shares in lieu of $50,000 cash payment owed to Mr. Davies by
the company. Section 4(2) exemption
18-June-00 John Hewgill 66,667 shares in lieu of portion of repayment on loan of $66,666, Section 4(2)
exemption 18-June-00 Gail Hewgill 33,333 shares in lieu of portion of repayment
on loan of $33,333, Section 4(2) exemption
25-Feb-00 Canvasback 100,000 shares in lieu for $75,000 loan payment to J. Hewgill, Section 4(2) exemption
16-Aug-99 Fred Davies 358,720 shares for services in lieu of $179,360.34 cash payment owed by the company.
Section 4(2) exemption
10-Oct-99 Canvasback 325,000 shares in lieu of $65,000 cash payment which amount was loaned to the company
on September 14, 1999 ($50,000) and October 1, 1999 ($15,000) by Canvasback Company,
Ltd. and represents payment in full for such loans, Section 4(2) exemption
10Jun-99 Fred Davies 100,000 shares in lieu of $50,000, which amount was subtracted from the total cash
amount owed to Mr. Davies under his Personal Services / Consulting contract(s) with
the company, Section 4(2) exemption
06-Jan-00 Donna Drain 5,000 shares in lieu of any and all cash payments for interest on her loan to the
company of $15,000 on or about August 2, 1996, Section 4(2) exemption.
---------------------------------------------------------------------------------------------------------------------------------
Below are shares issued in lieu of settlements
25-Feb-00 William Briggs 30,000 shares for dissolution of EMRI
</TABLE>
27
<PAGE> 28
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification
Each director, officer, employee or agent, past and present of the
corporation, and each person who serves or may have served at the
request of the corporation as a director, employee or agent of
another corporation or employee benefit plan, and their respective
heirs, administrators and executors, shall be indemnified by the
corporation in accordance with, and to the fullest extent
permissible under, the provisions of applicable corporate law.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND
CONTROLLING PERSONS OF THE REGISTRANT PURSUANT TO THE FOREGOING
PROVISIONS OR OTHERWISE, THE REGISTRANT HAS BEEN ADVISED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND
IS, THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR
INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY
THE REGISTRANT OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER
OR CONTROLLING PERSON OF THE REGISTRANT IN THE SUCCESSFUL DEFENSE OF
ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR,
OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES
BEING REGISTERED, THE REGISTRANT WILL, UNLESS IN THE OPINION OF ITS
COUNSEL THE MATTER HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT
TO A COURT OF APPROPRIATE JURISDICTION THE QUESTION WHETHER SUCH
INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH ISSUE.
28
<PAGE> 29
RECYCLING CENTERS OF AMERICA, INC.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents 39,393 107,204
Accounts receivable, net 60,654 63,356
Inventory -- 29,000
---------- ----------
Total Current Assets 100,047 199,560
Equipment, net 142,437 81,057
Loan to Officers/Shareholders 5,924 69,732
Other Assets 4,952 4,225
Brody Acquisition 202,670 --
TOTAL ASSETS 456,030 354,574
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 108,499 110,352
Contract payable 180,000 145,000
Note payable 15,812 191,115
Taxes payable 75,464 --
Accrued interest -- 4,165
---------- ----------
Total current liabilities 379,775 450,632
Long-term notes payable -- 180,000
Loans from officers and shareholders 152,500 195,600
---------- ----------
TOTAL LIABILITIES 532,275 826,232
Common stock; 75,000,000 authorized of $.01 par value,
6,327,063 and 5,674,335 shares issued and outstanding
as of December 31, 1999 and 1998 respectively 2,795,133 1,769,392
Preferred stock 380 380
Less: common stock in treasury of 1,500,000 shares (15,000)
Retained earnings (2,439,747) (2,036,836)
Net income (417,011) (204,594)
---------- ----------
Total stockholders' equity (76,245) (471,658)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 456,030 354,574
---------- ----------
</TABLE>
29
<PAGE> 30
RECYCLING CENTERS OF AMERICA, INC.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended December 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Contract income 342,323 236,481
Cost of sales 191,737 97,720
---------- ----------
Gross Profit 150,586 138,761
OPERATING EXPENSES
Wages and payroll taxes 309,013 151,050
Professional fees 119,079 91,292
Office expenses 56,079 40,946
Sierra acquisition 18,589 --
Marketing expenses 18,537 20,142
Auto expense 13,512 2,925
Insurance 9,304 9,422
Depreciation expense 7,580 3,160
Travel expenses 7,552 12,724
Stock transfer fees 3,417 4,686
Dues and subscriptions 424 950
Engineering expenses 331 52
---------- ----------
Total operating expenses 563,417 337,349
OTHER EXPENSE
Interest expense 1,508 3,905
Other expense 2,672 2,101
---------- ----------
Total other expense 4,180 6,006
NET LOSS (417,011) (204,594)
---------- ----------
LOSS PER SHARE (0.07) (0.04)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,696,870 4,567,228
</TABLE>
30
<PAGE> 31
RECYCLING CENTERS OF AMERICA, INC.
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended December 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (417,011) (204,594)
Adjustments to reconcile net
income (loss) to net cash:
Depreciation 7,580 3,160
Loss on disposition of equipment (3,575)
Changes in assets and liabilities:
(Increase) decrease in accounts receivables 98,575 (2,850)
(Increase) decrease in shareholder loans (5,924) (69,732)
(Increase) decrease in other assets 4,721 (2,934)
Increase (decrease) in accounts payable and
other current liabilities 37,723 (18,945)
-------- --------
Net Cash Provided (Used) by
Operating Activities (274,336) (299,470)
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (113,047) --
Wil-Flow Settlement -- (2,735)
Brody Acquisition (195,069) --
-------- --------
Net Cash Provided (Used) by
Investing Activities (308,116) (2,735)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shareholder loans (52,500) 120,100
Common stock issued for cash 564,955 209,198
-------- --------
Net Cash Provided (Used) by
Financing Activities 512,455 329,298
NET INCREASE (DECREASE) IN CASH (69,997) 27,093
CASH AT THE BEGINNING OF PERIOD 109,390 80,111
-------- --------
CASH AT END OF PERIOD 39,393 107,204
-------- --------
</TABLE>
31
<PAGE> 32
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Aquadynamic Technologies, Inc.,its wholly owed subsidiaries Aquatek,
Inc. and Wil-Flow, Inc. and Sierra Technologies, Inc. All material
intercompany balances and transactions including investments in
subsidiaries have been eliminated.
2. Using Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable to operations over their estimated
service lives as defined below.
<TABLE>
<S> <C>
Transportation Equipment 3-5 years
Office Furniture and Fixtures 5-7 years
Machinery and Equipment 3-10 years
</TABLE>
The straight-line method of depreciation is used for substantially all
assets for financial reporting purposes.
4. Income Taxes
The Company and its wholly owned subsidiaries are organized as a
C-corporations. The Company does not file consolidated tax returns and
has not filed tax returns since 1996.
