<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission File Number: 000-24685
EarthCare Company
(Exact name of registrant as specified in its charter)
Delaware 58-2335973
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14901 Quorum Drive, Suite 200
Dallas, Texas 75240
----------------------------- -----
(Address of principal executive offices) (Zip Code)
(972) 858-6025
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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. [X] Yes [ ] No
The number of outstanding shares of the registrant's common stock, par
value $.0001 per share, was 10,189,049 on May 7, 1999.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [X] No
<PAGE> 2
FORWARD-LOOKING STATEMENTS
Statements contained in this report, which are not historical in
nature, are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements include, without
limitation, the statements regarding efforts to determine Year 2000 exposure and
the costs to bring the Company into Year 2000 compliance. Such forward-looking
statements include uncertainties and risks that could cause actual results to
differ materially from those documented in this report. These risks include the
Company's ability to grow through the acquisition and development of
non-hazardous liquid waste ("NLW") companies and the acquisition of ancillary
businesses; the Company's ability to identify and acquire at a reasonable cost
suitable acquisition candidates or to profitably operate or successfully
integrate acquired operations into the Company's other operations; the Company's
ability to minimize any potential liabilities, including environmental
liabilities, resulting from the acquisition of NLW service providers or to
obtain adequate insurance; the Company's ability to manage its growth and access
to capital; the Company's ability to comply with existing and future rules and
regulations of various federal, state and local governmental agencies; the
Company's ability to compete with other NLW service providers; changes in
general economic conditions that may affect the demand for the Company's
services; and other factors as may be identified from time to time in future
filings with the Securities and Exchange Commission or in other public
announcements, including those set forth on Exhibit 99.1 to this report. The
words "believe," "expect," "anticipate," "plan," and "intend" and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date such statements are made.
ii
<PAGE> 3
EarthCare Company and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Item 1. FINANCIAL STATEMENTS Page
----
<S> <C>
Consolidated Balance Sheet - December 31, 1998 and March 31, 1999 (unaudited).................................1
Unaudited Consolidated Statement of Operations - Three months ended
March 31, 1998 and March 31, 1999.............................................................................2
Unaudited Consolidated Statement of Cash Flows - Three months ended March 31, 1998
and March 31, 1999............................................................................................3
Notes to Unaudited Consolidated Financial Statements..........................................................4
Independent Accountant's Report...............................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................7
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................................10
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................11
Item 2. Changes in Securities..............................................................................11
Item 3. Defaults Upon Senior Securities....................................................................11
Item 4. Submissions of Matters to a Vote of Security Holders...............................................11
Item 5. Other Information..................................................................................11
Item 6. Exhibits and Reports on Form 8-K...................................................................11
</TABLE>
iii
<PAGE> 4
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1998 1999
------ ------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,039,594 $ 168,368
Accounts receivable, net of allowance for
doubtful accounts of $277,985 and $472,434 in
1998 and 1999, respectively 3,960,520 4,982,026
Prepaid expenses 557,669 1,129,363
Note receivable 67,959 292,658
Deferred income taxes 377,147 418,000
------------ ------------
Total current assets 6,002,889 6,990,415
------------ ------------
PROPERTY AND EQUIPMENT, NET 4,910,004 9,798,390
OTHER NONCURRENT ASSETS:
Intangibles, net 20,166,445 28,811,650
Deferred income taxes 246,913 206,060
Other assets 1,964,028 2,030,031
------------ ------------
22,377,386 31,047,741
------------ ------------
$ 33,290,279 $ 47,836,546
============ ============
LIABILITIES AND
STOCKHOLDERS EQUITY
-------------------
CURRENT LIABILITIES:
Accounts Payable $ 2,761,451 $ 3,165,540
Accrued Expenses 2,184,818 3,202,929
Notes payable -- 190,506
Current portion of long-term debt 118,500 118,500
------------ ------------
