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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 10-QSB
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ending September 30, 2000
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to ________
0-17594
(Commission File Number)
USA BIOMASS CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware (State or other jurisdiction of Incorporation or Organization) |
33-0329559 (I.R.S. Employer Identification No.) |
7314 Scout Avenue, Bell Gardens, California (Address of principal executive offices) |
90201 (Zip Code) |
(562) 928-9900
(Registrants telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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 [x] No [ ]
The number of shares outstanding of issuers only class of Common Stock, $.002 par value, was 10,348,840 on October 15, 2000.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Introduction
USA Biomass Corporation (Company) has prepared the consolidated financial statements, without audit and without a review by its independent accountants. The review of the financial statements was not completed before the filing deadline for this Quarterly Report due to adjustments required by the change in treatment of the American Waste Transport acquisition described in note 4 to the financial statements. These adjustments, which related in part to the treatment of the common stock issued in connection with the acquisition, were completed shortly before the filing deadline. As a result, the accountants did not complete the review of the consolidated financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Subject to any changes that may be required upon the completion of a review of the financial statements by its independent accountants, the Company believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the Companys consolidated financial statements for the year ended December 31, 1999, and that the financial information presented reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the periods presented.
USA Biomass Corporation
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2000 and December 31, 1999
And For the Three Months and Nine Months ended
September 30, 2000 and 1999
Page |
CONSOLIDATED FINANCIAL STATEMENTS FOR USA BIOMASS CORPORATION |
Balance Sheet | F-2 | ||
Statements of Operations | F-3 | ||
Statements of Shareholders Equity | F-5 | ||
Statement of Cash Flows | F-7 |
NOTES TO THE FINANCIAL STATEMENTS | F-8 |
SIGNATURES | F-18 |
USA BIOMASS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and December 31, 1999
(Unaudited)
2000 | 1999 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 30,000 | $ | 1,362,000 | |||
Accounts receivable, net of allowance for doubtful accounts | 2,336,000 | 862,000 | |||||
Receivable from affiliates | 54,000 | 26,000 | |||||
Other current assets | 716,000 | 129,000 | |||||
Net current assets of discontinued operations | 1,873,000 | 1,249,000 | |||||
Total current assets | 5,009,000 | 3,628,000 | |||||
Property and equipment, net of accumulated depreciation | 15,077,000 | 7,584,000 | |||||
Other assets | 25,000 | 32,000 | |||||
Intangible assets, net of accumulated amortization | 1,331,000 | 392,000 | |||||
Total assets | $ | 21,442,000 | $ | 11,636,000 | |||
LIABILITIES AND SHAREHOLDERS EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 3,939,000 | $ | 1,747,000 | |||
Accrued liabilities | 1,472,000 | 1,355,000 | |||||
Lines of credit | 1,556,000 | 640,000 | |||||
Notes payable: | |||||||
Affiliates | 565,000 | 191,000 | |||||
Other | 1,246,000 | 728,000 | |||||
Capitalized lease obligations | 1,502,000 | 810,000 | |||||
Total current liabilities | 10,280,000 | 5,471,000 | |||||
Notes payable, net of current portion: | |||||||
Affiliates | 246,000 | 1,021,000 | |||||
Other | 6,335,000 | 2,333,000 | |||||
Capitalized lease obligations, net of current portion | 2,350,000 | 2,552,000 | |||||
Total liabilities | 19,211,000 | 11,377,000 | |||||
Commitments and contingencies | |||||||
Shareholders equity: | |||||||
Preferred Stock: | |||||||
Series A, 9% Convertible Preferred Stock | 5,000 | 7,000 | |||||
Series C, 6% Convertible Preferred Stock | 1,000 | | |||||
Common stock | 20,000 | 19,000 | |||||
Additional paid-in capital | 29,347,000 | 25,235,000 | |||||
Accumulated deficit | (26,909,000 | ) | (24,782,000 | ) | |||
Notes receivable on common stock | (115,000 | ) | (102,000 | ) | |||
Treasury stock | (118,000 | ) | (118,000 | ) | |||
Total shareholders equity | 2,231,000 | 259,000 | |||||
Total liabilities and shareholders equity | $ | 21,442,000 | $ | 11,636,000 | |||
