FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 19345
For the quarterly period ended September 30, 2005.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number: 000-26017
RECLAMATION CONSULTING AND APPLICATIONS, INC.
(Exact name of Small Business Issuer as specified in its charter)
Colorado 58-2222646
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
23832 Rockfield Boulevard, Suite 275 92630
Lake Forest, California -----
---------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 949-609-0590
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
Check whether the issuer (1) 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. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plane confirmed by a court. Yes __________ No __________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 21, 2005: 29,620,813
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
RECLAMATION CONSULTING AND APPLICATIONS, INC.
Form 10-QSB
For the Three Month Period Ended September 30, 2005
Table of Contents
PART I - FINANCIAL INFORMATION ...............................................3
ITEM 1. FINANCIAL STATEMENTS ..............................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ........23
ITEM 3. CONTROLS AND PROCEDURES ..........................................28
PART II - OTHER INFORMATION ..................................................29
ITEM 1. LEGAL PROCEEDINGS ................................................29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ......30
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..................................30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............30
ITEM 5. OTHER INFORMATION ................................................30
ITEM 6. EXHIBITS .........................................................30
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
RECLAMATION CONSULTING AND APPLICATIONS, INC.
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ --
Accounts receivable 39,190
Inventories 53,488
Prepaid interest 58,750
Prepaid insurance 20,000
Prepaid expenses and other current assets 26,050
------------
Total current assets 197,478
Property and equipment, net 54,821
Deferred financing costs, net 38,167
------------
$ 290,466
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 203,182
Accrued payroll and related expenses 277,266
Accrued interest payable 75,868
Other accrued expenses 20,151
Current portion of accrued judgment payable 39,300
Notes payable - related parties 421,399
Current portion of notes payable 303,351
------------
Total current liabilities 1,340,517
Accrued judgment payable, net of current portion 65,100
Notes payable, net of current portion 98,266
Derivative and warrant liabilities 1,634,036
------------
Total liabilities 3,137,919
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $0.01 par value; 75,000,000 shares authorized,
29,620,813 shares issued and outstanding 296,208
Additional paid-in-capital 11,731,997
Treasury stock (1,500,000 shares), at cost (15,000)
Accumulated deficit (14,860,658)
------------
Total stockholders' deficit (2,847,453)
------------
$ 290,466
============
The accompanying notes are an integral part of the financial statements.
3
RECLAMATION CONSULTING AND APPLICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
------------ ------------
Net revenue $ 48,177 $ 126,811
Cost of revenue 36,180 55,754
------------ ------------
Gross profit 11,997 71,057
Selling, general and administrative expenses 834,772 439,599
------------ ------------
Loss from operations (822,775) (368,542)
------------ ------------
Other income (expense):
Interest income -- 19,019
Interest expense (162,231) (34,422)
Change in fair value of derivative and warrant
liabilities 940,276 --
------------ ------------
Net other income (expense) 778,045 (15,403)
------------ ------------
Loss before provision for income taxes (44,730) (383,945)
Provision for income taxes 800 800
------------ ------------
Net loss $ (45,530) $ (384,745)
============ ============
Net loss per share - basic and diluted $ (0.00) $ (0.01)
============ ============
Weighted-average common shares outstanding - basic and diluted 29,620,813 25,927,904
============ ============
The accompanying notes are an integral part of the financial statements.
4
RECLAMATION CONSULTING AND APPLICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
2005 2004
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (45,530) $(384,745)
Adjustments to reconcile net loss to net cash used in
operating activities:
Issuance of stock options and warrants for services rendered 265,231 --
Issuance of shares for services rendered -- 155,841
Change in fair value of derivative and warrant liabilities (940,276) --
Amortization of discount on notes payable 110,766 --
Depreciation and amortization 6,039 1,328
(Increase) decrease in operating assets:
Accounts receivable (7,975) (138,990)
Note receivable -- (120,572)
Inventories (7,796) --
Prepaid expenses and other current assets 1,528 (12,154)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 53,315 11,846
Customer deposits -- (2,052)
--------- ---------
Total adjustments (519,168) (104,753)
--------- ---------
Net cash used in operating activities (564,698) (489,498)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (5,627) (2,600)
--------- ---------
Net cash used in investing activities (5,627) (2,600)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on notes payable 789,850 216,500
Payments on notes payable (219,525) (445)
Receipt of cash for shares to be issued -- 45,000
Issuance of common shares for cash -- 230,000
--------- ---------
Net cash provided by financing activities 570,325 491,055
--------- ---------
Net decrease in cash and cash equivalents -- (1,043)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- 1,043
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ --
========= =========
Continued
The accompanying notes are an integral part of the financial statements.
5
RECLAMATION CONSULTING AND APPLICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR: Interest $ 18,552 $ 1,838
========= =========
Income taxes $ -- $ --
========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable and accrued interest to common stock $ -- $ 30,000
========= =========
Debt discount on convertible debt $ 600,000 $ --
========= =========
Issuance of notes payable for cancellation of shares to be issued $ 25,000 $ --
========= =========
Prepaid interest offset against accrued interest payable $ 27,250 $ --
========= =========
Cancellation of 62,500 shares of common stock $ -- $ 26,275
========= =========
The accompanying notes are an integral part of the financial statements.
6
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Reclamation Consulting and Applications, Inc., ("us", "we", the "Company" or the
"Registrant") is a Colorado corporation that currently specializes in the
production and sale of its Alderox(TM) products, including Alderox(TM),
ASA-12(TM), DCR(TM), KR-7(TM), PaverBlend(TM), TSR(TM), and ASA Cleaners. These
products are made from our patented formula relating specifically to an improved
release agent for mitigating the sticking of asphalt, concrete and other similar
products to various surfaces. Release agents are commonly applied to containers,
mixers, truck beds and forms prior to pouring asphalt or concrete into them, and
act as a barrier to mitigate adhesion of the asphalt, concrete or other material
to the relevant surfaces.
Basis of Presentation
The accompanying interim financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") for interim financial reporting. These interim financial statements are
unaudited and, in the opinion of management, include all adjustments (consisting
of normal recurring adjustments and accruals) necessary to present fairly the
balance sheet, operating results and cash flows for the periods presented in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). Operating results for the three months ended September 30,
2005 are not necessarily indicative of the results that may be expected for the
year ending June 30, 2006 or for any other interim period during such year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted in accordance with
the rules and regulations of the SEC. These interim financial statements should
be read in conjunction with the audited financial statements and notes thereto
contained in the Company's Form 10-KSB for the year ended June 30, 2005.
Going Concern
The Company's financial statements are prepared using the accrual method of
accounting in accordance with GAAP and have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities in the normal course of business. The Company has incurred
cumulative losses of $14,860,658, including net losses of $45,530 and $384,745
for the three months ended September 30, 2005 and 2004, respectively, and has a
working capital deficit of $1,143,039.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon future sustainable profitable operations of the Company,
which in turn is dependent upon the Company's ability to raise additional
capital, obtain financing, increase its customer base and manage its costs. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
7
Management has taken the following steps, which it believes are sufficient to
provide the Company with the ability to continue as a going concern: (i)
obtaining additional equity and debt financing (see Notes 8 and 10); (ii)
controlling of salaries and general and administrative expenses; (iii) managing
accounts payable; and (iv) evaluating its distribution and marketing methods.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include the
recoverability of long-lived assets, the fair value of derivative and warrant
liabilities, and the fair value of common shares/options granted for services.
Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash
equivalents to include highly liquid investments with original maturities of
three months or less.
Accounts Receivable
The Company performs periodic evaluations of its customers and maintains
allowances for potential credit losses as deemed necessary. The Company
generally does not require collateral to secure its accounts receivable. The
Company estimates credit losses and returns based on management's evaluation of
historical experience and current industry trends. Although the Company expects
to collect amounts due, actual collections may differ from the estimated
amounts.
Inventories
Inventories consist of raw materials and finished goods and are stated at the
lower of cost (determined using the average cost method) or market. The Company
regularly monitors potential excess or obsolete inventories by comparing the
market value to cost. When necessary, the Company reduces the carrying amount of
inventories to their market value.
Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs that
do not improve or extend the lives of the respective assets are expensed. At the
time property and equipment are retired or otherwise disposed of, the asset and
related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
8
The Company depreciates its property and equipment using the straight-line
method over the following estimated useful lives:
Computers and office equipment 3-5 years
Test equipment 5 years
Vehicles 5 years
Long-Lived Assets
The Company accounts for its long-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an
asset by estimating the future undiscounted net cash flows expected to result
from the asset, including eventual disposition. If the future undiscounted net
cash flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset's carrying value and fair
value or disposable value. As of September 30, 2005, the Company does not
believe there has been any impairment of its long-lived assets. There can be no
assurance, however, that market conditions will not change or demand for the
Company's products and services will continue, which could result in impairment
of long-lived assets in the future.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are recognized for future tax benefits or consequences attributable
to temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation allowance is provided for significant
deferred tax assets when it is more likely than not that such assets will not be
realized through future operations.
Convertible Debentures
In certain instances, the convertible feature of the Company's notes payable
provides for a rate of conversion that is below market value (see Note 8). This
feature is characterized as a beneficial conversion feature ("BCF"), which is
recorded by the Company pursuant to Emerging Issues Task Force ("EITF") Issue
No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios," and EITF Issue No.
00-27, "Application of EITF Issue No. 98-5 to Certain Convertible Instruments."
9
The Company's notes payable are recorded net of the debt discount related to
BCF. The Company amortizes the discount to interest expense over the life of the
debt on a straight-line basis, which approximates the effective interest method.
For the three months ended September 30, 2005, the Company recorded $110,766 of
amortization related to BCF.
10
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Deferred Financing Costs
The Company records direct costs of obtaining debt as deferred financing costs
and amortizes these costs to interest expense over the life of the debentures on
a straight-line basis, which approximates the effective interest method.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses, related-party notes
payable and notes payable. Pursuant to SFAS No. 107, "Disclosures About the Fair
Value of Financial Instruments," the Company is required to estimate the fair
value of all financial instruments at the balance sheet date. The Company cannot
determine the estimated fair value of related-party notes payable as the
transactions originated with related parties nor the fair value of the
convertible notes payable as instruments similar to its convertible notes
payable could not be located. Other than these items, the Company considers the
carrying values of its financial instruments in the financial statements to
approximate their fair values.
Derivative Financial Instruments
The Company's derivative financial instruments consist of embedded derivatives
related to the Callable Secured Convertible Term Notes (the "Notes") entered
into on June 23, 2005 (see Note 8). These embedded derivatives include certain
conversion features, variable interest features, call options and default
provisions. The accounting treatment of derivative financial instruments
requires that the Company record the derivatives and related warrants at their
fair values as of the inception date of the agreement and at fair value as of
each subsequent balance sheet date ($1,274,522 as of September 30, 2005). In
addition, under the provisions of EITF Issue No. 00-19, "Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock," as a result of entering into the Notes, the Company is
required to classify all other non-employee stock options and warrants as
derivative liabilities and mark them to market at each reporting date. The fair
value of such options and warrants at September 30, 2005 totaled $359,514. Any
change in fair value will be recorded as non-operating, non-cash income or
expense at each reporting date. If the fair value of the derivatives is higher
at the subsequent balance sheet date, the Company will record a non-operating,
non-cash charge. If the fair value of the derivatives is lower at the subsequent
balance sheet date, the Company will record non-operating, non-cash income.
Conversion-related derivatives were valued using the Binomial Option Pricing
Model with the following assumptions: dividend yield of 0%; annual volatility of
140%; and risk free interest rate of 4.18% as well as probability analysis
related to trading volume restrictions. The remaining derivatives were valued
using discounted cash flows and probability analysis. The derivatives are
classified as long-term liabilities (see Note 8).
During the quarter ended September 30, 2005, the net decrease in the derivative
and warrant liability was $940,276, which was recorded as a component of other
income in the accompanying statements of operations.
11
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition
The Company recognizes revenue in accordance with Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements," as revised by
SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of
an arrangement exists, title transfer has occurred, the price is fixed or
readily determinable and collectibility is probable. Sales are recorded net of
sales discounts.
Revenues from sales to distributors and agents are recognized upon shipment when
there is evidence that an arrangement exists, delivery has occurred under the
Company's standard FOB shipping point terms, the sales price is fixed or
determinable and the ability to collect sales proceeds is reasonably assured.
The contracts regarding these sales do not include any rights of return or price
protection clauses.
Net Loss Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share"
("EPS"). SFAS No. 128 provides for the calculation of basic and diluted earnings
per share. Basic EPS includes no dilution and is computed by dividing income or
loss available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted EPS reflects the potential
dilution of securities that could share in the earnings or losses of the entity.
Dilution is computed by applying the treasury stock method for options and
warrants. Under this method, options and warrants are assumed to be exercised at
the beginning of the period (or at the time of issuance, if later) as if funds
obtained thereby were used to purchase common stock at the average market price
during the period.
For the three months ended September 30, 2005 and 2004, basic and diluted loss
per share are the same since the calculation of diluted per share amounts would
result in an anti-dilutive calculation that is not permitted and therefore not
included. Such dilutive amounts would have included shares potentially issuable
pursuant to convertible debentures (see Notes 7 and 8) and outstanding options
and warrants (see Note 10).
Issuance of Stock for Non-Cash Consideration
All issuances of the Company's stock for non-cash consideration have been
assigned a per share amount equaling either the market value of the shares
issued or the value of consideration received, whichever is more readily
determinable. The majority of the non-cash consideration received pertains to
services rendered by consultants and others and has been valued at the market
value of the shares on the dates issued. In certain instances, the Company has
discounted the values assigned to the issued shares for illiquidity and/or
restrictions on resale (see Note 10).
12
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Stock-Based Compensation
Stock-based awards to non-employees are accounted for using the fair value
method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," and EITF Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling
Goods or Services." All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. The measurement
date used to determine the fair value of the equity instrument issued is the
earlier of the date on which the third-party performance is complete or the date
on which it is probable that performance will occur.
Stock-based compensation for employees is accounted for in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." The Company has elected to adopt the disclosure only
provisions of SFAS No. 123, which requires pro forma disclosures in the
financial statements as if the measurement provisions of SFAS No. 123 had been
adopted. In addition, the Company has made the appropriate disclosures as
required under SFAS No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure."
The Company's net loss and net loss per share determined under SFAS No. 123 were
the same as reported in the accompanying statements of operations for the three
months ended September 30, 2005 and 2004 as no options were issued to employees
during these periods.
Concentrations of Credit Risk
The Company maintains its cash balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000.
From time-to-time, the Company's cash balances exceed the amount insured by the
FDIC. Management believes the risk of loss of cash balances in excess of the
insured limit to be low.
