<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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) 858-6224
(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 10,847,834 on November 04, 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
FORM 10-Q/A
AMENDMENT NO. 1
INTRODUCTION
This amendment to Part 1, Items 1 and 2 of EarthCare Company's quarterly filing
on Form 10-Q for the quarterly period ended September 30, 1999 includes changes
from the previous filing to reflect a reduction of current assets of $120,584,
a reduction of noncurrent assets totaling $2,820,295, a reduction of current
liabilities of $941,695, additional operating expenses totaling $822,696, a loss
from disposal of assets of $46,961 and a reduction in the tax provision of
$127,250 for the three months ended September 30, 1999. Further, included are
additional operating expenses totaling $2,062,586, a loss from disposal of
assets of $250,820 and a reduction in the tax provision totaling $314,222 for
the nine months ended September 30, 1999.
<PAGE>
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 referenced 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>
EarthCare Company and Subsidiaries
TABLE OF CONTENTS
PART I Item 1. FINANCIAL STATEMENTS
Page
Consolidated Balance Sheet - December 31, 1998 and September 30, 1999
(unaudited)....................................................................1
Unaudited Consolidated Statement of Operations - Three months and nine
months ended September 30, 1998 and September 30, 1999.........................2
Unaudited Consolidated Statement of Cash Flows - Nine months ended
September 30, 1998 and September 30, 1999......................................3
Notes to Unaudited Consolidated Financial Statements...........................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................12
iii
<PAGE>
EARTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1998 1999
------ ------------ ------------
Unaudited
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,039,594 $ 266,967
Accounts receivable, net of allowance for
doubtful accounts of $277,985 and $662,373
in 1998 and 1999, respectively 3,960,520 8,309,658
Prepaid expenses 557,669 2,294,428
Note receivable 67,959 26,793
Deferred income taxes 377,147 276,895
----------- -----------
Total current assets 6,002,889 11,174,741
----------- -----------
PROPERTY AND EQUIPMENT, NET 4,910,004 28,684,740
----------- -----------
OTHER NONCURRENT ASSETS:
Intangibles, net 20,166,445 36,357,070
Deferred income taxes 246,913 357,842
Other Assets 1,964,028 1,083,091
----------- -----------
22,377,386 37,798,003
----------- -----------
$33,290,279 $77,657,484
=========== ===========
LIABILITIES AND
STOCKHOLDERS EQUITY
-------------------
CURRENT LIABILITIES:
Accounts Payable $ 2,761,451 $ 3,962,554
Accrued Expenses 2,184,818 1,937,467
Notes payable -- 118,964
Current portion of long-term debt 118,500 118,500
----------- -----------
Total current liabilities 5,064,769 6,137,485
----------- -----------
LONG-TERM DEBT, NET OF CURRENT PORTION 9,209,440 38,653,321
----------- -----------
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 10,847,784 shares issued and outstanding in 1998
and 1999, respectively 957 1,084
Additional paid-in capital 20,702,555 35,430,283
Accumulated deficit (1,687,442) (2,564,689)
----------- -----------
Total stockholders' equity 19,016,070 32,866,678
----------- -----------
$33,290,279 $77,657,484
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
-1-
<PAGE>
EARTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three-Months Nine-Months
Ended Ended
September 30 September 30
-------------------------- --------------------------
1998 1999 1998 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
REVENUES $8,273,534 $10,933,644 $18,221,028 $28,800,754
EXPENSES:
Cost of Operations 5,723,970 6,704,556 12,984,116 18,517,914
General and Administrative Expense 1,378,442 2,334,750 4,362,630 5,966,075
Sales, Marketing and Development Expense 516,502 819,528 1,288,562 2,151,248
Depreciation and
Amortization 436,020 782,552 953,924 1,721,988
---------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 218,600 292,258 (1,368,204) 443,529
---------- ----------- ----------- -----------
Other expense (income):
Interest 180,727 581,461 454,769 1,209,773
Other 2,103 46,961 2,103 250,820
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES & 35,770 (336,164) (1,825,076) (1,017,064)
EXTRAORDINARY ITEM
INCOME TAX PROVISION (BENEFIT) 13,974 -- (304,562) (53,000)
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 21,796 (336,164) (1,520,514) (964,064)
