SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JULY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-22736
ENVIRONMENTAL TECHNOLOGIES USA, INC.
(NAME OF THE SMALL BUSINESS ISSUER IN ITS CHARTER)
MINNESOTA 41-1704709
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8441 WAYZATA BLVD. SUITE 105
MINNEAPOLIS, MINNESOTA 55426
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
THE ISSUER'S TELEPHONE NUMBER,
INCLUDING AREA CODE: (612) 540-9933
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
NAME OF EACH EXCHANGE ON WHICH IS REGISTERED: N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
INDICATE BY CHECK MARK WHETHER THE COMPANY (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 SUCH SHORTER PERIOD THAT THE COMPANY
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 SEPTEMBER 11, 1996, 3,043,292 SHARES OF COMMON STOCK OF THE
COMPANY WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE COMMON STOCK OF
THE COMPANY AS OF THAT DATE (BASED UPON THE LAST REPORTED SALE PRICE OF THE
COMMON STOCK AT THAT DATE BY THE NASDAQ SYSTEM), EXCLUDING OUTSTANDING SHARES
BENEFICIALLY OWNED BY THE DIRECTORS AND OFFICERS, WAS APPROXIMATELY $243,463.
THE COMPANY EFFECTED A 1 FOR 10 REVERSE STOCK SPLIT EFFECTIVE AUGUST 5, 1996.
TRANSITIONAL SMALL BUSINESS FORMAT (CHECK ONE): YES ____ NO __X__
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE NUMBER
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JULY 31, 1996 AND JULY 31, 1995 3
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND 1995 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JULY 31, 1996 AND JULY 31, 1995 5
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
ITEM 6. EXHIBITS AND REPORTS
A. SEE EXHIBIT INDEX ON PAGE 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1996 and July 31, 1995
(UNAUDITED)
July 31, July 31,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 60,805 $ 202,948
Accounts receivable less allowance for Doubtful Accounts 169,066 172,400
Notes receivable--Employee 21,555 3,466
Inventories 47,448 44,268
Prepaid expenses and other assets 51,860 25,389
------------ ------------
Total current assets 350,734 448,471
Property
Leasehold improvements 84,504 108,876
Equipment 2,328,927 2,107,823
Furniture and fixtures 151,988 78,306
------------ ------------
2,565,419 2,295,005
Less accumulated depreciation and amortization (1,020,122) (848,638)
------------ ------------
Net property and equipment 1,545,297 1,446,367
Restricted Cash -- 15,000
Patent Rights 35,970 49,260
Goodwill and technology rights, net of amortization 387,624 496,272
Investments in Clean Green Polymers 69,200 --
Other assets 40,293 27,409
------------ ------------
Total other assets 533,087 587,940
------------ ------------
TOTAL ASSETS $ 2,429,118 $ 2,482,778
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 68,834 $ 221,495
Accounts payable 244,961 359,284
Accrued expenses 814,527 598,866
Dividends Payable 67,593 --
Deferred Revenue 17,553 --
Current portion of long-term liabilities 134,205 108,759
------------ ------------
Total current liabilities 1,347,673 1,288,405
Long-term liabilities
Capitalized lease obligations 39,537 3,616
Long-term debt less current portion 385,985 453,123
Less Current Portion (134,205) (108,759)
------------ ------------
291,318 347,980
Deferred Revenue, Sale of Clean Green Polymers, Inc. 165,710 --
Stockholders' equity:
Common Stock, par value $.01 per share; Authorized 50,000,000 shares;
issued and outstanding 27,627,479 shares at
July 31, 1996 and 15,345,102 at July 31, 1995 276,275 153,451
Preferred Stock U-Stock, par value $.01 per share; Authorized 1,400,000
shares; issued and outstanding 1,075,516 shares at July 31, 1996 10,755 10,755
Preferred Stock--ETI Convertible par value $.01 per share; Authorized 6538
shares; issued and outstanding 1,288 shares at July 31, 1996 13 --
URI Preferred Stock, No Par Value 500,000 --
Additional paid-in capital 21,791,192 17,411,115
Retained Earnings (Deficit) (21,116,678) (16,475,803)
------------ ------------
1,461,557 1,099,518
Notes receivable from sale of stock One Capital (218,125) (253,125)
Notes receivable from sale of stock Fluor Daniel (163,042) --
Notes receivable from sale of stock Starch Tech
Inc. for Clean Green Polymers, Inc. Common Stock (455,972) --
------------ ------------
Total stockholders' equity 624,418 846,393
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,429,118 $ 2,482,778
============ ============
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ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(UNAUDITED)