The majority of revenues in the three months ended September 30, 2005 and 2004
were generated from a few customers. For the three months ended September 30,
2005, total sales to two major customers, amounted to $34,126, or approximately
70.7% of our sales and as of September 30, 2005, accounts receivable from these
two customers accounted for approximately 87.1% of our total accounts
receivable.
Reclassifications
Certain amounts in September 30, 2004 financial statements have been
reclassified to conform with the September 30, 2005 presentation. Such
reclassification had no effect on net loss as previously reported.
13
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123R, "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB
Opinion No. 25. SFAS No. 123R addresses the accounting for transactions in which
an enterprise receives employee services in exchange for equity instruments of
the enterprise or liabilities that are based on the fair value of the
enterprise's equity instruments or that may be settled by the issuance of such
equity instruments. SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options and restrictive stock
grants, to be recognized as a compensation cost based on their fair values. The
pro forma disclosures previously permitted under SFAS No. 123 no longer will be
an alternative to financial statement recognition. Under SFAS No. 123R, the
Company must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at the date of adoption. The transition methods
include prospective and retroactive adoption options. Under the retroactive
option, prior periods may be restated either as of the beginning of the year of
adoption or for all periods presented. The prospective method requires that
compensation expense be recorded for all unvested stock options and restricted
stock at the beginning of the first quarter of adoption of SFAS No. 123R, while
the retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. The
Company is required to adopt SFAS No. 123R in its fiscal year beginning after
December 15, 2005. The Company is currently assessing the impact that adoption
of this Standard will have on its results of operations, financial position and
cash flows. The Company preliminarily believes that adoption of this standard
will result in additional charges to reported earnings.
In September 2004, the EITF finalized its consensus on EITF Issue No. 04-8, "The
Effect of Contingently Convertible Debt on Diluted Earnings Per Share" ("EITF
04-8"). EITF 04-8 addresses when the dilutive effect of contingently convertible
debt with a market price trigger should be included in diluted earnings per
share. Under EITF 04-8, the market price contingency should be ignored and these
securities should be treated as non-contingent, convertible securities and
always included in the diluted EPS computation unless their inclusion would be
anti-dilutive. EITF 04-8 requires these securities be included in diluted EPS
using either the if-converted method or the net share settlement method,
depending on the conversion terms of the security. EITF 04-8 is effective for
all periods ending after December 15, 2004 and is to be applied by
retrospectively restating previously reported EPS. The adoption of EITF 04-8
will have an effect on the Company's diluted EPS computation if, in future
periods, the inclusion of contingently convertible debt becomes dilutive.
In November 2004, The FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4," to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs and spoilage. SFAS No. 151
requires that these costs be expensed as incurred and not included in overhead.
SFAS No. 151 also requires that allocation of fixed production overhead to
conversion costs be based on normal capacity of the production facilities. This
standard is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of this statement did not have a significant
impact on the Company's financial statements.
14
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-Monetary
Assets, an amendment of APB Opinion 29, Accounting for Non-Monetary
Transactions." The amendments made by SFAS No. 153 are based on the principle
that exchanges of non-monetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendment eliminates the narrow exception
for non-monetary exchanges of similar productive assets and replaces it with a
broader exception for exchanges of non-monetary assets that do not have
"commercial substance." The provisions in SFAS No. 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The adoption of this statement did not have a material impact on the
Company's financial statements.
NOTE 3 - ACCOUNTS RECEIVABLE
All accounts receivable are trade related. These receivables are current and no
reserve for uncollectible accounts is deemed necessary.
NOTE 4 - INVENTORIES
Inventories consist of the following as of September 30, 2005:
Raw materials $22,633
Finished goods 30,855
-------
$53,488
=======
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at September 30, 2005:
Computers and office equipment $ 26,357
Test equipment 32,579
Vehicles 17,408
--------
76,344
Less accumulated depreciation (21,523)
--------
$ 54,821
========
Depreciation expense was $4,206 and $1,328 for the three months ended September
30, 2005 and 2004, respectively.
15
NOTE 6 - DEFERRED FINANCING COSTS
Deferred financing costs consist of the following as of September 30, 2005:
Cost $ 40,000
Less accumulated amortization (1,833)
--------
$ 38,167
========
Amortization expense was $1,833 for the three months ended September 30, 2005.
NOTE 7 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consist of the following at September 30, 2005:
Unsecured note payable to stockholder, bearing interest at 10
percent per annum, convertible to common stock at $0.25 per share,
due on demand $ 6,000
Unsecured note payable to stockholder, bearing interest at 15
percent per annum, convertible to common stock at $0.75 per share,
monthly principal payments of $1,833, due June 30, 2006 13,333
Unsecured note payable to stockholder, bearing interest at 15
percent per annum, due on demand 14,598
Unsecured notes payable to stockholders, bearing interest at 10
percent per annum, due on demand 333,763
Unsecured note payable to stockholder, bearing interest at 5
percent, due on demand 43,150
Unsecured note payable to stockholder, bearing interest at credit
card rate, as defined, due on demand 10,555
---------
$ 421,399
=========
Interest expense on notes payable - related parties for the three months ended
September 30, 2005 and 2004 was $13,013 and $4,315, respectively. All
related-party notes payable are reflected as current liabilities as they are
either due on demand or mature on June 30, 2006.
16
NOTE 8 - NOTES PAYABLE
Notes payable consist of the following at June 30, 2005:
Callable, secured, convertible notes payable, net of unamortized $ 98,266
discount of $1,201,734 (see below)
Note payable, bearing interest at 10 percent per annum, convertible to
common stock at 70% of the average of the 5 lowest closing bid prices
of the common stock for the 20 days preceding the date of conversion,
with a floor of $0.18 per share and a ceiling of $0.30 per share, due
March 2006, secured by accounts receivable, inventories and property
and equipment, net of unamortized debt discount of $25,000 (see below) 25,001
Note payable, bearing interest at 15 percent per annum, convertible to
common shares at $0.40 per share, due on demand, secured by
substantially all assets of the Company 75,000
Note payable, bearing interest at 15 percent per annum, convertible to
common shares at $0.40 per share, due October 2005, secured by
substantially all assets of the Company 50,000
Notes payable, bearing interest at 10 percent per annum and paid
semi-annually, convertible to common shares at $0.40 or $0.45 per
share, due on demand, secured by substantially all assets of the
Company 47,500
Note payable, bearing interest at 15 percent per annum, convertible to
common shares at $0.75 per share, due on demand, secured by
substantially all assets of the Company 50,000
Unsecured notes payable, bearing interest at 10 percent per annum,
convertible to common shares at $0.40 per share, due December 31,
2005 55,850
---------
401,617
Less: current portion (303,351)
---------
$ 98,266
=========
During the year ended June 30, 2005, the Company borrowed $50,001 from a
noteholder, which is payable in March 2006. The noteholder has an option to
convert up to the full loan amount into restricted shares of the Company's
common stock at $0.25 per share. The Company recorded a BCF-related discount on
the debt of $50,000 and amortized $12,500 as non-cash interest expense during
the three months ended September 30, 2005.
17
NOTE 8 - NOTES PAYABLE, continued
On June 23, 2005, the Company entered into a Securities Purchase Agreement (the
"SPA") with AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC
and New Millennium Capital Partners II, LLC (collectively, the "Investors") for
the sale of (i) $2,000,000 in Notes and (ii) warrants to purchase 8,000,000
shares of the Company's common stock.