Total current liabilities 5,064,769 6,677,475
------------ ------------
LONG-TERM DEBT, NET OF CURRENT PORTION 9,209,440 16,408,623
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value; 30,000,000
shares authorized, -0- shares issued and
outstanding -- --
Common stock, $.0001 par value; 70,000,000 shares authorized,
9,571,533 and 9,963,711 shares issued and outstanding in 1998
and 1999, respectively 957 996
Additional paid-in capital 20,702,555 26,261,461
Accumulated defecit (1,687,442) (1,512,009)
------------ ------------
Total stockholders' equity 19,016,070 24,750,448
------------ ------------
$ 33,290,279 $ 47,836,546
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
1
<PAGE> 5
EARTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUES $ 2,634,722 $ 7,815,637
EXPENSES
Cost of Operations 1,647,530 5,093,594
General and Administrative Expense 1,524,389 1,969,417
Depreciation and Amortization 177,900 354,884
----------- -----------
INCOME (LOSS) FROM OPERATIONS (715,097) 397,742
Other expense (income):
Interest 106,713 222,309
----------- -----------
INCOME (LOSS) BEFORE TAXES (821,810) 175,433
INCOME TAX PROVISION (BENEFIT) (318,536) --
----------- -----------
NET INCOME (LOSS) $ (503,274) $ 175,433
=========== ===========
NET INCOME (LOSS) PER SHARE,
BASIC AND DILUTED $ (0.10) $ 0.02
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
2
<PAGE> 6
EARTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTHS
ENDED
MARCH 31,
------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (503,274) $ 175,433
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 177,900 354,884
Deferred income taxes (318,536) --
Bad debt expense -- (37,737)
Changes in assets and liabilities, excluding effect of acquired businesses:
Account receivable (989,724) (328,291)
Prepaid expenses (76,405) (454,688)
Other current assets (85,051) --
Accounts payable 1,084,464 241,500
Accrued expenses 798,145 (797,998)
------------ ------------
Total adjustments 590,793 (1,022,330)
Net cash provided by (used in) - operating activities 87,519 (846,897)
Cash Flows from Investing Activities:
Capital expenditures -- (1,036,481)
Business acquisitions (11,480,220) (6,232,085)
Other assets -- 8,997
------------ ------------
Net cash used in investing activities (11,480,220) 7,259,569
Cash flows from Financing Activities:
Net borrowings under lines of credit 12,152,948 --
Proceeds from long-term debt -- 7,199,183
Payments of long-term debt (50,832) --
Sales of common stock 12,600,000 --
Exercise and issuance of stock options and warrants -- 36,057
------------ ------------
Net cash provided by financing activities 24,702,116 7,235,240
Net increase (decrease) in cash and cash equivalents 13,309,415 (871,226)
Cash and Cash Equivalents, Beginning of Period 195,552 1,039,594
------------ ------------
Cash and Cash Equivalents, End of Period $ 13,504,967 $ 168,368
============ ============
Supplemental Noncash Investing and Financing Activities:
Notes payable issued for business acquisitions $ 2,000,000 $ 200,000
============ ============
Common stock issued for business acquisitions $ 232,000 $ 5,625,000
============ ============
Fair value of warrant issued for debt issuance costs $ -- $ 75,000
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 7
EARTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements for EarthCare Company
("EarthCare" or the "Company") and subsidiaries as of March 31, 1999 and for the
three month periods ended March 31, 1998 and 1999 are unaudited. In the opinion
of management, these financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial statements. Quarterly results of operations are not necessarily
indicative of the results that may be expected for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K filed with the
Securities and Exchange Commission ("Form 10-K").
2. INCOME PER SHARE
Income (loss) per common share is computed in accordance with Statement
of Financial Accounting Standards No. 128 ("FAS 128"). Presented below is a
reconciliation of income (loss) available to common shareholders and the
differences between actual weighted average shares outstanding, which are used
in computing basic income (loss) per share and diluted weighted average shares,
which are used in computing diluted income (loss) per share.
<TABLE>
<CAPTION>
For the three months ended For the three months ended
March 31, 1998 March 31, 1999
----------------------------------------- -----------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
--------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $(503,274) $ 175,433
Basic EPS:
Income (loss) available to common shareholders (503,274) 4,874,434 $ (.10) 175,433 9,698,531 $ .02
Effect of Dilutive Securities:
Options -- 341,412
Warrants -- 107,843
Diluted EPS:
Income available to common shareholders $(503,274) 4,874,434 $ (.10) $ 175,433 10,147,786 $ .02
</TABLE>
As of March 31, 1999, there were 869,200 options outstanding at an exercise
price of $15 and 635,000 options outstanding at exercise prices ranging from $20
to $25 which were excluded from the EPS calculation due to their anti-dilutive
impact.
