<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant To Section 13 or 15(d)
Of The Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2000
Commission File Number 1-10367
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
DELAWARE 71-0675758
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
914 N. Jefferson Street
P. O. Box 1237
Springdale, Arkansas 72765
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (501) 756-7400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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:
As of March 31, 2000 the number of shares outstanding of the Registrant's Class
A Common Stock, which is the class registered under the Securities Exchange Act
of 1934, was 24,336,497 and the number of shares outstanding of the Registrant's
Class B Common Stock was 1,465,530.
<PAGE> 2
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1 Financial Statements
Balance Sheets, March 31, 2000 (unaudited)
and December 31, 1999 1-2
Statements of Operations, (unaudited)
Three Months Ended March 31, 2000 and 1999 3
Statements of Cash Flows, (unaudited)
Three Months Ended March 31, 2000 and 1999 4
Notes to Financial Statements 5-12
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
ITEM 3 Quantitative and Qualitative Disclosure about Market Risk 18
ITEM 4 Year 2000 Update 18
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings 19-20
ITEM 6 Exhibits and Reports on Form 8-K 20
Signatures 20
</TABLE>
<PAGE> 3
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 470,292 $ 187,173
Restricted bond escrow fund 16,834,993 16,593,696
Accounts receivable, net of allowance
of $20,000 in 2000 and 1999 1,784,601 1,587,368
Inventories 1,088,592 1,274,771
Prepaid expenses and other 33,626 93,982
----------- ------------
Total current assets 20,212,104 19,736,990
Buildings and equipment:
Land 876,028 --
Buildings and leasehold improvements 1,052,638 1,044,096
Machinery and equipment 14,411,326 13,981,153
Transportation equipment 170,540 162,400
Office equipment 239,510 210,024
Construction in progress 4,014,045 2,747,290
----------- ------------
20,764,087 18,144,963
Less accumulated depreciation and
amortization 7,718,288 7,227,875
----------- ------------
Net buildings and equipment 13,045,799 10,917,088
Other assets, at cost less accumulated
amortization of $307,304 (2000) and
$300,161 (1999) 1,068,539 801,715
----------- ------------
$34,326,442 $ 31,455,793
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable - trade $ 3,627,641 $ 5,110,787
Accounts payable - related parties 1,246,980 1,535,997
Current maturities of long-term debt:
Related parties 335,419 494,265
Other 53,906 46,824
Current maturities of capital lease obligation 24,705 23,189
Accrued liabilities 1,444,145 933,543
Notes payable - related parties 550,000 550,000
Notes payable - other 2,322,777 2,354,944
Bonds payable 16,500,000 16,500,000
------------ ------------
Total current liabilities 26,105,573 27,549,549
Total long-term debt, less current maturities 4,472,250 5,923
------------ ------------
Capital lease obligation 46,958 53,733
------------ ------------
Accrued dividends payable on convertible
preferred stock 410,164 337,890
------------ ------------
Stockholders' equity:
Preferred stock, $1 par value; 5,000,000
shares authorized, 2,900 outstanding at
March 31, 2000 and December 31, 1999 2,900 2,900
Class A common stock, $.01 par value;
75,000,000 shares authorized, 24,336,497
and 24,251,497 outstanding at March 31,
2000 and December 31, 1999, respectively 243,365 242,515
Class B convertible common stock, $.01
par value; 7,500,000 shares authorized,
1,465,530 outstanding at March 31, 2000
and December 31, 1999 14,655 14,655
Additional paid-in capital 28,555,352 28,459,192
Accumulated deficit (25,524,775) (25,210,564)
------------ ------------
Total stockholders' equity 3,291,497 3,508,698
------------ ------------
Total liabilities and stockholders' equity $ 34,326,442 $ 31,455,793
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Sales $ 6,269,244 $ 4,534,274
Cost of goods sold 5,236,638 3,624,742
------------ ------------
Gross margin 1,032,606 909,532
Selling and administrative costs 1,173,207 714,848
------------ ------------
Operating income (loss) (140,601) 194,684
Interest expense, net (101,336) (116,047)
------------ ------------
Income (loss) before dividends on convertible
preferred stock (241,937) 78,637
Accrued dividends on convertible
preferred stock (72,274) (71,507)
------------ ------------
Net income (loss) applicable to common stock $ (314,211) $ 7,130
============ ============
Net income (loss) per share of common stock
(basic and diluted) $ (.01) $ .00
============ ============
Weighted average number of common
shares outstanding - Basic 25,776,400 23,825,255
============ ============
Weighted average number of common
shares outstanding - Diluted 25,776,400 30,971,348
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months Three months
ended March ended March
31, 2000 31, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) applicable to common stock $ (314,211) $ 7,130
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 497,556 544,540
Dividends accrued on convertible preferred stock 72,274 71,507
Expenses paid through issuance of stock options 9,896 --
Provision for doubtful accounts -- 18,800
(Increase) decrease in other assets 72,369 (15,995)
Changes in current assets and current liabilities (2,192,540) (232,464)
------------ ------------
Net cash provided by (used in) operating activities (1,854,656) 393,518
------------ ------------
Cash flow from investing activities:
Additions to buildings and equipment (1,591,123) (1,167,434)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of notes 4,500,000 --
Payments on notes (217,604) (269,508)
Payments on capital lease obligation (5,259) (5,335)
(Increase) decrease in accounts payable - related parties (289,017) 147,296
Debt acquisition costs (346,336) --
Interest paid through issuance of Class A
common stock -- 43,800
Proceeds from exercise of stock options and
warrants, net 87,114 384,333
------------ ------------
Net cash provided by financing activities 3,728,898 300,586
------------ ------------
Net increase (decrease) in cash 283,119 (473,330)
Cash, beginning of period 187,173 614,494
------------ ------------
Cash, end of period $ 470,292 $ 141,164
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1: Unaudited Information
The financial statements included herein have been prepared by Advanced
Environmental Recycling Technologies, Inc. (the Company or AERT), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). However, all adjustments have been made to the accompanying financial
statements, which are, in the opinion of the Company's management, necessary for
a fair presentation of the Company's operating results. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented herein not
misleading. It is recommended that these financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. The Company has reclassified
certain prior period amounts to conform to the current period presentation.
