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 and six months ended: January 31, 2002
|_| 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 January 31, 2002 there were 8,916,251 shares of common stock, $.0001 par
value, outstanding of a total authorized 25,000,000 shares.
RHINO ECOSYSTEMS, INC.
PART I FINANCIAL INFORMATION
Item 1 - Interim Consolidated Financial Statements ................... 3
Interim Consolidated Balance Sheet as of January 31, 2002
(Unaudited) ..................................................... 4
Interim Consolidated Statement of Operations
for the three and six months ended January 31, 2002 and 2001
and cumulative period from inception on June 7, 1996 to
January 31, 2002 (Unaudited) ..................................... 5
Interim Consolidated Statement of Stockholders' Equity
(Deficiency) Comprehensive Loss for the six months ended
January 31, 2002 and cumulative period from inception on
June 7, 1996 to January 31, 2002 (Unaudited)..................... 6-7
Interim Consolidated Statement of Cash Flows for the three
and six months ended January 31, 2002 and 2001 and
cumulative period from inception on June 7, 1996 to
January 31, 2002 (Unaudited) ..................................... 8
Notes to Interim Consolidated Financial Statements .............. 9-10
Item 2 - Management's Discussion and Analysis..........................11
PART II OTHER INFORMATION
Item 1 - Legal Proceedings ............................................16
Item 6 - Exhibits and Reports on Form .................................16
SIGNATURES ..................................................................17
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 second quarter period (November 1, 2001 to
January 31,2002) and for six months (August 1, 2001 to January 31, 2002) are not
necessarily indicative of the results to be expected for the entire fiscal year
or for any other period.
Interim Consolidated Financial Statements
(Stated in United States dollars)
RHINO ECOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Six months ended January 31, 2002
(Unaudited)
- 3 -
RHINO ECOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Balance Sheet
(Stated in United States dollars)
-------------------------------------------------------------------------------
January 31, July 31,
2002 2001
- -------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Accounts receivable, net of allowance
for doubtful accounts - $nil;
(July 31, 2001 - $nil) $ 16,792 $ 21,674
Goods and services tax recoverable 8,488 5,859
Inventory 19,373 125,028
Prepaid expenses and deposits 14,507 15,280
- -------------------------------------------------------------------------------
59,160 167,841
Fixed assets 8,759 23,212
Patent 108,467 107,330
- -------------------------------------------------------------------------------
$ 176,386 $ 298,383
-------------------------------------------------------------------------------
Liabilities and Stockholders' Deficiency
Current liabilities:
Bank indebtedness $ 8,535 $ 18,537
Accounts payable and accrued liabilities 328,343 319,807
Loans payable 25,200 26,101
Due to related parties 234,306 256,042
Current portion of long-term debt 19,688 22,087
- -------------------------------------------------------------------------------
616,072 642,574
Long-term debt 72,187 84,969
Stockholders' deficiency:
Share capital:
Common stock, $0.0001 per share:
Authorized - 25,000,000
Issued and outstanding shares
- 8,916,251 - January 31, 2002
and 7,561,251 - July 31, 2001 892 756
Additional paid-in capital 2,019,427 1,924,713
Deficit accumulated during
development stage (2,552,734) (2,362,036)
Accumulated other comprehensive income:
Cumulative foreign currency
translation adjustment 20,542 7,407
- -------------------------------------------------------------------------------
(511,873) (429,160)
- -------------------------------------------------------------------------------
$ 176,386 $ 298,383
-------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
- 4 -
RHINO ECOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Operations
(Stated in United States dollars)
Three and six months ended January 31, 2002 and 2001 and cumulative period from
inception on June 7, 1996 to January 31, 2002
(Unaudited)
-----------------------------------------------------------------------------------------------------------
Cumulative
period from
Three months ended Six months ended inception on
January 31, January 31, June 7, 1996 to
2002 2001 2002 2001 January 31, 2002
- -----------------------------------------------------------------------------------------------------------
