<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OR 1934
For the quarterly period ended June 30, 2000
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 58-233973
(State of incorporation (IRS employer
or organization) identification number)
14901 Quorum Drive, Suite 200, Dallas, Texas 75240
(Address of principal executive office) (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 13,199,723 on August 11, 2000.
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
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EARTHCARE COMPANY
INDEX TO CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION OF CONTENTS PAGE NUMBER
----------------------- -----------
<S> <C>
Introduction............................................................................ 3
PART I - Financial Information
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 and
December 31, 1999.............................................................. 5
Condensed Consolidated Statements of Operations for the
Three- and Six-Months ended June 30, 2000 and 1999............................. 6
Condensed Consolidated Statements of Cash Flows for the
Six-Month Periods ended June 30, 2000 and 1999................................. 7
Notes to Condensed Consolidated Financial Statements............................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk..................... 18
PART II - Other Information
Item 1 - Legal Proceedings.............................................................. 19
Item 2 - Changes in Securities.......................................................... 19
Item 3 - Defaults Upon Senior Securities................................................ 19
Item 4 - Submission of Matters to a Vote of Security Holders............................ 19
Item 5 - Other Information.............................................................. 20
Item 6 - Exhibits and Reports on Form 8-K............................................... 20
Signature............................................................................... 20
</TABLE>
2
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FORM 10-Q
INTRODUCTION
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" and in certain documents on file with the Securities and
Exchange Commission constitute "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 (together, the "Acts"). In addition,
when used in this Form 10-Q, we intend the words "may", "believe," "intend,"
"anticipate," "plan," "expect" and similar expressions to identify
forward-looking statements. We desire to take advantage of the "safe-harbor"
provisions of the Acts and are including this special note to enable us to do
so. Forward-looking statements included in this Form 10-Q, or hereafter included
in other publicly available statements issued or released by us involve known
and unknown risks, uncertainties, and other factors which could cause our 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. We believe
the following risks, uncertainties and other factors could cause such material
differences to occur:
1. Our ability to compete with other non-hazardous liquid waste ("NLW")
service providers. The NLW business is highly competitive and the entrance
of new competitors or the expansion of operations by existing competitors
in our markets could adversely affect our plans and results of operations.
2. Our ability to profitably grow our existing operations, including growth at
current and future company owned locations.
3. The development of internal methods for disposition of NLW by current and
potential customers of the Company.
4. Our ability to grow through the acquisition and development of NLW
companies or businesses, and to identify suitable acquisition candidates at
a reasonable cost, and to profitably operate and successfully integrate
acquired operations into our other operations. We expect 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.
5. Our 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 us from
these liabilities. We have obtained representations from the sellers of
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
we will receive any compensation pursuant to our rights to indemnification.
6. Our 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 us. Changes in these laws or
regulations may affect our operations by imposing additional regulatory
compliance costs on us, requiring the modification of or adversely
affecting the market for our NLW services.
7. Our strategies, objectives, expectations and intentions are subject to
change at any time at the discretion of management and the Board of
Directors. In addition, approximately 44% of our outstanding common stock
is held by affiliates.
8. Our ability to attract qualified management and retain key personnel of
acquired NLW service providers.
3
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9. Our ability to secure the capital and the related costs of such capital
necessary to fund our future growth through acquisition and development, as
well as internal growth.
10. Changes in general economic conditions that may affect the demand for our
liquid waste collection, processing and disposal services.
11. Changes in weather conditions that may affect demand for our services.
12. Our ability to develop national and regional accounts for our liquid waste
management services and other marketing programs.
13. Change in demand for by-products we recover from certain liquid waste
streams.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by us.
4
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EARTHCARE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 974,644 $ 282,003
Accounts receivable, net of allowance for doubtful accounts of
$1,194,000 and $412,000, respectively ........................... 14,943,081 8,582,145
Prepaid expenses and other current assets ......................... 3,685,682 1,898,029
------------- -------------
Total current assets ............................................ 19,603,407 10,762,177
Property, plant and equipment, net ................................... 55,835,563 30,877,976
Intangible assets, net ............................................... 56,519,259 29,582,485
Other long-term assets, net .......................................... 6,369,177 3,938,054
------------- -------------
Total assets .................................................. $ 138,327,406 $ 75,160,692
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 7,073,479 $ 4,873,594
Accrued expenses .................................................. 8,359,103 3,183,786
Current portion of long-term debt ................................. 59,635,682 278,434
------------- -------------
Total current liabilities ....................................... 75,068,264 8,335,814
Long-term debt ....................................................... 35,602,917 47,209,154
Stockholders' equity:
Preferred stock, $.0001 par value; 30,000,000 shares authorized,
no shares issued and outstanding ................................ -- --
Common stock, $.0001 par value; 70,000,000 shares authorized,
13,199,723 and 11,250,793 shares issued, respectively............ 1,320 1,125
Additional paid-in-capital ........................................ 52,127,185 37,661,400
Accumulated deficit ............................................... (24,472,280) (18,046,801)
------------- -------------
Total stockholders' equity ...................................... 27,656,225 19,615,724
------------- -------------
Total liabilities and stockholders' equity .................... $ 138,327,406 $ 75,160,692
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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EARTHCARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues .............................. $ 23,003,723 $ 10,051,473 $ 42,994,155 $ 17,867,110