Note 2: Description of the Company
Advanced Environmental Recycling Technologies, Inc. (the Company or AERT)
manufactures a line of composite building materials from reclaimed plastic and
wood fiber waste for certain specialized applications in the construction
industry. The Company markets this material as a substitute for wood and
plastic filler materials for standard door components, windowsills, brick
mould, fascia board, decking and heavy industrial flooring. The Company is
comprised of two manufacturing facilities located in Junction, Texas and
Springdale, Arkansas. The Company's customers primarily consist of a number of
regional and national door and window manufacturers and Weyerhaeuser, the
Company's primary decking customer.
Note 3: Future Operations
The financial statements of the Company have been prepared on the basis of
accounting principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. At March 31, 2000, the Company had a substantial working capital
deficit of $5,893,469. The Company has incurred net losses in each year since
its inception and has never operated at successful manufacturing levels over an
extended period. Further, the Company has limited additional financial resources
available to support its operations and in the past few years has, in large
part, been supported by certain major shareholders in conjunction with several
accredited investors. There is no commitment for such shareholders or accredited
investors to continue such support. As discussed in the following paragraphs,
the Company will require additional financial resources in order to complete its
production plan and fund maturities of debt and other obligations as they become
due.
The Company also has claims and litigation outstanding against it as described
in Notes 7 and 8, the outcome of which is uncertain. If the litigated claims
were to be assessed against the
5
<PAGE> 8
Company, the Company would likely be unable to pay such claims. These factors,
among others, raise substantial doubt concerning the ability of the Company to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern. The ability of the Company
to continue as a going concern is dependent upon the ongoing support of its
stockholders, investors, customers and creditors and its ability to successfully
mass produce and market its products at economically feasible levels.
The Company is currently implementing a production plan, which management
believes will provide better operating efficiencies and correct the production
problems encountered in the past. The plan includes increasing production
capacity, further automating the production process and better utilizing
regrindable scrap. The Company anticipates reducing its working capital deficit
by paying off the bridge notes payable and being reimbursed for significant
working capital from the bond fund proceeds discussed below. During April 2000,
the Springdale plant's third extrusion line commenced operation with a new
material transfer system. Furthermore, in March 2000, the Company obtained $4.5
million of additional bank financing, the proceeds of which were used to acquire
land adjacent to the Springdale facility and reduce accounts payable.
The Company closed a $16.5 million tax-exempt industrial bond financing into
escrow in October 1999, which is intended to refinance and shift its
construction related accounts payable into long-term financing. In order for the
Company to receive the bond financing, the Company must meet certain financial
and operating criteria unless waived by the holder of 100% of the Bonds. These
include delivering to the Trustee satisfactory evidence that for any consecutive
12 month period commencing on or after the date of the issuance of the bonds,
the long-term debt service coverage ratio, as defined, has been not less than 2
to 1, and the projected long-term debt service coverage ratio for the 24 month
period subsequent to the first disbursal shall not be less than 2 to 1. There is
no assurance the Company will be successful in meeting the standards required to
receive the bond financing proceeds or in obtaining necessary financial
resources from other sources.
Completion of the production plan will require that the Company receive the
proceeds from the bond financing or obtain additional debt or equity financing
beyond those resources currently available to the Company. Also, additional
financial resources will be necessary to fund maturities of debt and other
obligations as they come due in 2000. There is no assurance the Company will be
able to correct prior production problems and improve operating efficiencies or
that the Company will be successful in securing capital resources to complete
its production plan, fund maturities of debt and other obligations as they
become due in 2000 or to support the Company until such time, if ever, that the
Company is able to consistently generate income from operations.
