UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report filed under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001.
or
[ ] Transitional report filed under Section 13 or 15 (d) of the Exchange Act.
Commission File No. 000-26645
Spacial Corporation
-------------------
(Name of Small Business Issuer in its Charter)
Delaware 13-4031423
-------- ----------
State or other jurisdiction of I.R.S. Employer Identification Number
incorporation or organization
Brown Place and East 132nd Street Bronx, New York 10454
-------------------------------------------------------
(Address of principal executive office)
Issuer's telephone number: (718)292-1920
-------------
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) been
subject to such filing requirements for the past ninety (90) days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practical date: As of August 16, 2001, there were
14,450,000 shares of Common Stock, par value $.001 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
SPACIAL CORPORATION
CONTENTS
September 30, 2000 and June 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
Page
FINANCIAL STATEMENTS
Balance Sheets 3 - 3
Statements of Income 5 - 6
Statements of Shareholders' Equity 7
Statements of Cash Flows 8 - 9
Notes to Financial Statements 10 - 15
2
SPACIAL CORPORATION
BALANCE SHEETS
September 30, 2000 and June 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
ASSETS
June 30, September 30,
2001 2000
-------- --------
(unaudited)
Current assets
Cash $ 4,989 $ 1,390
Accounts receivable 128,058 28,000
Current portion of notes receivable 16,926 26,498
-------- --------
Total current assets 149,973 55,888
Property and equipment, net 439,949 494,174
Notes receivable, net of current portion 17,130 17,130
Rent security deposit -- 9,100
-------- --------
Total assets $607,052 $576,292
======== ========
The accompanying notes are an integral part of these financial statements
3
SPACIAL CORPORATION
BALANCE SHEETS
September 30, 2000 and June 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, September 30,
2001 2000
--------- ---------
(unaudited)
Current liabilities
Current portion of notes payable $ 62,676 $ 66,063
Accounts payable and accrued expenses 48,235 23,821
Accrued taxes 44,036 26,447
Due to shareholders 23,660 38,178
--------- ---------
Total current liabilities 178,607 154,509
Notes payable, net of current portion 151,055 206,922
Note payable - related party 167,187 167,187
--------- ---------
Total liabilities 496,849 528,618
--------- ---------
Commitments
Shareholders' equity
Preferred stock, $0.001 par value
5,000,000 shares authorized
(unaudited) and no shares issued and outstanding -- --
Common stock, $0.001 par value
40,000,000 shares authorized
14,450,000 (unaudited) and 13,160,000 shares issued
and outstanding 14,450 13,160
Additional paid-in capital (14,216) (13,147)
Retained earnings 109,969 47,661
--------- ---------
Total shareholders' equity 110,203 47,674
--------- ---------
Total liabilities and shareholders' equity $ 607,052 $ 576,292
========= =========
The accompanying notes are an integral part of these financial statements
4
SPACIAL CORPORATION
STATEMENTS OF INCOME
For the Years Ended September 30, 2000 and 1999 and
for the Nine Months Ended June 30, 2001 and 2000 (unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended For the Year Ended
June 30, September 30,
---------------------- -----------------------
2001 2000 2000 1999
--------- --------- --------- ---------
(unaudited) (unaudited)
Revenues
Construction and engineering
services $ 402,678 $ 244,100 $ 344,865 $ 4,442
Equipment sales 72,826 172,500 245,938 14,487
Sales and services 24,183 51,507 68,493 --
Waste hauling -- -- 4,801 24,278
--------- --------- --------- ---------
Total revenues 499,687 468,107 664,097 43,207
--------- --------- --------- ---------
Cost of sales
Construction materials 64,735 55,990 104,724 17,746
Disposal fees 2,600 2,431 2,431 11,671
Equipment purchases 16,178 83,000 113,501 1,643
Equipment refurbishing 1,020 10,651 10,652 --
Materials 14,785 43,816 -- --
Subcontracts 114,112 107,607 144,178 13,676
--------- --------- --------- ---------
Total cost of sales 213,430 303,495 375,486 44,736
--------- --------- --------- ---------
Gross profit (loss) 286,257 164,612 288,611 (1,529)
General and administrative
expenses 198,376 108,406 167,745 21,234
--------- --------- --------- ---------
Income (loss) from operations 87,881 56,206 120,866 (22,763)
--------- --------- --------- ---------
Other income (expense)
Interest income 1,110 817 2,357 --
Rental income 9,167 -- 3,300 --
Interest expense -- -- (29,552) --
--------- --------- --------- ---------
Total other income (expense) 10,277 817 (23,895) --
--------- --------- --------- ---------
Income (loss) before provision for
income taxes 98,158 57,023 96,971 (22,763)
