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 nine months ended: April 30, 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 the 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 or each of the issuer's classes of
stock, as of the latest practicable date.
At April 30, 2002 there were 8,916,251 shares of common stock, $.0001 par Value,
outstanding of a total authorized 25,000,000 shares.
1
RHINO ECOSYSTEMS INC.
Part I. Financial Information
Item 1 - Interim Consolidated Financial Statements....................3
Interim Consolidated Balance Sheet as of April 30, 2002
(Unaudited) and July 31, 2001..............................F-1
Interim Consolidated Statement of Operations for the
three and nine months ended April 30, 2002 and 2001
and cumulative period from inception on June 7, 1996
to April 30, 2002 (Unaudited)..............................F-2
Interim Consolidated Statement of Stockholders Equity
(Deficiency) and Comprehensive Loss for the nine
months ended April 30, 2002 and cumulative period from
inception on June 7, 1996 to April 30, 2002 (Unaudited)....F-3
Interim Consolidated Statement of Cash Flows for the nine
months ended April 30, 2002 and 2001 and cumulative
period from inception on June 7, 1996 to April 30, 2002
(Unaudited)................................................F-4
Notes to Interim Consolidated Financial Statements...F-5 - F-9
Item 2 - Management's Discussion and Analysis.........................3
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings............................................7
Item 6 - Exhibits and Report on Form 8-K..............................7
SIGNATURES.....................................................................8
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 third quarter period (February 1, 2002 to
April 30, 2002) and for nine months (August 1, 2001 to April 30, 2002) are not
necessarily indicative of the results to be expected for the entire fiscal year
or for any other period.
Nine months ended April 30, 2002
(Unaudited)
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Balance Sheet
(Stated in United States dollars)
- -----------------------------------------------------------------------------------------------
April 30, July 31,
2002 2001
- -----------------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 30,636 $ -
Accounts receivable, net of allowance for doubtful
accounts - $nil; (July 31, 2001 - $nil) 12,970 21,674
Goods and services tax recoverable 12,375 5,859
Inventory 11,251 125,028
Prepaid expenses and deposits 15,301 15,280
- -----------------------------------------------------------------------------------------------
82,533 167,841
Fixed assets 6,363 23,212
Patent 108,114 107,330
- -----------------------------------------------------------------------------------------------
$ 197,010 $ 298,383
- -----------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficiency
Current liabilities:
Bank indebtedness $ - $ 18,537
Accounts payable and accrued liabilities 284,138 319,807
Loans payable (note 3) 121,135 26,101
Due to related parties 241,720 256,042
Current portion of long-term debt 19,923 22,087
- -----------------------------------------------------------------------------------------------
666,916 642,574
Long-term debt 68,072 84,969
Stockholders' deficiency:
Share capital:
Common stock, $0.0001 per share:
Authorized - 25,000,000
Issued and outstanding shares - 8,916,251 -
April 30, 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 (2,572,591) (2,362,036)
Accumulated other comprehensive income:
Cumulative foreign currency translation adjustment 14,294 7,407
- -----------------------------------------------------------------------------------------------
(537,978) (429,160)
- -----------------------------------------------------------------------------------------------
$ 197,010 $ 298,383
- -----------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
F-1
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Operations
(Stated in United States dollars)
Three and nine months ended April 30, 2002 and 2001 and cumulative period from
inception on June 7, 1996 to April 30, 2002
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Cumulative
period from
Three months ended Nine months ended inception on
April 30, April 30, June 7, 1996 to
2002 2001 2002 2001 April 30, 2002
- ---------------------------------------------------------------------------------------------------------------
Sales and other income $ 169,849 $ 146,772 $ 407,568 $ 231,232 $ 942,554
Expenses:
Cost of goods sold (excluding
amortization of fixed assets) 45,337 53,319 151,572 79,705 337,268
Marketing 37,140 34,919 88,634 61,426 721,259
Professional and consulting fees 27,560 55,939 149,730 163,835 754,109
Amortization of fixed assets 2,487 26,995 16,455 82,877 339,980
Office salaries, benefits and
services 27,490 28,860 91,608 99,214 479,013
Rent 13,510 9,624 35,122 29,361 208,902
Research and product
development - - - 4,153 109,842
Telephone 3,694 2,912 9,449 9,776 59,114
Office and general 6,776 1,253 14,309 8,736 83,435
Bank charges and interest 17,516 10,499 36,969 22,028 113,753
Interest on long-term debt 1,174 2,691 5,141 8,878 50,295
Travel and promotion 1,033 1,676 1,637 7,550 85,180
Utilities 783 1,392 3,526 3,255 17,215
Royalties 4,558 5,540 11,819 7,768 24,804
Insurance 648 664 2,152 2,030 9,376
- ---------------------------------------------------------------------------------------------------------------