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Month Periods Ended September 30, 2000 and 1999
(Unaudited)
September 30, 2000 |
September 30, 1999 |
||||||
Revenues | $ | 4,948,000 | $ | 1,965,000 | |||
Cost of revenues, less depreciation | 4,103,000 | 1,184,000 | |||||
Gross margin | 845,000 | 781,000 | |||||
General and administrative expenses | 730,000 | 759,000 | |||||
Depreciation | 679,000 | 258,000 | |||||
Settlement gain | | ||||||
Operating income (loss) from continuing operations | 564,000 | 236,000 | |||||
Interest expense, net | 277,000 | 98,000 | |||||
(Gain) on Sale of Assets | (35,000 | ) | |||||
Loss from continuing operations | 841,000 | $ | 299,000 | ||||
Loss from discontinued operations | 198,000 | ||||||
Net Loss | $ | 841,000 | $ | 497,000 | |||
Loss from continuing operations per common share, basic and diluted | $ | 0.16 | $ | 0.12 | |||
Net loss per common share, basic and diluted | $ | 0.16 | $ | 0.15 | |||
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Month Periods Ended September 30, 2000 and 1999
(Unaudited)
September 30, 2000 |
September 30, 1999 |
||||||
Revenues | $ | 13,269,000 | $ | 5,869,000 | |||
Cost of revenues, less depreciation | 10,895,000 | 4,267,000 | |||||
Gross margin | 2,374,000 | 1,602,000 | |||||
General and administrative | 2,022,000 | 1,622,000 | |||||
Depreciation | 1,609,000 | 826,000 | |||||
Settlement gain | (157,000 | ) | | ||||
Operating loss from continuing operations | 1,100,000 | 846,000 | |||||
Interest expense, net | 611,000 | 800,000 | |||||
(Gain) on Sale of Assets | (35,000 | ) | |||||
Change in Estimated Remediation Costs | | (400,000 | ) | ||||
Loss from continuing operations | 1,711,000 | 1,211,000 | |||||
Loss from discontinued operations | 198,000 | ||||||
Net Loss | $ | 1,711,000 | $ | 1,409,000 | |||
Loss from continuing operations per common share, basic and diluted |
$ | 0.30 | $ | 0.24 | |||
Net loss per common share, basic and diluted | $ | 0.30 | $ | 0.27 | |||
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Nine Month Periods Ended September 30, 2000 and 1999
(Unaudited)
Series A Preferred Shares |
Series B Preferred Shares |
Common Shares | Shares Held in Treasury |
Series A Preferred Stock |
Series B Preferred Stock |
Common Stock | Common Stock Held in Treasury |
Additional Paid In Capital | Retained Earnings (Accumulated Deficit) | Total | ||||||||||||||||||||||||
Balance, December 31, 1998 | 747,500 | 394,414 | 7,761,385 | (24,000 | ) | $ | 7,000 | $ | 4,000 | 16,000 | $ | (118,000 | ) | $ | 21,970,000 | $ | (15,057,000 | ) | $ | 6,822,000 | ||||||||||||||
Net loss | | | | | | | | | | (1,409,000 | ) | (1,409,000 | ) | |||||||||||||||||||||
Balance, September 30, 1999 | 747,500 | 394,414 | 7,761,385 | (24,000 | ) | $ | 7,000 | $ | 4,000 | $ | 16,000 | $ | (118,000 | ) | $ | 21,970,000 | $ | (16,466,000 | ) | $ | 5,413,000 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Continued)
For the Nine Month Periods Ended September 2000 and 1999
(Unaudited)
Series A Preferred Shares | Series C Preferred Shares | Common Shares | Shares Held in Treasury | Series A Preferred Stock | Series C Preferred Stock | Common Stock | Common Stock Held in Treasury |
Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Notes Receivable on Common Stock |
Total | ||||||||||||||||||||||||||
Balance, December 31, 1999 | 742,200 | | 9,509,856 | (24,250 | ) | $ | 7,000 | | $ | 19,000 | $ | (118,000 | ) | $ | 25,235,000 | $ | (24,782,000 | ) | $ | (102,000 | ) | $ | 259,000 | ||||||||||||||
Conversion of Series A Convertible Preferred stock to common stock |
(160,130 | ) | | 288,234 | | (2,000 | ) | | | | 2,000 | | | | |||||||||||||||||||||||
Common stock issued on exercise of stock options | | | 350,750 | | | | 1,000 | | 738,000 | | (50,000 | ) | 689,000 | ||||||||||||||||||||||||
Issuance of Series C Preferred stock | | 3,000 | | | | $ | 1,000 | | | 2,672,000 | | | 2,673,000 | ||||||||||||||||||||||||
Payment of Series A Dividends | | | | | | | | | | (416,000 | ) | | (416,000 | ) | |||||||||||||||||||||||
Shares issued in payment of debt | | | 200,000 | | | | | | 700,000 | | | 700,000 | |||||||||||||||||||||||||
Payment of Notes Receivable | | | | | | | | | | | 37,000 | 37,000 | |||||||||||||||||||||||||
Net loss | | | | | | | | | | (1,711,000 | ) | | (1,711,000 | ) | |||||||||||||||||||||||
Balance, September 30, 2000 | 582.070 | 3,000 | 10,348,840 | (24,250 | ) | $ | 5,000 | $ | 1,000 | $ | 20,000 | $ | (118,000 | ) | $ | 29,347,000 | $ | (26,909,000 | ) | $ | (115,000 | ) | $ | 2,231,000 | |||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30, 2000 and 1999