Provision for income taxes 35,850 19,941 26,547 --
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements
5
SPACIAL CORPORATION
STATEMENTS OF INCOME
For the Years Ended September 30, 2000 and 1999 and
for the Nine Months Ended June 30, 2001 and 2000 (unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended For the Year Ended
June 30, September 30,
------------------------------- -----------------------------
2001 2000 2000 1999
------------- -------------- ------------- ------------
(unaudited) (unaudited)
Net income (loss) $ 62,308 $ 37,082 $ 70,424 $ (22,763)
============= ============== ============= ============
Basic and diluted earnings (loss)
per share $ -- $ 0.03 $ 54.85 $ (17.73)
============= ============== ============= ============
Weighted-average common
shares outstanding
Basic and diluted 14,022,813 13,160,000 13,160,000 13,160,000
============= ============== ============= ============
The accompanying notes are an integral part of these financial statements
6
SPACIAL CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 2000 and 1999
and for the Nine Months Ended June 30, 2001 (unaudited)
- --------------------------------------------------------------------------------
Retained
Common Stock Additional Earnings
----------------------------- Paid-in (Accumulated)
Shares Amount Capital Deficit) Total
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 13,160,000 $ 13,160 $ (13,147) $ -- $ 13
Net loss (22,763) (22,763)
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1999 13,160,000 13,160 (13,147) (22,763) (22,750)
Net income 70,424 70,424
------------ ------------ ------------ ------------ ------------
Balance, September 30, 2000 13,160,000 13,160 (13,147) 47,661 47,674
Changes due to
recapitalization
(unaudited) 1,290,000 1,290 (1,069) 221
Net income
(unaudited) 62,308 62,308
------------ ------------ ------------ ------------ ------------
Balance, June 30,
2001 (unaudited) 14,450,000 $ 14,450 $ (14,216) $ 109,969 $ 110,203
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
7
SPACIAL CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2000 and 1999
and for the Nine Months Ended June 30, 2001 and 2000 (unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended For the Year Ended
June 30, September 30,
----------------------- -----------------------
2001 2000 2000 1999
--------- --------- --------- ---------
(unaudited) (unaudited)
Cash flows from operating activities
Net income $ 62,308 $ 37,082 $ 70,424 $ (22,763)
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation 54,225 20,250 27,374 --
Changes due to recapitalization 221 -- -- --
Increase in
Accounts receivable (100,058) -- (28,000) --
Rent security deposit 9,100 (1,500) (1,500) (7,600)
Increase (decrease) in
Accounts payable and accrued
expenses 24,414 (1,883) (2,342) 26,163
Accrued taxes 17,589 15,800 26,447 --
--------- --------- --------- ---------
Net cash provided by operating
activities 67,799 69,749 92,403 (4,200)
--------- --------- --------- ---------
Cash flows from investing activities
Increase in notes receivable 9,572 (35,045) (43,628) --
Purchase of property and equipment -- (421,844) (489,548) (32,000)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities 9,572 (456,889) (533,176) (32,000)
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds received from notes
payable -- 196,932 272,985 --
Proceeds received from note
payable - related party -- 167,187 167,187 --
Payments on notes payable (59,254) -- -- --
Increase (decrease) in due to
shareholders (14,518) 23,186 (4,636) 42,814
Proceeds from issuance of common
stock -- -- -- 13
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities (73,772) 387,305 435,536 42,827
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements
8
SPACIAL CORPORATION
STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 2000 and 1999 and
for the Nine Months Ended June 30, 2001 and 2000 (unaudited)
- --------------------------------------------------------------------------------
For the Nine Months Ended For the Year Ended
June 30, September 30,
-------------------- ---------------------
2001 2000 2000 1999
-------- -------- -------- --------
(unaudited) (unaudited)
Net increase (decrease) in cash $ 3,599 $ 165 $ (5,237) $ 6,627
Cash, beginning of year 1,390 6,627 6,627 --
-------- -------- -------- --------
Cash, end of year $ 4,989 $ 6,792 $ 1,390 $ 6,627
======== ======== ======== ========
Supplemental disclosures of cash flow information
Interest paid $ 19,049 $ 6,579 $ 14,231 $ --
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements
9
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
Waste Recovery Technology Corp. ("WRT") was incorporated on September
22, 1998 in the state of Delaware and is engaged in construction and
engineering services and the sale of equipment. WRT principally sells
to companies throughout New York.