EXTRAORDINARY ITEM, GAIN ON EARLY
RETIREMENT OF DEBT (NET OF
TAXES OF 53,000) -- -- -- 86,817
---------- ----------- ----------- -----------
NET INCOME (LOSS) $ 21,796 $ (336,164) $(1,520,514) $ (877,247)
========== =========== =========== ===========
INCOME (LOSS) PER SHARE
BEFORE EXTRAORDINARY
ITEM - BASIC AND DILUTED $ (0.00) $ (0.03) $ (0.19) $ (0.10)
========== =========== =========== ===========
EXTRAORDINARY ITEM PER SHARE -
BASIC and DILUTED $ -- $ -- $ -- $ 0.01
========== =========== =========== ===========
INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ (0.00) $ (0.03) $ (0.19) $ (0.09)
========== =========== =========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
-2-
<PAGE>
EARTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTHS
ENDED
SEPTEMBER 30,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss): $ (1,520,514) $ (877,247)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 953,924 1,721,988
Loss on disposal of assets -- 250,820
Deferred Income Tax Expense (Benefit) (460,428) (10,677)
Bad debt expense -- 36,665
(Gain) on early extinguishment of debt -- (139,817)
Changes in assets and liabilities, excluding effect of acquired businesses:
Accounts receivable (3,844,749) (2,486,828)
Other Current Assets (211,720) (1,032,127)
Other Assets (1,411,574) --
Accounts payable 1,500,558 100,854
Accrued expenses 1,277,8488 2,027,785
------------ ------------
Net cash provided by (used in) operating activities (3,716,655) (408,584)
Cash flows from investing activities:
Capital expenditures (679,384) (3,639,828)
Business acquisitions (18,825,374) (26,609,589)
Collection of notes receivable -- 37,831
Increase in investment -- (475,645)
Other Assets -- (284,296)
------------ ------------
Net cash used in investing activities (19,504,758) (30,971,527)
Cash flows from financing activities:
Net borrowings (payments) under lines of credit (1,383,958) --
Refinancing of debt 8,475,978 --
Principal payments on long-term debt (58,943) (6,267,071)
Proceeds from long-term debt -- 35,769,733
Sales of common stock 15,500,000 --
Exercise of stock options and warrants 2,254,575 1,104,822
------------ ------------
Net cash provided by financing activities 24,787,652 30,607,484
Net increase (decrease) in cash and cash equivalents 1,566,239 (772,627)
Cash and cash equivalents, beginning of period 195,552 1,039,594
------------ ------------
Cash and cash equivalents, end of period $ 1,761,791 $ 266,967
============ ============
Cash paid for interest $ 271,157 $ 581,461
============ ============
Supplemental Noncash Investing and Financing Activities:
Notes payable issued for business acquisitions $ 2,000,000 $ 200,000
============ ============
Common stock issued for business acquisitions $ 1,392,000 $ 7,829,150
============ ============
Fair value of warrants and options issued for debt issuance
costs and other services rendered $ 100,000 $ 217,743
============ ============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
-3-
<PAGE>
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 September 30, 1999 and for the three month
and nine month periods ended September 30, 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
September 30, 1998 September 30, 1999
--------------------------------- --------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
-------- --------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $21,796 $ (336,164)
Basic EPS:
Income (loss) available to common shareholders 21,796 9,491,066 $(0.00) (336,164) 10,487,586 $(0.03)
Effect of Dilutive Securities:
Options 105,842 --
Warrants 336,409 --
Diluted EPS:
Income(loss) available to common shareholders $21,796 9,932,957 $(0.00) $(336,164) 10,487,586 $(0.03)
<CAPTION>
For the nine months ended For the nine months ended
September 30, 1998 September 30, 1999
----------------------------------- ---------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income (loss) $(1,520,514) $ (877,247)
Basic EPS:
Income (loss) available to common (1,520,514) 8,047,383 $(0.19) (877,247) 10,118,276 $(0.09)
shareholders
Effect of Dilutive Securities:
Options -- --
Warrants -- --
Diluted EPS:
Income(loss) available to
common shareholders $(1,520,514) 8,047,383 $(0.19) $ (877,247) 10,118,276 $(0.09)
</TABLE>
For the three and nine month periods ended September 30, 1999, there were
443,077 options and warrants outstanding at exercise prices ranging from $5.80
to $6, 1,836,404 options and warrants outstanding at exercise prices ranging
from $10 to $16 and 755,000 options outstanding at exercise prices ranging from
$20 to $25 which were excluded from the EPS calculation due to their anti-
dilutive impact.