Three months ended
July 31,
---------------------------
1996 1995
----------- -----------
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Revenue.............................................................. $ 422,947 $ 504,846
Cost of Goods Sold................................................... 352,969 457,816
----------- -----------
Gross Profit................................................... 69,978 47,030
Selling, general and administrative expenses:
General and administrative..................................... 656,658 445,118
Research and development....................................... 406 59,453
Goodwill and technology rights amoritization 32,808 121,807
----------- -----------
Total expenses............................................... 689,871 626,378
----------- -----------
Loss from operations......................................... (619,894) (579,348)
Other Income (expense)
Interest income................................................ 5,776 308
Interest expense............................................... (5,411) (22,112)
Other.......................................................... (51,872) (23)
----------- -----------
Total other income (expense)................................. (51,506) (21,828)
----------- -----------
Net loss..................................................... $ (671,400) $ (601,175)
=========== ===========
Net loss per share................................................... $ (0.0$) $ (0.04)
=========== ===========
Weighted average common shares and
common share equivalents outstanding............................... 23,289,223 13,804,273
=========== ===========
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ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flow
(UNAUDITED)
Three months ended
July 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(671,400) $(601,175)
Adjustment to Reconcile Net (Loss) to Net Cash (Used In)
Operating Activities:
Fluor Daniel, Inc. Consulting Services Incurred Against
Note Receivable 20,688
Common Stock Issued for Employee Compensation or Services -- 7,846
Depreciation and amortization 102,784 181,556
Loss (Gain) on Disposal of Leasehold Improvements and Equipment 51,172
Changes in operating assets and liabilities,
Accounts Receivable & Notes Receivable 4,640 8,572
Inventories 6,659 34,466
Prepaid expenses 5,677 16,985
Accounts payable 41,084 (16,542)
Accrued expenses 131,972 12,721
Deferred revenue 1,953 --
--------- ---------
Net Cash Provided by (Used In) Operating Activities (304,771) (355,571)
Cash flows from investing activities:
Additions to Leasehold Improvements and Equipment (67,512) (32,733)
Purchase of intangible assets --
Proceeds from equipment sold 87,617
Decrease (increase) in other assets -- 1,995
--------- ---------
Net cash (used in) investing activities 20,105 (30,738)
Cash flows from financing activities:
Payments of Short-Term Debt (11,817) (10,460)
Net proceeds from Issuance of Common Stock and Preferred Stock 247,500 611,412
Collection on One Capital and Starchtech, Inc. Notes Receivable 10,192 --
Contributions to Capital of Clean Green Polymers -- --
Preferred Stock Dividends Paid (16,588) --
Proceeds from Issuance of Long-Term Liabilities -- --
Repayments on long-term liabilities (18,380) (11,941)
Net cash provided by financing activities 210,907 589,011
Increase (decrease) in cash and cash equivalents (73,759) 202,702
Cash and cash equivalents at the beginning of period 134,564 247
--------- ---------
Cash and cash equivalents at the end of period $ 60,805 $ 202,948
========= =========
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ENVIRONMENTAL TECHNOLOGIES USA, INC. AND SUBSIDIARIES
PART I
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Nature of Business and Basis of Presentation
These consolidated financial statements include the parent company,
Environmental Technologies USA, Inc. (ETI--"The Company") and subsidiaries,
United Recycling, Inc. (URI) and Clean Green Packing Company of Minnesota, Inc.
(CGP). All intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
URI has developed a recycling process for the conversion of post-consumer
carpeting into industrial materials.
CGP manufactures and markets directly a biodegradable starch-based foam
loose-fill packing material which degrades on direct contact with water and is a
substitute for expanded polystyrene loose-fill packing peanuts and other
cushioning materials. CGP has a manufacturing facility in Minneapolis, Minnesota
and sells within the upper Midwest-area.
