U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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 SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________ .
Commission File No. 0-24490
AQUAGENIX, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0419263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Northwest 15th Avenue, Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(305) 975-7771
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes No
The number of shares outstanding of the issuer's Common Stock, $.01 Par Value,
as of October 31, 1996 was 3,934,058.
Transitional Small Business Disclosure Format: Yes No
AQUAGENIX, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Consolidated Balance Sheets as of December 31,
1995 and September 30, 1996 (unaudited) 3
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1995
and September 30, 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and September 30,
1996 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
Item 2: Management's Discussion and Analysis or Plan of
Operation 9-15
PART II. OTHER INFORMATION 16
SIGNATURES 17
AQUAGENIX, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
Assets 1995 1996
<C> <C> (Unaudited)
Current assets:
Cash and cash equivalents $ 687,183 $ 1,342,237
Marketable securities 639,095 0
Accounts receivable, net of allowance for doubtful
accounts of $40,632 and $67,449, respectively 997,567 955,985
Income tax receivable 618,003 0
Inventories 370,497 391,063
Net assets of discontinued operations 0 141,682
Prepaid expenses and other 254,575 557,713
Total current assets 3,566,920 3,388,680
Property and equipment, net 1,746,016 1,968,863
Intangible assets, net 3,222,013 4,421,168
Deferred financing costs, net 146,875 220,977
Other assets 93,239 2,126,862
Total assets $ 8,775,063 $ 12,126,550
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 628,578 $ 116,375
Borrowings under credit agreements 522,317 404,415
Accounts payable 562,712 963,952
Net liabilities of discontinued operations 449,550 0
Other current liabilities 411,438 207,549
Total current liabilities 2,574,595 1,692,291
Long-term debt, net of current maturities 5,032,388 5,228,936
Total liabilities 7,606,983 6,921,227
Stockholders' equity:
Preferred stock, par value $.01, 1,000,000 shares
authorized, no shares issued and outstanding 0 0
Common stock, par value $.01, 10,000,000 shares
authorized, 3,210,367 and 3,934,058 shares issued
and outstanding, respectively 32,104 39,341
Additional paid-in capital 8,419,164 11,600,856
Retained earnings (deficit) (7,332,385) (6,434,874)
Unrealized gain on securities 49,197 0
Total stockholders' equity 1,168,080 5,205,323
Total liabilities and stockholders' equity $ 8,775,063 $ 12,126,550
</TABLE>
AQUAGENIX, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months End
Sept 30, Sept 30
1995 1996 1995 1996
<C> <C> <C> <C>
Revenues - Aquatic
management operations $ 1,423,540 $ 3,073,286 $ 4,278,884 $ 7,805,398
Costs and expenses:
Costs of services 805,647 1,948,556 2,210,327 4,352,527
Selling, general and
administrative 802,419 799,960 2,130,171 2,203,008
Depreciation and
amortization 49,997 150,966 139,585 429,998
Total costs and
expenses 1,658,063 2,899,482 4,480,083 6,985,533
Operating (loss) income (234,523) 173,804 (201,199) 819,865
Interest income 53,992 10,552 165,072 53,845
Interest expenses (7,995) (167,676) (25,604) (490,085)
(Loss) income from continuing
operations before income
taxes (188,526) 16,680 (61,731) 383,625
Income tax (benefit)
provision (64,099) 0 50,011) 0
(Loss) income from continuing
operations (124,427) 16,680 (11,720) 383,625
Discontinued operations:
Loss from environmental
remediation business segment
net of income taxe (1,598,493) 0 (1,877,043) 0
Change in allowance for
estimated phase-out losses
from environmental remediation
segment 0 0 0 464,689
Net (loss) income $ (1,722,920) $ 16,680 $ (1,888,763) $ 848,314
Earnings (loss) per
common and common
equivalent shares:
Continuing operations
- primary $ (0.04) $ 0.00 $ (0.00) $ 0.11
Continuing operations
- assuming full dilution (0.04) 0.00 (0.00) 0.11
Discontinued operations (0.51) 0.00 (0.56) 0.13
Net (loss) income per common
share (0.55) 0.00 (0.56) 0.24
Weighted average common
and common equivalent
shares outstanding:
Primary 3,126,887 4,009,739 3,342,194 3,551,489