(Unaudited)
September 30, 2000 |
September 30, 1999 |
||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (1,711,000 | ) | $ | (1,409,000 | ) | |
Net loss from continuing operations | (1,711,000 | ) | (1,211,000 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 1,609,000 | 863,000 | |||||
(Gain) Loss on sale of assets | (35,000 | ) | |||||
(Gain) Change in remediation costs | |||||||
Decrease (increase) in assets: | |||||||
Accounts Receivable | (873,000 | ) | (91,000 | ) | |||
Other current assets | (569,000 | ) | 293,000 | ||||
Other assets | (5,000 | ) | (88,000 | ) | |||
Notes receivable | |||||||
Increase (decrease) in liabilities: | |||||||
Accounts payable | 544,000 | (1,042,000 | ) | ||||
Accrued liabilities | 36,000 | (309,000 | ) | ||||
Net cash provided by (used) in operating activities of continuing operations | (969,000 | ) | 1,044,000 | ||||
Net cash used in operating activities of discontinued activities | (624,000 | ) | (198,000 | ) | |||
Cash provided by (used) in operating activities | (1,593,000 | ) | 1,242,000 | ||||
Cash flows provided by (used in) other investing activities: | |||||||
Purchase of property and equipment | $ | (1,514,000 | ) | $ | (682,000 | ) | |
Sales of property and equipment | 102,000 | ||||||
Acquisition of AWT | (378,000 | ) | | ||||
Net cash provided by (used in) investing activities of continuing operations |
(1,892,000 | ) | (2,131,000 | ) | |||
Net cash used in investing activities of discontinued operations | (575,000 | ) | |||||
Cash used in investing activities | (1,892,000 | ) | (1,349,000 | ) | |||
Cash flows provided by (used in) financing activities: | |||||||
Proceeds from line of credit | 365,000 | ||||||
Proceeds from notes and loans | 1,851,000 | 7,500,000 | |||||
Proceeds of Sale of Note Repayment of notes, loans, leases |
(2,644,000 | ) | (5,734,000 | ) | |||
Proceeds from sale of Preferred Stock | 2,673,000 | ||||||
Proceeds from exercise of options | 689,000 | ||||||
Payment of dividends | (416,000 | ) | |||||
Decrease in long term accruals | (67,000 | ) | |||||
Net cash provided by (used in) financing activities of continuing operations |
2,153,000 | (2,131,000 | ) | ||||
Net cash provided by (used in) financing activities of discontinued operations |
| | |||||
Cash provided by (used in) financing activities | 2,153,000 | (2,131,000 | ) | ||||
Net increase (decrease) in cash | (1,332,000 | ) | (460,000 | ) | |||
Cash and equivalent at beginning of period | 1,362,000 | 801,000 | |||||
Cash and equivalents at end of period | $ | 30,000 | $ | 341,000 | |||
Cash paid during the period for: | |||||||
Interest: | |||||||
Continuing operations | 671,000 | 1,088,000 | |||||
Discontinued operations | | 147,000 | |||||
$ | 671,000 | $ | 780,000 | ||||
Supplemental Schedule of Non-Cash Investing and Financing Activities of Continued Operations | |||||||
Satisfaction of debt through issuance of stock: | |||||||
Liabilities satisfied | $ | 700,000 | |||||
Common stock issued | (700,000 | ) | |||||
Acquisition of business: | |||||||
Fair value of assets acquired | 8,881,000 | ||||||
Liabilities assumed | 8,503,000 | ||||||
Consideration paid: | |||||||
Cash | (378,000 | ) | |||||
Assets acquired in non-cash transactions: | |||||||
Assets acquired | 3,280,000 | ||||||
Liabilities incurred | (3,280,000 | ) | |||||
Assets offset against liabilities: | |||||||
Related party Receivable | (1,131,000 | ) | |||||
Related party notes payable | 1,131,000 |
The accompanying notes are an integral part of the consolidated financial statements.
USA BIOMASS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2000
For the Nine Months Periods Ended September 30, 2000 and 1999
1. Discontinued Operations
On December 22, 1998, the Company adopted a plan to dispose of its agribusiness and real estate operations. In October 1999, the Company transferred substantially all of its remaining real estate assets and related liabilities to AMCOR Financial Corp. (AFC), a then wholly owned subsidiary. In January 2000, the Company distributed to its common and preferred shareholders all of its AFC common shares. The Company has disputes with AFC regarding the nature and amount of assets and liabilities transferred to AFC. Further, all the regulatory requirements related to the distribution of the AFC shares to the Companys shareholders may not have been satisfied. As a result, the Company continues to record its investment related to these real estate assets as net assets of discontinued operations in the consolidated balance sheets.
