10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [ X ] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 2001 [ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission File No. 0-30098 RUBBER TECHNOLOGY INTERNATIONAL, INC. (Name of Small Business Issuer in Its Charter) NEVADA 88-0370454 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification Number) 3185 E. WASHINGTON BLVD., LOS ANGELES, CALIFORNIA 90023 (Address of Principal Executive Offices) (Zip Code) (323) 268-6842 (Issuer's Telephone Number) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (None) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $0.0001 (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's class of common stock as of the latest practicable date: Title of each class of Common Stock Outstanding as September 30, 2001 ----------------------------------------- ---------------------------------- Common Stock, $0.0001 par value 72,232,368 Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ] 1 TABLE OF CONTENTS ----------------- PART I - FINANCIAL INFORMATION INDEX RUBBER TECHNOLOGY INTERNATIONAL, INC. PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheet at August 31, 2001 (Unaudited) and November 30, 2000 Consolidated Statements of Operations (Unaudited) three and six months ended August 31, 2001 and August 31, 2000 Consolidated Statements of Cash Flows (Unaudited) six months ended August 31, 2001 and August 31, 2000 Notes to Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS

See accompanying notes to financial statement disclosures. 3

See accompanying notes to financial statement disclosures. 4

See accompanying notes to financial statement disclosures. 5 RUBBER TECHNOLOGY INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 AND AUGUST 31, 2001 NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY Rubber Technology International, Inc. ("RTEK") is a recycler of waste tires and producer of recycled molded rubber products. RTEK was originally organized as a Florida Corporation on July 25, 1986 and is currently based in Los Angeles, California. RTEK's principal line of business involves accepting waste tires from tire retailers, service stations, salvage yards, clean up jobs with governmental agencies, private individuals and companies and recycling them to produce a variety of molded and crumb rubber products. Effective November 30, 2000, the Company acquired all the production rights to significant construction grade sand deposits located near Las Vegas, NV previously owned by Grant Claims, LLC, and intends to develop these resources towards the development of concrete and other building related products. In 1997, RTEK, (which at the time was designated Sunshine Capital, Inc. ("SCI")) acquired all of the outstanding common stock of Rubber Technology International, Inc., a Nevada corporation (RTEK-Nevada) in a business combination described as a "reverse acquisition." For accounting purposes, the acquisition was treated as the acquisition of SCI (the Registrant) by RTEK-Nevada. On April 12, 2001, the Company's shareholders approved a re-incorporation of the original Nevada corporation. Effective May 31, 2001, the two corporations were merged, with the Nevada corporation as the sole survivor. On April 12, 2001, the Company's shareholders' authorized the issuance of up to 150 million shares of $0.0001 par value common stock and 20 million shares of $0.0001 par value preferred stock. As of August 31, 2001, 72,232,368 shares of common stock and no shares of preferred stock were issued and outstanding. See Note 5. There are no other authorized shares of common or preferred stock. The Company had limited operations from its inception in 1986 to November 30, 1999. During fiscal 2000 and 2001, the Company completed its production lines and initiated product sales. The Company recycles whole tires and tire by-products into marketable commodities such as crumb rubber for playground fill, rubberized asphalt and rubber mats and molded products such as traffic safety devices, tree rings and various landscape products. NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES The consolidated financial statements of the Company are prepared using the accrual basis of accounting. A portion of the raw materials placed into production comes from whole tires received by the Company. A fee is normally paid the Company on receipt of these tires, which is directly recognized as revenue. All inventory items are stated at the lower of cost (first-in, first-out) or market value. Freight costs are included as expenses. NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES (CONTINUED) Repair and maintenance expenses individually exceeding $500 are amortized over the ensuing six-month period. Property, including leasehold improvements, and equipment are carried at cost. Depreciation is provided using straight-line and accelerated methods for