The Company was incorporated in Minnesota on September 5, 1991. The Company's
executive offices are located at 8441 Wayzata Blvd Suite 105, Minneapolis,
Minnesota 55426 and its telephone number is (612) 540-9933.
The consolidated financial statements included in this Form 10-QSB have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. 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 management believes the
disclosures are adequate to make the information presented not misleading. These
statements should be read in conjunction with the Company's 10-K as filed with
the Securities and Exchange Commission on August 12, 1996.
The consolidated financial statements presented herein as of July 31, 1996
reflect, in the opinion of management, all material adjustments consisting only
of normal recurring adjustments necessary for a fair presentation of the
consolidated financial position, results of operations and cash flows for the
interim period.
(2) Significant Accounting Policies
Business Segment Information: The Company considers itself to be engaged in
principally one business segment which is the recycling of used carpeting into
industrial materials and the production of recyclable loose-fill packing
material.
Inventories: Inventories consist of CGP and URI raw materials and finished goods
which are valued at the lower of cost (first in, first out basis) or market.
Intangibles: Intangibles consist of patent costs, technology rights and
goodwill; these assets are being amortized ratably over the following economic
lives:
Patent rights 10 years
Technology rights 5 years
Goodwill 3 years
Leasehold Improvements and Equipment: These assets are recorded at cost.
Expenditures for repairs, maintenance and minor renewals which neither
materially add to the value of the asset nor appreciably prolong its life are
charged to expense as incurred.
When equipment is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are removed from the respective
accounts and any gain or loss on disposition is included in operations.
Depreciation and amortization are provided using the straight-line method over
the following estimated useful lives:
Years
-----
Leasehold improvements 2.5 - 7
Equipment 2 - 10
Furniture and fixtures 3 - 7
Restricted Cash: Restricted cash represents collateral held by a bank for an
operating lease which expired in May 1996. The restricted cash was used to make
the final rent payments due on this operating lease.
Concentrations of Credit Risk: Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of accounts
receivable. Such receivables are generally unsecured; however this credit risk
is limited due to the large number of customers.
Revenue Recognition: Both URI and CGP recognize revenue for sales in the normal
course of business at the time of shipment. URI also recognizes revenue carpet
collection services upon providing such services.
Deferred Revenue: This revenue resulted from the Polymers sale (See Note 5) and
is recognized as collections on the notes receivable occur.
Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of taxes currently
due plus deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for consolidated financial statement and
income tax purposes. The differences relate primarily to depreciable assets (use
of different depreciation methods and lives for consolidated financial statement
and income tax purposes), allowance for doubtful receivables (deductible for
consolidated financial statement purposes but not for income tax purposes) and
net operating loss carryforwards. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Fair Value: The carrying amounts reflected in the balance sheet for cash,
restricted cash, accounts receivable, and accounts payable approximate the
respective fair values due to the short maturities of those instruments. The
carrying values for notes payable approximate the fair value since interest
rates are generally at competitive market rates.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.
Loss Per Share: Loss per share is computed based upon the weighted average
number of common shares outstanding during the respective periods.
(3) Going Concern Uncertainties
The Company's consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The company has
incurred net losses of $671,400 for the three months ended July 31, 1996. The
Company has an accumulated retained earnings deficit of $21,116,678 and a
working capital deficit of $996,939 at July 31, 1996. The Company ultimately is
dependent upon additional equity or debt financing as well as positive cash
flows from operating activities to continue operations. Management is continuing
its efforts to obtain additional equity and/or debt financing while
restructuring operations to reduce costs and achieve positive cash flows from
operations.
The Company was delisted from NASDAQ on August 23, 1996 due to the Company's
inability to meet minimum NASDAQ requirements.
(4) Potential Sale of Clean Green Packing Company of Minnesota, Inc.
In June 1996, ETI negotiated an agreement in principle subject to due diligence
with International Absorbents, Inc. to sell substantially all of the assets and
liabilities of CGP. The buyer would pay $500,000 in cash for all assets and
liabilities, excluding the advance due parent company and issue warrants for the
purchase of up to 400,000 shares of its Common Stock at market price as of the
close date. On August 27, 1996 International Absorbents withdrew their offer to
purchase CGP.
(5) Investment in Clean Green Polymers, Inc.