Note 4: Statements of Cash Flows
In order to determine net cash provided by (used in) operating activities, net
loss has been adjusted by, among other things, changes in current assets and
current liabilities, excluding changes in cash and cash equivalents, current
maturities of long-term debt, capital lease obligations and current notes
payable. Those changes, shown as an (increase) decrease in current assets and an
increase (decrease) in current liabilities, are as follows:
6
<PAGE> 9
<TABLE>
<CAPTION>
Three months Three months
ended March ended March
31, 2000 31, 1999
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
Receivables $ (197,233) $ (855,413)
Inventories 186,179 (31,533)
Prepaid expenses and other 60,356 31,574
Accounts payable (2,511,147) 631,034
Accrued liabilities 269,305 (8,126)
------------ ------------
$ (2,192,540) $ (232,464)
============ ============
Cash paid for interest $ 42,224 $ 40,800
============ ============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
<TABLE>
<CAPTION>
Three months Three months
ended March ended March
31, 2000 31, 1999
------------ ------------
<S> <C> <C>
Accounts / notes payable for equipment $1,028,001 $ --
Interest on restricted bond escrow fund 241,297 --
</TABLE>
Note 5: Significant Accounting Policies
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(unaudited) 1999
-------------- ------------
<S> <C> <C>
Raw materials $ 627,092 $ 565,259
Work in process 179,604 323,268
Finished goods 281,896 386,244
-------------- ------------
$ 1,088,592 $ 1,274,771
============== ============
</TABLE>
7
<PAGE> 10
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 6: Long-term debt
The Company obtained bridge financing from a bank in the amount of $4.5 million
in March of 2000. The debt is due on demand, however if no demand is made, it is
due in 176 equal monthly payments of $49,156 including interest at a fixed rate
of 9.75%, beginning June 23, 2000, and maturing February 23, 2015. The Company
has obtained a permanent waiver of the due on demand clause. The note is
collateralized by real estate and improvements, fixed assets, assignment of a
life insurance policy, personal guarantees of certain stockholders and an 80%
USDA Department of Rural Development guarantee. The note contains certain
financial covenants including a minimum debt to net worth ratio, as defined, of
no more than 3 to 1; a minimum current ratio of 1 to 1 by August 2000; and a
minimum current ratio of 2 to 1 by February 2001 and thereafter. The Company was
in compliance or had received waivers with respect to these covenants.
Note 7: Commitments and Contingencies
In June 1992, Mobil Oil Corporation (Mobil) commenced an action against the
Company in the United States District Court for the District of Delaware
entitled "Mobil Oil Corporation v. Advanced Environmental Recycling
Technologies, Inc." In the complaint, Mobil sought entry of a declaratory
judgment that:
o AERT was without right or authority to threaten suit against Mobil or
our customers for alleged infringement of AERT patents;
o certain AERT patents were invalid and unenforceable; and
o Mobil had not infringed the AERT patents through any products or
method.
Mobil sought no monetary damages in that suit, but did seek reimbursement of its
attorneys' fees.
The Company denied Mobil's claims and asserted counterclaims against Mobil and
three Mobil executives for:
o an illegal combination or contract in restraint of trade in violation
of federal antitrust laws;
o a pattern of intentional misconduct constituting an attempt to
monopolize in violation of federal antitrust laws;
o breach of a confidential relationship between Mobil and AERT; and
o unfair competition.
The Company sought monetary damages, punitive damages and injunctive relief.
8
<PAGE> 11
In February 1994, after a trial on the patent issues, the court held that four
AERT patents on its composite product technology were invalid and that Mobil had
not infringed the patents.
In March 1995, the Company filed a motion with the Court alleging prejudicial
misconduct by Mobil prior to the trial. The Company also filed an appeal with
the U.S. Court of Appeals in July 1995. In June 1996, the U. S. Court of Appeals
reversed a portion of the earlier ruling, which had held that two of the patents
were invalid, but nevertheless ruled that Mobil did not infringe such patents.
The Company did not further appeal this ruling.
In August 1994, Mobil filed a motion seeking an award of attorneys' fees and
costs for $2.7 million. In September 1999, the Delaware Court dismissed the
Mobil Motion for Attorneys' Fees, for a second time. The Court also dismissed
the Company's motion for new trial based upon discovery misconduct and the
Company's motion to supplement record.
Mobil recently filed an appeal brief regarding denial and dismissal of the
attorneys' fees motion by the Delaware Court. The Company recently answered
Mobil's appeal and cross-appealed the dismissal of its prejudicial misconduct
motion by the Delaware Court in March of 2000. The Company retained new legal
counsel for said appeal, which has extensive experience and specializes in
appellate actions. The Company's cross-appeal involves allegations of tampering
with, altering and withholding critical evidence by Mobil prior to trial. It
seeks a final denial of Mobil's request for attorneys' fees and a new trial for
prejudicial discovery misconduct. The Company's counterclaims are still pending,
although Mobil is no longer in the composite products business.
The Company has accrued $40,000 for anticipated court costs related to the Mobil
litigation. There can be no assurance that the Company can prevail on these
issues or that if it prevails, that Mobil will not further appeal to a higher
court. Furthermore, there can be no assurance that the Company will be awarded a
new trial upon appeal, or if it receives a new trial that the outcome will be
favorable to the Company.
Note 8: Other Litigation
The Company is a defendant in a federal action in Texas, involving allegations
from a former employee and officer of the Company that the Company breached an
employment agreement by terminating employment. The Company believes this action
is without merit.
9
<PAGE> 12
Note 9: Earnings Per Share
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 2000 31, 1999
------------ ------------
<S> <C> <C>
Net income (loss) (A) $ (314,211) $ 7,130
Adjustment of shares outstanding:
Assumed exercise of stock options
and warrants -- 16,625,475
Application of assumed proceeds ($9,119,165)
toward repurchase of stock at an average
market price of $0.962 per share -- (9,479,382)
------------ ------------
Net additional shares issuable -- 7,146,093
Weighted average common shares outstanding 25,776,400 23,825,255
------------ ------------
Adjusted shares outstanding (B) 25,776,400 30,971,348
============ ============
Net income (loss) per common share (A) divided by (B) $ (0.01) $ 0.00
============ ============
</TABLE>
The Company has additional options and warrants that were not included in the
calculation of Diluted Earnings Per Share (EPS) for the quarter ended March 31,
1999. Those options (2,125,500) and warrants (8,603,081) were either
antidilutive and / or not exercisable at March 31, 1999. The Company's preferred
stock is automatically convertible into shares of common stock on the 7th
anniversary date of the issuance of the preferred stock. The conversion price is
equal to the lower of the average of the closing bid prices for the common stock
for the five trading days immediately preceding the 7th anniversary of the
issuance or the fixed conversion price. The fixed conversion price is $1.20. At
the then current fixed conversion price of $1.20, conversion of the Company's
preferred stock would have resulted in the issuance of 2,416,667 shares of the
Company's common stock. The preferred stock, at March 31, 1999, was antidilutive
and was therefore not included in the calculation of Diluted EPS. Although the
above financial instruments were not included due to being antidilutive and / or
not exercisable, such financial instruments may become dilutive and would then
need to be included in future calculations of Diluted EPS.
