FORM 10-QSB for Rhino Ecosystems Inc
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended: October 31, 2001
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from: ______________ to: _______________
Commission file number 0-28313
RHINO ECOSYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0939751
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
40 Trowers Road, Woodbridge, Ontario, Canada L4L 7K6
(Address of principal executive offices)
(905) 264-0198
(Issuer's telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
At October 31, 2001 there were 8,916,251 shares of common stock, $.0001 par
value, outstanding of a total authorized 25,000,000 shares.
RHINO ECOSYSTEMS, INC.
Page
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PART I FINANCIAL INFORMATION
Item 1 - Interim Consolidated Financial Statements ................... 4
Interim Consolidated Balance Sheet as of October 31, 2001
(Unaudited) ..................................................... 5
Interim Consolidated Statement of Operations
for the three months ended October 31, 2001 and 2000
and cumulative from inception on June 7, 1996 to
October 31, 2001 (Unaudited) ..................................... 6
Interim Consolidated Statement of Stockholder`s Equity
(Deficiency) Comprehensive Loss for the three months ended
October 31, 2001 (Unaudited) ..................................... 7
Interim Consolidated Statement of Cash Flows for the three
months ended October 31, 2001 and 2000 and cumulative from
inception on June 7, 1996 to October 31, 2001 (Unaudited) ........ 8
Notes to Interim Consolidated Financial Statements ............... 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........................11
PART II OTHER INFORMATION
Item 1 - Legal Proceedings ............................................12
Item 6 - Exhibits and Reports on Form .................................12
SIGNATURES ..................................................................13
2
PART I. Financial Information
Item 1. Financial Statements
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted from the following
financial statements pursuant to the rules and regulations of the Securities
Exchange Commission. It is suggested that the following financial statements be
read in conjunction with the year-end consolidated financial statements and
notes thereto included in the Company's registration statement on Form 10-KSB
for the year ended July 31, 2001.
The results of operations for the first quarter period (August 1, 2001 to
October 31,2001) are not necessarily indicative of the results to be expected
for the entire fiscal year or for any other period.
3
Interim Consolidated Financial Statements
(Stated in United States dollars)
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Three months ended October 31, 2001
(Unaudited)
4
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Balance Sheet
(Stated in United States dollars)
--------------------------------------------------------------------------------
October 31, July 31,
2001 2001
--------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Accounts receivable (allowance for
doubtful accounts - October 31,
2001- nil; July 31, 2001 - nil) $ 20,501 $ 21,674
Goods and services tax recoverable 10,677 5,859
Inventory 79,259 125,028
Prepaid expenses and deposits (note 3) 107,230 15,280
--------------------------------------------------------------------------------
217,667 167,841
Fixed assets 15,589 23,212
Patent 105,391 107,330
--------------------------------------------------------------------------------
$ 338,647 $ 298,383
================================================================================
Liabilities and Stockholders' Deficiency
Current liabilities:
Bank indebtedness $ 54,777 $ 18,537
Accounts payable and accrued liabilities 295,772 319,807
Loans payable 25,178 26,101
Due to related parties 230,288 256,042
Current portion of long-term debt 19,670 22,087
--------------------------------------------------------------------------------
625,685 642,574
Long-term debt 77,041 84,969
Stockholders' deficiency:
Share capital:
Common stock, $0.0001 per share:
Authorized - 25,000,000
Issued and outstanding shares -
8,916,251 - October 31, 2001
and 7,561,251 - July 31, 2001 892 756
Additional paid-in capital 2,019,427 1,924,713
Deficit accumulated during development
stage (2,406,256) (2,362,036)
Accumulated other comprehensive income:
Cumulative foreign currency translation
adjustment 21,858 7,407
--------------------------------------------------------------------------------
(364,079) (429,160)
--------------------------------------------------------------------------------
$ 338,647 $ 298,383
================================================================================
See accompanying notes to interim consolidated financial statements.
