SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the period ended September 30, 1996
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number : 0-19851
CASH CAN INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 75-2371682
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
2319 Noriega Street San Francisco, California 94122
(Address of principal executive offices) (Zip code)
(415) 564-4770
(Issuer's telephone number)
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 [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 18,192,784 on September 30,
1996.
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Balance Sheets
September 30, 1996 and December 31, 1 995
(Unaudited)
<TABLE>
<CAPTION>
Assets
September 30 December 31
1996 1995
<S> <C> <C>
Current assets:
Cash $ 3,320 $ 4,757
Inventory 50,000 0
Accounts receivable, trade,
net of $88,480 allowance 0 0
Advances to EDP, net of
$21,141 allowance 0 0
Advances to employees 94,545 8,760
Deposits 17,097 5,625
Deferred consulting (note 8) 36,000 36,000
======= ======
Total current assets 200,962 55,142
======= ======
Property and equipment, at cost,
net of $42,827 and $36,606 of
accumulated depreciation,
respectively 37,525 25,732
--------- --------
Other Assets:
Notes receivable, trade,
net of $105,000 allowance (note 3) 0 0
Organizational costs, net of
accumulated amortization of 4,622
and 3,075, respectively 515 2,052
Deferred consulting (note 8) 174,000 219,000
Intangible assets 300 300
======= =======
174,815 221,352
======= =======
$413,302 $302,226
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity (Deficit)
September 30 December 31
1996 1995
<S> <C> <C>
Current liabilities:
Accounts payable, trade $84,642 74,419
Withholding taxes payable 0 3,484
Accrued interest payable 22,136 13,386
Accrued expenses 72,740 79,400
Accrued salaries payable 90,558 53,162
Notes payable, stockholder (note 11) 115,000 115,000
Consulting fees payable (note 8) 189,000 144,000
------- -------
Total current liabilities 574,076 482,851
Consulting fees payable,
net of current portion (note 8) 150,000 195,000
------- -------
Commitments and contingencies - -
Deferred revenue (note 6) 200,000 200,000
------- -------
Preferred stock, redeemable,
$.0001 par value, 100,000 shares
issued and outstanding 499,997 392,855
------- -------
Stockholders' equity deficit):
Common shares, 30,000,000 authorized;
$0.0001 par value; 18,192,784 and
8,446,356 shares issued and outstanding,
respectively 1,818 844
Paid in capital in excess of par 8,462,369 7,868,900
Notes receivable, common stock (note 3) (2,289,226) (2,289,226)
Deficit accumulated during
development stage (7,185,732) (6,548,998)
----------- -----------
(1,010,771) (968,480)
----------- -----------
$ 413,302 $ 302,226
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Statement of Operations
Quarters Ended September 30, 1996 and 1995
And period August 8, 1 992 (inception) Through September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Quarters ended Nine months ended Inception
September 30 September 30 Through
1996 1995 1996 1995 Sept. 30, 1996
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 0 $ 0 $ 14,379 $ 40,000 $1,317,559
Cost of goods sold 0 0 0 21,750 821,686
------ ----- -------- -------- ----------
Gross profit 0 0 14,379 18,250 495,873
------ ----- -------- -------- ----------
Operating Expenses:
Salaries, benefits,
& P/R taxes 25,400 113,525 37,396 384,999 1,253,898
Rent 0 6,502 22,694 34,225 286,136
Consulting &
professional fees 332,414 25,047 473,709 128,843 1,770,633
Selling & promotion 8,659 374 21,734 14,970 209,911
Depreciation 724 3,360 6,773 10,853 43,379
General &
administrative 35,568 40,308 74,634 91,118 1,043,014
Amortization 514 513 1,538 1,253 40,613
------- ------- ------- ------- ---------
403,279 189,629 38,478 666,261 4,647,584
(LOSS) from operations(403,279) (189,629) (624,099) (648,011) (4,151,711)
Other income
(expenses):
Interest income 148 4,879 489 95,743 141,988
Advertising income 0 0 0 0 4,007
Advertising credits
impairment (note 5) 0 0 0 0 (2,500,000)
Loss on investment
(note 4) 0 0 0 0 577,500
Interest expense (4,375) 2,125 (13,125) (7,875) (65,384)
--------- ------- -------- -------- ---------
Net loss $ (407,506) (182,625) (636,735) (560,143)(7,185,733
Net loss per share $ (0.04) $ (0.03) $ (0.07) $ (0.06) $ (1.08)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
For Period From August 8, 1992 (Inception) to September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Paid in Paid in Capital Development
Shares Amount Capital Notes Receivable Stage
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at Aug.8
1992 (inception)
Recapitalization 21,000,000 $ 2,100 $ 117,900 $ $
of Cash Can Inc.
