-----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, JI6CfTnqBSQCnxOY+N32gq0ZVcnYSNoprjyzbp7OzJOd9UtRRBLPN9x9vl75WGJi RrTeq2WJLMAQy20L903ZSg== 0000796960-97-000008.txt : 19970815 0000796960-97-000008.hdr.sgml : 19970815 ACCESSION NUMBER: 0000796960-97-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97661660 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, 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 June 30, 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 - June 30, 1997 and December 31, 1996 Condensed Consolidated Statements of Operations - For the Three Months and Six Months Ended June 30, 1997 and 1996 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 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 June 30, December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents 680,000 $ 151,000 Trade accounts receivable, net of allowance for doubtful accounts of $40,000 2,677,000 1,339,000 Unbilled trade receivable 40,000 203,000 Prepaid expenses 97,000 62,000 Income tax receivable, net - 488,000 Deferred tax asset 131,000 404,000 Asset held for sale - 157,000 Total current assets $3,625,000 $2,804,000 PROPERTY, PLANT AND EQUIPMENT: Equipment 3,179,000 2,992,000 Furniture and fixtures 344,000 313,000 Transportation equipment 391,000 391,000 3,914,000 3,696,000 Accumulated depreciation (2,715,000) (2,517,000) 1,199,000 1,179,000 INTANGIBLES AND OTHER ASSETS: Goodwill and other intangibles, net of accumulated amortization of $613,000 and $592,000 937,000 958,000 Other 51,000 50,000 988,000 1,008,000 Total assets 5,812,000 $ 4,991,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade 588,000 1,304,000 Revolving loans 1,363,000 519,000 Current portion of long term debt - Financial institutions 235,000 184,000 Related parties - 425,000 Accrued expenses and other liabilities 484,000 690,000 Income taxes payable 382,000 - Total current liabilities 3,052,000 3,122,000 LONG-TERM DEBT: Financial institutions 863,000 982,000 DEFERRED INCOME TAXES 161,000 161,000 OTHER LONG TERM LIABILITIES 143,000 - 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) 896,000 (4,000) Total stockholders' equity 1,593,000 693,000 Total liabilities and stockholders' equity 5,812,000 $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 JUNE 30, 1997 1996 SERVICE REVENUES $3,052,000 $2,264,000 COSTS AND EXPENSES: Service costs and expenses 1,981,000 1,610,000 Selling, general and administrative 619,000 725,000 Management fees, related party 42,000 36,000 Interest 82,000 69,000 Depreciation and amortization 110,000 115,000 Other (income) and expenses, net (360,000) (80,000) 2,474,000 2,475,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE 578,000 (211,000) INCOME TAX (EXPENSE) BENEFIT (249,000) 62,000 NET INCOME (LOSS) 329,000 (149,000) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 319,000 $ (163,000) NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0006 $ (.0003) WEIGHTED AVERAGE SHARES OUTSTANDING $531,668,000 $531,668,000 FOR THE SIX MONTHS ENDED JUNE 30, 1997 1996 SERVICE REVENUES $7,730,000 $7,298,000 COSTS AND EXPENSES: Service costs and expenses 4,775,000 5,349,000 Selling, general and administrative 1,205,000 1,414,000 Management fees, related party 84,000 72,000 Interest 136,000 136,000 Depreciation and amortization 225,000 231,000 Other (income) and expenses, net (360,000) (80,000) 6,065,000 7,122,000 INCOME BEFORE INCOME TAX EXPENSE 1,665,000 176,000 INCOME TAX EXPENSE (744,000) (148,000) NET INCOME 921,000 28,000 NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 900,000 $ - NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0016 $ * 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,
1997 1996 CASH FLOWS FORM OPERATING ACTIVITIES: Net income $ 921,000 $ 28,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation and amortization 225,000 231,000 Net Gain on sale of equipment (360,000) - Deferred income taxes 273,000 (3,000) Decrease (increase) in - Trade accounts receivable (1,338,000) (413,000) Unbilled trade receivables 163,000 (38,000) Prepaids and other assets (34,000) (87,000) Income tax receivables 488,000 88,000 Increase (decrease) in - Accounts payable (716,000) 163,000 Accrued expenses (63,000) 158,000 Income taxes payable 382,000 12,000 Net cash provided by (used in) operating activities (59,000) 139,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (205,000) (70,000) Proceeds from sale of equipment 500,000 - Other - (5,000) Net cash provided by (used in) investing activities 295,000 (75,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit 5,904,000 7,290,000 Repayments of lines of credit (5,060,000) (7,064,000) Proceeds from issuance of long-term debt 94,000 - Repayments of notes payable (587,000) (174,000) Redemption of Series A preferred stock (37,000) (61,000) Dividends declared (21,000) (28,000) Net cash provided by (used in) financing activities 293,000 (37,000) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 529,000 27,000 CASH AND CASH EQUIVALENTS, beginning of period 151,000 186,000 CASH AND CASH EQUIVALENTS, end of period $ 680,000 $ 213,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ 100,000 $ - Cash paid for interest $ 145,000 $ 139,000 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, 1997, the results of its operations for the three month and six month periods ended June 30, 1997 and its cash flows for the six month period ended June 30, 1997. Operating results for the three and six month periods ended June 30, 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 indemnify. 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. As there has been no recent activity regarding this matter, the Company's insurer has placed the claim on an inactive status. 