Expenses:
Cost of operations ................. 14,316,945 6,447,107 27,227,007 11,813,358
General and administrative ......... 6,991,642 2,096,194 11,661,696 3,623,156
Sales, marketing and development ... 1,603,515 732,740 2,974,556 1,339,889
Depreciation and amortization ...... 1,981,250 594,871 3,143,165 939,436
------------ ------------ ------------ ------------
Operating expenses ............... 24,893,352 9,870,912 45,006,424 17,715,839
------------ ------------ ------------ ------------
Income (loss) from operations ......... (1,889,629) 180,561 (2,012,269) 151,271
Interest expense and other:
Interest expense ................... 2,677,272 406,003 4,413,210 628,312
Other .............................. -- 180,615 -- 203,859
------------ ------------ ------------ ------------
2,677,272 586,618 4,413,210 832,171
------------ ------------ ------------ ------------
Income (loss) before income taxes ..... (4,566,901) (406,057) (6,425,479) (680,900)
Income tax provision (benefit) ........ -- (53,000) -- (53,000)
------------ ------------ ------------ ------------
Income (loss) before extraordinary
item ............................... (4,566,901) (353,057) (6,425,479) (627,900)
Extraordinary item - gain on early
retirement of debt (net of
income taxes of $53,000) ........... -- 86,817 -- 86,817
------------ ------------ ------------ ------------
Net income (loss) ..................... $ (4,566,901) $ (266,240) $ (6,425,479) $ (541,083)
============ ============ ============ ============
Net income (loss) per share -
basic and diluted:
Income (loss) before
extraordinary item ............... $ (0.36) $ (0.03) $ (0.53) $ (0.06)
Extraordinary item ................. -- 0.01 -- 0.01
------------ ------------ ------------ ------------
Net income (loss) .................. $ (0.36) $ (0.03) $ (0.53) $ (0.05)
============ ============ ============ ============
Weighted average number of common
shares ........................... 12,606,613 10,162,162 12,098,619 9,930,561
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
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EARTHCARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................................... $ (6,425,479) $ (541,083)
Adjustments to cash flows for non-cash items:
Depreciation and amortization ................................... 3,143,165 939,436
Loss on disposal of assets ...................................... -- 203,859
Deferred income tax provision (benefit) ......................... -- (10,677)
Gain on early extinguishments of debt ........................... -- (139,817)
Other non-cash expenses ......................................... 3,218,268 (10,364)
Changes in current assets and liabilities, excluding the
effects of acquired businesses:
Accounts receivable ............................................. (6,821,255) (1,892,868)
Prepaid expenses ................................................ (920,234) (762,808)
Accounts payable ................................................ 1,512,022 643,576
Accrued expenses and other activity ............................. 1,367,424 1,401,026
------------- -------------
Cash used for operating activities ............................ (4,926,089) (169,720)
------------- -------------
Cash flows from investing activities:
Capital expenditures for property, plant, equipment and
software development ............................................ (5,365,286) (2,739,173)
Businesses acquired ............................................... (37,364,668) (14,953,606)
Issuance of notes receivable ...................................... (1,143,117) 349,515
Collection of notes receivable .................................... 15,487 --
Other activity .................................................... (272,040) (316,898)
------------- -------------
Cash used for investing activities ............................ (44,129,624) (17,660,162)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt ...................................... 55,646,948 19,257,800
Payments on long-term debt ........................................ (8,310,219) (1,929,000)
Payment of debt issue costs ....................................... (1,468,375) --
Sale of common stock .............................................. 3,880,000 --
Exercise of stock options and warrants ............................ -- 39,712
------------- -------------
Cash provided by financing activities ......................... 49,748,354 17,368,512
------------- -------------
Net increase (decrease) in cash and cash equivalents ................. 692,641 (461,370)
Cash and cash equivalents, beginning of period ....................... 282,003 1,039,594
------------- -------------
Cash and cash equivalents, end of period ............................. $ 974,644 $ 578,224
============= =============
Supplemental non-cash investing and financing activities:
Notes payable issued for businesses acquired ...................... $ -- $ 200,000
Common stock issued for businesses acquired ....................... $ 9,905,981 $ 7,829,150
Fair value of warrants issued for debt issue costs and other
services rendered ............................................... $ 691,002 $ 217,743
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE> 8
EARTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BUSINESS AND BASIS OF PRESENTATION
EarthCare Company ("EarthCare" or the "Company") and its subsidiaries
primarily engage in services related to non-hazardous liquid waste ("NLW"). We
are organized in two business segments: EarthAmerica and EarthLiquids.
EarthAmerica provides NLW collection, processing, treatment, disposal, bulk
transportation, pumping, plumbing and maintenance services from its operating
locations in New York, New Jersey, Pennsylvania, Florida, Georgia and Texas.
EarthAmerica serves customers consisting of single family residences,
restaurants, auto and truck service centers, industrial businesses, office
buildings, apartments, schools, municipalities, hospitals and military bases.
EarthLiquids' operating locations in Florida, Delaware, Maryland and Louisiana
provide used oil and oil wastewater collection, disposal and processing services
for commercial and government customers consisting primarily of auto and truck
service centers and industrial and government facilities. EarthLiquids'
operating locations also process and refine used oil products for resale to
commercial customers.
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements comprise the accounts of
EarthCare Company and its subsidiaries. We have eliminated all significant
intercompany transactions and balances in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies we have followed to prepare the
condensed consolidated financial statements are consistent with the accounting
policies described in the Company's notes to consolidated financial statements
in the Company's Annual Report to Shareholders and Form 10-K for the year ended
December 31, 1999.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements and information are
unaudited. We have omitted or condensed certain information and disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles, although we believe that the disclosures
included herein are adequate to make the information presented not misleading.
You should read these interim financial statements in conjunction with the
Company's consolidated financial statements for the year ended December 31,
1999. We have included in the interim financial statements all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position, its results of operations and
its cash flows. We do not believe that the operating results for any particular
interim period are necessarily indicative of the operating results for a full
year.