Effective as of June 22, 2001, WRT entered into a Share Exchange
Agreement, whereby the shareholders of WRT were issued an aggregate of
13,160,000 shares of Common Stock of Spacial Corporation ("Spacial")
in exchange for 1,316 shares of WRT constituting all of the capital
stock of WRT and resulting in WRT becoming a wholly owned operating
subsidiary of Spacial. After the closing of the Share Exchange, a
total of 14,450,000 shares of Spacial Common Stock was issued and
outstanding resulting in a transfer of control of Spacial to the
former WRT shareholders. For accounting purposes, the transaction has
been treated as a recapitalization of WRT, with WRT as the accounting
acquirer (reverse acquisition), and has been accounted for in a manner
similar to a pooling of interests. The operations of Spacial have been
included with those of WRT from the acquisition date. For periods
prior to the acquisition, the equity of the combined enterprise is the
historical equity of WRT, the accounting acquirer prior to the merger,
retroactively restated to reflect the number of shares received in the
business combination.
Spacial was incorporated on October 6, 1998 in the state of Delaware.
Spacial had minimal assets and liabilities at the date of the
acquisition and did not have significant operations prior to the
acquisition. Therefore, no pro forma information is presented.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Enterprise
----------------------------
After the share exchange, Spacial, the surviving parent entity, (the
"Company") ceased to be a development stage company as defined in
Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." The
Company's planned principal operations have commenced, and there have
been significant revenues from those operations.
Cash Equivalents
----------------
For the purpose of the statements of cash flows, the Company considers
all highly liquid investments purchased with original maturity of
three months or less to be cash equivalents.
Accounts Receivable
-------------------
The Company periodically reviews its accounts receivable for
uncollectible amounts. At September 30, 2000 and June 30, 2001, no
allowance was deemed necessary. The Company generally does not require
collateral from its customers.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided on
a straight-line basis over an estimated useful life of seven to 10
years. Expenditures for maintenance and repairs are charged to
operations as incurred while renewals and betterments are capitalized.
Revenue Recognition
-------------------
Amounts received for construction and engineering services are
recognized in accordance with the contract or upon completion of the
project. For sales of equipment, revenues are recognized upon delivery
of the equipment.
Comprehensive Income
--------------------
The Company utilizes SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting comprehensive
income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a
period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include
foreign currency translation
10
adjustments and unrealized gains and losses on available-for-sale
securities. Comprehensive income is not presented in the Company's
financial statements since the Company did not have any of the items
of comprehensive income in the period presented.
Advertising Costs
-----------------
The Company expenses advertising costs as incurred. Advertising costs
for the nine months ended June 30, 2001 and 2000 were $200 and $120,
respectively.
Income Taxes
------------
The Company utilizes SFAS No. 109, "Accounting for Income Taxes,"
which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period
and the change during the period in deferred tax assets and
liabilities.
Estimates
---------
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash, accounts
receivable, notes receivable, and accounts payable and accrued
expenses, the carrying amounts approximate fair value due to their
short maturities. The amounts shown for notes payable and note payable
- related party also approximate fair value because the current
interest rate offered to the Company for debt of similar maturity is
substantially the same.
