Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
September 30, 2002 0-23812
ADVANCED RECYCLING SCIENCES, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
NEVADA
-------
(State or other jurisdiction of incorporation or organization
95-4255962
----------
(I.R.S. Employer Identification No.)
University Towers, 4199 Campus Drive, Suite 550,
------------------------------------------------
Irvine, CA 92612
-----------------
(Address of principal executive offices)
(949) 509-6503
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
-----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
----- -----
State the number of shares outstanding of each of the registrants classes
of common equity, as of the latest practicable date.
Common stock, par value $.001; 22,333,784 shares outstanding
as of September 30, 2002
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2002 and
December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statement of Operations for the three
months and nine months ended September 30,
2002 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . .6
Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 2002 . . . . . . . . . .7
Statement of Cash Flows for the nine months ended
September 30, 2002 and 2001. . . . . . . . . . . . . . . . . . .9
Notes to Financial Statements at September 30, 2002. . . . . . 11
Item 2. Management Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 12
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . 19
Item 3. Default upon Senior Securities . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders. . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 21
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Advanced Recycling Sciences, Inc.
&
Subsidiaries
FINANCIAL STATEMENTS
Nine Months ended September 30, 2002
Nine Months ended September 30, 2001
Advanced Recycling Sciences, Inc.
Balance Sheet
September 30, 2002 and 2001
ASSETS
September September December
30, 2002 30, 2001 31, 2001
(Unaudited) (Unaudited)
Current Assets
--------------
Cash $ 80,276 $ 9,338 $ 3,785
Accounts Receivable - 64,418 -
Inventory - 241 -
Deposit 13,950 31,409 14,281
Note & Interest Receivable - Officer 7,500 7,500 11,430
Prepaid Expenses 6,576 134,468 6,576
----------- ----------- -----------
Total Current Assets 108,302 247,374 36,072
Property and Equipment
----------------------
Furniture and Fixtures 38,550 33,339 38,550
Equipment 1,504,870 1,777,447 1,504,870
Vehicles - 81,485 39,402
Land 617,840 149,119 617,840
Web Sites 26,307 24,928 25,728
----------- ----------- -----------
Total Property and Equipment 2,187,567 2,066,318 2,226,390
Less Accumulated Depreciation (987,070) (681,639) (768,861)
----------- ----------- -----------
Net Property & Equipment 1,200,497 1,384,679 1,457,529
Other Assets
------------
Construction in Progress 718,938 1,838,050 718,938
License Rights 647,544 647,544 647,554
Patent Rights 4,065,000 4,065,000 4,065,000
Deposit - 11,000 -
----------- ----------- -----------
Total Other Assets 5,431,482 6,561,594 5,431,492
Less Accumulated Amortization (383,010) (323,651) (334,443)
----------- ----------- -----------
Net Other Assets 5,048,472 6,237,943 4,378,101
----------- ----------- -----------
TOTAL ASSETS $ 6,357,271 $7,869,996 $ 5,871,702
=========== =========== ===========
Continued
4
Advanced Recycling Sciences, Inc.
Balance Sheet
September 30, 2002 and 2001
LIABILITIES & STOCKHOLDERS' EQUITY
September September December
30, 2002 30, 2001 31, 2001
(Unaudited) (Unaudited)
Current Liabilities
-------------------
Accrued Expenses $ 183,361 $ 5,254 $ 61,561
Accounts Payable 567,968 473,175 526,123
Notes Payable 326,851 71,551 154,582
Interest on Notes Payable 7,909 - 7,909
Payroll Taxes Payable - 52,281 -
Sales Tax Payable - 2,447 -
----------- ----------- -----------
Total Current Liabilities 1,086,089 604,708 750,175
Long Term Liabilities
---------------------
Capital Lease 21,180 31,475 29,655
Notes Payable 78,721 639,070 78,721
----------- ----------- -----------
Total Long Term Liabilities 99,901 670,545 108,376
Minority Interest in Subsidiary 40,928 - 44,738
Stockholders' Equity
--------------------
Preferred Stock 5,000,000 Shares
Authorized; Par Value of $0.001
Per Share, Zero Shares Issued
and Outstanding - - -
Common Stock 50,000,000 Shares
Authorized; Par Value of $0.001
Per Share, 22,333,784;
16,486,836 & 17,176,913 Shares
Issued and Outstanding Respectively 22,334 16,487 17,177
Additional Paid In Capital 14,629,904 14,730,309 13,807,412
Paid In Capital Stock Options 25,543 - 25,543
Accumulated Deficit (9,460,357) (8,152,053) (8,075,710)
Accumulated Other Comprehensive
Income (87,071) - (87,071)
----------- ----------- -----------
