-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P32TGHe//APWoiaYLsNb+ulhe+3LB7DSIwr0h/2+s6J1I6bMowfh745CF0Rr5tyc lfHcp/4Qj8QEm26fJ2Vwxw== 0000796960-97-000006.txt : 19970520 0000796960-97-000006.hdr.sgml : 19970520 ACCESSION NUMBER: 0000796960-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED ENVIRONMENTAL SYSTEMS INC CENTRAL INDEX KEY: 0000796960 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 841059226 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19013 FILM NUMBER: 97609042 BUSINESS ADDRESS: STREET 1: 730 17TH STREET STE 712 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035715564 MAIL ADDRESS: STREET 1: 730 17TH STREET STREET 2: SUITE 712 CITY: DENVER STATE: CO ZIP: 80202 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST PASSAGE OF NORTH AMERICA INC DATE OF NAME CHANGE: 19901127 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1997 Commission File Number 0-19013 ADVANCED ENVIRONMENTAL SYSTEMS, INC. (Exact name of registrant as specified in its charter) New York 84-1059226 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 730 17th Street, Suite 712 Denver, Colorado 80202 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (303) 571-5564 (Former name, former address and former fiscal year, if changed since last report.) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) Yes X of the Securities Exchange Act of 1934 during the pre- ceding 12 months (or for such shorter period that the No registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares outstanding Class at March 31, 1997 Common stock, $.0001 par value 531,667,515 shares INDEX PART I - FINANCIAL INFORMATION * ITEM 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 Condensed Consolidated Statements of Operations - For the Three Months Ended March 31, 1997 and 1996 Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1997 and 1996 Notes to Condensed Consolidated Financial Statements ITEM 2. Management's Discussion and Analysis PART II - OTHER INFORMATION ITEMS 1 through 6. Signature * The accompanying financial statements are not covered by an independent auditor's report. ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents 494,000 $ 151,000 Trade accounts receivable, net of allowance for doubtful accounts of $40,000 2,477,000 1,339,000 Unbilled trade receivable - 203,000 Prepaid expenses 103,000 62,000 Income tax receivable, net - 488,000 Deferred tax asset 131,000 404,000 Asset held for sale 157,000 157,000 Total current assets $3,362,000 $2,804,000 PROPERTY, PLANT AND EQUIPMENT: Equipment 3,046,000 2,992,000 Furniture and fixtures 341,000 313,000 Transportation equipment 391,000 391,000 3,778,000 3,696,000 Accumulated depreciation (2,638,000) (2,517,000) 1,140,000 1,179,000 INTANGIBLES AND OTHER ASSETS: Goodwill and other intangibles, net of accumulated amortization of $602,000 and $592,000 948,000 958,000 Other 61,000 50,000 1,009,000 1,008,000 Total assets 5,511,000 $ 4,991,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade 825,000 1,304,000 Revolving loans 1,153,000 519,000 Current portion of long term debt - Financial institutions 255,000 184,000 Related parties - 425,000 Accrued expenses and other liabilities 914,000 690,000 Total current liabilities 3,147,000 3,122,000 LONG-TERM DEBT: Financial institutions 929,000 982,000 DEFERRED INCOME TAXES 161,000 161,000 REDEEMABLE CONVERTIBLE PREFERRED STOCK: Series A, 0 and 4,074,000 shares issued and outstanding in 1997 and 1996, respectively; 33,000 COMMON AND OTHER STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value, Convertible Series A and B; 750,000,000 shares authorized; 36,249,000 shares issued and outstanding; liquidation preference of $295,000 4,000 4,000 Common stock, $.0001 par value, 2,250,000,000 shares authorized; 531,668,000 issued and outstanding 53,000 53,000 Additional paid-in capital 640,000 640,000 Retained earnings(deficit) 577,000 (4,000) Total stockholders' equity 1,274,000 693,000 Total liabilities and stockholders' equity 5,511,000 $4,991,000 The accompanying notes are an integral part of these financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 1996 SERVICE REVENUES $4,678,000 $5,034,000 COSTS AND EXPENSES: Service costs and expenses 2,794,000 3,739,000 Selling, general & administrative 586,000 674,000 Management fees, related party 42,000 36,000 Interest 54,000 67,000 Depreciation and amortization 115,000 116,000 3,591,000 4,632,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 1,087,000 402,000 INCOME TAX EXPENSE 495,000 225,000 NET INCOME (LOSS) 592,000 177,000 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 581,000 $ 163,000 NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0011 $ .0003 WEIGHTED AVERAGE SHARES OUTSTANDING $531,668,000 $531,668,000
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996 CASH FLOWS FORM OPERATING ACTIVITIES: Net income $ 592,000 $ 177,000 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 115,000 116,000 Deferred income taxes 273,000 (7,000) Decrease (increase) in - Trade accounts receivable (1,137,000) (2,139,000) Unbilled trade receivables 203,000 (280,000) Prepaids and other assets (36,000) 40,000 Income tax receivables 488,000 191,000 Increase (decrease) in - Accounts payable (479,000) 1,521,000 Accrued expenses 256,000 179,000 Income taxes payable - - Net cash provided by (used in) operating activities 275,000 (202,000) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (82,000) (76,000) Other - - Net cash used in investing activities (82,000) (76,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit 3,771,000 3,340,000 Repayments of lines of credit (3,138,000) (2,964,000) Proceeds from issuance of long-term debt 94,000 - Repayments of notes payable (529,000) (87,000) Redemption of Series A preferred stock (37,000) (28,000) Dividends declared (11,000) (14,000) Net cash provided by financing activities 150,000 247,000 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 343,000 (31,000) CASH