-----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, LL/r//ZMkATyRQQWY9I9hk+mfYXcJ3QVzYqYzZYcJFPIJYCxwvNkP4d2uNLRQXOf vKsGqvNXvDMmoli17w/nvQ== 0000796960-96-000010.txt : 19960814 0000796960-96-000010.hdr.sgml : 19960814 ACCESSION NUMBER: 0000796960-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD 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: 96610962 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 June 30, 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 No.) incorporation or organization) 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) No 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. In July 1996, the Statement of Change in Beneficial Ownership of Securities on Form 4 of Industrial Services Technologies, Inc. was filed late. 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 June 30, 1996 Common stock, $.0001 par value 531,667,515 shares Form 10-Q 2nd Quarter INDEX PART I - FINANCIAL INFORMATION * ITEM 1. Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 Condensed Consolidated Statements of Operations - For the Three Months and Six Months Ended June 30, 1996 and 1995 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 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 June 30, December 31, 1996 1995 CURRENT ASSETS: Cash and cash equivalents $ 213,000 $ 186,000 Trade accounts receivable, net of allowance for doubtful accounts of $40,000 2,035,000 1,622,000 Unbilled trade receivables 55,000 17,000 Prepaid and other current assets 515,000 428,000 Income tax receivable, net 113,000 201,000 Total current assets 2,931,000 2,454,000 PROPERTY, PLANT AND EQUIPMENT: Equipment 3,509,000 3,453,000 Furniture and fixtures 366,000 352,000 Transportation equipment 391,000 391,000 4,266,000 4,196,000 Accumulated depreciation (2,867,000) (2,658,000) 1,399,000 1,538,000 INTANGIBLES AND OTHER ASSETS: Goodwill and other intangibles, net of accumulated amortization of $561,000 and $549,000 979,000 1,001,000 Other 8,000 3,000 Total Assets $ 5,317,000 $ 4,996,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade $ 1,067,000 $ 904,000 Revolving loans 951,000 725,000 Current portion of long term debt- Financial institutions 339,000 348,000 Related parties 1,000 1,000 Accrued expenses and other liabilities 749,000 591,000 Income taxes payable 12,000 - Total current liabilities 3,119,000 2,569,000 LONG-TERM DEBT: Financial institutions 1,006,000 1,171,000 DEFERRED INCOME TAXES 175,000 178,000 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 176,000 237,000 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 238,000 238,000 Total stockholders' equity 841,000 841,000 Total liabilities and stockholders' equity 5,317,000 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 JUNE 30, 1996 1995 SERVICE REVENUES $2,264,000 $2,391,000 COSTS AND EXPENSES: Service costs and expenses 1,610,000 1,741,000 Selling, general & administrative 725,000 685,000 Management fees, related party 36,000 24,000 Interest 115,000 125,000 Retrospective insurance adjustment (80,000) - 2,475,000 2,627,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (211,000) (236,000) INCOME TAX BENEFIT (EXPENSE) 62,000 98,000 NET INCOME (LOSS) (149,000) (138,000) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (163,000) $ (153,000) NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ * $ * WEIGHTED AVERAGE SHARES OUTSTANDING 531,668,000 531,668,000 - ------------------------- * Less than $.0001 per share. The accompanying notes are an integral part of these financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995 SERVICE REVENUES $7,298,000 $6,148,000 COSTS AND EXPENSES: Service costs and expenses 5,349,000 4,142,000 Selling, general & administrative 1,414,000 1,376,000 Management fees, related party 72,000 48,000 Interest 136,000 117,000 Depreciation and amortization 231,000 269,000 Retrospective insurance adjustment (80,000) - 7,122,000 5,952,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 176,000 196,000 INCOME TAX BENEFIT (EXPENSE) (148,000) (125,000) NET INCOME (LOSS) 28,000 71,000 NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ - $ 36,000 NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ * $ * WEIGHTED AVERAGE SHARES OUTSTANDING 531,668,000 531,668,000 - -------------- * Less than $.0001 per share. The accompanying notes are an integral part of these financial statements.