Total Stockholders' Equity 5,130,353 6,594,743 5,687,351
----------- ----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 6,357,271 $7,869,996 $ 6,590,640
=========== =========== ===========
See accompanying notes to financial statements
5
Advanced Recycling Sciences, Inc. and Subsidiaries
Statement of Operations
For the Nine Months Ended September 30, 2002 and 2001
Three Three Nine Nine Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
September September September September December
30, 2002 30, 2001 30, 2002 30, 2001 31, 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
--------
Equipment Sales $ - $ 8,070 $ - $ 8,070 $ 38,897
Product Sales - 2,956 - 63,591 48,662
----------- ----------- ----------- ----------- -----------
Total Revenues - 11,0262 - 71,661 87,559
Cost of Sales - 2,668 - 37,287 37,287
----------- ----------- ----------- ----------- -----------
Gross Profit - 8,358 - 34,374 50,272
Expenses
--------
Commission - - - 4,424 -
Depreciation 75,841 104,449 227,522 289,830 324,826
Amortization 16,189 16,189 48,567 53,963 64,756
Travel 20,052 20,201 49,556 58,380 87,812
Professional Fees 9,970 126,619 74,062 320,849 175,032
Office 23,855 10,439 77,671 58,380 82,221
Rent & Utilities 25,064 20,527 64,443 61,823 119,835
Administrative
Expenses 108,849 183,500 339,596 463,409 578,796
Consultant Fees 137,730 101,782 432,075 353,783 674,731
Interest 64,545 - 74,531 544 9,058
Options Issued
Expenses - - - 15,000 -
----------- ----------- ----------- ----------- -----------
Total Expenses 482,095 583,706 1,388,023 1,680,385 2,117,067
Net Income (Loss)
From Operations (482,095) (575,348) (1,388,023) (1,646,011) (2,066,795)
Interest Income - 59 - 1,095 1,215
Gain (Loss) on
Sale of Assets - - - - 988
----------- ----------- ----------- ----------- -----------
Total Other Income
(Expenses) - 59 - 1,095 2,203
Minority Interest (1,864) - 3,810 - 9,262
Net Income (Loss) (483,959) (575,289) (1,384,647) (1,644,916) (2,055,330)
Net Income (Loss)
Per Share $ (0.02) $ (0.03) $ (0.07) $ (0.12) $ (0.13)
Weighted Average
Shares Outstanding 21,971,537 16,486,836 19,393,032 14,011,874 15,873,294
Diluted Net Profit
Per Share N/A N/A N/A N/A N/A
See accompanying notes to financial statements
6
Advanced Recycling Sciences, Inc. and Subsidiaries
Statement of Stockholders' Equity
From January 1, 2001 to September 30, 2002
Common Stock Paid-In Comprehensive Accumulated
Stock Amount Capital Income Deficit
----------- ---------- ------------- ----------- ------------
Balance,
January 1, 2001 12,752,128 $ 12,751 $11,128,925 $ (80,391) $ (6,020,380)
Shares Issued for
Patent Rights at
$1.625 per Share 1,446,153 1,446 2,348,554
Shares Issued for
Services at $.85
Per Share 85,000 85 67,915
Shares Issued for
Cash (Asian Reg-S)
at $.54 Per Share 1,457,464 1,458 782,373
Shares Issued for
Cash (Euro Reg-S)
at $.48 Per Share 1,311,250 1,311 623,689
Shares Issued for
Debt at $.40
Per Share 765,385 766 305,388
Shares Cancelled
for Asset Return (640,467) (640) (1,360,365)
Options Adjustment (63,524)
Foreign Currency
Translation (6,710)
Net Loss for
the Year Ended
December 31, 2001 (2,055,330)
----------- ---------- ------------- ----------- ------------
Balance,
December 31, 2001 17,176,913 $ 17,177 $13,832,955 $ (87,101) $ (8,075,710)
----------- ---------- ------------- ----------- ------------
Continued
7
Advanced Recycling Sciences, Inc. and Subsidiaries
Statement of Stockholders' Equity
From January 1, 2001 to September 30, 2002
Common Stock Paid-In Comprehensive Accumulated
Stock Amount Capital Income Deficit
----------- ---------- ------------- ----------- ------------
Balance,
January 31, 2002 17,176,913 $ 17,177 $13,832,955 $ (87,101) $ (8,075,710)
Shares Issued for
Cash (Asian Reg-S)
at $.17 Per Share 3,415,204 3,415 569,776
Shares Issued for
Cash (Euro Reg-S)
at $.30 Per Share 300,000 300 74,700
Shares Issued for
Cash Private
Placement at
$.20 Per Share 500,000 500 101,700
Shares Issued for
Cash Exercise of a
1997 Option at
$.062 Per Share 266,667 267 13,866
Shares Issued for
Debt at $.093
Per Share 675,000 67 62,450
Net Loss for the
Nine Months Ended
September 30, 2002 (1,384,647)
----------- ---------- ------------- ----------- ------------
Balance,
September 30, 2002 22,333,784 $ 22,334 $14,655,447 $ (87,101) $ (9,460,357)
=========== ========== ============= =========== ============
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 2002 30, 2001 31, 2001
(Unaudited) (Unaudited)
Cash Flows from Operations
--------------------------
Net Profit or (Loss) $(1,384,647) $ (1,644,916) $ (2,055,330)
Adjustments to Reconcile Net Profit or
(Loss) to Net Cash
Options Issued - 15,000 (63,524)
Amortization and Depreciation 276,089 343,793 389,582
