SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1996.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ________________________ to
________________________.
Commission file number 0-26166
ATLAS ENVIRONMENTAL, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1140790
(State or other jurisdiction of (I.R.S. employee Identification No.)
incorporation or organization)
150 South Pine Island Road, Plantation, Florida 33324
(Address of principal executive offices) (Zip Code)
(954) 370-9011
(Registrant's telephone number, including area code)
N.A.
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Title of Class Date Number of Shares Outstanding
----------------- --------- ----------------------------
Common Stock, $.001 par value November 12, 1996 4,591,063
This filing consists of 20 pages.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENTS ARE FILED AS PART OF THIS REPORT:
CONDENSED CONSOLIDATED BALANCE SHEETS, SEPTEMBER 30,
1996 (UNAUDITED) AND DECEMBER 31, 1995. . . . . . . . . . 3-4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30,
1996 AND SEPTEMBER 30, 1995 (UNAUDITED) . . . . . . . . . 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER
30, 1995 (UNAUDITED) 6-7
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 8-16
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 17-19
PART II - OTHER INFORMATION
ITEM 6:
A) EXHIBITS FILED. . . . . . . . . . . . . . . . . . . . 20
B) REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 20
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
<TABLE>
<CAPTION>
Atlas Environmental, Inc.
And Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 1996 (Unaudited) and December 31, 1995
September 30, 1996 December 31, 1995
-------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 220,177 $ 467,942
Accounts receivable, less allowance for doubtful
doubtful accounts of $221,696 and $59,539
as of September 30, 1996 and December 31,
1995, respectively 2,813,275 1,675,970
Notes and other receivables 150,000 159,700
Inventories 68,581 65,506
Prepaid expenses and other 130,716 160,338
-------------------- -------------------
Total current assets 3,382,749 2,529,456
Property, plant and equipment, net 40,155,285 9,963,264
Cost in excess of net assets acquired, net of
accumulated amortization 4,385,508 3,894,296
Other assets, net 988,528 918,697
-------------------- -------------------
Total assets $ 48,912,070 $ 17,305,713
==================== ===================
</TABLE>
(Continued on the following page.)
<PAGE>
<TABLE>
<CAPTION>
Atlas Environmental, Inc.
And Subsidiaries
Condensed Consolidated Balance Sheets (continued)
September 30, 1996 (Unaudited) and December 31, 1995
September 30, 1996 December 31, 1995
-------------------- --------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,448,247 $ 1,715,460
Accrued liabilities 2,166,892 585,244
Accrued environmental costs - current portion 340,497 --
Deferred revenues 377,777 179,287
Line of credit 1,849,235 --
Notes payable affiliate - current portion 1,025,000 --
Notes payable other - current portion 3,649,971 3,342,557
-------------------- --------------------
Total current liabilities 12,857,619 5,822,548
Rent payable - affiliate 228,939 245,476
Accrued environmental costs - long-term portion 495,000 --
Notes payable - Subordinated debt 10,000,000 --
Notes payable - Affiliate and accrued interest 1,090,116 1,886,606
Notes payable - Other - long-term portion 13,616,444 2,988,954
Deferred income taxes 16,400 --
Commitments and contingencies
Stockholders' equity:
Series A Redeemable Preferred Stock, $1 par value--
15,000,000 shares authorized; 7,616,000 shares
issued and outstanding 7,616,000 7,616,000
Common Stock, $.001 par value--15,000,000 shares
authorized; 4,591,063 and 3,437,000 shares
issued and outstanding 4,592 3,437
Additional paid-in capital 11,882,915 2,669,080
Accumulated deficit (8,895,955) (3,926,388)
-------------------- --------------------
Total stockholders' equity 10,607,552 6,362,129
-------------------- --------------------
Total liabilities and stockholders' equity $ 48,912,070 $ 17,305,713
==================== ====================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Atlas Environmental, Inc.