At September 30, 2000, the remaining assets of the discontinued operations are the Companys receivable from a partnership that owned a golf course sold in foreclosure in February 2000, certain housing development land in Texas, and a 50% interest in PS III Farms, LLC, which owns 6,490 acres that it leases to a limited liability company owned by the other 50% venture partner. The real estate assets have been pledged as collateral on notes payable on which the Company is primarily liable totaling $3,181,000 at September 30, 2000, which is included in the net assets of discontinued operations. The lender that foreclosed upon the golf course property notified the Company that a deficiency of $2,400,000 exists after the foreclosure and in April 2000 filed a related lawsuit. The parties have mutually agreed to settle the matter and negotiations are now in process.
2. Loss per Common Share
Basic and diluted loss per common share have been computed by dividing the loss available to common stockholders by the weighted-average number of common shares for the period. Loss available to common stockholders is the loss after adding to the loss any preferred stock dividend requirements. The additional common shares that would be issuable for options and warrants outstanding are ignored, as to include them in the calculation of diluted loss per share would be antidilutive.
The computations of basic and diluted loss per common share are as follows:
Nine month periods ended September 30, |
|||||||
2000 | 1999 | ||||||
Loss from continuing operations | $ | 1,711,000 | $ | 1,211,000 | |||
Add: dividends on preferred sharesdeclared | 416,000 | | |||||
Add: dividends on preferred sharescumulative, not declared | 814,000 | 689,000 | |||||
Loss to common shareholders | $ | 2,941,000 | $ | 1,897,000 | |||
Loss from discontinued operations | | 198,000 | |||||
Net loss available to common shareholders | $ | 2,941,000 | $ | 2,095,000 | |||
Weighted average sharesbasic and diluted | 9,929,000 | 7,761,000 | |||||
Loss per share from continuing operations | $ | .30 | $ | .24 | |||
Loss per share from discontinued operations | | $ | .03 | ||||
Net loss per share available to common shareholdersbasic and diluted | $ | .30 | $ | 0.27 | |||
USA BIOMASS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30, 2000
For the Nine Month Periods Ended September 30, 2000 and 1999
Three month periods ended September 30, |
|||||||
2000 | 1999 | ||||||
Loss from continuing operations | $ | 841,000 | $ | 299,000 | |||
Add: dividends on preferred sharesdeclared | | | |||||
Add: dividends on preferred sharescumulative, not declared | 814,000 | 686,000 | |||||
Loss to common shareholders | $ | 1,655,000 | $ | 985,000 | |||
Loss from discontinued operations | 198,000 | ||||||
Net loss available to shareholders | $ | 1,655,000 | $ | 1,183,000 | |||
Weighted average sharesbasic and diluted | 10,105,000 | 7,761,000 | |||||
Loss per share from continuing operation | $ | .16 | $ | .12 | |||
Loss per share from discontinued operations | | $ | .03 | ||||
Net loss per share available to common shareholdersbasic and diluted | $ | .16 | $ | .15 | |||
The effect of the potentially dilutive securities listed below were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the periods presented.
Three month periods ended September 30, |
|||||||
2000 | 1999 | ||||||
Shares of common stock issuable under: | |||||||
Employee stock options | 256,100 | 982,883 | |||||
Warrants | 239,500 | 479,500 | |||||
Series A Convertible Preferred Stock | 1,107,000 | 1,345,500 | |||||
Series B Convertible Preferred Stock | | 591,621 | |||||
Series C Convertible Preferred Stock | 340,000 | |
Nine month periods ended September 30, |
|||||||
2000 | 1999 | ||||||
Shares of common stock issuable under: | |||||||
Employee stock options | 256,100 | 982,883 | |||||
Warrants | 239,500 | 479,500 | |||||
Series A Convertible Preferred Stock | 1,107,000 | 1,345,500 | |||||
Series B Convertible Preferred Stock | | 591,621 | |||||
Series C Convertible Preferred Stock | 340,000 | |
3. Business Segments
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.
Each of these operating segments is considered a reportable segment. The Company evaluates the performance of its segments and allocates resources to them based on revenue and EBITDA. The Company defines EBITDA as earnings before interest, income taxes, depreciation and amortization, and other nonoperating income and expense.