SFAS No. 128, Earnings Per Share" requires dual presentation of Basic and
Diluted EPS on the face of the statements of operations and requires a
reconciliation of the numerator and denominator of the Basic EPS computation to
the numerator and denominator of the Diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
Company.
In computing Diluted EPS, only potential common shares that are dilutive - those
that reduce earnings per share or increase loss per share - are included.
Exercise of options and warrants or conversion of
10
<PAGE> 13
convertible securities is not assumed if the result would be antidilutive, such
as when a loss from continuing operations is reported. The "control number" for
determining whether including potential common shares in the Diluted EPS
computation would be antidilutive is income from continuing operations. As a
result, if there is a loss from continuing operations, Diluted EPS would be
computed in the same manner as Basic EPS is computed, even if an entity has net
income after adjusting for discontinued operations, an extraordinary item or the
cumulative effect of an accounting change. The Company incurred a loss from
continuing operations for the quarter ended March 31, 2000. Therefore, Basic EPS
and Diluted EPS were computed in the same manner for the quarter ended March 31,
2000.
Note 10: New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", (SFAS 133), as
amended by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133". SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. Companies must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 2000; however, companies may implement the statement as of the
beginning of any fiscal quarter beginning on or after June 16, 1998.
SFAS No. 133 cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the Company's election, before January 1, 1998). The Company
has not yet quantified the impact of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of the adoption of
SFAS No. 133.
Note 11: Segment Information
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information", (SFAS 131), establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. SFAS 131
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Reportable operating
segments are defined as a component of an enterprise:
o That engages in business activities from which it may earn revenues
and expenses,
o Whose operating results are regularly reviewed by the enterprise's
chief operating decision maker,
11
<PAGE> 14
o For which discrete financial information is available.
As of March 31, 2000, the Company does not have available discrete financial
information to disclose gross margin by product line. All operating expenses are
allocated primarily on capacity. Corporate overhead is not allocated by product
line or by plant, neither are selected assets. Net revenue is segregated by
product line as follows:
<TABLE>
<CAPTION>
Three Months Three Months
Ended March Ended March
31, 2000 31, 1999
------------ ------------
<S> <C> <C>
Exterior door and window components $ 1,878,398 $ 2,420,186
Commercial and residential decking surface components 4,390,846 2,114,088
------------ ------------
$ 6,269,244 $ 4,534,274
</TABLE>
Revenues, cost of goods sold, and gross margin by plant areas follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------------- --------------------------
Springdale Junction Springdale Junction
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $3,122,669 $3,146,575 $1,820,505 $2,713,769
Cost of goods sold 2,889,930 2,346,708 1,584,700 2,040,042
---------- ---------- ---------- ----------
Gross margin $ 232,739 $ 799,867 $ 235,805 $ 673,727
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC. (AERT, the Company
or "we") manufactures and markets composite building materials that can be used
as an alternative to traditional wood products for certain applications. We use
waste wood fiber and reclaimed polyethylene plastics as our raw materials. Our
products are comprised of approximately equal amounts of wood and plastic and
have been extensively tested, and have been sold to several leading national
companies since 1989. Our products are marketed under the LifeCycle(R),
MoistureShield(R), ChoiceDek(R) and DreamWorks(TM) trade names.
Our sales are primarily in the following two markets:
o exterior door and window components and
o commercial and residential decking surface components.
We currently operate two manufacturing facilities. Our decking
components and a limited amount of door and window components are currently
manufactured by our facility in Junction, Texas. Most of our door and window
components are manufactured at our Springdale, Arkansas facility, along with our
DreamWorks(TM) line of decking products. We have three extruder lines and a
plastic facility in operation at our Springdale location. The third extrusion
line became operational in April 2000, which completed the initial construction
in our second manufacturing facility. A fourth composite extrusion line may be
added at our initial Springdale manufacturing facility in late 2000. A second
plastic recycling facility and a third composite extrusion facility are planned
for Springdale later in 2000 or the first quarter of 2001.
Because of their wood fiber content, our composites are less subject to
thermal contraction or expansion and display greater dimensional stability than
conventional plastic materials. Because of their plastic content, our composites
will not absorb moisture, rot or swell like wood and do not require preservative
treatments, such as yearly sealing or staining. Our manufactured products
maintain many properties similar to traditional wood materials.
The composites manufacturing process involves proprietary and patented
technologies and specialized manufacturing equipment, custom-built or modified
for us. The process uses plentiful, lower cost, raw materials, such as recycled
plastics and wood-filler materials and, in certain cases, special additives or
virgin plastics in varying mixtures. The mixtures can be specifically formulated
based on our customers' desired end product specifications. The encapsulation of
wood fibers in plastic creates a consistent material, free of foreign matter,
which can be extruded into a desired shape. Our composite building material
became a patented product in June 1998 (U. S. Patent No. 5,759,680).