We derived the financial information for the year ended December 31,
1999 from our audited financial statements for the same year that are included
in the Company's 1999 Annual Report to Shareholders.
INCOME (LOSS) PER SHARE AND WEIGHTED SHARES
We have not presented separated basic and diluted net loss per share
information because the incremental shares used to determine net loss per share
would be anti-dilutive. There is no difference between the basic and diluted
weighted average shares for the periods presented.
SOFTWARE DEVELOPMENT COSTS
We capitalize the internal software development costs related to
ISNetworld's software products. Capitalized costs include internal and external
programming labor costs. Capitalized software costs related to ISNetworld's
software products will be amortized over the expected useful lives of the
software products. We also capitalize the internal and external software costs,
consisting primarily of internal
8
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EARTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
programming labor costs and external contract programming, for our operating
software systems. Such costs will be amortized over the expected useful lives of
the software, currently expected to be five years. As of June 30, 2000, we had
not recognized any amortization related to these capitalized costs as the
ISNetworld software products were not yet completed and the internal operating
system development was not yet completed.
3. ACQUISITIONS
Our acquisitions during 2000 have been accounted for following the
purchase method. We allocated the aggregate acquisition cost to the net assets
acquired based on the fair market value of such net assets. We allocated the
excess of the aggregate acquisition cost over the fair market value of the
tangible net assets acquired to goodwill and are amortizing the goodwill over a
20 year useful life. We included the operating results of such companies in our
historical results of operations for all periods following the acquisitions.
On February 15, 2000, we acquired all of the outstanding capital stock
of World Fuel Services Corporation's oil recycling services division,
International Petroleum Corporation ("IPC"). IPC became part of our EarthLiquids
segment and operates used oil, used oil filters and oily wastewater collection
and refining plants in Florida, Delaware and Louisiana. We acquired IPC for
$28,000,000 in cash and issued 750,458 shares of EarthCare's common stock. We
recorded goodwill of approximately $18,674,000 for the IPC acquisition.
In April 2000, World Fuel Services ("WFS") filed a demand for
arbitration against EarthCare alleging breach of contract, which requests
damages in the approximate amount of $3.7 million plus interest, late fees,
court costs and attorneys fees. In accordance with the terms of an acquisition
agreement, the parties have agreed to arbitrate this matter in Miami-Dade
County, Florida. EarthCare plans to zealously present its position and does not
believe, at this point, that a decision, even if favorable to WFS, will have a
material adverse effect on EarthCare's business, financial condition, results of
operations or cash flows. Arbitration proceedings are currently scheduled to
begin in December 2000.
On March 10, 2000, we acquired all of the outstanding capital stock of
All County Resource Management Corporation ("All County"), an NLW collection,
treatment, transportation and disposal services company located in New Jersey.
All County has been added to our EarthAmerica segment. We acquired All County
for $7,800,000 in cash and 598,686 shares of EarthCare's common stock. We
recorded goodwill of approximately $6,707,000 for the All County acquisition.
The following table presents the pro forma results of operations as if
all the acquisitions since December 31, 1998 had occurred at the beginning of
the periods presented. Pro forma adjustments reflect additional amortization
expense since the goodwill and intangible assets are amortized for a full
period. Pro forma adjustments also reflect additional interest expense due to
the related debt being outstanding for a full period. Income taxes have not been
provided within the pro forma operating results due to the pro forma net losses.
Such pro forma results do not purport to be indicative of what would have
occurred had the businesses actually been acquired as of those dates or results
which may occur in the future.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue ........................... $23,003,723 $21,447,829 $47,295,476 $42,291,563
Net income (loss) ................. $(4,566,901) $(1,204,890) $(6,530,643) $(2,346,014)
Net income (loss) per share ....... $ (0.35) $ (0.09) $ (0.49) $ (0.18)
</TABLE>
In July 2000, we acquired approximately 44% of the outstanding common
stock of Liberty Waste, Inc., a solid waste collection and disposal company
located in Florida, with 356,000 shares of EarthCare common stock. We intend on
acquiring the remaining 56% of the outstanding common stock of Liberty, subject
to obtaining approval from our lenders. One of our controlling shareholders has
provided approximately $8.5 million in subordinated debt financing to Liberty
Waste. The following table presents
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EARTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
the pro forma results of operations as if all the acquisitions since December
31, 1998, including acquisition of 100% of the common stock of Liberty Waste,
had occurred at the beginning of the period presented. We have applied similar
pro forma adjustments as those described in the first preceding paragraph to
these pro forma operating results.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue ........................... $27,092,223 $25,536,329 $55,472,476 $50,468,563
Net income (loss) ................. $(4,776,919) $(1,414,908) $(6,950,680) (2,766,051)
Net income (loss) per share ....... $ (0.34) $ (0.12) $ (0.50) $ (0.20)
</TABLE>
4. DEBT
In April 2000, the Company and its lenders amended EarthCare's credit
agreement to modify, among other matters, certain restrictive financial
covenants. As of June 30, 2000, we were required to maintain interest coverage
of 2.0 to 1, maximum leverage coverage of 4.5 to 1, senior leverage coverage of
3.7 to 1 and a minimum net worth of $22,000,000 plus 75% of changes to
stockholders' equity since March 31, 2000. We have fixed the interest rate on
$30,000,000 of our outstanding balance of our revolving line of credit at
approximately 10.25% with interest rate swap agreements. We pay interest at
prime + 2% or LIBOR, with a margin of 3.25%, on the remaining $30,000,000.