Recently Issued Accounting Pronouncements
-----------------------------------------
In July 2001, the FASB issued SFAS No. 141, "Business Combinations."
This statement addresses financial accounting and reporting for
business combinations and supersedes Accounting Principles Bulletin
("APB") Opinion No. 16, "Business Combinations," and SFAS No. 38,
"Accounting for Pre-Acquisition Contingencies of Purchased
Enterprises." All business combinations in the scope of this statement
are to be accounted for using one method, the purchase method. The
provisions of this statement apply to all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method
for those business combinations is prohibited. This statement also
applies to all business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001 or later.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements. It is effective for fiscal years beginning
after December 15, 2001. Early application is permitted for entities
with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been issued previously.
11
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30, 2000 and June 30, 2001
consisted of the following:
June 30, September 30,
2001 2000
-------- --------
(unaudited)
Automobiles $ 59,380 $ 59,380
Trucks 115,161 115,161
Machinery and equipment 347,007 347,007
-------- --------
521,548 521,548
Less accumulated depreciation 81,599 27,374
-------- --------
Total $439,949 $494,174
======== ========
Depreciation expense was $27,374, $54,225 (unaudited), and $20,530
(unaudited) for the year ended September 30, 2000 and the nine months
ended June 30, 2001 and 2000, respectively.
12
NOTE 4 - NOTES PAYABLE
Notes payable at September 30, 2000 and June 30, 2001 consisted of the
following:
June 30, September 30,
2001 2000
---------- ----------
(unaudited)
Note payable, collateralized by equipment and guaranteed by a
shareholder, payable in 60 monthly installments of $2,149,
including interest at 11% per annum. $ 77,304 $ 89,595
Note payable, collateralized by equipment and guaranteed by a
shareholder, payable in 36 monthly installments of $1,207,
including interest at 13% per annum. 21,561 29,830
Note payable, collateralized by equipment and guaranteed by a
shareholder, payable in 60 monthly installments of $1,579,
including interest at 10% per annum. 58,337 66,447
Note payable, collateralized by equipment,
payable in 48 monthly installments of $614,
including interest at 13% per annum. $ 12,559 $ 22,421
Note payable, collateralized by an automobile,
payable in 60 monthly installments of $771,
including interest at 9% per annum. 27,915 35,358
Note payable, collateralized by an automobile,
payable in 36 monthly installments of $748,
including interest at 11% per annum. 16,055 21,834
Note payable dated April 10, 2000. Principal and $500
additional consideration due in 90 days.
The note was paid in full at June 30, 2001. -- 7,500
---------- ----------
213,731 272,985
Less current portion 62,676 66,063
---------- ----------
Long-term portion $ 151,055 $ 206,922
========== ==========
Future maturities of notes payable at June 30, 2001 were as follows:
12 Months
Ending
June 30,
-----------
2002 $ 62,676
2003 62,115
2004 41,512
2005 41,435
2006 5,993
----------
Total $ 213,731
==========
13
NOTE 5 - COMMITMENTS
The Company is obligated to a third party under a non-cancelable
operating lease for its showroom and office facilities, which expires
on December 31, 2001. The lease provides for monthly payments of
$4,950, plus certain operating expenses. Rent expense, including
operating expense escalations, amounted to $59,400, $26,700
(unaudited), and $42,900 (unaudited) for the year ended September 30,
2000 and the nine months ended June 30, 2001 and 2000, respectively.
In January 2001, the lease agreement was terminated by mutual consent,
which did not result in a loss to the Company.
NOTE 6 - SHAREHOLDERS' EQUITY
Common Stock
------------
On June 22, 2001, an aggregate of 13,160,000 shares of Common Stock
were issued to the 10 shareholders of WRT in exchange for all of the
issued and outstanding capital stock of WRT. At such time, the former
founder and principal of Spacial returned for cancellation an
aggregate of 1,200,000 shares of common stock of Spacial.
