U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-28704
CREATIVE RECYCLING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
GEORGIA 84-1122431
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3500 PARKWAY LANE, SUITE 435, NORCROSS, GEORGIA 30092
(Address of principal executive offices)
(770)729-9010
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ____ No
_X___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date:
733,280 SHARES OF CLASS A COMMON STOCK, NO PAR VALUE
10,000 SHARES OF CLASS B COMMON STOCK, NO PAR VALUE
AS OF MAY 12, 1998
Transitional Small Business Disclosure Format (check one):
Yes __ No _X_
<PAGE>
CREATIVE RECYCLING TECHNOLOGIES, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet dated September 30, 1997 3
Consolidated Statement of Operations 4
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION 8
2
<PAGE>
PART I. - FINANCIAL INFORMATION
CREATIVE RECYCLING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,563 $ 36,656
Inventory 14,751 14,039
Prepaid expenses (624) -
Due from officers and
stockholders 183,625 91,444
Other receivables 8,118 6,655
---------- ----------
Total current assets 233,433 148,794
Property and equipment-net of accumulated
Depreciation 315,726 348,801
Other assets:
Intangibles net of accumulated amortization
Of $7,167 and $10,707 20,965 21,501
Deposits 39,119 39,119
----------- ----------
$ 609,243 $ 558,215
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 239,479 $ 184,394
Accrued expenses 164,135 119,169
Notes payable 333,614 333,614
Advance banquet deposits 39,326 26,973
Deferred revenue 11,865 13,833
Deferred rent 23,640 26,640
----------- ----------
Total current liabilities 812,059 701,623
----------- ----------
Commitments and contingencies
Stockholders' equity (deficiency):
Common stock, Class A no par value,
1,800,000,000 shares authorized 3,018,592 and
4,384,116 shares issued and outstanding 4,045,124 3,814,880
Common stock, Class B no par value, 200,000,000
Shares authorized, 200,000 shares issued
And outstanding 200 200
Preferred stock, Series A, convertible, stated
value $25,000, 20 shares authorized, 14 shares
issued and outstanding 350,000 350,000
Preferred stock, Series B convertible, stated
value $15, 12,000 shares authorized,
2,918 issued and outstanding 43,770 43,770
Preferred stock, Series C, convertible,
stated value $50,000, 12 shares authorized,
no shares issued or outstanding - -
Accumulated deficit (4,641,910) 4,352,258)
----------- ----------
Total stockholders' equity (deficiency) (202,816) (143,408)
----------- ----------
$ 609,243 $ 558,215
=========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CREATIVE RECYCLING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended September 30,
1997 1996
------ ------
<C> <S> <S>
Net sales $ 317,718 $ 411,874
--------- -----------
Operating expenses:
Operating and maintenance 376,665 373,965
General and administrative 182,771 250,632
Depreciation and amortization 35,920 35,891
----------- -----------
Total operating expenses 595,356 660,488
----------- -----------
Loss from operations (277,638) (248,614)
----------- -----------
Other income (expense):
Other income 448 7,209
Interest expense (11,735) (6,229)
----------- -----------
(11,287) 983
----------- -----------
Net (loss) $(288,925) $(247,631)
=========== ===========
Per share information:
Weighted average shares
Outstanding 5,467,449 3,021,925
=========== ===========
Basic and diluted loss per share $ (0.05) $ (0.08)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CREATIVE RECYCLING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<C> <S> <S>
Cash flows from operating activities:
Net loss $ (288,925) $ (247,631)
Adjustments to reconcile net loss
To net cash provided by (used in)
Operating activities:
Depreciation and amortization 35,920 35,891
Changes in assets and liabilities:
(Increase) decrease in inventory (712) (1,547)
(Increase) decrease in prepaid expenses 624 (313)
(Increase) decrease in other receivables (1,463) 2,489
(Increase) decrease in accounts
payable and accrued expenses 99,324 29,299
Increase (decrease) in advance
banquet deposits 12,353 13,206
Increase (decrease) in deferred revenue (1,968) 674
----------- -----------
Total adjustments 144,078 79,699
----------- -----------
Net cash (used in) operating
activities (144,847) (167,932)
----------- -----------
Cash flows from investing activities:
Purchase of intangible assets - -
Purchase of fixed assets (2,309) (4,859)
----------- -----------
Net cash (used in) investing
activities (2,309) (4,859)
Cash flows from financing activities:
Net proceeds from issuance of
common stock 230,244 20,000
Payments of deposits - (1,521)
Proceeds from due to officers and
and stockholders - 152,001
Advances to due from officers and
stockholders (92,181) (4,300)
---------- ----------
Net cash provided by financing
Activities 138,063 166,180
---------- ----------
Net increase in cash and cash
equivalents (9,093) (6,611)
Beginning-cash and cash equivalents 36,656 22,759
Ending-cash and cash equivalents $ 27,563 $ 16,148
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CREATIVE RECYCLING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
inaccordance with generally accepted accounting principles for interim
financial information and Item 310(b) of Regulation SB. They do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. For further information, refer to
the financial statements of the Company as of June 30, 1997, and the notes
thereto, included in the Company's Form 10-KSB.