Sales and other income $ 116,660 $ 37,345 $ 237,719 $ 84,460 $ 772,705
Expenses:
Cost of goods sold (excluding
amortization of fixed assets) 43,485 15,764 106,235 26,386 291,931
Marketing 33,315 17,803 51,494 26,507 684,119
Professional and consulting fees 26,524 92,640 122,170 107,896 726,549
Amortization of fixed assets 7,039 27,941 13,968 55,882 337,493
Office salaries, benefits and
services 30,121 41,847 64,118 70,354 451,523
Rent 7,307 10,603 21,612 19,737 195,392
Research and product
development - 844 - 4,153 109,842
Telephone 3,140 4,030 5,755 6,864 55,420
Office and general 4,132 2,960 7,533 7,483 76,659
Bank charges and interest 4,992 6,355 19,453 11,529 96,237
Interest on long-term debt 1,597 2,945 3,967 6,187 49,121
Travel and promotion 104 2,400 604 5,874 84,147
Utilities 1,945 1,211 2,743 1,863 16,432
Royalties 3,740 1,345 7,261 2,228 20,246
Insurance 847 679 1,504 1,366 8,728
- -----------------------------------------------------------------------------------------------------------
168,288 229,367 428,417 354,309 3,203,839
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Loss for the period before
extraordinary item (51,628) (192,022) (190,698) (269,849) (2,431,134)
- -----------------------------------------------------------------------------------------------------------
Extraordinary item:
Loss on extinguishment of debt - - - - (121,600)
- -----------------------------------------------------------------------------------------------------------
Loss for the period $ (51,628) $ (192,022) $ (190,698) $ (269,849) $ (2,552,734)
-----------------------------------------------------------------------------------------------------------
Loss per common share, basic
and diluted:
Loss per common share,
basic and diluted, before
extraordinary item $ (0.01) $ (0.03) $ (0.02) $ (0.04) $ (0.59)
Loss per common share,
basic and diluted $ (0.01) $ (0.03) $ (0.02) $ (0.04) $ (0.62)
-----------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding,
basic and diluted 8,196,251 6,538,872 8,012,918 6,535,539 4,117,229
-----------------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
- 5 -
RHINO ECOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Stockholders' Equity (Deficiency)
and Comprehensive Loss
(Stated in United States dollars)
Six months ended January 31, 2002 and cumulative period from inception on
June 7, 1996 to January 31, 2002
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
Deficit
Common stock accumulated Accumulated
Additional during other
Number of Par paid-in development comprehensive Comprehensive
Shares value capital stage income (loss) Total income (loss)
- -------------------------------------------------------------------------------------------------------------------
Shares issued on
incorporation 100 $ - $ 73 $ - $ - $ 73
Loss for the period - - - (82,467) - (82,467) $ (82,467)
Foreign currency
translation adjustment - - - - 682 682 682
- ----------------------------------------------------------------------------------------------------- -------------
$ (81,785)
=============
Balance, July 31, 1997 100 - 73 (82,467) 682 (81,712)
Shares issued for:
Cash 4,746,729 475 608,642 - - 609,117
Services 20,000 2 14,013 - - 14,015
Cash and conversion
of loans 758,710 76 157,795 - - 157,871
------------------------------------------------------------------------------------------------
5,525,439 553 780,450 - - 781,003
Less share issue
costs - - (44,689) - - (44,689)
------------------------------------------------------------------------------------------------
5,525,439 553 735,761 - - 736,314
- -----------------------------------------------------------------------------------------------------
Loss for the period - - - (366,151) - (366,151) $ (366,151)
Foreign currency
translation adjustment - - - - (14,072) (14,072) (14,072)
- ----------------------------------------------------------------------------------------------------- -------------
$ (380,223)
=============
Balance, July 31, 1998 5,525,539 553 735,834 (448,618) (13,390) 274,379
Loss for the period - - - (632,698) - (632,698) $ (632,698)
Foreign currency
translation adjustment - - - - 7,946 7,946 7,946
- ----------------------------------------------------------------------------------------------------- -------------
$ (624,752)
=============
Balance, July 31, 1999 - 553 735,834 (1,081,316) (5,444) (350,373)
Loss for the period - - - (706,073) - (706,073) $ (706,073)
Recapitalization 1,000,000 100 925,217 - - 925,317
Foreign currency
translation adjustment - - - - 2,346 2,346 2,346