both book and tax purposes applied over the estimated useful lives of the equipment . Leasehold improvements are amortized over the term of the applicable lease, assuming all extensions are exercised. The acquisition cost of Global Sight, Inc. was directly expensed in the acquisition quarter. The costs of debentures funded the Company are directly expensed in the period the period of the debenture funding. All other assets are fully costed when they are determined to have no continuing useful value. The Company's main operating facility is located in an Enterprise Zone within the City of Los Angeles. This allows for tax advantages such as labor and investment credits and extended tax carry-overs, which are included herein. The Company evaluates its need for a provision for federal income tax after each quarter. Income taxes for the current years are offset by prior year's losses and tax credits principally arising from the stated Enterprise Zone credits and provisions. The Nevada corporation operates the rubber recycling facility. All exchanges of common stock for services rendered were recorded at the fair value of the services rendered. The Company does not have definitive contracts with its management personnel. Any common shares issued to these individuals were discretionary distributions. The Company has not adopted any policy regarding payment of dividends. No dividends have been paid since inception. The preparation of financial statements in conformity with generally accepted accounting principles requires that management make estimates and assumptions which affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses for the period reported. Actual results may differ from these estimates. The Company has adopted November 30 as its fiscal year end. NOTE 3 - MINERAL INTERESTS Effective November 30, 2000, the Company completed a combination of assets agreement for the rights and assets of the Grant Claims sand operation as owned by Grant Claims, LLC. Under this agreement, all the rights, net of all the obligations of the Grant Claims' prior operations, were combined with the Company's contribution of 25.5 million restricted common shares in a new corporation that will continue the operation of the Grant Claims. This new corporation is 51% directly owned by the Company. There are additional capital contribution Company requirements into the operations of the claims and a provision for the issuance of additional common shares on the attainment of certain production levels. NOTE 3 - MINERAL INTERESTS (CONTINUED) The prior operations of the claims were owned 5% by the Company and 95% by a partnership that included, in part, an existing corporate officer. Using the value as indicated by the Company's contributed common shares, the transaction was completed at a greater than 30% discount to third party appraisals, and without additional cash or equivalent compensation to the preceding owners. Because of the majority ownership, control of the Grant Claims, as previously owned by Grant Claims, LLC, has now passed to the Company. The purchase method of accounting was used to report this combination of assets. This method requires all common share valuations of Company stock, including Grant Claims, Inc.'s attributable owned shares, to be at current fair value, recordation of operations only subsequent to the combination of assets and consolidation of operations and recordation of the non-controlling interests at the non-owned percentage. The Company is attempting to initiate active operations of these Claims. It has secured a bid right with the Bureau of Land Management for the removal of 200,000 tons of sand and has submitted the necessary requirements to consummate the contract. In September 2001, the optionor owner of the excavation rights, from which the Company has the removal rights and an option to secure outright the ownership of the mineral rights, agreed to a favorable modification of the amount and the term of past and future payments due under the agreements and dismissed the litigation against the Company. NOTE 4 - LONG TERM LIABILITIES The Company is obligated under four loans, which are secured by its production and other assets. The loans are fully amortizing over their respective terms, which individually ranged at loan inception from four to six years. One loan with a $185,000 current principal has been personally guaranteed by two officers of the Company and a non-officer/shareholder. Under the provisions of long-term third party personal property debt agreements, the Company has the following minimum annual payment obligations: Year Ended August 31, -------------------------------- 2002 2003 2004 --------- -------- -------- Notes Payable - Secured $ 44,394 $ 92,799 $ 66,332 Note Payable - Bank 75,000 75,000 75,000 Notes Payable - Officers and Shareholders 0 225,000 0 --------- -------- -------- $ 36,692 $266,997 $ 48,087 ========= ======== ========= 6 Liabilities due officers do not have a current demand element within their repayment terms. If the note terms required repayment over a five-year term, the annual principal maintenance for the aggregate of the loans would approximate $37,600 per year. Note Payable -Bank is an $196,774 unsecured, interest-free note obligation due a bank, payable $18,750 per calendar quarter starting November 30, 2001 until paid. During the quarter ended May 31, 2001, the Company was funded $514,000 in exchange for 5.00% debentures which are repayable no later than two years from the date of acquisition. At their option, the debenture holders have the right to convert their holdings at either 120% of the bid price on the day of funding the debenture or 80% of the prior five closing bid prices just prior to a conversion request. For the arrangement of these debentures, the Company paid a 10% cash fee and issued 1,428,571 common shares. Under the debenture agreement, the Company is required to reserve 25 million shares, which would only be used if the conversion privilege were to drop to 2 cents per share, which the Company believes to be unlikely. At a rate of 6 cents per share, the Company would issue less than 8.7 million common shares in complete conversion of the debentures. When issued, these shares will be restricted. The restriction will be removed on the SEC's approval of a recently filed Form SB-2. In the six months ended August 31, 2001, the Company received $350,000 to assist in the Company's financing, which is reported as a short-term loan. The Company is currently in negotiations with the lender to convert the loan to equity. In the quarter, the Company approved the issuance of 142,857 restricted common shares to a vendor in lieu of debt due the vendor. These shares are included in the filed Form SB-2. As a part of a services agreement which terminated on August 31, 2001 the Company issued 400,000 common shares and warrants for the investor to acquire up to an additional 400,000 common shares. The warrants expired August 31, 2001 without exercise. The Company has an unexercised open option for the purchase of 123,457 of its common shares at $0.81 per share. This option expires January 22, 2002. NOTE 6 - RELATED PARTY TRANSACTIONS Long-term liabilities include $225,000 due an officer/shareholder arising from monetary investments into the Company and $187,834 in accrued salaries due officers. Officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts. See Note 3. 7 NOTE 7 - LEASE COMMITMENTS As of August 31, 2001, the Company is obligated under leases for its production facilities. Future minimum lease payments under these leases, assuming a 3% inflation rate, are: Term Minimum Annual Payment ---- ------------------------ September 1, 2001 - August 31, 2002 $ 158,500 September 1, 2002 - August 31, 2003 163,300 September 1, 2003 - August 31, 2004 168,200 September 1, 2004 - August 31, 2005 173,200 September 1, 2005 - August 31, 2006 178,400 ------- $ 841,600 ========== The primary term of the two facilities leases ends December 2001. The Company has an option to extend the term of these leases for an additional five years. The leases and the option extension agreements provide for cost of living increases between 3-6% per year on the lease anniversary dates in 2002 and 2004, if extended. Additionally, the Company is required to pay any property tax increases over the base year. The primary lease provides an option to purchase the property under market conditions. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains certain forward-looking statements that are subject to business and economic risks and uncertainties, and the Company's actual results could differ materially from those forward-looking statements. The following discussion regarding the financial statements of the Company should be read in conjunction with the financial statements and notes thereto. GENERAL OVERVIEW The Company's principal line of business is to recycle used tire and other used rubber products into crumb rubber (small rubber particles of various sizes) and molded rubber products, generally on a wholesale basis. These products are delivered throughout the southwestern United States. To date, the Company's strategy has been to build a concentrated customer base in approximately four product lines of the many and various products available; molded goods, crumb rubber for resale, crumb rubber for playground and arena fill and mesh rubber for use in rubberized asphalt concrete. This strategy has allowed for an expanding market in terms of both customers and products and has allowed the Company to expand production levels beyond a minimum equipment level without being limited by capacity or geographic considerations. In order to remain competitive, the Company believes that it must continue to offer its services at