13
<PAGE> 16
Results of Operations
Quarter Ended March 31, 2000 Compared To Quarter Ended March 31, 1999
Net sales increased to $6,269,244 for the quarter ended March 31, 2000,
which represented an increase of $1,734,970 or 38% over the quarter ended March
31, 1999. The first quarter 2000 composite sales consisted of MoistureShield(R)
net sales of $1,878,398 and decking (ChoiceDek(R) and DreamWorks(TM)) net sales
of $4,390,846. These figures compare with first quarter 1999 MoistureShield(R)
sales of $2,420,186 and ChoiceDek(R) sales of $2,114,088. The decrease in
MoistureShield(R) sales was due to bad weather in certain markets, combined with
a reduced focus on industrial flooring for the quarter. Additional
MoistureShield(R) sales were delayed due to ongoing construction.
The Texas plant increased net sales to $3,146,575 in the first quarter
of 2000 from $2,713,769 in the first quarter of 1999, a 16% increase. The Texas
plant now produces primarily the ChoiceDek(R) product line. The DreamWorks(TM)
decking product line is now produced in the Springdale plant. This move
streamlined and focused the products produced at the Texas plant and helped make
it more efficient. We believe that in 2000, with the investment made at the end
of 1999 and in the first quarter of 2000 to the extruding equipment, the Texas
plant will be producing its increased annualized capacity of $17 million. The
Springdale plant reported composite sales of $3,122,669 in the first quarter of
2000 compared to $1,820,505 in the first quarter of 1999, a 69% increase. With
the additional capacity from its third extrusion line, the Springdale plant will
initially have a first year capacity in 2000 of $20 million. This capacity is
intended to increase to $33 million as improved efficiencies are realized. The
Springdale plant will produce the Company's MoistureShield(R) lines for its
door, window and industrial OEM customers, as well as the DreamWorks(TM) line
of decking.
Cost of goods sold increased $1,611,896, from $3,624,742 in the first
quarter of 1999 to $5,236,638 in 2000. This increase in cost of goods sold was
primarily attributed to increased raw material costs, payroll and payroll
expenses, and utility and operating costs associated with operating the
Company's composites manufacturing units. The Company completed installation of
an upgraded material handling and blending system during the quarter ended March
31, 2000. The new material transfer system started up initially on March 15,
2000 and was fully operational with the startup of the third Springdale
extrusion line in April 2000. The Company will finalize minor completion
projects at the Springdale plant during the second quarter of 2000.
Significant cost categories were as follows for the quarter ended March
31:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Expense Category
Payroll and payroll taxes $ 1,841,354 $ 1,262,921
Depreciation 482,516 465,978
Raw Materials 1,733,452 1,011,247
Other 1,179,316 884,596
----------- -----------
Total cost of goods sold $ 5,236,638 $ 3,624,742
=========== ===========
</TABLE>
14
<PAGE> 17
Payroll and payroll taxes increased due to the increase in the number
of personnel required to operate the Springdale plant in the first quarter of
2000 as production capacity increased. Raw material costs increased as a result
of the increase in sales and an increase in raw material plastic costs. In
particular, raw material costs as a percent of sales increased 4% for the first
quarter of 2000 as compared to the same period a year ago. These increased
costs accounted for approximately $255,000 of the $1.73 million in raw material
costs for the first quarter of 2000. To offset the higher raw material costs
the Company implemented price increases on its products in early 2000. If
plastic costs continue to increase, the Company may also consider increasing
prices on its products again later in the year. Other manufacturing costs
increased $294,720 to $1,179,316 in 2000, up from $884,596 in 1999. The
increase in costs was due to the increase in sales and the continued buildup of
the Springdale facility to a fully operational plant. As a percentage of net
sales, manufacturing overhead decreased to 27% in 2000 from 30% in 1999. The
manufacturing overhead did not grow as fast as the sales were increasing.
Additional decreases in manufacturing overhead as a percent of sales are
expected as efficiencies improve.
Selling, general and administrative expenses increased $458,359 in the
first quarter of 2000 to $1,173,207, compared to $714,848 for 1999. The increase
was due to an increase in salaries, professional fees and commissions. These
expenses are normally associated with growing sales. As a percentage of net
sales, SG&A increased to 19% from 16% in 1999. A portion of this increase was
due to the addition of a corporate office and additional support staff, which
were not in place during the first quarter of 1999. The Company initiated a
limited national advertising program for decking in late 1999, which included
print, trade shows and limited cable television advertising. This marketing
strategy was initiated with the goal of significantly increasing sales of its
ChoiceDek(R) decking products into national distribution in conjunction with
Weyerhaeuser, its North American decking distributor.
The net loss for the quarter ended March 31, 2000 was $314,211 or a
net loss per weighted average common share outstanding of $.01. This compares
to net income of $7,130 for the first quarter of 1999. Of the increase in the
first quarter 2000 expenses, which contributed to the loss, approximately
$518,000 was directly attributable to increased raw material costs and
corporate support when compared on a percentage basis to the first quarter of
1999.
In addition, the Company increased its plastics recycling and
processing capacity during the second half of 1999 by adding more cleaning and
production equipment. These additions are designed and intended to allow the
Company's plastic recycling machinery to utilize and blend lower cost recycled
plastics. This system became operational during the first quarter of 2000.
