<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
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)
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 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 municipal and industrial waste stream
processing and recycling equipment.
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 two wholly-owned subsidiaries, Aquatek,
Inc. ("AQT") and Wil-Flow, Inc. ("WFI"). WFI on March 8, 1999, was dissolved and
returned to its former owner and president as a result of the resolution of a
lawsuit between the parties.
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. This joint venture was dissolved in October of 1999, and the Company
no longer has activities in this industry.
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. The
businesses conducted by these two predecessor companies now constitute the bulk
of Registrant's current business.
II. BUSINESS
The Company's primary business is the marketing and sales, construction
and servicing of municipal and industrial 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.
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The Company also markets and sells VSEP(TM) Fibrating 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 also operates 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. As
a part of this business, the company is under contract with Tosco, to provide
one rail car per week of residual oil waste products from steel mills to Tosco.
(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, crosflow 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
The system can be used for a wide variety of streams and
applications, including removal of BOD ("Biochemical Oxygen Demand" - A
test that indicates the organic strength of wastewaters. The test
procedure measures the amount of free dissolved oxygen that aerobic
bacteria consume in a standard test time of 5 days incubated at 20
degrees C); COD ("Chemical Oxygen Demand" - A test for the organic
strength of a wastewater that uses strong chemical oxidants to break
down organics in the wastewater. Bacteria are not used; TDS ("Total
Dissolved Solids" - A test to measure the amount of dissolved solids in
a liquid through weight; TSS color ("Total Suspended Solids" - A test
whereby a sample is filtered through a fine filter medium (0.45 micron).
The weight of sample collected on the filter is the TSS, usually
measured in mgt); FOG ("fats oils and greases" - metals, deionization
and
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the dewatering of dyes, pigments, clays, catalysts, silicas, latexes and
many more). The Company does not currently have a license or OEM
Contract with New Logic but continues to sell their equipment under an
informal working arrangement with New Logic.
(ii) Pal-SEP Filtration. The Pall-SEP 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 Pal-SEP
Filtration in the Western Hemisphere to specified markets as part of
integrated systems.
(iii) Engineering Services to Wastewater 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.
(iv) Brokerage of Chemicals. Through the fictitious name, Sierra
Technology, the Company is in the business of buying and selling
industrial chemicals. 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.
(b) Marketing and Sales
The Company's marketing program includes the development of
compliance data, sales materials, plant tours and daily phone leads. 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 technology in June
1999. RCAI has sold one unit to Dairy Farmers of America (DFA). The
application of this unit is in treatment of wastewater to a milk
biochemical condensing plant. This wastewater stream was a high BOD
(biologic 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
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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 major
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) and has agreements to start
testing facilities operated by Wright Corp (chemicals/water) and
Dynachem Technologies, Inc. (antifreeze/water).
(c) Competition
The Company's two primary competitors are the two manufacturers
of the two systems, Pal Filter Corp. and New Logic, 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.
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(e) Dependence on One or 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.
(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 vales 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.
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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 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
products under an informal understanding with New Logic that is not
embodied in a written contract.
(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..
(h) After Market Sales Responsibility
Pall and New Logic both provide the customer with a performance
guarantee. The performance guarantee is created by gathering data on
each customer's specific stream through the testing protocol.
(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.
(j) Compliance with Environmental Laws
RCAI, including all of its wholly-owned subsidiaries, is not
responsible for systems (PALLSEP/VSEP) 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.
(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 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.
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.
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 Company realized the majority of its revenues in fiscal years ending
June 30, 1999 and 1998 from the consulting services of Aquatek, Inc., a
wholly-owned subsidiary which specializes in automated process control systems
for wastewater treatment applications. The Contract Revenue in fiscal years
ending June 30, 1999 has been primarily 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.
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
promotional programs designed to attract capital investment toward 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. 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 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 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 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.
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.
The management of the Company has committed to covering the operating
expenses of the Company until adequate sales are generated, through additional
private placement of shares to a limited number of Accredited Investors. There
is no assurance that management will be successful in this effort.
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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>
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 18.31
Common Stock Canvasback Company, 450,000 7.04
Ltd.
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 390,000 Vested Options and 780,000 Unvested Options held by Bruce
Selk, pursuant to the terms of his Employment Contract.
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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 President, Secretary and a Dec. 1997
Director
</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.
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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. These companies
are international suppliers of computer-automated process and motor control
systems for water and wastewater treatment systems worldwide.