- ----------------------------------------------------------------------------------------------------- -------------
$ (703,727)
=============
Balance, July 31, 2000 6,525,539 653 1,661,051 (1,787,389) (3,098) (128,783)
Shares issued for:
Services 35,712 3 13,762 - - 13,765
Debt extinguishment 1,000,000 100 249,900 - - 250,000
- -----------------------------------------------------------------------------------------------------
1,035,712 103 263,662 - - 263,765
Loss for the period - - - (574,647) - (574,647) $ (574,647)
Foreign currency
translation adjustment - - - - 10,505 10,505 10,505
-------------
$ (564,142)
=============
- -----------------------------------------------------------------------------------------------------
Balance, July 31, 2001 7,561,251 $ 756 $ 1,924,713 $(2,362,036) $ 7,407 $(429,160)
-----------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
- 6 -
RHINO ECOSYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Stockholders' Equity (Deficiency)
and Comprehensive Loss (continued)
(Stated in United States dollars)
Six months ended January 31, 2002 and cumulative period from inception on
June 7, 1996 to January 31, 2002
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Deficit
Common stock accumulated Accumulated
Additional during other Total
Number of Par paid-in development comprehensive shareholders' Comprehensive
shares value capital stage income deficiency loss
- ----------------------------------------------------------------------------------------------------------------------
Balance, July 31, 2001,
brought forward 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 - - - (190,698) - (190,698) $ (190,698)
Foreign currency
translation adjustment - - - - 13,135 13,135 13,135
-----------
$ (177,563)
============
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2002 8,916,251 $ 892 $ 2,019,427 $(2,552,734) $ 20,542 $ (511,873)
----------------------------------------------------------------------------------------------------------------------
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 and six months ended January 31, 2002 and 2001 and cumulative period
from inception on June 7, 1996 to January 31, 2002
(Unaudited)
-----------------------------------------------------------------------------------------------------------------
Cumulative
period from
Three months ended Six months ended inception on
January 31, January 31, June 7, 1996 to
2002 2001 2002 2001 January 31, 2002
- -----------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the period
before extraordinary item $ (51,628) $ (192,022) $ (190,698) $ (269,849) $ (2,431,134)
Items not affecting cash:
Amortization of fixed assets 7,039 27,941 13,968 55,882 337,493
Issuance of share capital for
services (note 3) - - 94,850 - 122,630
Changes in operating assets
and liabilities:
Accounts receivable 3,709 (9,586) 4,882 (16,394) (16,792)
Goods and services tax
recoverable 2,189 (7,843) (2,629) (5,413) (8,488)
Inventory 59,886 10,682 105,655 8,931 (19,373)
Prepaid expenses and deposits (2,127) 508 773 1,520 (14,507)
Accounts payable and
accrued liabilities 32,571 147,670 8,536 46,612 328,343
Due to related parties 4,018 27,529 (21,736) (27,554) 98,405
Deferred revenue - (472) - (3,802) -
- -----------------------------------------------------------------------------------------------------------------
55,657 4,407 13,601 (210,067) (1,603,423)
Financing:
Bank indebtedness (repaid) (46,242) - (10,002) (8,806) 8,535
Proceeds from loans payable - - - 39,152 109,234
Principal repayments on
loans payable - - - - (13,051)
Proceeds from long-term debt - - - - 165,355
Principal payments on
long-term debt (4,836) (3,638) (15,181) (11,791) (73,480)
Due to related parties - - - 152,520 264,301
Advances from Rhino U.S. - - - - 925,317
Issuance of share capital - 7,480 - 7,480 696,979
Share issue costs - - - - (44,689)
- -----------------------------------------------------------------------------------------------------------------
(51,078) 3,842 (25,183) 178,555 2,038,501
Investments:
Proceeds on disposal
of capital assets - - - - 2,834
Expenditures on fixed assets - - - (1,405) (449,205)
Expenditures on patent (2,978) (1,859) (4,869) (2,812) (112,199)
Investment tax credits - - - 33,054 99,634
- -----------------------------------------------------------------------------------------------------------------
(2,978) (1,859) (4,869) 28,837 (458,936)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during period 1,601 6,390 (16,451) (2,675) (23,858)
Effect of exchange rate changes
on cash balances (1,601) (2,918) 16,451 8,328 23,858
Cash, beginning of period - 2,181 - - -