As of June 30, 2000, we did not comply with certain restrictive
financial covenants contained in our credit agreement, specifically certain
interest and leverage coverage ratios. At the time of the filing of this report,
our lenders have not waived compliance with covenants that we exceeded at June
30, 2000. We are currently negotiating with our lenders to revise the terms of
our credit agreement and establish financial and other covenants for the next
year. Although we believe that it is likely that we will reach satisfactory
terms with our lenders, the terms of an amendment have not been finalized. As a
result of our non-compliance with these covenants and the lack of a waiver or
signed amendment at the time of the filing of this report, we have classified
the outstanding debt under the credit agreement as a current liability. To the
extent that we are able to successfully amend the terms of the credit agreement
or refinance the outstanding debt under the credit agreement by September 30,
2000, the Notes described below and the 10% subordinated debentures will not be
due ahead of their scheduled redemption dates.
In February 2000, we completed a $20,000,000 private placement of
EarthCare's 12% subordinated notes ("Notes") that are due in February 2008. We
also issued warrants to purchase over five years up to 400,000 shares of
EarthCare's common stock at an exercise price of $6.67 per share. We determined
that the estimated fair value of the warrants was approximately $680,000 at the
time of the private placement. We included the value of the warrants in other
long-term assets and are amortizing the value over the term of the Notes. The
Notes accrue interest at 12% per year from the date of issuance with the
interest payable semi-annually on March 30 and September 30. We may pay the
interest by issuing shares of EarthCare's common stock in an amount equal to the
interest payable. We may elect to defer the payment of interest on September 30,
2000 until March 30, 2001. If we do not repay the Notes by September 30, 2000,
we are obligated to issue warrants to purchase an additional 400,000 shares of
EarthCare's common stock at an exercise price of $6.67. Two of EarthCare's
significant shareholders purchased 75% of the Notes.
5. STOCKHOLDERS' EQUITY
SALE OF COMMON STOCK
In June 2000, we completed the sale of 599,700 shares of common stock
for $4,000,000 in a private placement. In addition, we issued warrants to
purchase 200,000 shares of common stock at $7.00 per share. We used the net
proceeds of $3,880,000 to repay a loan of $1,840,000 from one of the Company's
controlling shareholders and to repay amounts outstanding under our revolving
line of credit.
OPTIONS AND WARRANTS
For the three- and six-month periods ended June 30, 2000, there were
1,334,161 options and warrants outstanding at exercise prices ranging from $5.80
to $8.00, 1,462,154 options and warrants
10
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EARTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
outstanding at exercise prices ranging form $10.00 to $16.00, and 737,500
options outstanding at exercise prices ranging from $20.00 to $25.00.
For the three- and six-month period ended June 30, 1999, there were
627,891 options and warrants outstanding at exercise prices ranging from $5.80
to $6.00, 1,745,904 options and warrants outstanding at exercise prices ranging
form $10.00 to $16.00, and 815,000 options outstanding at exercise prices
ranging from $20.00 to $25.00.
6. SEGMENT INFORMATION
During 1999, we managed the operations of the Company as one business
segment - non-hazardous liquid waste collection and disposal. Beginning in 2000,
as a result of certain acquisitions and as a result of improvements in the
management organization, we manage EarthCare's business in two segments:
EarthAmerica and EarthLiquids. We present below certain summary financial
information related to these segments.
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 2000 June 30, 2000
---------------- ---------------
<S> <C> <C>
Revenue:
EarthAmerica $ 13,210,212 $ 25,103,175
EarthLiquids.................................................. 9,509,033 17,258,822
Other......................................................... 284,478 632,158
------------ -------------
Total revenue............................................. $ 23,003,723 $ 42,994,155
============ =============
Operating income:
EarthAmerica $ 4,820,898 $ 8,933,436
EarthLiquids.................................................. 3,581,402 6,201,554
Other......................................................... 284,478 632,158
------------ -------------
Total operating income.................................... 8,686,778 15,767,148
General and administrative expenses........................... 6,991,642 11,661,696
Sales, marketing and development expenses..................... 1,603,515 2,974,556
Depreciation and amortization................................. 1,981,250 3,143,165
Interest and other............................................ 2,677,272 4,413,210
------------ -------------
Net loss.................................................. $ (4,566,901) $ (6,425,479)
============ =============
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-------------
<S> <C>
Identifiable assets:
EarthAmerica...................................................................... $ 64,501,987
EarthLiquids...................................................................... 61,083,308
Other............................................................................. 12,742,111
-------------
Total assets.................................................................. $ 138,327,406
=============
</TABLE>
<TABLE>
<CAPTION>
Capital Depreciation and
expenditures amortization
------------ ----------------
<S> <C> <C>
Other information for the six months ended June 30, 2000:
EarthAmerica $ 4,177,259 $ 1,641,980
EarthLiquids.................................................. 450,242 1,269,990
Other......................................................... 737,785 231,195
------------ -------------
Total..................................................... $ 5,365,286 $ 3,143,165
============ =============
</TABLE>
11
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EARTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
7. SEVERANCE, ASSET RECOVERY, ACQUISITION AND OTHER COSTS
During the three months ended June 30, 2000, we recorded a charge to
operations of $2,954,000 that relates to various matters and events that
occurred during the period. We have included such charge in general and
administrative expenses. Such presentation affects the comparability of the
operating results for the periods shown and, partly as a result, we have
included additional disclosure about the nature of the charges. We negotiated
severance and employment settlement agreements with four former employees and,
as a result, have recorded $1,151,000 to cover the cost of such agreements.
During the quarter we reviewed the carrying value of our trade accounts
receivable and determined that a charge of $1,125,000 was necessary to properly
state the trade accounts receivable at their recoverable value. In addition, we
reviewed the carrying value of certain other current assets and current
liabilities and determined that write-downs and additional accruals of $678,000
were necessary. As part of this amount, we identified $190,000 of acquisition
costs that related to acquisition efforts that will not result in completed
acquisitions.
