SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the quarterly period ended January 31, 1997 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 9,376,325
(Title of Each Class) (Outstanding at March 14, 1997)
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>
January 31, April 30,
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 742,552 $ 282,933
Contracts receivable, net of allowance for
doubtful contracts of $195,000 at
January 31, 1997 and April 30, 1996 2,608,736 2,043,740
Current portion of note receivable 15,000 --
Inventories and prepaid supplies 470,065 265,065
Prepaid expenses 165,026 --
Deferred income taxes 340,000 680,000
Other current assets 209,952 148,557
----------- -----------
Total Current Assets 4,551,331 3,420,295
----------- -----------
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and amortization 3,586,941 3,143,477
----------- -----------
OTHER ASSETS
Note Receivable 250,000 --
Investment in non-marketable securities, net of
valuation allowance of $3,936,000 and $5,993,841
at January 31, 1997 and April 30, 1996, respectively 100,000 628,000
Goodwill, net of accumulated amortization 27,596 30,590
Deferred acquisition costs, net of
accumulated amortization 95,225 100,580
Deferred income taxes 2,244,000 1,904,000
Deferred restructuring costs 792,000 --
Other assets 61,362 62,447
----------- -----------
Total Other Assets 3,570,183 2,725,617
----------- -----------
TOTAL ASSETS $11,708,455 $ 9,289,389
=========== ===========
</TABLE>
(Continued)
1
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31, April 30,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 373,052 $ 260,952
Accounts payable and accrued expenses 1,411,771 1,335,287
Note payable 100,000 --
Deposit -- 150,000
Income taxes payable 34,603 59,080
Other current liabilities 275,760 228,591
------------ ------------
Total Current Liabilities 2,195,186 2,033,910
OTHER LIABILITIES
Long-term debt, net of current portion 558,981 382,324
------------ ------------
Total Liabilities 2,754,167 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,
9,151,488 issued less 20,000
treasury shares 915 617
Additional paid-in capital 26,087,449 24,727,377
Treasury stock (10,000) (58,000)
Stock subscription receivable -- (46,988)
Deficit (17,124,076) (17,749,851)
------------ ------------
Total Stockholders' Equity 8,954,288 6,873,155
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,708,455 $ 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>
NINE MONTHS ENDED
---------------------------------
January 31, January 31,
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 12,391,205 $ 7,993,072
Cost of revenues 8,479,515 4,912,644
------------ ------------
Gross profit 3,911,690 3,080,428
Selling, general and administrative expenses 3,154,558 3,226,675
------------ ------------
Income (loss) from operations before
other income (expense) 757,132 (146,247)
------------ ------------
Other income (expense):
Management restructuring costs (551,000) --
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 (50,699) --
Interest and dividend income 1,978 76,608
------------ ------------
Total other income (expense) (131,357) 334,243
------------ ------------
Income before income taxes 625,775 187,996
Provision for income taxes -- 39,600
------------ ------------
Net income $ 625,775 $ 148,396
============ ============
Earnings per common share $ .07 $ .02
============ ============
Weighted average number of
common shares outstanding 9,125,444 7,537,387
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
January 31, January 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenues $ 4,136,481 $ 1,621,411
Cost of revenues 2,912,747 1,019,425
----------- -----------
Gross profit 1,223,734 601,986
Selling, general and administrative expenses 1,021,627 1,145,485
----------- -----------
Income (loss) from operations before
other income(expense) 202,107 (543,499)
----------- -----------
Other income (expense):
Management restructuring costs (150,000) --
Interest Expense (21,568) --
Interest and dividend income 430 36,876
----------- -----------
Total other income (expense) (171,138) 36,876
----------- -----------
Income (loss) before income taxes 30,969 (506,623)
Provision (credit) for income taxes -- (112,200)
----------- -----------
Net income (loss) $ 30,969 $ (394,423)
=========== ===========
Earnings per common share $ .00 $ (.05)
=========== ===========
Weighted average number of
common shares outstanding 9,727,371 8,723,971
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED JANUARY 31, 1997
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 309,122 31 240,914 240,945
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 costs 75,000 7 34,993 35,000
Net Income 625,775 625,775
--------- ---- ----------- -------- -------- ------------ ----------
Balance - January 31, 1997 9,131,488 $915 $26,087,449 $(10,000) $ -- $(17,124,076) $8,954,288
========= ==== =========== ======== ======== ============ ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
----------------------------
January 31, January 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 625,775 $ 148,396
Adjustments to reconcile net income to net cash
flows from operating activities:
DeferRed income taxes -- 39,600
Depreciation and amortization 429,125 230,838
Gain on sale of building -- (188,624)
Issuance of common stock for services 240,945 108,500
Income from joint venture -- (22,512)
Management restructuring costs 251,000 --
Gain on sale of assets, net (221,710) --
Settlement of legal claims, net (255,000) --
Changes in operating assets and liabilities:
Accounts receivable (564,996) (751,117)
Inventories and prepaid supplies (205,000) (250,000)
Prepaid expenses (165,026) --
Other current assets (61,395) (51,845)
Other assets 1,085 (44,928)
Accounts payable and accrued expenses 76,484 174,108
Current Income taxes (24,477) --
