SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995 or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-17057
ATLANTIS GROUP, INC.
(Exact name of small business issuer as specified in
its charter)
Delaware
65-0250676
(State or other jurisdiction (IRS
Employer
of incorporation or organization)
Identification No.)
206 South Detroit Street
Los Angeles, California 90036
(Address of principal executive offices)
(213) 931-1695
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 XX No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by
court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: The
number of shares of the registrant's common stock outstanding as of
November 21, 1995 was 8,553,385.
<PAGE>
FORM 10-QSB
PART I--FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ATLANTIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Sept 30, December 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 119,191 $ 164,782
Accounts Receivable-net 736,681 368,703
Inventories 443,657 739,429
Due from related entity 51,769 318,000
Prepaid Expenses 84,152
Loans receivable
-related parties 184,908 153,241
Total Current Assets 1,620,358 1,744,155
PROPERTY, PLANT & EQUIP-NET 882,368 1,168,439
OTHER ASSETS:
Investment in mining rts 82,501 82,501
Licenses-net 1,091,056 1,152,824
Non compete-net 0
Subordinated capital note 50,000
Investment in Wellspring 524,000
Deposits & other assets 13,492 11,627
Total Other Assets 1,761,049 1,246,952
TOTAL ASSETS $ 4,263,775 $ 4,159,546
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
FORM 10-QSB
<TABLE>
<CAPTION>
ATLANTIS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Sept 30, December 31,
1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion-LTD $ 68,327 $ 69,813
Current Portion-Lease 7,175 0
Note Payable 818,084 70,609
Account Payable 1,396,051 1,626,487
Accrued Expenses 99,278 127,613
Advances on contracts 670,502 1,117,503
Income taxes payable 43,311 80,000
Dividends payable 0 9,450
Total Current Liab 3,102,728 3,101,475
OTHER LIABILITIES:
Obligations under Lease 25,115 0
Notes Payable, LT Portion 0 1,699
Total Other Liabilities 25,115 1,699
TOTAL LIABILITIES 3,127,843 3,103,174
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock
2,000,000 shares authorized;
198,944 and 213,533 shares issued
& outstanding respectively 1,989 2,135
Common stock, $.01 par value,
50,000,000 shares authorized;
8,034,335 and 4,817,657 shares
issued and outstanding 80,343 48,176
Additional PIC 16,908,867 15,557,712
Additional PIC-PFD 1,987,451 2,147,948
Treasury Stock ( 10,000)
Retained (Deficit) (17,832,718) ( 16,699,599)
Total Stockholder's Equity 1,135,932 1,056,372
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 4,263,775 $ 4,159,546
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
FORM 10-QSB
<TABLE>
<CAPTION>
ATLANTIS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Mos Ended Three Mos Ended
Sept 30, 1995 Sept 30, 1994
<S> <C> <C>
INCOME
OPERATIONS REVENUE $ 905,600 $ 3,494
JOINT OPERATE REVENUE 948,918 0
TOTAL INCOME 1,854,518 3,494
COST OF SALES
OPERATIONS C.O.S. 790,533 2,056
JOINT OPERATE C.O.S. 764,724 0
TOTAL COST OF SALES 1,555,257 2,056
GROSS PROFIT 299,261 5,550
EXPENSES:
Amortization & Depreciation 182,386 81,670
Joint Operating Expense 184,194 0
Other General & Admin 418,641 100,453
Total General & Admin 785,221 182,123
(LOSS) FROM OPERATIONS $ (485,960) $ ( 176,573)
OTHER (EXPENSES) INCOME
Interest Income 7,880 2,681
Interest Expense ( 9,866) (10,724)
Total Other (Exp) Income (1,986) ( 8,043)
(LOSS) BEFORE DISCONTINUED
OPERATIONS (487,946) ( 184,616)
DISCONTINUED OPERATIONS 0 ( 769,122)
NET (LOSS) $ (487,960) $ ( 953,738)
========= ===========
(LOSS) PER COMMON SHARE
Continuing Operations $ (0.08) $ ( 0.10)
Discontinued Operations 0 ( 0.42)
NET (LOSS) PER SHARE $ (0.08) $ ( 0.52)
====== =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,915,085 1,823,623*
========= ==========
</TABLE>
*adjusted for 1:20 reverse split
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
FORM 10-QSB
<TABLE>
<CAPTION>
ATLANTIS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Mos Ended Nine Mos Ended
Sept 30, 1995 Sept 30, 1994
<S> <C> <C>
INCOME
OPERATIONS REV $ 2,405,993 $ 22,751
JOINT OPERATING REV 1,590,646 0
TOTAL INCOME 3,996,639 22,751
COST OF SALES
OPERATIONS COS 1,996,607 43,158
JOINT OPERATE COS 1,297,358 0
TOTAL COST OF SALES 3,293,965 43,158
GROSS PROFIT 702,674 (20,407)
EXPENSES:
Amortization & Deprec 538,215 402,211
Joint Operating G&A Exp 293,288
Other General & Admin 993,373 1,043,486
Total General & Admin 1,824,876 1,445,697
(LOSS) FROM OPERATIONS $ (1,122,202) $ (1,466,104)
OTHER (EXPENSES) INCOME
Interest Income 7,880 2,681
Interest Expense (18,797) (115,932)
(10,917) (113,251)
(LOSS) BEFORE DISCONTINUED
OPERATIONS (1,133,119) (1,579,355)
DISCONTINUED OPERATIONS 0 ( 646,357)
NET (LOSS) $ (1,133,119) $ (2,225,712)
=========== ===========
(LOSS) PER COMMON SHARE
Continuing Operations $ (0.21) $ (0.86)
Discontinued Operations 0 (0.36)
NET (LOSS) PER SHARE $ (0.21) $ (1.22)
====== =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,468,655 1,820,171*
========== ==========
</TABLE>
*adjusted for 1:20 reverse split
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
FORM 10-QSB
<TABLE>
<CAPTION>
ATLANTIS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Nine Months
Ended Ended
Sept 30, 1995 Sept30, 1994
