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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
Commission File Number 0-21613
ECOMAT, INC.
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<CAPTION>
Delaware 133865026
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
147 Palmer Avenue Mamaroneck, NY 10543
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(Address of principal executive offices) (Zip Code)
(914) 777-3600
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(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes [ ] No [X]
The number of shares outstanding of the Issuer's Common Stock, par value
$.0001 per share, as of September 30, 1998 was 3,606,800.
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ECOMAT, INC.
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheets
September 30, 1998 (unaudited) and December 31, 1997 1
Condensed Consolidated Statements of Operation
Three Months Ended September 30, 1998 and 1997 (unaudited) 2
Condensed Consolidated Statements of Operation
Nine Months Ended September 30, 1998 and 1997 (unaudited) 3
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 (unaudited) 4
Notes to Condensed Consolidated Financial
Statements 5-6
Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-8
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ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Assets
------- (Unaudited)
Current Assets 9/30/98 12/31/97
- -------------- ------------ ----------
<S> <C> <C>
Cash and cash equivalents $ 68,781 $ 377,764
Investments 415,055
Accounts Receivable, net of allowances of $8,833 and $3,386 70,821 31,478
Franchise fees receivable 9,813 15,360
Notes Receivable, net of allowances of $48,714 and $0 0 8,079
Prepaid expenses 27,605 62,430
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Total current assets $ 177,020 $ 910,166
Property and equipment, net $ 616,470 $1,068,084
Franchise fees receivable 286,969 282,240
Notes Receivable, net of allowances of $85,000 and $0 85,000 188,120
Other assets 134,348 134,980
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Total Assets $1,299,807 $2,583,590
=============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
- -------------------
Notes payable, current portion $1,840,762 $ 663,341
Accounts payable and accrued expenses 375,204 696,756
Prepaid laundry revenue 12,000 12,000
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Total current liabilities $2,227,966 $1,372,097
Notes payable, net of current portion $ 20,072 $ 202,385
Deferred rent payable 204,756 204,756
Deferred franchise revenue 605,256 609,006
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Total liabilities $3,058,050 $2,388,244
Commitments and contingency
Stockholders' equity
Preferred stock, $.0001 par value; authorized 1,000,000 shares;
no shares issued and outstanding
Common stock, $.0001 par value; authorized, 25,000,000 shares;
issued and outstanding, 3,609,661 and 3,600,000 shares $ 361 $ 361
Additional paid-in capital 6,404,377 6,404,377
Accumulated deficit (8,162,981) (6,209,392)
--------------- ---------------
Total stockholders' equity ($1,758,243) $ 195,346
--------------- ---------------
Total liabilities and stockholders' equity $1,299,807 $2,583,590
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
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ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
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<S> <C> <C>
Revenues
Cleaning and laundry services $ 42,493 $126,820
Franchise revenue $0 0
Royalty revenue $ 9,939 1,679
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Total revenue $ 52,432 $128,499
Costs and expenses
Facilities operating costs
Compensation $ 72,913 $102,419
Advertising and promotion $ 2,104 6,943
Supplies $ 11,430 11,026
Rent $ 42,857 59,047
Utilities $ 15,567 24,270
Other $ 49,722 100,157
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$194,593 $303,862
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Advertising and promotion-franchise sales $ 1,500 $107,572
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General and administrative expenses
Compensation $ 83,236 $139,538
Rent $ 24,447 17,428
Professional and consulting fees $158,481 61,558
Other $197,663 89,092
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$463,827 $307,616
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Depreciation and amortization $ 63,394 $ 58,544
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Total costs and expenses $723,314 $777,594
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Loss on disposition of assets $206,664 $0
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Operating loss ($877,546) ($649,095)
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Other income (expense)
Other income $ 395 $ 22,338
Interest expense ($9,218) (4,851)
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($8,823) $ 17,487
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Loss before provision for income taxes ($886,369) ($631,608)
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Income taxes $ 0
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Net loss ($886,369) ($631,608)
========== ==========
Net loss per share ($0.25) ($0.18)
======= =======
Weighted average shares outstanding 3,606,800 3,603,125
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months Ended September 30,
1998 1997
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<S> <C> <C>
Revenues
Cleaning and laundry services $ 190,089 $354,690
Franchise revenue 10,047 111,818
Royalty revenue 19,087 1,679
