SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
AMENDMENT #1
(Mark One)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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
MICROTERRA, 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.)
4275 Aurora St, Suite F
Coral Gables, Florida 33146
(Address of principal executive offices)
(305) 443-2588
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 July 28, 1995 was 5,780,965.
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MICROTERRA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash $ 66,266 $ 164,782
Accounts Receivable-net 963,750 368,703
Inventories 739,429 739,429
Due from related entity 53,370 318,000
Prepaid Expenses 230,255
Loans receivable-
related parties 174,595 153,241
Total Current Assets 2,227,665 1,744,155
PROP, PLANT & EQUIPMENT-NET 989,959 1,168,439
OTHER ASSETS:
Investment in mining rights 82,501 82,501
Licenses-net 1,111,645 1,152,824
Non compete-net 100,000
Deposits & other assets 43,101 39,227
Total Other Assets 1,337,247 1,274,552
TOTAL ASSETS $4,554,871 $4,187,146
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
MICROTERRA, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion-LTD $ 68,392 $ 69,813
Current Portion-
Capital Lease 7,175 0
Notes Payable 832,991 70,609
Accounts Payable 1,356,708 1,658,987
Accrued Expenses 72,678 127,613
Advances on contracts 1,117,503 1,117,503
Income taxes payable 43,311 47,500
Dividends payable 0 9,450
Total Current Liabilities 3,498,758 3,101,475
OTHER LIABILITIES:
Obligations under
Capital Leases 27,510 0
Notes Payable,
Long Term Portion 0 1,699
Total Other Liabilities 27,510 1,699
TOTAL LIABILITIES 3,526,268 3,103,174
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par
value with liquidation preference values
of $10 and $15 per share
10,000,000 shares authorized
198,944 and 213,533 shares issued
& outstanding respectively 1,989 2,135
Common stock, $.01 par value,
80,000,000 shares authorized;
5,755,965 and 4,817,657 shares
issued and outstanding 57,559 48,176
Additional paid-in capital 766,364 25,300
Add. paid-in capital-pref. 889,281 1,049,778
Retained Earnings (Deficit) ( 686,590) (41,417)
Total Stockholders' Equity 1,028,603 1,083,972
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 4,554,871 $ 4,187,146
====== ======
</TABLE?
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
MICROTERRA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Mos Ended Three Mos Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
INCOME
CONSTRUCTION REVENUE $ 838,437 $ 191,765
JOINT OPERATE REVENUE 641,728 0
TOTAL INCOME 1,480,165 191,765
COST OF SALES(excluding depreciation
and amortization)
CONSTRUCTION COST OF SALES 659,985 170,345
Jt OPERATE COST OF SALES 532,634 0
TOTAL COST OF SALES 1,192,619 170,345
GROSS PROFIT 287,546 21,420
EXPENSES:
AMORTIZATION & DEPN 180,678 1,302
JOINT OPERATION EXPENSE 109,094 0
OTHER GEN & ADMIN 265,322 14,544
TOTAL GEN & ADMIN 555,094 15,846
(LOSS) FROM OPERATIONS $ (267,548) $ 5,574
OTHER (EXPENSES) INCOME
INTEREST EXPENSE (4,853) (1,195)
NET (LOSS)INCOME
BEFORE TAXES (272,401) 4,379
INCOME TAXES 0 (1,954)
NET (LOSS) INCOME $ (272,401) $ 2,425
====== =====
(LOSS) INCOME PER
COMMON SHARE $ (0.05) $ .001
====== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,514,629 2,830,000
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
MICROTERRA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Six Mos Ended Six Mos Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
INCOME
CONSTRUCTION REVENUE $ 1,500,393 $635,944
JT OPERATING REVENUE 959,389 0
TOTAL INCOME 2,459,782 635,944
COST OF SALES(excluding depreciation
and amortization)
CONSTRUCTION COST OF SALES 1,206,074 438,039
JOINT OPERATE COST OF SALEs 789,504 0
TOTAL COST OF SALES 1,995,578 438,039
GROSS PROFIT 464,204 197,905
EXPENSES:
AMORTIZATION & DEPN 355,829 2,604
JOINT OPERATING EXPENSE 169,885
OTHER GEN & ADMIN 574,732 20,828
TOTAL GEN & ADMIN 1,100,446 23,432