Warrants
--------
On April 19, 1999, warrants to purchase 51,000 shares of the
Spacial's's common stock, par value $0.001, were issued to the
placement agent at an exercise price of $0.255 per share. The shares
vest immediately and can be exercised within seven years from the date
of issuance of the warrants. The fair value of the warrants at the
date of issuance was $2,813 based on the fair value of the placement
agent's services, less cash paid. As of June 30, 2001, the warrants
were outstanding.
On June 26, 2000, pursuant to a consulting agreement, warrants to
purchase a total of 150,000 shares of the Company's common stock, par
value $0.001, were issued to various consultants at an exercise price
of $0.01 per share. In September 2000, holders of these warrants
exchanged the warrants for 150,000 shares of common stock.
Consideration for the shares was $800 of services rendered and a cash
payment of $1,500.
On June 22, 2001, in accordance with the Share Exchange Agreement,
warrants to purchase 150,000 shares (unaudited) of the Company's
common stock, par value $0.001, were issued to a former director of
the Company at an exercise price of $0.50 (unaudited) per share in
exchange for his return and cancellation of certain shares of the
Company. The shares vest immediately and can be exercised within four
years from the date of issuance of the warrants.
14
NOTE 7 - INCOME TAXES
Current income taxes for the year ended September 30, 2000 and the
nine months ended June 30, 2001 and 2000 consisted of the following:
For the Nine Months Ended For the
June 30, Year Ended
--------------------------------- September 30,
2001 2000 2000
---------------- --------------- ----------------
(unaudited) (unaudited)
State and city income taxes $ 21,552 $ 12,970 $ 17,253
Federal income taxes 14,298 6,971 9,294
---------------- --------------- ----------------
Total $ 35,850 $ 19,941 $ 26,547
================ =============== ================
A reconciliation of the income tax computed at the federal statutory
rate to the tax provision in the financial statements for the year
ended September 30, 2000 and the nine months ended June 30, 2001 and
2000 is as follows:
For the Nine Months Ended For the
June 30, Year Ended
--------------------------------- September 30,
2001 2000 2000
---------------- --------------- ----------------
(unaudited) (unaudited)
Statutory regular federal income tax $ 33,000 $ 19,000 $ 32,970
State income taxes, net of federal
benefit 14,000 9,000 11,387
Benefit of net operating loss -- -- (7,664)
Benefit of graduated rates (12,000) (8,000) (10,146)
Other 1,000 -- --
---------------- --------------- ----------------
Total $ 36,000 $ 20,000 $ 26,547
================ =============== ================
NOTE 8 - RELATED PARTY TRANSACTIONS
Subcontract Services
--------------------
During the year ended September 30, 2000 and the nine months ended
June 30, 2001 and 2000, the Company paid a company owned by one of the
shareholders $21,000, $45,953 (unaudited), and $17,632 (unaudited),
respectively, for subcontract services rendered.
Trust Under Agreement Dated June 30, 1989, Bruce Caputo as Trustee
------------------------------------------------------------------
The Company bought equipment for $167,000 from the Trust, which, as a
result of its ownership interest, is a related party. Under the terms
of the agreement, the Company will pay $167,000 with simple interest
at a rate of 9% per annum. Interest is payable in equal installments
of $10,800 on June 1, 2001, December 1, 2001, and June 1, 2002. On
December 1, 2002, the entire principal amount and total accrued but
unpaid interest are payable in full.
Due to Shareholders
As of September 30, 2000 and June 30, 2001, due to shareholders
represented non-interest-bearing amounts due to shareholders. The
amounts have no stated repayment terms.
15
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
---------------------------------------------------------------------
Statements contained in this Management Discussion and Analysis of this
Quarterly Report on Form 10-QSB include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 as amended (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements involve known and unknown risks,
uncertainties and other factors which could cause the actual results of the
Company (sometimes referred to as "we", "us" or the "Company"), performance
(financial or operating) or achievements expressed or implied by such
forward-looking statements not to occur or be realized. Such forward-looking
statements generally are based upon the Company's best estimates of future
results, general merger and acquisition activity in the marketplace, performance
or achievement, based upon current conditions and the most recent results of
operations. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may," "will," "project," "expect,"
"believe," "estimate," "anticipate," "intends," "continue", "potential,"
"opportunity" or similar terms, variations of those terms or the negative of
those terms or other variations of those terms or comparable words or
expressions.
