-----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, A0j4FVoAnjwjdE7Quew5k4op6vA6rIXIt/3VG/D++wk1gGTTdRZPIkIW5tRAZ9hw ZikdLH06WEGQp0lcloi8Ow== 0000796960-97-000011.txt : 19971118 0000796960-97-000011.hdr.sgml : 19971118 ACCESSION NUMBER: 0000796960-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971117 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: SEC FILE NUMBER: 000-19013 FILM NUMBER: 97722407 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 September 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 November 7, 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 - September 30, 1997 and December 31, 1996 Condensed Consolidated Statements of Operations - For the Three Months and Nine Months Ended September 30, 1997 and 1996 Condensed Consolidated Statements of Cash Flows - For the Nine Months Ended September 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 September 30, December 31, 1997 1996 CURRENT ASSETS: Cash and cash equivalents 426,000 $ 151,000 Trade accounts receivable, net of allowance for doubtful accounts of $40,000 2,237,000 1,339,000 Unbilled trade receivable 48,000 203,000 Income tax receivable, net - 488,000 Deferred tax asset 114,000 404,000 Asset held for sale - 157,000 Prepaid and other current assets 135,000 62,000 Total current assets $2,960,000 $2,804,000 PROPERTY, PLANT AND EQUIPMENT: Equipment 3,249,000 2,992,000 Furniture and fixtures 344,000 313,000 Transportation equipment 391,000 391,000 3,984,000 3,696,000 Accumulated depreciation (2,804,000) (2,517,000) 1,180,000 1,179,000 INTANGIBLES AND OTHER ASSETS: Goodwill and other intangibles, net of accumulated amortization of $623,000 and $592,000 927,000 958,000 Other 41,000 50,000 968,000 1,008,000 Total assets 5,108,000 $ 4,991,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable, trade 1,190,000 1,304,000 Revolving loans - 519,000 Current portion of long term debt - Financial institutions 251,000 184,000 Related parties - 425,000 Income taxes payable 254,000 - Accrued expenses and other liabilities 602,000 622,000 Total current liabilities 2,297,000 3,054,000 LONG-TERM DEBT: Financial institutions 804,000 982,000 DEFERRED INCOME TAXES 194,000 161,000 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) 1,048,000 (4,000) Total stockholders' equity 1,745,000 693,000 Total liabilities and stockholders' equity 5,108,000 $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 SEPTEMBER 30, 1997 1996 SERVICE REVENUES $3,548,000 $1,632,000 COSTS AND EXPENSES: Service costs and expenses 2,624,000 1,536,000 Selling, general & administrative 544,000 679,000 Management fees, related party 51,000 38,000 Interest 67,000 59,000 Depreciation and amortization 105,000 113,000 Other (income) and expenses, net (17,000) (158,000) 3,374,000 2,267,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 174,000 (635,000) INCOME TAX EXPENSE (BENEFIT) 12,000 (451,000) NET INCOME (LOSS) 162,000 (184,000) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 152,000 $ (198,000) NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0003 $ (.0004) WEIGHTED AVERAGE SHARES OUTSTANDING $531,668,000 $531,668,000 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 SERVICE REVENUES $11,278,000 $8,930,000 COSTS AND EXPENSES: Service costs and expenses 7,399,000 6,885,000 Selling, general & administrative 1,749,000 2,093,000 Management fees, related party 135,000 110,000 Interest 203,000 195,000 Depreciation and amortization 330,000 344,000 Other (income) and expense, net (377,000) (238,000) 9,439,000 9,389,000 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 1,839,000 (459,000) INCOME TAX EXPENSE (BENEFIT) 756,000 (303,000) NET INCOME (LOSS) 1,083,000 (156,000) NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 1,052,000 $ (198,000) NET INCOME (LOSS) PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ .0020 $ (.0004) WEIGHTED AVERAGE SHARES OUTSTANDING 531,668,000 531,668,000 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 NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 CASH FLOWS FORM OPERATING ACTIVITIES: Net income (loss) $ 1,083,000 $ (156,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities - Depreciation and amortization 330,000 344,000 Net Gain on sale of equipment (360,000) - Deferred income taxes 323,000 (9,000) Decrease (increase) in - Trade accounts receivable (898,000) 31,000 Unbilled trade receivables 155,000 (95,000) Prepaids and other assets (79,000) 134,000 Income tax receivables 488,000 (273,000) Increase (decrease) in - Accounts payable (114,000) 299,000 Accrued expenses (20,000) 148,000 Income taxes payable 254,000 - Net cash provided by operating activities 1,162,000 423,000 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (268,000) (199,000) Proceeds from sale of equipment 500,000 - Other - (5,000) Net cash provided by (used in) investing activities 232,000 (204,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving lines of credit 7,103,000 9,515,000 Repayments of lines of credit (7,622,000) (9,409,000) Proceeds from issuance of long-term debt 94,000 - Repayments of notes payable (630,000) (260,000) Redemption of Series A preferred stock (33,000) (89,000) Deferred financing costs - (28,000) Dividends declared (31,000) (42,000) Net cash used in financing activities (1,119,000) (313,000) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 275,000 (94,000) CASH AND CASH EQUIVALENTS, beginning of period 151,000 186,000 CASH AND CASH EQUIVALENTS, end of period $ 426,000 $ 92,000 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ 190,000 $ - Cash paid for interest $ 187,000 $ 221,000 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 September 30, 1997, the results of its operations for the three month and nine month periods ended September 30, 1997 and its cash flows for the nine month period ended September 30, 1997. Operating results for the three and nine month periods ended September 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. RECLASSIFICATIONS Certain reclassifications have been made in the prior period's consolidated financial statements in order to conform with the current period presentation. 3. CONTINGENCIES The Company believes that, to the extent it may have any liability with respect to any claims, 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 various 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 $663,000 at September 30, 1997 as compared to a deficiency of $250,000 in working capital at December 31, 1996 due to profitable operations during the nine months ended September 30, 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 May 31, 1998. 