the lowest possible prices. The Company believes that in order to continue to offer its products at the lower prices, the Company will need to acquire additional equipment and institute operational efficiencies. Accordingly, the Company is obtaining additional machinery through additional financing and consulting with efficiency and industry experts in their installation and operation. It is believed that the market for the Company's existing products and additional products currently being researched will be of sufficient quantity to deliver all the rubber products the Company can produce against sales orders. The Company intends, on a short-term basis, to continue sales principally in the southwestern United States. Sales are scheduled to expand to additional states and, eventually, internationally. The Company's revenues consist of fees received to accept tires into its facility and sales of its produced products. Acceptance fees, called tipping fees, are recorded as revenue when the tires are received. All sales and revenues are recorded on the accrual basis, where revenues are recorded when earned/shipped to its customers. There are no advance fee or significant volume discount arrangements. Cost of Sales includes the operation, including maintenance, of the Company's light and heavy equipment, the direct labor to operate this machinery and the supplies incident to the sales and plant operations. General and administrative expenses consist of corporate expenses and all administrative personnel and expenses to support the Company's operations and growth. The Company, depending on the extent of its future growth, may experience significant strain on its management, personnel, and information systems. The Company will need to implement and improve operational, financial, and management information systems. In addition, the Company is implementing expanded information systems that will provide better production record keeping, customer service and billing. However, there can be no assurance that the Company's management resources or information systems will be sufficient to manage any future growth in the Company's business, and the failure to do so could have a material adverse effect on the Company's business, results of operations and financial condition. 9 RESULTS OF OPERATIONS OF THE COMPANY THREE MONTHS ENDED AUGUST 31, 2001 COMPARED TO THREE MONTHS ENDED AUGUST 31, 2000 REVENUES - Revenues totaled $1,040,262 and $344,902 for the three months ended August 31, 2001 and August 31, 2000, respectively. During the period ended August 31, 2001, the Company continued its substantial deliveries into the rubberized asphalt market while continuing, on a more minor basis, its molding and other crumb markets; all pursuant to its plan of operations. Based on contracts and purchase orders in place and the positive relationships being developed, the Company is of the opinion that there will be further and significant increases in its existing product deliveries in the product cycles and additional, material and recurring sales in the near future in its crumb rubber product lines. Revenues for the three months ended August 31, 2000 were generally divided among the production of landscaping fill, feedstock and molded products, in addition to revenues from the receipt of tires into production. COST OF SALES - Cost of sales totaled $737,021and $244,960 for the three month periods ended August 31, 2001 and August 31, 2000, respectively. Cost of sales for the three month period ended August 31, 2001 was comprised primarily of direct labor costs of $235,094, raw materials purchases of $131,854, freight costs of $121,608, equipment maintenance and minor enhancements of $56,184, disposal costs of $53,015, and other costs of $96,611. Cost of sales for the period ended August 31, 2000 were primarily comprised of direct labor costs of $139,199, disposal costs of $22,352, and maintenance of equipment totaling $16,733. As a percentage of total revenues, cost of sales, respectively, was 70.8% and 71.0%, resulting in gross margins of 29.2% and 29.0% for the periods ended August 31, 2001 and August 31, 2000, respectively. Whereas the total cost of sales increased $492,061 in the quarter ended August 31, 2001 as compared to the quarter ended August 31, 2000, the increase was in the same percentage relationship as the dramatic and comparable quarter to quarter sales increases of $695,360. Each of the cost elements within cost of sales are constantly being challenged and, where possible, reduced. Changing production procedures and the recently installed equipment are also contributing anticipated production efficiencies. On a whole dollar and percentage basis, three of the components of the quarterly total cost of sales varied greatly; labor increased $95,895 (9.2% of revenues), purchased raw materials increased $114,807 (11.0% of revenues) and equipment