U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT No. 1
to
EXHIBIT 99.1
Financial Statements of ADA Environmental Solutions LLC, December 31, 1996
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report ...........April 30, 1997
Earth Sciences, Inc.
(Exact name of registrant as specified in its charter)
Colorado 0-6088
(State of incorporation) (Commission File Number)
84-0503749
(IRS Employer Identification No.)
910 12th Street, Golden, Colorado 80401
(Address of principal executive offices, including Zip Code)
(Registrant's telephone number, including area code): (303) 279-7641
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of ADA Environmental Solutions LLC
dated December 31, 1996 are filed herewith as Exhibit 99.1.
(b) Pro Forma Financial Information.
The following unaudited pro forma combined condensed balance sheets as
of December 31, 1996, show the effect on the historical balance sheet
of Registrant (ESI) as if the acquisition of its interest in ADA
Environmental Solutions LLC (ADA) had occurred on December 31, 1996.
The unaudited pro forma combined condensed statements of operations
combines the operations of ESI and ADA as if the acquisitions were
completed at January 1, 1996. Activities for ADA commenced in March
1996 (the date ADA was established).
These statements are not necessarily indicative of future operations
or actual results that would have occurred had the acquisition been
consummated at the beginning of the period indicated.
The unaudited pro forma combined condensed financial statements should
be read in conjunction with the historical financial statements and
notes thereto, included either elsewhere in this document or in
Registrant's December 31, 1996 Form 10-KSB.
PRO FORMA COMBINED CONDENSED BALANCE SHEET (Amounts in 000's)
December 31, 1996 (UNAUDITED)
ASSETS Pro Pro
ESI ADA Forma Forma
Adjust- Combined
ments
Current assets $ 2,039 26 2,065
Property, plant and equipment 17,198 340 17,538
Less accumulated depreciation (5,043) (2) (5,045)
Other assets 207 0 772 (1) 979
--------- -------- -------- -------
Total assets $ 14,401 364 772 15,537
====== ===== ===== =====
LIABILITIES AND EQUITY
Current liabilities $ 278 791 1,069
Long-term liabilities 9,943 0 9,943
Minority interest 0 0 346 (2) 346
Stockholders' equity 4,180 (427) 426 (2) 4,179
------- ------- ------- -------
Total liabilities and $ 14,401 364 772 15,537
shareholders' equity
====== ===== ===== ======
See accompanying notes.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS (Amounts in 000's except
per share amounts) For the Year Ended December 31, 1996 (UNAUDITED)
Pro Pro
ESI ADA Forma Forma
Adjust- Combined
ments
Revenues $ 798 75 0 873
Expenses 1,336 501 129 (3) 1,966
------- ------ ------- -------
Loss from operations (538) (426) (129) (1,093)
Minority interest 0 0 209 (4) 209
Income tax benefit 159 0 0 159
------- ------ ------- -------
Loss before extraordinary item (379) (426) 80 (725)
Extraordinary gain 371 0 0 371
------- ------- ------- -------
Net loss $ (8) (426) 80 (354)
====== ====== ====== ======
Net loss per common share: $ .00 N/A (.05)
====== ====== ======
See accompanying notes.
Notes to Pro Forma Financial Statements.
1. To record the goodwill associated with the acquisition of ESI's
interest in ADA.
2. To reflect the minority interest in ADA after the acquisition.
3. To record the additional expenses associated with amortization of
goodwill recorded.
4. To reflect the minority interest in the loss of ADA for the period
ended December 31, 1996.
(c) Exhibits. The following Exhibits are filed herewith, except as
noted.
No. Description
2.1 Stock Option and Exchange Agreement among Earth Sciences,
Inc. and ADA-ES, Inc., ADA Environmental Solutions LLC, ADA
Technologies, Inc., C. Jean Bustard, John F. Wurster,
Kenneth E. Baldrey and Cameron E. Martin dated April 30,
1997 (previously filed). Exhibits and Schedules to the
agreement are as follows: (such exhibits and Schedules
have been omitted and will be provided to the Commission
upon request.)
EXHIBITS
Exhibit A Promissory Note
Exhibit B Exercise Notice
Exhibit C Certificate of Earth Sciences
Exhibit D Certificate of ADA Technologies, Inc.