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 Chief Financial
Officer, Vice President and a Director of RCAI. Mr. Davies is the brother of
Gordon Davies.
MR. GORDON W. DAVIES
From 1991 to 1993 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 1993 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 President,
Secretary and a Director for RCAI. Gordon Davies is the brother of Michael
Davies.
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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 $100,000.
<TABLE>
<CAPTION>
Summary Compensation
--------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Secur-
Name Annual Restricted ities All Other
and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) $ ($) SARs (#) ($) ($)
- -------- ---- --- --- --- --- -------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
O. Bruce
Selk,
CEO 1999 $72,916 0 0 0 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:
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<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
$5.00 130,000
</TABLE>
At February 1, 2000, 260,000 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 January 1, 2002.
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 December
31, 2001.
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.
15
<PAGE> 16
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 December
31, 2001.
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 two years 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 two years after the vesting date.
16
<PAGE> 17
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.
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 instalments
of $50,000 each, payable on March 30, 2000, June 30, 2000 and
September 30, 2000.
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.
17
<PAGE> 18
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. 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 and
Directors
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.
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.
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.
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.
18
<PAGE> 19
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.
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").
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.
19
<PAGE> 20
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of Recycling Centers of America, Inc.,
consists of 10,000,000 shares of common stock, no 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
does not purport to be complete and 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.
20
<PAGE> 21
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.
21
<PAGE> 22
ITEM 3. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS.
None.
22
<PAGE> 23
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
All Common Stock ("com.")
<TABLE>
<CAPTION>
Sales of Shares
For Cash
Date or Period Shares Class to Offering Total Capital Total Exemption
of Offering Title 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>
Shares issued for services:
<TABLE>
<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)
</TABLE>
Below are shares issued for loans
<TABLE>
<S> <C> <C>
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 33,333 shares in lieu of interest on loan of
$66,666, Section 4(2) exemption
18-June-00 Gail Hewgill 33,333 shares in lieu of interest 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.
</TABLE>
- --------------------------------------------------------------------------------
Below are shares issued in lieu of settlements
<TABLE>
<S> <C> <C>
25-Feb-00 William Briggs 30,000 shares for dissolution of EMRI
</TABLE>
23
<PAGE> 24
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.
24
<PAGE> 25
PART F/S
FINANCIAL STATEMENTS
25
<PAGE> 26
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ............................................... F-2
Balance Sheets ............................................................. F-3
Statement of Operations .................................................... F-4
Statements of Stockholders' Equity (Deficit) ............................... F-5
Statements of Cash Flows ................................................... F-6
Notes to the Financial Statements .......................................... F-7
</TABLE>
F-1
<PAGE> 27
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
March 1, 2000
F-2
<PAGE> 28
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 LIABILITES 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
F-3
<PAGE> 29
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
Other expense 4,384 4,766
---------- ----------
Total other expense 21,822 9,169
Loss before loss on discontinued operations (678,536) (466,788)
Loss from discontinued operations (118,380) -
NET LOSS (796,916) (466,788)
---------- ----------
LOSS PER SHARE (0.19) (0.14)
WEIGHTED AVERAGE NUMBER OF SHARES 4,263,399 3,281,320
OUTSTANDING
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 30
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
F-5
<PAGE> 31
RECYCLING CENTERS OF AMERICA, INC.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Total
-------------------------- ------------------------ Accumulate Stockholder
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 these financial statements
F-6
<PAGE> 32
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.
F-7
<PAGE> 33
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.
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.
Transportation Equipment 3-5 years
Office Furniture and Fixtures 5-7 years
Machinery and Equipment 3-10 years
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.
F-8
<PAGE> 34
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 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.
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>
F-9
<PAGE> 35
Recycling Centers of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
NOTE D - PLANT PROPERTY AND EQUIPMENT, Continued
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.
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.
F-10
<PAGE> 36
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
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.
F-11
<PAGE> 37
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.
F-12
<PAGE> 38
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.
F-13
<PAGE> 39
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.
F-14
<PAGE> 40
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: April 12, 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 April 12, 2000
- ----------------------------
Bruce Selk
Chief Financial Officer
/s/ Michael Davies and a Director April 12, 2000
- -----------------------------
Michael Davies
/s/ Gordon Davies President, Secretary and a April 12, 2000
- ----------------------------- Director
Gordon Davies
</TABLE>
<PAGE> 41
PART III
ITEM 1. INDEX TO EXHIBITS
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
* Incorporated by reference to Registrant's Form 10-SB filed on March 8, 2000.