(LOSS) INCOME FROM
OPERATIONS $ ( 636,242) $174,473
OTHER (EXPENSES) INCOME
INTEREST EXPENSE ( 8,931) ( 3,467)
NET (LOSS)INCOME
BEFORE TAXES ( 645,173) 171,006
INCOME TAXES 0 (59,644)
NET (LOSS) $ (645,173) $111,362
========= =======
(LOSS) INCOME PER
COMMON SHARE $ ( 0.12) $ 0.039
========= =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 5,241,740 2,830,000
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
MICROTERRA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $( 645,173) $ 111,362
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Amortization and Depr. 355,829 2,604
Stock issued for
services rendered 177,343
Changes in assets (increase) decrease:
Accounts receivable ( 595,047) 49,313
Prepaid expenses 16,912
Inventories 0
Loans receivable
-related party ( 21,354) 7,343
Due from related parties ( 53,370)
Changes in liabilities increase (decrease):
Accounts payable and
accrued expenses ( 272,553) (190,723)
Reclass from accounts payable
to note payable 777,381
Net cash used in operating
activities ( 260,032) ( 20,101)
Cash Flows from Investing Activities:
Purchase of fixed assets ( 36,173)
Investment in mining rights ( 11,243)
Increase in deposits ( 3,874) ( 800)
Net cash used in investing
activities ( 40,047) ( 12,043)
Cash Flows from Financing Activities:
Proceeds from Long Term
Borrowing 35,878
Payments on Long Term
Borrowing ( 18,119) ( 112)
Payments on Capital
Lease Obligations ( 1,196)
Proceeds on Stock
Subscriptions 185,000 147,082
Net cash used by Financing
Activities 201,563 146,970
Net Increase (Decrease)
in Cash ( 98,516) 114,826
Cash at beginning of period 164,782 ( 34,809)
Cash at end of period $ 66,266 $ 80,017
====== =======
</TABLE>
Note: Total Interest Paid for the quarter $2,791
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE FINANCIAL STATEMENTS
<PAGE>
MICROTERRA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During the first quarter of 1995, the Company issued 106,667 common
shares with a value of $55,694 as payment for accounts payable;
33,150 common shares with a value of $33,150 as payment on accrued
expenses; and 200,000 common stock with a value of $176,500 toward
long term employment contracts and 25,000 common shares worth
$25,000 for a field consultant's bonus. The Company also issued
75,423 common shares for the conversion of the "1992 Series"
Preferred Stock and its accrued dividends.
During the second quarter of 1995, the Company issued 75,000 common
shares with a value of $56,250 for current services rendered;
50,000 common shares worth $25,250 to field consultants as bonuses
and issued 2,317 common shares for the conversion of the "Vulcan
Series" of Preferred Stock. 1,000 restricted common shares were
issued to a lottery winner.
<PAGE>
MICROTERRA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
Note 1. BASIS OF REPRESENTATION
On November 1, 1994, the Company acquired Rubeck Engineering
and Construction, Inc. in a transaction qualifying as a tax-free
reorganization and treated as a reverse acquisition. As such,
Rubeck Engineering and Construction, Inc. is treated as the
acquiror for accounting purposes. Therefore, the operating results
shown for the comparative 1994 period are those of Rubeck
Engineering and not those of the Microterra, Inc.
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. In the
first quarter of 1994, Rubeck Engineering and Construction, Inc.
was a privately held corporation with 1,960 common shares
outstanding. In order to make the earnings per share calculation
comparable, the amount of common shares issued to Rubeck
Engineering and Construction, Inc. in November 1994 in the stock
for stock exchange was used. The Company issued 2,830,000 (post
split) shares of its common stock for the 100% of the outstanding
stock in Rubeck Engineering and Construction, Inc.
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
Atlantis 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.