Merger of Cash
Can Inc. & Market
Investments Inc.
at Dec. 31, 1992 16,500,000 1,650 (1,523)
Cancellation of
Shares (14,857,500) 1,486 1,486
Net Loss (216,769)
-----------------------------------------------------------
Balance at
Dec. 31, 1992 22,642,500 2,264 117,863 216,769
Cancellation of
Shares (19,249,996) (1,925) 1,925
Stock exchanged
Services 67,500 7 19
Stock Exchanged
for Intangible
Assets 275,000 28 172
Issuance of Stock
for Cash 40,000 4 43,996
Accretion:
Redeemable
preferred stock (107,143)
Net Loss (1,095,527)
-----------------------------------------------------------
Balance, December
31, 1993 3,775,004 378 56,932 1,312,296
Issuance of stock
for cash, other
assets, services
and repayment of
debt 1,113,535 10 6,772,125 (2,338,016)
Warrants exercised 580,000 58 289,942
Accretion:
redeemable
preferred stock (127,983)
Net Loss (937,199)
-----------------------------------------------------------
Balance December
31, 1994 5,468,539 546 6,976,143 (2,338,016)(2,249,495)
Issuance of stock
for cash, services
and repayment of
debt 2,877,817 288 985,623 48,790
Warrants exercied 100,000 10 49,990
Accretion:
redeemable
preffered stock (142,856)
Net Loss (4,299,503)
-----------------------------------------------------------
Balance, December
31, 1995 8,446,356 844 7,868,900 (2,289,226)(6,548,998)
Issuance of stock
for cash, services
and repayment of
debt 150,000 15 20,620
Warrants Exercised 121,428 12 17,188
Accretion:
redeemable
preferred stock (35,714)
Net Loss (80,628)
-----------------------------------------------------------
Balance, March
31, 1996 8,717,784 871 7,870,994 (2,289,226)(6,629,626)
Issuance of
stock for cash
services and
repayment of debt 6,000,000 600 299,400
Accretion:
redeemalble
preferred stock (35,714)
Net Loss (148,601)
------------------------------------------------------------
Balance, June
30, 1996 14,717,784 1,471 8,134,680 (2,289,226)(6,778,227)
Issuance of
Stock for cash
services and
repayment of debt 3,475,000 347 363,403
Accretion:
reddemable
preferred stock (35,714)
Net Loss (407,506)
------------------------------------------------------------
Balance, September
30, 1996 18,192,784 $1,818 $8,462,368 $(2,289,226)$(7,185,733)
============================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Statement of Cash Flows
Quarters Ended September 30, 1996 and 1995
And Period August 8, 1992 (inception) Through September 30, 1 996
(Unaudited)
<TABLE>
<CAPTION>
lnception
September 30 Through
1996 1995 Sept. 30, 1996
-----------------------------------------------
<S> <C> <C> <C>
Cash flow, from investing
activities:
Purchase of propeny
& equipment (5,090) 0 (81,0751)
Oganizational cost (513) 0 (5,840)
Advances to EDP 0 687 (112,676)
Advances to employees (28,350) 0 (86,785)
Acquisition of
Intangible assets 0 0 (300)
Repayment of advances
to employees 0 (1,850) (8,780)
--------------------------------------------
Net cash used by
investing activities (33,953) (1,163) (294,236)
============================================
Proceeds from financing
activities:
Preeds from note payable 0 0 466,930
Repayment of notes payable 0 (79,600) (21,704)
Redeemable convertible
preferred stock ex hanged
for assets 0 0 100
Issuance of common stock 383,750 129,085 1,760,677
Advances from CPF (61,140) 0 (31,705)
Advances from EDP 0 43,862 1,010,871
------------------------------------------
Net Cash provided by
financing activities 302,610 93,347 3,184,969
=========================================
Net Increase (decrease)
in Cash (146,927) (10,045) 320
Cash at beginning of period 150,248 (516) 0
-----------------------------------------
Cash at end of period $ 3,320 $ (10,581) $ 3,320
==========================================
Supplemental disclosure of
cash flow information:
Income tax paid $ - $ - $ -
Interest paid $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Statement of Cash Flows
Quarters Ended September 30, 1996 and 1995
And Period August 8, 1 992 (inception) Through September 30, 1 996
(unaudited)
<TABLE>
<CAPTION>
Inception
September 30 Through
1996 1995 Sept. 30, 1996
---------------------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net Loss $ (407,505) $ (188,876) $(7,037,132)
---------------------------------------------
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and
amortization 3,558 8,358 50,310
Bad debt provision 0 0 214,621
Write off of prepaid
advertizing 0 0 2,500,000
Write off of common
stock investment 0 0 577,500
Consulting fees exhanged
for common stock 0 0 435,780
(Increase) decrease in
accounts receivable trade 0 (43,809) (143,980)
(increase) decrease in
inventory (50,000) 0 (173,775)
(increase) decrease in
accrued interest receivable 0 (1,837) 0
(Increase) decrease in
deposits 0 0 (17,097)
(Incease) decrease in
deferred expenses 15,000 15,000 (210,000)
(Increase) decrease in
notes receivable, trade 0 0 (105,000)
Increase (decrease) in
accounts payable, trade 5,949 (51,504) 214,702
Inrease (decrease) in
withholding taxes payable 0 (2,296) 0
Increase (decrease) in
interest payable 0 2,125 64,040
Increase (decrease) in
accrued expenses (10.000) 7,248 307,178
Increase (decrease) in
accrued salaries payable 25,400 25,306 (99,880)
Increase (decrease) in
consulting fees payable 0 0 415,000
Increase (decrease) in
deferred income 0 0 255,500
------------------------------------------
Total adjustments (10,095) (41,408) 4,274,899
------------------------------------------
Net cash used for
operating activities (417,601) (228,283) (2,702,233)
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CASH CAN INCORPORATED
(A Development Stage Company)
Statement of Cash Flows
Quarters ended September 30, 1996 and 1 995
And Period August 8, 1992 (inception) Through September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Inception
September 30 Through
1996 1995 Sept. 30, 1996
---------------------------------------------
<S> <C> <C> <C>
Supplemental disclosure of
non-cash investing and
financing activities:
Issuance of common stock in
exchang for repayment of notes
payable and accrued interest,
including $290,000 upon the
exercise of warrant, $ 0 $ 86,000 $2,862,530
Issuance of common stock
for notes receivable 0 0 2,289,226
Issuance of common stock in
exchange for repayment of
advances from EDP 0 0 920,380
Issuance of common stock in
exchange for consulting services 363,402 40,003 520,780
Issuance of common stock for
investment in common stock of ACI 0 0 577,500
Accretion of redeemable
preferred stock 35,714 35,714 428,569
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudited Financial Statements
1. ORGANIZATION AND BUSINESS
The Company, a development stage company, was incorporated as Market
Investments, Inc. under the laws of the State of Delaware on March 18, 1991,
with the purpose of merging with an ongoing business and/or acquiring a company.