32
<PAGE> 33
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
There has been no provision for income taxes as current and previous
operations of the Company have resulted in taxable losses. There is no
determinable benefit of these net operating losses which can be carried
forward for 15 years because of the significant losses incurred by the
Companies.
5. Fair Value of Financial Instruments
The carrying amount of cash, accounts and notes receivable, lines of
credit, and other liabilities due in less than one year approximated
fair value as of December 31, 1999 and 1998 due to the relatively short
maturity of these instruments.
The carrying value of long-term liabilities approximated fair value as
of December 31, 1999 and 1998 based on the current rates offered to the
Company for similar debt of the same remaining maturities.
NOTE C - ACCOUNTS RECEIVABLE
All accounts Receivable are trade related. These receivables are current
and collection is fully expected. No reserve for uncollectable accounts
is deemed necessary.
NOTE D - PLANT PROPERTY AND EQUIPMENT
Plant, Property and Equipment consisted of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Computers and Office Equipment $ 62,191 $ 62,191
Transportation Equipment 13,191 65,273
-------- --------
75,382 127,464
Less accumulated depreciation (45,992) (42,832)
-------- --------
Balance $ 29,390 $ 84,632
</TABLE>
33
<PAGE> 34
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE D - PLANT PROPERTY AND EQUIPMENT, Continued
The increase in Plant, Property and Equipment between years is
attributed to purchase of equipment in conjunction with the Brody
acquisition. Depreciation expense was $7,580 and $3,160 for the six
months ended December 31, 1999 and 1998.
NOTE E - NOTES PAYABLE
Notes payable consisted of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Note payable to President of Wil-Flow, Inc.,
Interest accruing at 9.5% per annum,
unsecured, payable each in installments of
$90,000 payable each January 8th until year
2000. $ 0 $ 360,000
Note payable to First Union Bank for the
purchase of a vehicle 10,034 13,000
------- --------
Total $10,034 $ 373,000
Less long-term portion 0 (180,000)
Current Portion $10,034 $ 193,000
</TABLE>
A lawsuit was pending with the former President of Wil-flow, Inc. which
was resolved on March 8, 1999 and the note payments due the President
were forgiven. See Note I for more details.
34
<PAGE> 35
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE F - RELATED PARTY TRANSACTIONS
Certain of the Company's principals and family members of these
principals have loaned money to the Company at various times. The
consolidated long-term loans as of June 30, 1999 and 1998 from related
parties are $205,000 and $75,500 respectively. It is the intent of the
Company to convert these notes into common shares of stock and therefore
these loans do not bear any interest.
Fred Davies, a major shareholder of the Company, is also a major debtor
to the Company. As of June 30, 1999 and 1998 he is owed $168,221 and
$161,333 respectively for unpaid portion of his management contract and
also for loans to the Company.
Intercompany loans and transactions occur on a regular basis among the
parent and two wholly owned subsidiaries. No intercompany profits are
recorded.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations utilizing leased facilities and
equipment under noncancellable operating lease agreements expiring at
various dates through the year 2003. Future minimum lease commitments,
excluding property taxes and insurance, are approximately as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
2000 $24,096
2001 24,096
2002 21,030
2003 2,850
$72,072
</TABLE>
Rent expense for all leased facilities and equipment was approximately
$41,748 and $34,935 for the years ended June 30, 1999 and 1998,
respectively.
35
<PAGE> 36
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES, Continued
The Company has no pending lawsuits. Management is not aware of any
potential lawsuits that will have a material adverse effect on the
financial position of the Company.
NOTE H - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in more than one financial
institution. At times, the Company's balances exceed the amounts insured
by the Federal Deposit Insurance Corporation. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
The majority of the Sales in 1999 and 1998 are to one customer. At June
30, 1999 and 1998, the largest customer comprised approximately $40,567
and $3,083 of the Company's accounts receivable. Management believes
that customer acceptance, billing, and collection policies are adequate
to minimize potential risk on trade receivables.
NOTE I - RESOLUTION OF THE LAWSUIT WITH WIL-FLOW, INC.
In November 1995, the Company purchased all of the outstanding common
stock of Wil-Flow, Inc. for a total consideration of $575,000. The
purchase price exceeded the book value and fair market value of the
assets. As a result of the settlement of the lawsuit with the former
President of Wil-Flow, Inc. the excess consideration paid for Wil-Flow,
Inc was written-off the books. This amount was offset by the debt not
paid by the Company to the former President of Wil-Flow, Inc. The total
loss from the dissolution of Wil-Flow, Inc. is $118,380. This loss does
not include the operational losses which were incurred during the period
of ownership.
36
<PAGE> 37
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE J - JOINT VENTURE WITH ENERGY & MATERIAL RECOVERY, INC.
In September 1997 the Company entered into a joint venture agreement
with Energy & Material Recovery, Inc. (EMRI). The Company contributed
1,500,000 shares of common stock and EMRI contributed two operating
companies, Industrial Oil, Inc. and Fuel Processors, Inc. The purpose of
the joint venture was to develop proprietary processes to convert a wide
range of industrial waste streams into raw materials for new products
and uses. In October 1999 the Company dissolved its joint venture and
the 1,500,000 common shares were returned to the Company. The financial
statements reflect the expenses incurred for this joint venture.
NOTE K - ACQUISITION OF SIERRA TECHNOLOGIES, INC.
On June 1, 1999 the Company purchased Sierra Technologies, Inc whose
business includes purchasing, treatment and brokerage of chemical and
petroleum products throughout North America. The net purchase price was
$22,299 which represents the difference between the amount owed to
Sierra Technologies, Inc. vendors and the Accounts Receivable due from
its customers. The President of Sierra Technologies, Inc. entered into a
three year employment with the Company and will hold the title of Chief
Executive Officer of Recycling Centers of America, Inc.
NOTE L - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred significant losses which
have result in an accumulated deficit of $ 2,469,360 at June 30, 1999
which raises substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include
any adjustments relation 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. It is the intent
of management to create additional revenues through its technologies and
to rely upon additional equity financing if required to sustain
operations. The management of the Company has committed to covering the
operating expenses of the Company until adequate sales are generated.
37
<PAGE> 38
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE M - SUBSEQUENT EVENTS
In October 1999, the Company through a Private Placement Memorandum in
accordance with SEC Regulation 504 D, began to raise one million dollars
($1,000,000) in equity capital. The Company is offering common shares at
forty five cents ($.45)per share.
In December 1999, the Company completed a merger with Brody Special
Projects Company at a cost of $300,000. The Company acquired the
international marketing agreements with New Logic and Pall Filtron for
the marketing and sale of their respective technologies.
38
<PAGE> 39
MANAGEMENT DISCUSSION AND ANALYSIS
INTERIM FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1999 AND 1998
Overview
During the first six months of fiscal year 2000, in an effort to become
a leader in the development of market opportunities for the VSEPTM and PALLSEPTM
technologies RCAI continued the implementation of its business strategy to form
a group of companies that will offer the marketing of advanced liquid process
technologies. In December 1999 Brody Special Projects Company (Brody) was
purchased. Brody holds the marketing rights from Pall Filtration Corporation to
supply advanced filtration technology to be used to decontaminate liquid wastes.
