SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 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 0-17430
DANZER CORP.
(Exact name of registrant as specified in its charter)
New York 13-3431486
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
17500 York Road 21740
Hagerstown, Maryland (Zip Code)
(Address of principal executive offices)
(301) 582-2000
(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 NO __X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Common Stock April 30, 1999
$.0001 par value 17,545,590 shares
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
INDEX
PAGE(s)
PART I - CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - April 30, 1999 and October 31, 1998. 3 - 4
Consolidated Statements of Operations -
Three Months and Six Months Ended April 30, 1999 and 1998 5
Consolidated Statements of Cash Flows -
Six Months Ended April 30, 1999 and 1998 6 - 7
Notes to Consolidated Financial Statements 8 - 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 12
PART 2
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
------------------ --------------
( Unaudited ) ( Audited )
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ -0- $ -0-
Accounts receivable, less allowance for doubtful
accounts of $186,853 and $168,266 respectively 507,309 957,208
Inventories 703,785 481,862
Prepaid expenses and other 53,162 75,404
------------ --------------
Total current assets 1,264,256 1,514,474
------------ --------------
PROPERTY, PLANT AND EQUIPMENT
Land 25,797 25,797
Building and improvements 1,440,527 1,440,527
Equipment 2,420,475 2,398,063
3,887,076 3,864,387
Less - accumulated depreciation and amortization (2,165,674) (2,022,874)
------------ --------------
Total property, plant and equipment, net 1,721,402 1,841,513
------------ --------------
OTHER ASSETS
Morrison License 140,002 160,000
Other, net 36,840 42,510
------------ -------------
Total Other Assets 176,842 202,510
$3,162,500 $ 3,558,497
============ =============
</TABLE>
3
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
------------ ------------
(Unaudited ) ( Audited )
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 786,836 $ 581,876
Accounts payable 412,631 658,757
Accrued salaries and wages 181,913 167,292
Accrued expenses, other 279,030 420,244
------------ ------------
Total current liabilities 1,660,410 1,778,139
LONG-TERM DEBT, net of current portion 1,231,703 1,533,303
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.0001 per share; 1,754 1,587
20,000,000 shares authorized; 17,545,590 and 15,870,272
shares issued in 1998 and 1997.
Additional paid-in capital 5,215,167 5,047,803
Retained Earnings Prior (4,802,335) (4,802,335)
Retained Earnings Current (144,199)
------------
Total stockholders' equity 270,387 247,055
Total liabilities and shareholders equity $ 3,162,500 $ 3,558,497
============ ============
</TABLE>
4
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
1999 1998 1999 1998
---------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
NET SALES $ 987,857 $ 2,025,587 $ 2,666,308 $ 3,723,929
COST OF GOODS SOLD 841,193 1,540,221 2,064,302 2,720,535
---------- ------------ --------------- ------------
GROSS PROFIT 146,664 485,366 602,006 1,003,394
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 318,998 438,645 667,326 862,921
---------- ------------ ---------------
GAIN (LOSS) FROM OPERATIONS (172,334) 46,721 (65,320) 140,473
---------- ------------ ---------------
INTEREST EXPENSE, NET (58,560) (61,433) (112,188) (109,694)
OTHER INCOME 12,555 23,283 33,309 46,258
---------- ------------ --------------- ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (218,339) 8,571 (144,199) 77,037
INCOME (LOSS) FROM SALE OF
DISCONTINUED OPERATIONS ASSETS -0- (32,380) (-0-) (30,380)
---------- ------------ ---------------
NET INCOME (LOSS) ($ 218,339) ($ 23,809) ($ 144,199) $ 46,657
========== ============ =============== ============
PER COMMON SHARE DATA:
NET INCOME (LOSS) ($ .01) ( .00) ($ .01) $ .00
========== ============ =============== ============
WEIGHTED AVERAGE
SHARES OUTSTANDING 16,428,711 15,870,272 16,149,492 15,870,272
========== =========== ============ ============
</TABLE>
5
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED APRIL 30,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (Loss) Income (144,199) $ 46,657
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 142,800 108,845