Assuming full dilution 3,126,887 4,015,43 3,342,194 3,555,277
</TABLE>
AQUAGENIX, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1996
<C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,888,763) $ 848,314
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 139,585 429,998
(Gain) loss on sale of property and
equipment 7,516 (5,031)
Gain on sale of securities (24,961) 0
Provision for doubtful accounts 18,625 80,595
Consulting fees 0 88,930
Discontinued operations 1,207,324 (550,939)
Net change in operating assets and
liabilities (936,675) (1,597,270)
Net cash used in by operating
activities (1,477,349) (705,403)
Cash flows from investing activities:
Proceeds from sale of marketable securities 1,855,972 624,187
Proceeds from sale of property and equipment 16,315 280,896
Cash paid for acquisitions (16,724) (51,221)
Purchase of marketable securities (7,583) 0
Purchase of property and equipment (231,859) (717,773)
Net cash provided by investing
activities 1,616,121 136,089
Cash flows from financing activities:
Repayments of credit agreements 357,394 (117,902)
Payments of notes payable and long-term debt (166,203) (662,730)
Proceeds from other borrowings 9,885 255,000
Issuance of common stock 0 1,750,000
Net cash provided by financing
activities 201,076 1,224,368
Cash and cash equivalents:
Increase 339,848 655,054
Beginning balance 270,847 687,183
Ending balance $ 610,695 $ 1,342,237
</TABLE>
AQUAGENIX, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements, which
are for interim periods, do not include all disclosures provided in
the audited annual consolidated financial statements. These unaudited
consolidated financial statements should be read in conjunction with
the consolidated financial statements and the footnotes thereto,
together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995 of
Aquagenix, Inc. (the "Company"), as filed with the Securities and
Exchange Commission. The December 31, 1995 financial statements were
derived from audited consolidated financial statements, but do not
include all disclosures required by generally accepted accounting
principles.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
position and results of operations. The results of operations for
the interim periods are not necessarily indicative of the results to
be expected for the full year.
2. Business Combination
On June 7, 1996, the Company issued 270,000 shares of common stock and
paid $150,000 in cash for all the outstanding common stock of Aquatic
and Right of Way Control, Inc. ("ARC"). The Company entered into a two
-year employment agreement with one of the former shareholders of ARC.
The Company has accounted for the acquisition using the purchase method
of accounting and the excess of cost over fair value of net assets
acquired is being amortized on a straight-line basis over 10-25 years.
The results of operations of the acquired company have been included in
the consolidated financial statements from the date of acquisition.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and ARC as if the acquisition had
occurred on January 1, 1995:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1996
<C> <C>
Revenues - Aquatic management operations $ 5,192,969 $ 8,201,028
Income from continuing operations $ 118,203 $ 424,301
Earnings per common and common
equivalent share - assuming full dilution $ 0.03 $ 0.11
</TABLE>
The pro forma results do not necessarily represent results which would
have occurred if the acquisition had taken place at the beginning of the
period, nor are they indicative of the results of future combined
operations.
ARC was a leading provider of industrial vegetation and utility right of
way management services in Florida, Georgia and Alabama. These services
include the control of noxious weeds in the right of way areas adjacent
to distribution and transmission power lines. The Company intends to
continue the existing business and to further develop the industrial
vegetation and utility right of way management services previously
conducted by ARC.
3. Discontinued Operations
On April 25, 1996, the Company sold certain assets and liabilites of Haas
Environmental Services, Inc. ("HES") to Heart Environmental Services (the
"Buyer"), a New Jersey corporation for a total consideration of $1,907,021.
