UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended July 31, 1996
( ) 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: 0-17072
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2844247
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
72B Cabot Street, West Babylon, New York 11704
(Address of principle executive offices)
(Issuer's telephone number) (516) 694-7060
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes _X_ No___
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, Par Value $.0001 9,028,477
(Title of Each Class) (Outstanding at August 31, 1996)
Transitional Small Business Disclosure Format (check one): Yes___ No _X_
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
---------
ASSETS
July 31, April 30,
1996 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 698,290 $ 282,933
Contracts receivable, net of allowance for
doubtful contracts of $195,000 at
July 31, 1996 and April 30, 1996 3,200,170 2,043,740
Inventories and prepaid supplies 370,065 265,065
Deferred income taxes 680,000 680,000
Other current assets 237,817 148,557
----------- -----------
Total Current Assets 5,186,342 3,420,295
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 3,182,154 3,143,477
----------- -----------
OTHER ASSETS
Investment in non-marketable securities, net of
valuation allowance of $5,993,841 at
July 31, 1996 and April 30, 1996 628,000 628,000
Goodwill, net of accumulated amortization 29,592 30,590
Deferred acquisition costs, net of
accumulated amortization 98,795 100,580
Deferred income taxes 1,904,000 1,904,000
Other assets 62,222 62,447
----------- -----------
Total Other Assets 2,722,609 2,725,617
----------- -----------
TOTAL ASSETS $11,091,105 $ 9,289,389
=========== ===========
</TABLE>
(Continued)
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31, April 30,
1996 1996
-------- ---------
CURRENT LIABILITIES
Current portion of long-term debt $ 254,184 $ 260,952
Accounts payable and accrued expenses 1,614,608 1,335,287
Deposit -- 150,000
Income taxes payable 20,705 59,080
Payroll taxes payable 235,602 228,591
------------ ------------
Total Current Liabilities 2,125,099 2,033,910
OTHER LIABILITIES
Long-term debt, net of current portion 297,957 382,324
------------ ------------
Total Liabilities 2,423,056 2,416,234
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
10,000,000 shares authorized,
No shares issued or outstanding -- --
Common stock, $.0001 par value,
50,000,000 shares authorized,
9,028,477 and 6,167,366 shares
issued and outstanding, respectively 903 617
Additional paid-in capital 19,718,777 18,634,638
Treasury stock -- (58,000)
Stock subscription receivable -- (46,988)
Deficit (11,051,631) (11,657,112)
------------ ------------
Total Stockholders' Equity 8,668,049 6,873,155
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,091,105 $ 9,289,389
============ ============
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
---------
July 31, July 31,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 5,073,402 $ 3,769,748
Cost of revenues 3,435,356 2,217,427
------------ ------------
Gross profit 1,638,046 1,552,321
Selling, general and administrative expenses 1,017,509 1,082,895
------------ ------------
Income before other income(expense) 620,537 469,426
------------ ------------
Other income (expense):
Settlement of legal claim -- (17,500)
Realized gain on sale of building -- 188,624
Interest expense (15,895) --
Interest income 839 --
------------ ------------
Total other income (expense) (15,056) 171,124
------------ ------------
Income before income taxes 605,481 640,550
Income taxes -- 139,520
------------ ------------
Net income $ 605,481 $ 501,030
============ ============
Earnings per common share $ .06 $ .08
============ ============
Weighted average number of
common shares outstanding 10,297,922 5,895,825
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
Common Stock
----------------- Additional
Number of Par Paid-in
Shares Value Capital
--------- -------- -----------
<S> <C> <C> <C>
Balance - April 30, 1996 6,097,366 $ 617 $18,634,638
Private placements of
common stock 2,861,111 286 1,084,139
Issuance of treasury stock
to settle legal obligations 70,000
Collection of stock subscription
receivable
Net Income for the quarter --------- -------- -----------
Balance - July 31, 1996 9,028,477 $ 903 $19,718,777
========= ======== ===========
<CAPTION>
Stock
Treasury Subscription Accumulated
Stock Receivable Deficit Total
------------- ----------- ----------------- ------------
<S> <C> <C> <C> <C>
Balance - April 30, 1996 $ (58,000) $ (46,988) $(11,657,112) $ 6,873,155
Private placements of
common stock 1,084,425
Issuance of treasury stock 58,000
to settle legal obligations 58,000
Collection of stock subscription
receivable 46,988 46,988
Net Income for the quarter 605,481 605,481