3. ACQUISITIONS
During the first three months of 1999, the Company acquired the
following businesses:
On March 1, 1999, the Company acquired all of the outstanding capital
stock of Reifsneider Transportation, Inc. ("Reifsneider"), a
Pennsylvania corporation. Reifsneider is engaged in the nonhazardous
liquid waste and septic waste collection, transportation, management,
and disposal business in and around Pennsylvania, New Jersey, New York,
Maryland, and Delaware. Consideration for the acquisition consisted of
$5,050,000 in cash, 350,000 shares of EarthCare common stock (the
"Common Stock"), the delivery of a $200,000 note payable to the former
owner of Reifsneider and a working capital adjustment of approximately
$750,000, as defined in the Stock Purchase Agreement.
On March 31, 1999, the Company acquired all of the outstanding capital
stock of Brehm's Cesspool, Inc. ("Brehm's"), a Pennsylvania.
corporation. Brehm's is engaged in the nonhazardous liquid waste and
septic waste collection, transportation, management, and disposal
business in and around eastern Pennsylvania. Consideration for the
acquisition consisted of $1,000,000 in cash and 35,367 shares of Common
Stock.
Subsequent to March 31, 1999, the Company acquired the following
businesses:
Effective April 1, 1999, EarthCare acquired all of the outstanding
capital stock of National Plumbing & Drain ("National"), a Georgia
corporation, in exchange for $1,325,000 in cash, the issuance of
125,159 shares of Common Stock, and the assumption of up to $513,000 in
liabilities. National is a residential and commercial sewer and drain
services company servicing customers in Georgia.
On May 1, 1999, EarthCare acquired the assets of Rooter Plus, a Georgia
corporation, in exchange for $2,600,000 in cash and the issuance of
100,000 shares of Common Stock. Rooter Plus is a residential and
commercial sewer and drain services company servicing customers in
Georgia.
4
<PAGE> 8
The acquisitions of Reifsneider and Brehm's were accounted for using
the purchase method of accounting; accordingly, the purchase prices have been
allocated to the assets acquired and liabilities assumed based on their
respective fair values on the dates of acquisition. The resulting excess of
purchase prices over fair values of assets acquired and liabilities assumed was
recorded as goodwill. Goodwill recorded in the purchases of Reifsneider and
Brehm's was $6,536,455 and $1,350,000, respectively.
The Company's unaudited pro forma consolidated results of operations
for the three month periods ended March 31, 1998 and 1999, shown below are
presented assuming that the Reifsneider and Brehm's acquisitions had been
consummated on January 1, 1998:
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1999
----- -----
<S> <C> <C>
Pro forma revenue $10,245,964 $9,447,378
Pro forma net income (loss) (322,042) 252,033
Pro forma net income (loss) per share $ (.05) $ .02
</TABLE>
4. SIGNIFICANT EVENTS
In addition to the acquisitions discussed in note 3, the following
significant events occurred during the three months ended March 31, 1999:
On June 26, 1998, the Company entered into a $40 million revolving
credit agreement with Bank of America, which was amended effective March 31,
1999, (the "Credit Agreement"). The Company may also obtain up to $5 million in
letters of credit, subject to availability under the Credit Agreement. Interest
is payable monthly at variable rates, depending on the Company's current debt to
cash flow ratio, but is capped at LIBOR plus 2.25%. The Credit Agreement expires
September 26, 2001, is secured by a first lien on substantially all assets of
the Company and requires the Company to maintain certain financial ratio
covenants beginning September 30, 1998. In connection with amending the Credit
Agreement, the Company issued Bank of America warrants to purchase 35,000 shares
of Common Stock at $14 per share in lieu of fees associated with the
modification. These warrants have been valued at $75,000 based on the cost of
the bank fee that would have been charged. Such amount has been recorded as debt
issue costs in the March 31, 1999 financial statements.
On April 26, 1999, the Company entered into a financial commitment to
loan up to $3 million to Crossroads Environmental Corporation ("Crossroads").
Crossroads has permits in Texas to drill deep injection wells for the disposal
of nonhazardous liquid waste. The permitted capacity of the first well that
Crossroads plans to drill is 180 million gallons per year. EarthCare has an
equity conversion privilege that could enable the Company to own a majority of
the equity in the business.
5
<PAGE> 9
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors and Shareholders of EarthCare Company:
We have reviewed the accompanying consolidated balance sheet of
EarthCare Company and Subsidiaries as of March 31, 1999 and the related
consolidated statements of operations and cash flows for the three-month period
ended March 31, 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1998, and
the related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 13, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1998 is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
May 12, 1999
6
<PAGE> 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is management's representation of
the financial position of the Company as of March 31, 1999 and the results of
operations of the Company for the three months ended March 31, 1998 and 1999.