Other current liabilities 47,169 16,078
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 173,979 (591,497)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payment for investment in subsidiary -- (10,000)
Reserve for contingencies -- (367,309)
Investment in joint venture -- 57,815
Deposits advanced -- 397,943
Note Receivable, Net of Current Receipts (265,000) 50,000
Proceeds from the sale of assets 221,710 --
Deferred restructuring costs (792,000) --
Investment on non-marketable securities 528,000 --
Acquisition of fixed assets (777,240) (2,237,169)
Deferred acquisition costs, net -- (102,025)
Investment in Non-marketable Security -- (88,000)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,084,530) (2,298,745)
----------- -----------
</TABLE>
(Continued)
6
<PAGE>
COMPREHENSIVE ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
UNAUDITED
----------------------------
January 31, January 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 100,000 --
Proceeds from long-term debt 566,419 --
Principal payments of long-term debt (277,662) (100,016)
Payment of note payable -- (75,000)
Proceeds from issuance of common stock, net
of advance deposits 934,425 3,024,905
Stock subscription receivable 46,988 --
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,370,170 2,849,889
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 459,619 (40,353)
CASH AND EQUIVALENTS-BEGINNING 282,933 648,023
----------- -----------
CASH AND EQUIVALENTS-ENDING $ 742,522 $ 607,670
=========== ===========
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 redered $ 240,945 $ 108,500
=========== ===========
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 $ 30,000 $ --
=========== ===========
SUPPLEMENTAL INFORMATION
Interest Paid $ 50,699 $ 31,878
=========== ===========
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 JANUARY 31, 1997
UNAUDITED
(1) Consolidated Financial Statements
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) Subsequest Event
On February 24, 1997, the Company acquired North Atlantic Laboratories,
Inc. ("NAL") in a merger transaction for restricted convertible preferred
stock and cash totaling approximately $1,300,000 and $200,000,
respectively. The transaction will be accounted for as a purchase and, as
such, will include the financial condition and results of operations of NAL
in the Company's consolidated financial statements from the date of
acquisition.
NAL provides certified environmental training, laboratory testing and
consulting services to its customer base throughout the New York
Metropolitan area.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Results from operations for the nine months showed revenues and net income of
$12,391,000 and $626,000, respectively, versus $7,993,000 and $148,000,
respectively, for the same period last year. This represents an increase of 55%
and 322%, respectively, from the prior year.
The cost of revenues increased $3,567,000 or 73% from the first nine months last
year but, as a percentage of revenues, increased from 61% to 68% when comparing
the first nine months of last year to this year.
Gross profit increased $831,000 or 27% from the first nine months of fiscal 1996
to 1997. As a percentage of revenues, the gross profit decreased to 32% compared
to 39% for the first nine months of fiscal 1996. This decrease results from a
change in the mix of work compared to last year as well as certain larger
contracts that normally carry a slightly lower gross profit margin.
Selling, general and administrative expenses decreased slightly by $72,000 from
the first nine months of last year compared to the first nine months of this
year. As a percentage of revenues, these expenses were approximately 40% and 25%
for the nine months ended January 31, 1996 and 1997, respectively. This is the
direct result of management's continuing efforts to streamline overhead and
build a more efficient operation.
8
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at October 31, 196 including cash, was $2,356,000 an increase of
$970,000 or 70% from April 30, 1996. Cash and accounts receivable increased by
$460,000 and $565,000, respectively from April 30, 1996. As of October 31, 1996,
the current ratio was 2:07:1. This represents a substanial 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. However,
management is actively seeking 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Pending Litigation
In November, 1994, the Company commenced an action in New York State Supreme
Court to recover $250,000 previously advanced to Mohave Shores Development, Inc.
("Mohave"). Management intends to continue aggressively pursuing this matter.
In an action that commenced in August 1995 in United States District Court, the
Company and various current and prior officers and directors have been named in
a lawsuit with certain shareholders which contains various allegations.
Management denies any wrong doing and will continue to vigorously defend these
claims.
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
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K: None
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: March 21, 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> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 742,552
<SECURITIES> 0
<RECEIVABLES> 2,608,736
<ALLOWANCES> 0
<INVENTORY> 470,065
<CURRENT-ASSETS> 4,551,331
<PP&E> 3,586,941
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,708,455
<CURRENT-LIABILITIES> 2,195,186
<BONDS> 0
0
0
<COMMON> 915
<OTHER-SE> 8,953,373
<TOTAL-LIABILITY-AND-EQUITY> 11,708,455
<SALES> 12,391,205
<TOTAL-REVENUES> 12,391,205
<CGS> 8,479,515
<TOTAL-COSTS> 11,634,073
<OTHER-EXPENSES> 131,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,699
<INCOME-PRETAX> 757,132
<INCOME-TAX> 0
<INCOME-CONTINUING> 757,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625,775
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