During the first quarter of 2000, the Company expended approximately
$1.3 million on capital expenditures at the Springdale facility. The Company
estimates that $1.5 million will be required during the first half of 2000 to
complete the initial phase of the Springdale facility.
There can be no assurance that the Company can attain its anticipated
continued operating improvements, that raw material costs will not continue to
increase, that sales price increases will be possible or that its additional
production efficiencies and resultant unit cost reductions required for
sustained profitability will occur.
RECENT DEVELOPMENTS
AERT entered into a purchase agreement with Weyerhaeuser for 1,200 trucks
of its residential and commercial decking products, which are marketed under
the name ChoiceDek(R), for the year 2000. This will approximate $22,000,000 in
gross sales for the year, providing the Company can reach this volume of
production. That sales amount is an increase in 2000 decking sales over 1999 of
approximately 108%, or more than double 1999 decking sales. AERT will also be
increasing distribution of decking through Weyerhaeuser into Canada during the
summer of 2000. This increase in sales opportunities for the Company is driven
primarily by the increasing market acceptance of low maintenance decking
materials by consumers over traditional decking materials like wood that
require maintenance and can rot, splinter and warp over time when exposed to
external environments.
Additionally, in the first quarter of 2000, AERT and Weyerhaeuser started a
national TV advertising campaign on TNN outdoors. The ads runs four times per
week with an exposure to over 72 million households. These ads are to build
product identification and brand awareness. For 2000, the anticipated amount to
be expended for national and regional advertising and promotion on decking is
approximately $900,000.
15
<PAGE> 18
Liquidity and Capital Resources
The Company, in conjunction with its major shareholder, contractors and
suppliers, completed a major capital expansion during 1999 at the Springdale
plant. Although this capital expansion contributed to the working capital
deficit, the completion of the $4.5 million government guaranteed loan helped to
reduce the deficit to $5,893,469 from $7,756,859 at December 31, 1999. The
deficit is primarily attributable to the Company's delays in completing
construction and starting up its additional extrusion lines in a timely manner,
and the resultant negative cash flow from the Springdale plant. Management's
decision to finance significant capital expenditures with short-term bridge
loans also contributed to the increased deficit. Of such deficit involving total
liabilities of approximately $26.1 million as of March 31, 2000, $16.5 million
was for bonds payable, which is currently escrowed and offset by a $16.5 million
restricted bond escrow fund, $2 million was payable to the Company's major
shareholder, $1.9 million was in short term bridge loans, and approximately $4.8
million was in payables of which a significant portion reflects the ongoing
construction in progress at the Springdale facility.
The Company also successfully closed a $16.5 million tax exempt bond
financing into escrow during the fourth quarter of 1999, which is intended to
refinance and shift its construction and expansion related accounts payable into
long-term financing. The Company started up the third Springdale production line
in April 2000. The Company plans to further increase production on its
additional lines through efficiencies and significantly increase positive cash
flows, and then work to break escrow of a portion of the bonds once sufficient
debt service coverage can be consistently maintained. Certain requirements must
be met in order for the Company to break escrow. These include delivering to the
Trustee such general items as project plans and specifications, cost estimates,
construction contracts and insurance coverage. Furthermore, unless waived by the
holder of 100% of the Bonds, the Company must also deliver to the Trustee
satisfactory evidence that for any consecutive 12 month period commencing on or
after the date of the issuance of the bonds, the long-term debt service coverage
ratio, as defined, has been not less than 2 to 1, and the projected long-term
debt service coverage ratio for the 24 month period subsequent to the first
disbursal from the Project Fund shall be not less than 2 to 1. At March 31,
2000, the Company had not met the aforementioned criteria and there are no
assurances the Company will be successful in meeting the standards required to
receive the bond financing proceeds. In addition, the bonds are subject to
mandatory tender for purchase by the Company in whole on October 13, 2000 (the
Reset Date), at which time the Company will attempt to re-market the bonds.
There are no assurances that the Company will be successful in re-marketing the
bonds, at which time the Company will be required to buy back the bonds. Should
the Company be successful in its efforts to break escrow the Company believes it
will have more than adequate debt service coverage for its pending long-term
bond debt.
On February 29, 2000, the Company closed a bank financing with an
Arkansas based bank totaling $4.5 million. This loan has a 15-year amortization,
is 80% guaranteed by the U.S. Government and carries a 9.75% interest rate.
Approximately $800,000 of the loan proceeds were used to acquire the 18.6 acres
of land that adjoins the plant in Springdale, Arkansas. This land will be the
site of the third manufacturing facility and an additional plastic plant, as
previously mentioned. Also, the loan proceeds were used to pay debt acquisition
costs of approximately $346,000, reduced the Company's accounts payable by
approximately $2,000,000 and provided working capital of approximately
$1,350,000. Said financing also
16
<PAGE> 19
required personal guarantees by the major shareholder and two family members.
The Company has initiated an outside third party fairness opinion regarding this
transaction, and may compensate these individuals in the future for use of their
guarantees. The Company believes that with the successful completion of its
pending escrowed bond financing it will reduce and later eliminate its working
capital deficit by paying off the remaining bridge note balance of $1.9 million
during the remainder of 2000. In addition, the Company will be reimbursed for
approximately $4.0 million of working capital used to pay vendors for costs
eligible to be paid from bond proceeds. The Company will also receive
approximately $1.6 million for unpaid costs eligible for reimbursement, which
are reflected in the Company's accounts payable total. The bond funds will
greatly improve the working capital position, and will restructure a significant
portion of the Company's short-term indebtedness into long-term debt with more
favorable interest rates if the Company is able to meet the requirements of the
bond indenture previously described and break escrow. Purchasing the existing
manufacturing site over a longer term should also help improve operating costs
by reducing the monthly lease payment cash requirement. By having substantial
dollars allocated and available for capital expansion, the Company believes that
increasing cash flows generated from operations can be used for working capital
and to further reduce the deficit.