Gain on Sale of Fixed Assets (414) - (988)
Stock Issued for Services - 68,000 68,000
Changes in Operating Assets & Liabilities;
(Increase) Decrease in Accounts Receivable - (4,469) 59,949
(Increase) Decrease in Interest Receivable - 722 722
(Increase) Decrease in Inventory - 37,287 37,528
(Increase) Decrease in Equipment Inventory - (2,839) -
(Increase) Decrease in Notes Receivable 3,930 26,500 22,570
(Increase) Decrease in Prepaid Expenses - 4,976 132,868
(Increase) Decrease in Deposits 331 (11,000) 17,128
Increase (Decrease) in Accrued Expenses 121,800 (3,983) 52,324
Increase (Decrease) in Accounts Payable 41,845 21,087 74,035
Increase (Decrease) in Notes Payable 172,269 - -
(Decrease) Increase in Interest on Notes
Payable - (3,637) 4,272
(Increase) Decrease in Payroll Taxes
Payable - 52,281 -
(Increase) Decrease in Sales Tax Payable - 2,447 -
Rounding - 3 -
------------ ------------ ------------
Net Cash Provided (Used) by
Operating Activities (768,797) (1,098,748) (1,260,864)
Cash Flows from Investing Activities
------------------------------------
Land Preparation and Costs - - (218,803)
Purchase of Equipment - (85,086) (70,087)
Purchase of Website (579) - (16,078)
Purchase of Furniture & Fixtures - - (772)
Proceeds from Sale of Equipment 30,503 - 31,054
------------ ------------ ------------
Net Cash Provided (Used) by
Investing Activities 29,924 (85,086) (274,686)
Continued
9
Advanced Recycling Sciences, Inc. and Subsidiaries
Statement of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001
Nine Nine Twelve
Months Months Months
Ended Ended Ended
September September December
30, 2002 30, 2001 31, 2001
(Unaudited) (Unaudited)
Cash Flows from Financing Activities
------------------------------------
Sale of Common Stock $ 827,649 $ 1,172,120 $ 1,481,096
Payment of Capital Lease (8,475) - -
Payment of Long Term Debt - - (1,820)
Increase (Decrease) in Notes Payable - 5,731 -
Increase (Decrease) in Minority Interest (3,810) - 44,738
------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 815,364 1,177,851 1,524,014
------------ ------------ ------------
Increase (Decrease) in Cash 76,491 (5,983) (11,536)
Cash at Beginning of Period 3,785 15,321 15,321
------------ ------------ ------------
Cash at End of Period $ 80,276 $ 9,338 $ 3,785
============ ============ ============
Disclosures from Operating Activities
-------------------------------------
Interest $ 65,545 $ 544 $ 9,058
Taxes 4,511 - -
Significant Non Cash Transactions
---------------------------------
The Company issues 1,446,153 shares of common stock for the purchase of the patent
rights to the Dartmouth College De-Icing Technology in 2001.
The Company issued 675,000 shares of common stock for the retirement of debt in 2002.
See accompanying notes to financial statements.
10
Advanced Recycling Sciences, Inc. and Subsidiaries
Notes to Financial Statements
September 30, 2002
NOTE 1 - Corporate History
--------------------------
The Company was organized on December 2, 1968, under the laws of the state
of California as Acquatic Systems, Inc. On June 27, 1989, the Company
merged with Country Maid, Inc., a Nevada Corporation, the Corporate
domicile was changed to the state of Nevada. On September 18, 1992, the
name of the Company was changed to The Quantum Group, Inc. On March 26,
2001, the Company filed an Amendment to the Articles of Incorporation
changing it's name to Advanced Recycling Sciences, Inc. The Company is
registered and qualified to do business in the state of California.
NOTE 2 - Significant Accounting Policies
----------------------------------------
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period
when
the goods are shipped to the customer.
C. The Company considers all short term, highly liquid investments that
are
readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Shares shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
E. The inventory is stated at the lower of cost or market. The inventory
is a single recycling system that the Company intends to sell as a
system. The Company is currently pursuing several prospects to sell
the system.
F. Consolidation Policies: The accompanying consolidated financial
statements include the accounts of the company and its majority -
owned subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
G. Foreign Currency Translation / Remeasurement Policy: Assets and
liabilities that occur in foreign countries are recorded at historical
cost and translated at exchange rates in effect at the end of the
year. Income Statement accounts are translated at the average
exchange rates for the year. Translation gains and losses shall be
recorded as a separate line item in the equity section of the
financial statements.
H. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated (amortized) over the lesser of
the length of the related assets or the estimated lives of the assets.
Depreciation is computed on the straight line method for reporting
purposes and for tax purposes.
I. Issuance of Subsidiary's Stock: The Company has elected to account for
shares issued by its subsidiary as an equity transaction.
11
Advanced Recycling Sciences, Inc.
Notes to Financial Statements
September 30, 2002
NOTE 2 - Significant Accounting Policies -continued-
----------------------------------------
J. Use of Estimates: The preparation of financial statements in
conformity
with generally accepted accounting principles 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 reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
K. As permitted by SFAS #123 "Accounting for Stock-Based Compensation,"
the Company has elected to account for the stock option plans as a
compensation cost when options were issued at equal to or more than
fair market value.
NOTE 3 - Interim Financial Statements
-------------------------------------
The financial statements for the nine months ended September 30, 2002 and
2001 were prepared from the books and records of the Company. Management
believes that all adjustments have been made to the financial statements to
make a fair presentation of the financial condition of the company as of
September 30, 2002 and 2001. The results of the nine months are not
indicative of a full year of operation for the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's December 31, 2001 audited
financial statements. The results of operations for the nine month periods
ended September 30, 2002 and 2001 are not necessarily indicative of the
operating results for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
This Form 10-QSB contains certain forward-looking statements. For
this purpose any statements contained in this Form 10-QSB that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, words such as "may," "will,"
"expect," "believe," "anticipate," "estimate" or "continue" or comparable
terminology are intended to identify forward-looking statements. These
statements by their nature involve substantial risks and uncertainties, and
actual results may differ materially depending on a variety of factors.
12
General
-------
Advanced Recycling Sciences, Inc., ("ARS" or the "Company") is in the
business of developing innovative products and technologies in the
environmental and recycling industries, with specific emphasis on scrap
tire and industrial rubber recycling. The Company's primary website may be
viewed at http://www.arsciences.com. The Company has several subsidiary
websites which may be viewed http://www.ars-tech.com, http://www.poseidon-
products.com, http://www.tires2oil.com, http://www.ast-paving.com and
http://www.no-ice.com. These websites allow visitors to access an overview
of the Company's activities, obtain market information for the Company's
trading stock and view the Company's EDGAR filings. The Company also has a
portal website, http://www.tirerecycling.com.
Subsequent to year end December 31, 2001, accounting errors were
discovered that affected the prior years. The Company is currently
researching this matter with the intent of restatement. The error involves
essentially offsetting adjustments to paid in capital and accumulated loss.
The Company does not anticipate material adjustments to net operating loss
in the current or prior periods. Accounting and auditing standards require
that entries be made in the proper period and the prior financial
statements be reissued. Due to this requirement, the financial statements
for the year ended December 31, 2001, will be recalled and reissued prior
to December 31, 2002.
Construction in progress of $718, 938, shown on the balance sheet as a
non-current asset represents equipment acquired that is expected to be
placed in service at the Poseidon Products GmbH tire recycling facility in
Penkun, Mecklenburg-Vorpommern. This equipment was shown on reports prior
to June 30, 2002 as equipment inventory, a current asset. This
reclassification has been made to better represent the intended utilization
of the equipment. This reclassification significantly reduces current
assets and correspondingly increases other assets.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2002, the Company had cash on hand of $80,276.
The Company raised $755,649 during the nine months ended September 30, 2002
in a Regulation S offering. The 2002 Regulation S offering is anticipated
to raise a total of between $1,500,000 and $2,500,000 depending on market
conditions. The Company also raised $102,200 in a private placement
transaction, debt of $63,125 was extinguished for stock and an officer's
1997 stock option grant was also exercised during the quarter ended
September 30, 2002. The Company is in discussion with several domestic
investment banking firms regarding the raising of additional funds. This
funding, should it materialize, would be utilized to implement the
Company's business development strategy.
13
Results of Operations
---------------------
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2002 AND THE QUARTER
ENDED SEPTEMBER 30, 2001.