Net (increase) decrease in non-cash current assets:
Accounts receivable 424,699 224,315
Inventories (221.923) (85,016)
Prepaid expenses and other 22,242 (13,299)
Provision for bad debt 25,200 25,002
Net increase (decrease) in non-debt current liabilities:
Accounts payable (256.290) (98,760)
Accrued salaries and wages 14,621 6,184
Accrued expenses, other 86,481 5,816
(Increase) decrease in other assets, net 25,668 (54,330)
Discontinue operations, liabilities net of assets -0- -0-
----------- -----------
Total stockholders' equity Total stockholders' equity
Net cash provided by (used in) operating activities 119,299 165,414
-----------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (22,688) (40,900)
Proceeds from sale of equipment (-0-) 64,000
----------- -----------
Net cash used in investing activities (22,688) 23,100
----------- -----------
FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving loan agreement 10,551 (286,197)
Payments of long-term debt (132,162) (121,250)
Proceeds from issuance of long term debt 25,000 150,000
----------- -----------
Net cash provided by (used in) financing activities (96,611) (257,447)
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS -0- (68,933)
CASH AND CASH EQUIVALENTS BEGINNING -0- 68,933
CASH AND CASH EQUIVALENTS ENDING $ -0- $ -0-
============= ===========
</TABLE>
6
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED APRIL 30,
1999 1998
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for -
Interest $ 112,188 $ 111,638
============== ==============
Income taxes $ - $ -
============== ==============
7
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Description of Business
Global Environmental Corp. (the "Company") was incorporated on October 6,
1987. Effective August 1, 1988, Global Environmental Corp. acquired all of the
issued and outstanding common shares of Global Environmental Holdings, Inc.
("Global Holdings" ).
Danzer Industries, Inc. ("Danzer"), a wholly-owned subsidiary of Global, is
principally engaged in the design, manufacture and installation of fabricated
metal products. Products produced are normally based upon specifications
received from customers. Danzer's revenues (subsequent to sale of the Company's
Rage subsidiary as described below) represent approximately 100% of the
Company's revenues and are generated throughout the United States.
The accompanying consolidated financial statements present the accounts of
Global Environmental Corp. and its wholly-owned subsidiary. The entities are
collectively referred to herein as the "Company". All significant intercompany
transactions and balances have been eliminated in consolidation. The Company is
on an October 31 fiscal year. The Company has filed all required filings for its
year ending October 31, 1998 and incorporates by reference those filings. The
Company has filed its January 31, 1999 10-Q and incorporates by reference those
filings. The reader should read the audit accompanying footnotes for the 1998
10-K report and the January 1999 10-Q report in conjunction with this document.
The Company uses the equity method of accounting for a 49% owned interest
in a joint venture. The original investment is recorded at cost, adjusted for
the Company's share of undistributed earnings or losses. The operations of the
joint venture are presently immaterial.
8
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (first - in, first - out) or market
and are comprised of the following components:
April 30, October 31,
1999 1998
----------- -----------
Raw materials 430,805 411,288
Work-in-process 140,993 18,060
Finished goods 131,986 52,514
----------- -----------
$ 703,784 $ 481,862
Work-in-process and finished goods include purchased materials, direct labor and
allocated overhead.
9
<PAGE>
GLOBAL ENVIRONMENTAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 1999
NOTE 1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)
Major Customers
The following is a list of the Company's customers which represent 10% or more
of consolidated net sales (from continuing operations):
TOTAL PERCENTAGE OF NET SALES
April 30, YEAR ENDED OCTOBER 31
1999 1998 1997 1996 1995
Elevator Manufacturer 0% 4% 13% 10% 11%
Truck Body Manufacturer 52% 55% 41% 29% 32%
The Company's decision to exit the manufacturing of elevator parts and focus
exclusively on the manufacturing of truck bodies will result in the loss of
revenues from sales of this division.