189,706 236,283 618,123 590,592 3,393,545
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Loss for the period before
extraordinary item (19,857) (89,511) (210,555) (359,360) (2,450,991)
- ---------------------------------------------------------------------------------------------------------------
Extraordinary item:
Loss on extinguishment of
debt (note 4 (b)) - (121,600) - (121,600) (121,600)
- ---------------------------------------------------------------------------------------------------------------
Loss for the period $ (19,857) $ (211,111) $ (210,555) $ (480,960) $ (2,572,591)
- ---------------------------------------------------------------------------------------------------------------
Loss per common share, basic
and diluted:
Loss per common share,
basic and diluted, before
extraordinary item $ - $ (0.01) $ (0.03) $ (0.06) $ (0.58)
Loss per common share,
basic and diluted $ - $ (0.03) $ (0.03) $ (0.07) $ (0.61)
- ---------------------------------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding,
basic and diluted 8,916,251 6,695,539 8,464,584 6,582,206 4,240,364
- ---------------------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
F-2
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive Loss
(Stated in United States dollars)
Nine months ended April 30, 2002 and cumulative period from
inception on June 7, 1996 to April 30, 2002
(Unaudited)
Deficit
Common stock accumulated Accumulated
Additional during other Total
Number of Par paid-in development comprehensivestockholders' Comprehensive
shares value capital stage income (loss) deficiency 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 5,525,539 553 735,834 (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
(note 4(b)) 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.
F-3
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Stockholders' Equity (Deficiency) and Comprehensive
Loss (continued)
(Stated in United States dollars)
Nine months ended April 30, 2002 and cumulative period from
inception on June 7, 1996 to April 30, 2002
(Unaudited)
Deficit
Common stock accumulated Accumulated
Additional during other Total
Number of Par paid-in development comprehensive stockholders' Comprehensive
shares value capital stage income (loss) deficiency income (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 4 (a)) 1,355,000 136 94,714 - - 94,850
Loss for the period - - - (210,555) - (210,555) $ (210,555)
Foreign currency
translation adjustment - - - - 6,887 6,887 6,887
$ (203,668)
============
- -----------------------------------------------------------------------------------------------------------------
Balance, April 30, 2002 8,916,251 $ 892 $2,019,427 $(2,572,591) $ 14,294 $ (537,978)
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to interim consolidated financial statements.
F-4
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Interim Consolidated Statement of Cash Flows
(Stated in United States dollars)
Nine months ended April 30, 2002 and 2001 and cumulative period from
inception on June 7, 1996 to April 30, 2002
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------
Cumulative period from
Nine months ended inception on
April 30, June 7, 1996 to
2002 2001 April 30, 2002
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss for the period
before extraordinary item $ (210,555) $ (359,360) $ (2,450,991)
Items not affecting cash:
Amortization of fixed assets 16,455 82,877 339,980
Issuance of share capital for
services (note 4(a)) 94,850 - 122,630
Changes in operating assets and liabilities:
Accounts receivable 8,704 (12,180) (12,970)
Goods and services tax recoverable (6,516) 11,600 (12,375)
Inventory 113,777 53,694 (11,251)
Prepaid expenses and deposits (21) (652) (15,301)
Accounts payable and
accrued liabilities (35,669) (71,996) 284,138
Due to related parties (14,322) 61,931 105,819
Deferred revenue - (9,585) -
- -----------------------------------------------------------------------------------------------------------------
(33,297) (243,671) (1,650,321)
Financing:
Bank indebtedness (repaid) (18,537) (499) -
Proceeds from loans payable 95,633 214,896 204,867
Principal repayments on loans payable - - (13,051)
Proceeds from long-term debt - - 165,355
Principal payments on
long-term debt (19,061) (19,436) (77,360)
Due to related parties - - 264,301
Advances from Rhino U.S. - - 925,317
Issuance of share capital - 7,480 696,979
Share issue costs - - (44,689)
- -----------------------------------------------------------------------------------------------------------------
58,035 202,441 2,121,719
Investments:
Proceeds on disposal of capital assets - - 2,834
Expenditures on fixed assets - (1,405) (449,205)
Expenditures (recovery) on patent (3,216) (4,018) (110,546)
Investment tax credits - 33,054 99,634
- -----------------------------------------------------------------------------------------------------------------
(3,216) 27,631 (457,283)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Increase in cash during period 21,522 9,237 14,115
Effect of exchange rate changes
on cash balances 9,114 9,237 16,521
Cash, beginning of period - - -
- -----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 30,636 $ - $ 30,636
- -----------------------------------------------------------------------------------------------------------------
Supplemental information (note 5)
See accompanying notes to interim consolidated financial statements.