------------ ------------ ------------ ------------
Balance - July 31, 1996 $ -- $ -- $(11,051,631) $ 8,668,049
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
---------
July 31, July 31,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 605,481 $ 501,030
Adjustments to reconcile net income to net cash
flows from operating activities:
Deferred income taxes -- 139,520
Depreciation and amortization 160,300 59,144
Gain on sale of building -- (188,624)
Issuance of common stock for services -- 48,500
Changes in operating assets and liabilities:
Accounts receivable (1,156,430) (534,205)
Inventories and prepaid supplies (105,000) (124,666)
Note receivable -- 50,000
Other current assets (89,260) (146,083)
Other assets 225 (59,101)
Accounts payable and accrued expenses 279,321 715,243
Current Income taxes (38,375) 45,743
Other current liabilities 7,011 31,857
Deferred income taxes -- 42,000
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (336,727) 580,358
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for investment in subsidiary -- (10,000)
Reserve for contingencies -- (367,309)
Deposits advanced -- 397,943
Acquisition of fixed assets (196,194) (1,152,891)
Deferred acquisition costs -- (107,126)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (196,194) (1,239,383)
----------- -----------
</TABLE>
(Continued)
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
---------
July 31, July 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (33,135) (34,165)
Payment of note payable -- (75,000)
Proceeds from issuance of common stock, net
of advance deposits 934,425 1,903,144
Stock subscription receivable 46,988 (446,455)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 948,278 1,347,524
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 415,357 688,499
CASH AND EQUIVALENTS-BEGINNING 282,933 648,023
----------- -----------
CASH AND EQUIVALENTS-ENDING $ 698,290 $ 1,336,522
=========== ===========
NON-CASH FINANCING ACTIVITIES
Issuance of restricted common shares for
the investment in New York Testing Laboratories, Inc.,
and Subsidiaries $ -- $ 67,500
=========== ===========
Step-up in basis of property and equipment
resulting from the allocated purchase
price in excess of net assets acquired from New York
Testing Laboratories, Inc. and Subsidiaries $ -- $ 328,681
=========== ===========
Issuance of common shares in exchanged for
services rendered $ -- $ 48,500
=========== ===========
Issuance of treasury shares to settlement legal
obligations $ 58,000 $ --
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED JULY 31, 1996
UNAUDITED
(1) The consolidated balance sheet at the end of the preceding fiscal year has
been derived from the audited consolidated balance sheet contained in the
Company's Form 10-KSB and is presented for comparative purposes. All other
financial statements are unaudited. All unaudited amounts are subject to
year-end adjustments and audit, but the Company believes all adjustments,
consisting only of normal and recurring adjustments, necessary to present
fairly the financial position, results of operations and changes in cash
flows for all interim periods presented have been made. The results of
operations for interim periods are not necessarily indicative of the
operating results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
in accordance with the published rules and regulations of the Securities
and Exchange Commission. These consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Form 10-KSB for the most recent fiscal year.
(2) During the quarter ended July 31, 1996, the Company sold and issued
2,711,111 discounted, restricted shares of common stock under several
private placements for gross proceeds of approximately $1,320,000. Out of
the proceeds, approximately $148,000 of fees were paid to a director of the
Company. In addition, the Company issued 150,000 shares of S-8 common stock
for services rendered during the quarter.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Revenues for the first quarter of fiscal 1997 were $5,073,000, an increase of
$1,303,000, or 34%, from the same period last year.
For the current quarter, cost of revenues increased by 54% to $3,435,000
compared to the first quarter of fiscal 1996. As a percentage of revenues, such
costs were 68% and 59% for the first quarter of fiscal 1997 and 1996,
respectively.
Gross profits as a percentage of revenues decreased to 32% compared to 41% for
the first quarter of fiscal 1996. This decrease was related to the mix of work
as well as increases in the size of certain contracts which normally carry a
slightly lower gross profit percentage.
Income from core operations was $620,000 for this current quarter. This
represents an increase of $151,000, or 32%, from the first quarter of last year.