NOTE 2. UNAUDITED FINANCIAL STATEMENTS
The accompanying financial statements of the Company are unaudited and have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and financial disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these unaudited condensed financial statements should
be read in conjunction with the audited financial statements included in the
Company's Form 10-K for the year ended October 31, 1998. These statements
include all adjustments consisting only of normal recurring accruals, which are,
in the opinion of management, considered necessary for a fair presentation of
financial position and results of operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 3. UNAUDITED FINANCIAL STATEMENTS
The accompanying financial statements of the Company are unaudited and have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and financial disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these unaudited condensed financial statements should
be read in conjunction with the audited financial statements included in the
Company's Form 10-K for the year ended October 31, 1998. These statements
include all adjustments consisting only of normal recurring accruals, which are,
in the opinion of management, considered necessary for a fair presentation of
financial position and results of operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
10
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the unaudited
financial statements and related notes of the Company included elsewhere in this
report. This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Quarterly Report on Form 10-Q
contain forward-looking statements that involve risks and uncertainties.
The Company's ability to increase sales depends on many factors not within the
Company's control including planned capital expenditures by end users, general
economic conditions and pricing policies by competitors. Additionally, the
Company is dependent on sales to one purchaser that represent 52% of total sales
in the six month period ending April 30, 1999. The Company's decision to focus
exclusively on truck body sales also increases the risk of selling to only one
industry segment.
As a result, the actual results realized by the Company could differ materially
from the results discussed in or contemplated by the forward-looking statements
made herein. Words or phrases such as "will," "expect," "believe," "intend,"
"estimates," "project," "plan" or similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
the forward-looking statements made in this Quarterly Report on Form 10-Q.
Results of Operations
Sales in the six months ended April 30, 1999 were $2,666,308. This compared with
sales in the same period the prior year of $3,723,929. The primary reason for
the decrease was lower sales to the company's largest customer. In the six
months ended April 30, 1999, those sales totaled $1,404,000 versus $2,374,000
for the six month period ended April 30, 1998, a decrease of $970,000. Sales to
this customer resumed to more normal levels in May 1999 and as a result
management expects performance to improve for the remainder of the fiscal year.
For the six months ended April 30, 1999, gross profit declined by 1,400,388 to
$602,006. This was a result of poor sales.
The Company had reduced selling, general and administrative expenses in
anticipation of lower revenues. As a result, for the six months ended April 30,
1999 selling, general and administrative expenses were $667,326 versus $862,921
in the same period of last year. For the six month period ended April 30, 1999,
consulting fees were lower by $67,000, outside services by $18,000, travel by
$20,000, stockholder expenses by $16,000, incentive program by $10,000 and
office expenses by $20,000. Consulting fees are lower due to the Company's 1998
expenses to implement a TQM program, a 1998 fee to locate a buyer of the Airline
Product line and services provided to the Company to help implement the
manufacturing scheduling application. Outside services were lower due to the
Company's having to hire additional accounting help to complete the 1998
year-end closing. Travel expense was higher in 1998 because of the interim
President's weekly travel between Texas and Maryland. Stockholders expenses were
lower than in 1998 due to expenses incurred for the annual meeting. Warranty
expenses were lower than in 1998 due to reduced claims on Airline products.
Recruitment expenses were lower because of one-time 1998 expenses to hire a new
President and CFO. The incentive program made a payout in 1998 but none in 1999.
The office expenses were lower because of new management's controls during 1999.
The Company reported a six month loss from operations of $65,320 versus a gain
of $140,473 in the same six month period ending April 30, 1998. Net interest
expense increased for the six month period ending April 30, 1999 by $2,494 to
$112,188. The net loss for the Company was $144,199 in the six months ended
April 30, 1999, or $0.01 per share, versus a gain of $46,657 for the period
ended April 30, 1998.
For the three months ended April 30, 1999, the Company reported sales of
$987,557. This was a decline of $1,038,000 from the three month period ending
April 30, 1998. Gross profit declined from $485,366 in the April 30, 1998 three
month period to $146,664 in the three month period ending April 30, 1999.