<S> <C> <C>
Cash Flows from Operating
Activities
Net Income (Loss) from
continuing operations $( 1,133,119) $(1,579,355)
Discontinued operations 0 ( 646,357)
( 1,133,119) (2,225,712)
Adjustments to reconcile net
(loss) to net cash
used in operating activities
Non-Cash Items:
Amortization and Depreciation 538,215 402,211
Stock issued for services
rendered 201,351
Cancelled non-compete agreement 50,000
Changes in assets (increase)
decrease:
Accounts receivable ( 367,978) (826,316)
Prepaid expenses 210,348 796,309
Inventories 295,772 334,743
Loans receivable-related party ( 31,667)
Due from related parties ( 51,769) ( 3,027)
Changes in liabilities increase
(decrease):
Accounts payable and
accrued expenses. (209,659) ( 344,283)
Advances on contracts ( 447,001)
Reclass from accounts payable
to note payable 777,381
Net cash used in operating activities (168,126) ( 1,866,075)
Cash Flows from Investing Activities:
Net Value of Assets sold
or disposed 7,836,248
Subordinated capital note ( 50,000)
Purchase of fixed assets ( 40,244)
(Increase) Decrease in deposits ( 2,000) 644
Net cash used in investing activities ( 92,244) 7,836,892
Cash Flows from Financing Activities:
Payments on Bonds Payable ( 6,625,708)
Proceeds from Long Term Lease 35,878
Payments on Borrowing ( 33,085)
Payments on Capital Lease ( 3,588)
Proceeds on Stock Subscriptions 215,574 498,034
Net cash provided by Fin. Activities 214,779 ( 6,127,674)
Net Increase (Decrease) in Cash ( 45,591) (156,857)
Cash at beginning of period 164,782 159,028
Cash at end of period $ 119,191 $ 2,171
======= ========
</TABLE>
Note: Total Interest Paid for the quarter $9,865
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
FORM 10-QSB
ATLANTIS GROUP, INC
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During the first quarter of 1995, the Company issued common stock with a
value of $55,694 as payment for accounts payable; common stock with a
value of $30,110 as payment on accrued expenses; and, common stock with
a value of $176,500 toward long term employment contracts. The Company
also issued common stock for the conversion of the "1992 Series" Preferred
Stock and its accrued dividends.
During the second quarter of 1995, the Company issued common stock with
a value of $81,150 for current services rendered and issued stock for the
conversion of the "Vulcan Series" of Preferred Stock.
During the third quarter of 1995, the Company issued common stock with a
value of $120,201 for services rendered by Hernan Baccani in accordance
with his employment agreement and an engineering consultant.
<PAGE>
FORM-10QSB
ATLANTIS GROUP, INC..
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
Note 1. BASIS OF REPRESENTATION
The accompanying financial statements reflect all adjustments which,
in the opinion of management, are necessary for fair presentation of the
financial position and the results of operations for the interim period
represented.
Certain financial information, which is normally included in
financial statements prepared in accordance with generally accepted
accounting principles, but which is not required for interim reporting
purposes has been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements and
notes thereto as of December 31, 1994, which financial statements are
contained in the Company's Annual Report of Form 10-K.
Note 2. EARNINGS (LOSS) PER SHARE
Per share information is computed based upon the weighted average
number of shares outstanding during the period.
Note 3. TERMINATION OF GUARANTEED LIABILITIES
The default in the first quarter of 1995 by the Company's former
subsidiary, Mitchell Pole Company, Inc. which was sold on August 12 1994,
and the subsequent demand by the bond trustee for Microterra to perform
under its corporate guarantees, were terminated on July 28, 1995. On that
date, a new issue of Industrial Revenue Bonds was closed and the proceeds
used to defease (pay off) the prior defaulted bond issues. Accordingly,
the Company's guarantee obligations were terminated.
Note 4. SUBORDINATED CAPITAL NOTE
On September 26, 1995, the Company executed a Memorandum of Intent
to acquire, with common stock, up to 49% of Management and Business
Associates, Inc.("MBA") an environmental 8(a) construction company in
Coral Gables, Florida. The acquisition is dependent upon the completion
of due diligence. The Memorandum also includes cash advances within five
(5) days of $50,000 and within twenty-one (21) days of $25,000 and up to
$1,000,000 in the event of positive due diligence results to MBA in
exchange for subordinated capital notes. The notes shall be payable at
7.75% interest only with a maturity of five (5) years from date of
issuance. Repayment of the notes prior to maturity is based upon the net
profits after tax of MBA. On September 26th, the Company sent $50,000 to
MBA in exchange for a subordinated capital note.
<PAGE>
Note 5. INVESTMENT IN WELLSPRING
On September 27, 1995 the Company issued 1,000,000 shares of its
common stock (restricted as to further transfer) to Wellspring Capital
Fund, a newly organized Delaware corporation which intends to elect to
become a business development company under the Investment Company Act
of 1940. The Company received 52,400 shares of preferred stock that is
convertible in 1996. The preferred stock carries and annual, cumulative
rate of $0.80 per share.
