-----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, J+aPFssVcosv0dk/guNOAZjhdyOJe5OXDttqitIrPctMiufS3wyDg4895KpX6g6M /yrdxAJBTfwjnPCWY3GZjQ== 0000796960-96-000007.txt : 19960517 0000796960-96-000007.hdr.sgml : 19960517 ACCESSION NUMBER: 0000796960-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 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: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19013 FILM NUMBER: 96567121 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, 1996 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, 1996 Common stock, $.0001 par value 531,667,515 shares Form 10-Q 1st Quarter INDEX PART I - FINANCIAL INFORMATION * ITEM 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 Condensed Consolidated Statements of Operations - For the Three Months Ended March 31, 1996 and 1995 Condensed Consolidated Statements of Cash Flows - For the Three Months Ended March 31, 1996 and 1995 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, 1996 1995 CURRENT ASSETS: Cash and cash equivalents 155,000 $ 186,000 Trade accounts receivable, net of allowance for doubtful accounts of $40,000 3,761,000 1,622,000 Unbilled trade receivable 297,000 17,000 Prepaid expenses 388,000 428,000 Income tax receivable, net 10,000 201,000 Total current assets $4,611,000 $2,454,000 PROPERTY, PLANT AND EQUIPMENT: Equipment 3,510,000 3,453,000 Furniture and fixtures 371,000 352,000 Transportation equipment 391,000 391,000 4,272,000 4,196,000 Accumulated depreciation (2,763,000) (2,658,000) 1,509,000 1,538,000 INTANGIBLES AND OTHER ASSETS: Goodwill and other intangibles, net of accumulated amortization of $561,000 and $549,000 990,000 1,001,000 Other 3,000 3,000 993,000 1,004,000 Total assets 7,113,000 $ 4,996,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade 2,425,000 904,000 Revolving loans 1,101,000 725,000 Current portion of long term debt - Financial institutions 343,000 348,000 Related parties 1,000 1,000 Accrued expenses and other liabilities 770,000 591,000 Income taxes payable - - Total current liabilities 4,640,000 2,569,000 LONG-TERM DEBT: Financial institutions 1,089,000 1,171,000 DEFERRED INCOME TAXES 171,000 178,000 SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK: $.0001 par value; 27,108,000 shares authorized; 27,108,000 and 30,648,000 issued and outstanding in 1996 and 1995, respectively; liquidation preference of $220,000 in 1996 and $249,000 in 1995 209,000 237,000 COMMON AND OTHER STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value, Convertible Series B; 100,000,000 shares authorized; 24,592,000 shares issued and outstanding; liquidation preference of $200,000 2,000 2,000 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 548,000 548,000 Retained earnings 401,000 238,000 Total stockholders' equity 1,004,000 841,000 Total liabilities and stockholders' equity 7,113,000 $4,996,000 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, 1996 1995 SERVICE REVENUES $5,034,000 $3,757,000 COSTS AND EXPENSES: Service costs and expenses 3,739,000 2,401,000 Selling, general & administrative 674,000 691,000 Management fees, related party 36,000 36,000 Interest 67,000 65,000 Depreciation and amortization 116,000 144,000 4,632,000 3,325,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 402,000 432,000 INCOME TAX EXPENSE 225,000 223,000 NET INCOME (LOSS) 177,000 209,000 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 163,000 $ 187,000 NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0003 $ .0004 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,
1996 1995 CASH FLOWS FORM OPERATING ACTIVITIES: Net income $ 177,000 $ 209,000 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 116,000 144,000 Deferred income taxes (7,000) (15,000) Decrease (increase) in - Trade accounts receivable (2,139,000) 1,196,000 Unbilled trade receivables (280,000) 189,000 Prepaids and other assets 40,000 89,000 Increase (decrease) in - Accounts payable 1,521,000 (227,000) Accrued expenses 179,000 (180,000) Income taxes payable - 64,000 Net cash provided by operating activities (202,000) 1,469,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (76,000) (143,000) Other - 3,000 Net cash used in investing activities (76,000) (140,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit 3,340,000 290,000 Repayments of lines of credit (2,964,000) (1,079,000) Proceeds from issuance of long-term debt - 403,000 Repayments of notes payable (87,000) (109,000) Redemption of Series A preferred stock (28,000) (24,000) Dividends declared (14,000) (20,000) Net cash provided by (used in) financing activities 247,000 (539,000) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (31,000) 790,000 CASH AND CASH EQUIVALENTS, beginning of period 186,000 126,000 CASH AND CASH EQUIVALENTS, end of period $ 155,000 $ 916,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ - $ 203,000 Cash paid for interest $ 76,000 $ 90,000 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, 1996, the results of its operations for the three month period ended March 31,1996 and its cash flows for the three month period ended March 31, 1996. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. The consolidated balance sheet as of December 31, 1995 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, 1995. 2. CONTINGENCIES The Company previously reported that a complaint was filed in March 1994 with the Equal Employment Opportunity Commission by a temporary employee of the Company for claims of sexual harassment. There have been no new developments in this matter, and as of the date of this report, it is not possible to make any determination of the probable outcome of this matter or the likelihood of a material adverse judgment against the Company. During 1995, an individual who allegedly sustained injuries while providing services to the Company at a Koch Nitrogen Company ("Koch") facility commenced litigation against the Company, Koch and others, seeking amounts for compensatory and punitive damages. The plaintiff's minor daughter has also asserted claims for a loss of consortium and support. Koch has demanded that it be defended and indemnified by the Company and its insurer. Additionally, in 1995, an employee of the Company initiated litigation for damages in respect of injuries claimed to have occurred while performing catalyst services at a Unocal Corporation ("Unocal") facility. The Company has not been named a party in the proceedings as Unocal is being defended by the Company's general liability insurer pursuant to Unocal's demand for coverage as an additional insured on a contractual