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 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 believes its $165,000 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 working capital of $573,000 at June 30, 1997 as compared to a deficiency of $318,000 in working capital at December 31, 1996 due to profitable operations during first and second quarters of 1997 and receipt of $500,000 from the sale of certain assets. Incat has had a revolving working capital credit facility with a financial institution which expires on September 30, 1997. The credit facility is collateralized by Incat's accounts receivable. The maximum amount which currently may be outstanding from time to time under the line is $1,600,000 through June 30, 1997 and $1,400,000 through September 30, 1997. At June 30, 1997 there was a $1,363,000 balance outstanding on this line-of-credit. Net worth increased from $693,000 at December 31, 1996 to $1,593,000 at June 30, 1997. The $900,000 increase in net worth is due to net income of $921,000, reduced by $21,000 in dividends declared on Series A and B preferred stock for the six months ended June 30, 1997. The Company currently has no commitments to purchase additional equipment. However, the Company anticipates purchasing additional equipment with available working capital. The Company's available borrowings under its existing working capital credit facility, cash generated from the sale of certain assets and from profitable operations, combined with reduced debt payments resulting from an amendment to the term loan and reduced tax payments from utilization of the Company's tax net operating losses for its tax year ended March 31, 1997 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. RESULTS OF OPERATIONS Service revenues for the three months ended June 30, 1997 and 1996 were $3,052,000 and $2,264,000, respectively. Service revenues increased to $7,730,000 for the six months ended June 30, 1997 over the $7,298,000 amount in the comparable period in 1996. The increase is mainly attributable to an increase in the volume of services being performed in the second quarter of 1997 due to an unusually strong catalyst handling and refinery maintenance market. Sub-contractor revenues were not significant in the second quarter of 1997. A significant percentage of the Company's sales are generated through reputation and referrals. Management continues to emphasize its sales and marketing programs in an effort to expand the Company's customer base. Cost of services as a percentage of service revenues was 65% for the quarter ended June 30, 1997 and 71% for the quarter ended June 30, 1996. For the six months ended June 30, 1997, cost of services as a percentage of service revenues was 62% as compared to 73% for the six months ended June 30, 1996. The net decrease in the cost of services as a percentage of services revenues is mainly attributable to a decrease in direct costs. The major factors contributing to the decrease in direct costs was the Company's ability to perform work in the first and second quarters at higher margins than in 1996 and due to the Company's ability to staff projects in the first quarter from internal resources as compared to the Company's need to staff projects with external manpower in 1996. The increased margins in the second quarter is attributable to the Company performing a major turnaround project and some emergency catalyst work at higher rates than work performed in the second quarter of 1996. Indirect costs decreased $20,000 for the three months ended June 30, 1997 as compared to the same period in 1996. The decrease is attributable to the Company's closure of two regional offices in 1996 and consolidation of operations in 1997. However, indirect costs as a percentage of revenue decreased 9% as compared to the three months ended June 30, 1996. The decrease in indirect costs as a percentage of revenue is mainly attributable to an increase in revenue. For the six months ended June 30, 1997, indirect costs as a percentage of revenue is comparable to the same period in 1996. Selling costs increased $44,000 for the three months ended June 30, 1997 as compared to the same period in 1996. For the six months ended June 30, 1997, selling costs increased $80,000 as compared to the same period in 1996. The increase is attributable to the Company increasing its sales force and sales effort. The increase in selling costs is expected to continue through the remainder of the year. General and administrative costs decreased $150,000 for the three months ended June 30, 1997 as compared to the same period in 1996. For the six months ended June 30, 1997 general and administrative costs decreased $289,000 as compared to the same period in 1996. The decrease is attributable to the Company's closure of two regional offices in 1996 and consolidation and reorganization of operations in 1997. Depreciation and amortization expense decreased for the three and six month periods ended June 30, 1997 as compared to the corresponding periods in the previous year due to some equipment being fully depreciated. The Company's net income for the three months ended June 30, 1997 was $329,000 as compared to net loss of $149,000 for the three months ended June 30, 1996. The Company had net income of $921,000 for the six months ended June 30, 1997 as compared to net income of $28,000 for the six months ended June 30, 1996. Overall net income increased due to an increase in revenues, an increase in gross profit margins and a $360,000 gain on the sale of certain assets. The Company will continue to be affected by general economic conditions including fluctuations in interest rates and national 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 believe the margins incurred in the first and second quarters of 1997 are generally indicative of the range of margins expected for the remainder of the year. Fiscal 1997 is expected to be stronger than fiscal year 1996 with revenues and profits exceeding last year's results. However, there are no assurances that the Company will not incur additional operating losses or be able to achieve its 1997 operating plan. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for certain forward-looking statements. This quarterly report contains statements that are forward-looking. While these statements reflect the Company's beliefs as of the date of this report, they are subject to assumptions, uncertainties and risks that could cause actual results to differ materially and adversely from the results contemplated, forecast or estimated in the forward-looking statements included in this report. These factors include, but are not limited to, the following: (1) the ability of the Company to continue to retain and utilize its full time employees and keep direct labor costs down, (2) Control Selling, general and administrative costs, (3) Continued strong sales volume, and (4) successful renewal of the Company's line-of-credit which expires in September 1997. 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 14, 1997 BY: /s/Gary L. Schmitt Gary L. Schmitt, V. President, Director 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. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 680,000 0 2,717,000 40,000 0 3,625,000 3,914,000 2,715,000 5,812,000 3,052,000 1,098,000 4,000 0 53,000 1,536,000 5,812,000 7,730,000 7,730,000 4,775,000 4,775,000 1,154,000 0 136,000 1,665,000 744,000 921,000 0 0 0 921,000 0 0
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