The Company is a 20% owner of Clean Green Polymers, Inc. In January 1996 the
Company sold 80% of its Clean Green Polymers, Inc. (Polymers) Common Stock for
$469,500. The Company received two notes receivable; one is for $269,500 with
both principal and interest (8%) payable at January 31, 2001; the second note is
for $200,000 and is payable over five years in monthly installments including
interest at 11%.
Polymers was an inactive subsidiary with no assets or operations. As part of the
transactions the U.S. Department of Agriculture, Alternative Agricultural
Research and Commercialization Center (AARC) and the State of Minnesota
Agricultural Research Institute (AURI) purchased 350,000 units of ETI for
$350,000. Each unit consisted of one share of Common Stock and a warrant for the
purchase of an additional share of Common Stock at approximately market price.
ETI was required to contribute this $350,000 to Polymers as a capital
contribution before the sale consummated.
The notes receivable at April 30,1996 have been recorded as a reduction of
stockholders' equity. The gain on sale of this 80% Common Stock interest has
been recognized on an installment basis as collections on the notes receivable
occur. The recorded deferred revenue amounts represent the gain to be recorded
over the five year loan terms.
Polymers has had no operations through July 31, 1996.
(6) Notes Payable
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Notes payable consist of the following:
July 31, April 30,
-------- ---------
1996 1996
-------- ---------
<S> <C> <C>
Note payable to Riverside Bank secured with a first
position on all CGP Company assets; note is payable in
monthly installments of $4,609 including interest at
prime plus 2% $ 68,834 $ 80,651
-------- --------
Total Notes Payable $ 68,834 $ 80,651
======== ========
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The Riverside note contains several financial and other covenants. The Company
is not in compliance with these covenants and the entire note balance has been
classified as a current liability. The bank has not demanded payment of the note
balance.
(7) Long-Term Debt
Long-term debt consists of the following:
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July 31, April 30,
----------- -----------
1996 1996
----------- -----------
<S> <C> <C>
Note payable to Small Business Administration secured
by all CGP Company assets; due in monthly installments
of $3,263 including interest and fees at 7% through
January 2020; guaranteed by major stockholder $ 169,676 $ 176,103
Obligation under Partnership Agreement with Agricultural
Utilization Research Institute (AURI); due in monthly
installments $1,305 including interest at 6% through
March 2005 105,434 107,749
Note payable to Minnesota Office of Waste Management
in quarterly payments of $3,513 including interest at 4%
through January 2001; secured by specific equipment 58,013 60,513
Note payable to Riverside Bank secured by various
computer and office equipment; payable in monthly
installments of $1,277 including interest at 2% through
April 1998 26,316 30,000
Note payable to Riverside Bank secured by various
computer and office equipment; payable in monthly
installments of $1,376 including interest at 9.25% through
April 1998 26,547 30,000
----------- -----------
$ 385,985 $ 404,365
Less current portion (134,205) (125,485)
----------- -----------
Total Long Term Debt $ 251,780 $ 278,880
=========== ===========
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Late payments have occurred on the Minnesota Office of Waste Management note.
The entire note has been classified as a current liability. The Minnesota Office
of Waste Management has brought a suit against the Company seeking payment of
the note balance.
(8) Leases
The Company has several operating leases for office equipment and various
operating equipment. The Company is responsible for maintenance, insurance and
taxes under these leases.
(9) Income Taxes
There is no provision for federal or state income taxes due to the operating
losses incurred. There are no deferred income tax liability items. Deferred
income tax assets are recorded for temporary differences, net operating loss
carryforwards and tax credit carryforwards. The Company's deferred tax assets
primarily result from net operating loss carryforwards. These assets may be
utilized to offset future taxable income. These assets have been reduced by a
valuation account equal to the asset due to the uncertainty of utilization.
(10) Stockholder's Equity, Stock Options and Warrants
The Company's capital structure includes 50 million of $.01 par value Capital
Stock. URI has 250,000 shares of Preferred Stock authorized of which 125,000
shares are outstanding (all owned by Fluor Daniel, Inc.).
Effective August 2, 1996 the Company effected a 1 for 10 reverse stock split of
the Company's Common Stock. None of the Common Stock or per share amounts have
been adjusted in these July 31, 1996 consolidated financial statements to
reflect this reverse split.