leasing costs increased $40,247 (3.9% of revenues). The production labor increase was due to the initial operation of production equipment installed in the prior 2001 quarter and larger overall shift levels experienced in the newly required coordination of material from production activity to activity, which the Company believes has now has finally resulted in increased productivity efficiency. In 2001, the Company experienced difficulties in attaining a continuous and sufficient inflow of tires, which were needed to support the dramatically increased summer 2001 product deliveries. The $131,854 (7.3% of revenues) of such feedstock purchases attributed to the current quarter is considered an expense extraordinary to normal operations and is having and will have an additional negative impact to the Company's operations in the quarters ended August 31, 2001 and November 30, 2001 (because of additional such extraordinary costs in inventory at August 31, 2001) from the purchases exceeding 6 million pounds of crumb feedstock in lieu of the normal condition of being paid to receive tires which are manufactured into sold crumb rubber. This negative tire inflow condition was resolved by August 31, 2001 with the Company's execution of a multi-year contract annually providing the Company with up to 70 million pounds of tires. Equipment rental expenses have increased due to the new production line installed early in the quarter ended August 31, 2001 which is leased under an operating lease agreement based on production levels. Since the Company's business plan anticipates significant increases in sales and production, these expenses are expected to increase on a whole dollar basis but remain relatively constant on a percentage basis. The Company's disposal costs increased $30,663 from $22,352 (6.5% of revenues) in the three months ended August 31, 2000 to $53,015 (5.1% of revenues) in the three months ended August 31, 2001 primarily because of increased production levels. 10 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative ("SG&A") expenses totaled $472,671 (45.4% of revenues) and $290,327 (84.2% of revenues) for the three month periods ended August 31, 2001 and August 31, 2000, respectively. In the three month period ended August 31, 2001, the Company's efforts were concentrated in equipment acquisition and financing and the securing of operating arrangements and alliances to assure the increased sales and production material balancing for those sales. SG&A expenses for the period ended August 31, 2001 were primarily comprised of $57,894 (5.6% of revenues) in legal and professional fees related primarily to the approximate $35,000 in service fees paid in intended equipment financing and legal expenses in sustaining and resolving legal issues generally involving the Grant Claims' operations and $19,973 (1.9% of revenues) in sales commissions, facilities rent of $47,438 (4.6% of revenues), depreciation and amortization of $55,250 (5.3% of revenues), officer's salaries of $92,404 (8.9% of revenues) and utilities expenses of $35,864 (3.4% of revenues). SG&A expenses for the three month period ended August 31, 2000 were comprised primarily of facilities rent of $38,438 (11.1% of revenues), depreciation of $36,000 (10.4% of revenues) and officer salaries of $75,288 (21.8% of revenues). The $182,344 quarterly increase in all SG&A expenses from the comparable three month periods ended August 31, 2001 and 2000 reflect and approximate 15% overall increase in office costs to support the $695,360 increase in sales, a doubling of interest expense to $52,127 (3.4% of revenues) in the quarter ended August 31, 2001 resulting from interest increases for additional equipment and debenture costs, $19,250 (1.9% of revenues) in additional depreciation from the $36,000 in the quarter ended August 31, 2000 because of the additional production equipment. The net loss was $169,430 for the three-month period ended August 31, 2001 and the net loss was $191,985 for the three-month period ended August 31, 2000. ASSETS AND LIABILITIES - Assets increased $548,166 from $10,919,672 as of May 31, 2001 to $11,467,838 as of August 31, 2001. The net increase was attributable to an increase in accounts receivable of $404,039, an increase of $74,351 in equipment and leasehold improvements and an increase of $107,064 in prepaid expenses, net of a decrease of $47,032 in inventory. Liabilities increased from $2,784,743 as of May 31, 2001 to $3,567,054 as of August 31, 2001. This increase was attributable to increases in accounts payable of $177,751, an increase of $543,737 in short-term notes payable, an increase of amounts due corporate officers of $26,737, and an increase of $81,392 in short and long term secured debt; all offset by a liability decrease of $58,114 in mineral interest debt. Earlier reported financial statements are being amended to reflect the immediate