On December 31, 1992, Market Investments, Inc. exchanged 21,000,000 shares of
previously unissued common stock for all of the outstanding common stock of Cash
Can, Inc., a development stage company. As part of the transaction, two holders
of Market Investments, Inc. common stock returned an aggregate of 14,857,500
shares to Market Investments, Inc. For accounting purposes the transaction
has been accounted for as a reverse acquisition. Since Market Investments, Inc.
was a public "shell" with no operations the transaction has not been considered
a business combination and accordingly no pro forma financial statements have
been presented. In April 1993, the Company changed its name to "Cash Can
Incorporated"(CCI).
The Company is engaged in recycling and marketing activities on a local,
regional, and national level. The Company's first product is the Cash Can
automated aluminum redemption center (hereinafter referred to as a "Cash Can").
Placed in locations convenient to the consumer, this attractive, patented
machine accepts aluminum beverage cans and returns cash to the consumer on a per
- -can basis. It is a high-volume, large-capacity system which is computer-
controlled and operates 24 hours a day, seven days a week.
The Company's continued existence is dependent upon its ability to resolve
its liquidity problems, principally by obtaining additional debt financing and
equity capital. While pursuing additional debt and equity funding, the Company
must continue to operate on limited cash flow from internal sources. The
Company has experienced recurring losses from operations although significant
operating overhead reductions were made in the latter part of 1994 and again in
1995.
The Company plans to aggressively market its product and cover short term
cash needs through sales and private placements of Company stock. Longer term
cash needs will be met through a proposed public offering expected to occur in
1996.
The financial statements included herein have been prepared by Cash Can
Incorporated, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principals, have been condensed or omitted pursuant to such
SEC rules and regulations, nevertheless, the Company that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these financial statements be read in conjunction with the financial statements
and notes there to included in the Company's Annual Report. In the opinion of
the management, all adjustments, including normally occurring adjustments
necessary to present fairly the financial position of the Company with respect
to the interim financial statements, and of the results of its operations for
the period ended September 30, 1996 have been included.
<PAGE>
Cash Incorproated
(A development Stage Company)
Notes to Unaudited Financial Statements
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash flows
For purposes of the statement of cash flows, cash includes all short term,
highly liquid investments with a maturity of three months or less.
Inventory
The Company values inventory at the lower of cost (first-in, first-out) or
market. Inventory consists of parts and partially completed Cash Can units
which are currently the only manufactured product of the Company. During 1993,
the Company acquired the patent for production of such units and began
manufacturing operations until mid 1995 when the manufacturing of the units was
sub-contracted out. Inventory at December 31, 1994 represents raw materials of
$55,986 and work in process of $101,917. During 1995, the Company charged to
expense $161,942 of obsolete and unsalable inventory items, $123,775 of which
related to old and disputed accounts payable, vendors (Note 11). At December
31, 1995 and June 30, 1996, the Company did not have any inventory. Two complete
prototype units were purchased during the reporting period for $25,000 each and
Beta tested in Atlanta.
Organizational costs
Organization costs are being amortized on a straight-line basis over five
years beginning in 1993.
Property and equipment
Property and equipment are stated at cost. The cost of maintenance and
repairs is charged to operations when incurred. The Company provides
depreciation using the straight-line method over expected useful lives ranging
from 5 to 7 years. Leasehold improvements are amortized using the straight-line
method over the life of the lease.
Redeemable preferred stock
Accretions of the redemption value of nonparticipating redeemable
convertible preferred stock are provided on the interest method in amounts
sufficient to equal the mandatory redemption value at the redemption date. The
stock is classified on the balance sheet apart from stockholder's equity due to
the stock's redeemable feature (Note 8).
Consulting services
2,075,000 shares were issued and expensed for consulting services valued at
279,750 during the quarter ended September 30, 1996. During the quarter ended
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudtied Financial Statements
March 31, 1996, the Company issued 1,189,000 common stock shares in exchange for
consulting services valued at $414,780. During the quarter ended March 31, 1995
the Company issued 150,000 common shares in exchange for consulting services
valued at $21,000. The Company is determining the validity of these consulting
contracts and may cancel the shares issued and/or take other action, including
litigation, if the required consulting services have not occurred.