2. REINCORPORATION
At a special meeting of the shareholders of the Company held on April 13,
1998, the shareholders voted to a approve a merger of the Company with and
into Creative Recycling Technologies, Inc. ("CRT"), a wholly owned subsidiary
of the Company incorporated under the laws of the State of Georgia, for the
purpose of changing the Company's state of incorporation from Colorado to
Georgia. The merger became effective on April 14, 1998. As of the effective
date of the merger, the Company ceased to exist as a separate legal entity,
and CRT assumed, and became the owner of, all of the liabilities and assets of
the Company by operation of law. Under the Agreement and Plan of Merger,
common and preferred shareholders of the Company received, for each share of
common or preferred stock which they owned in the Company, one share of common
or preferred stock in the CRT which has the same rights, preferences and
limitations as the shares which they owned in the Company immediately before
the effective date of the merger.
Effective upon the close of trading on April 14, 1998, the Company effected a
1-for-20 reverse stock split of its Class A and Class B Common Stock. All per
share amounts herein have not been adjusted to reflect the effects of the
reverse stock split.
3. COMMON STOCK
For the period July 1, 1997 to September 30, 1997, the Company issued
1,622,500 shares of Class A Common Stock in private placements, and realized
net proceeds of $230,244 therefrom.
4. FOREIGN OFFERING
In April 1998, the Company entered into an agreement with Brown & Lampe, a
brokerage firm based on Vienna, Austria, under which the firm agreed to sell,
6
<PAGE>
on a best efforts basis, up to 3,500,000 shares of Class A Common Stock and
Series A Warrants for $1.50. Each Series A Warrant entitles the holder to
purchase one share of Class A Common Stock for $3.50 per share at any time
until December 31, 2003. Under the agreement, Brown & Lampe is entitled to a
commission equal to 33 1/3% of the amount raised. The offering is being
conducted pursuant to an exemption from registration contained in Regulation S
under the Securities Act of 1933. Proceeds from the offering are intended to
be used principally to fund the Company's tire recycling operations which it
is acquiring pursuant to its agreement to acquire all of the outstanding
common stock of AA Corp.
5. VOYAGER IPO SELECT FUND, LTD.
On June 20, 1997, the Company entered into an agreement with Voyager IPO
Select Fund, Ltd. ("Voyager"), to repurchase six shares of Series A Preferred
Stock, which had a face value of $150,000, and 286,088 shares of Class A
Common Stock for twelve shares of Series C Preferred Stock and $250,000 cash.
The Company and Voyager since orally amended the agreement to provide that the
Company would give Voyager a promissory note bearing interest at eight percent
(8%) per annum, and due and payable in full on July 1, 1998, in lieu of the
$250,000 cash payment. The Series C Preferred Stock has a liquidation value of
$50,000 per share, is not entitled to receive dividends, does not have any
voting rights, and is convertible into Class A Common Stock based on a
conversion price which is determined based on the bid price of the Class A
Common Stock immediately before any conversion.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had a working capital deficit of ($578,626),
compared to a working capital deficit of ($552,829) on June 30, 1997. On
September 30, 1997, and June 30, 1997, the Company had cash and cash
equivalents of $27,563, and $36,656, respectively. During the quarter ended
September 30, 1997, the Company's working capital was impacted by a larger
loss from operations during the Company's seasonally slow period, offset by
$230,244 in new capital raised from the private placement of shares of common
stock.
As of the quarter ended September 30, 1997, the Company had substantial trade
liabilities, all of which it was unable to pay in the ordinary course of
business. In addition, the Company was in default in the payment of principle
and interest on $333,614 of note indebtedness. Currently, the Company is
dependent upon advances from shareholders and the sale of stock to meet its
financing needs. There is no guaranty that the Company will be able to obtain
additional financing from these sources.
RESULTS OF OPERATIONS
For the three months ended September 30, 1997 and 1996, net sales were
$317,718 and $411,874, respectively, for a decrease of 23%. This decrease is
partly due to the poor tourist market experienced by the area in which the
Company's restaurants are located. The fiscal first quarter is traditionally
the Company's worst operating quarter, with the winter quarter being the best
due to the Florida tourist season.