The Investors are obligated to provide the Company with the funds as follows:
o $700,000 was disbursed on June 23, 2005;
o $600,000 was disbursed on July 28, 2005 (within five days of filing
a registration statement covering the number of shares of common
stock underlying the secured convertible notes and the warrants);
and
o $700,000 will be disbursed within five days of the effectiveness of
a registration statement (see below).
The Notes bear interest at 10%, mature three years from the date of issuance and
are convertible into the Company's common stock, at the Investors' option, at
the lower of $0.21 per share or 50% of the average of the three lowest intraday
trading prices for the common stock on the Over-The-Counter Bulletin Board for
the 20 trading days before, but not including, the conversion date.
The full principal amount of the Notes is due upon a default under the terms of
the SPA. In addition, the Company granted the Investors a security interest in
substantially all of its assets and intellectual property. The Company filed a
registration statement with the Securities and Exchange Commission within 45
days of closing, which included the common stock underlying the Notes and the
warrants. If the registration statement is not declared effective within 120
days from the date of closing, the Company will be required to pay a penalty to
the Investors. In the event the Company breaches any representation or warranty
in the SPA, the Company is required to pay a penalty in shares or cash, at the
election of the Investors, in an amount equal to three percent of the
outstanding principal amount of the Notes per month plus accrued and unpaid
interest.
The warrants are exercisable until five years from the date of issuance at a
purchase price of $0.28 per share. The Investors may exercise the warrants on a
cashless basis if the shares of common stock underlying the warrants are not
then registered pursuant to an effective registration statement. In the event
the Investors exercise the warrants on a cashless basis, the Company will not
receive any proceeds. In addition, the exercise price of the warrants will be
adjusted in the event the Company issues common stock at a price below market,
with the exception of any securities issued as of the date of the warrants or
issued in connection with the Notes issued pursuant to the SPA.
The Investors have agreed to restrict their ability to convert their Notes or
exercise their warrants and receive shares of the Company's common stock such
that the number of shares of common stock held by them in the aggregate and
their affiliates after such conversion or exercise does not exceed 4.99% of the
then issued and outstanding shares of common stock.
18
NOTE 8 - NOTES PAYABLE, continued
Under a Guaranty and Pledge Agreement, Mr. Gordon Davies, the Company's
president, agreed (i) to unconditionally guarantee the timely and full
satisfaction of all obligations, whether matured or unmatured, now or hereafter
existing or created and becoming due and payable to the Investors, their
successors, endorsees, transferees or assigns under the SPA and other
transaction documents to the extent of 517,400 shares of the Company's common
stock owned by Mr. Davies, and (ii) to grant to the Investors, their successors,
endorsees, transferees or assigns a security interest in the 517,400 shares, as
collateral security for such obligations.
The Notes include certain features that are considered embedded derivative
financial instruments, such as a variety of conversion options, a variable
interest rate feature, events of default and a variable liquidated damages
clause. These features are described below, as follows:
o The Notes' conversion features are identified as an embedded
derivative and have been bifurcated and recorded on the Company's
balance sheet at their fair value;
o The Company has a partial call option to allow the Company to
pre-empt the conversion of the Notes in a given month and partially
offset the BCF, which is identified as an embedded derivative and
has been bifurcated and recorded on the Company's balance sheet at
its fair value;
o Annual interest on the Notes is equal to 10% provided that no
interest shall be due and payable for any month in which the
Company's trading price is greater than $0.3125 for each trading day
of the month, which potential interest rate reduction is identified
as an embedded derivative and has been bifurcated and recorded on
the Company's balance sheet at its fair value;
o The SPA includes a penalty provision based on any failure to meet
registration requirements for shares issuable under the conversion
of the note or exercise of the warrants, which represents an
embedded derivative, but such derivative has a de minimus value and
has not been included in this analysis at September 30, 2005; and
o The SPA contains certain events of default including not having
adequate shares registered to effectuate allowable conversions; in
that event, the Company is required to pay a conversion default
payment at 24% interest, which is identified as an embedded
derivative and has been bifurcated and recorded on the Company's
balance sheet at its fair value.
The initial relative fair value assigned to the embedded derivatives was
$504,601 as of June 30, 2005. The fair value of the embedded derivatives was
$701,212 as of September 30, 2005.
In conjunction with the Notes, the Company issued warrants to purchase 5,200,000
shares of common stock. The accounting treatment of the derivatives and warrants
requires that the Company record the warrants at their fair values as of the
inception date of the agreement, which totaled $525,934 as of June 30, 2005. As
of September 30, 2005, the fair value of these warrants was $573,310.
19
NOTE 8 - NOTES PAYABLE, continued
The Company recorded the first $1,300,000 of fair value of the derivatives and
warrants to debt discount (equal to the total proceeds received as of September
30, 2005), which will be amortized to interest expense over the term of the
Notes. Amortization expense for the three months ended September 30, 2005 was
$98,266.
The market price of the Company's common stock significantly impacts the extent
to which the Company may be required or may be permitted to convert the
unrestricted and restricted portions of the Notes into shares of the Company's
common stock. The lower the market price of the Company's common stock at the
respective times of conversion, the more shares the Company will need to issue
to convert the principal and interest payments then due on the Notes. If the
market price of the Company's common stock falls below certain thresholds, the
Company will be unable to convert any such repayments of principal and interest
into equity, and the Company will be forced to make such repayments in cash. The
Company's operations could be materially adversely impacted if the Company is
forced to make repeated cash payments on the Notes.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Litigation
On May 2, 2005, a complaint was filed against the Company, our president, Gordon
Davies, and our vice president, Michael Davies. The complaint alleges, among
other things, a cause of action for breach of contract and seeks the return of
approximately $55,000, which the plaintiff alleges was loaned to the Company
under a "partly written, partly oral" agreement, pursuant to which a total of
$80,000 was loaned. Company management has denied that the plaintiff is owed the
amounts sought and intends to vigorously defend this action. Specifically,
Company management denies that any such agreement ever existed, and that the
Company never received any loans from the plaintiff. On August 2, 2005, a
hearing on the Company's demurrer to the complaint was held, pursuant to which
the demurrer was granted and required the plaintiff to amend its complaint. On
August 29, 2005, an amended complaint was filed against the Company, Mr. Gordon
Davies and Mr. Michael Davies. A trial date has been set for June 2006. Counsel
has advised the Company that it is premature to attempt to estimate any
potential outcome or loss at this time.
In September 2005, litigation between the Company and a former lessor was
settled through arbitration. The complaint alleged breach of contract by the
Company for not paying amounts due as per the lease terms. The terms of the
settlement require the Company to pay $30,000 on March 1, 2006. Beginning April
1, 2006, the Company is required to pay monthly installments of $3,100 for
twenty-four months. The Company may prepay the remaining balance at a twenty
percent discount at any time. If the Company defaults on any of the required
payments, the additional $40,000 due under the terms of the original lease will
become due and payable. This amount has not been accrued as the Company believes
the possibility of default under the agreement is remote. The payment of the
settlement is personally guaranteed by Mr. Gordon Davies.