3. NOTES RECEIVABLE
During 1994, the Company sold five hundred thousand shares of restricted
stock to EDP and its management and customers (Note 11) for $6.00 per share.
Approximately one million dollars of the proceeds was applied to reduce debt
with the balance paid with short term notes due within one year, with interest
at 7.75% per annum and secured by the securities purchased. In addition,
outstanding warrants representing 580,000 common stock shares were exercised by
EDP and its management and customers for notes receivable totaling $290,000. At
December 31, 1995 and 1994 the Company has recorded these notes receivable,
along with accrued interest of $139,109 (fully reserved) and $48,790,
respectively, as a reduction of stockholders' equity. The Company has made
demand for payment on EDP, its management and customers and intends to fully
pursue collection of these notes receivable.
During 1995 and the first quarter of 1996, the collectibility of the notes
receivable became uncertain, however they were not reserved because they are
reflected as a reduction to stockholders' equity, the non collection of which
would not affect other financial statement categories (Note 15).
4. INVESTMENT IN COMMON STOCK
During 1994, the Company exchanged a total of 150,000 shares of its common
stock for 150,000 common shares of American Capital Investor Corporation (ACI)
of Newport Beach, California. The shares were exchanged at a fair market value
of $3.85 per share which is based upon ACI's book value at September 30, 1994.
This investment, which represents 4% of ACI outstanding shares, is accounted for
by the cost method. The fair value of this financial instrument at December 31,
1994 approximated its cost.
During 1995, the realization of this investment became questionable and
prior management of the Company attempted to cancel the transaction and return
the shares in exchange for the return of its shares from ACI. The Company is
now seeking the return of the ACI shares and the recovery of its investment.
Accordingly, the Company adjusted the carrying value of its investment to $0,
management's estimate of the net realizable fair value of this financial
instrument at December 31, 1995 and September 30, 1996.
5. ADVERTISING COSTS
During 1994, the Company purchased $2,500,000 of television advertising on
the American Independent Network (AIN) in exchange for a note payable due in
November 1996, with interest at 9.0% and secured by AIN credits. AIN credits
are redeemable for blocks of television air time based on prevailing market
rates. On December 28, 1994, the note payable, which had been factored by the
holder to an unrelated party, was exchanged for 250,000 common stock shares of
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudited Financial Statements
the Company.
Pursuant to Statement of Position 93-7, the Company will expense
advertising costs as incurred. As of December 31, 1995 and 1994, no advertising
expenses have been incurred. Furthermore, no advertising cost has been incurred
during the nine month period ended September 30, 1996.
During 1995 the Company was not able to confirm these credits. In 1996 it
was determined that the Company had been deceived when purchasing the credits.
Presently, an investigation is being performed concerning the validity of the
credits. Accordingly, the carrying value of the credits has been charged
against income.
6. DEFERRED REVENUES
Deferred revenues at December 31, 1995 and 1994, consists of $0 and
$40,000, respectively, in franchise deposits for the rights to operate a Cash
Can aluminum redemption center and $200,000 and $225,000, respectively, in
deposits on the purchase of individual Cash Can units. At September 30, 1996
deferred revenues for the purchase of units remained at $200,000.
Revenue from these orders will be recorded at the time of delivery of
product to the purchasers. While these purchase orders represents the
purchasers' intent, and the Company expects the purchasers to purchase each
order, due to the possibility of unforeseen events that may impair the ability
of a purchaser or the Company to complete the order, all or none of the revenue
represented by these orders may be realized by the Company.
In June 1996, the purchaser notified the Company to refund $200,000 of
deposits because the Company did not deliver their order.
7. EMPLOYEE BENEFIT PLANS
The Company established a defined contribution profit sharing and salary
reduction plan during 1993. Pursuant to the provisions of Internal Revenue Code
Section 401(k), the plan prototype has received a favorable determination
letter from the Internal Revenue Service. Employees are 100% vested in all
personal salary reduction contributions and related earnings. Through December
31, 1994, the Company had made no contributions to the plan and the plan was
terminated in October 1995.
The Company also established a nonqualifying employee benefit plan to
purchase life and disability insurance for certain officers and key employees.
For the years ended December 31, 1995 and 1994, Company contributions included
in benefits expense totaled $0 and $2,100, respectively. No contributions
have been made during 1996 and none are expected to be made during the remainder
of 1996.
8. LICENSE AGREEMENT AND PATENT ACQUISITION
In February 1993 the Company entered into an exclusive license agreement
with Recycle Technologies, Inc. (RTI) of Billings, Montana, the patent licensee
of the device know as "Collector of Empty, Used Recyclable Beverage Cans"
covered by United States Patent No. 4,989,507. Under the terms of the
agreement, RTI granted the Company the exclusive, nontransferable right and
license to market and sell the Cash Can device throughout North America.