<PAGE>
Note 4. NOTE PAYABLE-AMWEST
On April 19, 1995 signed a note in settlement of claims filed
with Amwest Surety Insurance Company 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 was to mature on October 19,1995, unless a
Registration Statement filed by the Company was effective, in which
case an automatic 90 day extension is to be granted.
If no Registration Statement is effective on October 19, 1995, then
the note is to be paid in three monthly installments.
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (AMENDED)
BUSINESS OPERATIONS:
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.
Rubeck is a California corporation, organized on March 18,
1991 with principal offices located at 206 South Detroit Street,
Los Angeles, California 90036-3034. Its main telephone number at
that address is (213) 931-1695. Rubeck is engaged in the
installation of fueling stations, including:
1. Retrofitting of existing fueling stations with EPA-required
upgrades;
2. Construction of new, environmentally sound, underground and
aboveground fuel storage systems;
3. Decommissioning of old fuel tanks; and
4. Remediation (bio-remediation) of hazardous materials from
groundwater and soil.
Rubeck's contracts are almost entirely with the governmental
sector, such as the Department of the Interior, the National Park
Service and the Department of Defense (Air Force, Army and Navy).
LIQUIDITY AND CAPITAL RESOURCES:
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
liabilities of approximately $1,010,300. Rubeck anticipated the
availability of excess cash from its work-in-process 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 create 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
Atlantis did not immediately develop. Initial efforts for a
private placement of common stock to obtain proceeds for the
payment of the pre-reorganization liabilities of Atlantis, Inc.
were unsuccessful. As a result, the ability to repay was limited
to the cash flow of Rubeck and it adversely affected Rubeck's
working capital.
<PAGE>
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.
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. Induced Coast Engineering and Construction
Corporation (a related entity) and Mr. and Mrs Antico to
provide the bonding companies with indemnities and
pledges as guarantors.
2. Utilized Coast Engineering and Construction
Corporation to subcontract work to Rubeck or assign
contracts to Rubeck; and
3. 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 steadily since February:
<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
</TABLE>
However, this strategy did not wholly solve the problem, short
term. Certain Coast jobs involve the withholding of a 10%
retention from job progress payments. Federal contracts utilize
a "Schedule of Values" for determination of progress payments which
"backload" the overhead and profit recovery to the end of the
contract, the average contract length being 5 - 6 months. <PAGE>
Furthermore, in performing such contracts, the contractor bills at
the end of each 30 days for the work performed during those thirty
days and the delay in payment is 15 to 30 days. This means that
a contractor must carry the job for 45 to 60 days, as well as
waiting for recovery of overhead and profit. While management's
strategy has continued the work flow, it has resulted in severely
straining the available cash flow and causing payables to
accumulate. Management anticipates that with sufficient working
capital and bonding, contracting work can be obtained to produce
sufficient cash flow to cover not only the job costs and
construction overhead, but all G&A as well. Although Management
expected this strategy to provide jobs to maintain the Company's
current overhead, cash flow was strained and there was no immediate
excess cash flow with which to deal with pre-existing liabilities,
especially those of Atlantis. 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. In addition,
it appears that HWB Construction may have existing liabilities
which exceed the profits obtainable from existing jobs, although
HWB has been orally notified that the U.S. Army Corps of Engineers
will renew HWB's contracts for the 1995-1996 fiscal year.
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, potential investors, etc. Management is now
providing the Form 10-K and financial statements to the interested
parties and is proceeding with negotiations with bonding companies
and potential investors, brokers and underwriters. Management is
diligently pursuing a number of financing negotiations for both
current private placements of equity and convertible debt
securities as well as for a later public financing with an interim
bridge loan to improve the balance sheet by reducing those
liabilities. At present, the Company is engaged in a number of
such financing negotiations.
In summary, events since the Company's acquisition of Rubeck
have severely strained Rubeck's cash. During the first six 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
<PAGE>
also generate cash flow available for the reduction of the non-job
liabilities. While this strategy has been adequate for job <PAGE>
performance, the Company is limiting the starting of new jobs and
restricting on-going jobs (which lengthens job completion times and
lessens the overall profit) while recognizing that the jobs will
not generate sufficient liquidity to pay for current G&A and the
prior liabilities. Accordingly, the Company is seeking additional,
external capital.