20
Future minimum payments under the former lessor settlement agreement for the
years ending June 30 are:
2006 $ 39,300
2007 37,200
2008 27,900
--------
$104,400
========
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may be
required to make payments to a guaranteed or indemnified party in relation to
certain actions or transactions. The Company indemnifies its directors,
officers, employees and agents, as permitted under the laws of the State of
Colorado. In connection with its facility leases, the Company has indemnified
its lessors for certain claims arising from the use of the facilities. The
Company is also required to indemnify the Investors for certain matters as
defined under the terms of the Notes. The duration of the guarantees and
indemnities varies, and is generally tied to the life of the agreement. These
guarantees and indemnities do not provide for any limitation of the maximum
potential future payments the Company could be obligated to make.
Historically, the Company has not been obligated nor incurred any payments for
these obligations and, therefore, no liabilities have been recorded for these
indemnities and guarantees in the accompanying balance sheet.
21
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock
During the three months ended September 30, 2004, the Company issued common
shares at various times, as described per the following. The shares were valued
at the average fair market value of the freely trading shares of the Company as
quoted on OTCBB on the date of issuance. Restricted shares were discounted for
illiquidity and restrictions on trading.
2004
During the year three months ended September 30, 2004, the Company issued
766,663 shares of common stock for cash amounting $230,000.
During the three months ended September 30, 2004, the Company issued 399,593
shares of common stock for services rendered amounting $155,841.
During the year three months ended September 30, 2004, the Company cancelled
62,500 shares of common stock amounting to $26,275.
As of September 30, 2004, the Company had received $45,000 for 150,000 shares of
common stock to be issued.
2005
During the three months ended September 30, 2005, the Company settled debt to a
related party by paying cash of $25,000 in lieu of 100,000 shares of common
stock that were committed to be issued at June 30, 2005. No gain or loss was
recorded on this transaction.
There were no issuances of common stock during the three months ended September
30, 2005.
Stock Options and Warrants
The Company has no stock option plans.
During the three months ended September 30, 2005, the Company granted fully
vested options to various consultants for services rendered which were accounted
for using the fair value of the options granted based on the Black-Scholes
option-pricing model. The Company recorded $128,731 as consulting expense during
the three months ended September 30, 2005.
In addition, the Company issued 2,250,000 warrants to a consultant in fiscal
2005, the Invested portion of which, vests at the rate of 750,000 warrants
each on November 17, 2005 and February 17, 2006. The fair value of each group of
750,000 warrants is $136,500 and will be recognized as compensation expense in
the accompanying financial statements upon vesting. For the three months ended
September 30, 2005, the Company recognized $136,500 as consulting expense for
the vesting of warrants on August 17, 2005.
22
NOTE 10 - STOCKHOLDERS' EQUITY, continued
The Company accounts for stock-based compensation to employees under APB 25
using the intrinsic value method. Pro forma information of the effect on
operations as required by SFAS No. 123 has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. Pro forma information using the Black-Scholes method at the date of
grant was based on the following assumptions for the three months ended
September 30, 2005 and 2004:
2005 2004
---- ----
Expected life 1-5 years 1-5 years
Risk-free interest rate 4.18% 5%
Dividend yield 0% 0%
Volatility 140% 50%
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following presentation of Management's Discussion and Analysis has been
prepared by internal management and should be read in conjunction with the
financial statements and notes thereto included in Item 1 of this Quarterly
Report on Form 10-QSB. Except for the historical information contained herein,
the discussion in this report contains certain forward-looking statements that
involve risks and uncertainties, such as statements of our business plans,
objectives, expectations and intentions as of the date of this filing. The
cautionary statements about reliance on forward-looking statements made earlier
in this document should be given serious consideration with respect to all
forward-looking statements wherever they appear in this report, notwithstanding
that the "safe harbor" protections available to some publicly reporting
companies under applicable federal securities law do not apply to us as an
issuer of penny stocks. Our actual results could differ materially from those
discussed here.
Reclamation Consulting and Applications, Inc., ("us", "we", "our", the "Company"
or the "Registrant") is a Colorado corporation that currently specializes in the
production and sale of its Alderox(TM) products, including Alderox(TM)
ASA-12(TM), DCR(TM), KR-7(TM), PaverBlend(TM), TSR(TM), and ASA Cleaners. We
were originally formed in 1976, under the name "Vac-Tec Systems, Inc." and
operated primarily in the glass vaccum coating business. Subsequently, in early
1977, we were reorganized as a public shell corporation with no significant
assets.
Presently, we are engaged primarily in the production, sale and distribution of
our Alderox(TM) line of products which are made from our patented formula
relating specifically to an improved release agent for mitigating the sticking
of asphalt, concrete and other similar products to various surfaces. Release
agents are commonly applied to containers, mixers, truck beds and forms prior to
pouring asphalt or concrete into them, and act as a barrier to mitigate adhesion
of the asphalt, concrete or other material to the relevant surfaces. The release
agents included in our Alderox(TM) line of products are comprised mostly of
oils, especially a 100% biodegradable and otherwise environmentally friendly oil
such as soybean oils. Our Alderox(TM) formulation may be comprised of any
desired oil or combination of oils, filtered or unfiltered, with little or no
water, so long as it meets the ranges of viscosity, specific gravity and other
criteria determined by us to be the most effective for release agents.
23
Our Alderox(TM) line of products includes ASA-12(TM), DCR(TM), KR-7(TM),
PaverBlend(TM), TSR(TM), and ASA Cleaners. ASA-12(TM) is an asphalt release
agent and DCR(TM) is a drag chain lubricant, each of which was developed by us
in response to the need for effective, economical and environmentally-friendly
products in the asphalt industry. PaverBlend(TM) is also an asphalt related
product used to keep paving equipment free from debris. KR7(TM) is a concrete
release agent also developed by us in response to the concrete industry's need
for effective, economical and environmentally-friendly product. TSR(TM) is an
environmentally friendly product for the oil sands industry to reduce the
build-up of clay, lime and mud on the undercarriages and sides of transport
vehicles and equipment. Our application equipment includes the Reliant 1 and
Reliant 2 control spray systems. Reliant 1 was specifically designed to control
the amount and temperature of Alderox ASA-12(TM) sprayed onto the bed of asphalt
haul trucks. The pump system draws from a tank that stores the Alderox(TM)
product. Reliant 2 was designed as a specialized spray system for drag chain
lubrication for use within the asphalt production and mining industries. Drag
chains are large industrial chains used in the asphalt industry to drag or
transport asphalt from production to distribution containers.
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended
- ------------------------------------------------------------------------------------------------------------------------------------
September 30, 2005 September 30, 2004 Change Change
-------------------------------- ------------------------------ --------- --------------
Amount in Percent of Amount in Percent of
($) Revenues ($) Revenues ($) (%)
------------- --------------- ------------- ------------- ----------- --------------
Net revenues $ 48,177 100.00% % $ 126,811 100.00% % (78,634) (62.01)%
Cost of revenues 36,180 75.10% 55,754 43.97% (19,574) (35.11)%
------------- --------------- ------------- ------------- ----------- --------------
Gross profit 11,997 24.90% 71,057 56.03% (59,060) (83.12)%
Selling, general and
administrative expenses 834,772 1732.72% 439,599 346.66% 395,173 89.89%
------------- --------------- ------------- ------------- ----------- --------------
Loss from operations (822,775) (1707.82)% (368,542) (290.62)% (454,233) 123.25%
------------- --------------- ------------- ------------- ----------- --------------
Other income (expense)
Interest income -- -- 19,019 15.00% (19,019) (100.00)%
Interest expense (162,231) (336.74)% (34,422) (27.14)% (127,809) 371.30%
Change in fair value
of derivative
liabilities 940,276 1951.71% -- -- 940,276 --
------------- --------------- ------------- ------------- ----------- --------------
Total other expenses 778,045 1614.97% (15,403) (12.15)% 0.00%
Loss before provision
for income tax (44,730) (92.85)% (383,945) (302.77% 339,215 (88.35)%
Provision for income
taxes 800 1.66% 800 0.63% -- --
------------- --------------- ------------- ------------- ----------- --------------
Net loss (45,530) (94.51)% (384,745) (303.40)% 339,215 (88.17)%
24
Net Revenues
Net Revenues for the three-month period ended September 30, 2005 decreased to
$48,177 from $126,811 for the three-month period ended September 30, 2004. This
decrease in net revenues of $78,634, or approximately 62.01% over the prior
period is due primarily to the reorganization of our sales representative
infrastructure.