AND CASH EQUIVALENTS, beginning of period 151,000 186,000 CASH AND CASH EQUIVALENTS, end of period $ 494,000 $ 155,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ - $ - Cash paid for interest $ 59,000 $ 76,000 The accompanying notes are an integral part of these financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. UNAUDITED FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all the normal recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 1997, the results of its operations for the three month period ended March 31,1997 and its cash flows for the three month period ended March 31, 1997. Operating results for the three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. The consolidated balance sheet as of December 31, 1996 is derived from the audited financial statements, but does not include all disclosures required by generally accepted accounting principles. As a result, these financial statements should be read in conjunction with the Company's form 10-K for the fiscal period ended December 31, 1996. 2. CONTINGENCIES During 1995, an Incat employee initiated litigation for damages in respect of injuries claimed to have occurred while performing catalyst services at a refining facility. Incat has not been named a party in the proceedings as the customer is being defended by Incat's general liability insurer pursuant to the customer's demand for coverage as an additional insured on a contractual indemnity. Demand has also been made on Incat and its general liability insurer for indemnification by a customer regarding a total of $219,000 which it paid to three employees of the Company for alleged injuries sustained in October 1995 at the customer's facility. The Company's insurer requested information from the customer documenting liability and damages in connection with the demand. The requested information was not provided to the Company's insurer, and the Company's insurer accordingly has not made a determination regarding the Company's duty to defend, indemnify, and treat the customer as an additional insured under the Company's insurance policies. The Company believes that, to the extent it may have any liability with respect to the claims described in the above paragraphs the Company would be covered by its workers' compensation and general liability insurance carriers. The initial premium paid by Incat with respect to these policies is subject to adjustment based on certain insurance components plus losses during the applicable policy periods. Based on current estimates prepared by Incat's insurers, the Company believes its $175,000 retrospective insurance premium accrual is adequate. This amount represents a general reserve pending the resolution of the above claims, and various other open routine claims incidental to the Company's business which affect the same policy years and, therefore, the retrospective premium adjustments. However, due to the uncertainty of various factual and legal issues which may affect these claims, there can be no assurance as to the outcome of these claims or the adequacy of the amount reserved. ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION General - The Company, through its subsidiary, International Catalyst, Inc. (Incat), provides catalyst handling services to chemical and petrochemical refineries. Liquidity and Capital Resources - The Company has $215,000 of working capital at March 31, 1997 as compared to a $318,000 deficiency of working capital at December 31, 1996 due to profitable operations during the first quarter of 1997. Incat's financial institution is (a) extending the terms of its credit facility subject to completion of documents to September 30, 1997 and (b) increasing the credit facility to $1,600,000 for the three months ended June 30, 1997, at which time the credit facility will return to $1,400,000. The credit facility is collateralized by Incat's accounts receivable. Amounts drawn under the facility from time to time bear interest at a rate of 2.5% plus the prime rate in effect from time to time. At March 31, 1997, there was a $1,153,000 balance outstanding on this line-of-credit. On March 31, 1997, a term loan from a financial institution was amended and increased to include an additional $94,000 in long-term financing, which was used to repay certain Series B preferred stock accumulated dividends to Industrial Services Technologies, Inc., which owns a majority of the Company's common stock and all its preferred stock. Additionally, the interest rate on the balance of the term loan was reduced from 3.5% to 3% plus the prime rate in effect from time to time and the maturity date of the loan was extended from December 31, 1997 to March 31, 2000. Under the amended note, the monthly amount required to service obligations to the financial institution was reduced from approximately $52,000 to approximately $30,000 per month assuming a current prime rate of 8.5%. Net worth increased from $693,000 at December 31, 1996 to $1,274,000 at March 31, 1997. The $581,000 increase in net worth is due to net income of $592,000 for the three months ended March 31, 1997, reduced by $11,000 in dividends declared on Series A and B preferred stock for the period. After evaluating the economics of its flow bin leasing operations, the Company sold its flow bins during April 1997 for $500,000. $350,000 of the purchase price has been received and the $150,000 balance is due on May 30, 1997. The net proceeds will be used for working capital and to purchase additional equipment. Currently, the Company has no commitments to purchase additional equipment. However, the Company has budgeted and is anticipating purchasing additional equipment of approximately $200,000 in fiscal 1997. The combined effects of the receipt of proceeds from the sale of flow bins and from borrowings under the Company's credit facility combined with funds generated from operations, the Company's reduced tax payment through utilization of