The Company has an incentive stock option plan which allows for the granting of
up to 1,200,000 shares of Common Stock to key employees of the Company. Options
may be granted at prices not less than fair market value of the Common Stock at
date of grant (not less than 110% of fair market value for more than 10% owners)
and are generally exercisable up to 10 years (5 years for more than 10% owners)
from the grant date. All options granted were exercisable at April 30, 1996.
The Company has also granted 691,880 non-qualified options to various
individuals. These options are exercisable at $.75 to $5.00 per share and expire
at various dates through June 2000.
In addition, the Company has a total of 2,346,281 warrants outstanding as of
July 31, 1996. These warrants expire at various dates through July 2000 at
prices ranging from $.70 to $5.00 per share.
The Common Stock issued in private placements from May 1996 to July 1996 is
restricted stock issued pursuant to Regulation S as exempt from the registration
provisions under the 1933 Securities Act.
There was no Common Stock issued for services rendered or investment services
from May 1996 to July 1996.
Preferred Stock Holders of Series II and V Preferred Stock converted 1,350 of
these shares to 6,476,444 shares of Common Stock from May 1996 to July 1996. The
remaining 1,288 shares are convertible into Common Stock based upon the market
price of the Common Stock. Each share of Preferred Stock is valued at $1,000 and
is convertible to the number of Common Shares computed, using 100% of market
price (788 shares) or 65% of market price (500 shares).
The Preferred Stock has certain preferential voting and liquidation features. In
addition cash dividends of approximately 9% are to be paid quarterly. Dividends
of $67,593 were declared payable during the period ending July 31, 1996.
URI issued 125,000 shares of Preferred Stock in October 1995 to Fluor Daniel,
Inc. for an approximate 11% interest in URI; this stock is convertible into an
equal number of shares of URI Common Stock. The Preferred Stock was valued at $4
per share and exchanged for a note receivable of $500,000. Fluor Daniel, Inc. is
providing development assistance to URI in carpet recycling technology
implementation, construction, and consulting services; such services upon
billing to URI are reflected as a reduction of the note receivable. The note
receivable of $163,042 at July 31, 1996 represents services not yet provided and
is recorded as a reduction of Stockholders' Equity.
In January 1996 the Company sold 80% (800 shares) of an inactive subsidiary,
Clean Green Polymers, Inc. for $469,500. The buyer, Starch Tech, Inc. is a
private company in which the President is a former employee of ETI. The buyer
issued notes aggregating $469,500 in exchange for the Common Stock. See Note 5.
Because of the related nature of these transactions, the notes receivable from
Starch Tech, Inc. of $455,972 have been recorded as a reduction of Stockholders'
Equity.
(11) Litigation
Late payments have occurred on the Minnesota Office of Waste Management note.
The entire note has been classified as a current liability. The Minnesota Office
of Waste Management has brought a suit against the Company seeking payment of
the note balance. Management is negotiating a forbearance agreement.
In October 1995, Uni-Star Industries, Ltd., an Iowa corporation ("Uni-Star"),
filed suit against ETI, CGP, Evergreen Solutions, Inc., and certain former
officers of ETI and CGP in Iowa's state district court under claims of breach of
contract, misappropriation of trade secrets, conversion of trade secrets,
equitable fraud, unfair competition, and other claims related to said
defendants' alleged unauthorized use of Uni-Stars' proprietary information and
trade secrets concerning a starch-based plastic technology. The defendants
removed the actions of federal district court in the Southern district of Iowa,
and Uni-Star subsequently brought a motion to remand the action to Iowa state
district courts. Defendants resisted the motions and the federal district court
summarily denied Uni-Star's motions. ETI and its wholly owned subsidiaries find
Uni-Star's claims against them to be wholly without merit and consequently,
intend to deny all allegations of wrongdoing and aggressively pursue a dismissal
of the action.
(12) Other Commitments and Contingencies
The Company has entered into employment agreements with certain officers and
employees of the Company. The agreements, among other things, provide for
initial base salaries, benefits, and termination conditions and payments. These
agreements expire at various time through 1997.