And Subsidiaries
Condensed Consolidated Statements of Operations
For the three months and nine months ended September 30, 1996 and September 30, 1995
(Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
---------------- ---------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 5,248,994 $ 1,124,289 $16,887,579 $7,900,917
Costs and expenses:
Cost of sales 3,888,141 898,937 13,379,434 4,498,890
Selling, general and administrative 779,604 721,912 2,442,612 3,181,540
Depreciation and amortization 1,075,058 233,852 3,162,994 663,819
---------------- ---------------- ------------ -----------
Total costs and expenses 5,742,803 1,854,701 18,985,040 8,344,249
---------------- ---------------- ------------ -----------
Operating loss (493,809) (730,412) (2,097,461) (443,332)
Interest expense - affiliate 39,426 38,958 149,919 119,737
Interest expense - other 993,164 170,126 2,666,186 358,871
---------------- ---------------- ------------ -----------
Loss before income taxes (1,526,399) (939,496) (4,913,566) (921,940)
Income tax benefit -- 7,000 -- --
---------------- ---------------- ------------ -----------
Net loss (1,526,399) (932,496) (4,913,566) (921,940)
Required dividend payments on
preferred stock -- (56,000) (56,000) 163,022
---------------- ---------------- ------------ -----------
Net loss applicable to common stock $ (1,526,399) $ (988,496) (4,969,566) $1,084,962
================ ================ ============ ===========
Net loss per common share $ (.34) $ (.29) (1.10) $ (.32)
================ ================ ============ ===========
Weighted average common shares
outstanding 4,483,978 3,411,853 4,483,978 3,411,853
================ ================ ============ ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Atlas Environmental, Inc.
And Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 and September 30, 1995
(Unaudited)
September 30, 1996 September 30, 1995
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,913,566) $ (921,940)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 3,164,032 663,819
Compensation paid in stock -- 15,000
Loss on sale of assets 9,709 --
Discount accretion 59,394 --
Changes in operating assets and liabilities:
Accounts receivable (333,286) (1,169,824)
Note receivable -- (150,000)
Insurance refund receivable -- 134,998
Inventories 9,425 (3,612)
Prepaid expenses 89,979 (139,251)
Other assets 305,414 89,310
Trade accounts payable 366,532 456,002
Accrued liabilities 953,326 249,313
Income taxes payable -- (143,040)
Deferred income tax benefit -- 54,587
Deferred revenue 198,490 (91,080)
Deferred income tax payable -- (46,147)
-------------------- --------------------
Net cash used in operating activities (90,551) (1,001,865)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (606,266) (755,799)
Purchase of South Florida Recovery, Inc., net of cash -- (77,800)
Proceeds from sale of assets 47,400 12,000
Purchase of subsidiaries, net of cash acquired (20,522,773) --
Deferred acquisition costs (24,120) --
-------------------- --------------------
Net cash used in investing activities (21,105,759) (821,599)
</TABLE>
(Continued on the following page.)
<PAGE>
<TABLE>
<CAPTION>
Atlas Environmental, Inc.
And Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 and September 30, 1995
(Unaudited)
September 30, 1996 September 30, 1995
-------------------- --------------------
<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of:
Line of credit 1,849,235 --
Notes payable - other 15,300,000 2,954,116
Subordinated debt 10,000,000 --
Payments on notes payable - affiliates (750,000) --
Payments on notes payable - other (5,010,628) (1,525,896)
Payments on loan costs (384,062) (23,040)
Dividends on preferred stock (56,000) (163,022)
-------------------- --------------------
Net cash provided by financing activities 20,948,545 1,242,158
-------------------- --------------------
Net decrease in cash (247,765) (581,306)
Cash at beginning of period 467,942 700,509
-------------------- --------------------
Cash at end of period $ 220,177 $ 119,203
==================== ====================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 1,825,549 $ 287,559
==================== ====================
Common stock issued in connection with
purchase of South Florida Recovery, Inc. $ -- $ 120,000
==================== ====================
Common stock issued in connection with
acquisition services under a consulting
agreement $ -- $ 120,000
==================== ====================
Common stock issued in connection with
pending acquisition $ 15,000 $ --
==================== ====================
Compensation paid in stock $ -- $ 15,000
==================== ====================
Common stock issued in connection with
the purchase of subsidiaries $ 9,212,500 $ --
==================== ====================
</TABLE>
See accompanying notes.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September, 1996
(Unaudited)
Note 1 -- Basis of Presentation
- ------------------------------------
Atlas Environmental, Inc. ("Atlas") and Subsidiaries ("the Company") was
principally engaged in providing petroleum soil decontamination and trucking
services, excavation and restoration of petroleum-contaminated sites,
petroleum storage tank removal and general trucking services. On January 25,
1996, the Company acquired six companies consisting of one C&D landfill, one
supplier of roll-off containers, and four construction, demolition and
land-clearing ("CDL") debris recycling facilities. The consolidated financial
statements include the accounts of the six acquired companies since the date
of acquisition, and TranSoil and KleenSoil for the entire period presented.
Accordingly, the financial statements for the nine months ended September 30,
1995 include the historical financial position of KleenSoil and TranSoil only.
All significant inter-company accounts have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
All adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine-month period ended September 30, 1996 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash in banks and trade accounts
receivable. The credit risk associated with cash in banks is considered low
due to the credit quality of the issuer of the financial instrument. Trade
accounts receivable are due primarily from companies located in Florida. The
Company performs ongoing credit evaluations of its trade customers and
generally does not require collateral as it relies on lien rights available
resulting from improvements made to property. Credit losses associated with
trade receivables are provided for in the consolidated financial statements
and have historically been within management's expectations.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 1 -- Basis of Presentation (continued)
- -------------------------------------------------
INVENTORIES
Inventories are valued at the lower of cost or market under the first-in,
first-out method.
REVENUE RECOGNITION
Revenues from the treatment of contaminated soil are recognized when the soil
is processed. Deferred revenues represent estimated amounts billed to
customers for soil received but not processed.
INCOME TAXES
The Company accounts for income taxes using the liability method. Under the
liability method, deferred income tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws in effect
when the differences are expected to reverse. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NET LOSS PER COMMON SHARE AND COMMON STOCK
Net loss per common share is calculated based on the weighted average number
of common shares outstanding during the periods.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 2 -- Property, Plant and Equipment
- ---------------------------------------------
At September 30, 1996 and December 31, 1995, property, plant and equipment
consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------- --------------------
<S> <C> <C>
Land, landfill and treatment facilities $ 22,102,183 $ 1,152,375
Building and improvements 8,882,843 3,165,315
Machinery and equipment 13,754,705 4,059,166
Office equipment 311,645 310,380
Vehicles 2,086,927 2,150,520
--------------------- --------------------
47,138,303 10,837,756
Less accumulated depreciation (6,983,018) (874,492)
--------------------- --------------------
$ 40,155,285 $ 9,963,264