F-5
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements
(Stated in United States dollars)
Nine months ended April 30, 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 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 April 30, 2002 of
$584,383 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.
F-6
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements
(Stated in United States dollars)
Nine months ended April 30, 2002
(Unaudited)
2. Basis of presentation (continued):
On April 30, 2002 the Company arranged for an operating demand credit facility
in the amount of $191,000 (CDN $300,000) and an accounts receivable factoring
agreement with a limit of $191,000 (CDN $300,000) (note 3). As at April 30,
2002, no accounts receivable factoring transactions had occurred. However, no
additional financing sources have been contracted subsequent to April 30, 2002,
to the date these financial statements are issued 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 materially from the going concern basis.
3. Loans payable:
- ---------------------------------------------------------------------------------------------
April 30, April 30,
2002 2001
- ---------------------------------------------------------------------------------------------
(a) Operating demand loan payable, with interest
commencingMay 1, 2002 at an annual rate
of 36.5%, payable monthly, secured by a
general security agreement over all assets
of the Company $ 95,633 $ -
(b) Demand loan payable, unsecured with no fixed
terms of interest (i) 25,502 26,101
- ---------------------------------------------------------------------------------------------
$ 121,135 $ 26,101
=============================================================================================
=============================================================================================================
(i) Interest paid on the demand loan:
Three months ended Nine months ended Cumulative period from
April 30, April 30, inception on June 7, 1996
2002 2001 2002 2001 to April 30, 2002
$ 3,149 $ - $ 3,149 $ - $ 7,071
=============================================================================================================
F-7
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements
(Stated in United States dollars)
Nine months ended April 30, 2002
(Unaudited)
4. Share capital services:
(a) On October 26, 2001, the Company issued 1,355,000 fully vested and
non-forfeitable 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
recognized for the investor relations services, based on the market price of the
shares at date of issuance. For the nine months ended April 30, 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.
(b) At March 15, 2001, the Company had outstanding interest free loans in the
aggregate amount of $128,400 payable to officers and shareholders ("the
lenders") of the Company. Effective March 15, 2001, the lenders and parties
related to the lenders received in aggregate 1,000,000 restricted common shares
of the Company for conversion of the loans of $128,400 to share capital.
The common shares issued are restricted for one year as they were issued under
Section 4(2) Restricted Rule 144 shares of the Securities Act of 1933. The fair
value of the common shares issued, based on the market price of 1,000,000
unrestricted common shares on the effective date of conversion of the loans to
share capital, was $250,000. The difference of $121,600 between the fair value
of 1,000,000 of unrestricted common shares of $250,000 and the $128,400 loan
converted to share capital has been recorded as a loss on extinguishment of debt
in the interim consolidated statement of operations.
5. Supplemental information to interim consolidated statement of cash flows:
- ---------------------------------------------------------------------------------------------------------------
Cumulative
period from
Three months ended Nine months ended inception on
April 30, April 30, June 7, 1996 to
2002 2001 2002 2001 April 30, 2002
- ---------------------------------------------------------------------------------------------------------------
(a) Cash paid during the
period for:
Interest $ 17,657 $ 12,775 $ 39,817 $ 28,057 $ 123,702
Income taxes - - - - -
- ----------------------------------------------------------------------------------------------------------------
F-8
Rhino Ecosystems, Inc.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Interim Consolidated Financial Statements
(Stated in United States dollars)
Nine months ended April 30, 2002
(Unaudited)
5. Supplemental information to interim consolidated statement of cash flows (continued):
b) Non-cash financing activities:
For the nine months ended April 30, 2002, 1,355,000 common shares were issued to
compensate for investor relations services (note 4(a)).