The Company generated a loss of $483,959 in the three months ended
September 30, 2002, compared to a loss of $575,289 for the three months
ended September 30, 2001. This $91,330 or 15% decrease in loss is the
result of an overall cost reduction campaign. The Company had no revenue in
the three months ended September 30, 2002 compared to product sale of
$2,956 for the three months ended September 30, 2001. The sales in 2001
were essentially the disposition of the inventory remaining after the
closing of the San Diego facility, and as such, was not repeated. No
revenue from license fees was generated in either the quarter ended
September 30, 2002 or September 30, 2001. Due to the emphasis on
technology transfer, no license fee income is anticipated until a full
scale Tires2Oil(TM) plant is operational. Such a plant will not be
constructed unless the pilot plant proves successful. The Company had
product sales commission revenue during the quarter ended September 30,
2001 of $8,070. No product sales revenue was generated in the comparable
2002 quarter
Historically, the majority of the Company's equipment sales were
recorded when equipment was shipped and title passed to the buyer. Typical
sales were by letter of credit, with the funds released by the bank when
the equipment was placed for shipment with the carrier. Historically,
payment for the Company's equipment sales have been made on the basis of
10% due at the time of sale, 80% due on shipment of the equipment and 10%
due on the completion of installation. This has resulted in the Company
receiving its revenue in large lump sums at irregular intervals rather than
smaller amounts at frequent intervals. Equipment purchased for the use of
a subsidiary or joint venture is recorded as a purchase of assets with no
revenue or inter-company profit generated upon the transfer to the
operating entity. The Company revised its equipment sales approach during
2000. In the future, the Company will receive fees for the design,
configuration and specification of certain pieces of equipment. The sale
will be made directly from the specified supplier to the client. The
manufacturer will warrant its equipment directly to the buyer. With its
change in business focus from equipment sales to technology acquisitions
such as the Tires2Oil(TM) technology and the de-icing technology, the
Company's future revenue generation activities will shift to a technology
transfer emphasis rather than equipment sales. While these technologies
are being developed, the Company intends to concentrate its efforts in two
complementary aspects of the crumb rubber industry. The Company plans to
construct a complete crumb rubber manufacturing plant Germany. Through its
subsidiary, Advanced Surfacing Technologies, Inc., the Company will market
specialized Crumb Rubber Modified (CRM) asphalt blending technology and
equipment manufactured by CEI for the contracting industry. Management
believes these four will form the core business and the Company's future
revenue drivers and profit centers.
Net cash used in operations was $341,614 during the three months ended
September 30, 2002 compared to $264,445 in the three months ended September
30, 2001. The primary use of cash was the funding of the net operating
loss of $483,959 for the three months ended September 30, 2002. This was
also the case in 2001, when the operating loss was $575,289. During the
third quarter 2002 Accounts Payable decreased by $79,568. Accrued expenses
increased $130,366 during the three months ended September 30, 2002
primarily due to the continued deferral of officer's salaries. There was
no increase in the comparable 2001 quarter. Notes Payable declined during
the three months ended September 30, 2002 by $822. There was no change in
Notes Payable in the comparable 2001 quarter.
14
Depreciation Expense of $75,841 for the quarter ended September 30,
2002, is a reduction of $28,608 from the 2001 expense of $104,449. This is
due to the disposal of two vehicles and the sale of miscellaneous equipment
in the latter part of 2001
Travel expenses of $20,052 for the quarter ended September 30, 2002,
are virtually unchanged compared to $20,201 for the quarter ended September
30, 2001.
Professional fees decreased by $116,649 from $ 126,619 in the third
quarter 2001 to $9,970 in the third quarter 2002. This decrease as a result
of a general reduction in legal and professional services expenditures and
the deferral of some services which may occur at a future date.
Office expense of $23,855 for the quarter ended September 30, 2002, is
a $13,416 increase from the $10,439 expense incurred in the same quarter in
2001. This increase is due to timing differences in internet expense,
translation expenses and maintenance costs.
Administrative expenses of $108,849 for the quarter ended September
30, 2002, are $74,651 lower than the $183,500 for the comparable 2001
period. This reduction is a result of reduced Automobile Expenses,
Shareholder and Public Relations Expenses and Salaries Expense partially
offset by an increase of $ 6,387 in insurance costs compared to the quarter
ended September 30, 2002 and $11,030 in patent protection expense not
incurred in the comparable 2001 quarter
Consulting expenses of $137,730 for the quarter ended September 30,
2002 increased from the quarter ended September 30, 2001 expenses of
$101,782. This increase is primarily due to the addition of a consultant
in Germany and the reassignment of a full time employee to a consultant.
Interest expense in the quarter ended September 30, 2002 was $64,545.
This expense is as a result of renegotiating two notes that fell due during
the quarter. In both cases, the Company incurred penalties and extension
fees, which were expensed. No comparable expense was incurred in the 2001
quarter.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 2001.
The Company generated a loss of $1,384,647 in the nine months ended
September 30, 2002, compared to a loss of $1,644,916 for the nine months
ended September 30, 2001. This $260,269 or 15 % reduction in loss is a
result of general reductions in General and Administrative expenses, and
reductions in Legal and Professional Expenses. The Company had no
significant sales in either year. The Company had $63,591 in crumb rubber
sales for the nine months ended September 30, 2001. The crumb rubber sales
in 2001 were essentially the disposition of the inventory remaining after
the closing of the San Diego facility, and as such, were not be repeated.
No revenue from license fees was generated in either of the three quarters
ended September 30, 2002 or 2001.