Two key marketing personnel of Brody were hired by RCAI to forward key projects
in the diary industry.
RCAI has also begun to realize revenues from Sierra Technologies, Inc.(Sierra),
a Company purchased on June 1, 1999. Sierra began to generate revenues from the
treatment and brokerage of chemical and petroleum products during the first six
months of fiscal year 2000.
Statement of Operations
The Company has incurred net losses of $417,011 for six months ended
December 31, 1999 as compared to a net loss of $204,594 for the six months ended
December 31, 1998. These losses can be primarily attributed to significant costs
incurred in both years from the dissolution of Wil-Flow, Inc. in March 1999 and
the termination of the joint venture with EMRI in October 1999. Approximately
$350,000 of the loss in fiscal year 1999 can be attributed to the dissolution of
EMRI and $200,000 of the loss in fiscal year 1998 can be attributed to the
dissolution of Wil-Flow, Inc. There should be no further financial impact after
the dissolution of the aforementioned companies on the operations of the
Companies. Management has been restructured and has focused its efforts in
providing comprehensive services to the recycling industry. In addition,
expenses have exceeded revenues in the start-up phases of the operations of
Brody and Sierra.
The Company realized the majority of its revenues for the six months
ending December 31, 1999 and 1998 of $342,323 and $236,481, respectively, from
Aquatek, Inc., a wholly owned subsidiary which specializes in automated process
control systems for wastewater treatment applications. The Contract Revenue in
for the six months ending December 31, 1999 and 1998 has been primarily to Cass
Water Engineers. In 1999 approximately $122,000 of revenues were generated from
Sierra.
The Cost of Goods sold represents fifty eight percent (44%) of sales
for the six months ending December 31, 1999 as compared to sixty nine percent
(58%) as of
39
<PAGE> 40
\
December 31, 1998. The Costs of Goods are not consistent between years as a
result of the varying nature of the projects in any given year and the fact that
the gross margins from the brokerage of chemicals and petroleum products is less
than the revenues from Aquatek, Inc.
Operating expenses consist primarily of general and administrative
expenses. For the six months ended December 31, 1999 operating expenses totaled
$563,417 as compared to $337,349 for the six months ended December 31, 1998.
This substantial increase in operating expenses between years of $226,068 can be
primarily attributed to an increase in Wages of $157,963 and an increase in
Professional fees of $27,787. The increase in Wages was caused by management
fees due to promotional programs designed to attract capital investment towards
the Company in 1999, the acquisitions of key personnel from the acquisition of
Sierra and Brody and the hiring of management personnel because of joint venture
with EMRI. The increase in Professional Fees can be attributed to legal costs
associated with the termination of the joint venture with EMRI.
Interest expense and other finance charges decreased from $3,905 for the
six months ended December 31, 1998 to $1,508 for the six months ended December
31, 1999. The decrease between years can be attributed to the decrease in Notes
payable from $195,600 in 1998 to $152,500 in 1999. Certain Notes Payable were
converted to common stock of the Company in 1999.
Liquidity and Capital Resources
As of December 31, 1999 the Company had cash and cash equivalents of $39,393 as
compared to cash and cash equivalents of $107,204 as of December 31, 1998. At
December 31, 1999, the Company had a working capital deficiency (total current
liabilities in excess of total current assets) of $279,728 as compared to a
working capital deficit (total current liabilities in excess of total current
assets) of $251,072 as of December 31, 1998. The decrease in working capital in
1999 is due to the acquisition of Sierra and Brody which was offset by the
forgiveness of payment on the Note Payable to the President of Wil-Flow, Inc. of
$360,000 of which $160,000 was included in short-term liabilities.
The principal use of cash for the six months ended December 31, 1999 and 1998
was to fund the net loss from operations. The Company raised a total of $564,955
and $209,198 in the six months ended December 31, 1999 and 1998 respectively
from the issuance of common stock to fund the loss from operations. In addition,
the Company borrowed $120,100 from shareholders in the six months ended December
31, 1998: $75,000 note to Jones Gable was repaid in December 1999 and $45,000 to
Dona Stein has not been repaid and is bearing interest at 10 percent per annum.
The management of the Company has committed to covering the operating expenses
of the Company until adequate sales are generated. It is anticipated that the
Company will become profitable and begin to generate sufficient cash flow to
meet its monthly
40
<PAGE> 41
operating expenses, including lease commitments, of $75,000 by January 2001. In
October 1999. The Company through a Private Placement Memorandum in accordance
with SEC Regulation 504 D, began to raise one million dollars in equity capital.
In June 2000 the Company began soliciting $10.0 million in accordance with SEC
Regulation 506 D in the form of a convertible debenture to continue to cover the
$75,000 in operating expenses.
41
<PAGE> 42
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
RECYCLING CENTERS OF AMERICA, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
COLORADO 84-0703717
(State of Incorporation) (IRS Employer ID No.)
23832 ROCKFIELD BOULEVARD, SUITE 275
LAKE FOREST, CALIFORNIA 92630
(Address of Principal Executive Offices)
(949) 609-0590
(Registrant's Telephone Number)
SECURITIES OUTSTANDING AS OF MARCH 31, 2000
8,243,698 COMMON SHARES $.01 PAR VALUE
42
<PAGE> 43
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RECYCLING CENTERS OF AMERICA, INC.
Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31,
2000 1999
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents 8,992 12,944
Accounts receivable, net 192,473 403,873
Inventory 1,441 29,000
---------- ----------
Total Current Assets 202,906 445,817
Equipment, net 136,189 80,735
Loan to Officers/Shareholders 10,565 206,575
Other Assets 2,861 4,225
Brody Acquisition 239,468 --
TOTAL ASSETS 591,989 737,352
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 271,112 248,831
Contract payable 118,399 145,000
Note payable 127,726 191,039
Taxes payable 31,603 --
Total current liabilities 548,840 584,870
Long-term notes payable -- --
Loans from officers and shareholders 3,285 --
---------- ----------
TOTAL LIABILITIES 552,125 584,870
Common stock; 75,000,000 authorized of $.01 par value,
8,243,698 and 6,395,008 shares issued and outstanding
as of March 31, 2000 and 1999 respectively 3,195,485 2,473,957
Preferred stock 380 380
Retained earnings (2,469,360) (2,030,111)
Net income (686,641) (291,744)
---------- ----------
Total stockholders' equity 39,864 152,482
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 591,989 737,352
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
43
<PAGE> 44
RECYCLING CENTERS OF AMERICA, INC.