- -----------------------------------------------------------------------------------------------------------------
Cash, end of period $ - $ 5,653 $ - $ 5,653 $ -
-----------------------------------------------------------------------------------------------------------------
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)
Six months ended January 31, 2002
(Unaudited)
--------------------------------------------------------------------------------
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. The Company has
suffered recurring losses since inception and has a working capital
deficiency at January 31, 2002 of $556,912 that raise substantial
doubt as to its ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. 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 planned external debt or equity financings 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)
Six months ended January 31, 2001
(Unaudited)
--------------------------------------------------------------------------------
2. Basis of presentation (continued):
However, no additional financing sources have been contracted to
January 31, 2002 and there can be no certainty as to the availability
of such financing in the future. Failure to identify additional
financing sources 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. For the six months ended January 31, 2002, professional and
consulting fees include $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
Three months ended Six months ended inception on
January 31, January 31, June 7, 1996 to
2002 2001 2002 2001 January 31, 2002
- ----------------------------------------------------------------------------------------------------
(a) Cash paid during the
period for:
Interest $ 6,117 $ 8,207 $ 22,443 $ 15,665 $ 106,045
Income taxes - - - - -
- ----------------------------------------------------------------------------------------------------
(b) Non-cash financing activities:
For the six months ended January 31, 2002, 1,355,000 common shares
were issued to compensate for investor relations services (note 3).
- 10 -
Item 2. Management's Discussion and Analysis
The following discussion and analysis of the Company's consolidated financial
condition and results of operation for the three and six months ended January
31, 2002 should be read in conjunction with the Company's 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.
OVERVIEW
Rhino Ecosystems, Inc. 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 ensuring that the Rhino Wet
Waste Interceptor product line be designed and developed into a product that can
be manufactured efficiently and consistently to meet a wide variety of end users
needs. This goal was achieved during fiscal 2001. However, product development
is an on going process and will continue as permitted by our cash resources.
During fiscal 2001 and the first six months of fiscal 2002, Rhino has
concentrated on marketing its product line aggressively throughout North America
to raise the publics awareness of Rhino's patented product line of Wet Waste
Interceptors. This is being done through attendance at strategic hospitality
trade shows and through specialized trade publications featuring new business
opportunities. The responses to these marketing efforts have been positive.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 2002
AND JANUARY 31, 2001
REVENUE
Total revenue increased by $79,315 (212%) to $116,660 for the quarter ended
January 31, 2002 from $37,345 for the quarter ended January 31, 2001. For the
six months ended January 21, 2002 total revenue increased by $153,259 (181%) to
$237,719 for the same period ended January 31, 2001. The increase in revenue is
the result of our continuing promotional efforts that have resulted in a Dealer
complement of 53 throughout North America and the Caribbean. Revenues are
expected to grow as the Company continues to focus on expanding it Dealer
Network.
EXPENSES
Cost of goods sold (excluding amortization of fixed assets)
The cost of goods sold consists primarily of purchases of manufactured units
from third parties, assembly and delivery. Cost of sales increased to $43,485
for the three months ended January 31, 2002 from $15,764 for the same period
in the previous fiscal year.
- 11 -
For the six months ended January 31, 2002 the cost of goods sold increased
$79,849 (302%) from $26,386 for the six months ended January 31, 2001 to
$106,235. When represented as a percentage of total revenue, the cost of goods
sold for the six months ended January 31, 2002 was 45% compared to 31% for the
comparative period January 31, 2001.