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Total revenue $ 219,223 $ 468,187
Costs and expenses
Facilities operating costs
Compensation $ 228,065 $ 293,119
Advertising and promotion 9,149 16,022
Supplies 19,752 25,079
Rent 162,394 140,392
Utilities 52,099 63,799
Other 137,268 170,890
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$ 608,727 $ 709,301
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Advertising and promotion-franchise sales $ 20,488 $ 163,017
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General and administrative expenses
Compensation $ 230,078 $ 323,589
Rent 72,352 69,520
Professional and consulting fees 346,412 214,384
Other 447,954 321,992
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$1,096,796 $ 929,485
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Depreciation and amortization $ 195,174 $ 133,613
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Total costs and expenses $1,921,185 $1,935,416
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Loss on disposition of assets $ 206,664 $0
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Operating loss ($1,908,626) ($1,467,229)
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Other income (expense)
Other income $ 11,296 $ 92,898
Interest expense (37,359) (15,432)
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($26,063) $ 77,466
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Loss before provision for income taxes ($1,934,689) ($1,389,763)
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Income taxes $ 18,900 $ 2,500
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Net loss ($1,953,589) ($1,392,263)
============ ============
Net loss per share ($0.54) ($0.39)
======= =======
Weighted average shares outstanding 3,606,800 3,602,250
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
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ECOMAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash flows from operating activities
Net loss ($1,953,589) ($1,392,263)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization $ 195,174 $ 133,613
Loss on disposition of assets 206,664 0
Changes in assets and liabilities
Accounts receivable and prepaid expenses 9,108 (427,842)
Other assets 99,023 (254,316)
Accounts payable and accrued expenses (321,552) (39,905)
Other current liabilities 0 2,905
Deferred revenue and other liabilities (3,750) 346,160
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Net cash used in operating activities ($1,768,922) ($1,631,648)
Cash flows from investing activities
Purchase of property and equipment $ 0 ($539,060)
Sale and disposition of property and equipment 49,776 0
Sale of/(Purchase of) investment in certificate of deposit 415,055 (400,000)
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Net cash used in investing activities $ 464,831 ($939,060)
Cash flows from financing activities
Additional public offering costs, not previously recorded $0 ($65,340)
Proceeds from shareholder contributions 1,410,000 0
Early repayment of loan by shareholder 40,870 0
Payment of note payable (455,762) (1,000,000)
Proceeds from notes payable 0 423,379
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Net cash provided by financing activities $ 995,108 ($641,961)
Net (decrease) increase in cash and cash equivalents ($308,983) ($3,212,669)
Cash and cash equivalents-beginning $ 377,764 $4,307,955
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Cash and cash equivalents-end $ 68,781 $1,095,286
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
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ECOMAT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENT
Note A - In the opinion of management of Ecomat, Inc. and Subsidiaries (the
"Company"), the accompanying unaudited condensed consolidated financial
statement as of September 30, 1998 include all adjustments (consisting only of
normal recurring adjustments necessary for a fair presentation. The statements
should be in conjunction with the consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 and do not include all the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements.
The results of operation for the three months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year.
Note B-Notes payable Notes payable consist of the following:
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<CAPTION>
September 30, December 31,
1998 1997
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<S> <C> <C>
Note payable-majority stockholder $1,625,000 $ 215,000
Note payable-officer/stockholder -0- 70,870
Chase term loan payable -0- 176,667
Chase business revolving credit account -0- 181,234
Note payable (auto) - Ford Credit 14,301 34,324
Note payable (auto) - Chase 19,457 9,192
Note payable - Medallion 41,613 46,199
Accrued interest 160,463 132,240
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1,860,834 865,726
Less current portion 1,840,762 663,341
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Notes payable, net of current portion 20,072 202,385
</TABLE>
The Company's note payable to the primary officer/principal
stockholder/director in the amount of $1,625,000 at September 30, 1998 bears
interest at 7% per annum and is due in December 1998. The notes are convertible
into common stock at a price equal to the book value of the Company within
certain limitations as defined in the notes.
During the second quarter, 1998, the Company sold it's investment in
certificates of deposit and used the proceeds to retire the Chase term loan and
the Chase business revolving credit account.