costing, when incurred, of the costs of the acquisition of Global Sight, Inc. and each of the debenture issues since March 2001. The comparative amounts for May 31, 2001 assume the effect of the impending revisions. SHAREHOLDERS' EQUITY - Shareholders' equity increased from $4,716,624 as of May 31, 2001 to $4,557,196 as of August 31, 2001. Other than operations, the increase is attributed to the issuance of $10,000 in common shares in lieu of cash payment of a corporate expense. LIQUIDITY AND CAPITAL RESOURCES GENERAL - Overall, the Company had a positive cash flow of $8,094 in the three month period ending August 31, 2001 resulting from $156,311of cash provided by the Company's investing activities offset by $95,528 of cash used in operating activities and $52,689 of cash used in financing activities. 11 CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $105,569 in the three month period ended August 31, 2001 was primarily due to an increase of accounts receivable of $404,039 and a $107,064 net increase of prepaid expenses; offset by a $47,032 decrease of inventory, an accounts payable increase of $177,751, an increase of $294,931 in short-term notes payable and secured debt and depreciation and amortization totaling $55,250. CASH FLOWS FROM INVESTING - Net cash used in the Company's investing activities of $205,969 in the three month period ended August 31, 2001 primarily funded $129,601 in equipment purchases and installation and the $74,718 decrease in the non-controlling interest portion of Grant Claims. CASH FLOWS FROM FINANCING - The net $319,632 of cash provided by the Company's financing activities in the three month period ended August 31, 2001 was primarily due to the $350,000 in a new short-term debt and the $55,741 increase in notes payable to corporate officers, offset by $19,802 in principal reductions in secured debt and the $58,114 decrease in unsecured debt due bank and mineral interests. CAPITAL EXPENDITURES - The Company expended $129,601 in the three months ended August 31, 2001 to purchase and install additional equipment and improvements in connection with the expansion of its business. 12 NINE MONTHS ENDED AUGUST 31, 2001 COMPARED TO NINE MONTHS ENDED AUGUST 31, 2000 REVENUES - Revenues totaled $1,804,676 and $625,322 for the nine months ended August 31, 2001 and August 31, 2000, respectively. During the period ended August 31, 2001, the Company continued its substantial deliveries into the rubberized asphalt market while continuing, on a more minor basis, its molding and other crumb markets; all pursuant to its plan of operations. Based on contracts and purchase orders in place and the positive relationships being developed, the Company is of the opinion that there will be further and significant increases in its existing product deliveries in their cycles and additional and material sales in the near future in its crumb rubber product lines. Revenues for the nine months ended August 31, 2000 were generally divided among the production of landscaping fill, feedstock and molded products, in addition to revenues from the receipt of tires into production. COST OF SALES - Cost of sales totaled $1,093,090 and $546,621 for the nine-month periods ended August 31, 2001 and August 31, 2000, respectively. Cost of sales for the nine month period ended August 31, 2001 was comprised primarily of direct labor costs of $312,096 (17.3% of revenues), raw materials purchases of $131,854 (7.3% of revenues), freight costs of $168,385 (9.3% of revenues), equipment maintenance and minor enhancements of $126,738 (7.0% of revenues), disposal costs of $78,020 (4.3% of revenues), and other costs of $208,006 (11.5% of revenues). Cost of sales for the period ended August 31, 2000 were primarily comprised of direct labor costs of $297,783 (47.6% of revenues), disposal costs of $69,460 (11.1% of revenues), and maintenance of equipment totaling $59,301 (9.5% of revenues). As a percentage of total revenues, cost of sales, respectively, was 60.6% and 87.4%, resulting in gross margins of a 39.4% and 12.6% for the periods ended August 31, 2001 and August 31, 2000, respectively. Whereas the total cost of sales increased $546,469 in the nine months ended August 31, 2001 as compared to the nine months ended August 31, 2000, the increase ($546,469) was an approximate 100% increase in costs as contrasted with an approximate 200% increase in sales ($1,179,354) in the same comparable periods. Each of the cost elements within cost of sales are constantly being challenged and, where possible, reduced. Changing production procedures and the recently installed equipment are also contributing anticipated production efficiencies. On a whole dollar and percentage basis, four of the components of the nine months total cost of sales varied greatly; repairs and maintenance increased $67,437 (3.7% of revenues), raw materials purchases increased $100,007 (5.5% of revenues), freight increased $155,161 (8.6% of revenues) and equipment leasing increased $59,693 (3.3% of revenues). The repairs and maintenance increase was due to the 2001 increased investments in minor equipment to achieve production gains. In 2001, the Company experienced difficulties in attaining a continuous and sufficient inflow of tires, which were needed to support the dramatically increased summer product deliveries. The $131,854 (7.3% of revenues) of such feedstock purchases attributed to the current quarter is considered an expense extraordinary to normal operations and is having and will have an additional negative impact to the Company's operations in the quarters ended August 31, 2001 and November 30, 2001 (because of additional such extraordinary costs in inventory at August 31, 2001) from the purchases exceeding 6 million pounds of crumb feedstock in lieu of the normal condition of being paid to receive tires which are manufactured into sold crumb rubber. This negative tire inflow condition was resolved by August 31, 2001 with the Company's execution of a multi-year contract annually providing the Company with up to 70 million pounds of tires. Equipment rental expenses have increased due to the new production line completed installation in June 2001, which is leased under an operating lease agreement based on production levels. Since the Company's business plan anticipates significant increases in sales and production these expenses are expected to increase on a whole dollar basis and remain relatively constant on a percentage basis. The Company's freight costs increased $155,161 (8.6% of revenues) from $13,224 (2.1% of revenues) in the nine months ended August 31, 2000 to $168,385 (9.3% of revenues) in the nine months ended August 31, 2001 because the sales to the asphalt industry are generally FOB the buyers facility, a condition different from other historical customers' arrangements. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative ("SG&A") expenses totaled $1,420,201 (78.7% of revenues) and $742,434 (64.1% of revenues) for the nine month periods ended August 31, 2001 and August 31, 2000, respectively. In the nine month period ended August 31, 2001, the Company's efforts were concentrated in securing new sales contracts and delivering against those contracts, equipment acquisition and financing and the securing of operating arrangements and alliances to assure the increasing of sales and production material balancing for those sales. SG&A expenses for the period ended August 31, 2001 were primarily comprised of $202,248 (11.2% of revenues) in legal and professional fees including, primarily, $153,000 in investor and marketing fees and an approximate $35,000 in service fees paid in intended equipment financing and legal expenses in sustaining and resolving legal issues generally involving the Grant Claims' operations. Also incurred were expenses for facilities rent of $124,315 (7.0% of revenues), depreciation and amortization of $162,750 (9.0% of revenues), administrative and management salaries of $300,212 (16.6% of revenues), utilities expenses of $96,492 (5.3% of revenues) and sales commissions to third parties totaling $38,680 (2.1% of revenues). SG&A expenses for the nine month period ended August 31, 2000 were comprised primarily of facilities rent of $115,002 (18.4% of revenues), depreciation of $108,000 (17.3% of revenues), debenture expenses of $202,154 and administrative and management salaries of $185,301 (29.6% of revenues). The $475,613 increase in the nine month SG&A expenses from the comparable periods of nine months ended August 31, 2001 and 2000 reflect the $119,375 (144%) increase in legal and professional expenses primarily comprising the $93,000 above described which the Company believes to have been one time 2001 expenses, the $114,911 (62%) increase in management salaries (62%) which is comprised of the lack of salary to the founder and President in 2000 offset by decreases in overall management salaries in 2001, a $54,750 (50.7%) increase in depreciation resulting from the increased production equipment installed in the plant, a $202,154 (5.1% of revenues) cost of a second quarter 2001 debenture issue and a $40,150 (78.4%) increase in interest expense to $91,374 in the nine months ended August 31, 2001 resulting from new equipment loans and $10,808 in debenture interest in the nine months ended August 31, 2001. The net loss was $709,415 and $666,133 for the respective nine-month periods ended August 31, 2001 and 2000. ASSETS AND LIABILITIES - Assets increased $9,218,619 from $2,249,219 as of August 31, 2000 to $11,467,838 as of August 31, 2001. The $9,218,619 increase was primarily due to the $5,410,668 acquisition of mineral interests and the $3,570,000 investment in common stock net of the $1,118,665 related account receivable; all of which was originally