-4-
<PAGE>
3. ACQUISITIONS
During the first nine 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.
Effective April 1, 1999, the Company 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, the Company 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.
-5-
<PAGE>
On August 1, 1999, the Company acquired all of the outstanding capital
stock of AllenTate Commercial Software ("AllenTate"), a Texas Corporation,
in exchange for 75,000 shares of unregistered Common Stock and the
assumption of up to $160,00 in liabilities. The Company will issue an
additional 120,000 shares of Common Stock to the former owners if certain
earnings targets are achieved. AllenTate specializes in software
development and Internet services for industrial companies.
On September 1, 1999, the Company acquired all of the outstanding capital
stock of Magnum Environmental, Inc. ("Magnum"), a Florida corporation, in
exchange for $12.0 million in cash and 310,000 shares of Common Stock. In
addition, the Company issued 275,000 shares of unregistered Common Stock,
which is being held in escrow and will be released to the former owners if
certain earnings targets are achieved. Magnum's core business is the
transportation, treatment and disposal of used oil and petroleum contact
wastewater streams.
Shares of Common Stock issued in these acquisitions (except unregistered
shares) were issued pursuant to EarthCare's Post-Effective Amendment No. 1 to
registration statement on Form S-1.
The acquisitions of Reifsneider, Brehm's, National, Rooter Plus, AllenTate
and Magnum 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, Brehm's, National, Rooter Plus, and AllenTate was
$6,739,320; $1,105,000; $3,006,000; $3,085,000, and $1,168,547,
respectively.
The Company's unaudited pro forma consolidated results of operations for
the nine month periods ended September 30, 1998 and 1999, shown below are
presented assuming that the Reifsneider, Brehm's and Magnum acquisitions had
been consummated on January 1, 1998 (the pro forma effect of the other
Acquisitions has not been presented as they were not significant to the
company):
<TABLE>
<CAPTION>
Nine months ended
September 30
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Pro forma revenue $39,594,965 $36,600,247
Pro forma net income (loss) (1,645,676) (1,139,547)
Pro forma net income (loss) per share,
Basic and diluted $ (.19) $ (.11)
</TABLE>
4. SIGNIFICANT EVENTS
In addition to the acquisitions discussed in note 3, the following
significant events occurred during the nine months ended September 30, 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 collateralized by a first lien on substantially all assets of the
Company and requires the Company to maintain certain financial ratio covenants.
The Company was in violation of certain financial covenants at September 30,
1999, for which waivers have been obtained from the lender. In connection with
amending the Credit Agreement, the Company issued Bank of America additional
warrants to purchase 35,000 shares of Common Stock at $14 per share in lieu of
fees associated with the modification. In addition, in connection with an
assignment agreement between the Company and Bank of Boston related to the
Company's Credit Agreement, effective May 1, 1999, the Company issued Bank of
Boston warrants to purchase 10,000 shares of Common Stock at $15.50 per share,
in lieu of a fee. The bank warrants have been valued at approximately $71,000
based on the cost of the bank fees that would have been charged. Such amount has
been recorded as debt issue costs and is being amortized over the term of the
Credit Agreement.
-6-
<PAGE>
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. As of September 30, 1999, $475,644 has been loaned
to Crossroads.