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Note C-The company booked several significant write-offs and reserves during the
quarter ended September 30, 1998:
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<S> <C>
- Loss from disposition of Eco Josh, Inc. (North Moore Street
Store)-anticipated closing date: October 31, 1998 $ 239,877
- Loss from disposition of Eco Mahwah, Inc. (closed during
third quarter, 1998) 13,036
- Loss from disposition of Eco Stu and Eco Yitzi (Ridgefield
and Wilton, CT stores) 2,506
- Gain from early repayment of shareholder loan (48,755)
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Total loss per books $ 206,664
============
Reserve of Note Receivable from franchisee $ 139,161
============
</TABLE>
Note D-Other Information
- During the third quarter, the Company settled a lawsuit arising in August
1997 after certain leased premises were vacated. The suit, which sought
damages of $109,350 plus costs, was settled for $10,000.
- An action was commenced against a subsidiary of the Company in September,
1998 for $33,000 plus costs resulting from the purchase of equipment used in
water recycling and related installation costs. The Company asserts
non-performance of stated claims made by the manufacturer.
- In August, 1998, an officer of the Company tendered his resignation. The
Company bought out the balance of his employment agreement, including stock
options, for $42,000.
- On October 15, 1998, the Company received and accepted the resignation of
George W. Murphy as a Director of the Company. On October 28, the Board of
Directors elected E. Harald Buchwald as a Board member.
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ECOMAT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenues. Total operating revenues for the quarter ended September 30, 1998
decreased by $76,000 as compared to the corresponding period in 1997. This
represents a decrease of 59% as compared to the period ending September 30,
1997. This was primarily due to a decrease of $84,000 in cleaning and laundry
services, offset by an increase of $8,000 in franchise revenue
Total operating revenues for the nine months ended September 30, 1998 decreased
by $249,000 as compared to the corresponding period in 1997. This represents a
decrease of 53% as compared to the period ending September 30, 1997. This was
primarily due to decreases of $165,000 in cleaning and laundry services and
$102,000 in franchise revenue. Royalty revenue increased from $1,679 in the
first nine months of 1997 to $19,000 in the corresponding period in 1998.
Facility operating costs decreased from $304,000 for the third quarter of 1997
to $195,000 for the third quarter of 1998, a decrease of 36%. This decrease can
be largely explained by costs saved by the closing of the Ridgefield, CT
($43,000) and Wilton, CT ($19,000) locations, as well as lower costs incurred by
the North Moore Street (NYC) location ($67,000 in 1997 vs. $42,000 in 1998). The
North Moore Street store will be closed as of October 31, 1998. These savings
were offset by costs incurred by the facility in Mahwah, NJ ($34,000). (The
Mahwah location was not yet operating in the third quarter of 1997 and was
subsequently closed during the third quarter of 1998.) Cost controls at the
Mamaroneck facility also resulted in $59,000 in expense savings during the
current quarter as compared to the third quarter, 1997.
For the first nine months of 1998, facility costs decreased by $101,000,
primarily due to facilities that were closed during the first quarter, 1998
(Ridgefield and Wilton, which incurred costs of $130,000 and $23,000 during the
first nine months of 1997). Also, the Mamaroneck facility realized cost savings
of $137,000 in 1998 during this same period. These savings were offset by costs
incurred by the Mahwah location in 1998 ($119,000). This location was not opened
until the fourth quarter, 1997.
Advertising and promotion decreased by $106,000 during the third quarter, 1998
from the same period in 1997. For the nine months ended September 30, costs
decreased by $143,000 from 1997 to 1998.
General and administrative expenses increased 51% ($155,000, from $308,000 to
$463,000) for the quarter ended September 30, 1998 as compared to the
corresponding period in 1997. The primary increases were in the expense
categories of professional and consulting fees ($96,000) and bad debts
($139,000), offset by decreases in compensation ($56,000). The company had
instituted a stringent cost-cutting system in March, 1998 which, as anticipated,
generated significant savings in expense categories across-the-board in the
second and third quarters, 1998.
For the nine months ended September 30, 1998, general and administrative
expenses increased by $167,000 from the corresponding period in 1997, due
primarily to increases in professional and consulting expenses ($132,000) and
bad debts expense ($139,000).