In 1998, 2,900 shares of preferred stock were issued to the major
shareholder and several close accredited investors for $1,000 per share. Classes
were issued in Series A, B and C with Series B having voting rights for the
underlying shares and warrants. On the 7th anniversary date of the issuance of
the preferred stock, the preferred stock will automatically be converted into
shares of common stock with the conversion price equal to the lower of the
average of the closing bid prices for the common stock for the 5 trading days
immediately preceding the 7th anniversary of the issuance or the fixed
conversion price. The fixed conversion price is $1.20. Under the terms of the
preferred stock agreements, certain continuing performance criteria are required
of the Company, including: (1) minimum sales of $6 million per quarter and (2)
positive quarterly cash flow from operations each quarter. If a milestone
failure occurs, the conversion price is the lower of the fixed conversion price
or the variable conversion price. The variable conversion price is the average
of the closing bid prices for the common stock during the 10 consecutive trading
days ending on the trading date immediately preceding the date of determination.
A 10% premium is payable per year. Series X and Y warrants were issued in
connection with the preferred stock and are exercisable at $1.20 and $2.50 per
share, respectively. Each of the warrants has cashless exercise features that
are based on various conversion amounts and terms. Series X warrants cannot be
exercised for one year from date of issuance. The preferred stock agreements
require that the Company register with the SEC the common stock underlying the
convertible preferred stock and warrants with an effective registration
statement by August 1, 2000. The Company may be required to pay certain
penalties to the holders of the preferred stock and warrants if the registration
statement is not declared effective by the SEC by August 1, 2000. The penalties
increase over time until the registration statement is effective. The preferred
stock agreements contain potential redemption events, which would cause the
Company to have to redeem the preferred stock. The agreements state that if a
redemption event occurs, the Company must pay each holder of preferred stock an
amount equal to ten percent of the aggregate stated value of the shares of
preferred stock then outstanding. As a condition of this financing, the Company
filed an initial registration statement for the preferred stock in December
1999 and expects to have it declared effective by the SEC prior to August 1,
2000.
17
<PAGE> 20
Cash and cash equivalents increased $283,119 in the first quarter of
2000. Significant components of that increase were: (i) cash used in operating
activities of $826,655, which consisted of the net loss for the period of
$314,211 reduced by depreciation and amortization of $497,556 and increased by
other uses of cash of $1,010,000; (ii) cash used in investing activities of
$1,591,123, and (iii) cash provided by financing activities of $3,728,898.
Payments on notes during the period were $217,604, and proceeds from the
issuances of notes amounted to $4,500,000. At March 31, 2000, the Company had
bonds and notes payable in the amount of $24,234,352, of which $19,762,102 were
current bonds and notes payable or current portion of long-term debt. Of the
current bonds and notes payable, $3,262,102 or 17% was to the major shareholder
and other investors closely associated with the Company. During the fourth
quarter of 1998, the Company reduced the indebtedness of its $3.16 million
bridge loan by $1 million through the issuance of preferred stock. During the
first quarter of 1999, the loan was further reduced by $200,000 to $1.9 million.
The Company intends to pay down the remaining $1.9 million from cash flow and/or
refinancing during 2000 and the final balance upon successful completion of the
bond financing.
FUTURE PLANS
With the startup of the third Springdale extrusion line, management
believes the Arkansas facility will have sufficient production capacity to
support its customer base and maintain positive cash flows and respectable
profitability. With initial phases primarily complete, the Company's objectives
are to now restructure and solidify its balance sheet, eliminate its "going
concern" issue and attain a clean audit opinion. These objectives are to be
attained in four ways.
o Debt restructuring
o Cash flow
o Profitability
o Potential voluntary warrant exercises
Debt restructuring: Once both plants are in a sustainable profit mode, the
Company intends to break escrow on a portion of the bonds, with which AERT can
purchase the Springdale plant, refinance a significant portion of the bridge
loans, pay open account balances on remaining construction payables and increase
working capital by reimbursing AERT for bills eligible for bond reimbursement
that have been paid by AERT out of working capital. This debt restructuring is
estimated to reduce short-term payables and debt by approximately $5 million,
and will greatly improve the Company's short-term debt position. The purchase of
the existing Springdale plant will eliminate $228,000 in annual lease payments.
Cash flow: With the third Springdale extrusion line now up and running, both of
the plants should be producing a consolidated minimum amount of $900,000 of
gross sales weekly when efficiencies of scale are attained. That amount of gross
sales annualizes to $46,800,000, which management believes will generate enough
cash to pay operating expenses on a current basis. When the bond funds break
from escrow, designated bond funds will be dedicated for construction and
expansion, and cash flows generated will then begin to increase our working
capital balances.
Profitability: At the aforementioned sales level, we will be generating profits
on a consistent basis. The Company is currently holding bi-weekly meetings at
both plants to increase communications between the plant associates and
management, and to identify specific areas for improving the efficiency of the
operations and reducing costs. We are implementing a new accounting and
reporting system in order to monitor operating performance in a more timely
manner. The company is now in a position under normal working conditions to make
profits each month. This of course does not anticipate major breakdowns or
consistent underutilization of the equipment due to poor operating procedures.