12
<PAGE> 13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
EarthCare Company ("EarthCare" or the "Company") and its subsidiaries
primarily engage in services related to non-hazardous liquid waste ("NLW"). We
are organized in two business segments: EarthAmerica and EarthLiquids.
EarthAmerica provides NLW collection, processing, treatment, disposal, bulk
transportation, pumping, plumbing and maintenance services from its operating
locations in New York, New Jersey, Pennsylvania, Florida, Georgia and Texas.
EarthAmerica serves customers consisting of single family residences,
restaurants, auto and truck service centers, industrial businesses, office
buildings, apartments, schools, municipalities, hospitals and military bases.
EarthLiquids' operating locations in Florida, Delaware, Maryland and Louisiana
provide used oil and oil wastewater collection, disposal and processing services
for commercial and government customers consisting primarily of auto and truck
service centers and industrial and government facilities. EarthLiquids'
operating locations process and refine used oil products for resale to
commercial customers.
The NLW industry serves a basic need - the collection, treatment and
disposal of non-hazardous liquid waste. We believe that primarily population and
the general level of economic activity will drive the future demand for NLW
services. We also expect that increasing regulation at the federal, state and
local level, as well as increased awareness of and demand for a safer and
cleaner environment, are creating the need for a more professional and
environmentally responsible NLW industry.
STRATEGIC GROWTH
We intend to expand our business in the NLW industry primarily through
internal growth from new customer service programs, partnerships, affiliate
alliances and development of technology and Internet information systems. We
expect that over the long term, these areas will provide the strategic growth
for EarthCare. In addition, we may also continue to grow through select
strategic investments in new geographic markets and through certain strategic
acquisitions in our EarthAmerica and EarthLiquids segments. The extent to which
we successfully grow in the future will be directly affected by, among other
factors, our future operating results and cash flows from operations and our
ability to attract additional sources of equity or debt financing.
ACQUISITIONS
As discussed more fully elsewhere in this report, in our Annual Report
to Shareholders and in our filings with the Securities and Exchange Commission,
we have acquired numerous businesses since the inception of EarthCare. Our
results of operations and the comparability of our results of operations from
period to period have been affected significantly by businesses acquired in each
period.
We have accounted for our acquisitions using the purchase accounting
method. We have included the historical results of operations for our
acquisitions in our results of operations from the dates of acquisition. The
acquisitions have affected, and will prospectively affect, our results of
operations in certain significant respects. Our revenues and operating expenses
have been directly affected by the timing of the acquisitions. We have allocated
the aggregate acquisition costs, including assumption of debt, to the net assets
acquired based on the fair market value of such net assets. The allocations of
the purchase prices results in an increase in the historical book value of
certain assets, including property and equipment, and will generally result in
the allocation of a significant portion of the purchase price to goodwill and
intangible assets, which results in incremental periodic amortization expense.
RESULTS OF OPERATIONS
The results of operations, as a percentage of revenue, are summarized
in the table below for the three- and six-month periods ended June 30, 2000 and
1999.
13
<PAGE> 14
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Revenue .................................................. 100.0% 100.0% 100.0% 100.0%
Expenses:
Cost of operations .................................... 62.2% 64.1% 63.3% 66.1%
General and administrative - without item below ....... 17.7% 20.9% 20.3% 20.3%
Sales, marketing and development ...................... 7.0% 7.3% 6.9% 7.5%
Depreciation and amortization ......................... 8.6% 5.9% 7.3% 5.3%
General and administrative - severance, asset
recovery, acquisition and other ..................... 12.8% -- 6.9% --
----- ----- ----- -----
Operating expenses ................................ 108.3% 98.2% 104.7% 99.2%
----- ----- ----- -----
Income (loss) from operations ............................ (8.3%) 1.8% (4.7%) 0.8%
Interest and other ....................................... 11.6% 5.8% 10.2% 4.6%
----- ----- ----- -----
Loss before income taxes ................................. (19.9%) (4.0%) (14.9%) (3.8%)
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED JUNE 30, 1999
REVENUE
Revenue amounted to $23,003,723 for the second quarter of 2000, which
represented an increase of $12,952,250 or 128.9% over the same quarter in 1999.
The businesses we acquired since March 31, 1999 accounted for approximately
$10,100,000 of this increase. Our revenue from existing operations increased by
approximately $2,900,000 during this period.
Revenue increased by $3,013,291 or 15.1% from the first quarter of 2000
to the second quarter of 2000. The businesses we acquired since December 31,
1999 accounted for approximately $4,800,000 of increased revenue. Our revenue
from existing operations declined by approximately $1,800,000 due primarily to
lower revenues in our EarthAmerica operations in Georgia and Florida which have
been negatively affected by lower than normal rainfalls in those regions and by
an unsuccessful annual series of yellow page advertisements. Our new yellow page
advertisements for the upcoming year have been revised and, to date, have been
generating increased call volume from our customers. We expect this trend to
continue to improve over the next year.
COST OF OPERATIONS
Cost of operations amounted to $14,316,945 for the second quarter of
2000, which represented an increase of $7,869,838 or 122.1% over the same
quarter in 1999. This increase is primarily related to the acquisitions
completed since March 31, 1999 (approximately $8,400,000). Cost of operations
from existing operations declined by approximately $500,000 as a result of our
integration efforts following completed acquisitions. As a percentage of
revenue, cost of operations declined from 64.1% in 1999 to 62.2% in 2000
primarily as a result of the effect of the acquisitions completed in our
EarthLiquids segment.