USA BIOMASS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30, 2000
For the Nine Month Periods Ended September 30, 2000 and 1999
Certain financial information is presented below:
Green Waste Recycling |
Waste Transport |
Other | Total | ||||||||||
Nine months ended September 30, 2000: | |||||||||||||
Revenue | $ | 2,307,000 | $ | 10,962,000 | | $ | 13,269,000 | ||||||
EBITDA | 372,000 | 806,000 | $ | (669,000 | ) | 509,000 | |||||||
Assets | 2,203,000 | 15,223,000 | 4,016,000 | 21,442,000 | |||||||||
Depreciation and amortization | 274,000 | 1,333,000 | 2,000 | 1,609,000 | |||||||||
Interest, net | 33,000 | 505,000 | 73,000 | 611,000 | |||||||||
Nine months ended September 30, 1999: | |||||||||||||
Revenue | 1,697,000 | 4,172,000 | | 5,869,000 | |||||||||
EBITDA | 159,000 | 902,000 | (844,000 | ) | 217,000 | ||||||||
Assets | 914,000 | 6,163,000 | 12,390,000 | 19,527,000 | |||||||||
Depreciation and amortization | 264,000 | 540,000 | 22,000 | 826,000 | |||||||||
Interest, net | 93,000 | 332,000 | 375,000 | 800,000 |
4. Acquisition of American Waste Transport
In March 2000, the Company agreed to acquire substantially all of the outstanding shares of American West Transport (AWT) for cash in the amount of $750,000.00 and up to one million shares of the Companys common stock, subject to certain contingencies and the resolution of certain pending issues which related to the acquisition value of AWT. AWT has failed to perform its obligations as specified in the acquisition agreement. Moreover, management of the Company believes that certain material facts, not disclosed to the Company prior to the acquisition, materially and adversely affect the acquisition value of AWT. Based upon AWTs failure to disclose material information to the Company and AWTs failure to perform its obligations as specified in the acquisition agreement, management of the company has determined that it is in the best interests of the Company to cancel those 1,0 0 0,000 shares of the Companys common stock which were issued but which are being held in escrow. Fred and Linda Alexander have filed a complaint against the Company in U.S. District Court alleging violation of Federal Securities Law, the California Corporation Code, fraud, breaches of contract and wrongful termination. The Company intends to vigorously defend this action and file a cross complaint against the Alexanders.
The following unaudited pro forma consolidated results of operations are presented as if the acquisition of AWT had taken place at January 1, 2000 and 1999.
Nine month period Ended September 30, | |||||||
2000 | 1999 | ||||||
Revenue | $ | 15,422,000 | $ | 16,524,000 | |||
Net loss from continuing operations | $ | 1,701,000 | $ | 1,619,000 | |||
Net loss | $ | 1,701,000 | $ | 1,817,000 | |||
USA BIOMASS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30, 2000
For the Nine Month Periods Ended September 30, 2000 and 1999
The assets and liabilities of AWT included in the consolidated balance sheet at September 30, 2000 follows:
Current assets: | ||||
Cash | $ | (174,000 | ) | |
Accounts receivable | 1,167,000 | |||
Other current assets | 394,000 | |||
Total current assets | 1,387,000 | |||
Property and equipment | 6,697,000 | |||
Goodwill | 977,000 | |||
Total assets | $ | 9,061,000 | ||
Current liabilities: | ||||
Accounts payable | $ | 1,729,000 | ||
Line of credit | 916,000 | |||
Capitalized leases and notes payable | 1,489,000 | |||
Other current liabilities | 735,000 | |||
Total current liabilities | 4,869,000 | |||
Capitalized leases and notes payable | 4,179,000 | |||
Equity | 13,000 | |||
Total liabilities and shareholders equity | $ | 9,061,000 | ||
5. Sale of Series C Convertible Preferred Stock
In March 2000, the Company issued 3,000 shares of its Series C Convertible Preferred stock at $1,000 per share. In conjunction with the offering, the Company issued warrants to purchase 100,000 shares of the Companys common stock at $4.65 per share. The warrants may be exercised at any time until they expire on June 30, 2005.
The Series C Convertible Preferred shares may be converted at any time at $4.65 per share and provide for a 6% annual dividend rate. In addition, the Company is precluded from payment of dividends on or purchase of its common stock.
A portion of the proceeds of this offering was used for the AWT acquisition described above and for the payment of dividends on the Series A Convertible Preferred stock. The remaining proceeds of this offering have been used for working capital.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Companys operations at September 30, 2000 included: (i) clean green waste processing and recycling (biomass) and (ii) contract waste transport services. During 1997, the Companys focus shifted from agribusiness and land planning/development to biomass. Subsequently, in June 1998, the Company broadened its new focus to include solid waste transportation and developed a strategic alliance with Waste Management, Inc., formerly USA Waste Services (Waste Management). During the second half of 1998, in light of the Companys strategic alliance with Waste Management and related existing and potential biomass and solid waste transportation opportunities, the Companys Board of Directors determined that the Companys shift in focus from agribusiness and land planning/development to solid waste transportation and biomass should be complete and perma nent. Consequently, the Board of Directors approved the Companys name change effective August 31, 1998 and subsequently, on December 22, 1998 adopted a Plan of Discontinued Operations (the Plan) pursuant to which the Company will discontinue its agribusiness and land planning/development activities and will focus on its solid waste transportation and biomass activities. In addition, on January 12, 1999, the Board of Directors approved a change in the Companys fiscal year end to December 31.
Implementation of the Plan has had a material impact on the presentation of the Companys financial statements. All business activity, cash flows and net assets of these operations for the year ended December 31, 1999, and for the nine months ended September 30, 2000 have been classified as discontinued operations, and the assets of these operations have been reduced to the lower of cost or net realizable value.