Background
Effective June 22, 2001 (the "Closing Date"), Spacial Corporation (the
"Company") entered into and closed a share exchange (the "Exchange") pursuant to
a Share Exchange Agreement (the "Exchange Agreement"), among the Company, Waste
Recovery Technology Corporation, a Delaware corporation ("WRT"), and the 10
stockholders of WRT (the "WRT Stockholders") wherein the Company issued
13,160,000 shares of common stock, par value $.001 per share (the "Common
Stock") to the WRT Stockholders in exchange for all of the issued and
outstanding of capital stock of WRT. Prior to such Exchange, the Company did not
have any business or operations other than those related to the acquisition of a
business and operating entity, and filing reports with the Securities and
Exchange Commission. As a result of the Exchange, the WRT Stockholders hold
approximately 91% of the Company's Common Stock and now control the Company.
All references herein to the "Company", "we" or "us" refer to WRT and the
business of WRT unless the context so requires.
Business
The Company provides construction and engineering services in the New York
Metropolitan area. The Company is also engaged in the sale of equipment. The
Company provides these services to commercial and industrial customers.
The Company's revenues are attributed primarily to fees charged to
customers for construction and engineering services and the sale of equipment.
16
The following table summarizes the Company's approximate revenue for the
nine months ended June 30, 2001 and 2000 (in thousands):
2001 2000
------ ------
Construction and engineering services $ 403 $ 244
Equipment sales $ 73 $ 173
Other $ 24 $ 51
The Company's revenues from construction and engineering services consist
of fees the Company receives from commercial and industrial customers for
engineering and site remediation services. The Company's revenues from equipment
sales consist of reselling equipment to commercial and industrial customers.
The cost of the Company's construction and engineering services is
primarily variable and includes the purchase of construction materials and the
subcontracting of outside services. The cost of the Company's equipment sales
operations is also primarily variable in nature and includes the cost of
equipment purchases and equipment refurbishing costs.
Results of Operations - Nine Months Ended June 30, 2001 and 2000
The Company's net income was $62,308 for the nine months ended June 30,
2001 as compared with $37,082 in 2000.
The following table summarizes the Company's costs and expenses in
thousands and as a percentage of revenue for the nine months ended June 30, 2001
and 2000:
2000 % 2001 %
------ ------ ------ ------
Revenue $ 500 100.0 $ 468 100.0
Cost of operations $ 213 42.6 $ 303 67.7
Depreciation and
amortization $ 54 10.8 $ 21 4.5
General and adminis-
trative fees $ 144 33.2 $ 79 21.4
Operating income $ 88 15.4 $ 57 9.4
Revenue
Revenue was $499,687 and $468,107 for the nine months ended June 30, 2001
and 2000, respectively. Revenue increased by $31,580, or 6.7%, from 2000 to
2001. Revenue growth was primarily volume in nature, and all was internally
generated. The growth was achieved in construction and engineering services.
Presently, the Company has $1.3MM of engineering and construction contracts that
will start once permits are obtained. The Company is currently in final
negotiations with acquisition candidates that will further increase the overall
corporate revenue and income.
17
In 2001, the Company is pursuing a business strategy to acquire, clean up,
and own or sell Brownshield sites, which is real property that is unmarketable
or of substantially reduced value due to the presence of various types of
contamination. The Company has identified such a site in the New York City
limits and commenced negotiation to purchase it through the clean-up process.
The Company is actively seeking new Brownfield sites throughout the Tri-State
area.
The Company will increase its Engineering Division to service customers as
well as controlling and implementing environmental controls throughout the
Company.
Cost of Operations
Cost of operations was $213,430 and $303,495 for the nine months ended June
30, 2001 and 2000, respectively. Cost of operations as a percentage of revenue
was 42.6% and 64.7% for the nine months ended June 30, 2001 and 2000,
respectively. The decrease in cost of operations both in absolute dollars and as
a percentage of revenue from 2000 to 2001 is primarily a result of the Company's
increased operating efficiencies in our construction and engineering operations.