RESULTS OF OPERATIONS
Rubeck realized gross revenues of $838,437 and $191,765 for
the three months ended June 30, 1995 and 1994 and $1,500,393 and
$635,944 for the six months ended June 30, 1995 and 1994
respectively. This represents a 337% increase of revenues over the
same quarter in 1994 and a 136% increase of revenue over the year
to date figures for 1995 over 1994. However, the Cost of Sales
was
80.4% for the 1995 year to date period and 68.9% for the 1994 year
to date period. This increase of 11.5% in year to date cost of
sales was mostly caused by the liquidity strain discussed earlier.
Strained cash flow cripples the ability of Rubeck to complete its
jobs in the most cost efficient manner possible. Similarly, the
Company realized net profits before taxes of $4,379 for the second
quarter of 1994 while sustaining net losses of $(272,401) in the
second quarter of 1995. In the first six months of 1994, the
Company realized $171,006 in net profits before taxes, but in the
first six months of 1995, the Company sustained $(645,173) of
losses. Rubeck, by itself, realized net profits in the six months
ended June 30, 1995 of $39,488, therefore, all of this year to date
loss is due to the parent company and subsidiaries other than
Rubeck having no current operations, but incurring costs for
overhead, including accounting, legal, royalties, public company
expenses, and quarterly amortization of the High Temperature Fluid
Wall Reactor of $102,762 and the bio-recycling license of $20,588.
These additional expenses resulted in a huge increase of over 2,714
% increase in the amount of G&A in the 2nd quarter 1995 over the
2nd quarter 1994 and 3,871% increase in the year to date G&A over
the same period in 1994. ( This does not include the joint
operating expense G&A in 1995). The effect of the HWB joint
operations on the profitability of the Company was nil as the first
$400,000 of profits earned by the joint operations will be retained
by HWB and be charged as a cost to the joint operations. The
second quarter produced net profits of $79,376, which has been
charged off as an expense of the joint operating consortium.
Management acknowledges the Company needs the ability to bond
additional jobs and the liquidity to efficiently complete existing
jobs in order to create the cash flow necessary to cover the
increased corporate overhead expenses.
Management had anticipated the beginning of profits in the
second quarter from the jobs commenced in the first quarter, but
due to the extension of construction completion times not only are
the jobs incomplete, but the costs have exceeded expectations for
<PAGE>
the reasons discussed above. Accordingly, profits are lower than
anticipated. The jobs have begun to be completed in the third
quarter but the anticipated profitability is expected to be lower.
Also, as jobs are completed, it is essential that new jobs be
started in order to carry corporate overhead and preserve highly
specialized construction crews. Although it appears that the U.S.
Army Corps of Engineers will renew HWB's contracts for fiscal year
1995-1996, there is no assurance of the level of Delivery Orders
which will issued under the contract. In the event of a shortfall,
it will be incumbent on Rubeck to secure the jobs to fill the
void.
In turn, this will require bonding capacity which Rubeck, as yet,
does not have. Accordingly, a major emphasis for Rubeck is the
obtaining of sufficient working capital and bonding capacity to
permit it to continue to perform environmental contracting work at
a level consistent with its current level. At the same time,
another major emphasis is the securing of working capital so that
jobs can be completed in the shortest possible time, using the
lowest cost suppliers.
BUSINESS PLAN REASSESSMENT
Management has been reassessing the Atlantis 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 the continuation
of the existing business plan. While final decisions will likely
not be made until the end of the year, certain interim, working
decisions have been made:
1. Rubeck. Primary emphasis will continue to be placed on
Rubeck. Its entire gross revenues for 1994 (pre- and post-
acquisition) were $1,714,536. By contrast, its gross revenues for
the first six months of 1995 are $2,459,782 (Rubeck revenues of
$1,500,393 and HWB joint operating revenues of $959,389). This
growth has strained the Company's cash flow, due to the
requirements for funding jobs during the first 45 to 60 days, prior
to the receipt of the first billings, and due to the requirements
for carrying the overhead and profit for jobs to the final
payment.