Subsequent to September 30, 1999 the Company issued $15,000,000 of 10%
convertible subordinated debentures due 2006 (the "Debentures"). The credit
agreement with Bank of America was advanced to allow for the issuance of the
Debentures. The Debentures accrue interest at 10% per annum from the date of
issuance, payable quarterly (i) for the first two years, through the issuance of
additional Debentures at the option of the Company, (ii) for the next two years,
in cash, unless prohibited by senior lender covenants (in which event the
interest may be paid by issuance of additional Debentures), and (iii)
thereafter, in cash. The Debentures are unsecured obligations of the Company and
are subordinated in right of payment to existing and future senior indebtedness
of the Company. The Debentures are convertible at any time at the election of
the holder into shares of Common Stock, at a price per share equal to $11.50 per
share. Subject to downward adjustment prior to the Final Closing Date by mutual
agreement of the Company and Placement Agent (the "Conversion Price"). The
Debentures not previously called or converted will be due and payable on October
31, 2006.
-7-
<PAGE>
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 September 30, 1999 and the
results of operations of the Company for the three and nine months ended
September 30, 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 and septic tank
services; sewer and drain cleaning services; bulk liquid waste transportation;
treatment and disposal of used oil and petroleum contact wastewater streams; on-
site biotreatment systems; biosolids management; liquid waste processing and
disposal and maintenance and plumping. The Company's software division
specializes in software development and Internet services for industrial
companies. 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 its revenues from commercial and residential
services (approximately 76% of current revenues) and industrial liquid waste
transportation, processing and disposal (approximately 24% 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, maintenance, 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.
-8-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30
1998 1999 1998 1999
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Expenses:
Cost of Operations 69.2 61.3 71.3 64.3
General and Administrative 16.7 21.4 23.9 20.7
Sales and Marketing Development 6.2 7.5 7.1 7.5
Depreciation and Amortization 5.3 7.1 5.2 6.0
----- ----- ----- -----
Income (loss) from operations 2.6 2.7 (7.5) 1.5
Interest and other expense 2.2 5.8 2.5 5.0
----- ----- ----- -----
Income (loss) before income taxes 0.4 (3.1) (10.0) (3.5)
Provision (benefit) for income taxes 0.2 -- (1.7) (0.2)
Income before extraordinary item 0.3 (3.1) (8.3) (3.3)
Extraordinary item, gain on early
Retirement of debt -- -- -- 0.3
----- ----- ----- -----
Net income (loss) 0.3 (3.1) (8.3) (3.0)
===== ===== ===== =====
</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 SEPTEMBER 30, 1999
NET INCOME (LOSS): For the three months ended September 30, 1999, the
Company reported a net loss of $336,164 on revenues of $10,933,644 versus a net
income of $21,796 on revenues of $8,273,534 for the three months ended September
30, 1998.
REVENUES: Revenues were $10,933,644 (up 32%) for the three months ended
September 30, 1999 compared to $8,273,534 for the comparable period in the
prior year. Acquisition related revenues were $4.8 million in the third quarter
of 1999, accounting for an increase of 59% compared to the third quarter of
1998. Revenues in the third quarter declined by 27% compared to the third
quarter of 1998 because the company exited certain acquired business lines and
eliminated acquired customers that did not meet the Company's profitability
standards.
COST OF OPERATIONS: Cost of operations for the three months ended September
30, 1999 was $6,704,556 compared with $5,723,970 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 decreased from 69% in 1998 to 61%
in 1999 due to operational efficiencies.
GENERAL AND ADMINISTRATIVE EXPENSE: For the three months ended September
30, 1999, general and administrative expense was $2,334,750 compared with
$1,378,442 recorded in the comparable period in the prior year. The increase in
the current period expense includes (i) additional payroll cost of the chief
executive officer and the chief operating officer who did not draw a salary
prior to 1999, (ii) several other employees hired during the latter part of 1998
and early 1999 to support the Company's growth, and (iii) integration costs
associated with recent acquisitions. The increase is partially offset by a
decrease in a prior year insurance accrual, due to a change in estimate, which
had been established during 1998.