Cost of operations increased by $1,406,883 or 10.9% during the second
quarter of 2000 from the first quarter of 2000. Businesses acquired during the
first quarter of 2000 contributed approximately $2,800,000 of this increase as
we operated these businesses for a full quarter. Cost of operations from
existing operations declined by approximately $1,400,000 due to our integration
and cost control efforts. As a percentage of revenue, cost of operations
declined from 64.6% during the first quarter of 2000 to 62.2% during the second
quarter of 2000, primarily as a result of the EarthLiquids business acquired
during the first quarter of 2000.
14
<PAGE> 15
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense, excluding severance, asset
recovery, acquisition and other costs described below, amounted to $4,037,642
for the second quarter in 2000, which represented an increase of $1,941,448 or
92.6% over the same period in 1999. This increase is principally due to the
acquisitions completed since June 30, 1999. General and administrative expense
for the second quarter of 2000 was $632,412 lower than the first quarter of
2000. Increases in general and administrative costs due to companies acquired
since December 31, 1999 with a full quarter of ownership by EarthCare were
offset by reductions due to integration, cost controls and the capitalization of
software development costs.
SEVERANCE, ASSET RECOVERY, ACQUISITION AND OTHER COSTS
During the three months ended June 30, 2000, we recorded a charge to
operations of $2,954,000 that relates to various matters and events that
occurred during the period. We have included such charge in general and
administrative expenses. Such presentation affects the comparability of the
operating results for the periods shown and, partly as a result, we have
included additional disclosure about the nature of the charges. We negotiated
severance and employment settlement agreements with four former employees and,
as a result, have recorded $1,151,000 to cover the cost of such agreements.
During the quarter we reviewed the carrying value of our trade accounts
receivable and determined that a charge of $1,125,000 was necessary to properly
state the trade accounts receivable at their recoverable value. In addition, we
reviewed the carrying value of certain other current assets and current
liabilities and determined that write-downs and additional accruals of $678,000
were necessary. As part of this amount, we identified $190,000 of acquisition
costs that related to acquisition efforts that will not result in completed
acquisitions.
SALES, MARKETING AND DEVELOPMENT EXPENSE
Sales, marketing and development expense amounted to $1,603,515 for the
second quarter of 2000, which represented an increase of $870,775 or 118.8% over
the same quarter in 1999. This increase is primarily related to the acquisitions
completed since March 31, 1999. As a percentage of revenue, sales and marketing
expense decreased from 7.3% in 1999 to 7.0% in 2000 primarily because the
companies acquired since March 31, 1999 had a proportionately smaller sales and
marketing infrastructure to support a higher level of revenue. Sales, marketing
and development expense for the second quarter of 2000 was $232,474 higher than
the first quarter of 2000 due partly to companies acquired since December 31,
1999 (approximately $85,000). In addition, we increased the size and scope of
our sales and marketing organization to increase our sales efforts and implement
new marketing programs for our residential and restaurant service programs.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization amounted to $1,981,250 for the second
quarter of 2000, which represented an increase of $1,386,379 or 233.1% from the
same quarter in 1999. This increase is related to the acquisitions completed by
EarthCare since March 31, 1999. Depreciation and amortization for the second
quarter of 2000 was $819,335 higher than the first quarter of 2000 due primarily
to the acquisitions completed by EarthCare since December 31, 1999.
INTEREST EXPENSE
Interest expense amounted to $2,677,272 for the second quarter of 2000,
which represented an increase of $2,271,269 or 559.4% from the same quarter in
1999. We incurred additional debt, including our revolving line of credit and
subordinated debentures, in order to finance acquisitions that we completed
after March 31, 1999. Interest expense for the second quarter of 2000 was
$941,334 or 54.2% higher than the first quarter of 2000 due primarily to the
debt incurred during the first quarter being outstanding for a complete quarter
and to a lesser extent due to the increase in the interest rates during the
quarter.
INCOME TAXES
We did not provide for income taxes during the periods. EarthCare
generated a tax loss during the periods and we have not recognized the future
benefit of the tax loss.
15
<PAGE> 16
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 VERSUS SIX MONTHS ENDED JUNE 30, 1999
REVENUE
Revenue amounted to $42,994,155 during the six months ended June 30,
2000, which represented an increase of $25,127,045 or 140.6% over the same
period in 1999. The businesses we acquired since December 31, 1998 accounted for
approximately $24,800,000 of this increase.
COST OF OPERATIONS
Cost of operations amounted to $27,227,067 during the six months ended
June 30, 2000, which represented an increase of $15,413,643 or 130.5% over the
same period in 1999 due to our acquisitions completed since December 31, 1998.
As a percentage of revenue, cost of operations declined from 66.1% in 1999 to
63.3% in 2000. We attribute this change to our EarthLiquids acquisitions that
tend to operate at a lower cost than our EarthAmerica operations.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense, excluding severance, asset
recovery, acquisition and other costs described above, amounted to $8,707,696
for the six months ended June 30, 2000, which represented an increase of
$5,084,540 or 140.3% over the same period in 1999. This increase is principally
due to the acquisitions completed since December 31, 1998 (approximately
$4,600,000). In addition, we increased the size of our existing corporate and
regional management infrastructure as EarthCare has grown during this period.
SALES, MARKETING AND DEVELOPMENT EXPENSE
Sales, marketing and development expense amounted to $2,974,556 for the
six months ended June 30, 2000, which represented an increase of $1,634,667 or
122.0% over the same period in 1999. This increase is partly related to the
acquisitions completed since December 31, 1998 (approximately $801,000). In
addition, we increased the size and scope of our sales and marketing
organization to increase our sales efforts and to implement new marketing
programs for our residential and restaurant service programs. As a percentage of
revenue, sales and marketing expense decreased from 7.5% in 1999 to 6.9% in 2000
primarily because the companies acquired since December 31, 1998 had a
proportionately smaller sales and marketing infrastructure to support a higher
level of revenue. In addition, our rate of internal revenue growth exceeded the
rate at which we increased our sales and marketing organization.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization amounted to $3,143,165 for the six months
ended June 30, 2000, which represented an increase of $2,203,729 or 234.6% from
the same period in 1999. This increase is related to the acquisitions completed
by EarthCare since December 31, 1998.