Results of Operations
The Companys continuing operations consist of solid waste transportation and biomass activities, which include green waste recycling. The Company sold its unprofitable municipal tree maintenance operations in March 1999. The Companys discontinued operations consist of agribusiness and land planning/development. A discussion of the material factors that affected the Companys results of continuing operations and, where applicable, the results of its discontinued operations, are presented separately below.
Results of Continuing Operations
Revenues
The Companys revenues from continuing operations for the nine months ended September 30, 2000, reflect exclusively its biomass activities and waste transport revenue, whereas revenues for the nine months ended September 30, 1999, also reflect $363,000 of revenues from tree maintenance operations which were sold late in the first quarter, 1999. Revenues for the three months ended September 30, 2000 were $4,948,000, which included $2,665,000 of third quarter revenues from the acquisition of American Waste Transport (AWT) in March 2000, and were up significantly (152%) from $1,965,000 for the three months ended September 30, 1999. Overall, revenues for the nine-months ended September 30, 2000 were $13,269,000, up 126% from revenues of $5,869,000 for the comparable prior nine month period, which increase included $6,716,000 of revenue from AWT. The Company expects revenues to continue to inc rease in fiscal 2000 as the transportation division revenues grow both internally as new contracts and customers are phased in, and as the Company expands its biomass operations and from acquisitions, such as AWT.
Cost of Revenues
Cost of revenues (excluding $679,000 of depreciation) of $4,103,000 for the three months ended September 30, 2000, were up $2,919,000 (247%) from $1,184,000 for the comparable three month period ending September 30, 1999, mainly from internal growth in biomass activities, and from the acquisition of AWT which generated a comparable 152% increase in revenues and increased fuel costs as fuel increased $.50/gallon during the quarter. This resulted in a gross profit from operations (excluding depreciation) of $845,000 (17.0%) compared to $781,000 (39.2%) for the prior years three month period. For the nine months ending September 30, 2000 cost of revenues (excluding 1,609,000 of depreciation) were $10,895,000, up $6,628,000 (155%) from the prior nine month period, due largely from the AWT acquisition which resulted in revenues increasing 126% for the nine month period and increased fuel costs as fuel in creased $.50/gallon during the quarter. Overall, the nine months ended September 30,
2000, generated a gross profit (before depreciation) of $2,374,000 (17.9%) compared to a gross profit of $1,602,000 (27.3%) the prior nine month period. Management expects margins to improve in future periods, as cost savings are realized through the elimination of duplicate facilities and personnel related to the AWT acquisition, which will be reflected in the fourth quarter but has no assurance that fuel costs will not continue to increase.
General and Administrative Expenses
For the three months ended September 30, 2000, total general and administrative expenses of $730,000 compared to $759,000 for the comparable three month period ending September 30, 1999, the 3.8% decrease related to the effect of reductions due to the elimination of duplicate facilities and personnel. For the nine-months ended September 30, 2000, total general and administrative expense of $2,022,000 as compared to $1,623,000 the prior nine month period, up 24.7% due to the acquisition of AWT, which resulted in revenues increasing 126% for the nine month period.
Settlement Gain
During the three months ended September 30, 2000, the Company realized no settlement gain based on proceeds received from the settlement of a lawsuit in late 1999. The total settlement gain for the nine months ending September 30, 2000 was $157,000. There was no such gain in the comparable 1999 periods.
Interest Expense, Net of Interest Income
For the three months ended September 30, 2000, interest expense, net of interest income was $277,000, an increase of $179,000 (183%) from the comparable three month period ending September 30, 1999 due to additional installment debt from the acquisition of AWT. For the nine months ended September 30, 2000, interest expense was $611,000, compared to $800,000 for the comparable nine month period ended September 30, 1999, the 23.6% decrease in interest due largely to the Companys 42% reduction in debt during 1999.
Results from Continuing Operations
For the three months ended September 30, the Company reported a loss from continuing operations of $841,000 compared to a net loss of $299,000 for the comparable three month period ending September 30, 1999. This increase is due to increased depreciation and interest from the AWT acquisition and additional capital expenditures. For the nine months ended September 30, 2000, the loss from continuing operations was $1,711,000, compared to a loss of $1,211,000 the comparable prior nine month period ended September 30, 1999. The current years loss is due from increased fuel costs, additional depreciation from the acquisition of AWT and unexpected losses in the operations acquired from AWT. Management has taken steps to cut costs and also has increased rates in an effort to be profitable in the near future. The prior years loss was largely due to lower revenues not sufficient to absorb fixed costs, as the Companys new biomass business was operating below capacity. The prior years loss also included a $400,000 credit for estimated remediation costs.
Results of Discontinued Operations
For the three months ended September 30, 2000, results from discontinued operations were zero, the comparable three month period ending September 30, 1999 had a loss of $198,000, mainly due to the additional accrual of all operating losses for discontinued operations.