its tax net operating losses, and reduced debt service requirements should enable the Company to maintain sufficient cash to meet its ongoing cash requirements for the fiscal year. However, there are no assurances that the Company will not incur additional operating losses and/or that its credit facility with the financial institution will be renewed on its expiration in September 1997 or that funds will be available from other sources if needed. RESULTS OF OPERATIONS Service revenues for the three months ended March 31, 1997 and 1996 were $4,678,000 and $5,034,000, respectively. Excluding subcontractor pass-through revenues of $28,000 in 1997 and $1,068,000 in 1996, services revenues were $4,650,000 and $3,966,000 for the three months ended March 31, 1997 and 1996, respectively. The increase in service revenues of $684,000 from 1997 to 1996 is primarily attributable to new business generated from the Company's tubular loader. A significant percentage of the Company's sales are generated through reputation and referrals. Management continues to emphasis its sales and marketing programs in an effort to expand the Company's customer base. However, a highly competitive market is making expansion more difficult. Cost of services as a percentage of service revenues was 60% and 74% for the quarters ended March 31, 1997 and 1996, respectively. Eliminating the impact of subcontractor pass-through revenues discussed above, service costs as a percentage of service revenues were approximately 59% for the quarter ended March 31, 1997 and 68% for the quarter ended March 31, 1996. Subcontractor costs are normally passed-through with an administrative charge of 0-10%. The net decrease in the cost of services as a percentage of service revenues is attributable to a decrease in direct costs. Direct costs decreased due to the Company's ability to perform work in the first quarter of 1997 at higher margins than in 1996 and due to the Company's ability to staff projects from internal resources in 1997 as compared to the Company's need to staff projects with external manpower in 1996. Indirect costs increased $88,000 for the period ending March 31, 1997 as compared to the corresponding period in 1996. The increase is primarily attributable to the Company's safety incentive bonus program under which bonuses were awarded to employees for outstanding safety performance in 1996, increased freight costs for relocating some equipment and wage increases. A decrease in selling, general and administrative (SG&A) costs of $88,000, for the three month period ended March 31, 1997 as compared to the same period in 1996 is due primarily to a $123,000 decrease in administrative costs associated with the Baton Rouge and Corpus Christi office closures, administrative staff reductions, and an increase in selling costs of $35,000 due to the Company pursuing tubular loader sales. Depreciation and amortization expense for the three months ended March 31, 1997 and 1996 is comparable. The Company's net income for the three months ended March 31, 1997 was $592,000 as compared to net income of $177,000 for the three months ended March 31, 1996. Overall net income increased due to a decrease in direct costs and SG&A. The Company will continue to be affected by general economic conditions including fluctuations in interest rates and international economic conditions. Service revenues will continue to be subject to significant quarterly fluctuations, affected primarily by the timing of planned shutdowns at its customers' facilities. Management does not believe the higher margins incurred in the first quarter of 1997 are indicative of margins expected for the remainder of the year. Due to the competitive nature of the catalyst business, management anticipates lower margins in the second and third quarters. However, fiscal 1997 is expected to be stronger than fiscal year 1996 with revenues and profits exceeding last year's results. There are no assurances that the Company will not incur additional operating losses or be able to achieve its 1997 operating plan. To achieve the 1997 operating plan, the Company must continue to increase utilization of its full time employees, control SG&A and direct labor costs, and increase revenues in the second and third quarters. Certain portions of the discussions contained in this Report include "forward-looking statements". Forward-looking statements are identified by phrases such as "expects", "projects", "anticipates", "believes" and other similar expressions. All phases of the Company's operations are subject to a number of uncertainies, risks and other influences, many of which are beyond the control of the Company, and any one of which, or a combination of which, could materially affect the results of the Company's operations and whether forward-looking statements made by the Company ultimately prove to be accurate. The Company cautions the reader that the factors mentioned above may not be exhaustive and the reader should refer to some of the Annual Report on Form 10-K for some of the additional matters which could affect the Company's results and cause them to differ materially from those that may be set forth in any forward-looking statement made by or on behalf of the Company in this Quarterly Report on Form 10-Q. PART II - OTHER INFORMATION Items 1 through 6. Not applicable. SIGNATURE Pursuant to the requirements of The Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADVANCED ENVIRONMENTAL SYSTEMS, INC. (Registrant) DATE: May 15, 1997 BY: /s/ Alfred O. Brehmer Alfred O. Brehmer, Director, Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1997 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 494,000 0 2,517,000 40,000 0 3,362,000 3,778,000 2,638,000 5,511,000 3,147,000 1,184,000 4,000 0 53,000 1,217,000 5,511,000 4,678,000 4,678,000 2,794,000 2,794,000 743,000 0 54,000 1,087,000 495,000 592,000 0 0 0 592,000 0 0
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