Cost of Revenues
Cost of revenues for the three-month period ended September 30, 2005 decreased
to $36,180 from $55,754 for the three-month period ended September 30, 2004.
This decrease in cost of revenues of $19,574, or approximately 35.11% over the
prior period is due primarily to the reorganization of our sales representative
infrastructure.
Gross Profit
Gross profit for the three-month period ended September 30, 2005 decreased to
$11,997 from $71,057 for the three-month period ended September 30, 2004. This
decrease in gross profits of $59,060, or approximately 83.12% over the prior
period is due primarily to the reorganization of our production and distribution
systems and sales representative infrastructure.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three-month period ended
September 30, 2005 increased to $834,772 from $439,599 for the three-month
period ended September 30, 2004. This increase in selling, general and
administrative expenses of $395,173, or approximately 89.89% over the prior
period is due primarily to the reorganization of our production and sales
infrastructure and financing activities.
Loss from Operations
Loss from operations for the three-month period ended September 30, 2005
increased to $822,775 from $368,542 for the three-month period ended September
30, 2004. This increase in loss from operations of $454,233, or approximately
123.25% over the prior period is due primarily to the reorganization of our
production and distribution and sales representative systems.
25
Interest Expense
Interest expense for the three month period ended September 30, 2005 increased
to $162,231 from $34,422 for the three month period ended September 30, 2004.
This increase in interest expense of $162,231, or approximately 371.30% over the
prior period is due primarily to the increase in the amount of outstanding notes
payable and amortization of the debt discounts amounting to $110,766 during the
three months ended September 30, 2005. For the three months ended September 30,
2004, there was no debt discount amortization as no convertible debt was
outstanding.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities for the three month period ended
September 30, 2005 was $940,276, and we had no change in the fair value of
derivative liabilities for the three month period ended September 30, 2005.
Change in the fair value of derivative liabilities for the three month period
ended September 30, 2005 was primarily the result of a decrease in the computed
volatility of the market price of our common stock as well as a decline in the
market price of the stock, thereby making conversion of the stock or the
exercise of warrants less attractive to the holders of those instruments.
Net Loss
Net loss for the three month period ended September 30, 2005 decreased to
$45,530 from $384,745 for the three month period ended September 30, 2004. This
decrease in net loss of $339,215, or approximately 88.17% over the prior period
is due primarily to the change in the fair value of the derivative warrant
liabilities, as described above.
Liquidity and Capital Resources
-----------------------------------------------------------------------------
September 30, September 30,
2005 2004
------------- ------------
Net cash used in operating activities $(564,698) $(489,498)
Net cash used in investing activities (5,627) (2,600)
Net cash provided by financing activities 570,325 491,055
-----------------------------------------------------------------------------
General
For the three months ended September 30, 2005, we had used $564,698 in our
operating activities and $5,627 in our investing activities, and we received
$570,325 of cash from our financing activities. Accordingly, for the three
months ended September 30, 2005, our funds from operations were not sufficient
to cover our daily operations as further explained below.
Cash Flows from Operating Activities
Net cash used in our operating activities of $564,698 for the three months ended
September 30, 2005 was primarily attributable to a net loss of $45,530,
adjustments to reconcile net loss to net cash used in operating activities of
$519,168 comprised of $265,231 for issuances of stock options and warrants for
services rendered, decrease in the fair value of derivative and warrant
liabilities of $940,276, amortization of discount on notes payable of $110,766,
depreciation and amortization of $6,039, increase in accounts receivable of
$7,975, increase in inventories of $7,796, decrease in prepaid expenses and
other current assets of $1,528, and increase in accounts payable and accrued
expenses of $53,315.
26
Cash Flows from Investing Activities
Net cash used in our investing activities of $5,627 for the three months ended
September 30, 2005 was cash used in our acquisition of property and equipment.
Cash Flows from Financing Activities
Net cash provided by our financing activities of $570,325 for the three months
ended September 30, 2005 was proceeds on notes payable of $789,850 and payment
on notes payable and convertible debentures of $219,525.
Internal Sources of Liquidity
For the three months ended September 30, 2005, the funds generated from our
operations were insufficient to fund our daily operations. Gross profit for the
three months ended September 30, 2005 were $11,997, which was insufficient to
meet our operating expenses of $834,772 for the same period. There is no
assurance that funds from our operations will meet the requirements of our daily
operations in the future. In the event that funds from our operations will be
insufficient to meet our operating requirements, we will need to seek other
sources of financing to maintain liquidity.
External Sources of Liquidity
We actively pursue all potential financing options as we look to secure
additional funds to both stabilize and grow our business operations. Our
management will review any financing options at their disposal, and will judge
each potential source of funds on its individual merit. There can be no
assurance that we will be able to secure additional funds from debt or equity
financing, as and when we need to, or if we can, that the terms of such
financing will be favorable to us or our existing stockholders. As a result, our
independent registered public accounting firm has issued a "going concern"
modification on our audited financial statements for the year ended June 30,
2005.
At September 30, 2005, we have debt owing to related parties aggregating
$421,399 as summarized in Note 7 to the financial statements.
At September 30, 2005, we have debt owing to non-related parties aggregating
$1,628,351 (including unamortized debt discounts) as summarized in Note 8 to the
financial statements.
Off Balance Sheet Arrangements
We do not have nor do we maintain any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to our investors.
27
ITEM 3. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls as of the end of the period covered by
this report, September 30, 2005. This evaluation was carried out under the
supervision and with the participation of our President, Mr. Gordon W. Davies,
and our Chief Financial Officer, Mr. Michael C. Davies (collectively, the
"Certifying Officers"). Based upon that evaluation, our Certifying Officers
concluded that as of the end of the period covered by this report, September 30,
2005, our disclosure controls and procedures are effective in timely alerting
management to material information relating to us and required to be included in
our periodic filings with the Securities and Exchange Commission (the
"Commission").
Disclosure controls and procedures are controls and procedures that are designed
to ensure that information required to be disclosed in our periodic reports
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our periodic
reports that we file under the Exchange Act is accumulated and communicated to
our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Further, as required by Rule 13a-15(d) of the Exchange Act and under the
supervision and with the participation of our Certifying Officers, we carried
out an evaluation as to whether there has been any change in our internal
control over financial reporting during our fiscal quarter ended September 30,
2005. Based upon this evaluation, we have concluded that there has not been any
change in our internal control over financial reporting during our fiscal
quarter ended September 30, 2005, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
Internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive and principal financial officers, or
persons performing similar functions, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies
and procedures that: (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings relating to claims
arising out of operations in the normal course of business, as well as claims
arising from our status as an issuer of securities and/or a publicly reporting
company. Below is a brief summary of our existing, pending and known threatened
litigation as of the date of this report:
On April 15, 2005 a complaint was filed by Jamestown, L.C. against us in the
matter entitled Jamestown L.C. vs. Reclamation Consulting and Applications, Inc.