===================== ====================
</TABLE>
Note 3 -- Long-Term Debt and Notes Payable to Affiliates
- -----------------------------------------------------------------
At September 30, 1996 and December 31, 1995, long-term debt consists of the
following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
Convertible notes payable, bearing interest at 10%,
with principal and interest due November 1, 1996,
secured by a second mortgage on real property
with a net book value of approximately
$3,200,000 (a) $ 1,745,000 $ 1,745,000
$6 million bank line of credit, with interest payable
monthly at prime plus 2%, principal due on
demand, $336,000 available at December 31, 1995,
collateralized by a blanket lien on all accounts
receivable (b) -- 1,252,097
Notes payable, monthly principal and interest
payments totaling $84,692, maturing on various
dates through October 1999, interest varying
from 6.49% to 10.05%, collateralized by vehicles
and equipment with net book value approximating
$2,550,000 (b) -- $ 2,099,308
</TABLE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 3 -- Long-Term Debt and Notes Payable to Affiliates (continued)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------- -----------------
<S> <C> <C>
Notes payable, monthly principal and interest
payments totaling $5,649, maturing July 1996,
interest at 8% collateralized by equipment with
net book value approximating $370,000 (b) -- 70,116
Note payable bearing interest at 4%, payable based
on a specific formula contingent upon the maker
supplying contaminated soil to the Company for
treatment, net of imputed interest at 10.5% of
$125,604 and $185,000 as of September 30,
1996 and December 31, 1995, respectively 1,224,396 1,165,000
15 million term loan bearing interest at LIBOR or
at the alternate base rate ("ABR"), the prime rate
plus 1.25%, payable in monthly installments of
$147,500, plus interest, commencing in March
1996 with the remaining outstanding principal
and interest due in full in January 2001. During
any event of default, interest rates will increase
by 2% (c) 13,925,100 --
Subordinated notes bearing interest at 13 1/2%,
payable in five equal annual installments of
$2,000,000 commencing in January of 1999,
with interest payable quarterly commencing
in April, 1996 (c) 10,000,000 --
</TABLE>
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 3 -- Long-Term Debt and Notes Payable to Affiliates (continued)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
-------------------- -------------------
<S> <C> <C>
Note due to the former owner of Naples payable
in 12 quarterly payments of $23,956 bearing
interest at 10% (d) 262,475 --
Other 109,444 --
-------------------- -------------------
27,266,415 6,331,511
Less current portion (3,649,971) (3,342,557)
-------------------- -------------------
$ 23,616,444) $ 2,988,954
==================== ===================
</TABLE>
(a) During 1995, the Company issued convertible notes to certain investors
in private transactions resulting in net proceeds to the Company of
approximately $1,720,000. The notes are convertible at maturity, at the
option of the holder, into restricted shares of Atlas common stock at a
price of $5.50 per share. If the conversion option is not exercised and the
holder elects to be paid in full at the maturity date, the holder will receive
2,500 warrants for each $100,000 of principal to purchase restricted shares of
Atlas common stock at a price of $8 per share for three years. As of November
12, 1996, the Company is in default of the principal and interest on these
notes. The Company has accrued interest in the amount of $167,478 through
September 30, 1996. Pursuant to an intercreditor agreement, payment of this
note is prohibited at this time.
(b) On January 25, 1996, these obligations were refinanced on a long-term
basis through the financing arrangements secured in connection with the
acquisitions described in footnote 7 to the condensed consolidated financial
statements and, accordingly, amounts have been classified as long-term, with
the exception of amounts paid subsequent to December 31, 1995, but prior to
the refinancing and amounts due within one year of the balance sheet date
under the new financing which have been classified as current.
(c) As of September 30, 1996 the Company was in breach of its stop
loss, interest coverage, cash flow, and maximum leverage covenants. The
Company is in default on the interest payment due on the subordinated notes.
The Company has accrued interest of approximately $613,600 which is included
in accrued liabilities. Pursuant to an intercreditor agreement, payment of
this note is prohibited at this time.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 3 -- Long-Term Debt and Notes Payable to Affiliates (continued)
- ----------------------------------------------------------------------------
(d) The Company has not made payments in accordance with the terms of the
note. The Company has accrued interest in the amount of $14,376 which is
included in accrued liabilities. Pursuant to an intercreditor agreement,
payment of this note is prohibited at this time.