The aggregate consideration comprises (i) $681,000 in cash, (ii) a three-
year promissory note of $600,000 issued by the Buyer, bearing interest at
9% per annum and collaterized by the pledge of 499 shares of the Buyer's
Common Stock pursuant to a Stock Pledge Agreement, (iii) the cancellation
of total obligations due to H&H Investments Corporation, Mr. Eugene Haas
and Mr. Robert E. Haas (collectively known as the "Haas Shareholders")
which amounted to $626,021. No pro forma information has been provided
for the disposal of HES since the disposal of this subsidiary were
treated as discontinued operations in 1995.
The gain realized from the sale of HES was partly offset by the additional
provision made by the Company during the nine months ended September 30,
1996, for estimated phase-out losses relating to the discontinuation of
the remaining remediation subsidiary, Florida Underground Petroleum Tank
Contractors, Inc. ("FUPTC"), which includes anticipated operating losses
from December 1995 to the expected date of disposal ("the phase-out
period").The phase-out period has been extended to allow more time to
complete the outstanding contractual obligations and to locate a buyer
for its remediation assets. Management currently estimates that the net
realizable value of its remaining remediation business approximates the
net book value of its net assets. However, higher than anticipated losses
from the completion of the remaining contractual obligations and higher
discontinuation expenses during the phase-out period combined with the
inability to locate a buyer for FUPTC may result in higher than anticipated
phase-out losses which may negatively year-to-date results.
4. Earnings Per Share
Both primary and fully diluted earnings per common and common equivalent
shares were computed by dividing net income by the weighted average
number of shares outstanding after giving effect to dilutive stock
options and warrants to purchase common stock.
5. Income Taxes
No income taxes have been provided for the three months and nine months
ended September 30, 1996 since the Company has a net operating loss
carryforward which is available to offset taxable income.
6. Capital Lease
During April 1996, the Company entered into a sale and leaseback
agreement, for a principal amount of $300,000, with a commercial
equipment financing company to refinance the capital expenditures
for application equipment.
7. Private Placements
During June 1996, the Company completed three equity private placements
totaling 375,000 shares of the common stock of the Company at a price of
$4 per share for a total cash consideration of $1,500,000. Of the total,
125,000 shares were issued to Mr. Jeffrey T. Katz, a director of the
Company. On July 23, 1996, the Company completed a private placement
of 62,500 shares of common stock at a purchase price of $4 per share
for an aggregate amount of $250,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
Aquagenix, Inc. (the "Company"), through its wholly-owned subsidaries, provides
aquatic and industrial vegetation management services to both governmental and
commercial customers in Florida, Georgia, North and South Carolina, Alabama and
Tennessee. The Company's operations have grown substantially since 1994 as a
result of internal growth and the selective acquisition of privately held
waterway and vegetation management companies in Florida, Georgia and the
Carolinas. The Company has adopted a growth strategy which includes the
acquisition of companies offering similar services, eliminating duplicative
expenses and integrating the acquired operations into the Company's existing
business.
The acquisition of Aquatic & Right of Way Control, Inc. ("ARC Acquisition")
in June 1996 has contributed $581,866 of revenues from right of way contracts
in the current quarter. ARC is a leading provider of industrial vegetation
and utility right of way management services in Florida, Georgia and Alabama.
These services include weed control and growth regulation in right of way
areas adjacent to distribution and transmission power lines. The Company
has entered into a two-year employment agreement with ARC's former
shareholder/president and he will continue to develop the industrial right
of way business as well as to ensure continuity and goodwill. In addition
to the typical aquatic vegetation management customers, the Company has
begun targeting its marketing efforts at utilities and transportation
authorities throughout the Southeast and Sunbelt states to secure right
of way contracts for the regions' extensive network of power lines and
highways. There has been a growing trend in the outsourcing of
work traditionally performed in-house by these governmental and quasi-
governmental agencies and private utility companies.
In July 1996, the Company secured a $1 million three-year contract with
Florida Power & Light Company, Florida's largest electric utility company,
for the provision of industrial vegetation management services to their
various power substations throughout Florida.