Case No. 050907049, filed with the Third Judicial District Court, County of Salt
Lake, State of Utah. The complaint alleges unjust enrichment and seeks past due
rent in the amount of $54,272.58 plus interest and attorney fees. Our management
has denied that the plaintiffs are owed the amounts sought and we intend to
vigorously defend this action on the basis brought by the plaintiffs.
Specifically, our management contends that we were precluded from using the
facilities leased to us by Jamestown, L.C. to manufacture our products due to
existing violations of fire code regulations on the property, and that we were
forced to leave the property by governmental authorities. Accordingly, we could
not perform under the lease agreement. Based upon a stipulation of the parties
in this matter, the parties have agreed to stay all proceedings pending
mediation and arbitration. On September 22, 2005, this matter was
arbitrated/mediated in Salt Lake City, Utah, and the parties entered into a
Memorandum of Understanding. Pursuant to the Memorandum of Understanding, we
have agreed to pay the plaintiff the sum of $30,000 on March 1, 2006, and $3,100
per month for 24 months commencing on April 1, 2006, subject to our option to
pay the entire settlement amount at a 20% discount.
On May 2, 2005, a complaint was filed by Pacific Business Capital Corporation
against us, our president, Gordon Davies, and our vice president, Michael
Davies, in the matter entitled Pacific Business Capital vs. Reclamation
Consulting and Applications, Inc., et. al., Case No. 05CC05777, filed with the
Superior Court of State of California, County of Orange. The complaint alleges,
among other things, a cause of action for breach of contract and seeks the
return of approximately $55,000, which the plaintiffs allege they loaned us
under a "partly written, partly oral" agreement, pursuant to which a total of
$80,000 was loaned to us. Our management has denied that the plaintiffs are owed
the amounts sought and we intend to vigorously defend this action on the basis
brought by the plaintiffs. Specifically, our management denies that any such
agreement for such loan ever existed, and that we never received any funds
pursuant thereto, if any, from the plaintiffs. On August 2, 2005, a hearing on
our demurrer to the complaint, filed on May 2, 2005, was held, pursuant to which
the court granted our demurrer on the grounds set forth therein, but granted
plaintiffs leave to amend their complaint. On August 29, 2005, plaintiffs again
filed an amended complaint against us, Mr. Gordon Davies, and Mr. Michael
Davies. On October 24, 2005 the Court has set the above entitled action for
trial on June 26, 2006 at 9:00 A.M. in Department C-22 of the Superior Court of
California County of Orange, Central Justice Center located at 700 Civic Center
Drive West, Santa Ana, California.
29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not sell any of our equity securities that were not registered under the
Securities Act during the three-month period ended September 30, 2005.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the three month period ended September 30, 2005, there have been no
material defaults in the payment of principal, interest, a sinking or purchase
fund installment, or any other material default not cured within 30 days, with
respect to any of our indebtedness exceeding 5% of our total assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the three
month period ended September 30, 2005.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit No. Description
- ----------------- ----------------------------------------------------------------------------------------------------------------
3.(I) (1) Articles of Incorporation of Vac-Tec Systems, Inc. dated February 27, 1976.
- ----------------- ----------------------------------------------------------------------------------------------------------------
3.(I) (1) Articles of Amendment to the Articles of Incorporation of Val-Tec Systems, Inc. dated March 10, 1976.
- ----------------- ----------------------------------------------------------------------------------------------------------------
3.(I) (1) Articles of Incorporation of Vac-Tec Systems, Inc. dated May 12, 1976.
- ----------------- ----------------------------------------------------------------------------------------------------------------
3.(I) (1) Articles of Amendment to Articles of Incorporation of Vac-Tec Systems, Inc. dated February 15, 1998.
- ----------------- ----------------------------------------------------------------------------------------------------------------
3.3 (4) Articles of Amendment to the Articles of Incorporation of Recycling Centers of America, Inc. dated January 16,
2002.
- ----------------- ----------------------------------------------------------------------------------------------------------------
3(II) (1) By-Laws of Vac-Tec Systems, Inc.
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4.1 (9)(15) Securities Purchase Agreement, dated June 23, 2005, by and among Reclamation Consulting and
Applications, Inc. and AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC.
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30
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.2 (9) Callable Secured Convertible Note issued to AJW Offshore, Ltd., dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.3 (9) Callable Secured Convertible Note issued to AJW Qualified Partners, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.4 (9) Callable Secured Convertible Note issued to AJW Partners, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.5 (9) Callable Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.6 (9) Stock Purchase Warrant issued to AJW Offshore, Ltd., dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.7 (9) Stock Purchase Warrant issued to AJW Qualified Partners, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.8 (9) Stock Purchase Warrant issued to AJW Partners, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.9 (9) Stock Purchase Warrant issued to New Millennium Capital Partners II, LLC, dated June 23, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.10 (9) Registration Rights Agreement, dated as of June 23, 2005, by and among Reclamation Consulting and
Applications, Inc., AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium
Capital Partners II, LLC.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.11 (9) Security Agreement, dated as of June 23, 2005, by and among Reclamation Consulting and Applications, Inc., AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.12 (9) Intellectual Property Security Agreement, dated June 23, 2005, by and among Reclamation Consulting and
Applications, Inc., AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium
Capital Partners II, LLC.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.13 (9) Guaranty and Pledge Agreement, dated June 23, 2005, by and among Reclamation Consulting and Applications,
Inc., Gordon Davies, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium
Capital Partners II, LLC.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.14(15) Callable Secured Convertible Note issued to AJW Offshore, Ltd., dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.15(15) Callable Secured Convertible Note issued to AJW Qualified Partners, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.16(15) Callable Secured Convertible Note issued to AJW Partners, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.17(15) Callable Secured Convertible Note issued to New Millennium Capital Partners II, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.18(15) Stock Purchase Warrant issued to AJW Offshore, Ltd., dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
31
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.19(15) Stock Purchase Warrant issued to AJW Qualified Partners, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.20(15) Stock Purchase Warrant issued to AJW Partners, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
4.21(15) Stock Purchase Warrant issued to New Millennium Capital Partners II, LLC, dated July 28, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.1 (4) Employment Agreement between Reclamation Consulting and Applications, Inc. and Gordon Davies, dated as of
January 1, 2002.
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10.2 (4) Employment Agreement between Reclamation Consulting and Applications, Inc. and Michael Davies, dated as of
January 1, 2002.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.3 (5) Distribution Agreement between Progear Environmental Solutions, Inc. and Reclamation Consulting and
Applications, Inc. dated June 4, 2003.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.4 (5) Professional Services Agreement between Paul Petit and Reclamation Consulting and Applications, Inc. dated May
6, 2003.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.5 (5) Manufacturing Agreement between North American Systems, Inc. and Reclamation Consulting and Applications, Inc.
dated October 14, 2003.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.6 (5) Revolving Loan Agreement between North American Systems, Inc. and Reclamation Consulting and Applications,
Inc. dated July 30, 2003.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10(A) (1) Employment, Confidentiality and Non-Competition Agreement between Recycling Centers of America, Inc. and Bruce
Selk, dated as of May 26, 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10(B) (1) Employment Agreement between Recycling Centers of America, Inc. and Michael Davies, dated as of June 1, 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10(C) (1) Employment Agreement between Recycling Centers of America, Inc. and Gordon Davies, dated as of June 1, 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10(D) (1) OEM Agreement between Pall Filtron, Inc. and Brody Special Projects Company, dated as of June 30, 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10(E) (1) Transfer Agreement by and among Recycling Centers of America, Inc. and Steve Madsen and John D. Ewing, dated
as of November 15, 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.7 (6) Employment Agreement between Reclamation Consulting and Applications, Inc. and Michael Davies, dated June 30,
2004.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.8 (6) Employment Agreement between Reclamation Consulting and Applications, Inc. and Gordon Davies, dated June 30,
2004.