SALES, MARKETING AND DEVELOPMENT EXPENSE: For the three months ended
September 30, 1999 sales, marketing and development expense was $819,528
compared with $516,502 recorded in the comparable period in the prior year. The
increase was due to the growth of the Company and $125,000 for the development
of new marketing programs.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization was $782,552
or 7% of revenues for the three months ended September 30, 1999 compared to
$436,020 or 5% of revenues for the comparable period of 1998. The increase in
depreciation and amortization is due to the 1998 and 1999 acquisitions.
INTEREST EXPENSE: Interest expense for the three months ended September 30,
1999 was $581,461 compared to $180,727 in the comparable 1998 period. The
increase in interest expense resulted primarily from the debt incurred in
connection with the 1998 and 1999 acquisitions. Interest was incurred at an
average rate of approximately 7.83% during the three months ended September 30,
1999 and 7.3% in the compared 1998 period.
OTHER EXPENSE: The loss on disposal of assets of $46,961 for the three
months ended September 30, 1999 resulted from the disposal of surplus
equipment.
INCOME TAX PROVISION (BENEFIT): The Company recorded no benefit for income
taxes for the three months ended September 30, 1999, due to the continued losses
incurred by the Company. As the Company continues to grow, management will
evaluate the realizability of the loss carry forward and adjust the valuation
allowance accordingly.
-9-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
NET INCOME (LOSS): For the nine months ended September 30, 1999, the
Company reported a net loss of $877,247 on revenues of $28,800,754 versus a net
loss of $1,520,514 on revenues of $18,221,028 for the nine months ended
September 30, 1998.
REVENUES: Revenues were $28,800,754 (up 58%) for the nine months ended
September 30, 1999 compared to $18,221,028 for the comparable period in the
prior year. Revenues from acquisitions contributed approximately $9.8 million
for the nine months ended September 30, 1999. This accounts for 54% of the
increase in revenues. The Company's septic and pumping operations were
negatively affected by a drought in the southeastern United during the first
nine months of 1999.
COST OF OPERATIONS: Cost of operations for the nine months ended September
30, 1999 was $18,517,914 compared with $12,984,116 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 decreased from 71% in 1998 to 64%
in 1999 due to operational efficiencies. Operating costs in the first quarter of
1999 were negatively affected by seasonality of the business, and in all three
of the 1999 quarters by integration costs and repair and maintenance costs
associated with recent acquisitions.
GENERAL AND ADMINISTRATIVE EXPENSE: For the nine months ended September 30,
1999, general and administrative expense was $5,966,075 compared with $4,362,630
recorded in the comparable period in the prior year. Current year expense
includes (i) additional payroll cost of the chief executive officer and the
chief operating officer who did not draw a salary prior to 1999, (ii) several
other employees hired during the latter part of 1998 and early 1999 to support
the Company's growth, and (iii) integration costs associated with recent
acquisitions. The increase is partially offset by decreases in prior year bonus,
relocation and insurance accruals, due to changes in estimates, which had been
established during 1998. Prior year expense of $4,362,630 included approximately
$800,000 of expense associated with registering the Company with the Securities
and Exchange Commission.
SALES, MARKETING AND DEVELOPMENT EXPENSE: For the nine months ended
September 30, 1999 sales, marketing and development expense was $2,151,248
compared with $1,288,562 recorded in the prior year. The increase is due to the
growth of the company and $125,000 for the development of new marketing
programs.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization was $1,721,988
or 6% of revenues for the nine months ended September 30, 1999 compared to
$953,924 or 5% of revenues for the comparable period of 1998. The increase is
due to the 1998 and 1999 acquisitions.
INTEREST EXPENSE: Interest expense for the nine months ended September 30,
1999 was $1,209,773 compared to $454,769 in the comparable 1998 period. Interest
was incurred at an average rate of approximately 7.59% during the nine months
ended September 30, 1999 and 7.6% in the comparable 1998 period. The increase in
interest expense resulted primarily from the debt incurred in connection with
the 1998 and 1999 acquisitions.
OTHER EXPENSE: The loss on disposal of assets of $250,820 for the nine
months ended September 30, 1999 resulted from the disposal of surplus
equipment.