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 $1,400,000. At September 30, 1997, there was no amount outstanding on this line-of-credit. Net worth increased from $693,000 at December 31, 1996 to $1,745,000 at September 30, 1997. The $1,052,000 increase in net worth is due to net income of $1,083,000, reduced by $31,000 in dividends declared on Series A and B preferred stock for the nine months ended September 30, 1997. The Company currently has commitments of $55,000 to purchase additional equipment and anticipates purchasing the additional equipment with available working capital. Management believes that its liquidity requirements can be funded through cash generated from profitable operations and utilization of its revolving working capital credit facility as discussed above. RESULTS OF OPERATIONS Service revenues for the three months ended September 30, 1997 and 1996 were $3,548,000 and $1,632,000, respectively. Excluding the impact of subcontractor pass-through revenues of $1,048,000 for the quarter ended September 30, 1997 and $ -0- for the quarter ended September 30, 1996, the increase in service revenue for the quarter was $868,000, a 53% increase from prior year's third quarter revenues. The increase is primarily attributable to an unplanned turnaround project with revenues of approximately $1,137,000 at a gulf coast chemical plant. Excluding the impact of subcontractor pass-through revenues of $1,604,000 for the nine months ended September 30, 1997 and $1,074,000 for the nine months ended September 30, 1996, Service revenues increased by $1,818,000. The increase is mainly attributable to an increase in the volume of services being performed in the second and third quarter of 1997 due to an unusually strong demand for catalyst services and performance of the aforementioned unplanned project which normally should not have been scheduled for at least another 8 to 10 years. Cost of services as a percentage of service revenues was 74% for the quarter ended September 30, 1997 and 94% for the quarter ended September 30, 1996. Excluding the subcontractor revenue mentioned above, cost of services as a percentage of service revenues was 65% for the quarter ended September 30, 1997 and 93% for the quarter ended September 30, 1996. The significant decrease in cost of services as a percentage of service revenue for the third quarter is attributable to both a decrease in indirect cost and direct costs. The decrease in indirect costs as a percentage of revenues is mainly attributable to an increase in revenue. A decrease in direct costs as a percentage of service revenues is attributable to work performed at higher margins on an unplanned turnaround job. For the nine months ended September 30, 1997, cost of services as a percentage of service revenues was 66% as compared to 77% for the nine months ended September 30, 1996. The net decrease in the cost of services as a percentage of services revenues is attributable to a decrease in direct costs and an increase in revenues. The major factors contributing to the decrease in direct costs is the Company's ability to perform work in 1997 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. Selling costs increased $5,000 for the three months ended September 30, 1997 as compared to the same period in 1996. For the nine months ended September 30, 1997, selling costs increased $85,000 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 $140,000 for the three months ended September 30, 1997 as compared to the same period in 1996. For the nine months ended September 30, 1997, general and administrative costs decreased $429,000 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 nine month periods ended September 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 September 30, 1997 was $162,000 as compared to net loss of $184,000 for the three months ended September 30, 1996. Excluding the effect of the unplanned project discussed above, third quarter results would have been comparable to the 1996 third quarter loss of $184,000. For the nine months ended September 30, 1997, the Company had net income of $1,083,000 including a $360,000 gain on the sale of certain assts as compared to net loss of $156,000 for the nine months ended September 30, 1996. Overall net income increased due to an increase in revenues, an increase in gross profit margins, a decrease in general and administrative costs, a $360,000 gain on the sale of certain assets and the unexpected impact of the unplanned turnaround project. The Company will continue to be affected by general economic conditions including fluctuations in interest rates, national and international economic conditions such as volatility in the Asian financial market and world events such as continued peace in the Middle East. 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 1997 will not be indicative of the range of margins expected for the remainder of the year due to the lower volume of revenue anticipated in the fourth quarter. Based on the nine months ended September 30, 1997, fiscal 1997 is expected to be stronger than fiscal year 1996 with revenues and profits exceeding last year's results. During the first quarter of 1997, the Company experienced a shift in revenues from the fourth quarter of 1996. The shift in revenues contributed to the positive operating results for the three months ended March 31, 1997 and the nine months ended September 30, 1997. Currently, the Company has not experienced a significant shift in revenues from customers rescheduling work from 1997 to 1998. Presently, the Company does not anticipate revenues for the first quarter of 1998 to be comparable to the first quarter of 1997. Accordingly, there are no assurances that the Company will be able to sustain its strong operating results due to the volatile nature of the customers demand for catalyst handling services and timing of petroleum and petrochemical/chemical facilities shutdowns. 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 retain and utilize its full time employees and keep direct labor costs down, (2) loss, retirement or change in key management, (3) ability to contain general and administrative cost structure, (4) continued strong demand for the Company's services, and (5) pricing pressures which could effect the Company's gross margins. 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: November 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 SEPTEMBER 30, 1997 UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 426,000 0 2,277,000 40,000 0 2,960,000 3,984,000 2,804,000 5,108,000 2,297,000 1,055,000 4,000 0 53,000 1,688,000 5,108,000 11,278,000 11,278,000 7,399,000 7,399,000 1,837,000 0 203,000 1,839,000 756,000 1,083,000 0 0 0 1,083,000 0 0
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