Results of Operations
Three Months Ended September 30, 1995 Compared to Three Months Ended
September 30, 1996
Revenues. The Company's revenues increased by $1,649,746, or 115.9%, from
$1,423,540 during the three months ended September 30, 1995 to $3,073,286
during the three months ended September 30, 1996. The increase in revenues
was primarily attributable to an increase in the number of recurring waterway
and industrial vegetation management contracts as well as wetland planting
contracts. This was mainly brought about by expansion of its customer base
in Florida, Georgia, North and South Carolina, Alabama and Tennessee as a
result of intensive marketing efforts and acquisitions.
Cost of services. Cost of services increased by $1,142,909, or 141.9%,
from $805,647 during the three months ended September 30, 1995 to $1,948,556
during the three months ended September 30, 1996. The increase in cost of
services was mainly attributable to increased chemicals, insurance, fuel and
labor costs which was directly a result of the Company's expanding operations.
As a percentage of revenues, cost of services have increased from 56.6% in
the third quarter of 1995 to 63.4% in the third quarter of 1996. The reduced
gross margin was mainly attributable to higher chemical and labor costs as a
result of the particularly hot summer aggravated by a lower than normal
rainfall experienced in Florida during the third quarter of 1996. This caused
an exceptionally rapid growth of algae and aquatic weeds. In addition, a
higher mix of industrial vegetation management contracts in the third quarter
of 1996 as compared to the corresponding quarter of 1995 also contributed to
the lower gross margins. Gross margins from industrial vegetation management
contracts are generally lower than the aquatic vegetation management contracts
as they involve a higher usage of chemicals.
Selling, general and administrative. Selling, general and administrative
expense decreased by $2,459, or 0.3%, from $802,419 during the three months
ended September 30, 1995 to $799,960 during the three months ended September
30, 1996. The decrease in selling, general and administrative expenses was
due mainly to on-going cost control measures taken in relation to general
corporate expenses which have significantly offset the higher operating
expenses associated with the expanding operations and the assimilation of
the ARC's operations. As a percentage of revenues, such expenses have
decreased from 56.4% in 1995 to 26.0% in 1996. This was attributable to
operating efficiencies and economies of scale achieved following the ARC,
AmerAquatic and L&L acquisitions and internal growth experienced by the
Company. The main factors contributing to the decrease in selling, general
and administrative expenses as a percentage of revenues as compared to 1995
include reduced consulting and professional fees, and lower public relations
and travel expenses resulting from the streamlining of corporate operations.
Depreciation and amortization. Depreciation and amortization expense
increased from $49,997 in the third quarter of 1995 to $150,966 in the third
quarter of 1996. Such expense as a percentage of revenues increased from 3.5%
for the quarter ended September 30, 1995 to 4.9% for the corresponding quarter
in 1996. This increase reflected the depreciation of the additional equipment
acquired in connection with the AmerAquatic acquisition and the purchase of
application equipment for the nine months ended September 30, 1996. In
addition, there was an increase in amortization relating to intangibles
acquired from the AmerAquatic and L&L acquisitions.
Interest income. Interest income decreased by $43,440 from $53,992 for
the third quarter of 1995 to $10,552 for the corresponding quarter of 1996.
The decrease in interest income was consistent with the lower average balance
of marketable securities in 1996 as compared to 1995.
Interest expense. Interest expense increased by $159,681 from $7,995
during the three months ended September 30, 1995 to $167,676 during the
three months ended September 30, 1996 primarily as a result of the 12.5%
Senior Secured Note of $5,000,000 issued in October 1995 to finance the
AmerAquatic acquisition.
Discontinued operations. In November 1995, the Company approved a plan to
dispose of the environmental remediation segment which comprises the Company's
other two subsidiaries, Florida Underground Petroleum Tank Contractors, Inc.