15
Net cash used in operations was $768,797 during the nine months ended
September 30, 2002 compared to $1,098,748 in the nine months ended
September 31, 2001. The primary use of cash was the funding of the net
operating loss of $1,384,647 for the nine months ended September 30, 2002.
This was also the case in 2001, when the operating loss was $1,644,916.
During the first nine months of 2002, Accrued Expenses increased by
$121,800,Accounts Payable increased $41,845 and Notes Payable increased by
$172,269. Cash used in operations in 2001was affected by a decrease in
Inventory of $37,287, a decrease in Notes Receivable of $26,500, an
increase of $21,087 in Accounts Payable and an increase in Payroll Taxes
Payable of $52,281. Additionally, Deposits decreased by $11,000 and
Accounts Receivable increased by $4,469 during the first nine months of
2001.
Depreciation Expense of $227,522 for the nine months ended September
30, 2002, is less than the 2001 expense of $289,830 by $62,308. This is due
to the disposal of two vehicles and the sale of miscellaneous equipment in
the latter part of 2001
Travel expenses of $49,556 for the nine months ended September 30,
2002, decreased $8,824 compared to $58,380 for the nine months ended
September 30, 2001. Essentially all of this reduction occurred in the
second quarter of the year. This decrease is a timing difference in the
scheduling of overseas travel and should not be viewed as a trend.
Professional fees decreased from $320,849 for the nine months ended
September 30, 2001, to $74,062 for the comparable 2002 nine month period.
The 2001 expenditures relate, primarily, to the legal activities regarding
patents and related matters for both the Tires2Oil(TM) license and the
purchase of the de-icing technology license from Dartmouth College in the
first quarter of 2001. Additionally, $60,000 of the 2001 expense related
to a special non recurring project. Legal and professional services have
not been required in 2002 to the extent of the 2001 levels.
Office expense of $77,671 for the nine months ended September 30,
2002, is a $19,291 increase from the 2001 expenses for the same nine month
period of $58,380. This increase is due to timing differences in internet
expense, translation expenses and maintenance costs
Administrative expenses of $339,596 for the three quarters ended
September 30, 2002, are $123,810 lower than the $46,409 for the comparable
2001 period. This reduction is a result of reduced Automobile Expenses,
Shareholder and Public Relations Expenses and Salaries Expense partially
offset by an increase of $27,695 in insurance costs compared to the quarter
ended September 30, 2001 and $47,717 in patent protection expense not
incurred in the comparable 2001 nine month period.
Consulting expenses of $432,075 for the nine months ended September
30, 2002 increased from the three quarters ended September 30, 2001 expense
of $353,783. This increase is primarily due to the addition of a
consultant in Germany and the reassignment of a full time employee to a
consultant.
Options expense of $15,000 was recognized in the nine months ended
September 30, 2001, for the 2001 employee incentive stock option program.
No comparable expense was incurred in 2002 as the 2002 option program was
issued at a premium to market price, resulting in no expense to the
Company.
16
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2001 AND THE QUARTER
ENDED SEPTEMBER 30, 2000.
The Company generated a loss of $575,289 in the three months ended
September 30, 2001, compared to a loss of $655,549 for the three months
ended September 30, 2000. This $80,260 or 12% decrease in loss is the
result of a general reduction in expenses following the closing of the
Company's subsidiary operation in San Diego, California combined with a
reduction in General and Administrative expenses. The Company had product
sales of $2,956 in the three months ended September 30, 2001 compared to
product sale of $75,661 for the three months ended September 30, 2000. The
sales in 2001 are essentially the disposition of the inventory remaining
after the closing of the San Diego facility, and as such, will not be
repeated. No revenue from license fees was generated in either the quarter
ended September 30, 2001 or September 30, 2000.
Net cash used in operations was $449,400 during the three months ended
September 30, 2001 compared to $1,028,530 in the three months ended
September 30, 2000. The primary use of cash was the funding of the net
operating loss of $575,289 for the three months ended September 30, 2001.
This was also the case in 2000, when the operating loss was $665,549.
During the third quarter 2001, Accounts Receivable decreased by $15,342,
Inventory decreased by 2,226 and Accounts Payable decreased by $130,681.
Cash used in operations in the third quarter 2000 was affected by a
decrease in Accounts Receivable of $93,109. Inventory increased by
$30,287, and Accounts Payable decreased by $220,297 during the third
quarter 2000.
Depreciation Expense of $104,449 for the quarter ended September 30,
2001, exceeds the 2000 expense of $68,944 by $35,505. This is due to the
equipment purchased and manufactured for the QCAL operation. The Company
intends to utilize this equipment in the Poseidon plant.
Travel expenses of $20,201 for the quarter ended September 30, 2001,
increased by 17% or $2,926 compared to $17,275 for the quarter ended
September 30, 2000. This increase is due to increased foreign travel in
the effort to conclude the Poseidon project funding mitigated by
eliminating marketing activities in support of the QCAL operation.