At September 30, 1996 and December 31, 1995, notes payable to affiliates and
accrued interest consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31. 1995
------------------- ------------------
<S> <C> <C>
Note payable to a company that is wholly owned
by the principal stockholder of Atlas bearing
interest at 8%, and secured by real property
with a net book value of approximately
$2,850,000 (a) $ 500,000 $ 1,000,000
Note payable to the principal stockholder of Atlas
for working capital advances, bearing interest
at the prime rate plus 1%, secured by certain
building improvements with a net book value
of approximately $50,000 (a) 39,313 39,313
Accrued interest due to the principal stockholder
of Atlas (a) 246,215 212,293
Unsecured notes payable to stockholder with
interest at 12% (a) 250,000 600,000
Accrued interest due to stockholders (a) 54,588 35,000
Notes due to two former owners of Waste Magic
to be paid in five quarterly payments of
$150,000 and a final quarterly payment of
$275,000 with the first payment due April
19, 1996, and bearing interest at the prime
rate to be paid quarterly (b) 1,025,000 --
------------------- ------------------
2,115,116 1,886,606
Less current portion 1,025,000 --
------------------- ------------------
$ 1,090,116 $ 1,886,606
=================== ==================
</TABLE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 3 -- Long-Term Debt and Notes Payable to Affiliates (continued)
- ----------------------------------------------------------------------------
(a) Subsequent to December 31, 1995, a portion of obligation was
refinanced on a long-term basis through the financing arrangements secured in
January 1996 and, accordingly, such amounts have been classified as long-term.
Additionally, pursuant to an intercreditor agreement executed in connection
with the new financing arrangements, the ultimate maturity date of these
obligations was extended to 1999. Pursuant to an intercreditor agreement,
payment of interest on this note is prohibited at this time.
(b) Pending resolution of disputed amounts, the Company has not made
payments in accordance with the terms of the note. The Company has accrued
interest in the amount of $58,963 which is included in accrued liabilities.
Pursuant to an intercreditor agreement, payment of this note is prohibited at
this time.
Note 4 -- Line of Credit
- -----------------------------
As part of the acquisition financing described in footnote 7 to the condensed
consolidated financial statements, the Company entered into a $5 million
revolving line of credit borrowing arrangement with BNY Financial. Borrowing
availability under the line is based on the amount of eligible receivables,
less reserves, and bear interest at LIBOR or at the alternate base rate (ABR),
the prime rate plus 1.25%, payable monthly, maturing in January 2001. At
September 30, 1996, there was an approximate overdraft of $560,000 under the
credit line.
The agreement contains certain covenants related to the Company's financial
condition and operating results including minimum quarterly net income tests.
During any event of default, interest rates will increase by 2%. The Company,
at September 30, 1996, was in breach of its stop loss, interest coverage, cash
flow coverage, and maximum leverage covenants. The agreement also provides
for a 0.50% per annum unused facility fee on the unused portion of the
Revolving Credit Line payable quarterly in arrears.
Note 5 -- Contingencies
- --------------------------
The majority of the Company's underground storage tank remediation business is
performed for private clients through a state reimbursement program. In the
State of Florida, reimbursement is obtained through the Inland Protection
Trust Fund ("the Fund").
On March 8, 1995, Florida Governor Lawton Chiles signed Executive Order Number
95-82 declaring a state of emergency due to the imminent possibility that the
increased demands placed upon the Fund will result in the inability of the
State to provide for the clean-up of sites at high risk of contaminating
ground and surface waters.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Note 5 -- Contingencies (continued)
- ---------------------------------------
On March 29, 1995, Florida Law Chapter 95-2, formerly known as Senate Bill
1290, was signed into law which superseded Executive Order Number 95-82. The
law, as enacted, states that after March 27, 1995, only sites with ranking
scores higher than 50 can receive approval from the Florida Department of
Environmental Protection (FDEP) concerning the scope of work and the costs
and, with such approval, these sites may continue clean-up work. The
law also directs that clean-up work must be stopped on sites with a score
ranking of 49 or less. Sites with a score of 25-49 may continue the program
task they are working on after March 27, 1995, after receiving prior approval
for the cost of completing the task from the FDEP. Work on sites with a score
ranking of 0-24 must cease immediately. All payments for those program tasks
in progress would be paid under the old reimbursement program, 376-3071 FAC.
Florida Law Chapter 95-2 will remain as the operative legislation for the
fiscal year 1995 and 1996.
