SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
(X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the quarterly period ended October 31, 1996 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: 0-17072
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
(Exact Name of Registrant 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) (Zip Code)
(516) 694-7060
(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.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, Par Value $.0001 9,103,477
- --------------------------------------------------------------------------------
(Title of Each Class) (Outstanding at December 20, 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
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
October 31, April 30,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 516,085 $ 282,933
Contracts receivable, net of allowance for
doubtful contracts of $195,000 at
October 31, 1996 and April 30, 1996 2,777,597 2,043,740
Current portion of note receivable 20,940 --
Inventories and prepaid supplies 370,065 265,065
Prepaid expenses 185,617 --
Deferred income taxes 680,000 680,000
Other current assets 190,046 148,557
----------- -----------
Total Current Assets 4,740,350 3,420,295
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 3,262,552 3,143,477
----------- -----------
OTHER ASSETS
Note Receivable 254,060 --
Investment in non-marketable securities, net of
valuation allowance of $3,936,000 and $5,993,841
at October 31, 1996 and April 30, 1996, respectively 100,000 628,000
Goodwill, net of accumulated amortization 28,594 30,590
Deferred acquisition costs, net of
accumulated amortization 97,010 100,580
Deferred income taxes 1,904,000 1,904,000
Other assets 95,630 62,447
----------- -----------
Total Other Assets 2,479,294 2,725,617
----------- -----------
TOTAL ASSETS $10,482,196 $ 9,289,389
=========== ===========
</TABLE>
(Continued)
1
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, April 30,
1996 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 312,898 $ 260,952
Accounts payable and accrued expenses 1,233,372 1,335,287
Note payable 100,000 --
Deposit -- 150,000
Income taxes payable 34,603 59,080
Other current liabilities 235,602 228,591
----------- -----------
Total Current Liabilities 1,916,475 2,033,910
OTHER LIABILITIES
Long-term debt, net of current portion 469,347 382,324
----------- -----------
Total Liabilities 2,385,822 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,
9,103,477 issued less 20,000
treasury shares 910 617
Additional paid-in capital 26,052,509 24,727,377
Treasury stock (10,000) (58,000)
Stock subscription receivable (46,988)
Deficit (17,947,045) (17,749,851)
----------- -----------
Total Stockholders' Equity 8,096,374 6,873,155
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,482,196 $ 9,289,389
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues $ 8,254,724 $ 6,371,661
Cost of revenues 5,566,768 3,893,219
----------- -----------
Gross profit 2,687,956 2,478,442
Selling, general and administrative expenses 2,132,931 2,474,940
Management restructuring costs 1,193,000 --
----------- -----------
Income (loss) before other income (expense) (637,975) 3,502
----------- -----------
Other income (expense):
Settlement of legal claims, net 246,654 (17,500)
Income from joint venture -- 22,512
Gain on sale of marketable security -- 63,999
Gain on sale of assets, net 221,710 --
Realized gain on sale of building 188,624
Interest expense (29,131) --
Interest and dividend income 1,548 39,732
----------- -----------
Total other income (expense) 440,781 297,367
----------- -----------
Income(loss) before income taxes (197,194) 300,869
Income taxes -- --
----------- -----------
Net income(loss) $ (197,194) $ 300,869
=========== ===========
Earnings(loss) per common share $ (.02) $ .07
=========== ===========
Weighted average number of
common shares outstanding 8,331,449 4,419,095
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
THREE MONTHS ENDED
----------------------------
October 31, October 31,
1996 1995
----------- -----------
Revenues $ 3,181,322 $ 2,601,913
Cost of revenues 2,131,412 1,675,792
----------- -----------
Gross profit 1,049,910 926,121
Selling, general and administrative expenses 965,422 998,295
Management restructuring costs 1,193,000 --
----------- -----------
Income (loss) before other income(expense) (1,108,512) (72,174)
----------- -----------
Other income (expense):
Settlement of legal claims, net 246,654 --
Income from joint venture -- 22,512
Gain on sale of marketable security -- 63,999
Gain on sale of assets, net 221,710 --
Interest Expense (13,236) --
Interest and dividend income 709 39,732
----------- -----------
Total other income (expense) 455,837 126,243
----------- -----------
Income(loss) before income taxes (652,675) 54,069
Income taxes -- --
----------- -----------
Net income(loss) $ (652,675) $ 54,069
=========== ===========
Earnings(loss) per common share $ (.07) $ .01
=========== ===========
Weighted average number of
common shares outstanding 9,065,977 5,427,366
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED OCTOBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
Common Stock
------------------- Additional Stock
Number of Par Paid-in Treasury Subscription Accumulated
Shares Value Capital Stock Receivable Deficit Total
--------- ----- ----------- -------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - April 30, 1996 6,097,366 $617 $24,727,377 $(58,000) $(46,988) $(17,749,851) $ 6,873,155
Private placements of
common stock 2,600,000 260 1,084,165 1,084,425
Issuance of common
stock for services 261,111 26 205,974 206,000
Issuance of treasury stock
to settle legal obligations 70,000 58,000 58,000
Return of common stock as
part of legal settlement (20,000) (10,000) (10,000)
Collection of stock subscription
receivable 46,988 46,988
Issuance of common stock for
partial payment of management
restructuring charges 75,000 7 34,993 35,000
Net (Loss) (197,194) (197,194)
--------- ---- ----------- -------- -------- ------------ -----------