Note 6. INVESTMENT IN ATLANTIS CAPITAL, INC.
On September 26, 1995, the Company capitalized a wholly-owned
subsidiary, Atlantis Capital, Inc. with 1,000,000 shares of its common
stock. This subsidiary is to be used as a financing vehicle with
bonding companies. The issuance is treated as par value treasury stock
for purposes of the consolidated statements.
Note 7. SUBSEQUENT EVENTS
On October 10, 1995, the Company sent an additional $10,000 to
Management and Business Associates in exchange for a subordinated capital
note.
In November 1995, the Company issued 519,050 common shares under form
S-8 to a consulting company in exchange for a five (5) year contract.
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The three months ended September 30, 1995 and the period since the
end of that quarter have seen the Company's business plan and structure
evolve along the lines previously discussed in the 10-QSB for June 30,
1995. In summary, existing environmental contracting operations are being
consolidated or will be terminated in favor of the anticipated arrangement
with a Florida-based contracting company, the bio-recycling of
chemically-treated wood waste will again be focused upon, and the Vulcan
machine, if
the marketing study shows sufficient profitable utilization potential,
will be refurbished and place in service.
GENERAL BACKGROUND
On November 9, 1994, the Company acquired Rubeck Engineering and
Construction, Inc., a privately-held company based in Los Angeles, in a
stock-for-stock exchange. The shareholders of Rubeck received more than
50% of the issued and outstanding stock following the acquisition; the
acquisition was a "reverse acquisition". In order to accomplish the
acquisition, a reverse stock split was required; a 20-1 reverse split was
done.
At the time of the acquisition of Rubeck by the Company, the Company
had sold its operating subsidiary (Mitchell Pole Company, Inc.), disposed
of the site intended for the wood treatment facility in Fitzgerald,
Georgia, had entered into a sale-leaseback transaction with respect to the
Madison Parish Port bio-recycling plant site, and completely depleted its
cash, while having consolidated liabilities of approximately $1,010,300.
Rubeck anticipated the ability to carry the post-reorganization corporate
structure overhead long enough to raise capital to pay off pre-existing
liabilities, increase working capital and expand bonding capacity to allow
growth. However, subsequent to the Company's acquisition of Rubeck,
several problems emerged, some of which were anticipated.
First, the re-emergence of market interest and support for the
Company did not immediately develop. Initial efforts for a private
placement of common stock to obtain proceeds for the payment of the
pre-Rubeck reorganization liabilities of the Company were unsuccessful.
As
a result, the ability of the Company to repay those previously existing
liabilities was limited to the cash flow of Rubeck and it adversely
affected Rubeck's working capital.
Second, an unresolved dispute by Rubeck with Amwest Surety Insurance
Company and the Department of the Interior on the basis for calculation
for the volume of soil removed for remediation at Yosemite created a
disruption of cash flow on that job which carried over to other jobs.
Third, Rubeck's major job at the end of 1994 was in a northern area
of the country where a seasonal closure from November to May is required
by the U.S. Air Force. The seasonal closure interrupted the job with a
limited amount of work to be completed under a contract where recovery of
overhead and profit components is "backloaded" at the end of the contract.
<PAGE>
Fourth, the bonding companies denied additional bonding availability
to Rubeck pending receipt of audited consolidated financial statements
reflecting the acquisition of Rubeck by the Company and a capital infusion
to strengthen the balance sheet and pay off pre-existing debt. This, in
turn, has adversely impacted Rubeck's ability to bid for new work since
November, 1994.
Fifth, the default on the Mitchell Pole Company, Inc. bonds (now
resolved; see below) concerned potential investors and lenders, who
deferred all action pending a resolution of that potential liability.
This adversely affected all financing which the Company was negotiating.
To overcome the loss of work due to the unavailability of bonding,
pending the issuance of the audited consolidated financial statements and
infusion of capital, Management:
1. Utilized Coast Engineering and Construction
Corporation to
subcontract work to Rubeck or assign contracts to Rubeck; and
2. Entered into a Joint Operating Agreement with HWB
Construction (which became a related entity) to cooperate on its
workload.
This resulted in Rubeck and the Joint Operating Agreement starting jobs
since February as follows:
<TABLE>
<S> <C> <C>
February: Rubeck - 2 jobs, HWB - 1 job
March: Rubeck - 2 jobs, HWB - 2 jobs
April: Rubeck - 0 jobs, HWB - 3 jobs
May: Rubeck - 2 jobs, HWB - 1 job
June: Rubeck - 1 job, HWB - 0 jobs
July: Rubeck - 1 job, HWB - 1 job
August: Rubeck - 0 jobs, HWB - 1 job
September: Rubeck - 0 jobs, HWB - 0 jobs
</TABLE>
However, this strategy did not wholly solve the problem, short term.
Because contract payment schedules (i) require the withholding of a
retention from job progress payments, (ii) usually impose a deferral on
the recovery of overhead and profit to the end of the contract, and (iii)
only reimburse the contractor after costs and expenses are incurred, the
effort to maximize the number of jobs resulted in severely straining the
available cash flow and causing payables to accumulate. There was no
immediate excess cash flow with which to deal with pre-existing
liabilities, especially those of the Company prior to the Rubeck
acquisition. Additionally, contracting work profit margins suffered from
the shortage of working capital by (i) causing some of the lowest priced
suppliers to stop delivering goods to Rubeck's job sites and forcing
Rubeck to purchase supplies at less than favorable terms and (ii)
extending construction schedules, as Management was unable to staff
construction sites with sufficient manpower to complete the jobs in the
least, and therefore most profitable, time, and (iii) extending
construction schedules and thereby increasing project overheads, and (iv)
extending construction schedules and delaying completion, thereby
increasing the G&A costs allocated to each project.