Depreciation and Amortization
Depreciation and amortization expenses were $54,225 and $20,530 for the
nine months ended June 30, 2001 and 2000, respectively. The increase in
aggregate dollars is a result of a full nine months' charge in the nine months
ended June 30, 2001.
General and Administrative Expenses
General and administrative expenses were $144,151 and $57,876 for the nine
months ended June 30, 2001 and 2000, respectively. The increase in general and
administrative expenses in both absolute dollars and as a percentage of revenue
from 2000 to 2001 is primarily due to increases in insurance, interest, and
taxes expense.
Operating Income
Operating income was $87,881 and $56,206, or as a percentage of revenues
17.6% and 12.0%, for the nine months ended June 30, 2001 and 2000, respectively.
Interest Expense
The Company incurred interest expense on notes payable on equipment
purchased. Interest expense was $33,336 and $20,900 for the nine months ended
June 30, 2001 and 2000, respectively. The increase in interest expense from 2000
to 2001 is primarily due to an increase in debt balances.
Income Taxes
The Company's provision for income taxes was $35,850 and $19,941 for the
nine months ended June 30, 2001 and 2000, respectively.
18
Financial Condition
As of June 30, 2001, the Company had $4,989 of cash equivalents. The
Company uses its own operating cash flow and sellers notes to finance its
working capital and capital expenditure requirements.
During the nine months ended June 30, 2001, the Company entered into notes
payable to various equipment finance companies. AS of June 30, 2001, $213,731
was outstanding under these notes payable. These notes bear interest at rates
between 9% and 13% per annum.
In connection with potential acquisitions, the Company incurs and
capitalizes certain transaction and integration costs, which include stock
registration, legal, accounting, consulting, engineering, and other direct
costs. When an acquisition is accounted for using the purchase method for
business combinations, these cost are capitalized. The Company routinely
evaluates capitalized transitions not likely to occur. The Company expenses
indirect acquisition costs, such as executive salaries, general corporate
overhead and other corporate services, as incurred.
Liquidity and Capital Resources
The major components of changes in cash flow for the nine months ended June
30, 2001 and 2000 are discussed below.
Cash Flow From Operating Activities
Cash flows provided by operating activities were $67,799 and $69,749 for
the nine months ended June 30, 2001 and 2000, respectively. The changes in cash
provided by operating activities during the periods are due to changes in the
product mix of our business.
Cash Flow Provided by (Used In) Investing Activities
Cash flows provided by (used in) investing activities consists primarily of
cash used for capital additions. Capital additions during the nine months ended
June 30, 2001 and 2000, respectively were $0 and $421,844 we intended to finance
future capital expenditures through cash flows from operations and other
financing. We expect to use both cash and equity for future business
acquisitions.
Cash Flow Provided by (Used In) Financing Activities
Cash flows provided by financing activities during the nine months ended
June 30, 2001 and 2000 includes vendor and related-party notes payable. Proceeds
from the notes were used to find capital additional cash flows used in financing
activities for the nine months ended June 30, 2001 were used to repay notes
payable.
Working Capital
At June 30, 2001, the Company's working capital increased by $69,987 from
September 30, 2000. This was as a result of expansion of our business.
19
PART II
OTHER INFORMATION
Item 2. Changes in Securities.
In accordance with the Exchange Agreement, on June 22, 2001 the Company
issued 13,160,000 shares of Common Stock to the ten WRT Stockholders in exchange
for 1,316 shares of WRT common stock, without par value, constituting all of the
issued and outstanding of capital stock of WRT. In addition, in accordance with
the terms of the Exchange Agreement, the Company's former founder and sole
director and executive officer, James A. Prestiano returned for cancellation an
aggregate of 1,200,000 shares of Common Stock owned by him in exchange for a
warrant (the "Prestiano Warrant") to purchase 150,000 shares of Common Stock at
an exercise price of $.50 per share, leaving Mr. Prestiano with direct ownership
of 800,000 shares of Common Stock, in addition to the Prestiano Warrant.