In addition, the increase in gross contracts has utilized all
available bonding. Given Atlantis's prior history of losses and
Rubeck's stretching out of cash flow (resulting in claims against
the bonding companies), Rubeck is experiencing difficulty in
securing additional bonding to bid new jobs and continue its
growth. Coast Engineering and Construction Corporation's ("Coast")
bonding has also been affected in part because of guarantees made
by Coast on behalf of Rubeck. Accordingly, additional financing
is being sought, but it will be primarily used for Rubeck and not
for the original Atlantis business plan. At the same time, the
Company is evaluating its relationships with Coast and HWB <PAGE>
Construction. Both companies are minority contractors which have
received set aside contracts under affirmative action programs.
However, the State of California (by a Governor's Executive Order)
has recently terminated or curtailed such affirmative action
programs. At the same time, the U.S. Congress is discussing
curtailment or termination of such programs and a recent U.S.
Supreme Court decision appears to affect the continuation of such
programs. Management is reviewing:
(a) the likelihood of Coast continuing to secure jobs,
assignable to, or which can be sub-contracted to, Rubeck
depending upon the continuation of affirmative action programs
and the ability of Coast to obtain bonding while Rubeck
cannot; and
(b) the renewal of HWB's U.S. Army Corps of Engineers
contracts for the 1995-1996 federal fiscal year and the level
of probable Delivery Orders, as well as the financial ability
of HWB to obtain bonding and perform its contracts.
A major concern with respect to the Coast relationship is
whether the assigned jobs and sub-contracted jobs are sufficiently
profitable to provide a return to the Company commensurate with its
payment to Coast for the Covenant not to Compete and its
cross-guarantees of Coast's bonding. At the same time, although
the
future status of affirmative action programs is uncertain, at
present there appear still to be substantial "set aside" projects
for minority contractors.
A major concern with respect to the HWB contracts is whether
the projected profits are sufficient to cover HWB's own costs and
debts, both past and current, while providing sufficient gross
margin to the Company to justify the expenditure of management
(especially bookkeeping and accounting) time and provide a
sufficient return for the extension of financial credits and
accommodations.
As a result of its review, Management may:
(a) with respect to Coast: (i) terminate the previously
executed (as of January 4, 1995) Covenant not to Compete
between the corporations; (ii) continue the contract so long
as Coast has existing contracts and then terminate the
Covenant not to Compete; or (iii) continue the contract
indefinitely, under continuing review.
(b) with respect to HWB: (i) terminate the Mentor Program
relationship and the Joint Operating Agreement, so as to
terminate the Company's expenditure of management time on the
HWB matters and to limit the Company's extensions of cash
and/or credit to HWB for the performance of its contracts; or
(ii) continue the relationship until the Corps of Engineers
determines the level of Delivery Orders, and then take action
accordingly.
2. Vulcan High Temperature Fluid Wall Reactor. The Company
purchased the Reactor in early 1991, expecting to use it internally
<PAGE>
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, the Company's
Chairman of the Board. Pursuant to the Agreement, Management is
in the process of moving the Reactor out of storage and to
Louisiana, to the facility of SES, where it proposes to:
(a) have the Reactor dismantled, to the extent necessary, to
secure more specific detail costs for the refurbishment and
upgrades; and
(b) make a concerted effort to obtain contracts for the
disposal of wastes, using the Reactor, and complete
negotiations for a strategic partnership or licensing
agreement, including securing the funds for the refurbishment
and upgrade.
The Company believes that with the termination of the Mitchell Pole
Company, Inc. bond guarantees, its financing can now proceed. Such
financing includes funding to allow for the rehabilitation of the
Reactor.
3. 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
<PAGE>
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 is
discontinuing what has been a fruitless search for the capital and
instead is seeking a strategic partner or a joint venture partner
or a licensee. Preliminary discussions have been held with both
U.S. and Canadian firms, although nothing definitive has yet
developed.