purchased effective November 30, 2000, and additionally due to an increase in accounts receivable of $484,085, an inventory increase of $399,477, and a $402,516 increase in the equipment and leasehold improvements, all of which is related to the increased summer sales activity. Liabilities increased from $1,535,568 as of August 31, 2000 to $3,567,054 as of August 31, 2001. This increase was attributable to increases in accounts payable of $581,750, increases of short-term notes payable of $644,737, an increase of amounts due corporate officers of $214,068, an increase of $541,886 in notes payable arising from the mineral interest acquisition, an increase if $524,808 in convertible debentures, net of a $1,001,264 note payable decrease from the conversion of this debt to Company common stock in November 2000. Earlier reported financial statements are being amended to reflect the immediate costing, when incurred, of the costs of the acquisition of Global Sight, Inc. and each of the debenture issues since March 2001. The comparative amounts for August 31, 2000 assume the effect of the impending revisions. SHAREHOLDERS' EQUITY - Shareholders' equity increased $4,193,544 from $713,651 as of August 31, 2000 to $4,557,196 as of August 31, 2001. The increase was attributable to an increase of $3,570,000 in shares issued in the acquisition of the mineral interests effective November 30, 2000, $85,714 in compensation for the securing of the $514,000 debentures in the second quarter of 2001, $153,000 in lieu fees for marketing and investor services and $1,314,986 in common shares issued in the exchange and extinguishing of Company debt obligations all offset by the increased retained deficits from the operations of the Company for the year ended August 31, 2001. LIQUIDITY AND CAPITAL RESOURCES GENERAL - Overall, the Company had a negative cash flow of $33,877 in the nine month period ending August 31, 2001 resulting from $1,568,056 of cash provided by the Company's financing activities, offset by $924,163 of cash used in operating activities and $677,770 of cash of cash used in investing activities. CASH FLOWS FROM OPERATIONS - Net cash used in operating activities of $924,163 in the nine month period ended August 31, 2001 was primarily due the loss from operations, an increase of accounts receivable of $563,670, an increase of inventory of $279,457, a $206,359 increase of prepaid expenses; all partially offset by an increase of accounts payable and accrued expenses of $277,197, an increase of $228,737 in short-term notes payable and depreciation and amortization of $222,540. CASH FLOWS FROM INVESTING - Net cash used in investing activities of $677,770 in the nine month period ended August 31, 2001 primarily funding $577,254 in equipment purchases and installation and a net $86,412 in net costs for the non-controlled mineral interests. 13 CASH FLOWS FROM FINANCING - The net $1,568,056 in net cash provided by financing activities in the nine month period ended August 31, 2001 was primarily due to proceeds from the $514,000 debenture funding, proceeds from $350,000 in new short-term notes, proceeds from the issuances of the Company's common stock of $397,557 in lieu of cash payment and $336,145 in new equipment loans; net of $140,609 of principal reductions of long and short-term debt. CAPITAL EXPENDITURES The Company expended $577,254 in the nine months ended August 31, 2001 to purchase and install additional equipment and improvements in connection with the expansion of its business. INFLATION Management believes that inflation has not had a material effect on the Company's results of operations. EMPLOYMENT As of August 31 2001, the Company had 51 full time employees. 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company may from time to time be involved in various claims, lawsuits, disputes with third parties, actions involving allegations of discrimination, or breach of contract actions incidental to the operation of its business. The Company is not currently involved in any such litigation which it believes could have a materially adverse effect on its financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 12, 2001, the Company issued 142,857 shares of "restricted" common stock valued at $10,000 to an unrelated individual in exchange for services rendered. The issuance was an isolated transaction not involving a public offering pursuant to section 4(2) of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K None. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934. The registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. RUBBER TECHNOLOGY INTERNATIONAL, INC. By /s/ Trevor Webb ----------------------------- Trevor Webb President & Chief Executive Officer By /s/ Fred Schmidt ----------------------------- Fred Schmidt Chief Financial Officer Dated: October 15, 2001 17

RUBBER TECHNOLOGY INTERNATIONAL INC /NV 10-Q