<PAGE>
A further complication has been the lack of bonding. In conjunction
with the year-end audit of the Company's financial statements, the 1992,
1993 and 1994 financial statements of Rubeck were re-audited by the
Company's auditors. This, together with the new management's
unfamiliarity with events prior to November, 1994 contributed to a delay
in the completion and release of the audit. In turn, this delayed the
filing of Form 10-K and the issuance of the Form 10-K and financial
statements to bonding companies. The result was that most bonding
companies refused to continue or extend bonding, thus prohibiting Rubeck
from bidding for jobs requiring bonding. Since Rubeck's government
contracts require bonding, this precluded Rubeck from obtaining additional
government contracts.
In summary, events since the Company's acquisition of Rubeck have
severely strained Rubeck's cash. During the first nine months of 1995,
Management has focused its attention on, and directed all available cash
to, the fuel storage system jobs of Rubeck (primarily obtained by
assignment or subcontract from Coast) and, secondarily, HWB Construction,
in the expectation that as the jobs matured they would not only replace
the cash committed to them, but also generate cash flow available for the
reduction of the non-job liabilities. While this strategy was adequate
for job performance, the Company was required to limit the starting of new
jobs and restrict on-going jobs (which lengthened job completion times and
lessened the overall profit) while recognizing that the jobs would not
generate sufficient liquidity to pay for current G&A and the prior
liabilities.
RESULTS OF OPERATIONS
Until August 1994, the Company was primarily engaged in the
production of "white wood" telephone and utility poles. That business was
disposed of on August 12, 1994 and thereafter the Company had no
operations creating revenues. The Company had incurred significant
continuous operating losses and had a substantial (deficit) and its
financial statements had been prepared with a going concern
qualification.
On November 9, 1994, the Company acquired Rubeck Engineering and
Construction, Inc., a private company. As a private company, Rubeck did
not prepare quarterly reports and such reports as were available were not
necessarily consistent with GAAP nor the Company's current methods.
Comparison of the 1995 data, representing Rubeck's results, with the 1994
data, representing the discontinued "white wood" operations is not
meaningful. Likewise, there is not sufficient 1994 quarterly information
on Rubeck on which Management is prepared to rely for SEC reporting
purposes, to permit a comparison of Rubeck's quarterly results
year-to-year.
The parent company and subsidiaries other than Rubeck had no current
operations, but did have costs for overhead, including accounting, legal,
royalties, public company expenses, and quarterly amortization of the High
Temperature Fluid Wall Reactor of $102,762. However, one subsidiary,
Microterra Bio-Technologies of Madison, Inc. is in the process of
disposing of the inventory of stored wood waste; 40% of such waste was
disposed of in the three months ended September 30, 1995, resulting in the
<PAGE>
recognition of deferred income (from 1992) in the amount of $447,001. The
balance of such waste is being disposed of in the last quarter and is
expected to result in the recognition of additional deferred income in the
approximate amount of $670,502. The results indicated for the three
months and nine months ended September 30, 1994 do not include any results
for Rubeck as it was not acquired until November, 1994.
Rubeck realized gross revenues of $447,449, $2,056,202, and
$1,714,536 for the years ended December 31, 1992, 1993 and 1994,
respectively. By comparison, during the first nine months of 1995, Rubeck
has realized gross revenues of $3,549,638 including HWB revenues of
$1,590,646 under the Joint Operating Agreement. Similarly, Rubeck
realized net profits (net losses) before taxes of $(68,986), $(21,148),
and $23,905 for the years ended December 31, 1992, 1993 and 1994
respectively. By comparison, during the first nine months of 1995 the
Rubeck subsidiary realized net losses of $(321,056.19) [not including
$88,359.53 earned by the HWB joint operating consortium, retained by HWB,
which will retain the first $400,000 earned as a cost of the agreement,
after which Rubeck receives all income]. Gross profit margin percentages
for 1992, 1993 and 1994 respectively were (3.21)%, 10.5%, and 13.2%. By
comparison, the gross profit margin percentage for the first nine months
of 1995 was 11.68% for Rubeck alone , which when added to the joint
operating gross profit margin and the wood waste gross profit margin,
combined to 17.6% overall. Rubeck's accounts payable at the ends of 1992,
1993 and 1994 were $36,689, $494,655, and $829,285 (including Amwest
payables), respectively. By comparison, Rubeck's accounts payable at the
end of the first nine months of 1995 were $690,903 (not including the
acutal current amount due to Amwest of $777,381).
Management had anticipated profits in the third quarter, following
the slow down in the second quarter. However, Rubeck realized losses due
to a combination of lack of working capital and no bonding availability
for bidding new work. The lack of working capital caused an extension of
construction completion times increasing construction costs. The lack of
bonding capacity precluded the Company from increasing its revenues
because no bidding was possible. The majority of the work performed in
1995 (total of 17 contracts) was work backlog obtained by Rubeck prior to
November 1994, subcontracting obtained from Coast Engineering and
Construction Corp. and work performed under the Joint Operating agreement
with HWB Construction.