Statements of Operations
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Contract income 302,765 414,853
Cost of sales 232,774 221,696
---------- ----------
Gross Profit 69,991 193,157
OPERATING EXPENSES
Wages and payroll taxes 205,498 94,888
Office expenses 26,675 23,671
Bad debt expense -- 4,000
Professional fees 48,885 134,028
Stock transfer fees 2,652 3,864
Travel expenses 6,045 5,033
Marketing expenses 7,049 921
Depreciation expense 9,250 --
Insurance 12,321 4,231
Auto expense 17,675 3,497
Acquisition Fees -- --
Engineering expenses 84 --
Dues and subscriptions 437 4,019
---------- ----------
Total operating expenses 336,571 278,152
OTHER EXPENSE
Interest expense 1,428 1,229
Other expense 1,622 926
---------- ----------
Total other expense 3,050 2,155
Loss before loss on discontinued operations (269,630) (87,150)
Loss from discontinued operations -- --
NET LOSS (269,630) (87,150)
---------- ----------
LOSS PER SHARE (0.04) (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,970,284 5,481,118
</TABLE>
The accompanying notes are an integral part of these financial statements.
44
<PAGE> 45
RECYCLING CENTERS OF AMERICA, INC.
Statements of Operations
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31,
---------------------------
2000 1999
---------- ----------
<S> <C> <C>
REVENUES
Contract income 645,088 651,334
Cost of sales 424,511 319,416
---------- ----------
Gross Profit 220,577 331,918
OPERATING EXPENSES
Wages and payroll taxes 514,511 245,938
Office expenses 80,783 64,617
Bad debt expense -- 4,000
Professional fees 167,965 225,320
Stock transfer fees 6,089 8,550
Travel expenses 13,597 17,757
Marketing expenses 25,586 21,063
Depreciation expense 16,830 3,160
Insurance 21,625 13,653
Auto expense 33,073 6,220
Acquisition Fees 18,589 --
Engineering expenses 415 52
Dues and subscriptions 861 4,969
---------- ----------
Total operating expenses 899,924 615,299
OTHER EXPENSE
Interest expense 2,936 5,134
Other expense 4,358 3,229
---------- ----------
Total other expense 7,294 8,363
Loss before loss on discontinued operations (686,641) (291,744)
Loss from discontinued operations -- --
NET LOSS (686,641) (291,744)
---------- ----------
LOSS PER SHARE (0.10) (0.05)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,970,284 5,481,118
</TABLE>
The accompanying notes are an integral part of these financial statements.
45
<PAGE> 46
RECYCLING CENTERS OF AMERICA, INC.
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (269,630) (87,150)
Adjustments to reconcile net
income (loss) to net cash:
Depreciation 9,250 --
Loss on disposition of equipment --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables (131,819) (340,517)
(Increase) decrease in inventory (1,441) --
(Increase) decrease in shareholder loans (4,641) (136,843)
(Increase) decrease in other assets 2,091 --
Increase (decrease) in accounts payable and
other current liabilities 169,065 134,238
-------- --------
Net Cash Provided (Used) by
Operating Activities (227,125) (430,272)
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (6,248) (322)
Wil-Flow Settlement -- --
Brody Acquisition (36,798) --
-------- --------
Net Cash Provided (Used) by
Investing Activities (43,046) (322)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shareholder loans (149,215) (375,600)
Common stock issued for cash 388,985 711,934
-------- --------
Net Cash Provided (Used) by
Financing Activities 239,770 336,334
NET INCREASE (DECREASE) IN CASH (30,401) (94,260)
CASH AT THE BEGINNING OF PERIOD 39,393 107,204
-------- --------
CASH AT END OF PERIOD 8,992 12,944
-------- --------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
46
<PAGE> 47
RECYCLING CENTERS OF AMERICA, INC.
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended March 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (686,641) (291,744)
Adjustments to reconcile net
income (loss) to net cash:
Depreciation 16,830 3,160
Loss on disposition of equipment --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables (33,244) (343,367)
(Increase) decrease in inventory (1,441) --
(Increase) decrease in shareholder loans (10,565) (206,575)
(Increase) decrease in other assets 6,812 (2,934)
Increase (decrease) in accounts payable and
other current liabilities 206,788 115,293
-------- --------
Net Cash Provided (Used) by
Operating Activities (501,461) (726,167)
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (106,799) (3,897)
Wil-Flow Settlement -- --
Brody Acquisition (239,468) --
-------- --------
Net Cash Provided (Used) by
Investing Activities (346,267) (3,897)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shareholder loans (201,715) (255,500)
Common stock issued for cash 948,477 918,497
-------- --------
Net Cash Provided (Used) by
Financing Activities 746,762 662,997
NET INCREASE (DECREASE) IN CASH (100,966) (67,067)
CASH AT THE BEGINNING OF PERIOD 109,958 80,011
-------- --------
CASH AT END OF PERIOD 8,992 12,944
-------- --------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
47
<PAGE> 48
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE A - COMPANY BACKGROUND
Recycling Centers of America, Inc. (RCAI), is a Colorado corporation,
originally formed in 1976. RCAI as of June 30, 1998 was comprised of
three companies Aquadynamic Technologies, Inc. (ATI), and its
subsidiaries Aquatek, Inc. and Wil-Flow, Inc. Wil-flow, Inc., on March
8, 1999, became non operational and the patents on the technology were
returned to its former owner and president as a result of the resolution
of a lawsuit between the parties. On June 1, 1999 ATI acquired Sierra
Technologies, Inc.
ATI markets its products and services through its two distinct wholly
owned subsidiaries. Aquateck, Inc. was organized and incorporated in
1995 to engage in providing comprehensive contract engineering services
for automated process control systems. It's primary emphasis has been
focused toward offering its broad engineering expertise to the domestic
and foreign wastewater treatment industries. Wil-Flow, Inc. became a
subsidiary of ATI in January of 1996 and was a technology company
specializing in the design and fabrication of sludge dewatering
equipment for the municipal and industrial markets.
Sierra's main business is the purchasing, treatment and brokerage of
chemical and petroleum products throughout North America.
48
<PAGE> 49
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Aquadynamic Technologies, Inc., its wholly owed subsidiaries Aquatek,
Inc. and Wil-Flow, Inc. and Sierra Technologies, Inc. All material
intercompany balances and transactions including investments in
subsidiaries have been eliminated.
2. Using Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable to operations over their estimated
service lives as defined below.
<TABLE>
<S> <C>
Transportation Equipment 3-5 years
Office Furniture and Fixtures 5-7 years
Machinery and Equipment 3-10 years
</TABLE>
The straight-line method of depreciation is used for substantially all
assets for financial reporting purposes.
4. Income Taxes
The Company and its wholly owned subsidiaries are organized as a
C-corporations. The Company does not file consolidated tax returns and
has not filed tax returns since 1996.
49
<PAGE> 50
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
There has been no provision for income taxes as current and previous
operations of the Company have resulted in taxable losses. There is no
determinable benefit of these net operating losses which can be carried
forward for 15 years because of the significant losses incurred by the
Companies.
5. Fair Value of Financial Instruments
The carrying amount of cash, accounts and notes receivable, lines of
credit, and other liabilities due in less than one year approximated
fair value as of March 31, 2000 and 1999 due to the relatively short
maturity of these instruments.