Liquidity and Capital Resources
The Companys overall financial condition as of September 30, 2000, as compared to December 31, 1999, has improved considerably with shareholders equity increasing over $2.0 million to $2.2 million, due primarily to the issuance of $3 million of new preferred stock. During 1999, total debt was reduced by $8.3 million (42%) to $11.4 million, which has yielded significant interest savings. (The acquisition of AWT combined with the purchase of additional equipment did cause total debt to increase to $19.1 million at September 30, 2000.) In addition, revenues from expanding biomass operations increased 126% over the comparable prior nine month period exceeding all of 1999s revenues which were $7.6 million. This increase is largely due to the acquisition of AWT which, when consolidated with the Company, should generate revenues at the annual rate exceedi ng $18 million., and with improving margins, should generate adequate funds for operations. For example, for the nine months ended
September 30, 2000, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was $509,000 compared to $415,000 the comparable prior nine month period, a 22.7% increase. Margins may continue to improve, as an estimated $l million of cost reductions are realized through the elimination of duplicate facilities and personnel functions related to the AWT acquisition. However, management has no assurances that fuel prices and other operating costs will not continue to increase. Management has increased rates in an effort to offset these increases. Moreover, USA Biomass now has a contractual backlog in place approximating $350 million with terms generally exceeding 10 years or longer, ensuring consistent revenue for future periods.
The Companys current ratio, at .48 has not improved from .66 at December 31, 1999. This is primarily due to over $1.4 million of term notes becoming current in the first and second quarter, which the Company intends to refinance during 2000 including the expenditure of $1,000,000 for capital equipment. However, liquidity may improve during 2000 as a result of the following: (i) the intense management of cash flow; (ii) the Company is currently negotiating to significantly expand both senior and/or subordinated debt to fund working capital related to the Companys large contract backlog; (iii) the Company has tax-loss carry-forwards exceeding $22 million which can be applied to shelter future earnings thereby enhancing cash flow, and (iv) the Company intends to, where appropriate, make acquisitions using its common stock for the generation of earnings and cash flow. It is for the foregoing reaso ns that the Company believes that its liquidity needs for the year 2000 will be sufficiently satisfied. Moreover, with its discontinued operations now partially liquidated, the Company has strategically positioned itself to profitably capitalize on the numerous opportunities now available in the biomass industry.
Year 2000 Compliance
To date management of the Company believes that its software packages currently in use are Year 2000 compliant. Management does not expect that the financial impact of required modification to such software, if any, will be material to the Companys financial position, cash flows or results of operations in any given year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In December 1997, a judgment was entered against the Company and two of its officers, who are also shareholders. The Company has filed an appeal of this judgment.
On April 5, 2000, a bank filed a lawsuit against the Company related to a deficiency pertaining to real property the bank foreclosed on in Texas which are part of its discontinued operations. The Company intends to vigorously defend against this lawsuit and believes that it has recorded its liability related thereto in its financial statement. Based on recent negotiations with the bank, the Company believes the matter will be completely settled during the fourth quarter and, in any event, the Company does not expect that this matter will have a material adverse effect on the Companys financial condition or results of operations.
Fred and Linda Alexander have filed a complaint against the Company in U.S. District Court alleging violation of Federal Securities Law, the California Corporation Code, fraud, breaches of contract and wrongful termination. The Company intends to vigorously defend this action and file a cross complaint against the Alexanders.