Because of the uncertainty created by the Governor's Executive Order, the pace
of remediation activity in the State slowed significantly commencing in early
March 1995. The FDEP allocated a significant portion of the annual revenue
base generated by the Fund to pay off the approximate $300 to $400 million
Fund backlog. This resulted in a slowdown in the number of sites where new
remediation services commenced and had a cleansing effect on the clean-up
industry in Florida. This is having an adverse effect on the Company's
current business in the short run as there is increased competition for the
fewer approved sites.
On May 2, 1996, the Florida Senate passed a revision to the State Program,
known as CS/HB- 1127. Key provisions of this new bill include: bonding of the
existing backlog with such bonds being repaid over approximately 7 years;
risk-based assessment of existing sites in the program; acceptance of an
estimated 4,000 new sites into the program; and an allowance for voluntary
clean-up of sites with ultimate reimbursement by the Fund. The anticipated
end result of this new legislation will be a significant increase in the
funding of clean-up activities throughout the State commencing in early 1997.
Superfund legislation enacted by Congress seeks recovery from anyone who ever
owned or operated a particular contaminated site or from anyone who ever
generated or transported hazardous materials to a site. These parties are
commonly referred to as potentially responsible parties (PRP). Potentially,
the liability can extend to subsequent owners or to the parent company of a
PRP.
When more than one PRP is associated with a contaminated site, each party may
be contingently liable for the full amount of clean-up costs and fines because
of the joint and several nature of environmental laws. Such exposure could
result in the need for an entity to accrue for clean-up costs or disclose a
potential contingency.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
As of the date of this report, the Company has not been designated as a
potentially responsible party by the Environmental Protection Agency;
therefore, no accruals for potential clean-up costs have been included in the
accompanying consolidated financial statements. However, due to the nature of
the Company's business, there is potential for exposure to environmental
liabilities.
Note 6 -- Accrued Environmental Costs
- ------------------------------------------
On February 28, 1995, the Florida Department of Environmental Protection (the
FDEP) issued a Notice of Intent to deny Atlas' subsidiary, Waste Magic, its
permit application for its Davie, Florida site. Additionally, on March 31,
1995, the FDEP issued a Notice of Violation and Orders for Corrective Action
(NOV) against Waste Magic. The NOV alleged that Waste Magic had operated
without a state permit, disposed of solid waste on the ground and disposed of
solid waste within 200 feet of a water body. On November 21, 1995, Waste
Magic signed a consent order (the Consent Order) to settle these matters with
the FDEP. The Consent Order provides for the continued operation of the
facility during the removal of solid waste from the site under the direction
of the FDEP through October 1997. In addition, Waste Magic was required to
provide a performance bond in the amount of $1,298,000 within 90 days of the
effective date of the Consent Order which requirement was satisfied by an
insurance policy benefiting the FDEP.
In connection with the Consent Order, Waste Magic recorded accrued
environmental costs totaling $990,000. Waste Magic estimated accrued
environmental costs by applying historical processing costs, per cubic yard,
to the total cubic yards requiring processing. Accrued environmental costs
also include anticipated engineering and legal costs that will be incurred in
complying with the Consent Order.
Note 7 -- Business Acquisitions
- -----------------------------------
On January 25, 1996, in a series of transactions accounted for as purchases,
Atlas acquired 100% of the issued and outstanding shares of six corporations:
Waste Magic Recyclers, Inc.; Waste Magic Recyclers Central, Inc.; Waste Magic
Recyclers Palm Beach, Inc.; Homestead Landfill and Recycling Management
Company; Royal Crown Carting, Inc.; and Naples Recycling Resources, Inc. The
total purchase price for these six entities was approximately $28.7 million
and was paid in a combination of approximately $18.2 million in cash,
approximately $1.3 million in notes, and 1,151,563 newly issued shares of
Atlas common stock.