Balance - October 31, 1996 9,083,477 $910 $26,052,509 $(10,000) $ -- $(17,947,045) $ 8,096,374
========= ==== =========== ======== ======== ============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
---------------------------
October 31, October 31
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) $ (197,194) $ 300,869
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 321,329 121,033
Gain on sale of building -- (188,624)
Issuance of common stock for services 206,000 442,250
Transfer of investment as partial consideration
for termination agreement 528,000 --
Income from joint venture -- (22,512)
Management restructuring costs 211,000 --
Gain on sale of assets, net (221,710) --
Settlement of legal claims, net (255,000) --
Changes in operating assets and liabilities:
Accounts receivable (733,857) (540,593)
Inventories and prepaid supplies (105,000) (274,667)
Prepaid expenses (185,617) --
Note receivable -- 50,000
Other current assets (41,489) (214,535)
Other assets (33,183) (48,405)
Accounts payable and accrued expenses (101,915) 696,533
Current Income taxes (24,477) 5,636
Other current liabilities 7,011 33,105
Reserve for contingencies -- (367,309)
Deferred income taxes -- 42,000
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (626,102) 34,781
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for investment in subsidiary -- (10,000)
Deposits advanced -- 397,943
Proceeds from the sale of assets 221,710 --
Acquisition of fixed assets (434,838) (1,528,552)
Deferred acquisition costs, net -- (103,938)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (213,128) (1,244,547)
----------- -----------
</TABLE>
(Continued)
6
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE SIX MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
---------------------------
October 31, October 31,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 100,000 --
Proceeds from long-term debt 223,000 --
Principal payments of long-term debt (232,031) (99,407)
Payment of note payable -- (75,000)
Proceeds from issuance of common stock, net
Of advance deposits 934,425 3,137,784
Stock subscription receivable 46,988 (534,920)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,072,382 2,428,457
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 233,152 1,218,691
CASH AND EQUIVALENTS-BEGINNING 282,933 648,023
----------- -----------
CASH AND EQUIVALENTS-ENDING $ 516,085 $ 1,866,714
=========== ===========
NON-CASH INVESTING AND 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 $ 206,000 $ 442,250
=========== ===========
Transfer of non-marketable security as partial
consideration for termination agreement $ 528,000 $ --
=========== ===========
Note receivable and return of common stock accepted
as partial consideration in settlement of a
legal claim $ 285,000 $ --
=========== ===========
Issuance of long-term debt in connection with
the partial settlement of a legal claim and
separate consulting agreement $ 155,000 $ --
=========== ===========
SUPPLEMENTAL INFORMATION
Interest Paid $ 29,131 $ 24,256
=========== ===========
Taxes Paid $ 346 $ 224
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED OCTOBER 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-K 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-K for the most recent fiscal year.
(2) As part of the management restructuring during September 1996, the Company
entered into separate termination agreements with the former Chief
Executive Officer("CEO"), Chief Operating Officer("COO") and Special
Securities Counsel("SSC") to the Company. These agreements call for
pay-outs of existing compensation arrangements plus additional benefits in
the form of transferring an investment in non-marketable securities of
$528,000, issuing stock options and other miscellaneous benefits. Included
in Management Restructuring Costs on the Consolidated Statements of Income
are the termination costs related to the former CEO and SSC for $216,000
and $35,000, respectively. At October 31, 1997, approximately $176,000 of
the amounts due the former CEO, represented by a promissory note, are
included in Long-term Debt. Also included in Management Restructuring Costs
are amounts actually paid and the value of the non-marketable securities
transferred at closing of the termination agreement with the former COO
totaling $792,000 As a result of the indictment of the former COO and SCC
in October 1996 on charges of stock fraud and manipulation, the Company has
withheld subsequent payments and has not accrued for the unpaid balance of
the termination agreement with the former COO totaling approximately
$636,000. Even if the indictments and the allegations contained therein are
proven not to be true, there was still a lack of fiduciary responsibility
to the Company by both the former COO and SSC. In light of the facts and
circumstances, the Company has already made formal demands to the COO and
SSC for the return of all consideration paid and assets transferred
pursuant to the termination agreements through the date of the indictment
and is vigorously pursuing this matter. The Company has also formally
cancelled all option certificates previously issued in connection with the
termination agreements. In addition, Management Restructuring Costs include
approximately $150,000 of legal and professional fees incurred in
connection with these agreements and the subsequent matters resulting from
the indictment.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Core operations for the six months showed revenues and a net loss of $8,255,000
and $197,000, respectively, versus $6,372,000 and net income of $301,000,
respectively, for the same period last year. This represents an increase of 30%
in revenues from the prior year resulting from the expansion of environmental
service operations. For the quarter ended October 31, 1996, revenues increased
approximately $579,000, or 22%, from the same period last year. The current net
loss is the direct result of Management Restructuring Costs discussed in Note 2
and below.