BUSINESS PLAN REASSESSMENT
For the past several months, Management has been reassessing the
Company's business plan, in light of the status of the Company since the
November, 1994 acquisition of Rubeck Engineering and Construction, Inc.
At the time of the acquisition, the Company had disposed of both its
"white wood" manufacturing subsidiary in Camilla, Georgia and the acreage
in Fitzgerald, Georgia intended for the wooden pole chemical treatment
plant. As a result, the Company was essentially focused on (1) the
bio-recycling process and the so-called "barrier product" and (2) the
Vulcan
High Temperature Fluid Wall Reactor. Since Rubeck's acquisition by the
Company, Management has emphasized the Rubeck operations, while exploring
<PAGE>
the continuation of the pre-existing business plan. as a result of this
reassessment, various decisions have been made and are being implemented.
1. Termination of Coast and HWB Joint Operations.
A. Coast Engineering and Construction Corporation/ sub-contracts to
Rubeck.
During August and September, it became clear that at least one, if
not more, of Coast's jobs was operating at a substantial loss and that
Coast was insolvent. On or about September 15, 1995 Coast terminated all
jobs and relinquished them to its bonding company. The effect of this was
to terminate the Rubeck sub-contracts on those jobs. This left Rubeck
with only its own directly bid jobs (2 jobs).
The termination of Coast's jobs has resulted in the closure of Coast
and therefore Rubeck will not receive any further subcontracts or
assignments from Coast. Accordingly, Rubeck has terminated the January
4, 1995 Covenant not to Compete between the two corporations as of October
1, 1995.
B. HWB Construction/Joint Operating Agreement.
It was determined that the indebtedness of HWB Construction
substantially exceeded the assumed indebtedness as disclosed at the time
of the execution of the Joint Operating Agreement. Actual debts and
liabilities were calculated as being approximately $812,000 as compared
to an estimated $400,000. As a result, permitting HWB Construction to
retain the first $400,000 of gross margin would not have been sufficient.
Under these circumstances, it appeared highly unlikely that Rubeck could
recover the funds which it would be required to advance or could receive
a sufficient return for its mentor and administrative services.
Accordingly, although HWB Construction has been notified by the U.S. Army
Corps of Engineers that the Corps is exercising its contractual option to
renew the HWB contract for 1995-1996, the Company and HWB have mutually
terminated the Joint Operating Agreement as of September 30, 1995 and Mr.
Baccani's employment as of November 15, 1995. In connection with the
termination, Mr. Baccani received 250,000 warrants to purchase the
Company's common stock and has resigned as a director of the Company.
2. Rubeck Engineering and Construction, Inc. Direct Operations.
With the termination by Coast of its jobs and the termination of the
HWB Construction Joint Operating Agreement, Rubeck has only two current
jobs and does not have any bonding with which to bid for new jobs. One
of the jobs is operating at approximately break-even. The other job is
approximately 29% complete and will likely result in a profit of
approximately $122,000. The profit from the one job is not sufficient to
offset the overall liabilities of Rubeck. Under the circumstances,
Management is now evaluating the viability of Rubeck.
In settlement of the claims of Amwest Surety Insurance Company
("Amwest"), Rubeck gave Amwest a note in the principal sum of $794,876.95,
which is to be adjusted up or down to the amount actually paid out for
claims and bearing interest at the rate of 6%. The note assumed that
registration of an offering of Common Stock underlying warrants issued by
the Company would be effective by October 19, 1995, and then allowed 90
<PAGE>
days for the exercise of warrants and repayment of the note. However, if
registration were not effective by October 19, 1995 then Rubeck was to pay
the note in three equal installments. The registration was not effective
by October 19th (and is not effective as of the filing of this Form
10-QSB) and Rubeck is not able to commence the installment payments.
Amwest
is considering its course of action and has not declared a default.
Mr. Antico, Rubeck's President, and his wife, have personally
guaranteed the bonding for Coast (and for Rubeck). Given the closure of
Coast, and the problems of Rubeck, it is considered unlikely that the
guarantees of the Anticos would be sufficient to secure new or additional
bonding for Rubeck such that it could bid for new work. Because of its
prior loss history, the Company's guarantee is not acceptable to the
bonding companies either. It is recognized that, since the Anticos
personally guaranteed that note, Amwest will pursue the Anticos, which
would further diminish the value of any guarantee by the Anticos for other
bonding.
Recognizing that Rubeck must secure bonding capacity and secure new
jobs in order to remain viable, Management is now considering Rubeck's
future. In an effort to provide collateral for bonding, the Company
established a new subsidiary, Atlantis Capital, Inc. and funded such
corporation by the contribution to capital of one million shares of the
Company's Common Stock. However, since that stock is currently restricted
it has limited collateral value. Accordingly, the Company is registering
those shares in its current Registration Statement and will evaluate its
ability to secure bonding following effectiveness of the Registration
Statement.
In the interim, Charles R. Schuster, the Company's Chairman of the
Board, who was a co-founder of Rubeck, requested the opportunity to try
to make Rubeck viable and profitable. On November 16, 1995, Mr. Schuster
resigned as Chairman of the Board of the Company and was elected as
President of Rubeck, taking over total control of its day-to-day
operations. Mr. Jorge H. Antico has assumed the position of Chairman of
the Board.
Management is considering several courses of action with respect to
Rubeck, including:
1. If sufficient bonding is available following
effectiveness
of the Registration Statement, Rubeck may be retained or may be
consolidated with MBA, discussed below; or
2. If sufficient bonding is not available, Rubeck
may be sold
to Mr. Schuster or a third party or else terminated.