<PAGE>
Cash Can Incorporaated
(A Development Stage Company)
Notes to Unaudited Financial Statements
However, the Company decided it would be better to own the patent directly and
manufacture the Cash Can units rather than pay royalties through the license
agreement. Accordingly, during 1993 the Company acquired the patent for the
manufacture of the Cash Can device from Gadar Industries, Inc. In exchange for
the patent, the Company issued 100,000 shares of its non-participating,
mandatory redeemable, convertible preferred stock and 125,000 of its
unregistered common stock shares. The preferred shares and the patent were
recorded at $100, the par value of the preferred shares, which approximates
fair market value. The stock is redeemable by the Company at any time or may be
converted by the holder into 1 share of common stock for each 2 shares of
preferred held; however, redemption is mandatory at the end of seven years.
Accretion of the redemption value of the preferred shares of $1,000,000 is
provided for on the interest method over the seven year redemption period. For
the years ended December 31, 1995 and 1994, accretion of the redemption value
totaled $142,856 and $127,983, respectively and during the period ended
September 30, 1996 the accretion of the redemption value totaled $35,714.
The Company also entered into an agreement to purchase consulting services
from Bill Rhodes, the president of Gadar Industries, Inc. The terms of the
agreement provide for payments of $3,000 per month over a 24 month period and
payments of $5,000 over the subsequent 60 month period. At December 31, 1995
and 1994, $255,000 and $309,000, respectively and at September 30,1996 $225,000
of the remaining payments are recorded as deferred consulting fees although the
Company is investigating the validity of this agreement.
In connection with the acquisition of the patent for production of Cash Can
units, the Company also canceled its license agreement with Recycle
Technologies, Inc. and acquired related trademark and trade secrets from
Recycle Technologies, Inc. in exchange for 425,000 shares of common stock.
These assets have been valued at $200 and are recorded as intangible assets.
9. LOSS PER SHARE AND STOCK SPLIT
Loss per share amounts are based on the weighted average number of common
stock shares and common stock equivalents outstanding (9,693,657, 5,468,539 and
4,624,159 for the periods ended September 30, 1996 and 1995 and from inception
through September 30, 1996, respectively). For loss per share purposes, the net
loss was increased by the accretion on redeemable preferred stock (Note 2). No
effect has been given to the assumed exercise of stock warrants and fully
diluted earnings per share amounts are not presented because the effects would
be antidilutive.
On March 8, 1993, the Company's Board of Directors effected a 3 for 1 stock
split and on August 1, 1994 the Company's Board of Directors effected a 2 for 1
reverse stock split. The weighted average number of shares outstanding, per
share amounts, common stock share and stock warrant data have been retroactively
restated for all periods presented.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts its operations from facilities in San Antonio, Texas
and it leases various equipment under noncancellable operating leases, which
expire through May 1996. For the years ended December 31, 1995 and 1994 and
<PAGE>
Cash Can Incorproated
(A Development Stage Company)
Notes to Unaudited Financial Statements
for the period August 8, 1992 (inception) through December 31, 1995, rent
expense under these leases totaled $48,343, $67,895 and $211,437, respectively.
Minimum future rental payments required under the above operating leases
are as follows.
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
<S> <C>
1996 $ 11,250
1997 -
1998 -
--------
$ 11,250
</TABLE>
Vendors and former officers/employees
At December 31, 1995, the Company made adjustments to its
general accounts reducing accounts payable, trade by $123,775,
representing old and/or disputed amounts. The Company also made
adjustments to its general accounts reducing accrued salaries
payable by $339,944, representing accrued salaries not properly
authorized by the board of directors. No salaries were accrued to
former officers during the period ended March 31, and June 30,
1996.
No claims have been made for these amounts but it is
uncertain what claims might arise in the future, if any, and
therefore the amount of these adjustments the Company ultimately
might be required to pay. The accompanying financial statements
do not contain any reserve for this contingency.
Litigation
The Company is the plaintiff in a lawsuit with a competitor
involving patent infringement. The competitor has filed a counter
claim seeking $58,900 in relief. Although the Company expects to
prevail in this case, it is not possible to estimate the outcome.
No accrual for any possible loss has been reflected in the
accompanying financial statements.
Guaranty
The Company guaranteed an equipment lease payable to a
company, which provided lease financing for units sold by the
Company. At May 31, 1996 and December 31, 1995, the Company was
obligated to make good on a lease guarantee of $30,622 and $0,
respectively.
11. RELATED PARTY TRANSACTIONS
EDP Capital Group, Ltd. (EDP)
EDP Capital Group, Ltd. (EDP) is a related party by virtue of
the relationships of the former management of the Company and EDP,
and the fact that EDP purported to act as the Company's
"investment banker" and "financial advisor" from December 1992
through February 1996.
The general manager of EDP throughout that period was Jon J.
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudited Financial Statements
King, whose son Michael served as President, Chief Executive
Officer and Chairman of the Company from December 1992 through
February 1996. During that same period the Company's corporate
secretary, Elizabeth W. Moore, the sister-in-law of Jon J. King,
was Vice President, Secretary, Director and a stockholder of EDP.
Joseph King, another son of Jon J. King, was an Officer, Director
and a stockholder of EDP. Eddie Moore, who served as President
and Chief Executive Officer of the Company during part of 1995 and
1996, is married to Elizabeth W. Moore.
Agreements for EDP to act as investment banker and financial
advisor of the Company were executed on December 8 and 20, 1992,
respectively, and were rescinded effective May 1, 1993. During
that period a total of $114,000 was paid by the Company to EDP for
such services. After the termination of these agreements EDP
continued to act as a consultant to the Company and was paid fees
of approximately $80,000.