5
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Operations
(Stated in United States dollars)
Three months ended October 31, 2001 and 2000 and cumulative
from inception on June 7, 1996 to October 31, 2001
(Unaudited)
-----------------------------------------------------------------------------------
Cumulative
period from
inception on
June 7, 1996 to
2001 2000 October 31, 2001
-----------------------------------------------------------------------------------
Sales and other income $ 121,059 $ 47,114 $ 656,045
Expenses:
Cost of goods sold (excluding
amortization of fixed assets) 62,750 10,622 248,446
Marketing 18,179 8,704 650,804
Professional and consulting fees 796 15,257 605,175
Amortization of fixed assets 6,929 27,941 330,454
Office salaries, benefits and services 33,997 28,507 421,402
Rent 14,305 9,134 188,085
Research and product development - 3,309 109,842
Telephone 2,615 2,833 52,280
Office and general 3,401 4,523 72,527
Bank charges and interest 14,461 5,174 91,245
Interest on long-term debt 2,370 3,242 47,524
Travel and promotion 500 3,474 84,043
Utilities 798 651 14,487
Royalties 3,521 883 16,506
Insurance 657 687 7,881
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165,279 124,941 2,940,701
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----------------------------------------------------------------------------------
Loss for the period before
extraordinary item (44,220) (77,827) (2,284,656)
Extraordinary item:
Loss on extinguishment of debt - - (121,600)
----------------------------------------------------------------------------------
Loss for the period $ (44,220) $ (77,827) $(2,406,256)
==================================================================================
Loss per common share, basic and diluted:
Loss per common share, basic and
diluted, before extraordinary item $ (0.01) $ (0.01) $ (0.52)
Loss per common share, basic and
diluted $ (0.01) $ (0.01) $ (0.54)
==================================================================================
Weighted average number of common shares
outstanding, basic and diluted 7,574,667 6,525,539 4,434,739
==================================================================================
See accompanying notes to interim consolidated financial statements.
6
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Stockholder's Equity (Deficiency)
and Comprehensive Loss
(Stated in United States dollars)
Three months ended October 31, 2001
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
Deficit
accumulated Accumulated
Common stock Additional during other Total
Number of Par paid-in development comprehensive shareholders' Comprehensive
shares value capital stage income deficiency loss
-------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2001 7,561,251 $ 756 $1,924,713 $(2,362,036) $ 7,407 $ (429,160)
Shares issued for
services (note 3) 1,355,000 136 94,714 - - 94,850
Loss for the period - - - (44,220) - (44,220) $ (44,220)
Foreign currency
translation adjustment - - - - 14,451 14,451 14,451
------------
$ (29,769)
============
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Balance, October 31, 2001 8,916,251 $ 892 $2,019,427 $(2,406,256) $ 21,858 $ (364,079)
===================================================================================================================
See accompanying notes to interim consolidated financial statements.
7
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Cash Flows
(Stated in United States dollars)
Three months ended October 31, 2001 and 2000 and cumulative
from inception on June 7, 1996 to October 31, 2001
(Unaudited)
-----------------------------------------------------------------------------------
Cumulative
period from
inception on
June 7, 1996 to
2001 2000 October 31, 2001
-----------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the period $ (44,220) $ (77,827) $(2,284,656)
Adjustments to reconcile
loss for the period to net cash:
Amortization of fixed assets 6,929 27,941 330,454
Accounts receivable 1,173 (6,808) (20,501)
Goods and services tax recoverable (4,818) 2,430 (10,677)
Inventory 45,769 (1,751) (79,259)
Prepaid expenses and deposits (91,950) 1,012 (107,230)
Accounts payable and accrued
liabilities (24,035) (101,058) 295,772
Due to related parties (25,754) (55,083) 94,387
Deferred revenue - (3,330) -
Issuance of share capital for
services (note 3) 94,850 - 122,630
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(42,056) (214,474) (1,659,080)
Financing:
Bank indebtedness (repaid) 36,240 (8,806) 54,777
Proceeds from loans payable - 39,152 39,152
Principal repayments on loans payable - - (13,051)
Proceeds from long-term debt - - 165,355
Principal repayments on long-term debt (10,345) (8,153) (68,644)
Due to related parties - 152,520 264,301
Advances from Rhino U.S. - - 925,317
Issuance of share capital - - 696,979
Share issue costs - - (44,689)
Loans payable - - 70,082
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25,895 174,713 2,089,579
Investments:
Proceed on disposal of capital assets - - 2,834
Expenditures on fixed assets - (1,405) (449,025)
Expenditures on patent (1,891) (953) (109,221)
Investment tax credits - 33,054 99,634
-----------------------------------------------------------------------------------
(1,891) 30,696 (455,778)
Other:
Foreign currency translation
adjustment 18,052 11,246 25,279
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-----------------------------------------------------------------------------------
Increase in cash - 2,181 -
Cash, beginning of period - - -
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Cash, end of period $ - $ 2,181 $ -
===================================================================================
Supplemental information (note 4)
See accompanying notes to interim consolidated financial statements.