Depreciation expense increased from $59,000 in the third quarter, 1997 to
$63,000 in the same period in 1998 (an increase of 8%) and increased by $62,000
(46%) for the nine months ended September 30, 1998. This was primarily due to
the large investment in depreciable assets made by the company during 1997 that
are now being depreciated at a higher, second-year rate. The company has made no
investments in additional depreciable assets in 1998
Other income decreased (98%), from $22,000 during the third quarter, 1997 to
less than $1,000 during the corresponding period in 1998. Year-to-date, other
income decreased 88% from $93,000 in 1997 to $11,000 in 1998. In the first nine
months of 1997, the company earned substantial interest income from the net
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proceeds of the initial public offering that occurred in December 1996. 1998 had
depleted these cash reserves.
Interest expense increased by $22,000, from $15,000 during the first nine months
of 1997 to $37,000 in the corresponding period in 1998, primarily due to the
large amounts of loans ($750,000 and $660,000) made by the main shareholder
during the quarters ended June 30 and September 30, 1998.
Net loss. The net loss was $886,000 ($.25 per share) for the quarter ended
September 30, 1998, as compared to a net loss of $632,000 ($.18 per share) for
the quarter ended September 30, 1997. Year-to-date, the 1998 loss was $1,954,000
as compared with $1,392,000 in the corresponding period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The company's liquidity position at September 30, 1998 included cash and cash
equivalents of approximately $69,000.
Net cash used in operating activities was $1,769,000 and $1,632,000 for the nine
months ended September 30, 1998 and 1997, respectively. The cash used in
operating activities was primarily due to the net loss of $1,954,000, offset by
$195,000 of depreciation and $207,000 loss on disposition of assets. Cash was
also used by decreasing accounts payable and accrued expenses by $322,000 since
December 31, 1997.
Net cash provided by investing activities for the nine months ended September
30, 1998 was $465,000, primarily due to the sale of investments ($415,000), as
well as the sale of property and equipment ($50,000).
Net cash provided by financing activities during the first nine months of 1998
was $995,000 (compared with an $642,000 use of funds during the corresponding
period in 1997), due to the addition of $1,410,000 of loan proceeds from the
primary stockholder and a Swiss financial institution and a gain from early
retirement of shareholder loan ($41,000), offset by repayment of notes payable
of $456,000. (During the first quarter of 1997, the company had repaid the
primary stockholder a partial repayment of $1,000,000 notes payable.)
In total, net cash and equivalents decreased by $336,000 during the first nine
months of 1998 and $3,213,000 in the corresponding period in 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: October 27, 1998 Ecomat, Inc.
By: /s/ Hans-Rudolf Kuchler
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Hans-Rudolf Kuchler
President
Chief Operating Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 68,781
<SECURITIES> 0
<RECEIVABLES> 80,634
<ALLOWANCES> 8,833
<INVENTORY> 0
<CURRENT-ASSETS> 177,020
<PP&E> 1,470,092
<DEPRECIATION> 853,622
<TOTAL-ASSETS> 1,299,807
<CURRENT-LIABILITIES> 2,227,966
<BONDS> 1,860,834
<COMMON> 361
0
0
<OTHER-SE> 6,404,377
<TOTAL-LIABILITY-AND-EQUITY> 1,299,807
<SALES> 42,493
<TOTAL-REVENUES> 66,814
<CGS> 0
<TOTAL-COSTS> 723,314
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,218
<INCOME-PRETAX> (886,369)
<INCOME-TAX> 0
<INCOME-CONTINUING> (886,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (886,369)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 68,781
<SECURITIES> 0
<RECEIVABLES> 80,634
<ALLOWANCES> 8,833
<INVENTORY> 0
<CURRENT-ASSETS> 177,020
<PP&E> 1,470,092
<DEPRECIATION> 853,622
<TOTAL-ASSETS> 1,299,807
<CURRENT-LIABILITIES> 2,227,966
<BONDS> 1,860,834
<COMMON> 361
0
0
<OTHER-SE> 6,404,377
<TOTAL-LIABILITY-AND-EQUITY> 1,299,807
<SALES> 200,136
<TOTAL-REVENUES> 219,223
<CGS> 0
<TOTAL-COSTS> 1,921,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,359
<INCOME-PRETAX> (1,934,689)
<INCOME-TAX> 18,900
<INCOME-CONTINUING> (1,953,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,953,589)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