Also during this period, EDP caused one of its affiliates,
Entertainment Development Partners, Inc. (EDPI), to sub-lease
office space to the Company for which the Company paid $73,622 of
rental payments.
Also during this period, EDP and various of its affiliates
acted as escrows to sell to the public shares of the Company's
common stock owned by others, principally entities having
indicated places of business outside of the United States
(offshore entities). None of the proceeds from the sale of those
shares, an amount currently unknown, inured to the benefit of the
Company.
While EDP acted as consultant to the Company, it engaged in
transactions with the Company, some of which involved loans and
payments for services and was involved in most of the Company's
transactions. EDP and its management also arranged to hire
persons and firms who purportedly acted as "consultants" to the
Company. Consideration paid to such consultants include amounts
paid in cash and warrants and shares of the Company's common
stock. Some of such shares and warrants were the subject of
registration statements filed on Form S-8 by the Company with the
Securities and Exchange Commission during 1995. In addition,
restrictions relating to the sale and other disposition of the
Company's common stock issued to consultants and affiliates were
removed with the assistance of EDP and members of prior
management.
The Company is currently reviewing each of the consulting
agreements to determine whether the Company received adequate
consideration and to determine whether those agreements were
properly authorized.
The Company is also undertaking a review of the past
transactions with EDP to determine if any impropriety existed.
During 1994, EDP and Michael King executed promissory notes
to the Company in the amounts of $165,000 and $82,500,
respectively. These amounts are past due and the Company has made
demands for payment for these notes receivable.
During 1994, EDP arranged for various offshore entities,
believed to be related to EDP and its affiliates, to purchase
common stock shares of the Company. Payment was in the form of
promissory notes with principal amounts totaling $4,264,226. The
notes are past due and demand for payment has been made by the
Company, which will continue to pursue collection of these notes.
During the years ended December 31, 1995 and 1994, EDP made
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudited Financial Statements
various non-interest bearing expenditures to the Company totaling
$75,020 and $336,243, respectively for investment banking
services, cash advances, and expense reimbursements. During 1994
these advances were reduced by $920,360 in exchange for five
hundred thousand shares of restricted stock (Note 2). EDP is
owned by a family member of the Company's chairman. As of
December 31, 1995 and 1994 the balance of advances payable, EDP
totaled $91,535 and $16,515, respectively.
As of December 31 1995 and 1994 the Company also had non-interest bearing
advances receivable from EDP of $112,676 and $82,760, respectively.
At December 31, 1995, the collectibility of the advances
receivable became uncertain. The Company offset the $112,676
advances receivable by the $91,535 advances payable and reserved
for doubtful collection the remaining $21,141 receivable balance
although the Company intends to pursue collection of these
advances, including litigation if necessary.
Stockholders
During 1994 and 1993, the Company acquired additional working
capital by issuing notes payable to various stockholders. These
notes generally were due within six months, unsecured and with
interest at 8.0% to 10.0%. During 1995 and 1994, $75,000 and
$255,000, respectively of these notes, plus $9,150 and $21,530,
respectively of accrued interest, were repaid through the issuance
of common stock.
The remaining notes payable are in default with interest
presently accruing at 10.0% to 18.0% and one creditor has obtained
a judgement for the principal balance, accrued interest and
attorney fees totaling $87,163.
At December 31, 1995 accrued interest payable on these notes
totaled $13,386 and $4,375 for the period ended June 30, 1996.
12. INCOME TAXES
The Company uses the accrual method of accounting for tax and
financial reporting purposes. At December 31, 1995, the Company
had net operating loss carryforwards for financial and tax
reporting purposes of approximately $6,500,000. These
carryforwards expire between the years 2006 and 2010 and are
further subject to the provisions of Internal Revenue Code Section
382.
Pursuant to Statement of Financial Accounting Standards No.
109, the Company has recognized a deferred tax asset in the amount
of $2,226,000 which has been offset by a valuation allowance in
the same amount, as follows:
<TABLE>
<CAPTION>
Inception
Year Ended Year Ended through
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1995
------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 765,000 $ 446,000 $ -
Increase during period 1,461,000 319,000 2,226,000
-------------------------------------------------
Ending balance $ 2,226,000 $ 765,000 $2,226,000
</TABLE>
13. STOCK WARRANTS
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Unaudited Financial Statements
In March 1993, the Board of Directors recognized a need to
adjust the capital structure of the Company to become more
equitable to the public shareholders. Certain major shareholders
were asked to surrender for cancellation a total of 19,249,996
shares of their common stock to facilitate the subject adjustment
and as consideration, an aggregate of 265,000 common stock
warrants were issued to the shareholders who surrendered their
stock. The warrants issued entitle the shareholders to acquire
one share of common stock for one warrant plus $0.25. The
19,249,996 shares were surrendered and canceled leaving,
immediately after the cancellation, 3,392,504 common stock shares
issued and outstanding. The Company is investigating if adequate
consideration was given for the issuance of the warrants and may
cancel them if such is the case.