Cost of revenues increased $1,674,000 or 43% from the first six months last year
but, as a percentage of revenues, increased from 61% to 67% when compared to the
first six months of last year to this year. For the three months ended October
31, 1996, cost of revenues, as a percentage of revenues, was 67% compared to 64%
for the same period last year. The increase in is due primarily to direct field
labor for environmental services and testing operations which are more labor
intensive.
Gross profit increased $210,000 or 8% from the first six months of fiscal 1996
to 1997. As a percentage of revenues, the gross profit decreased to 33% compared
to 39% for the first six months of fiscal 1996. The gross profit also decreased
from 36% to 33% when comparing the three months ended October 31, 1995 to 1996.
This decrease results from a change in the mix of work compared to last year
which is more labor intensive as well as certain larger contracts that normally
carry a slightly lower gross profit margin.
8
<PAGE>
Selling, general and administrative expenses decreased approximately 342,000
from the first six months of last year compared to the first six months of this
year. As a percentage of revenues, these expenses were approximately 39% and 26%
for the six months ended October 31, 1995 and 1996, respectively. These expenses
also decreased $33,000 when comparing the quarter ended October 31, 1996 to
1995. This is the direct result of management's continued efforts to streamline
overhead and build a more efficient operation.
Management restructuring costs include non-recurring charges for termination
expenses for the COO, CEO and SCC for $792,000, $ 216,000 and 35,000,
respectively as well as legal fees for approximately $150,000. At October 31,
1996, only $176,000 remains as an obligation to the CEO. As such, these
settlements will not have a significant impact on future cash flows, financial
condition or results of operations.
The gain on sale of assets results primarily from the sale of a professional
engineering licence in the name of New York Testing Laboratories, Inc. for
$225,000 during the current quarter for cash.
During the quarter ended October 31, 1996, the Company settled its arbitration
action with Spartan Dismantling Corp. for $300,000 and is included as income in
settlement of legal claims.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 31, 1996 including cash, was $2,824,000 an increase
of $1,438,000 or 104% from April 30, 1996. Cash and accounts receivable
increased by $233,000 and $734,000, respectively from April 30, 1996. As of
October 31, 996, the current ratio was 2:47:1. This represents a substantial
improvement in liquidity from April 30, 1996 where such ratio was 1:68:1. It is
managements continued goal to maintain low levels of long-term debt financing.
During the six months ended October 31, 1996, the Company raised net proceeds
from the issuance of common stock of approximately $934,000. Said funds were
used to purchase various operational fixed assets, provide working capital to
finance accounts receivable and pay monies required at the closing of the
termination agreements in September 1996.
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. In this regard, management will be seeking new sources of
permanent capital through domestic private placements of equity and convertible
debt as well as establishing a working capital credit facility with a local bank
to finance accounts receivable to enhance cash flow and business growth.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pending Litigation
In November, 1994, the Company commenced a civil action in New York State
Supreme Court to recover monies advanced to Mohave Shores Development, Inc.
("Mohave") in anticipation of developing land on an Indian reservation in
Arizona. The Company seeks the return of its $250,000 deposit plus legal fees
and punitive damages. Management intends to continue aggressively pursuing this
matter.
In a civil action which was 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 various shareholders from Seattle, Washington who had
purchased shares through the same broker. The lawsuit contains various
allegations asserting misrepresentations to the broker and non-disclosure in
public filings of various Reg-S and S-8 stock issuances made by the Company from
August through October 1994. The officers and directors named in the civil
action were Messrs. Mangan (Chief Operating Officer), Varsi (President), Lehrer
(Chairman & CEO), Mazzella (Director) and O'Reilly (Director). Management denies
any wrongdoing, asserts that the complaint is without merit and intends to
vigorously defend these claims. The Company settled this lawsuit in May 1997 for
approximately $120,000, net of insurance proceeds, with monthly payments of
$6,250.
9
<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
Reports filed on Form 8-K dated September 12, 1996 and
September 26, 1996 are hereby incorporated by reference.
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: July 14, 1997
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC.
By: /s/ MICHAEL O'REILLY
--------------------------------
MICHAEL O'REILLY, Chairman and
Chief Executive Officer
By: /s/ DAVID R. BEHANNA
--------------------------------
DAVID R. BEHANNA, CPA
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 516,085
<SECURITIES> 0
<RECEIVABLES> 2,777,597
<ALLOWANCES> 0
<INVENTORY> 370,065
<CURRENT-ASSETS> 4,740,350
<PP&E> 3,262,552
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,482,196
<CURRENT-LIABILITIES> 1,916,475
<BONDS> 0
0
0
<COMMON> 915
<OTHER-SE> 8,095,464
<TOTAL-LIABILITY-AND-EQUITY> 10,482,196
<SALES> 8,254,724
<TOTAL-REVENUES> 8,254,724
<CGS> 5,566,768
<TOTAL-COSTS> 8,892,699
<OTHER-EXPENSES> (469,912)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,131
<INCOME-PRETAX> (197,194)
<INCOME-TAX> 0
<INCOME-CONTINUING> (197,194)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,194)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