(13) Subsequent Events
On August 13, 1996 ETI's Chairman and CEO, Robin Young, resigned to pursue other
business and professional interests. The Board elected Jeffrey F. Lee to replace
Mr. Young as CEO of ETI. Mr Lee is also the President and CEO of ETI's
majority-owned subsidiary United Recycling, Inc.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) LIQUIDITY
Cash and cash equivalents decreased from $134,564 to $60,805 from April 30, 1996
to July 31, 1996. For the same period a year ago cash and cash equivalents
increased from $247 to $202,948. Decreases in cash are primarily losses from
operations.
Net receivables decreased slightly from $178,206 to $169,066 from April 30, 1996
to July 31, 1996. For the same period a year ago net receivables decreased from
$184,437 to $172,400.
Working capital (as defined as Current Assets minus Current Liabilities) totaled
($996,939) and ($711,005) at July 31, 1996 and April 30, 1996 respectively. The
change from April 30, 1996 to July 31, 1996 is largely due to a decrease in cash
and an increase in accrued expenses. Accounts payable reached $244,961 for the
quarter, less than the prior year level of $359,284 but somewhat more than the
$203,877 levels reached at year end - April 30, 1996. The decrease in accounts
payable over the last year is attributable principally to application of
proceeds from private placements of common stock to past-due accounts payable.
Cash flow from operations was ($304,771) for the three months ended July 31,
1996. Cash flow from operations for the three months ended July 31, 1995 was
($355,571).
(2) CAPITAL RESOURCES
Expenditures and other additions to property and equipment totaled approximately
$20,105 for the three months ended July 31, 1996. For the same period a year ago
expenditures and other additions to property and equipment totaled ($30,738).
Several pieces of equipment were sold at URI as new equipment has been
purchased. For the balance of the current fiscal year the Company expects to
purchase additional production equipment for United Recycling.
For the balance of fiscal 1996, cash flow from operations is not expected to be
sufficient to fund operations and planned capital expenditures at both United
Recycling and Clean Green Packing. Management is seeking additional capital
including, but not limited to, sales of new equity and incurring additional
Long-Term debt.
(3) RESULTS OF OPERATIONS
Sales for the three months ended July 31, 1996 were $422,947, down 16% from
$504,846 for the same period a year earlier. Clean Green Packing accounted for
$292,920 or 69% of total sales for the quarter. United Recycling represented the
remaining $130,027 or 31% of the total.
Gross profit for the three months ended July 31, 1996 was $69,978 up 49% from
$47,030 for the same period a year earlier. Clean Green Packing accounted for
$92,134 of the total gross profit for the quarter. United Recycling accounted
for ($22,157) of the quarter's gross profit. During the quarter, gross profit as
a percent of sales was 16.5%. During the quarter, Clean Green Packing reported
that gross profit reached 32% of sales.
General and administrative expenses were $656,658 for the three months ended
July 31, 1996, up from $445,118 for the same period a year earlier. The increase
is primarily attributable to the increased headcount at United Recycling. The
increase was offset by decreased General and administrative expenses ($31,000)
at Clean Green Packing. This is attributable decreases in headcount.
Research and development expenses were $406 for the three months ended July 31,
1996, down from $59,453 for the same period a year earlier.
Goodwill and technology rights amortization were $32,808 for the three months
ended July 31, 1996, down from $121,807 for the same period a year earlier. The
decrease is attributable to the full amortization of goodwill in fiscal year
1996.