The following is a schedule of the activity relating to the
Company's stock warrants:
<TABLE>
<CAPTION>
Inception
through
1995 1994 Dec. 31, 1995
---------------------------------------
<S> <C> <C> <C>
Warrants outstanding at
beginning of year 425,000 595,000 -
Warrants issued during year:
Officers and directors - 50,000 230,000
EDP (Note 11) - - 50,000
Others 1,427,500 360,000 2,052,500
Warrants exercised during year:
Officers and directors - ( 180,000) (180,000)
EDP - ( 150,000) (150,000)
Others (300,000) ( 250,000) (550,000)
Warrants expired during year ( 85,000) - ( 85,000)
-------------------------------------
Warrants outstanding at end
of year 1,467,500 425,000 1,467,500
====================================
</TABLE>
The warrants expire between November 1996 and August 1998 and
are exercisable at prices from $.20 to $8.00 per warrant.
14. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash,
accounts receivable, trade, notes receivable, notes payable,
stockholders and investment in restricted common stock (Note 4).
Cash
The Company maintains its cash in bank and other deposit
accounts which, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and
dose not believe it is subject to any credit risks involving its
cash.
Accounts receivable, trade
<PAGE>
Cash Can Incorporated
(A Development Stage Company)
Notes to Financial Statements
The Company extends credit, secured by the Cash Can units, to
its customers, most of whom are located in Texas. During 1995,
the collectibility of the accounts receivable, trade became
uncertain and management fully reserved for doubtful collection
the receivables, carrying them at their net realizable amounts.
Notes receivable
Notes receivable are past due and in default, bear interest
at 7.75% per annum and are secured by the Cash Can unit or common
stock. The Company believes the fair value of these financial
instruments are zero.
Notes payable
Management believes the carrying value of their notes payable
represents the fair value of these financial instruments because
their terms, now in default, are similar to those in the lending
market for comparable loans with comparable risks.
15. OTHER EVENTS
In April, 1996, an option to purchase preferred stock shares
of the Company was issued to Coast Pacific, Inc. of San Francisco,
California, at a per share price equal to 60% of the trading price
of the Company's common stock. In May, 1996, the Company issued
6,000,000 shares of its common stock for $300,000 cash.
Notes receivable
During 1996, the Company discovered that an additional
$1,975,000 of notes receivable were issued in exchange for common
stock in 1994 (Note 3) but the common stock was not issued. The
Company will issue the common stock when the notes are paid.
Accordingly, the Company has reserved this amount because of the
uncertainty of the notes being collected.
Other matters
In March, 1996, the Company, EDP and some former officers,
directors, consultants, affiliates and offshore entities were
named as defendants in an action brought by a stockholder in the
United States District Court for the Southern District of Ohio.
No damages were sought from the Company and the Company was later
dismissed as a defendant.
In 1996, the Company made demand for payment from EDP,
Michael King and various offshore entities for the $4,264,226
principal of notes payable to the Company. To date, no responses
have been received.
<PAGE>
ITEM 2 MANAGEMENT'S DISCOUNT AND ANALYSIS OR PLAN OF
OPERATION
GENERAL
The Company was incorporated as Market
Investments, Inc. under the laws of the State of Delaware
on March 18, 1991, with the purpose of merging with an
ongoing business and/or to acquire a company. Effective
December 31. 1992, Market Investment, Inc. exchanged
14,000,000 shares of previously unissued common stock for
all of the outstanding common stock of Cash Can, Inc., a
development-stage company. As part of the transaction,
two holders of Market Investments, Inc. common stock
returned an aggregate of 9,905,000 shares to Market
Investments, inc. For accounting purposes the acquisition
has been treated as a recapitalization of Cash Can, Inc.,
with Cash Can, Inc. as the acquirer, and a subsequent
issue of stock for cash (a reverse acquisition). Since
Market Investments, Inc. was a public "shell" with no
operations, this transaction has not been considered a
business combination and, accordingly, no pro forma
financial statements have been presented. The occurrence
of the first financial activity of Cash Can, Inc., August
8, 1992 will be used as the inception date for the purpose
of reporting results of operations for the Company. In
April 1993, the Company changed its name to its present
name Cash Can Incorporated. The Company also holds a
wholly owned subsidiary, Aluminum Processing, Inc., which
was formally known as Cash Can, Inc. which has been
completely inactive since December 31, 1992.
The Company is engaged in recycling and
promotional marketing activities on a local, regional,
national and intends eventually to do so at the
international level. The Company's strategy is to bring
quality products and services to the marketplace to
provide consumers, merchants, manufacturers, and investors
alike an opportunity to become involved in the recycling
industry.
Eddie E. Moore submitted his resignation as President
and CEO of the Company by letter dated February 9, 1996.
Michael J. King stated on February 21, 1996 that he
submitted his resignation as Chairman of the Board of
Director effective February 23, 1996. At a Special
Meeting of the Company's Board of Directors held on
February 26, 1996, the remaining directors, Robert A.
Phillips and Eugene L. Fry, accepted the resignations of
Eddie E. Moore and Michael J. King and appointed Arthur
E. Juhl to fill the vacancy on the Board of Directors by
appointing him Chairman of the Board and also appointing
him President and Chief Executive Officer. The Board of
Directors granted Arthur E. Juhl the autonomous power to,
among other things, appoint replacement Board members to
fill any vacancies resulting from resignations.