Management believes both of these declines are a result of the lower sales to
its principle customer. The Company did decrease its selling, general and
administrative expenses for the second quarter of fiscal year 1999. In the three
months ended April 30, 1998, selling, general and administrative expenses
totaled $438,645, while these same expenses decreased to $318,998 for the three
months ended April 30, 1999. These activities created a loss from operations of
$172,334 for the three months ending April 30, 1999 compared to a gain of
$46,721 in the same three month period ending April 30, 1998. Net interest
expense decreased slightly during this time frame from a prior year figure of
$61,433 to $58,560 for the period ending April 30, 1999. The net loss for the
Company in the three months ending April 30, 1999 totaled $218,339 compared to a
small loss of $23,809 in the period ending April 30, 1998.
11
<PAGE>
Liquidity and Capital Resources
On March 31, 1999, the Company's largest shareholder converted $150,000 of debt
and $17,531 of accrued interest into 1,675,318 common shares of the Company, a
rate of $0.10 per share. The board approved the transaction as well as the
conversion rate, the result of which was to reduce the Company's overall
indebtedness and improve its balance sheet. In spite of this, the Company's
working capital still declined to negative $396,154 compared to a negative
$263,665 working capital balance at October 31, 1998. The primary reason for
this increase in negative working capital was the Company's increased use if its
line of credit to fund operations. At April 30, 1999, the balance owed under the
Company's line of credit was $335,000.
In the quarter ending April 30, 1999, the Company reached an agreement with the
holder of the mortgage on the Danzer real estate and improvements, including the
manufacturing facility. This agreement allowed the Company to defer principal
payments on its mortgage for two quarterly payments. The total amount of
deferred principal was approximately $58,000. The first deferred principal
payment was for the February 15, 1999 payment and the second deferred principal
payment will be for the May 15, 1999 payment. The Company agreed to increase the
interest rate on the mortgage to 13% until such time as these principal payments
are made. Simultaneously with this transaction, the Company's largest
shareholder agreed to advance an amount equal to the deferred principal payments
on a secured basis at 13% in the event the Company needed additional sources of
cash. At April 30, 1999, the Company had borrowed $25,000 under this advance.
The Company anticipates that with the increase in shipment levels anticipated in
the third and fourth quarters of the 1999 fiscal year that it will be able to
meet its obligations as they come due.
Y2K Preparedness
The Company recognizes that with the arrival of the year 2000 certain unique
challenges could arise with its data processing systems ability to recognize the
date change from the December 31, 1999 to January 1, 2000. The Company has been
reviewing all of its systems in anticipation of this date change. The Company
believes that its production equipment which is controlled by computers or other
date processing systems is capable of this expected ate change without causing
any problems. The primary production equipment which is controlled by computers
was purchased in 1998 and was represented by the manufacturer to be year 2000
compliant an that time. The Company continues to review other aspects of its
computer hardware and software systems to determine their level of preparedness
for the date conversion.
PART II OTHER INFORMATION
Securities Issued
In the six month period ending April 30, 1999, the Company issued $1,675,318
shares of its common stock. This stock was issued in exchange for debt of
$150,000 and accrued interest of $17,531. This debt plus accrued interest was
converted at a rate of $0.10 cents per share.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL ENVIRONMENTAL CORP.
(Registrant)
Date: November 25, 1999 /S/ Terry Moore
------------------------------
Terry Moore, Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 507,309
<ALLOWANCES> 186,853
<INVENTORY> 783,785
<CURRENT-ASSETS> 1,264,256
<PP&E> 3,887,076
<DEPRECIATION> 2,165,674
<TOTAL-ASSETS> 3,162,500
<CURRENT-LIABILITIES> 2,115,502
<BONDS> 1,660,410
0
0
<COMMON> 270,387
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,162,500
<SALES> 2,666,308
<TOTAL-REVENUES> 2,666,308
<CGS> 2,064,302
<TOTAL-COSTS> 667,326
<OTHER-EXPENSES> 33,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,188
<INCOME-PRETAX> (114,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144,109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,109)
<EPS-BASIC> (0.01)
<EPS-DILUTED> 0
</TABLE>