Income before taxes decreased slightly from 1996 to 1997 primarily due to a
non-recurring realized gain from the sale of property during the first quarter
of fiscal 1996.
Selling, general and administrative expenses decreased slightly from the first
quarter of last year to the first quarter of this year. As a percentage of
revenues, such expenses decreased from 29% to 20% for the quarters ended July
31, 1995 and 1996, respectively. This percentage decrease is the direct result
of non-recurring expenses incurred in the prior year, streamlining current
operations and setting an overhead structure to accommodate an annual
consolidated revenue base of between $15 and $20 million.
A provision for taxes was not required for the current fiscal quarter because
sufficient reserves exist against the deferred tax assets recognized in prior
periods to off-set such provision. Management believes that the reversal of such
reserves is appropriate in light of the current growth in revenues and earnings
from core operations.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Working capital at July 31, 1996 was approximately $3,061,000, an increase of
$1,675,000, or 120%, from April 30, 1996. Cash also increased by $415,000 since
April 30, 1996. As of July 31, 1996 the Company's current ratio and quick ratio
was 2.44:1 and 2.01:1, respectively. This represents a substantial improvement
in liquidity from April 30, 1996 where such ratios were 1.68:1 and 1.27:1,
respectively.
It is managements continued goal to maintain low levels of long-term debt and to
finance equipment acquisition only when appropriate. Total debt compared to
total equity improved from April 30, 1996 to July 31, 1996. Such ratios were
.35:1 and .28:1, respectively. As a result, the current debt/capital structure
can now accommodate a working capital credit facility to finance accounts
receivable that will enhance cash flow and business growth.
The Company believes that the current levels of working capital and liquidity
will not be sufficient to support the continued increase in its revenue base and
scope of operations. As such, management will be seeking new sources of capital
as well as establishing a credit facility in order to meet its goals.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pending Litigation
The Company commenced an arbitration action in August 1995 in connection with
the Spartan Dismantling Corp. joint operating agreement. The action alleges
breach of contract, fiduciary responsibility and other claims. The Company is
seeking to recover its net advances and accumulated profits of approximately
$2,800,000. Management intends to continue aggressively pursuing this action to
the fullest extent.
In an action that commenced in August 1995 in United States District Court, the
Company, various current and prior officers and directors have been named in a
lawsuit with certain shareholders which contains various allegations asserting
misrepresentations and non-disclosure of certain stock issuances made by the
company during fiscal 1995. Management denies any wrongdoing, asserts that the
complaint is without merit and intends to continue vigorously defending these
claims and, assert counterclaims.
Other Proceeding
In January 1996, the Company's wholly-owned subsidiary, Laboratory Testing
Services, Inc. ("LTS") filed a Chapter 11 petition in United States Bankruptcy
Court in the Eastern District of New York. Simultaneously to which, operations
of LTS were discontinued and efforts focused on liquidating assets to satisfy
outstanding corporate obligations. This proceeding is expected to be finalized
during fiscal 1997. Company management does not expect any significant
impairment of capital to the extent that settled obligations exceed the
liquidated assets of LTS.
<PAGE>
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: September 10, 1996
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
By: /s/ Donald Kessler
----------------------
DONALD KESSLER, Chairman and
Chief Executive Officer
By: /s/ David R. Behanna
----------------------
DAVID R. BEHANNA, CPA,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 698,290
<SECURITIES> 0
<RECEIVABLES> 3,200,170
<ALLOWANCES> 0
<INVENTORY> 370,065
<CURRENT-ASSETS> 5,186,342
<PP&E> 3,182,154
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,091,105
<CURRENT-LIABILITIES> 2,125,099
<BONDS> 0
0
0
<COMMON> 903
<OTHER-SE> 19,718,777
<TOTAL-LIABILITY-AND-EQUITY> 11,091,105
<SALES> 5,073,402
<TOTAL-REVENUES> 5,073,402
<CGS> 3,435,356
<TOTAL-COSTS> 3,435,356
<OTHER-EXPENSES> 1,017,509
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,895
<INCOME-PRETAX> 605,481
<INCOME-TAX> 0
<INCOME-CONTINUING> 605,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 605,481
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