indemnity. Demand has also been made on the Company by Koch Refining Company, L.P. ("KRC") regarding a total of $219,000 paid by KRC to three employees of the Company for alleged injuries sustained in October 1995 at KRC's Corpus Christi, Texas facility. The Company's general liability insurer has not responded to the demand. The Company believes that, to the extent it may have any liability with respect to the claims described on the paragraph immediately above, the Company would be covered by its workers' compensation and general liability insurance carriers. The initial premium paid by the Company 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 the Company's insurers, the Company at December 31, 1995 accrued a retrospective insurance premium of $300,000. This amount represents a general reserve pending the resolution of the Koch, KRC, and Unocal 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's working capital increased from ($115,000) at December 31, 1995 to ($29,000) at March 31, 1996. This improvement in working capital is attributable to profitable operations during the first quarter of 1996. Incat has had an annual revolving working capital credit facility with a financial institution since 1988, collateralized by its accounts receivable and other intangible property. The maximum amount which may be outstanding from time to time under the line is currently $1,450,000 and the line expires on July 31, 1996. At March 31, 1996 there was a $1,101,000 balance outstanding on this line-of-credit. Net worth increased from $841,000 at December 31, 1996 to $1,004,000 at March 31, 1996. The $163,000 increase in net worth is due to net income of $177,000 for the three months ended March 31, 1996, reduced by $14,000 in dividends declared on preferred stock for the period. In the previous years, the Company financed capital equipment expenditures through a $2,100,000 loan with a financial institution. The current balance outstanding on this loan is approximately $1,432,000. The loan is to be repaid in monthly installments of $46,000 with all unpaid interest and principal due December 31, 1997. The Company currently has no commitments to purchase any additional equipment and the capital equipment loan referred to above has no availability currently for future capital expenditures. The Company's available borrowings under its existing credit facility, existing cash and internally generated funds should be sufficient to meet the current ongoing requirements of the operations of the Company. RESULTS OF OPERATIONS Service revenues for the three months ended March 31, 1996 and 1995 were $5,034,000 and $3,757,000, respectively. The increase in service revenues of $1,277,000 from 1996 to 1995 is attributable to both the rescheduling of 1995 work into the first quarter of 1996 and work subcontracted to sister companies on two large projects. Approximately $3,190,000 of 1996 service revenues was work originally scheduled to be performed during 1995. The rescheduling of 1995 work by the customer into the first quarter of 1996 is believed to have cost the Company at least $850,000 in lost revenue opportunities due to the Company operating at full capacity and unable to commit and perform additional work in the quarter ended March 31, 1996. 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 74% and 64% for the quarters ended March 31, 1996 and 1995, respectively. Excluding subcontractor pass-through revenues of $1,068,000 and $505,000, respectively, service costs as a percentage of service revenues were approximately 68% for the quarter ended March 31, 1996 and 59% for the quarter ended March 31, 1995. Subcontractor costs are normally passed-through with an administrative charge of 0-10%. The net increase in the cost of services as a percentage of service revenues is attributable to an increase in direct costs. In slow periods, the Company will bid work at lower gross profit margins to utilize its work force. In the fourth quarter of 1995, the Company bid work at lower profit margins because it had available manpower. When the 1995 work was rescheduled by customers into 1996, the Company did not have available manpower. As a result, the major factor contributing to the increase in direct costs was lack of available manpower, the hiring of contract laborers at rates in excess of pay rates for Company employees to perform the the low margin work and associated overtime, travel and per diem costs. Management does not believe the lower margins incurred in the first quarter of 1996 are indicative of margins expected for the remainder of the year. To prevent future shifting of low margin work into peak periods, management has changed its contract terms and conditions. A $17,000 decrease in selling, general and administrative (SG&A) costs, for the three month period ended March 31, 1996 as compared to the same period in 1995 is due primarily to reduced administrative costs. Management continues to focus efforts on controlling SG&A costs. Depreciation and amortization expense decreased for the three months ended March 31, 1996 as compared to the corresponding period in the previous year due to some equipment being fully depreciated. The Company's net income for the three months ended March 31, 1996 was $177,000 as compared to net income of $209,000 for the three months ended March 31, 1995. Overall net income decreased due to an increase in direct costs. Management does not believe the increase in direct costs (exclusive of subcontractor pass-through work) is indicative of the Company's future direct costs or its impact on operating results. The Company will continue to be affected by general economic conditions including fluctuations in interest rates and international economic conditions. Service revenues are subject to significant quarterly fluctuations, affected primarily by the timing of planned shutdowns at its customers' facilities. Fiscal 1996 is expected to be a challenging year for the Company; however, management anticipates revenues and profits to exceed prior fiscal year results. 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, 1996 BY: /s/Alfred O. Breher Alfred O. Brehmer, Director, Secretary and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31, 1996 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 155,000 0 3,801,000 40,000 0 4,611,000 4,272,000 2,763,000 7,113,000 4,640,000 1,432,000 211,000 0 53,000 949,000 7,113,000 5,034,000 5,034,000 3,739,000 3,739,000 826,000 0 67,000 402,000 225,000 177,000 0 0 0 177,000 0 0
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