Professional fees decreased by $36,456 from $163,074 in the third
quarter 2000 to $126,619 in the third quarter 2001. This decrease is due,
primarily, to timing differences and should not be assumed to reflect a
trend.
Office expense of $10,439 for the quarter ended September 30, 2001, is
a $39,499 decrease from the same quarter in 2000. This decrease is
primarily due to discontinuation of the QCAL operation during 2000.
Administrative expenses of $183,500 for the quarter ended September
30, 2001, are $18,671 lower than the $202,171 for the comparable 2000
period. This reduction is due to the cessation of QCAL management and
marketing activities during 2000.
Consulting expenses of $101,782 for the quarter ended September 30,
2001 decreased from the quarter ended September 30, 2000 expense of
$210,924. This decrease is primarily timing differences, and is not
necessarily, a downward trend.
17
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND THE NINE
MONTHS ENDED SEPTEMBER 30, 2000.
The Company generated a loss of $1,644,916 in the nine months ended
September 30, 2001, compared to a loss of $1,844,980 for the nine months
ended September 30, 2000. This $200,064 or 10 % reduction in loss is a
result of general reductions in General and Administrative expenses and the
closing of the Company's subsidiary operation in San Diego, California.
The Company had no significant sales in either year. The Company had
$63,591 in crumb rubber sales for the nine months ended September 30, 2001.
The Company had $305,150 in revenue for the three quarters ended September
30, 2000. The crumb rubber sales in 2001 are essentially the disposition
of the inventory remaining after the closing of the San Diego facility, and
as such, will not be repeated. No revenue from license fees was generated
in either the three quarters ended September 30, 2001 or 2000. Due to the
emphasis on technology transfer, no license fee income is anticipated until
a full scale Tires2Oil(TM) plant is operational. Such a plant will not be
begun until and unless the pilot plant proves successful.
Net cash used in operations was $1,283,763 during the nine months
ended September 30, 2001 compared to $1,842,806 in the nine months ended
September 31, 2000. The primary use of cash was the funding of the net
operating loss of $1,664,916 for the nine months ended September 30, 2001.
This was also the case in 2000, when the operating loss was $1,844,980.
During the first nine months of 2001, Accounts Receivable increased by
$4,469, Inventory decreased $37,287 and Accounts Payable were reduced by
$163,928. Cash used in operations in 2000 was affected by an increase in
Accounts Receivable of $189,626. Additionally, Inventory increased by
$24,467, Customer Deposits increased by $190,714, and Accounts Payable
decreased by $151,528 during the first nine months of 2000.
Depreciation Expense of $289,830 for the nine months ended September
30, 2001, exceeds the 2000 expense of $206,718 by $83,112. This is due to
the equipment purchased and manufactured for the QCAL operation. The
Company intends to utilize this equipment in the Poseidon plant.
Travel expenses of $58,380 for the nine months ended September 30,
2001, decreased by 18% or $13,078 compared to $71,458 for the nine months
ended September 30, 2000. This decrease is due to eliminating marketing
activities in support of the QCAL operation, partially offset by an
increase in foreign travel in anticipation of completion the Poseidon
project funding.
Professional fees increased from $218,801 for the nine months ended
September 30, 2000, to $320,849 for the comparable 2001 nine month period.
This increase is due, primarily, to the legal activities regarding patents
and related matters for both the Tires2Oil(TM) license and the purchase of
the de-icing technology license from Dartmouth College in the first quarter
of 2001. Additionally, legal support for the Company's overseas joint
ventures was increased, as these projects move closer to maturity. $60,000
of the 2001 expense related to a special non recurring project.
Office expense of $58,380 for the nine months ended September 30,
2001, is a $83,224 decrease from the 2000 expenses of $141,604 for the same
nine month period in 2000. This decrease is primarily due to
discontinuation of the QCAL operation during the first half of 2000.
Administrative expenses of $463,409 for the three quarters ended
September 30, 2001, are significantly lower than the $736,270 for the
comparable 2000 period. This reduction is due to closing the San Diego
operation in midyear 2000, and cessation of QCAL management and marketing
activities.
18
Consulting expenses of $353,783 for the nine months ended September
30, 2001 decreased from the three quarters ended September 30, 2000 expense
of $491,580. This decrease is primarily timing differences, and is not
necessarily, a downward trend.
Options expense of $35,500 was recognized in 2000 as a result of the
Board of Directors approval of the 2000 employee incentive stock option
program. Options expense of $15,000 was recognized in the nine months
ended September 30, 2001, for the 2001 employee incentive stock option
program. The year 2001 expense is less than the 2000 expense due to the
reduced price of the Company's stock.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
------------------------------------------------------
The Company's Chief Executive Officer and Chief Financial Officer have
conducted an evaluation of the Company's disclosure controls and procedures
as of a date (the "Evaluation Date") within 90 days before the filing of
this quarterly report. Based on their evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
applicable Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls and Procedures.