The carrying value of long-term liabilities approximated fair value as
of March 31, 2000 and 1999 based on the current rates offered to the
Company for similar debt of the same remaining maturities.
NOTE C - ACCOUNTS RECEIVABLE
All accounts Receivable are trade related. These receivables are current
and collection is fully expected. No reserve for uncollectable accounts
is deemed necessary.
NOTE D - PLANT PROPERTY AND EQUIPMENT
Plant, Property and Equipment consisted of the following at March 31,
2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
COMPUTERS AND OFFICE EQUIPMENT $ 74,760 $ 108,299
Transportation Equipment 35,576 18,428
Test Equipment 75,932
--------- ---------
$ 186,268 126,727
Less accumulated depreciation (50,079) (45,992)
--------- ---------
Balance $ 136,189 $ 80,735
</TABLE>
50
<PAGE> 51
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE D - PLANT PROPERTY AND EQUIPMENT, Continued
The increase in Plant, Property and Equipment between years is
attributed to purchase of equipment in conjunction with the Brody
acquisition. Depreciation expense was $7,580 and $3,160 for the nine
months ended March 31, 2000 and 1999.
NOTE E - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Note payable to First Union Bank for the
purchase of a vehicle $14,726 $11,039
------- -------
Total $14,726 $11,039
Less long-term portion 0 0
Current Portion $14,726 $11,039
</TABLE>
51
<PAGE> 52
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE F - RELATED PARTY TRANSACTIONS
Certain of the Company's principals and family members of these
principals have loaned money to the Company at various times. The
consolidated long-term loans as of March 31, 2000 and 1999 from related
parties are $116,285 and $180,600 respectively. It is the intent of the
Company to convert these notes into common shares of stock and therefore
these loans do not bear any interest.
Fred Davies, a major shareholder of the Company, is also a major debtor
to the Company. As of March 31, 2000 and 1999 he is owed $118,399 and
$145,000 respectively for unpaid portion of his management contract and
also for loans to the Company.
Intercompany loans and transactions occur on a regular basis among the
parent and two wholly owned subsidiaries. No intercompany profits are
recorded.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations utilizing leased facilities and
equipment under noncancellable operating lease agreements expiring at
various dates through the year 2003. Future minimum lease commitments,
excluding property taxes and insurance, are approximately as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
2000 $24,096
2000 63,000
2001 24,096
2002 21,030
2003 2,850
$72,072
</TABLE>
Rent expense for all leased facilities and equipment was approximately
$47,819 and $26,796 for the nine months ended March 31, 2000 and 1999,
respectively.
52
<PAGE> 53
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE G - COMMITMENTS AND CONTINGENCIES, Continued
The Company has no pending lawsuits. Management is not aware of any
potential lawsuits that will have a material adverse effect on the
financial position of the Company.
NOTE H - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in more than one financial
institution. At times, the Company's balances exceed the amounts insured
by the Federal Deposit Insurance Corporation. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
The majority of the Sales in 1999 and 1998 are to one customer. At March
31, 2000 and 1999, the largest customer comprised approximately $107,834
and $350,430 of the Company's accounts receivable. Management believes
that customer acceptance, billing, and collection policies are adequate
to minimize potential risk on trade receivables.
53
<PAGE> 54
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE K - ACQUISITION OF SIERRA TECHNOLOGIES, INC.
On June 1, 1999 the Company purchased Sierra Technologies, Inc whose
business includes purchasing, treatment and brokerage of chemical and
petroleum products throughout North America. The net purchase price was
$22,299 which represents the difference between the amount owed to
Sierra Technologies, Inc. vendors and the Accounts Receivable due from
its customers. The President of Sierra Technologies, Inc. entered into a
three year employment with the Company and will hold the title of Chief
Executive Officer of Recycling Centers of America, Inc.
NOTE L - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred significant losses which
have result in an accumulated deficit of $3,156,001 at March 31, 2000
which raises substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include
any adjustments relating 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. It is the intent
of management to create additional revenues through its technologies and
to rely upon additional equity financing if required to sustain
operations. The management of the Company has committed to covering the
operating expenses of the Company until adequate sales are generated.
54
<PAGE> 55
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE M - SUBSEQUENT EVENTS
In October 1999, the Company through a Private Placement Memorandum in
accordance with SEC Regulation 504 D, began to raise one million dollars
($1,000,000) in equity capital. The Company is offering common shares at
forty five cents ($.45)per share.
In December 1999, the Company completed a merger with Brody Special
Projects Company at a cost of $300,000. The Company acquired the
international marketing agreements with New Logic and Pall Filtron for
the marketing and sale of their respective technologies.
55
<PAGE> 56
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT DISCUSSION AND ANALYSIS
INTERIM FINANCIAL STATEMENTS AS OF
MARCH 31, 2000 AND 1999
THREE MONTH STATEMENT OF OPERATIONS
The Company has incurred net losses of $269,630 for the three months ended March
31, 2000 as compared to a net loss of $87,150 for the three months ended March
31, 1999. These losses can be primarily attributed to significant costs incurred
in fiscal year 1999 from the dissolution of Wil-Flow, Inc. in March 1999. In
addition, expenses have exceeded revenues in the start-up phases of the
operations of Brody and Sierra. In addition, the Company is incurring
significant payroll costs in 2000 in the implementation of its business strategy
of becoming a leader in filtration system technologies.
The Company realized the majority of its revenues for the three months
ending March 31, 2000 and 1999 from Aquatek, Inc., a wholly owned subsidiary
which specializes in automated process control systems for wastewater treatment
applications. The Contract Revenue for the three months ending March 31, 2000
and 1999 has been primarily to Cass Water Engineers. In the three months ending
March 31, 2000 approximately $170,965 of revenues were generated from Sierra in
the sale of chemicals and petroleum based products.
The Cost of Goods sold represents twenty three percent (23%) of sales
for the three months ending March 31, 2000 as compared to forty seven percent
(47%) as of March 31, 1999. The Costs of Goods are not consistent between years
as a result of the varying nature of the projects in any given year and the fact
that the approximately fifty seven percent (57%) of the sales in fiscal year
2000 are from the brokerage of chemicals and petroleum products which have
significantly lower margins than those derived from Engineering Consulting
services provided by Aquatek, Inc. There were no sales of chemicals and
petroleum products in fiscal year 1999.
Operating expenses consist primarily of general and administrative
expenses. For the three months ended March 31, 2000 operating expenses totaled
$336,571 as compared to $278,152 for the three months ended March 31, 1999. This
substantial increase in operating expenses between years of $58,419 can be
primarily attributed to an increase in Wages of $110,610. This substantial
increase in Wages can be attributed to the acquisitions of key personnel from
the acquisition of Sierra and Brody and the hiring of management personnel
because of joint venture with EMRI. This increase is offset by a substantial
decrease in Professional Fees of $85,000. Legal fees decreased substantially in
fiscal year 2000 because the Company has not been engaged in any major
litigation or any dissolution matters.