During the three months ended January 31, 2002 we realized a gross margin of
approximately 63%, compared to approximately 57% for the three months ended
January 31, 2001. The rate of gross margin varies as a result of adjusting our
selling prices as deemed appropriate and negotiating price reductions with our
suppliers. We continually review our pricing to provide a planned rate of gross
margin of 50%. As more Rhino units are installed and become operational,
replacement filter sales will increase and the planned gross margin will be
realized and/or be surpassed on a constant basis.
Marketing
Marketing consists primarily of marketing literature, attendance at trade shows
and recruiting dealers. Marketing expenses increased to $33,315 during the
three months ended January 31, 2002 from a level of $17,803 for the same period
in the previous fiscal year. The increase of $15,512 compared to the prior
fiscal year's period was the result of our dealership campaign and one time
design costs. For the six months ended January 31, 2002 marketing expense
increased $24,987 to $51,494 from $26,507 for the comparative period. This
fiscal year to date comparison and increase is substantially the result of our
current period dealership campaign. The dealership program is achieving the
desired results with the increase of 9 new exclusive dealerships within the
first six months of fiscal 2002. Numerous dealership territories within the
United States, Mexico and Europe are under negotiations and are expected to sign
before fiscal year end.
Professional and consulting fees
Professional and consulting expense consists primarily of professional fees for
legal, accounting, investor relations and advisors services, sales and technical
consulting services and other professional services. Professional and consulting
expense decreased to $26,524 during the three months ended January 31, 2002
from a level of $92,640 for the same period in the previous fiscal year. The
decrease was attributable primarily to a decrease in legal and investor relation
fees. For the six months ended January 31, 2002 professional and consulting fees
expense increased $14,871 to $122,170 for the comparative period.
Amortization of fixed assets
Amortization expense totaled $7,039 during the three months ended January 31,
2002, compared to $27,941 during the three months ended January 31, 2001. For
the six months ended January 31, 2002 and 2001, amortization was $13,968 and
$55,882, respectively. The decrease is the result of a no significant recent
purchases of fixed assets and many fixed assets that have been previously fully
amortized.
- 12 -
Office salaries, benefits and services
Office salaries, benefits and services expense consist of payroll expenses and
related costs of administrative personnel. Office salaries, benefits and
services decreased $11,726 during the three months ended January 31, 2002, from
a level of $41,847 to $30,121 for the same period in the previous fiscal year.
For the six months ended January 31, 2002, office salaries, benefits and
services decreased $6,236 to $64,118 for the comparative period. The fiscal
year to date comparison and decrease is a result of reduced staff and salaries.
Rent
Rent expense consisting of rent for premises decreased $3,296 during the three
months ended January 31, 2002, from a level of $10,603 for the same period in
the previous fiscal year to $7,307. For the six months ended January 31, 2002,
rent expense increased $1,875 to $21,612 for the comparative period. The
fiscal year to date comparison and increase is a result of increased rent for
the premises offset by the recent termination of rental arrangements for offsite
storage.
Research and product development
Research and product development expense decreased $844 during the three months
ended January 31, 2002, from a level of $844 for the same period in the
pervious fiscal year to $ nil. For the six months ended January 31, 2002,
research and product development expense decreased $4,153 to $ nil for the
comparative period. The fiscal year to date comparison and reduction are a
result of not requiring any significant modifications to the products and not
undertaking further research and development due to limited cash resources.
Bank charges and interest
Bank charges and interest expense decreased $1,363 during the three months
ended January 31, 2002, from a level of $6,355 for the same period in the
previous fiscal year to $4,992. For the six months ended January 31, 2002, bank
charges and interest expense increased $7,924 to $19,453. The fiscal year to
date comparison and increase is a result of an increase in the interest paid on
financing provided by related parties. Reduced interest expenses in the current
quarter are due to principal repayments made on related party balances in the
period.