Exhibit E Voting Agreement
Exhibit F Registration Rights Agreement
SCHEDULES
Schedule 3.5 Financial Statements
Schedule 3.7 Title and Related Matters
Schedule 3.8 Intellectual Property
Schedule 3.9 Litigation
Schedule 3.10 Insurance Policies and Surety Bonds
Schedule 3.11 Compliance with Laws
Schedule 3.17 Contracts and Commitments
Schedule 5.1 Information Regarding Russ Farmer
Schedule 6.15(a) ERISA
Schedule 10.1(b) Accrued Incentives
2.2 Amended and Restated Operating Agreement of ADA
Environmental Solutions LLC, a Colorado Limited Liability
Company, April 30, 1997 (previously filed).
99.1 Financial Statements of ADA Environmental Solutions LLC,
December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf by the undersigned hereunto duly authorized.
Earth Sciences, Inc.
-----------------------
(Registrant)
Date: June 11, 1997 /s/ Mark H. McKinnies
------------------------------
Mark H. McKinnies, President
EXHIBIT 99.1 FINANCIAL STATEMENTS OF ADA ENVIRONMENTAL
SOLUTIONS LLC, DECEMBER 31, 1996
ADA ENVIRONMENTAL SOLUTIONS LLC
(A DEVELOPMENT STAGE COMPANY)
table of contents
Page
Independent Auditors' Report 3
Balance Sheet 4
Statement of Operations and Members' Deficit 5
Statement of Cash Flows 6
Notes to Financial Statements 7
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BDO Seidman, LLP
Accountants and Consultants
17th & Grant Building
303 East Seventeenth Avenue, Suite 600
Denver, Colorado 80203-9682
Telephone: (303) 830-1120
Fax: (303) 830-8130
INDEPENDENT AUDITORS' REPORT
ADA Environmental Solutions LLC
Englewood, Colorado
We have audited the accompanying balance sheet of ADA Environmental Solutions
LLC (a development stage company) as of December 31, 1996 and the related
statement of operations, members' deficit and cash flows for the ten months then
ended. These financial statement are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ADA Environmental Solutions LLC
(a development stage company) as of December 31, 1996 and the results of its
operation and cash flows for the ten months then ended, in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
Denver, Colorado
April 10, 1997
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ADA Environmental Solutions LLC
(A Development Stage Company)
Balance Sheet
December 31, 1996
ASSETS
Cash $ 11,950
Trade receivables (Notes 2 and 3) 11,355
Prepaid assets 2,559
------
Total currents assets 25,864
Preproduction costs 324,008
Furniture and equipment (Note 3),
net of $1,154 accumulated
depreciation 14,448
Other assets 729
------
Total Assets $365,049
=======
LIABILITIES
Accounts payable $ 11,217
Note payable - member (Note 3) 779,443
-------
Total Liabilities 790,660
Commitments (Note 8)
MEMBERS' DEFICIT (425,611)
-------
Total Liabilities and Members' Deficit $365,049
=======
See accompanying notes to financial statements.
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ADA Environmental Solutions LLC
(A Development Stage Company)
Statement of Operations and Members' Deficit
Ten Months Ended December 31, 1996
Revenues (Note 4) $ 75,487
Costs and Expenses:
Direct cost of revenue 53,977
Indirect expenses 413,085
-------
Loss from operations (391,575)
Interest expense (34,056)
-------
Net loss (425,631)
Beginning members' equity 0
Members' contribution 20
-------
Ending members' deficit ($425,611)
=======
See accompanying notes to financial statements.
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ADA Environmental Solutions LLC
(A Development Stage Company)
Statement of Cash Flows
Ten Months Ended December 31, 1996
Cash flows from operating activities:
Cash received from $ 64,132
Cash paid to suppliers and employees (454,691)
Cash paid for prepaid expenses (2,559)
Interest paid (34,056)
-------
Net cash used in operating activities (427,174)
Cash flows from investing activities:
Capital expenditures (15,602)
Preproduction costs (324,008)
Increase in other assets (729)
-------
Net cash used in investing activities (340,339)
Cash flows from financing activities:
Borrowings from member 779,443
Members contribution 20
-------
Net cash provided by financing activities 779,463
Net increase in cash 11,950
Cash, beginning of period -0-
-------
Cash, end of period $ 11,950
=======
Reconciliation of net loss to net
cash used in operating activities:
Net loss ($425,631)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1,154
Change in assets and liabilities -
Increase in trade receivables (11,355)
Increase in accounts payable and
accrued liabilities 11,217
Increase in prepaid expenses (2,559)
------
Net cash used in operating activities ($427,174)
=======
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
In March 1996, ADA Environmental Solutions LLC ("ADA ES" or the "Company") was
established to evaluate, design, install, and operate/maintain certain pollution
control equipment and chemical additive systems primarily for use in the power
utility industry.