To finance these acquisitions, Atlas secured $30 million in new credit
facilities including a $15 million term loan and a $5 million credit line from
BNY Financial Corporation, an affiliate of Bank of New York, and $10 million
in senior subordinated notes ("the Subordinated Notes") from Fiduciary Capital
and Hanifen Imhoff Capital Partners. Substantially all of the Company's assets
were pledged as collateral under the related agreements. The term loan is
payable in monthly
<PAGE>
Atlas Environmental,
Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
installments of $147,500, plus interest, commencing in March 1996, with the
remaining outstanding principal and interest due in full in January 2001. The
Subordinated Notes are payable in five equal annual installments of $2,000,000
commencing in January 1999, with interest payable quarterly commencing in
April 1996.
The results of operations of the six acquired companies have been included in
the Company's consolidated statements of operations from January 1, 1996,
forward.
Note 8 -- Subsequent Event
- ------------------------------
The Company signed a Letter of Intent on August 8, 1996, to sell the six
companies comprising its construction and demolition debris recycling and
landfill industry segment.
The Letter of Intent contains various contingencies, including but not limited
to the completion of due diligence by the buyer and Board of Director
approvals by both parties. The Company expected to sign a definitive purchase
agreement in the near term with a targeted closing date of September 30, 1996;
however, as of November 13, 1996, no definitive purchase agreement has been
signed. Further, as of November 13, 1996, the Company believes that
negotiations have stalled and that this transaction will not occur. The
Letter of Intent contains a "no shop" provision which barred the Company from
responding to other offers for these six companies through October 31, 1996.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ----------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
On January 25, 1996, the Company acquired six companies (see footnote 7 to the
consolidated financial statements). The results of operations include
KleenSoil and TranSoil operations since January 1, 1995, and KleenSoil,
TranSoil and the acquired companies since January 1, 1996.
The Company's revenues increased significantly for the nine months ended
September 30, 1996 to $16.8 million as compared to $7.9 million for the same
period in 1995. The increases are attributable to the inclusion of the
acquired companies in 1996.
Cost of sales for the nine months ended September 30, 1996 increased to $13.4
million as compared to $4.5 million for the nine months ended September 30,
1995. Cost of sales for the third quarter 1996 was $3.8 million compared to
$0.9 million for the third quarter 1995. The gross margin increased to $1.4
million (26% of revenues) for the third quarter 1996 as compared to $0.2
million (20% of revenues) for the third quarter 1995. The gross margin
increased to $3.5 million (21% of revenues) for the nine months ended
September 30, 1996 as compared to $3.4 million (43% of revenues) for the nine
months ended September 30, 1995. The decrease in gross margin for the nine
months ended September 30, 1996 resulted from non-recurring costs associated
with the acquired companies and the fact that a higher percentage of costs is
classified as cost of sales for the acquired companies.
<PAGE>
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
Selling, general and administrative expenses increased slightly for the three
months ended September 30, 1996 compared to the prior year; however, for the
nine months ended September 30, 1996, as compared to the prior year, they
decreased. The acquired companies have a higher percentage of costs classified
as cost of sales, and a smaller percentage of costs attributable to general
and administrative expenses.
Depreciation and amortization expense increased significantly both for the
nine-month period and quarter ended September 30, 1996 as compared to the same
periods in 1995. The acquired companies have large investments in depreciable
fixed assets.
Interest expense increased dramatically both for the nine months and quarter
ended September 30, 1996 as compared to the same periods in 1995. This
increase is a direct result of the financing of the acquired companies, as
more fully described in footnote 7 to the condensed consolidated financial
statements.
As a result of the various factors described above, the Company incurred a net
loss of $4.9 million for the nine months ended September 30, 1996, and a net
loss of $1.5 million for the quarter ended September 30, 1996 as compared to a
net loss of $1.0 million and $988,000 for the comparable period for the nine
months and quarter ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
At September 30, 1996 the Company had a working capital deficit of
approximately $9.5 million, and a ratio of current assets to current
liabilities of approximately .26 to 1. This compares with a December 31, 1995
working capital deficiency of approximately $3.2 million and a ratio of
current assets to current liabilities of approximately .43 to 1. The Company,
on January 25, 1996, acquired six companies engaged in landfill operations,
recycling and waste hauling.