Interest on long-term debt
Interest on long-term debt expense decreased $1,348 during the three months
ended January 31, 2002, from a level of $2,945 for the same period in the
previous fiscal year to $1,597. For the six months ended January 31, 2002,
interest on long-term debt expense decreased $2,220 to $3,967. The fiscal year
to date comparison and decrease is the result of a declining balance of long
term-debt.
- 13 -
Travel and promotion
Travel and promotion expense decreased $2,296 during the three months ended
January 31, 2002, from a level of $2,400 for the same period in the previous
fiscal year to $104. For the six months ended January 31, 2002, travel and
promotion expense decreased $5,270 from the comparative period. Travel and
promotion expenses were reduced due to limited cash resources.
Royalties
Royalties expense increased $2,395 during the three months ended January 31,
2002, from a level of $1,345 for the same period in the previous fiscal year to
$3,740. For the six months ended January 31, 2002, royalties expense increased
$5,033 to $7,261 for the comparative period. The fiscal year to date
comparison and increase is the result of the increase in sales revenue.
Telephone, office and general, utilities and insurance
Telephone, office and general, utilities and insurance expenses totaling
$10,064 during the three months ended January 31, 2002, compared to $8,880
during the three months ended January 31, 2001. For the six months ended
January 31, 2002 and 2001, telephone, office and general, utilities and
insurance expenses were $17,535 and $17,576 respectively.
LIQUIDITY AND CAPITAL RESOURCES
We have negative working capital of ($556,912) at January 31, 2002.
Net cash that was provided by operations was $13,601 during the six months ended
January 31, 2002, as compared to $210,067 used in operations for the same period
in the prior fiscal year. The cash used in financing was $25,183 during the
first half of fiscal 2002 compared to net cash of $178,555 provided by
financing for the comparative period. The decrease in financing from fiscal 2001
to fiscal 2002 is the result of less financing being raised through advances
from related parties. Net cash used in investments was $4,869 during the first
half of fiscal 2002, compared to $28,837 net cash provided for the same period
in fiscal 2001. Net cash used in investments in the period was the result of
expenditures on patent compared to net cash provided in the first half of fiscal
2001 that was largely the result of the receipt of an investment tax credit.
We believe that sufficient working capital will be obtained from operations and
external financing to meet the Company's liabilities and commitments as they
become payable. However, we do not currently have any commitments from any third
party to provide additional financing and may be unable to obtain financing on
reasonable terms or at all. If additional working capital is required and
unavailable we will be forced to curtail our operations.
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CRITICAL ACCOUNTING POLICY
The Company's discussion and analysis of its financial condition and results of
operations, including the discussion on liquidity and capital resources, are
based on its consolidated financial statements that have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires management makes estimates and judgments
that affect reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis,
management reevaluates its estimates and judgments. Management bases its
estimates and judgments on historical experience, contractual arrangements and
commitments and on various other assumptions that it believes are reasonable in
the circumstances. Changes in these estimates and judgments will impact the
amounts recognized in the consolidated financial statements, and the impact may
be material.
Management believes the following critical accounting policy requires more
significant estimates and judgments in the preparation of the consolidated
financial statements.
The consolidated financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of liabilities in
the normal course of operations. If the Company were not to continue as a going
concern, it would likely not be able to realize on its assets at values
comparable to the carrying value or the fair value estimates reflected in the
balances set out in the preparation of the consolidated financial statements. As
described elsewhere in this report, at January 31, 2002, there are certain
conditions that currently exist which raise substantial doubt about the validity
of this assumption. While the Company anticipates that sufficient funds will be
obtained from operations and planned external debt or equity financings to
remove the substantial doubt, these sources of funding are not assured. Failure
to raise additional funds may result in the Company curtailing operations or
writing assets and liabilities down to liquidation values, or both.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
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. From time to time, the Company will make written and
oral forward-looking statements about matters that involve risk and
uncertainties that could cause actual results to differ materially 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.
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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
January 31, 2002.
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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: March 15, 2002 By: /s/ Mark Wiertzema
-----------------------
Mark Wiertzema
Chief Financial Officer
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