3. Operations with Management & Business Associates, Inc.
On September 23, 1995 the Company entered into a Memorandum of Intent
with Management & Business Associates, Inc. ("MBA") of Coral Gables,
Florida. MBA is certified as an 8(a) firm by the U.S. Small Business
Administration, an "8(a) company" being a minority-owned enterprise
entitled to participate in various federal programs such as set-asides.
In order for MBA to retain its status as an 8(a) company, the Company has
<PAGE>
an option to acquire up to a maximum of 49% of MBA. Initially the Company
holds a 9% interest while the parties conduct mutual due diligence.
Subject to reasonable extensions, all due diligence is to be completed by
December 31, 1995 and the Company will then determine whether to terminate
the agreement or to exercise its option and to what extent to exercise its
option if it elects to proceed. Based upon its current due diligence, the
Company anticipates proceeding and exercising its entire option; however,
a final decision must await the receipt of audited financial statements
from MBA including those for the year 1995. However, at the present time
the Company is assisting MBA in several areas, such as bonding and
financing.
MBA has a strong construction management team and established job
control systems. It is a qualified and even preferred provider of certain
services and is growing in several areas, such as government building
management and disaster response, and desires to grow into a real estate
development company.
One aspect of the current discussions with MBA involves the possible
distribution of all or a part of the 49% holding, if that course of action
is elected, to the shareholders of the Company so as to give them a direct
interest in MBA. However, no final decision is expected until after the
decision whether to terminate or proceed has been made. As a step toward
future cooperative operations, the president and primary owner, Manuel E.
Iglesias, has been elected as a director of the Company.
4. Vulcan High Temperature Fluid Wall Reactor. The Company
purchased the Reactor in early 1991, expecting to use it internally in
remediating the soil at the old Camilla wood treatment site. When the
Georgia EPD refused to permit the Company to reopen that site, the Reactor
was left in storage in Illinois. However, the Company sought third-party
contracts to utilize the Reactor and in anticipation of securing such
contracts preparations were made to refurbish the Reactor and put it into
use. In mid-1992, the Company had a complete inspection made of the
machine by its inventor and a company engineer and secured a refurbishment
report and estimate. Recently, the Company's auditors had an independent
survey of the Reactor made together with an up-dated estimate for the
refurbishment and upgrade costs. It appears that to refurbish the Reactor
and provide certain upgrades to incorporate improvements subsequent to the
Reactor's original construction will cost $800,000 to $1,000,000. The
Company believes that the Reactor and the technology which it embodies
offer a valuable alternative to incineration of toxic, hazardous waste.
A prior lease/license arrangement with a Nevada company did not develop
and the Company has entered into a Joint Operating Agreement with
Scientific Equipment Systems, LLC ("SES"), a Louisiana limited liability
company which is 50% owned by Charles R. Schuster, who until November 16th
was the Company's Chairman of the Board. Pursuant to the Agreement,
Management has moved the Reactor out of storage and to Louisiana, to the
facility of SES, where it is being dismantled, to the extent necessary,
to secure more specific detail costs for the refurbishment and upgrades.
It is the responsibility of SES to conduct a marketing study and determine
the probable utilization of the Reactor so that a final decision can be
made on the potential profitability of expending the funds for the
refurbishment. The Company believes that with the termination of the
<PAGE>
Mitchell Pole Company, Inc. bond guarantees, its financing can now
proceed. Such financing includes funding to allow for the rehabilitation
of the Reactor.
5. Bio-Recycling - Disposal. Management recognizes the need for the
chemically-treated wood bio-recycling process developed by the Company,
and has retained the Company's exclusive license with Louisiana State
University by paying the minimum annual royalty. The process has received
recognition not only in the United States, but in Canada, Europe, and
Australia. The process appears to offer a substantial profit base. The
process has been proven and scaled up in a pilot plant operation.
Notwithstanding that, the Company has had difficulty securing financing
for the first full scale facility. Utility companies and the telephone
companies have, for a variety of reasons, ranging from concerns about cost
to concerns about admitting to environmental problems, declined to provide
long term disposal contracts which would permit project financing.
Although the State of New Jersey has authorized the issuance and sale of
solid waste facility revenue bonds to finance construction, the potential
underwriters want to limit the issue to 60% to 70% of the cost of the
plant, which means that the Company must raise the balance of the plant
cost and the initial working capital. Despite substantial, on-going, and
diligent efforts to secure such capital, both in the U.S. and abroad, the
Company has been unable to do that. In the absence of such financing, the
Company does not intend to incur the capital costs and debt liability, as
the operation would be undercapitalized. Accordingly, Management
discontinued what had been a fruitless search for the capital and instead
has been seeking a strategic partner or a joint venture partner or a
licensee. Preliminary discussions have been held with both U.S. and
Canadian firms, and a Letter of Intent with an American firm is presently
under negotiation.
6. Bio-recycling - "barrier product". With the retrenchment of the
utilities in anticipation of deregulation, it appears that maintenance is
being deferred. This strengthens the market for the Company's barrier
product, which is intended to protect standing poles, while in use, from
deterioration at and below the ground line. The product, which offers
related benefits related to potential leaching of treatment chemicals,
utilizes the same microbial consortia used in the bio-recycling operations
and offers a way to dispose of the Company's excess bio-mass and waste
water. Thus, the manufacture of the "barrier product" is to be located
at the bio-recycling plants. Management does not intend to attempt to
manufacture the "barrier product" outside of such a plant. Accordingly,
completion of the Company's research and development of the product is
being postponed until there is a bio-recycling (disposal) plant. Since
production of the barrier product is tied to the bio-recycling plant, the
Company's plans for the barrier product are dependent upon the results of
the negotiations regarding the LSU license as discussed above.