8
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements
(Stated in United States dollars)
Three months ended October 31, 2001
(Unaudited)
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1. Nature of business:
Rhino Ecosystems, Inc. (the "Company") is incorporated under the laws of
the State of Florida. The Company is considered to be a development stage
enterprise, as from inception, the Company and its wholly owned subsidiary
have been primarily engaged in developing the manufacturing process for a
wet waste interceptor and has had no significant revenue derived from
operations.
2. Basis of presentation:
(a) The financial information presented in the interim consolidated
financial statements is unaudited and was prepared in accordance with
accounting principles and practices generally accepted in the United
States of America consistent with those used and described in the
annual financial statements for the year ended July 31, 2001. However,
such financial information reflects all adjustments, consisting solely
of normal recurring adjustments, necessary to a fair presentation of
the results of operations and financial position for the periods
presented.
These unaudited interim consolidated financial statements should be
read in conjunction with the notes to the Company's annual audited
consolidated financial statements for the year ended July 31, 2001
filed on Form 10 KSB.
(b) Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. Intercompany balances and
transactions are eliminated on consolidation.
(c) Future operations:
These interim consolidated financial statements have been prepared
assuming the Company will continue as a going concern notwithstanding
the Company has suffered recurring losses since inception and has
negative working capital and a net capital deficiency that raise
substantial doubt as to its ability to continue as a going concern.
The application of the going concern concept which assumes the
realization of assets and liquidation of liabilities and commitments
in the normal course of business, is dependent on the Company's
ability to attain profitable operations and obtain sufficient cash
from external financing to meet the Company's liabilities and
commitments as they become payable. Management is of the opinion that
sufficient working capital will be obtained from operations and
external financing to meet the Company's liabilities and commitments
as they become payable.
9
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements (continued)
(Stated in United States dollars)
Three months ended October 31, 2001
(Unaudited)
--------------------------------------------------------------------------------
2. Basis of presentation (continued):
However, no additional financing sources have been contracted to
October 31, 2001 and there can be no certainty as to the availability
of such financing in the future. Failure to identify additional
financing in the near term may require the Company reduce its
operating activities. A failure to continue as a going concern would
require that stated amounts of assets and liabilities be reflected on
a liquidation basis which could differ from the going concern basis.
3. Share capital services:
On October 26, 2001, the Company issued 1,355,000 common shares as
consideration for investor relations services to be provided from November
1, 2001 to July 31, 2002. A value of $94,850 was assigned to the investor
relations services, based on the market price of the shares at date of
issuance. At October 31, 2001, prepaid expenses and deposits included
$94,850 related to such services. The 1,355,000 common shares were issued
under Section 4(2) Restricted Rule 144 shares of the Securities Act of 1933
and are restricted for one year.
4. Supplemental information to interim consolidated statement of cash flows:
--------------------------------------------------------------------------------
Cumulative
period from
inception on
June 7, 1996 to
2001 2000 October 31, 2001
--------------------------------------------------------------------------------
(a) Cash paid during the period for:
Interest $ 16,326 $ 7,639 $ 99,928
Income taxes - - -
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(b) Non-cash financing activities:
For the three months ended October 31, 2001, 1,355,000 common shares
were issued to compensate for investor relations services (note 3).