This discussion and analysis should be read in conjunction with the unaudited
consolidated financial statements and notes thereto, and with the Company's
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1998.
OVERVIEW
EarthCare engages in businesses relating to the Non-hazardous Liquid
Waste ("NLW") industry. These businesses include grease trap pumping, septic
tank services (including designing, pumping, installation and maintenance),
sewer and drain cleaning services; high pressure jetting services, portable
toilet servicing; bulk liquid waste transportation; on-site biotreatment
systems; biosolids management; and liquid waste processing and disposal. The
customers of EarthCare include restaurants, hospitals, military bases, office
buildings, apartments, schools, municipalities, industrial businesses and single
family residences.
EarthCare intends to expand its business in the NLW industry through
internal growth and the acquisition of local service providers throughout the
United States. These acquisitions will be made with cash, shares of Common Stock
or a combination of cash and Common Stock.
GENERAL
The Company derives the majority of its revenues from commercial and
residential septic services (including designing, pumping, installation and
maintenance) (approximately 44% of current revenues) and to a lesser extent
sewer and drain services (approximately 18% of current revenues). Collection
fees charged to customers vary per gallon by waste stream according to
constituents of the waste, expenses associated with processing the waste and
competitive factors. Cost of operations consist of fixed costs such as salaries
and benefits of vehicle operators and construction labor and variable costs such
as supplies, fuel and equipment rentals. General and administrative costs
consist primarily of compensation and related benefits for executives and
administrative staff, advertising, office rent, communications and professional
fees. Depreciation and amortization expense primarily relates to the
depreciation of capital assets, the amortization of excess cost over the fair
value of net assets acquired (goodwill) and other intangible assets. The
Company's policy is to amortize goodwill over a 40 year life.
RESULTS OF OPERATIONS
The following table sets forth operating results expressed as a
percentage of net sales for the periods indicated. All information is derived
from the accompanying unaudited consolidated financial statements. Results for
any one or more periods are not necessarily indicative of annual results or
continuing trends.
7
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
------ ------
<S> <C> <C>
Revenues 100.0% 100.0%
Expenses:
Cost of Operations 62.5 65.2
General and Administrative 57.9 25.2
Depreciation and Amortization 6.7 4.5
Total Operating Expenses 127.1 94.9
------ ------
Operating income (loss) (27.1) 5.1
Interest expense 4.1 2.9
------ ------
Income (loss) before income
taxes (31.2) 2.2
Provision (benefit) for income
tax (12.1) --
------ ------
Net income (loss) (19.1) 2.2
====== ======
</TABLE>
As a result of the Company's recent acquisitions and the limited period
of ownership of the acquired businesses, the Company believes that the
period-to-period comparisons and percentage relationships within the periods set
forth below are not meaningful.
THREE MONTHS ENDED MARCH 31, 1999
NET INCOME: For the three months ended March 31, 1999, the Company
reported net income of $175,433 on revenues of $7,815,637 versus a net loss
of $503,274 on revenues of $2,634,722 for the three months ended March 31, 1998.
REVENUES: Revenues were $7,815,637 for the three months ended March 31,
1999 compared to $2,634,722 for the comparable period in the prior year. Current
period revenues include revenues from each of the businesses acquired during
1998 plus revenues from businesses acquired during the first three-months of
1999 from the date of each 1999 acquisition. Revenues from 1999 acquisitions
contributed approximately $.7 million or 9% of revenues for the three months
ended March 31, 1999. Prior period revenue includes only revenue from the dates
of those acquisitions made within that quarter. The Company's septic and pumping
operations were negatively affected by a drought in the southeastern United
States during the three months ended March 31, 1999.
COST OF OPERATIONS: Cost of operations for the three months ended March
31, 1999 was $5,093,594 compared with $1,647,530 for the comparable period in
the prior year. The increase is due to the growth of the Company through
acquisitions, but as a percentage of revenue remained relatively constant at
62.5% in 1998 and 65.2% in 1999. Operating costs in the first quarter of 1999
were negatively affected by seasonality of the business and severance costs
associated with combining acquisitions with current operations.