INTEREST EXPENSE
Interest expense amounted to $4,413,210 for the six months ended June
30, 2000, which represented an increase of $3,784,898 or 602.4% from the same
period in 1999. We incurred additional debt, including our revolving line of
credit and subordinated debentures, in order to finance acquisitions that we
completed after December 31, 1998.
INCOME TAXES
We did not provide for income taxes during the periods. EarthCare
generated a tax loss during the periods and we have not recognized the future
benefit of the tax loss.
16
<PAGE> 17
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, we did not comply with certain restrictive
financial covenants contained in our credit agreement, specifically certain
interest and leverage coverage ratios. At the time of the filing of this report,
our lenders have not waived compliance with covenants that we exceeded at June
30, 2000. We are currently negotiating with our lenders to revise the terms of
our credit agreement and establish financial and other covenants for the next
year. Although we believe that it is likely that we will reach satisfactory
terms with our lenders, the terms of an amendment have not been finalized. As a
result of our non-compliance with these covenants and the lack of a waiver or
signed amendment at the time of the filing of this report, we have classified
the outstanding debt under the credit agreement as a current liability. To the
extent that we are able to successfully amend the terms of the credit agreement
or refinance the outstanding debt under the credit agreement by September 30,
2000, the Notes and the 10% subordinated debentures will not be due ahead of
their scheduled redemption dates.
As of June 30, 2000, we had $600,000 available to borrow under our
$60,000,000 revolving line of credit and had approximately $700,000 in cash.
During the six months ended June 30, 2000, we used $4,926,089 in cash
for operating activities. We generated approximately $914,000 in operating
income and approximately $4,085,000 in EBITDA from our existing operations
(excluding the severance, asset recovery, acquisition and other costs of
$2,954,000); however, we also invested approximately $4,800,000 in working
capital. The growth in our accounts receivable of approximately $6,800,000
outpaced our ability to increase our accounts payable vendor financing
(approximately $1,500,000). We funded this use of cash with borrowings under our
revolving line of credit and with the private placement of common stock.
During the second quarter of 2000, we used approximately $541,000 in
cash for our operating activities as compared to our use of approximately
$4,400,000 during the first quarter of 2000. This improvement was a result of
our improved operating results, excluding the severance, asset recovery,
acquisition and other costs. In particular, our EBITDA for the second quarter
improved by approximately $2,000,000 to approximately $3,000,000. In addition,
we improved our accounts payable financing with support from our vendors.
We expect to generate cash flows from operating activities during the
remainder of 2000. We also expect that such cash flow will be sufficient to
enable us to service our debt and to fund needed capital expenditures. Our
expected level of capital expenditures for the remainder of 2000 will range from
$2,000,000 to $3,000,000. If our operating results for the remainder of 2000 do
not generate adequate cash flow to service our debt and fund our capital
expenditures, we will evaluate other courses of actions. These would include,
but are not necessarily limited to, limiting our capital expenditures, reducing
the level of our operating costs, disposing of certain assets and evaluating the
future of certain locations that may not be performing according to
expectations. In addition, during the next twelve months we plan to continue to
evaluate sources of additional debt or equity financing for EarthCare.
We used $44,129,624 in cash for investing activities during the six
months ended June 30, 2000. Two businesses, All County and IPC, were acquired
for approximately $37.4 million in cash and other consideration. In addition, we
used $5.4 million in cash to purchase property and equipment and to fund
software development. Management also invested $1.1 million as an increase in a
note receivable to fund an investment in a company that is developing a NLW
disposal site.
We generated $49,748,354 in cash from financing activities during the
six months ended June 30, 2000. We generated $47.3 million in cash from a net
increase in our long-term debt. We issued the remainder of our 10% subordinated
debentures ($1.0 million), issued our 12% subordinated notes ($20.0 million) and
borrowed $26.3 million under our credit agreement. The proceeds from the debt
were used to fund the businesses we acquired, to pay for the debt issuance
costs, to finance our capital expenditures and to fund our operating cash flow
needs. We used $1,468,375 to pay for debt issue costs in connection with our 10%
subordinated debentures, our 12% subordinated notes and the amendment to our
credit agreement. In June 2000, we sold 599,700 shares of common stock in a
private placement and received net proceeds of $3,880,000. Such proceeds were
used to repay a loan of $1,840,000 from one of our controlling shareholders. In
July 2000, the remaining proceeds were used to reduce the revolving line of
credit.
17
<PAGE> 18
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Earnings before interest, taxes, depreciation and amortization
("EBITDA") is a commonly used supplemental measurement of a company's ability to
generate cash flow and is used by many of the Company's investors and its
lenders. Management believes that EBITDA is another measure that demonstrates
the cash generating abilities of the Company's businesses. EBITDA should not be
considered an alternative to net income in measuring the Company's performance
or be used as an exclusive measure of cash flow, because it does not consider
the impact of working capital growth, capital expenditures, debt principal
reductions or other sources and uses of cash that are included in the
consolidated condensed statements of cash flows.
SEASONALITY AND INFLATION
Our EarthAmerica segment's operating results are subject to variations
in the weather patterns in the Northeastern and Southeastern regions. In the
Northeastern region, revenue and operating results will tend to be lower during
the fourth quarter and first quarter of each year due to the effect of winter
weather. In the Southeastern region, revenue and operating results will tend to
be higher during the fourth and first quarter of each year due to the influx of
seasonal inhabitants to this region in the fall and winter months. The
Southeastern region revenue and operating results during the second, third and
fourth quarters of each year will also be directly affected by the amount of
rainfall in the region.