The Company paid $28.6 million to acquire these companies in a combination of
cash and notes, and 1,151,563 shares of newly issued common stock of the
Company. To finance these acquisitions, the Company secured $30 million in
new credit facilities, including a $15 million term
loan and a $5 million revolving credit line from a financial institution, and
$10 million in senior subordinated notes (see footnote 7 to the condensed
consolidated financial statements).
For the nine months ended September 30, 1996 the Company's liquidity decreased
by approximately $248,000 as cash decreased to $220,000 for the nine months
ended September 30, 1996. The decrease in cash used in operating activities
of $90,500 is attributable to changes in accounts receivable, accrued
liabilities and the net loss for the nine months ended September 30, 1996.
Cash used in investing activities of $21,000,000 was comprised of purchases of
property and equipment, and the purchase of six companies as more fully
described above and in footnote 7 to the condensed consolidated financial
statements. This was offset by the cash provided by financing activities to
purchase the six companies (see footnote 7 to the condensed consolidated
financial statements). The Company paid $56,000 in dividends on preferred
stock and $384,000 of loan costs during the nine-month period.
Atlas Environmental, Inc.
And Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996 (Unaudited)
(continued)
The Company's results of operations and its liquidity is still being
negatively affected by the State of Florida's Reimbursement Program for
underground storage tank remediation (see footnote 5 to the condensed
consolidated financial statements) and the absorption of the acquired
companies in which many operational changes have been instituted; however, to
date, the Company has not benefited from the impact of these changes.
On August 8, 1996 the Company signed a Letter of Intent to sell the six
companies comprising its construction and demolition debris recycling and
landfill industry segment. To date, the transaction has not been consummated,
and it is doubtful that this transaction will ever be consummated. If the
pending sale is not consummated, it would have a materially adverse effect on
the Company.
The Company has experienced a significant decline in its financial condition
during the past 18 months. Atlas had a loss of approximately $2.5 million for
the year ended December 31, 1995 and a net loss of approximately $4.9 million
for the nine months ended September 30, 1996. As a result, the Company is in
default of certain of its covenants to BNY Financial Corporation, Fiduciary
Capital, and Hanifen Imhoff Capital Partners under their respective
agreements. The Company is also in default of its obligations with the Waste
Magic stockholders' loans and the Naples Seller Note.
The Company believes that four primary factors have contributed to such
decline: (i) the limitation on expenditures for site clean-up by the Inland
Trust Fund Program for the State of Florida, which limitation resulted from
recent legislation has produced a continuing negative impact on the Company's
Remediation Business due to increased competition for remediation services
among fewer sites approved for payment under such Inland Trust Fund Program;
(ii) significant costs and expenses incurred to implement Atlas' acquisitions
of the CDL business; (iii) the financial performance of the CDL business being
adversely affected by the more-rapid-than-anticipated consolidation of the
Florida solid waste market, the result of which produced a decline in the
revenue and the customer base of the CDL business; and (iv) competition from
companies with financial resources significantly greater than the Company for
new CDL business.
The Company's financial statements have been prepared on a going concern basis
which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. However, as a
result of the default to various lenders and creditors, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
The Company believes if it is unable to successfully close the pending sale,
it raises substantial doubt about the Company's ability to continue as a going
concern.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed: None.
(b) Reports on Form 8-K:
(i) The current report on Form 8-K dated August 9, 1996
was filed reporting item (5), the execution of a
Letter of Intent.
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.
ATLAS ENVIRONMENTAL, INC.
(Registrant)
By: /s/ Gary Kabot
-----------------------------------------
Gary Kabot, Chairman and
Chief Executive Officer
Date: November 12, 1996
By: /s/ Philip Kabot
-----------------------------------------
Philip Kabot, Chief Financial Officer
and Principal Accounting Officer
Date: November 12, 1996