GENERAL AND ADMINISTRATIVE EXPENSE: For the three months ended March
31, 1999, general and administrative expense was $1,969,417 compared with
$1,524,389 recorded in the comparable period in the prior year. Current period
expense includes additional payroll cost of the chief executive officer and the
chief operating officer who did not draw a salary prior to 1999, as well as
several other employees hired during the latter part of 1998 and early 1999 to
support the Company's growth. Prior year expense of $1,524,389 included $600,000
of expense associated with registering the Company as a reporting company with
the Securities and Exchange Commission.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization was
$354,884 or 4.5% of revenues for the three months ended March 31, 1999 compared
to $177,900 or 6.7% of revenues for the comparable period of 1998.
The increase is due to the 1998 and 1999 acquisitions.
INCOME (LOSS) FROM OPERATIONS: Income (loss) from operations increased
from a loss of $715,097 in the three months ended March 31, 1998 to income of
$397,742 in 1999, for the reasons discussed above.
8
<PAGE> 12
INTEREST EXPENSE: Interest expense for the three months ended March 31,
1999 was $222,309, compared to $106,713 in the comparable 1998 period. Interest
was incurred at an average rate of approximately 7.09% during the three months
ended March 31, 1999 and 8.1% in the compared 1998 period. The increase
in interest expense resulted primarily from the debt incurred in connection
with the 1998 and 1999 acquisitions.
INCOME TAX PROVISION <BENEFIT>: The Company recorded no provision for
income taxes for the three months ended March 31, 1999, due to the effects of
the Company's loss carryforward and valuation allowance. As the Company
continues to grow, management will evaluate the realizability of the loss
carryforward and adjust the valuation allowance accordingly.
SEASONALITY AND INFLATION
The Company's operations are affected by the weather. Rainy weather
requires more frequent septic and grease trap maintenance and snow cover or
frozen conditions prevent installation and need for servicing septic systems.
Although the Company experiences a certain degree of seasonality in its
operations due to weather, this seasonality is lessened through its operations
in various geographic areas.
The Company believes that inflation and changing prices have not had,
and are not expected to have, any material adverse effect on its results of
operations in the near future.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had cash of approximately $168,368 and
working capital of $312,940.
On June 26, 1998, the Company entered into the $40 million revolving
credit agreement with Bank of America, which was amended as of March 31, 1999
(the "Credit Agreement"). The Company may also obtain up to $5 million in
letters of credit, subject to availability under the Credit Agreement. Interest
is payable monthly at variable rates, depending on the Company's Funded Debt to
EBITDA (as defined in the Credit Agreement), but is capped at LIBOR plus 2.25%.
The Credit Agreement expires September 26, 2001, is secured by a first lien on
substantially all assets of the Company and requires the Company to maintain
certain financial covenants beginning September 30, 1998. As of March 31, 1999,
the Company was in compliance with the financial covenants. Availability of
funds under the Credit Agreement is limited by the requirement that the Company
comply with various loan covenants. As of March 31, 1999 the outstanding balance
under the Credit Agreement was $14,914,123.
The Company's primary requirements for capital (other than those
related to acquisitions) consists of purchasing vehicles and equipment used in
the operation of its businesses. In the first three months of 1999, the Company
acquired two businesses for an aggregate consideration of $6,050,000 in cash,
$200,000 in seller notes and 385,367 shares of Common Stock. Funding of the cash
portion of the purchase prices was provided by borrowings under the Credit
Agreement. During the three months ended March 31, 1999, the Company used
$1,036,481 in other capital expenditures. The Company believes that the funds
provided by operations, together with cash on hand and funds available under the
Credit Agreement, will be adequate to meet the Company's anticipated capital
expenditures for the remainder of 1999.
The Company intends to continue to pursue internal growth and
acquisition opportunities. The timing, size or success of any acquisitions
effort and the associated potential capital commitments are unpredictable. The
Company expects to fund future acquisitions primarily through a combination of
cash on hand, borrowings under the Credit Agreement and the issuance of shares
of Common Stock.
YEAR 2000
The Company has conducted operations for less than two years and has
only recently grown large enough to require sophisticated computing systems. A
complete review of all of the Company's computing needs has recently been
undertaken and completed, including various Year 2000 compliant computer
programs. The Company has selected Year 2000 compliant hardware and software for
its computing needs and anticipates beginning implementation of these new
systems during the fourth quarter of 1999, which implementation should ensure
proper processing of transactions relating to the Year 2000 and beyond. The
Company expects the conversion of all
9
<PAGE> 13
systems to be completed in the third quarter of 1999 and estimates the capital
costs of the new Year 2000 compliant hardware, systems and software to be under
$1,000,000. As of March 31, 1999, approximately $500,000 in hardware and
software implementation costs have been incurred and capitalized.