56
<PAGE> 57
Other significant increases in operating expenses in fiscal year 2000 as
compared to fiscal year 1999, related to the increase in staffing discussed
above, are the increase of auto expenses of approximately $14,000 and the
increase in insurance of approximately $8,000.
There has been no significant increase in interest expense between the
three months ended March 31, 2000 and 1999.
NINE MONTH STATEMENT OF OPERATIONS
The Company has incurred net losses of $686,641 for the nine months
ended March 31, 2000 as compared to a net loss of $291,744 for the nine months
ended March 31, 1999. These losses can be primarily attributed to significant
costs incurred in both years from the dissolution of Wil-Flow, Inc. in March
1999 and the termination of the joint venture with EMRI in October 1999. In
addition, expenses have exceeded revenues in the start-up phases of the
operations of Brody and Sierra. In addition, the Company is incurring
significant payroll costs in 2000 in the implementation of its business strategy
of becoming a leader in filtration system technologies.
The Company realized the majority of its revenues for the nine months
ending March 31, 2000 and 1999 from Aquatek, Inc., a wholly owned subsidiary
which specializes in automated process control systems for wastewater treatment
applications. The Contract Revenue for the nine months ending March 31, 2000 and
1999 has been primarily to Cass Water Engineers. In 2000 approximately $293,225
of revenues were generated from Sierra in the sales of chemicals and petroleum
based products.
The Cost of Goods sold represents thirty four percent (34%) of sales for
the nine months ending March 31, 2000 as compared to fifty one percent (51%) as
of March 31, 1999. The Costs of Goods are not consistent between years as a
result of the varying nature of the projects in any given year and the fact that
the approximately forty five percent (45%) of the sales in fiscal year 2000 are
from the brokerage of chemicals and petroleum products which have significantly
lower margins than those derived from Engineering Consulting services provided
by Aquatek, Inc. There were no sales of chemicals and petroleum products in
fiscal year 1999.
Operating expenses consist primarily of general and administrative
expenses. For the nine months ended March 31, 2000 operating expenses totaled
$899,924 as compared to $615,299 for the nine months ended March 31, 1999. This
substantial increase in operating expenses between years of approximately
$284,000 can be primarily attributed to an increase in Wages of $268,573 and
other administrative expenses. This substantial increase in Wages can be
attributed to the acquisitions of key personnel from the acquisition of Sierra
and Brody and the hiring of management personnel because of joint venture with
EMRI. This increase is offset by a substantial decrease in Professional Fees
57
<PAGE> 58
of $57,000. Legal fees decreased substantially in fiscal year 2000 because the
Company has not been engaged in any major litigation or any dissolution matters.
Other significant increases in operating expenses in fiscal year 2000 as
compared to fiscal year 1999, related to the increase in staffing discussed
above, are the increase of office expenses of approximately $16,000, the
increase in insurance of approximately $8,000 and the one time cost relating to
the acquisition of Sierra of $18,589.
There has been no significant increase in interest expense between the
nine months ended March 31, 2000 and 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000 the Company had cash and cash equivalents of $8,992 as
compared to cash and cash equivalents of $12,944 as of March 31, 1999. At March
31, 2000, the Company had a working capital deficiency (total current
liabilities in excess of total current assets) of $345,934 as compared to a
working capital deficit (total current liabilities in excess of total current
assets) of $139,053 as of March 31, 1999. The significant decrease in working
capital in 2000 is due to the acquisition of Sierra and Brody and the continued
losses from operations.
The principal use of cash for the three months ended March 31, 2000 and 1999 was
to fund the net loss from operations. The Company raised a total of $965,307 and
$913,763 in the nine months ended March 31, 2000 and 1999 respectively from the
issuance of common stock to fund the loss from operations.
The management of the Company has committed to covering the operating expenses
of the Company until adequate sales are generated. In October 1999. The Company
through a Private Placement Memorandum in accordance with SEC Regulation 504 D,
began to raise one million dollars in equity capital.
58
<PAGE> 59
PART II --- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Nothing to Report.
ITEM 2. CHANGES IN SECURITIES.
Nothing to Report
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Nothing to Report
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Nothing to Report
ITEM 5. OTHER INFORMATION.
Nothing to Report
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed during the quarter.
59
<PAGE> 60
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RECYCLING CENTERS OF AMERICA, INC.
Date
--------------------------------- ---------------------------------
Michael Davies, CFO
Date
--------------------------------- ---------------------------------
Bruce Selk, President
60
<PAGE> 61
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report ............................... 2
Balance Sheets ............................................. 3
Statement of Operations .................................... 4
Statements of Stockholders' Equity (Deficit) ............... 5
Statements of Cash Flows ................................... 6
Notes to the Financial Statements .......................... 7
</TABLE>
61
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Recycling Centers of America, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Recycling Centers of America,
Inc. and Subsidiaries as of June 30, 1999 and 1998 and the related statements of
operations, stockholder's equity (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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial 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 Recycling Centers of America,
Inc. and Subsidiaries as of June 30, 1999 and 1998 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 L to the
financial statements, the Company has no equity and has no significant operating
results to date that together raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note L. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Stuart Rubin, CPA
May 23, 2000
62
<PAGE> 63
RECYCLING CENTERS OF AMERICA, INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents 109,958 80,111
Accounts receivable, net 159,229 60,506
Inventory -- 29,000
---------- ----------
Total Current Assets 269,187 169,617
Equipment, net 29,390 84,632
Other Assets 9,673 1,291
TOTAL ASSETS 308,250 255,540
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 162,449 97,398
Contract payable 168,221 161,331
Note payable 10,034 193,000
Taxes payable 1,348 748
Accrued interest -- 17,100
---------- ----------
Total current liabilities 342,052 469,577
Long-term notes payable -- 180,000
Loans from officers and shareholders 205,000 75,500
---------- ----------
TOTAL LIABILITIES 547,052 725,077
Common stock; 75,000,000 authorized of $.01 par value,
5,066,677 and 3,460,120 shares issued and
outstanding
as of June 30, 1999 and 1998 respectively 2,230,178 1,560,194
Preferred stock 380 380
Retained earnings (1,672,444) (1,563,323)
Net income (796,916) (466,788)
---------- ----------
Total stockholders' equity (238,802) (469,537)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 308,250 255,540
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
63
<PAGE> 64
RECYCLING CENTERS OF AMERICA, INC.
Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended June 30,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Contract income 685,360 605,680
Cost of sales 396,832 416,740
---------- ----------
Gross Profit 288,528 188,940
OPERATING EXPENSES
Wages and payroll taxes 675,864 289,935
Office expenses 95,123 76,130
Bad debt expense 4,000 74,951
Professional fees 90,801 48,914
Stock transfer fees 12,785 47,630
Travel expenses 11,909 34,073
Marketing expenses 11,218 27,590
Depreciation expense 3,160 14,452
Insurance 18,997 11,500
Auto expense 13,599 10,781
Royalties -- 5,296
Engineering expenses 52 2,962
Dues and subscriptions 7,734 2,345
---------- ----------
Total operating expenses 945,242 646,559
OTHER EXPENSE
Interest expense 17,438 4,403
Dissolution of Wil-Flow, Note I 122,764 4,766
---------- ----------
Total other expense 140,202 9,169
NET LOSS (796,916) (466,788)
---------- ----------
LOSS PER SHARE (0.19) (0.14)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,263,399 3,281,320
</TABLE>
The accompanying notes are an integral part of these financial statements
64
<PAGE> 65
RECYCLING CENTERS OF AMERICA, INC.
Statements of Cash Flow
<TABLE>
<CAPTION>
For the Years Ended June 30,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) (796,916) (466,788)
Adjustments to reconcile net
income (loss) to net cash:
Depreciation 3,160 14,452
Loss on disposition of equipment (55,242) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables (98,723) 99,359
(Increase) decrease in inventory 29,000 (29,000)
(Increase) decrease in other assets 8,382 25,025
Increase (decrease) in accounts payable and
other current liabilities 55,441 190,611
-------- --------
Net Cash Provided (Used) by
Operating Activities (854,898) (166,341)
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets 5,070
Wil-Flow Settlement 85,261 (141,017)
-------- --------
Net Cash Provided (Used) by
Investing Activities 85,261 (135,947)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shareholder loans 129,500 107,940
Common stock issued for cash 669,984 275,992
-------- --------
Net Cash Provided (Used) by
Financing Activities 799,484 383,932
NET INCREASE (DECREASE) IN CASH 29,847 76,574
CASH AT THE BEGINNING OF PERIOD 80,111 3,537
-------- --------
CASH AT END OF PERIOD 109,958 80,111
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements
65
<PAGE> 66
RECYCLING CENTERS OF AMERICA, INC.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Total
------------------------ ------------------------ Accumulated Stockholders
Shares Amount Shares Amount Deficit Deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 3,104,000 1,284,202 52,902 380 (976,038) 308,544
---------- ---------- ---------- ---------- ---------- ----------
Write-off of Wil-Flow Patent -- -- -- -- (105,690) (105,690)
Write-off of Wil-Flow Goodwill -- -- -- -- (434,203) (434,203)
Merger with Vac-Tek -- -- -- -- (47,392) (47,392)
Issuance of Common Stock 356,120 275,992 -- -- -- 275,992
Net loss for the year ended
June 30, 1998 -- -- -- -- (466,788) (466,788)
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1998 3,460,120 1,560,194 52,902 380 (2,030,111) (469,537)
Issuance of Common Stock 1,606,557 669,984 -- -- -- 669,984
Foregiveness of Wil-flow Note Payable 357,667 357,667
Net loss for the year ended
June 30, 1999 -- -- -- -- (796,916) (796,916)
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 5,066,677 2,230,178 52,902 380 (2,469,360) (238,802)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
66
<PAGE> 67
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE A - COMPANY BACKGROUND
Recycling Centers of America, Inc. (RCAI), is a Colorado corporation,
originally formed in 1976. RCAI as of June 30, 1998 was comprised of
three companies Aquadynamic Technologies, Inc. (ATI), and its
subsidiaries Aquatek, Inc. and Wil-Flow, Inc. Wil-flow, Inc., on March
8, 1999, became non operational and the patents on the technology were
returned to its former owner and president as a result of the resolution
of a lawsuit between the parties. On June 1, 1999 ATI acquired Sierra
Technologies, Inc.
ATI markets its products and services through its two distinct wholly
owned subsidiaries. Aquateck, Inc. was organized and incorporated in
1995 to engage in providing comprehensive contract engineering services
for automated process control systems. It's primary emphasis has been
focused toward offering its broad engineering expertise to the domestic
and foreign wastewater treatment industries. Wil-Flow, Inc. became a
subsidiary of ATI in January of 1996 and was a technology company
specializing in the design and fabrication of sludge dewatering
equipment for the municipal and industrial markets.
Sierra's main business is the purchasing, treatment and brokerage of
chemical and petroleum products throughout North America.
67
<PAGE> 68
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
Aquadynamic Technologies, Inc.,its wholly owed subsidiaries Aquatek,
Inc. and Wil-Flow, Inc. and Sierra Technologies, Inc. All material
intercompany balances and transactions including investments in
subsidiaries have been eliminated. The revenues in fiscal year 1999 and
1999 were generated from the consulting services of Aquatek. These
revenues were recorded when the consulting services were provided.
2. Using Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. Depreciation and Amortization
Depreciation and amortization are provided in amounts sufficient to
relate the cost of depreciable to operations over their estimated
service lives as defined below.
<TABLE>
<S> <C>
Transportation Equipment 3-5 years
Office Furniture and Fixtures 5-7 years
Machinery and Equipment 3-10 years
</TABLE>
The straight-line method of depreciation is used for substantially all
assets for financial reporting purposes.
4. Income Taxes
The Company and its wholly owned subsidiaries are organized as
C-corporations.
68
<PAGE> 69
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The Company does not file consolidated tax returns and the subsidiary
Companies have not filed tax returns since 1996. The Company accounts
for income taxes under Statement of Financial Accounting Standards No.
109 (SFAS 109). SFAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in
the Company's financial statements of tax returns. In estimating future
tax consequences SFAS 109 generally considers all expected future events
other than enactments of changes in tax law or rates.
There has been no provision for income taxes as current and previous
operations of the Company have resulted in taxable losses. There is no
determinable benefit of these net operating losses which can be carried
forward for 15 years because of the significant losses incurred by the
Companies.
5. Fair Value of Financial Instruments
The carrying amount of cash, accounts and notes receivable, lines of
credit, and other liabilities due in less than one year approximated
fair value as of June 30, 1999 and 1998 due to the relatively short
maturity of these instruments.
The carrying value of long-term liabilities approximated fair value as
of June 30, 1999 and 1998 based on the current rates offered to the
Company for similar debt of the same remaining maturities.
6. Segment Reporting
The Company's wholly owned domestic subsidiary, Aquatek, Inc., which
provides consulting services to Cass Industries, has generated all the
revenue for fiscal years 1999 and 1998. These consulting services
generated a profit of $43,096 in 1999 and a loss of $35,536 in 1998.
7. Recent Accounting Pronouncements
The Recent Accounting Pronouncements including SFAS 133 do not have any
applicability to the Company's current and future operations.
69
<PAGE> 70
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE C - ACCOUNTS RECEIVABLE
All accounts Receivable are trade related. These receivables are current
and collection is fully expected. No reserve for uncollectable accounts
is deemed necessary.
NOTE D - PLANT PROPERTY AND EQUIPMENT
Plant, Property and Equipment consisted of the following at June 30,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computers and Office Equipment $ 62,191 $ 62,191
Transportation Equipment 13,191 65,273
--------- ---------
75,382 127,464
Less accumulated depreciation (45,992) (42,832)
--------- ---------
Balance $ 29,390 $ 84,632
</TABLE>
The reduction in Plant, Property and Equipment between years is
attributed to the dissolution of Wil-Flow, Inc. in March 1999.