The Company believes that the issuance of the Common Stock to the WRT
Stockholders under the Exchange Agreement and the issuance of the Prestiano
Warrant under the Exchange Agreement were exempt pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Listed below are all exhibits to this Quarterly Report on Form 10-QSB.
Exhibit
Number Description
- ------ -----------
4.1 Warrant certificate, evidencing warrants to purchase 150,000
shares of the Common Stock of Spacial Corporation, registered in
the name of James A. Prestiano. (Incorporated by reference from
the Company's Current Report on Form 8-K (Date of Report: June 22,
2001), filed with the Securities & Exchange Commission on July 9,
2001.)
10.1 Share Exchange Agreement, dated as of June 22, 2001, among Spacial
Corporation, Waste Recovery Technology Corporation and the
stockholders of Waste Recovery Technology Corporation.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001) filed with the Securities
& Exchange Commission on July 9, 2001.)
10.2 Stock Escrow Agreement, dated as of June 22, 2001, among Spacial
Corporation, James J. Solano, Sr. and The Trust Under Agreement
dated 6/30/89, and Snow Becker Krauss P.C., as Escrow Agent.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001), filed with the
Securities & Exchange Commission on July 9, 2001.)
10.3 Lock-Up Agreement, dated as of June 22, 2001, by and among Spacial
Corporation, James A. Prestiano, James J. Solano, Sr., The Trust
Under Agreement Dated 6/30/89, and Norman A. Ponder.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001; Commission File No.
000-26645), filed with the Securities & Exchange Commission on
July 9, 2001.)
20
10.4 Registration Rights Agreement, dated as of June 22, 2001, between
the Spacial Corporation and James A. Prestiano. (Incorporated by
reference from the Company's Current Report on Form 8-K (Date of
Report: June 22, 2001; Commission File No. 000-26645), filed with
the Securities & Exchange Commission on July 9, 2001.)
(b) Reports on Form 8-K
A Current Report on Form 8-K (Date of Report June 22, 2001) was filed with
the SEC on July 9, 2001, reporting, as an Item 1 matter the change of
control of the registrant, and as an Item 2 matter, the Share Exchange
wherein the Company acquired WRT.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPACIAL CORPORATION
Date: August 18, 2001 By /s/ James J. Solano Sr.
--------------- -------------------------------
James J. Solano Sr., President,
Chairman and Chief Executive Officer
22
Exhibit Index
Exhibit
Number Description
- ------ -----------
4.1 Warrant certificate, evidencing warrants to purchase 150,000
shares of the Common Stock of Spacial Corporation, registered in
the name of James A. Prestiano. (Incorporated by reference from
the Company's Current Report on Form 8-K (Date of Report: June 22,
2001), filed with the Securities & Exchange Commission on July 9,
2001.)
10.1 Share Exchange Agreement, dated as of June 22, 2001, among Spacial
Corporation, Waste Recovery Technology Corporation and the
stockholders of Waste Recovery Technology Corporation.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001) filed with the Securities
& Exchange Commission on July 9, 2001.)
10.2 Stock Escrow Agreement, dated as of June 22, 2001, among Spacial
Corporation, James J. Solano, Sr. and The Trust Under Agreement
dated 6/30/89, and Snow Becker Krauss P.C., as Escrow Agent.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001), filed with the
Securities & Exchange Commission on July 9, 2001.)
10.3 Lock-Up Agreement, dated as of June 22, 2001, by and among Spacial
Corporation, James A. Prestiano, James J. Solano, Sr., The Trust
Under Agreement Dated 6/30/89, and Norman A. Ponder.
(Incorporated by reference from the Company's Current Report on
Form 8-K (Date of Report: June 22, 2001; Commission File No.
000-26645), filed with the Securities & Exchange Commission on
July 9, 2001.)
10.4 Registration Rights Agreement, dated as of June 22, 2001, between
the Spacial Corporation and James A. Prestiano. (Incorporated by
reference from the Company's Current Report on Form 8-K (Date of
Report: June 22, 2001; Commission File No. 000-26645), filed with
the Securities & Exchange Commission on July 9, 2001.)
23