INCOME TAX PROVISION (BENEFIT): The Company recorded a tax benefit for the
nine months ended September 30, 1999, equal to the tax expense attributable to
the extraordinary gain. No additional benefit was recorded due to the continued
losses incurred by the Company. As the Company continues to grow, management
will evaluate the realizability of the loss carry forward and adjust the
valuation allowance accordingly.
EXTRAORDINARY ITEM: The Company recorded an extraordinary gain of $86,817
(net of $53,000 in income taxes) in the nine months ended September 30, 1999,
due to the early extinguishment of debt related to a 1998 acquisition.
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.
The Company expects a certain degree of seasonality in its operations due to
weather. The impact of this seasonality is usually reflected in the first and
fourth quarters.
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 September 30, 1999, the Company had cash of $266,967 and working capital
of $5,037,256.
On June 26, 1998, the Company entered into a $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 collateralized 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
September 30, 1999, the Company was not in compliance with certain financial
covenants; however, waivers have been obtained from the lender. Availability of
funds under the Credit Agreement is limited by the requirement that the Company
comply with various loan covenants. As of September 30, 1999 the outstanding
balance under the Credit Agreement was $38,301,858.
Subsequent to September 30, 1999 the Company issued $15,000,000 of 10%
convertible subordinated debentures due 2006 (the "Debentures"). The credit
agreement with Bank of America was amended to allow for the issuance of the
Debentures. The Debentures accrue interest at 10% per annum from the date of
issuance, payable quarterly (i) for the first two years, through the issuance of
additional Debentures at the option of the Company, (ii) for the next two years,
in cash, unless prohibited by senior lender covenants (in which event the
interest may be paid by issuance of additional Debentures), and (iii)
thereafter, in cash. The Debentures are unsecured obligations of the Company and
are subordinated in right of payment to existing and future senior indebtedness
of the Company. The Debentures are convertible at any time at the election of
the holder into shares of Common Stock, at a price per share equal to $11.50 per
share subject to anti-dulition provisions contained therein. The Debentures not
previously called or converted will be due and payable on October 31, 2006.
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 nine months of 1999, the Company
acquired six businesses for an aggregate consideration of $22,135,000 in cash,
$200,000 in seller notes and 995,526 shares of Common Stock. Funding of the cash
portion of the purchase prices was provided by borrowings under the Credit
Agreement. During the nine months ended September 30, 1999, the Company used
$3,639,828 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.
-10-
<PAGE>
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 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, has received certifications from its software and hardware
vendors, or has conducted the necessary tests, whenever possible, and has
completed the implementation of all Year 2000 conversions as of October 1999.
The Company incurred a total of $773,000 related to its hardware and software
implementation, of which $410,000 has been capitalized and $363,000 has been
expensed.
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.
-11-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
-12-
<PAGE>
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: April 13, 2000
By: /s/ Harry Habets
----------------------------------------------
Harry Habets, President and Chief
Operating Officer
By: /s/ Dan Self
----------------------------------------------
Dan Self, Controller and Chief
Accounting Officer
-13-
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- ---------- -----------
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EARTHCARE
COMAPNY FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 266,967
<SECURITIES> 0
<RECEIVABLES> 8,972,031
<ALLOWANCES> 662,373
<INVENTORY> 0
<CURRENT-ASSETS> 11,174,741
<PP&E> 30,185,083
<DEPRECIATION> 1,500,343
<TOTAL-ASSETS> 77,657,484
<CURRENT-LIABILITIES> 6,137,485
<BONDS> 0
0
0
<COMMON> 1,084
<OTHER-SE> 32,865,594
<TOTAL-LIABILITY-AND-EQUITY> 77,657,484
<SALES> 0
<TOTAL-REVENUES> 28,800,754
<CGS> 0
<TOTAL-COSTS> 28,357,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 250,820
<INTEREST-EXPENSE> 1,209,773
<INCOME-PRETAX> (1,017,064)
<INCOME-TAX> (53,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 86,817
<CHANGES> 0
<NET-INCOME> (877,247)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q/A, 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.
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
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