- ----------------- ----------------------------------------------------------------------------------------------------------------
32
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.9 (6) Distributorship Agreement between Reclamation Consulting and Applications, Inc. and North American Marketing,
Inc., dated July 30, 2003.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.10 (5) Distributorship Agreement between Reclamation Consulting and Applications, Inc. and North American Systems,
Inc.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.11 (5) Security Agreement between Reclamation Consulting and Applications, Inc. and North American Systems, Inc.,
dated July 30, 2003
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.12 (7) Agreement between Reclamation Consulting and Applications, Inc. and North American Systems, Inc., dated
November 8, 2004
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.13 (13) Employment Agreement between Reclamation Consulting and Applications, Inc. and Gordon Davies, dated as of
January 6, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.14 (13) Employment Agreement between Reclamation Consulting and Applications, Inc. and Michael Davies, dated as of
January 6, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.15 (13) Contract Sales Representative Agreement, dated as of November 15, 2004, by and between Reclamation Consulting
and Applications, Inc. the Company and Rosiane Jacomini.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.16 (13) Addendum to Contract Sales Representative Agreement dated as of November 15, 2004, by and between Reclamation
Consulting and Applications, Inc. and Rosiane Jacomini.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.17 (13) Addendum to Contract Sales Representative Agreement dated as of November 15, 2004, by and between Reclamation
Consulting and Applications, Inc. and Rosiane Jacomini.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.18 (13) Distributorship Agreement, dated as of August 10, 2004, by and between Reclamation Consulting and
Applications, Inc. and Aurtech Marketing, Pty., Ltd.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.19 (13) Distribution Agreement, dated as of December 5, 2003, by and between Reclamation Consulting and Applications,
Inc. and Canadian Release Agents, Ltd.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.20 (13) Distributorship Agreement, dated as of July 12, 2005, by and between Reclamation Consulting and Applications,
Inc. and Mark Lang.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.21 (13) Sales Representative Agreement, dated as of July 7, 2005, by and between Reclamation Consulting and
Applications, Inc. and Jimmy Watts.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.22 (13) Distributorship Agreement, dated as of February 3, 2005, by and between Reclamation Consulting and
Applications, Inc. and ITA Asphalt Limited.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.23 (13) Distributorship Agreement, dated as of June 30, 2005, by and between Reclamation Consulting and Applications,
Inc. and Don Pickett.
- ----------------- ----------------------------------------------------------------------------------------------------------------
33
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.24 (13) Contract Sales Representative Agreement, dated as of October 27, 2004, by and between Reclamation Consulting
and Applications, Inc. and Dennis Jackman.
- ----------------- ----------------------------------------------------------------------------------------------------------------
10.25 (13) Addendum to Contract Sales Representative Agreement by and between Reclamation Consulting and Applications,
Inc. and Dennis Jackman.
- ----------------- ----------------------------------------------------------------------------------------------------------------
11 (1) Statement of Computation of Earnings Per Share for the years 1998 and 1999.
- ----------------- ----------------------------------------------------------------------------------------------------------------
12 (1) Subsidiaries of Recycling Centers of America, Inc. (as of March 2, 2000).
- ----------------- ----------------------------------------------------------------------------------------------------------------
14.1(14) Code of Ethics for Reclamation Consulting and Applications, Inc.
- ----------------- ----------------------------------------------------------------------------------------------------------------
16.1 (2) Letter regarding change of accountant from Stuart Rubin, CPA dated July 8, 2002.
- ----------------- ----------------------------------------------------------------------------------------------------------------
16.1 (3) Letter regarding change of accountant from Stuart Rubin, CPA dated July 8, 2002.
- ----------------- ----------------------------------------------------------------------------------------------------------------
16.1 (11) Letter regarding change of accountant from Kabani & Company, Inc., dated July 25, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
16.1 (12) Letter regarding change of accountant from Kabani & Company, Inc., dated July 25, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
16.1 (10) Letter regarding change of accountant from Kabani & Company, Inc., dated July 6, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
17.1 (8) Resignation of Paul Petit as Director of Reclamation Consulting and Applications, Inc., dated June 21, 2005.
- ----------------- ----------------------------------------------------------------------------------------------------------------
* Filed herewith
(1) Filed on March 8, 2000 as an exhibit to Reclamation Consulting's (formerly
known as Recycling Centers of America, Inc.) registration statement on
Form 10-SB and incorporated herein by reference.
(2) Filed on July 18, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K dated June 3, 2002 and incorporated herein by reference.
(3) Filed on July 19, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K/A dated July 8, 2002 and incorporated herein by reference.
(4) Filed on October 16, 2002 as an exhibit to Reclamation Consulting's annual
report on Form 10-KSB for the fiscal year ended June 30, 2002 and
incorporated herein by reference.
(5) Filed on October 15, 2003 as an exhibit to Reclamation Consulting's annual
report on Form 10-KSB for the fiscal year ended June 30, 2003 and
incorporated herein by reference.
(6) Filed on October 1, 2004 as an exhibit to Reclamation Consulting's annual
report on Form 10-KSB for the fiscal year ended June 30, 2004 and
incorporated herein by reference.
(7) Filed on November 15, 2004 as an exhibit to Reclamation Consulting's
Report on Form 8-K dated November 15, 2004 and incorporated herein by
reference.
34
(8) Filed on June 21, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K dated June 21, 2005 and incorporated herein by reference.
(9) Filed on June 28, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K dated June 23, 2005 and incorporated herein by reference.
(10) Filed on July 6, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K dated July 6, 2005 and incorporated herein by reference.
(11) Filed on July 26, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K/A dated July 6, 2005 and incorporated herein by reference.
(12) Filed on July 26, 2005 as an exhibit to Reclamation Consulting's Report on
Form 8-K/A dated July 25, 2005 and incorporated herein by reference.
(13) Filed on July 27, 2005 as an exhibit to Reclamation Consulting's
registration statement on Form SB-2 and incorporated herein by reference.
(14) Filed on October 17 2005 as an exhibit to Reclamation Consulting's annual
report on Form 10-KSB for the fiscal year ended June 30, 2005 and
incorporated herein by reference.
(15) Filed on November 1, 2005 as an exhibit to Reclamation Consulting's
Amendment No. 1 to a registration statement on Form SB-2 and incorporated
herein by reference.
35
SIGNATURES
In accordance with the requirments of the Exchange Act, we have cause this
report to be signed on our behalf by the undersigned, thereunto duly authorized.
RECLAMATION CONSULTINGAND APPLICATIONS, INC.
Date: November 21, 2005
/s/ GORDON W. DAVIES
---------------------------------------
Gordon W. Davies, President and Director
Date: November 21, 2006
36