During the three and nine months ended April 30, 2001, 1,000,000 common shares
with a fair value of $250,000 were issued to settle outstanding loans.
F-9
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 nine months ended April 30,
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 product
called the Rhino Wet Waste Interceptor System. During 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 user needs. This goal
was achieved during fiscal 2001. However, product development is an ongoing
process and will continue as permitted by cash resources.
During fiscal 2001 and the first nine months of fiscal 2002, Rhino has
concentrated on marketing its product line aggressively throughout North America
to raise the publics awareness of the 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.
Results of Operations for the Three Months and Nine Months ended April 20, 2002
and April 30, 2001
Revenue
Total revenues for the third quarter of fiscal 2002 increased by $23,077 (15.7%)
over the same time period of fiscal 2001. For the nine months ended April 30,
2002 revenues increased by $176,336 (76.3%) over the first nine months of fiscal
2001. For the nine months ended April 30, 2002 revenues at $407,568 reflect an
increase of $75,522 compared to the revenues for the twelve months ended July
31, 2001. This increase in revenues is a direct result of the Company's
promotional efforts and sales through the increasing Dealership network
throughout Canada, the United States, Ireland, and the Caribbean. Revenues are
expected to continue to grow throughout the remainder of fiscal 2002 and into
future years as more Rhino Dealers are added.
3
Expenses
Cost of goods sold (excluding amortization of fixed assets)
The cost of goods sold (COGS) consists primarily of components manufactured by
third parties, assembly labors, and freight delivery costs. Cost of sales
decreased by $7,982 for the three months ended April 30, 2002 from $53,319 for
the same period in the previous fiscal year. As a percentage of sales COGS in
fiscal 2002 dropped by 9.6% which is a reflection of Rhino product sales mix and
currency exchange rates.
For the nine months ended April 30, 2002 the costs of goods sold was $151,572 or
as a percentage of sales 37.2%. The comparative numbers for nine months ended
April 2001 are $79,705 and 34.5% of sales. As revenues increase it is
anticipated that manufacturing efficiencies will be realized and the future cost
of goods sold will be reduced.
The rate of gross margins realized will vary according to the variety of
products sold during any given time period. Rhino's management is in on-going
negotiations with suppliers to obtain the lowest possible cost for the
components used in the manufacture of the Company's Wet Waste Interceptors
product line, while maintaining consistent quality of the units. As more Rhino
Wet Waste Interceptors are installed and the replacement filter revenues
increase as a percentage of total sales a planned consistent gross margin of
over 50% will be realized.
Marketing
Marketing consists primarily of marketing literature, attendance at trade shows,
advertisements in specialized trade publications and the recruitment of dealers.
Marketing expenses for the third quarter of fiscal 2002, ended April 30, 2002
was $37,140. This is a slight increase in spending over the same time period
during fiscal 2001 of $2,221. The marketing expenses for the first nine months
of fiscal 2002 totaled $88,634, which is an increase of $27,208 over the same
time period of fiscal 2001. This increase in expenditure has resulted in a
increase in new Rhino Dealership throughout the world and an increase in
revenues of $176,636 on a comparative year to date basis. Additional dealerships
are under negotiations for territories in the United States, Canada, Mexico and
Europe. Some of these parties will be signed before the ended of fiscal 2002.
Professional and consulting fees
Professional and consulting expenses consists primarily of professional fees for
legal, accounting, investor relations and advisor services, sales and technical
consulting services and other professional services. Professional and consulting
expenses for the three months and nine months ended April 30, 2002 were $27,560
and $149,730 respectively. The decrease in professional and consulting expenses
from the corresponding prior year period were attributable primarily to
professional services expenses, due to a decrease in accounting services.
4
Amortization of fixed assets
Amortization expense totaled $2,487 during the three months ended April 30, 2002
compared to $26,995 during the three months ended April 30, 2001. For the nine
months ended April 30, 2002 and 2001, amortization was $16,455 and $82,877
respectively. The decrease in expenditures for both time periods is the result
of no significant recent fixed asset purchases during these time periods and the
fact that many fixed assets have been previously fully amortized.