The Company has the infrastructure to move to consistent profitability.
Potential voluntary warrant exercises: The Company has a series of warrants
outstanding, including those covered by a recent S-3 registration statement
filing which was filed by the Company as a condition of the preferred stock
offering. This offering of $2.9 million helped the Company complete the
Springdale plant. Although outstanding warrants are of a voluntary conversion
nature by the warrant holders, other than time of expiration, management
believes that when the Company demonstrates that the Springdale plant can make
money and that the Company can sustain profitability, shareholders may decide to
exercise warrants, which could bring additional equity into the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company has no material exposures relating to its long-term debt,
due to virtually all of the Company's long-term debt bearing interest at fixed
rates. The Company depends on the market for favorable long-term mortgage rates
to help generate sales of its product to its customers for use in the
residential construction industry. Should mortgage rates increase substantially,
the Company could be impacted by a reduction in the residential construction
industry. Important raw materials purchased by the Company are recycled plastic
and wood fiber, which are subject to price fluctuations. The Company attempts to
limit the impact of price increases on these materials by negotiating with each
of its suppliers on a term basis.
ITEM 4. Information Systems and the Impact of the Year 2000
Through the date of this report, the Company completed the transition
from calendar year 1999 to calendar year 2000 without any major problems or
disruptions because of year 2000 issues. Additionally, no problems are expected
to arise as a result of any year 2000 related failure in the future.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1992, Mobil Oil Corporation (Mobil) commenced an action against the
Company in the United States District Court for the District of Delaware
entitled "Mobil Oil Corporation v. Advanced Environmental Recycling
Technologies, Inc." In the complaint, Mobil sought entry of a declaratory
judgment that:
o AERT was without right or authority to threaten suit against Mobil or our
customers for alleged infringement of AERT patents;
o certain AERT patents were invalid and unenforceable; and
o Mobil had not infringed the AERT patents through any products or method.
Mobil sought no monetary damages in that suit, but did seek reimbursement of its
attorneys' fees.
The Company denied Mobil's claims and asserted counterclaims against Mobil and
three Mobil executives for:
o an illegal combination or contract in restraint of trade in violation of
federal antitrust laws;
o a pattern of intentional misconduct constituting an attempt to monopolize
in violation of federal antitrust laws;
o breach of a confidential relationship between Mobil and AERT; and
o unfair competition.
The Company sought monetary damages, punitive damages and injunctive relief.
In February 1994, after a trial on the patent issues, the court held that four
AERT patents on its composite product technology were invalid and that Mobil had
not infringed the patents.
In March 1995, the Company filed a motion with the Court alleging prejudicial
misconduct by Mobil prior to the trial. The Company also filed an appeal with
the U.S. Court of Appeals in July 1995. In June 1996, the U. S. Court of Appeals
reversed a portion of the earlier ruling, which had held that two of the patents
were invalid, but nevertheless ruled that Mobil did not infringe such patents.
The Company did not further appeal this ruling.
In August 1994, Mobil filed a motion seeking an award of attorneys' fees and
costs for $2.7 million. In September 1999, the Delaware Court dismissed the
Mobil Motion for Attorneys' Fees, for a second time. The Court also dismissed
the Company's motion for new trial based upon discovery misconduct and the
Company's motion to supplement record.
Mobil recently filed an appeal brief regarding denial and dismissal of the
attorneys' fees motion by the Delaware Court. The Company recently answered
Mobil's appeal and cross-appealed the dismissal of its prejudicial misconduct
motion by the Delaware Court in March of 2000. The Company retained new legal
counsel for said appeal, which has extensive experience and specializes in
appellate actions. The Company's cross-appeal involves allegations of tampering
with, altering and withholding critical evidence by Mobil prior to trial. It
seeks a final denial of Mobil's request for attorneys' fees and a new trial for
prejudicial discovery misconduct. The
19
<PAGE> 22
Company's counterclaims are still pending, although Mobil is no longer in the
composite products business.
There can be no assurance that the Company can prevail on these issues or that
if it prevails, that Mobil will not further appeal to a higher court.
Furthermore, there can be no assurance that the Company will be awarded a new
trial upon appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
BY: /s/ Joe G. Brooks /s/ Edward J. Lysen
- ------------------------ ---------------------------
JOE G. BROOKS, EDWARD J. LYSEN,
Chairman Chief Financial Officer
Date: May 12, 2000 Date: May 12, 2000
20
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 470,292
<SECURITIES> 0
<RECEIVABLES> 1,784,601
<ALLOWANCES> 20,000
<INVENTORY> 1,088,592
<CURRENT-ASSETS> 20,212,104
<PP&E> 20,764,087
<DEPRECIATION> 7,718,288
<TOTAL-ASSETS> 34,326,442
<CURRENT-LIABILITIES> 26,105,573
<BONDS> 16,500,000
2,900
0
<COMMON> 243,365
<OTHER-SE> 3,045,232
<TOTAL-LIABILITY-AND-EQUITY> 34,326,442
<SALES> 6,269,244
<TOTAL-REVENUES> 6,269,244
<CGS> 5,236,638
<TOTAL-COSTS> 5,236,638
<OTHER-EXPENSES> 1,173,207
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 101,336
<INCOME-PRETAX> (314,211)
<INCOME-TAX> 0
<INCOME-CONTINUING> (314,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (314,211)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