7. Mentor Program and "Incubator" Assistance/BDC Investment. The
Company's experience with the HWB Joint Venture shows that the Company's
Management can be of assistance with small, start-up ventures which
require assistance. Under appropriate circumstances, such assistance can
help defray the Company's management/executive overhead. Accordingly,
<PAGE>
Management has been exploring various potential opportunities which would
offer such utilization of the management and executive capacity, while
providing profit potential to the Company from its participation in such
enterprises, which would be developed and spun off as independent
companies. During the reassessment of the Company's business plan, this
has increasingly become a more important consideration. In September, the
Company invested in a newly organized company which intends to elect to
be a business development company ("BDC") under the Investment Company Act
of 1940. A BDC's essential purpose is to provide both financing and
management support services to client portfolio companies, assist those
companies in growing to a size warranting public company status, and then
distributing an interest in such newly-public companies to its
shareholders as the return on their investment. While the Company's
ultimate relationship and role to that BDC is not determined, the offering
of mentor and incubator assistance is going to become a part of the
Company's revised business plan for 1996. The Company may provide such
services directly, it may provide them in conjunction with the BDC, and/or
it may provide them through the BDC. Management's present concept is to
acquire an interest in the companies to which it provides such services
and then to distribute all or portion of such interests to its
shareholders so as to give them a direct interest in such companies. With
the consolidation of the Company's construction operations into MBA, where
the Company would hold only a minority interest, in the absence of other
operations the Company could fall into the definition of an investment
company. Accordingly, Management decided to position itself for that
possibility by acquiring an interest in a new BDC with the expectation
that the Company's role and the extent of its relationship could be
determined as events in 1996 may dictate.
COMPANY'S CONTINGENT LIABILITIES UNDER MITCHELL POLE COMPANY, INC. BONDS
TERMINATED
In March 1995, the Company was notified that the Mitchell Pole
Company, Inc, which it had sold in August 1994, had not made payment on
its bond obligations for the 1992A, 1992B and 1993 Series of Bonds, and
demand was made upon the Company. The Company was informed by the
purchaser of Mitchell Pole Company, Inc. that the default was being
deliberately induced so that a new purchaser could restructure the debt
of Mitchell Pole by purchasing the facility with the proceeds of a new
bond issue. On May 1, 1995 the 1992A and 1992B Series Bonds went into
payment default and on June 7, 1995 the Trustee accelerated the
indebtednesses. Then, on July 1, 1995 the 1993 Series Bonds went into
payment default and on July 17, 1995 the Trustee accelerated the
indebtedness. On July 28, 1995, the new purchaser closed its new bond
issue, purchased the facility, and the proceeds were used to defease (pay
off) the prior bonds which the Company had guaranteed. On July 28, 1995
both Union Planters Bank, the Trustee, and the Development Authority of
Mitchell County (Georgia) released all parties to the prior bonds,
including the Company. As of July 31, 1995, Union Planters Bank, the
Trustee, and the Company have entered into a Mutual General Release
terminating the Company's guarantees and the contingent liabilities
thereunder.
<PAGE>
SUMMARY
During 1994, the Company experienced severe cash/working capital
restrictions. The then Management undertook a plan to reduce liabilities
and working capital demands, including debt service requirements, by
disposing of assets and the attached liabilities and cash demands. In
November, 1994 the Company acquired Rubeck Engineering and Construction,
Inc. which initially experienced a substantial growth in 1995. However,
that growth made increasing demands on the Company's cash flow, which
created delays in the performance of projects, thereby reducing their
profitability. The termination by Coast of its projects thereby causing
a loss to Rubeck of the subcontracts, together with the determination of
HWB's actual liabilities as compared to its estimated liabilities, reduced
Rubeck's jobs to the point that the lack of bonding made Rubeck
unprofitable. At the same time, the post-acquisition difficulties which
created liquidity problems, have not been solved. As a result, the
Company is again experiencing substantial cash flow and working capital
restrictions. To resolve these, the Company continues to pursue various
immediate financing alternatives, including short term loans, private
placements with interested investors, and securing the exercise of
outstanding warrants. The Company has privately issued 8,450,000 Warrants
(2,000,000 Warrants issued March 20, 1995, 3,000,000 Warrants issued June
20, 1995, 3,000,000 Warrants issued November 9, 1995, and 450,000
Warrants issued under a Warrant Agreement of November 10, 1995 authorizing
up to 2,000,000 Warrants) to certain interested investors. The Company
has filed a Registration Statement which is in progress at the Securities
and Exchange Commission and anticipates registration of the underlying
shares in the near future so as to induce the investors to exercise their
options and provide the needed working capital. The Company anticipates
that some warrantholders will exercise their warrants prior to the
effectiveness of the Registration Statement so as to provide the Company
with sufficient working capital until the effectiveness, when it is
anticipated that a substantial number of the warrants will be exercised.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has settled the previously reported suit by Consolidated
Rail Corporation, Civil Action 94-4521 (CSF) in the United States District
Court for the District of New Jersey. The suit involved charges for the
transportation of chemically-treated wood waste to a subsidiary's
bio-recycling pilot plant pilot in Tallulah, Louisiana. The parties
agreed
on the shipments for which the subsidiary (which has ceased operations)
had not made payment and the Company secured an installment payment
program for the agreed balance owing.