The drop in net sales was offset by a substantial drop in general and
administrative expenses from $250,632 in the quarter ended September 30, 1996
to $182,771 in the quarter ended September 30, 1997, representing a 28%
decline from the prior year. Management expects this trend to continue for the
remainder of fiscal 1998. For the three months ended September 30, 1997,
7
<PAGE>
operating expenses were virtually unchanged from the prior year, increasing
less than 1% to $376,665 from $373,965 in the three months ended September 30,
1996. The Company experienced a loss from operations of $277,638 and a net
loss of $288,925, for the three months ended September 30, 1997. In contrast,
for the three months ended September 30, 1996, the Company had a loss from
operations of $248,614 and a net loss of $247,631.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In May 1997, Mark Shoom filed a lawsuit against the Company and James Robert
Shaw to recover the principal, interest and attorney's fees due under a
promissory note dated October 9, 1996 in the original principal amount of
$80,000 payable by the Company and guaranteed personally by Mr. Shaw. In June
1997, the Company entered into a Settlement Agreement with Mr. Shoom under
which the Company agreed to issue Mr. Shoom 114,737 shares of the Company's
Class A Common Stock under Regulation S of the Securities and Exchange
Commission. In addition, in the event Mr. Shoom receives net proceeds from
the sale of said shares of less than $103,300, the Company is obligated to
issue Mr. Shoom additional shares with a value, as determined from the bid
price of said stock, equal to the difference between $103,300 and the net
proceeds received. To date, the Company has not performed under the
Settlement Agreement, in that the Company has not issued Mr. Shoom the
initial 114,737 shares of Class A Common Stock. As a result of the Company's
breach of the Settlement Agreement, Mr. Shoom, through his attorneys, has
recently filed a motion for entry of a default judgment. The Company and Mr.
Shaw have filed a motion to reopen the default, as well as an answer and
counterclaim. The court recently denied Mr. Shoom's motion and granted the
Company's motion to reopen the default. There is a substantial chance that
the Company will be found liable to Mr. Shoom for some amount of money, the
exact amount of which is unknown at this time.
On December 9, 1997, Evelyn Kuntz served a writ of garnishment on the
NationsBank, N.A. in collection of a default judgment which she had obtained
against the Company in the amount of $46,376.31 on August 20, 1997. The writ
of garnishment caused NationsBank to freeze the accounts of the Company and
its wholly owned subsidiary, Classic Restaurants International, Inc., a
Florida corporation. Mr. Kuntz's initial suit was filed to collect the
balance due on a promissory note issued by the Company. On or about December
19, 1997, the Company and Ms. Kuntz entered into a Stipulation for
Dissolution of Writ of Garnishment, Settlement Agreement and Order pursuant
to which the parties agreed that the funds held by NationsBank on behalf of
the Company would be turned over to Ms. Kuntz in partial satisfaction of the
judgment and the funds held by NationsBank on behalf of Classic's subsidiary
were released to the subsidiary. In addition, the Company agreed to make
payments of $5,000 per month to Ms. Kuntz until the balance of the judgment
was satisfied, and to issue Ms. Kuntz 125,000 shares of the Company's Class A
Common Stock as collateral to secure the Company's remaining obligation to
Mr. Kuntz. In return, Ms. Kuntz agreed to forebear from any further
collection efforts as long as the Company was not in default under the terms
of the Stipulation. The Company is in compliance with its monetary
obligations under the Stipulation, and has issued the stock certificates to
Ms. Kuntz as collateral under the Stipulation.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
8
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
REGULATION
S-B NUMBER EXHIBIT
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the
quarter ended September 30, 1997.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CREATIVE RECYCLING TECHNOLOGIES, INC.
May 12, 1998 \s\ June M. Cuba
Date June M. Cuba
Chief Financial Officer
9
</TEXT/
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 27,563
<SECURITIES> 0
<RECEIVABLES> 191,743
<ALLOWANCES> 0
<INVENTORY> 14,751
<CURRENT-ASSETS> 233,433
<PP&E> 812,472
<DEPRECIATION> 496,746
<TOTAL-ASSETS> 609,243
<CURRENT-LIABILITIES> 812,059
<BONDS> 0
0
393,770
<COMMON> 4,045,124
<OTHER-SE> (4,641,910)
<TOTAL-LIABILITY-AND-EQUITY> 609,243
<SALES> 317,718
<TOTAL-REVENUES> 317,718
<CGS> 0
<TOTAL-COSTS> 595,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,735
<INCOME-PRETAX> (288,925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (288,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,925)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