The Year 2000 issue is expected to affect the systems of various
entities with which the Company interacts, including the Company's vendors and
customers. There can be no assurance that the systems of other companies on
which the Company's systems rely will be timely converted or that a failure by
another company's systems to be Year 2000 compliant would not have a material
adverse effect on the Company.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
10
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of March 31, 1999, the Company did not have any pending legal
proceedings that separately or in the aggregate would be likely to have
a material adverse effect on the business or results of operations of
the Company. In the future, the Company may be a party to litigation or
administrative proceedings which arise in the normal course of its
business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form 10
(Commission File No. 000-24685) as amended
3.2 Amended and Restated Bylaws of the Company
(incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form 10
(Commission File No. 000-24685) as amended
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
(b) Reports on Form 8-K
11
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1999
By: /s/ James E. Farrell
------------------------------------------
James E. Farrell, Vice President and Chief
Financial Officer
12
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement
on Form 10 (Commission File No. 000-24685) as amended
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement
on Form 10 (Commission File No. 000-24685) as amended
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
</TABLE>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EARTHCARE
COMPANY FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 168,368
<SECURITIES> 0
<RECEIVABLES> 5,454,460
<ALLOWANCES> 472,434
<INVENTORY> 0
<CURRENT-ASSETS> 6,990,415
<PP&E> 10,834,266
<DEPRECIATION> 1,035,876
<TOTAL-ASSETS> 47,836,546
<CURRENT-LIABILITIES> 6,677,475
<BONDS> 0
0
0
<COMMON> 996
<OTHER-SE> 24,749,452
<TOTAL-LIABILITY-AND-EQUITY> 47,836,546
<SALES> 0
<TOTAL-REVENUES> 7,815,637
<CGS> 0
<TOTAL-COSTS> 7,417,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 222,309
<INCOME-PRETAX> 175,433
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,433
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including information set forth
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations," constitute "Forward-Looking Statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the "1933
Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). The Company desires to take advantage of certain "safe harbor"
provisions of the 1933 Act and the 1934 Act and is including this exhibit to
enable the Company to do so. Forward-looking statements included in this Form
10-Q, or hereafter included in other publicly available documents filed with the
Securities and Exchange Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties, and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ materially from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. The Company believes the following risks, uncertainties and other
factors could cause such material differences to occur:
1. The Company's ability to grow through the acquisition and
development of non-hazardous liquid waste companies or the acquisition
of ancillary businesses.
2. The Company's ability to identify suitable acquisition
candidates or to profitably operate or successfully integrate acquired
operations into the Company's other operations.
3. The Company's ability to acquire acquisition candidates at
a reasonable cost. The Company expects competition to exist in the
industry to acquire these candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices.
4. The Company's ability to minimize any potential
liabilities, including environmental liabilities, resulting from the
acquisition of NLW service providers or to obtain adequate insurance to
mitigate any potential exposure to the Company from these liabilities.
The Company has obtained representations from the sellers of the
acquired businesses that no undisclosed liabilities exist and certain
rights to indemnification from the sellers for any liabilities. There
can be no assurance, however, that undisclosed liabilities do not exist
or that the Company will receive full or partial compensation pursuant
to its rights to indemnification.
5. The Company's ability to manage its growth and access to
capital.
6. The Company's ability to comply with existing and future
rules and regulations of various federal, state and local governmental
agencies. Environmental laws and regulations are, and will continue to
be, a principal factor affecting the marketability of the services
provided by the Company. Changes in these laws or regulations may
affect the operations of the Company by imposing additional regulatory
compliance costs on the Company, requiring the modification of or
adversely affecting the market for the Company's non-hazardous liquid
waste ("NLW") services.
7. The Company's ability to compete with other NLW service
providers. The NLW business is highly competitive and the entrance of
new competitors or the expansion of operations by existing competitors
in the Company's markets could adversely affect the Company's plans and
results of operations.
8. The development of internal methods for disposition of NLW
by current and potential customers of the Company.
9. The Company's strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of
management and the Board of Directors.
10. The Company's ability to attract qualified management and
retain key personnel of acquired NLW service providers.
1
<PAGE> 2
11. Changes in general economic conditions that may affect the
demand for the Company's services.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company.
2