On March 19, 1996, in separate letters, Eugene L. Fry
and Robert A. Phillips resigned as Directors. On March
20, 1996, the Board of Directors accepted the resignations
of Eugene L. Fry and Robert A. Phillips as Directors and
appointed Alan Khoo and Thomas R. Malanca as to fill the
vacancies created by the resignations.
As of February, 1996, the new management representing
the Company is also involved in negotiations with PAG to
provide financing for the construction of additional
reverse vending machines ("RV"). The construction would
occur in Argentina where PAG would build and own a
manufacturing plant and would be in charge of selling the
RV machines to local customers under an arrangement
whereby the Company would receive a royalty of
approximately $3,000-$4,000 per unit plus a to be
negotiated percentage of advertising income derived from
advertising placed on the units. There can be no
assurance that these negotiations will result in a binding
contract or that such contract will be upon the terms
described herein.
<PAGE>
Subsequent to March 31, 1996, the Company entered
into a marketing and licensee agreement with Pacific
Atlantic Group ("PAG"). PAG is currently conducting
research and development activity in order to facilities
the design of a Cash Can unit which will applied to a
large target market segment. Due to financing and
specific site requirement for the physical placement of
a Cash Can unit, many potential customers were precluded.
PAG is working to overcome these huddles. The result is
anticipated by management to be a product which will allow
the Company to receive licensee fees and royalties and
furthermore resulting in a reducd level of business risk
to the Company. This may be achieved by eliminating the
Company's need to secure working capital and manufacturing
assets while allowing the Company to continued with
marketing activities.
LIQUIDITY AND CAPITAL RESOURCES
As a development stage company, a siglnificant amount
of the funds utilized by the Company were from financing
activities. The Company does not have any line of credit
or other financing arrangements with any financial
institutions. During the quarter ended March 31, 1996,
the Company relied upon debt and equity funds to sustain
business operations. As such, the Company resources of
external financing are and have been limited.
Historically, the Company has relied upon shareholders
and venture capital investors to fund business operations
and the Company must continue to do so in the foreseeable
future.
The Company's continued existence is dependent upon its
ability to generate cash flow from debt or equity sources.
There is no guarantee that the Company can secure
adequate cash flow to sustain business operations.
Failure to obtain additional working capital funds could
adversely affect the Company's liquidity in the
foreseeable future.
The Company, intends to cover short term cash needs
through short term debt, account payable, financing and
possible sales and/or licensing of proprietary technology.
Subsequent to March 31, 1996, the Company has been
involved in negotiations with parties whose intent is to
secure the sale and placement of Cash Can units or utilize
the licensee of components of Cash Can owned technologies
to benefit the Company. The Company may receive license
and royalty fees. Recognition of revenue from sales and
license agreements is dependent upon the partners ability
to obtain sales and/or advertising contracts. While
pursuing additional financing, the Company must continue
to operate on limited cash flow.
During March 31, 1996 period, the Company entered
into a consulting agreement with Coast Pacific Financial
for assistance in market development and locating
financing sources for sales and working capital. CPF
subsequently advanced $29,435 to the Company for services
and operating funds.
During the quarter ended March 31, 1996, the Company
sold two units which were placed in the Springfield,
Missouri metro area. These units were repossessed from
an operator in Salt Lake, Utah who failed to fulfill the
purchase agreements. The units were partially complete
and held at no inventory value as the Company had no
valuation basis for a true market value for repossessed
and/or used Cash Can units, as such, there was no cost of
goods sold on the sale of $14,000. In this quarter ended
September 30, 1995, the Company has no sales of units.
The Company had a net loss from operating activities
of ($407,506) for the period ended September 30, 1996 as
compared to an operating loss of ($182,625) for the similar
period of 1995. Depreciation decreased significantly during
the quarter ending September 30, 1996 from the prior period
in 1995 due to disposal of equipment. During the period
ended September 30, 1996, the Company exchanged $279,750 in
<PAGE>
consulting and professional fees for common stock as
compared to $21,000 during the similar period in 1995.
During the period ended June 30, 1996, new management
assumed control of the Company, also during this period,
the general business activity level was less than the
similar period of 1995. As a result the Company had fewer
employees and officers on the payroll. Salaries, benefits
and payroll taxes were approximately $25,000 as compared to
$113,525 from the similar quarter in 1995. Selling and
promotion expenses were $8,659, compared to 1995 similar
quarter of $374, due to the company undertaking a new
marketing campaign.
The Company had an increase of $50,000 in Inventory
from a prior period sale of two units during 1996 purchased
for the Olympic games in Atlanta, Georgia. There was also an
increase in Advances to Employees from year end 1995 to
September 30, 1996.
Another material change resulting from the decreased
level of business activities during the comparable periods
ended September 30, 1996 and 1995 which is contributed by
accrued expenses. Accrued expense increased by $10,000
during the 1996 period due to a reclassification to accounts
payable from a prior period.
<PAGE>
PART II - OTHER INFORMATION
NOT APPLICABLE
<PAGE>
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, on the 18th day of
November, 1996
CASH CAN INCORPORATED
By: /s/Arthur E. Juhl/
Arthur E. Juhl
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Arthur E. Juhl President and November 18, 1996
Chief Executive Officer
Peter P. Bolles Chief Financial Officer November 18, 1996
</TABLE>