Net loss was $671,400 for the three months ended July 31, 1996, up from $601,175
for the same period a year earlier.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
Date: September 11, 1996
By /s/ Jeffrey F. Lee
---------------------------------------
Jeffrey F. Lee, Chief Executive Officer
<TABLE>
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ENVIRONMENTAL TECHNOLOGIES USA, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For Quarter Ended July 31, 1996
Item No. Item Method of Filing
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3.1 Articles of Incorporation, as amended to Incorporated by reference to Exhibit 3.1
date. to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
3.2 Bylaws, as amended to date. Incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
4.1 Specimen Form of the Company's Common Incorporated by reference to Exhibit 4.1
Stock Certificate. to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
4.2 Certificate of Designation of the Company's Incorporated by reference to Exhibit 4.2
Series II Preferred Stock to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
4.3 Certificate of Designation of the Company's Incorporated by reference to Exhibit 4.3
Series III Preferred Stock to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
4.4 Certificate of Designation of the Company's Incorporated by reference to Exhibit 4.4
Series V Preferred Stock to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
4.5 Certificate of Designation of the Company's Incorporated by reference to Exhibit 4.5
Series U Preferred Stock to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
10.1 Lease Agreement dated October 30, 1991, between Incorporated by reference to Exhibit
URI and St. Louis Park Investment Company. 10.2 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.2 Lease Agreement dated June 3, 1991, between CGP Incorporated by reference to Exhibit
and Second MBT Trust. 10.3 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.3 License Agreement dated March 25, 1992, between Incorporated by reference to Exhibit
the Company and the University of Minnesota. 10.4 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.4 Research Agreement dated June 1, 1992, between Incorporated by reference to Exhibit
the Company and the University of Minnesota. 10.5 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.5 1991 Incentive Stock Option Plan of the Company. Incorporated by reference to Exhibit
10.6 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.6 Form of Incentive Stock Option Agreement Incorporated by reference to Exhibit
10.7 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.7 1994 Stock Plan. Incorporated by reference to Exhibit
10.7 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1994 (File No. 0-22736).
10.8 Form of Non-Statutory Stock Option Agreement Incorporated by reference to Exhibit
10.8 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1994 (File No. 0-22736).
10.9 Form of Restricted Stock Award Agreement Incorporated by reference to Exhibit
10.9 to the Company's Registration
Statement on Form S-1 (File No.
33-50562).
10.10 Loan Agreement (and Note and Debenture) dated Incorporated by reference to Exhibit
December 3, 1991, between CGP and the CGP and the 10.17 to the Company's Registration
Coon Rapids Development Company. Statement on Form S-1 (File No.
33-50562).
10.11 License Agreement dated as of April 19, 1993 Incorporated by reference to Exhibit
between CGP, the Company and Warner-Lambert 10.14 to the Company's Annual Report on
Company. Form 10-KSB for the fiscal year ended
April 30, 1993 (File No. 0-22736).
10.12 Settlement Agreement and Release dated October 11, Incorporated by reference to Exhibit
1993 between Clean Green Packing and International 10.15 to the Company's Annual Report on
Grain and Milling Company. Form 10-KSB for the fiscal year ended
April 30, 1993 (File No. 0-22736).
10.13 Merger, Acquisition and Financing Agreement dated Incorporated by reference to Exhibit
October 7, 1993 between the Company and One 10.16 to the Company's Annual Report on
Capital Corporation. Form 10-KSB for the fiscal year ended
April 30, 1993 (File No. 0-22736).
10.14 Financial Advisory Services Agreement dated Incorporated by reference to Exhibit
October 7, 1993 between the Company and One 10.17 to the Company's Annual Report on
Capital Corporation. Form 10-KSB for the fiscal year ended
April 30, 1993 (File No. 0-22736).
10.15 Technology Transfer Agreement, dated January 31, Incorporated by reference to Exhibit
1994 between the Company and FoamLite Texas 10.15 to the Company's Annual Report on
Corporation. Form 10-KSB for the fiscal year ended
April 30, 1994 (File No. 0-22736).
10.16 Lease Agreement, dated March 12, 1996 between Incorporated by reference to Exhibit
Kokette Properties Inc. and URI 10.16 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1996 (File No. 0-22736).
10.17 Sublease, dated March 20, 1996 between Berkley Incorporated by reference to Exhibit
Administrators and URI 10.17 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1996 (File No. 0-22736).
10.18 License Agreement, dated March 1, 1995, between Incorporated by reference to Exhibit
the Company and KSU Research Foundation. 10.18 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1996 (File No. 0-22736).
10.19 Office/Warehouse Lease, dated October 21, 1994, Incorporated by reference to Exhibit
by and between Crown Packaging Corp. and CGP. 10.19 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended
April 30, 1996 (File No. 0-22736).
21.1 Subsidiaries of the Company. Incorporated by reference to Exhibit 21.1
to the Company's Annual Report on Form
10-KSB for the fiscal year ended April
30, 1996 (File No. 0-22736).
27.1 Financial Data Schedule Filed Herewith
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