The Company is not involved in any other pending legal proceedings other than legal proceedings occurring in the ordinary course of business. Such other legal proceedings in the aggregate are believed by management to be immaterial.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
As of the date of filing this report, the Company is in arrears as to quarterly dividends on its Series A 9% Convertible Preferred Stock. The total amount of dividend arrearages was $ 813,947.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit Number | Description | ||
1 | Not applicable | ||
2 | Plan of Discontinued Operations (1) | ||
3.1 | Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 10, 1988 (2) | ||
3.2 | Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on December 21, 1988 (2) | ||
3.3 | Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on March 21, 1989 (2) | ||
3.4 | Certificate of Designations, Preferences and Relative Rights, Qualifications and Restrictions of the Series A 9% Convertible Preferred Stock of the Company filed with the Secretary of State of Delaware on May 13, 1994 (3) | ||
3.5 | Certificate of Amendment of Certificate of Incorporation of the Company filed with the Secretary of State of Delaware on February 24, 1997 (4) | ||
3.7 | Bylaws of the Company, as amended (4) | ||
4.1 | Certificate of Designations, Preferences and Relative Rights, Qualifications and Restrictions of the Series C 6% Convertible Preferred Stock of the Company filed with the Secretary of State of Delaware on April 13, 2000 (9) | ||
4.2 | Trust Indenture between the Company and First City Bank of Dallas (2) | ||
10.1 | Stock Option Agreement dated July 2, 1990 between the Company and Fred H. Behrens (6) | ||
10.2 | Stock Option Agreement dated July 2, 1990 between the Company and Robert A. Wright (6) | ||
10.3 | Stock Option Agreement dated July 2, 1990 between the Company and Marlene A. Tapie (6) | ||
10.4 | Stock Acquisition Agreement dated as of November 25, 1997 by and among Gus Franklin and Susan K. Franklin, the Company and TPE (1) | ||
10.5 | Agreement Regarding Transportation Services dated as of June 8, 1998 by and between USA Waste of California, Inc., the Company and AMCOR Biomass, Inc. (1) | ||
10.6 | Commercial Lease dated effective as of November 1, 1998 by and between Desert Mist Cooling and the Company (1) | ||
10.7 | Securities Purchase Agreement dated March 14, 2000 by and between Siete Investors LLC, a Delaware limited liability company, and the Company, including Registration Rights Agreement as exhibit thereto (8) | ||
10.8 | Agreement and Plan of Merger dated March 1, 2000 by and between Fred Alexander, Linda Alexander, AWT Acquisition Corp., AGI Acquisition Corp., American Waste Transport, Inc. and American Green Waste, Inc. (9) | ||
11 | Statement re: Computation of Per Share Earnings (Loss) (5) | ||
21 | Subsidiaries of the Company (7) | ||
27 | Financial Data Schedule (10) |
(b) Reports on Form 8-K
Form 8-K, for event dated March 1, 2000, incorporated herein by this reference as filed with the Commission on March 15, 2000, reporting on Item 2, Acquisition of Assets, in connection with the acquisition of 100% of the common stock of American Waste Transport, Inc. from Fred and Linda Alexander, non-affiliates of the Company.
Form 8-K, for event dated April 8, 2000, incorporated herein by this reference as filed with the Commission on April 17, 2000, reporting on Item 5, Other Events, in connection with the grant of a leave of absence to Robert A. Wright from the service of the Company as president of the Company.
Form 8-K, for event dated April 19, 2000, incorporated herein by this reference as filed with the Commission on April 20, 2000, reporting on Item 5, Other Events, in connection with the filing of a pro forma balance sheet at February 29, 2000, to exhibit the Companys compliance with the NASDAQ net tangible equity requirement for continued listing on the Small Cap Quotation Service.
Form 8-K for event dated August 15, 2000, incorporated by this reference as filed with the Commission on August 16, 2000 reporting on item 5, other events, in connection with resignation of Robert A. Wright as an officer and director of the Company.
Form 8-K and 8-KA for event dated October 6, 2000 incorporated by this reference as filed with the Commission on October 6, 2000 reporting on Item 5, other events and Item 6, resignation of director in connection with adjournment and rescheduling of the October 6, 2000 shareholders meeting and the correction regarding the resignation of Robert A. Wright reported in a prior filing.
______________
(1) | Filed as an exhibit to the Companys Form 10-KSB for the fiscal year ended August 31, 1998 and incorporated herein by reference. | |
(2) | Filed as an exhibit to the Companys Form 10-K for the fiscal year ended November 30, 1988 and incorporated herein by reference. | |
(3) | Filed as Exhibit 4.2 to the Companys Form 10-QSB for the quarterly period ended May 31, 1994, and incorporated herein by reference. | |
(4) | Amended Bylaws filed as an exhibit to the Companys Form 10-KSB for the fiscal year ended August 31, 1997 as filed with the Commission on December 5, 1997 and incorporated herein by reference. Additional amendment to Bylaws filed as an exhibit to the Companys Form 10-QSB for the quarterly period ended February 28, 1998 as filed with the Commission on April 15, 1998 and incorporated herein by reference. | |
(5) | Included in Financial Statements | |
(6) | Filed as an exhibit to the Companys Form 10-K for the fiscal years ended November 30, 1992, 1991, and 1990 as filed with the Commission on March 15, 1991 and incorporated herein by reference. | |
(7) | Filed as an exhibit to the Companys Form 10-KSB for the fiscal year ended August 31, 1997 as filed with the Commission on December 5, 1997 and incorporated herein by reference. | |
(8) | Filed as an exhibit to the Companys Form 10-KSB filed with the Commission on April 14, 2000, and incorporated herein by reference. | |
(9) | Filed as an exhibit to the Companys Form 10-QSB filed with the Commission on May 15, 2000, and incorporated herein by reference. | |
(10) | Filed as an exhibit to the Company's Form 10-QSB filed with the Commission on November 20, 2000, and incorporated herein by reference. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Bell Gardens, State of California.
USA BIOMASS, INC., a Delaware Corporation | |||
Date: December 21, 2000 | By: | /s/ Lance B. Jones | |
Lance B. Jones Chief Executive Officer |
By: | /s/ Eugene W. Tidgewell | ||
Eugene W. Tidgewell Chief Financial Officer |
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