Our EarthLiquids segment is subject to variations in the prices of
virgin and used oil products. Our pricing for our oil products varies in
relation to the prices for virgin oil and natural gas products. To the extent
that the pricing for virgin oil products varies over time, the revenues we
generate from the sales of used oil products will also vary and may have a
significant effect on the results of our operations. In addition, the cost to
operate all of our vehicles is directly affected by the prices of diesel fuel
and other finished oil and gasoline products.
We believe that seasonality, inflation and changing prices, except to
the extent disclosed above, have not had and are not expected to have, any
material adverse effect on our results of operations in the near future.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards No. 133, 137 and 138, all related to the
accounting for derivative instruments and derivative activities, that are
effective for annual reporting periods beginning after June 15, 2000. We are
required to adopt this standard during our fiscal year ending December 31, 2000.
The Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
Revenue Recognition, that is required to be adopted beginning with the quarterly
reporting period ended December 31, 2000. We are in the process of evaluating
the effects, if any, of adopting these two new pronouncements.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's revolving line of credit provides for interest to be
charged at the prime rate or at a LIBOR rate plus a margin of 3.25%. We have
entered into interest rate swap agreements that have fixed the interest rate for
$30.0 million of our revolving line of credit. Based on the Company's current
level of outstanding revolving line of credit that is subject to variable
interest rates, a 1.0% increase in interest rate would result in a $0.3 million
annual change in interest expense. The remainder of the Company's debt is at
fixed interest rates that are not subject to changes in interest rates. We have
$15.6 million in outstanding convertible debentures, all of which may be
converted into approximately 2.6 million shares of common stock at a rate of
$6.00 per share. For every $1.00 that the share price of the Company's common
stock rises above $6.00, the holders of the debentures, if they converted their
debentures to common stock, would benefit by approximately $2.6 million. We do
not own, now are we obligated under, other significant debt or equity securities
that would be affected by fluctuations in market risk. We do not hold or issue
derivative financial instruments for speculation or trading purposes.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Except as noted below, there have been no significant changes to
ongoing litigation matters during the quarterly reporting period ended June 30,
2000. Additionally, from time to time, EarthCare is or may become involved in
litigation and claims arising out of the ordinary course of business.
During the quarter ended June 30, 2000, EarthCare was successful in its
arbitration proceedings with Eldredge Wastewater Management Company
("Eldredge"). EarthCare purchased certain assets owned by Eldredge under the
terms of an asset purchase agreement. As a condition of the closing of the
acquisition, EarthCare entered into a separate agreement with an affiliate of
Eldredge for the disposal of oily wastes collected by EarthCare within a defined
territory. Eldredge alleged that EarthCare breached such agreement in that
EarthCare allegedly had not brought the oily wastes collected within the area
included within such agreement to the affiliate for disposal. Arbitration
proceedings were completed in April 2000.
In April 2000, World Fuel Services ("WFS") filed a demand for
arbitration against EarthCare alleging breach of contract, which requests
damages in the approximate amount of $3.7 million plus interest, late fees,
court costs and attorneys fees. In accordance with terms of an acquisition
agreement, the parties have agreed to arbitrate this matter in Miami-Dade
County, Florida. EarthCare plans to zealously present its position and does not
believe, at this point, that a decision, even if favorable to WFS, will have a
material adverse effect on EarthCare's business, financial condition, results of
operations or cash flows. Arbitration proceedings are currently scheduled to
begin in December 2000.
ITEM 2 - CHANGES IN SECURITIES
We intend to file a post-effective amendment to our registration
statement on Form S-1 in order to register shares of common stock which would be
available for the conversion of subordinated debentures, for use in future
acquisitions and for sale by existing shareholders. Due to the timing of the
filing of the registration statement, the conversion price for the 10%
subordinated debentures was decreased from $6.67 to $6.00.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held the Annual Meeting of our shareholders on May 25, 2000 at our
corporate offices in Dallas, Texas. Shareholders who owned common stock as of
April 20, 2000 voted on the following proposals:
<TABLE>
<CAPTION>
Shareholder votes
---------------------------------------------
Proposals presented to shareholders For Against Abstain
---------- --------- ----------
<S> <C> <C> <C>
1. Election of directors for term expiring in 2003:
Harry M. Habets................................... 9,043,153 405 7,259
Brian Rosborough.................................. 9,043,028 530 7,259
William M. Addy................................... 9,013,237 30,321 7,259
2. Election of director for term expiring in 2002 -
Philip S. Siegel.................................. 9,041,053 7,589 2,175
3. Ratification of appointment of independent
public accountants, PricewaterhouseCoopers LLP.... 9,044,747 5,445 625
</TABLE>
19
<PAGE> 20
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On May 1, 2000, we filed a Current Report on Form 8-K covering the
following matters: (1) announcement of restated operating results
for the quarterly reporting periods ended March 31, 1999, June 30,
1999 and September 30, 1999; (2) status of our search for a Chief
Financial Officer; (3) announcement of the signing of a management
agreement with Liberty Waste, Inc., a solid waste company; and (4)
announcement that two directors resigned and two new directors
were appointed.
On May 1, 2000, we filed a Current Report on Form 8-K/A to provide
the audited historical financial statements and the unaudited
historical financial statements of International Petroleum
Corporation and related entities and to provide our unaudited pro
forma financial information relating to this acquired business.
SIGNATURE
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: August 11, 2000
By: /s/ William W. Solomon, Jr.
---------------------------
Vice President, Chief Financial Officer and
Principal Accounting Officer
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