("FUPTC") and Haas Environmental Services, Inc. ("HES"). Accordingly, the
operations of the environmental remediation segment have been accounted for
as discontinued operations and the operating losses and discontinuation
expenses during the phase-out period have been provided for in 1995. The
operating results for 1996 for continuing operations relate only to the
aquatic and industrial vegetation management business.
Quarterly results. Income from continuing operations increased by
$141,107 from a loss of $124,427 during the three months ended September 30,
1995 to a net income of $16,680 during the three months ended September 30,
1996. There was no provision for income taxes for the three months ended
September 30, 1996 in view of the net operating loss carryforward. The
third quarter's results continue to indicate significant growth potential
of the Company's aquatic and industrial vegetation management business,
especially in its industrial vegetation management business, where the
Company has begun to create a niche for itself, with the ARC Acquisition
providing the springboard from which marketing efforts are being targeted
at electric and power utilities, telephone and railroad companies,
transportation departments and industrial sites .
Nine Months Ended September 30, 1995 Compared to Nine Months Ended
September 30, 1996
Revenues. The Company's revenues increased by $3,526,514, or 82.4%, from
$4,278,884 during the nine months ended September 30, 1995 to $7,805,398
during the nine months ended September 30, 1996. The increase in revenues
was primarily attributable to an increase in the number of recurring waterway
and industrial vegetation management contracts as well as wetland planting
contracts. Much of the growth in revenues resulted from more intensive
marketing efforts combined with an increasing trend toward governmental and
private outsourcing and the growing need to comply with environmental laws
and regulations. The acquisitions of AmerAquatic and L&L in last quarter
of 1995 have also contributed to this growth by enabling the Company to
further expand its customer base in Florida, Georgia, North Carolina and
South Carolina.
In addition, the acquisition of ARC, which was completed on June 7, 1996,
contributed $682,289 of revenues from right of way contracts for the nine
months ended September 30, 1996. ARC is a leading provider of industrial
vegetation and utility right of way management services in Florida, Georgia
and Alabama. These services include the control of weeds and undergrowth
in right of way areas adjacent to distribution and transmission power lines.
Cost of services. Cost of services increased by $2,142,200, or 96.9%, from
$2,210,327 during the nine months ended September 30, 1995 to $4,352,527
during the nine months ended September 30, 1996. The increase in cost of
services was mainly attributable to increased chemicals, insurance, fuel
and labor costs which was directly a result of the Company's expanding
operations. As a percentage of revenues, cost of services have increased
from 51.7% for the nine months ended September 30, 1995 to 55.8% for the
nine months ended September 30, 1996. The reduced gross margin was mainly
attributable to higher chemical and labor costs as a result of the
particularly hot summer aggravated by a lower than normal rainfall
experienced in Florida during the third quarter of 1996. This caused
an exceptionally rapid growth of algae and aquatic weeds. In addition,
a higher mix of industrial vegetation management contracts for the nine
months ended September 30, 1996 as compared to the corresponding period
of 1995 also contributed to the lower gross margins. Gross margins from
industrial vegetation management contracts are generally lower than the
aquatic vegetation management contracts as they involve a higher usage of
chemicals.
Selling, general and administrative. Selling, general and
administrative expense increased by $72,837, or 3.4%, from $2,130,171
during the nine months ended September 30, 1995 to $2,203,008 during the
nine months ended September 30, 1996. The increase in selling, general
and administrative expenses was due mainly to higher insurance and travel
expenses, personnel and facility costs associated with the expanding
operations and expenditures to support the Company's infrastructure.
This has been partly offset by on-going cost control measures taken in
relation to general corporate expenses. As a percentage of revenues,
such expenses have decreased from 49.8% in 1995 to 28.2% in 1996. This
was attributable to operating efficiencies and economies of scale achieved
following the ARC, AmerAquatic and L&L acquisitions and internal growth
experienced by the Company. In addition, reduced consulting and professional
fees and lower public relations and travel expenses resulting from the
streamlining of corporate operations also contributed to the lower percentage
of selling, general and administrative expenses to revenues for the nine
months ended September 30, 1996 as compared to the previous corresponding
period.