-------------------------------------------------
Subsequent to the Evaluation Date, there were no significant changes in
the Company's internal controls or in other factors that could
significantly affect these controls, nor were any corrective actions
required with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no significant changes in the Company's litigation with
Veplas Manufacturing LTD., during the quarter ended September 30, 2002.
Item 2. Changes in Securities
No instruments defining the rights of the holders of any class of
registered securities have been materially modified, limited or qualified.
The following securities, which are not registered under the Securities
Act of 1933, were issued by the Company during the quarter ended September
30, 2002.
During the quarter ended September 30, 2002, the Company sold 1,499,016
shares of its common stock to non United States persons in Asia and Europe.
The Company received $214,377 from the sale of the shares. These shares
were sold pursuant to Regulation S promulgated by the Securities and
Exchange Commission under the Securities Act of 1933. The Company did not
offer the securities to any person in the United States, any identifiable
groups of U.S. citizens abroad, or to any U.S. Person as that term is
defined in Regulation S. At the time the buy orders were originated, the
Company reasonably believed the Buyers were outside of the United States
and were not U.S. Persons. The Company reasonably believed that the
transaction had not been pre-arranged with a buyer in the United States.
19
The Company has not nor will engage in any "Directed Selling Efforts" and
reasonably believes the Buyers have not nor will engage in any "Directed
Selling Efforts." The Company reasonably believed the Buyers purchased the
securities for their own accounts and for investment purposes and not with
the view towards distribution or for the account of a U.S. Person.
On July 9, 2002, the Company issued 675,000 restricted common shares to
retire debt in the amount of $63,125, which was held by three individuals.
The shares were issued without registration under the Securities Act of
1933 in reliance on an exemption from registration provided by Section 4(2)
of the Securities Act, and from similar applicable state securities laws,
rules and regulations exempting the offer and sale of these securities by
available state exemptions. No general solicitation was made in connection
with the offer or sale of these securities.
On September 9, 2002, Keith Fryer, the Company's Chief Operating
Officer, exercised an option to purchase 266,668 shares of restricted
common stock of the Company. The Company received $.062 per share. The
option was originally issued to Mr. Fryer in 1997. The shares were issued
to Mr. Fryer pursuant to an exemption from registration under Section 4(2)
of the Securities Act of 1933.
On September 19, 2002, 500,000 restricted common shares were issued to
a private investor for $102,200. The shares were issued without
registration under the Securities Act of 1933 in reliance on an exemption
from registration provided by Section 4(2) of the Securities Act, and from
similar applicable state securities laws, rules and regulations exempting
the offer and sale of these securities by available state exemptions. No
general solicitation was made in connection with the offer or sale of these
securities.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company continues to negotiate a formalized agreement with MeWa
Recycling Anlagen, GmbH, a German corporation to market their full range of
recycling equipment in North America and Asia, and hopes to finalize a
formal agreement during the fourth quarter of 2002.
The Company continues to actively seek a suitable German joint venture
partner to help provide partial equity funding, project management and
operations assistance and a strong German presence for its Poseidon tire
recycling facility. The Company hopes to have a suitable joint venture
partner by the end of the year. The Company believes that the additional
funding provided by a joint venture partner, combined with the EU grants
and the low interest funding commitment it has already received from the
government of the state of Mecklenburg-Vorpommern should be sufficient to
finish construction of the Poseidon facility.
20
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K
(A) No reports on Form 8-K were filed or required to be filed during
the quarter ended
September 30, 2002.
(B) Exhibits. The following exhibits are included as part of this
report:
Exhibit 99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Recycling Sciences, Inc.
November 12, 2002 /S/ Keith J. Fryer
--------------------------------------------
Keith J. Fryer
President and Chief Operating Officer
November 12, 2002 /S/ John F. Pope
--------------------------------------------
John F. Pope
Vice President, Finance and
Chief Accounting Officer
22
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ehrenfried Liebich certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of Advanced
Recycling Sciences, Inc., (the "Company");
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the
audit committee of the Company's board of directors (or persons fulfilling
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
internal controls; and
23
(6) The Company's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 12, 2002 By: /S/ Ehrenfried Liebich
----------------------------------------
Ehrenfried Liebich, Chief Executive Officer
24
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John F. Pope, certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of Advanced
Recycling Sciences, Inc., (the "Company");
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
(4) The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the Company is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
(5) The Company's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Company's auditors and the
audit committee of the Company's board of directors (or persons fulfilling
the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial data
and have identified for the Company's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's
internal controls; and
25
(6) The Company's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
Date: November 12, 2002 By: /S/ John F. Pope
----------------------------------
John F. Pope, Chief Financial Officer
26