Depreciation expense was $14,452 and $3,160 for the years ended June 30,
1999 and 1998.
70
<PAGE> 71
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE E - NOTES PAYABLE
Notes payable consisted of the following at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Note payable to President of Wil-Flow, Inc.,
Interest accruing at 9.5 % per annum,
unsecured, payable each in installments of
$90,000 payable each January 8th until year
2000 $ 0 $ 360,000
Note payable to First Union Bank for the
purchase of a vehicle 10,034 13,000
--------- ---------
Total $ 10,034 $ 373,000
Less long-term portion 0 (180,000)
Current Portion $ 10,034 $ 193,000
</TABLE>
A lawsuit was pending with the former President of Wil-flow, Inc. which
was resolved on March 8, 1999 and the note payments due the President
were forgiven. See Note I for more details.
NOTE F - RELATED PARTY TRANSACTIONS
Certain of the Company's principals and family members of these
principals have loaned money to the Company at various times. The
consolidated long-term loans as of June 30, 1999 and 1998 from related
parties are $205,000 and $75,500 respectively. It is the intent of the
Company to convert these notes into common shares of stock and therefore
these loans do not bear any interest.
Fred Davies, a major shareholder of the Company, is also a major debtor
to the Company. As of June 30, 1999 and 1998 he is owed $168,221 and
$161,333
71
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Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE F - RELATED PARTY TRANSACTIONS - Continued
respectively for unpaid portion of his management contract and also for
loans to the Company.
Intercompany loans and transactions occur on a regular basis among the
parent and two wholly owned subsidiaries. No intercompany profits are
recorded.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts its operations utilizing leased facilities and
equipment under noncancellable operating lease agreements expiring at
various dates through the year 2003. Future minimum lease commitments,
excluding property taxes and insurance, are approximately as follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
2000 $24,096
2000 63,000
2001 24,096
2002 21,030
2003 2,850
$72,072
</TABLE>
Rent expense for all leased facilities and equipment was approximately
$41,748 and $34,935 for the years ended June 30, 1999 and 1998,
respectively.
The Company has no pending lawsuits. Management is not aware of any
potential lawsuits that will have a material adverse effect on the
financial position of the Company.
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Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE H - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in more than one financial
institution. At times, the Company's balances exceed the amounts insured
by the Federal Deposit Insurance Corporation. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash and cash equivalents.
The majority of the Sales in 1999 and 1998 are to one customer. At June
30, 1999 and 1998, the largest customer comprised approximately $40,567
and $3,083 of the Company's accounts receivable. Management believes
that customer acceptance, billing, and collection policies are adequate
to minimize potential risk on trade receivables.
NOTE I - RESOLUTION OF THE LAWSUIT WITH WIL-FLOW, INC.
In November 1995, the Company purchased all of the outstanding common
stock of Wil-Flow, Inc. for a total consideration of $575,000. The
purchase price exceeded the book value and fair market value of the
assets. As a result of the settlement of the lawsuit with the former
President of Wil-Flow, Inc. the excess consideration paid for Wil-Flow,
Inc was written-off the books. This amount was offset by the debt not
paid by the Company to the former President of Wil-Flow, Inc. The total
loss from the dissolution of Wil-Flow, Inc. is $118,380. This loss does
not include the operational losses which were incurred during the period
of ownership.
NOTE J - JOINT VENTURE WITH ENERGY & MATERIAL RECOVERY, INC.
In September 1997 the Company entered into a joint venture agreement
with Energy & Material Recovery, Inc. (EMRI). The Company contributed
1,500,000 shares of common stock and EMRI contributed two operating
companies, Industrial Oil, Inc. and Fuel Processors, Inc. The purpose of
the joint venture was to develop proprietary processes to convert a wide
range of industrial waste streams into raw materials for new products
and uses. In October 1999 the Company dissolved its joint venture and
the 1,500,000 common shares were returned to the Company and placed in
treasury. The financial statements reflect the expenses incurred for
this joint venture.
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Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE K - ACQUISITION OF SIERRA TECHNOLOGIES, INC.
On June 1, 1999 the Company purchased Sierra Technologies, Inc whose
business includes purchasing, treatment and brokerage of chemical and
petroleum products throughout North America. The net purchase price was
$22,299 which represents the difference between the amount owed to
Sierra Technologies, Inc. vendors and the Accounts Receivable due from
its customers. The President of Sierra Technologies, Inc. entered into a
three year employment with the Company and will hold the title of Chief
Executive Officer of Recycling Centers of America, Inc.
NOTE L - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. The Company has incurred significant losses which
have result in an accumulated deficit of $ 2,469,360 at June 30, 1999
which raises substantial doubt about the Company's ability to continue
as a going concern. The accompanying financial statements do not include
any adjustments relation 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. It is the intent
of management to create additional revenues through its technologies and
to rely upon additional equity financing if required to sustain
operations. The management of the Company has committed to covering the
operating expenses of the Company until adequate sales are generated.
NOTE M - SUBSEQUENT EVENTS
In October 1999, the Company through a Private Placement Memorandum in
accordance with SEC Regulation 504 D, began to raise one million dollars
($1,000,000) in equity capital. The Company is offering common shares at
forty five cents ($.45)per share.
In December 1999, the Company completed a merger with Brody Special
Projects Company at a cost of $300,000. The Company acquired the
international marketing
74
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Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE M - SUBSEQUENT EVENTS
agreements with New Logic and Pall Filtron for the marketing and sale of
their respective technologies.
75
<PAGE> 76
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<S> <C>
3 (i) *Articles of Incorporation of Recycling Centers of America, Inc.
3 (ii) *Bylaws of Recycling Centers of America, Inc.
10. Material Contracts
(a) *Employment Contract with Bruce Selk
(b) *Employment Contract with Michael Davies
(c) *Employment Contract with Gordon Davies
(d) *OEM (License) Contract with Pall Filtron, Inc.
(e) *Transfer Agreement covering assets of Brody Special Projects Company
11. *Statement Re: Computation of Per Share Earnings
12. *Subsidiaries of Registrant
(a) Aquadynamic Technologies, Inc., a Minnesota corporation
(b) Aquatek, Inc., a Delaware corporation
</TABLE>
*Incorporated by reference to Registrant's Form 10-SB/A-2 filed on April 14,
2000.
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<PAGE> 77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
RECYCLING CENTERS OF AMERICA, INC.
/s/ Michael Davies
----------------------------------------
Michael Davies
Date: August 4, 2000 Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board,
Director, and
/s/ Bruce Selk Chief Executive Officer August 4, 2000
-------------------------
Bruce Selk
/s/ Michael Davies Chief Financial Officer August 4, 2000
------------------------- and a Director
Michael Davies
/s/ Gordon Davies Secretary and a Director August 4, 2000
-------------------------
Gordon Davies
</TABLE>
77