ADVANCED ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 28,000 $ 71,000 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 231,000 270,000 Deferred income taxes (3,000) 21,000 Decrease (increase) in- Trade accounts receivable (413,000) 1,267,000 Unbilled trade receivables (38,000) 145,000 Prepaids and other assets (87,000) (33,000) Income tax receivable 88,000 - Increase (Decrease) in- Accounts payable 163,000 (610,000) Accrued expenses 158,000 (205,000) Income taxes payable 12,000 92,000 Net cash provided by (used in) operating activities 139,000 1,018,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (70,000) (336,000) Other (5,000) (3,000) Net cash used in investing activities (75,000) (339,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit 7,290,000 650,000 Repayments of lines of credit (7,064,000) (1,349,000) Proceeds from issuance of long-term debt - 403,000 Repayments of notes payable (174,000) (185,000) Redemption of Series A preferred stock (61,000) (50,000) Dividends declared (28,000) (35,000) Net cash provided by (used in) financing activities (37,000) (566,000) INCREASE IN CASH AND CASH EQUIVALENTS 27,000 113,000 CASH AND CASH EQUIVALENTS, beginning of period 186,000 126,000 CASH AND CASH EQUIVALENTS, end of period $ 213,000 $ 239,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ - $ 203,000 Cash paid for interest $ 139,000 $ 155,000 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 June 30, 1996, the results of its operations for the three month and six month periods ended June 30, 1996 and its cash flows for the six month period ended June 30, 1996. Operating results for the three and six month periods ended June 30, 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 ("EEOC") by a temporary employee of the Company for claims of sexual harassment. In May 1996, the EEOC concluded that there had been no violation of applicable statues and issued a Dismissal and Notice of Rights which provides that unless the claimant pursues the matter within 90 days, the claimant will have no further rights to sue. The Company also previously reported that during 1995, an individual allegedly sustained injuries while providing services at a refinery. This matter has been settled. In addition, the Company also previously reported that (a) the Company's general liability carrier is defending litigation pursuant to an indemnification given by the Company regarding claims for damages in respect of injuries alleged to have occurred at a refining facility and (b) demand has also been made on the Company 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 general liability insurer has not responded to the demand in the latter matter. The Company believes that, to the extent it may have any liability with respect to the claims described in 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 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 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's working capital decreased from ($115,000) at December 31, 1995 to ($188,000) at June 30, 1996. This decrease in working capital is primarily attributable to operating losses during the second quarter of 1996. Incat has had a 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 $1,400,000. On July 31, 1996, the revolving working capital credit facility was renewed until April, 1997. At June 30, 1996 there was a $951,000 balance outstanding on this line-of-credit. Net worth was $841,000 at December 31, 1995 and at June 30, 1996. No change in net worth is due to net income of $28,000 for the six months ended June 30, 1996, reduced by $28,000 in dividends declared on preferred stock for the period. In 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 $1,303,000 and there is no further availability. 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 additional equipment. The Company's available borrowings under its existing working capital 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 June 30, 1996 of $2,264,000 are comparable with revenues for the three months ended June 30, 1995 of $2,391,000. For the six months ended June 30, 1996, service revenues of $7,298,000 increased by $1,150,000 from the six months ended June 30, 1995 service revenues of $6,148,000. The increase is mainly attributable to rescheduling of 1995 work and work subcontracted to sister companies on two large projects in the first quarter of 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 71% for the quarter ended June 30, 1996 and 73% for the quarter ended June 30, 1995. For the six months ended June 30, 1996, cost of services as a percentage of service revenues was 73% as compared to 67% for the six months ended June 30, 1995. Excluding subcontractor pass-through revenues of $1,074,000 and $585,000 for the six months ended June 30, 1996 and 1995, respectively, service costs as a percentage of service revenues were 69% and 64%, respectively. 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 services revenues is attributable to an increase in direct costs in the first quarter. The major factor contributing to the increase in direct costs in the first quarter was lack of available manpower, the hiring of contract laborers at rates in excess of pay rates for Company employees to perform the low gross margin work and associated overtime, travel and per diem costs. A $40,000 increase in selling, general and administrative (SG&A) costs, for the three month period ended June 30, 1996 as compared to the same period in 1995 is due primarily to adding an additional sales person in the Southwestern Region. The Southwestern Region has been expanded and will now oversee the sales and operations of the Southern Region, which the Company closed down in May, 1996. Cost reduction from the closure will not be realized until the third quarter. Depreciation and amortization expense decreased for the three and six month periods ended June 30, 1996 as compared to the corresponding periods in the previous year due to some equipment being fully depreciated. Income tax expenses in 1996 are impacted by foreign taxes primarily incurred on contracts performed in Indonesia and Venezuela. Foreign taxes were $60,000 for the six months ended June 30, 1996. There were no corresponding foreign taxes in the same period in the previous year. The Company's net loss for the three months ended June 30, 1996 was $149,000 as compared to net loss of $138,000 for the three months ended June 30, 1995. The Company had a net income of $28,000 for the six months ended June 30, 1996 as compared to net income of $71,000 for the six months ended June 30, 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-though work) is indicative of the Company's future direct costs or its impact on operating results. Fiscal 1996 is expected to be a challenging year for the Company. Although management anticipates revenues and profits to exceed prior fiscal year results, there can be no assurance that such revenues and profits will be realized. Service revenues will continue to be subject to significant quarterly fluctuations, affected primarily by the timing of planned shutdowns at its customers' facilities. The Company will continue to be affected by general economic conditions, international economic conditions and conditions which affect the industry and region such as labor costs, insurance costs and competition. 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: August 13, 1996 BY: /s/ J. Daniel Bell J. Daniel Bell, President, Director EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30, 1996 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 213,000 0 2,075,000 40,000 0 2,931,000 4,266,000 (2,867,000) 5,317,000 3,119,000 1,345,000 178,000 0 53,000 786,000 5,317,000 7,298,000 7,298,000 5,349,000 5,349,000 1,637,000 0 136,000 176,000 148,000 28,000 0 0 0 28,000 0 0
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