10
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
The following discussion and analysis of the Company's consolidated financial
condition and results of operation for Quarter ending October 31, 2001, should
be read in conjunction with the Company's interim consolidated financial
statements included elsewhere herein. When used in the following discussions,
the words "believes," "anticipates," "intends," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, which could cause results to
differ materially from those projected.
General Discussion of the Company
The Company is primarily engaged in the design, development, and assembly,
marketing and sale of a unique patented wet waste interceptor plumbing product
called the RHINO WET WASTE INTERCEPTOR SYSTEM. During the fiscal year ended July
31, 2001 ("fiscal 2001"), as well as prior years, the Company's management has
concentrated its time and efforts on ensuring that the Rhino Wet Waste
Interceptor product line be designed and developed into a product line that can
be manufactured efficiently and consistently to meet a wide variety of end users
needs.
During fiscal 2001, and during the first quarter of fiscal 2002 Rhino has
continued to market it's product line throughout North America to raise the
products awareness in the market place and to increase the number of Rhino
Dealers. The Company has succeeded in both objectives. As of the quarter ended
October 31, 2001, direct Rhino Dealerships total 25 and total another 12
indirect representatives associated with Watts Industries (Canada) Ltd.
Total revenues generated through this dealership organization increased to $121
thousand during the first quarter of fiscal 2002. This represents an increase in
revenues of approximately 256% when compared to the same time period of fiscal
2001. The increase in revenues did result in a decrease in the loss for the
first quarter of fiscal 2002 versus the first quarter of fiscal 2001, $ 44,220
versus $ 77,827 respectively. A decrease in the loss of 44%. The revenue gains
made were used to increase expenditures in sales and marketing expenses to
continue to promote the Rhino product line in North America, and partially fund
increases in rent, bank charges and interest expenses. Increase in revenues
during the remaining portion of fiscal 2002 is expected to increase as current
dealer's increase their sales and additional Rhino dealership are sold.
During this time period, the Company attended trade shows in the United States
and Canada plus advertised in hospitality trade publications. All activities are
geared towards raising the public's awareness of the Rhino Wet Waste Interceptor
product line and the benefits that it can provide for the end user and the
environment.
The Company intends to continue this sales and marketing approach to raise the
general public's awareness of the Rhino wet waste interceptor product line and
to obtain a distribution network of exclusive and non-exclusive dealers. The
Company intends to supply quality, manufactured products to a professionally
trained and dedicated dealer network.
11
Liquidity and Capital Resources
During the past four fiscal years, the Company has financed its operations
primarily through cash provided through various short and long term credit
facilities and through the private sale of its securities pursuant to applicable
offering exemptions. Company's management believes that sufficient funds will be
raised from future operations so as to minimize the need for future equity
capitalization.
In addition, management of the Company believes the needs for additional capital
going forward will be derived somewhat from internal revenues and earnings
generated from the sale of its products and services and the balance from
external funding of $ 250 thousand. If the Company is unable to begin to
generate revenues from its anticipated products, management believes the Company
will need to raise additional funds to meet its cash requirements from doing
private placements of company securities. Failure to identify additional
financing in the near term may require the Company to reduce its operating
activities.
This document and other documents filed by the Company with the Securities and
Exchange Commission (the "SEC") contain certain forward-looking statements under
the Private Securities Litigation Reform Act of 1995 with respect to the
business of the Company. These forward-looking statements are subject to certain
risks and uncertainties, including those mentioned above, which may cause actual
results to differ significantly from these forward-looking statements. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be necessary to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including those mentioned above and those which are detailed from time to time
in the Company's SEC filings.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending or threatened legal proceedings against the Company.
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed by the registrant for the quarter ending
October 31, 2001.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
RHINO ECOSYSTEMS, INC.
Dated: December 15, 2001 By: /s/ Mark Wiertzema
-----------------------
Mark Wiertzema
Chief Financial Officer
13