The landlord of the Company's former offices in Boca Raton, Florida,
Canpro Investment, Ltd. filed an action against the Company in the Circuit
Court for Palm Beach County, Florida at No. CL95-3167 AJ seeking
possession of the premises and $22,361.19 in unpaid rent, together with
attorney's fees and costs. In order to reduce costs, the Company has not
filed a defense and has permitted the plaintiff to secure a default
judgment.
On July 28, 1995, a former financial public relations firm to the
Company, Universal Media, Inc., filed suit against the Company in the
Circuit Court for Broward County at No. 95-1058402 seeking the payment of
various invoices, totaling $94,905.52, for work performed from 1991
through 1993, plus interest and legal fees. The Company has settled the
suit for $54,000 plus interest and legal fees, for a total of $85,000.
On August 16, 1995, a former lender of $100,000 to the Company, J.
Austin Scheibel, filed suit against the Company in the Maricopa Court
Superior Court (Arizona) at No. CV95-13431 seeking the payment of damages
arising from his seizure of unregistered stock pledged as collateral for
the loan. Mr. Scheibel seeks $680,000 in compensatory damages, together
with interest and attorneys fees and seeks $250,000 in other damages. The
Company disputes the entire claim and expects to vigorously defend the
suit. The Company has filed a motion to dismiss the suit which has been
filed and is in process.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1995 Annual Meeting of Shareholders on September
27, 1995 in Marina del Rey, California. At the meeting the following
occurred:
a. The nominated slate of directors, Messrs. Schuster, Antico and
Baccani and Ms. Dangelmayer, were elected;
b. The appointment of Weinberg & Company, now Weinberg, Pershes &
Company, as the Company's auditors, was approved.
<PAGE>
c. The Company's Certificate of Incorporation was amended to change
the name of the Company from "Microterra, Inc." to "Atlantis Group, Inc.".
d. The Company's Certificate of Incorporation was amended to
decrease the number of authorized shares of capital stock from 10,000,000
shares of Preferred Stock and 80,000,000 shares of Common Stock to
2,000,000 shares of Preferred Stock and 50,000,000 shares of Common Stock.
e. The Company's Board of Directors was authorized to adopt a
quasi-reorganization.
Item 5. Other Information
On August 8, 1995 the Company entered into a Joint Operating
Agreement with Scientific Equipment Systems, LLC ("SES"), a Louisiana
limited liability company which is 50% owned by Charles R. Schuster, until
November 16th the Chairman of the Board of Company, for the refurbishment,
repair, possible enhancement and modification of the High Temperature
Fluid Wall Reactor and its operation by SES. Under the terms of the Joint
Operating Agreement, the Company has moved the Reactor to Lockport,
Louisiana where SES is partially dismantling it to the extent necessary
to secure a detailed estimate of the refurbishment and repair costs. SES
is to commence initial marketing to determine the type and volume of waste
streams for which the Reactor could be used, as well as the current costs
for disposal of such waste streams. Based upon the marketing information,
the Company will determine what enhancements and modifications would
maximize the potential for the Reactor's use in disposing of selected
waste streams. Assuming the marketing shows that the Reactor can be
operated profitably and the costs can be recovered, the Company plans to
do such refurbishment, repairs, enhancements and modifications as are
necessary and desirable. Thereafter, SES will operate the Reactor and pay
to the Company the agreed royalty, together with the royalty owed by the
Company, the funds required for any dividend on the Vulcan Series of
Preferred Stock, and amortization of the costs incurred by the Company.
On September 23, 1995 the Company entered into a Memorandum of Intent
to acquire up to 49% of an SBA certified 8(a) company, Management &
Business Associates, Inc. ("MBA") of Coral Gables, Florida. The Company
has acquired an immediate 9% interest in MBA, the parties are engaging in
mutual due diligence through December 31, 1995 (although that will
probably be extended in order to provide time to MBA to deliver its
audited financial statements for 1995), following which the Company will
determine whether or not to proceed and the extent to which it will
proceed, if at all. (See discussion under Management's Discussion and
Analysis in Part I, above)
On September 27, 1995 the Company issued one million shares of its
Common Stock (restricted as to further transfer) to Wellspring Capital
Fund, a newly-organized Delaware corporation which intends to elect to
become a business development company under the Investment Company Act of
1940. The Company received Convertible Preferred Stock from the Fund, and
Management is considering what role and relationship the Company may have
with such corporation. (See discussion under Management's Discussion and
Analysis, in Part I above)
On November 9, 1995, the Company entered into a Warrant Agreement to
<PAGE>
entitle the holders to purchase up to 3,000,000 shares of the Company's
Common Stock at an exercise price of $.50 per share. The Warrants expire
six months after the effective date of the Company registering the Common
Stock underlying these Warrants. All Warrants under this Warrant
Agreement have been issued.
On November 10, 1995, the Company entered into a further Warrant
Agreement to entitle the holders to purchase up to 2,000,000 shares of the
Company's Common Stock at an exercise price of $.50 per share. The
Warrants expire six months after the effective date of the Company
registering the Common Stock underlying these Warrants. To date, Warrants
to purchase 450,000 under this Warrant Agreement have been issued.
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
In accordance with the requirements of the Securities Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATLANTIS GROUP, INC.
Date: November 22, 1995 Jorge H. Antico
Jorge H. Antico, President/CEO
Date: November 22, 1995 Ingrid M. Dangelmayer
Ingrid M. Dangelmayer, Treasurer/CFO