4. 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.
5. Mentor Program and "Incubator" Assistance. 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, Management is 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. Depending upon
the assessment of Management, this may become part of the Business
Plan or it may be utilized only from time to time as opportunities
present themselves.
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,
<PAGE>
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.
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 has
experienced a substantial growth in 1995. That growth has made
increasing demands on the Company's cash flow, which have created
delays in the performance of projects, thereby reducing their
profitability. 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 financing alternatives, including (i)
short term loans, (ii) interim loans against contracts, to provide
working capital for specific contracts-in-progress, and (iii)
private placements with interested investors. The Company has
privately issued 5,000,000 Warrants (2,000,000 Warrants issued
March 20, 1995 and 3,000,000 Warrants issued June 20, 1995) to
certain interested investors and anticipates registration of the
underlying shares so as to induce the investors to exercise their
options and provide the needed working capital. The Company is in
the process of negotiating a private placement of its Common Stock
which, if completed, should alleviate the pressing current cash
needs.
<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. The Company disputes substantial
portions of the invoices and expects to vigorously defend the
suit.
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
In March, 1995 the Company entered into a Stock Redemption
Option Agreement with Charles R. Schuster, Chairman of the Board
of the Company, who was the owner of 506,740 shares of the
Company's Common Stock. Mr. Schuster had received the shares as
part of the November 9, 1994 acquisition transaction with Rubeck
Engineering and Construction, Inc. Subsequently, the Company
determined that the exercise of the Option Agreement would not be
in its best short term interests and, accordingly, the Option
Agreement was terminated. The parties then entered into an
Agreement for the sale of certain assets (e.g., the Pioche mining
<PAGE>
claims and a building), the conversion of the Option Agreement
purchase price ($25,000) and certain other advances into loans by
the Company, and the collateralization of the new and the
pre-existing loans with 316,740 shares of the Company's Common
Stock.
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, 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 will
move the Reactor to Lockport, Louisiana where SES will install it
in a building. The Reactor will then be partially dismantled to
the extent necessary to secure a detailed estimate of the
refurbishment and repair costs. At the same time, SES will
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 June 20, 1995, the Company entered into a Warrant Agreement
to 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.
Item 6. Exhibits and Reports on Form 8-K
(a) 10.19 Joint Operating Agreement with Scientific
Equipment Systems, LLC
28.2 Release by Union Planters Bank, Trustee, and
Development Authority of Mitchell County (Georgia)
(b) Form 8-K was filed as of July 28, 1995 reporting under
Item 5 the termination of the Company's liability as a guarantor
of certain industrial revenue bonds issued by the Development
Authority of Mitchell County (Georgia). Exhibit 28.1 included
therein was a copy of the General Release of Corporate Guarantees
of Bond Indebtedness.
<PAGE>
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.
(formerly known as Microterra, Inc.)
Date: April 29, 1996 Manuel E. Iglesias
Manuel E. Iglesias, President/CEO
Date: April 29, 1996 Lorenzo Palomares
Lorenzo Palomares, CFO
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUNE-30-1995
<CASH> 66,266
<SECURITIES> 0
<RECEIVABLES> 963,750
<ALLOWANCES> 0
<INVENTORY> 739,429
<CURRENT-ASSETS> 2,227,665
<PP&E> 1,295,931
<DEPRECIATION> 305,972
<TOTAL-ASSETS> 4,554,871
<CURRENT-LIABILITIES> 3,498,758
<BONDS> 0
<COMMON> 57,559
0
1,989
<OTHER-SE> 1,655,645
<TOTAL-LIABILITY-AND-EQUITY> 1,028,603
<SALES> 2,459,782
<TOTAL-REVENUES> 2,459,782
<CGS> 1,995,578
<TOTAL-COSTS> 1,995,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,931
<INCOME-PRETAX> (645,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (645,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (645,173)
<EPS-PRIMARY> ( .12)
<EPS-DILUTED> ( .12)
</TABLE>