Office salaries, benefits and services
Office salaries, benefits and services consist of payroll expenses and related
cost of administrative personnel. Office salaries, benefits and services
decreased by $1,370 during the three months ended April 2002 over a similar time
period of fiscal 2001. For the nine months ended April 30, 2002 office salaries,
benefits and services decreased by $7,606 when compared to expenses for fiscal
2001. The reduction in expenditures is a direct result of a decrease in office
staff.
Rent
Rent expense consisting of rent for the Company's premises at 40 Trowers Road,
Woodbridge, Ontario, Canada increased by $3,886 during the third quarter of
fiscal 2002 ended April 30, 2002. Rent on a year to date basis for nine months
has increased by $5,761 over fiscal 2001. This rent increase is a direct result
of the new lease terms negotiated for the Company's premises.
Research and product development
The Company has incurred no research and development expenses for the three and
nine months ended April 30, 2002 as no modifications to the Rhino Wet Waste
Interceptor product line were required. New products are being considered and
test criteria are being developed for new additional product introductions in
fiscal 2003.
Bank charges and interest
Bank charges and interest expense for three months of fiscal 2002, ending April
30, 2002 increased by $7,017 over fiscal 2001 expenditures. An increase of
$14,941 occurred on a year to date basis comparison between fiscal 2002 and
2001. This increase in interest expense is a direct result of interest paid on
financing provided by related parties during the above respective time period.
5
Interest on long-term debt
Interest on long-term debt decreased by $1,517 between the comparative
three-month period ended April 30, 2002 and 2001. The year to date nine-month
interest reduction is $3,737 between fiscal 2002 and 2001 time periods. These
reductions are a direct result of the declining average balance of the
outstanding long-term debt during the respective periods.
Travel and promotion
Travel and promotion expenses decreased by $643 during the third quarter of
fiscal 2002 when compared to fiscal 2001 expenditures. Year-to-date expenses
between both fiscal years shows a decrease of $5,913. Travel and promotion
expenses were reduced due to limited cash resources and better utilization of
all promotional methods.
Royalties
Royalty expenses decreased by $982 during the third quarter of fiscal 2002 when
compared to 2001. This is a result of a change in the total revenue stream
between both time periods. For the nine months ended April 30, 2002, royalty
expenses increased by $4,051 over fiscal 2001 expenses. This is a direct result
of an increase in sales between both time periods.
Telephone, office and general, utilities and insurance
Telephone, office and general, utilities and insurance expenses totaled $29,436
for nine months ended April 30, 2002. This is an increase of $5,639 over the
same time period of fiscal 2001. This increase is a direct result of price
increases for services provided and increases in promotional efforts.
Liquidity and capital resources
The Company has a deficiency in working capital of $584,383 as of April 30, 2002.
The cash position increased by $21,522 during the nine months ended April 30,
2002, as compared to an increase of $9,237 for the nine months ended April 30,
2001.
The Company has obtained a line of credit for purchase order financing and the
factoring of accounts receivable in the aggregate amount of $191,000. This line
of credit is secured by general security agreement over the Company's assets
excluding the Company's fixed asset tooling. This agreement was signed on April
30, 2002. These funds are to be used to finance work-in-process inventory
requirements to meet the Company's increasing dealer purchase order backlog.
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The Company's management believes that sufficient working capital will be
obtained from operations and external financing to meet the Company's
liabilities and commitments as they become payable. The Company is currently in
negotiations for a private placement of restricted Company securities. If
completed as anticipated, the closing of this placement is set for early in the
fourth quarter of fiscal 2002. The injection of these equity funds and
dealership sales that are currently on order and anticipated will provide the
Company with sufficient working capital for the foreseeable future. If these
additional working capital funds are not obtained the Company will need to
curtail some of its marketing operations.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITOGATION 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.
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 are no reports on Form 8-K filed by the registrant for the quarter ending
April 30, 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.
Dated May 31, 2002 RHINO ECOSYSTEMS INC.
/s/ Mark Wiertzema
----------------------
Mark Wiertzema
Chief Financial Officer