Owners and Limited Liability Companies are referred to as "members" and the
company executives are referred to as "managers". The managers receive
authority to act from Operating Agreements which are signed by all members.
In 1996, ADA ES was considered a Development Stage Company producing
insignificant revenue while developing the necessary scale-up processes and
structure to sustain planned full scale operations.
Revenue Recognition
The Company recognizes revenue, primarily from contracts with utility companies,
on a percentage completion method of accounting.
Furniture and Equipment
Furniture and equipment are recorded at cost. Provisions for depreciation are
computed using an accelerated method over estimated useful lives of three to
seven years.
Use of Estimates
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
PREPRODUCTION COSTS
The Company capitalized costs of $324,000 in 1996 associated with full scale
production process development for ADA Environmental Solutions LLC. These costs
include scale-up development, production designs, and vendor
establishment/evaluations, and will start being amortized over 5 years once full
scale systems are in place and operational.
CONCENTRATION OF RISK
Profitable operations of the Company are contingent upon a single proprietary
process. This process has been proven successful in both laboratory and
extended full-scale demonstration operations. Should this technology be
obsoleted or be caused to be unsuccessful, the ability of the Company to succeed
would be at risk.
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NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
Billed $ 6,981
Unbilled 4,374
------
$11,355
======
Unbilled accounts receivable consist of revenue which has been recognized but
which, because of the terms of the contract, has not yet been billed.
NOTE 3 -NOTE PAYABLE-MEMBER
At December 31, 1996, the Company had a line of credit from a member totaling
$850,000. This line is subject to renewal on May 10, 1997. At December 31,
1996, the Company had $779,443 outstanding against this line of credit.
Interest accrues at 1% above a local bank's prime rate. Interest accrues
monthly. At December 31, 1996, the interest rate was 9.25%. Borrowings
outstanding under the agreement are secured by undivided interests in all the
Company's fixed assets and accounts receivable.
NOTE 4 - DEVELOPMENT STAGE OPERATIONS
The Company commenced development stage operations when ADA Technologies, Inc.
(ADA), the parent company, contributed technology in exchange for rights to the
first $500,000 of profits, all the losses and 80% of the equity in the Company.
The remaining 20% equity was obtained by key employees at a nominal amount.
During 1996 the Company was devoted to scale-up development, production
engineering, and supplier establishment/evaluation and recognized revenue
primarily from contracts with utility companies for demonstrations of its
technology. The Company expects to commence production operations in 1997.
NOTE 5 - INCOME TAXES
ADA ES is a Limited Liability Company which elected to be taxed as a partnership
under provisions of the Internal Revenue Code. Accordingly, income tax
provisions (and benefits) are not reflected in the financial statements since
the Company's results of operations will be reported in the income tax returns
of the members.
NOTE 6 - INCOME/LOSS ALLOCATIONS
The Limited Liability Operating Agreement provides for ADA to be allocated all
losses of the Company and initial profits up to $500,000. Minority interest
members receive proportionate interests in all profits, after ADA has received
the first $500,000.
NOTE 7 - RELATED PARTY TRANSACTIONS
ADA employs the entire work force for the Company and loans the employees to ADA
ES at costs which are fully burdened as computed from the parent company's books
and records. The parent company provided all the necessary working capital
financing for ADA ES (see Note 3).
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NOTE 8 - COMMITMENTS
The Company has non-cancelable long-term lease agreements for demonstration and
production equipment. Rent expense was approximately $10,000 in 1996. Future
minimum lease payments required under long-term operating leases in effect at
December 31, 1996, require the following payments:
1997 $ 63,000
1998 $ 63,000
1999 $ 61,000
2000 $ 59,000
2001 $ 49,000
NOTE 9 - SUBSEQUENT EVENT
In February 1997, the Company and its members entered into an agreement with
Earth Sciences, Inc. ("ESI"), a publicaly held corporation, which provided for
ESI to purchase equity in ADA ES. The total investment in ADA ES by ESI will be
up to $2.5 million in cash contributions and loans. This same agreement
provides for ESI to acquire, directly or indirectly, all the equity in ADA ES
for 1,715,600 shares of ESI stock having a market value at March 31, 1997 of
approximately $5.1 million. This transaction is planned to be completed in
1998.
To facilitate the acquisition, a corporation (ADA-ES, INC.) was established in
March 1997. All the membership interests in ADA ES were exchanged for shares of
stock in ADA-ES, INC.
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