Depreciation and amortization. Depreciation and amortization expense
increased from $139,585 for the first nine months of 1995 to $429,998 for
the first nine months of 1996. Such expense as a percentage of revenues
increased from 3.3% for the nine months ended September 30, 1995 to 5.5%
for the corresponding period in 1996. This increase reflected the
depreciation of the additional equipment acquired in connection with the
AmerAquatic acquisition and the purchase of application equipment during
the nine months ended September 30, 1996. In addition, there was an
increase in amortization relating to intangibles acquired from the
AmerAquatic and L&L acquisitions.
Interest income. Interest income decreased by $111,227, from $165,072
for the nine months ended September 30, 1995 to $53,845 for the nine months
ended September 30, 1996. The decrease in interest income was consistent
with the lower average balance of marketable securities in 1996 as compared
to 1995.
Interest expense. Interest expense increased by $464,481 from $25,604
during the nine months ended September 30, 1995 to $490,085 during the nine
months ended September 30, 1996, primarily as a result of the 12.5% Senior
Secured Note of $5,000,000 issued in October 1995 to finance the AmerAquatic
acquisition.
Discontinued operations. The change in the allowance for estimated
phase-out losses from discontinued operations for the nine months ended
September 30, 1996 related principally to the gain on sale of certain assets
of HES which has been partly offset by an increase in allowance for estimated
phase-out losses for the remaining remediation subsidiary, FUPTC. The phase-
out period for FUPTC has been extended to allow more time to complete the
outstanding contractual obligations and to locate a buyer for its
remediation assets. Management currently estimates that the net realizable
value of its remaining environmental business approximates the net book value
of its net assets. However, the inability to locate a buyer for the assets
of FUPTC, higher than anticipated operating losses from the completion of
the remaining contractual obligations and higher discontinuation expenses
during the remaining phase-out period may result in higher than anticipated
phase-out losses which may negatively impact the year-to-date results.
Liquidity and Capital Resources
Working capital. Working capital (excluding net assets/liabilities of
discontinued operations), which consists principally of cash and accounts
receivable , was $1,441,875 at December 31, 1995, compared to $1,554,707
at September 30, 1996. The increase in working capital was mainly
attributable to the cash proceeds from the issuance of common stock in
connection with certain private placements undertaken in June 1996. Of
the Company's accounts receivable outstanding at December 31, 1995 and
September 30 ,1996, $239,017 (23.5%) and $263,375 (27.6%) were due from
five customers, respectively. The Company secured larger non-recurring
contracts for the nine months ended September 30, 1996 as compared to 1995.
The collection period for accounts receivable improved from 39 days at
December 31, 1995 to 34 days at September 30, 1996. At September 30, 1996,
the Company's allowance for doubtful debts was $67,449 which the Company
believes is currently adequate to cover anticipated losses based on prior
experience.
At September 30, 1996, the Company has loan agreements with SunTrust Bank,
Miami, N.A. ("SunTrust") which provided for borrowings under a revolving
line of credit of up to $750,000, a 15-year loan in the principal amount
of $94,144 collaterized by certain real property and equipment loans in
the principal amounts of $90,624. At September 30, 1996, an aggregate of
$520,696 was outstanding under the loan agreements, of which $404,415 was
outstanding under the line of credit, $87,203 was outstanding under the
15-year loan and $29,078 was outstanding under equipment loans. Advances
under the line of credit are based on certain borrowing formulas relating
to eligible accounts receivable of EWM. The receivables of the discontinued
operations remain as pledged collateral to this line of credit but cannot be
used as part of the borrowing base under the line. Interest accrues at 1.5%
above prime for the line. This line of credit expires in March 1997.
Capital Commitments As of September 30, 1996, the Company has capital
commitments to purchase fifty specialized application equipment known as
"Spra-Buggies" over the next 25 months at a purchase price of $25,000 per
equipment. The Company anticipates that these capital expenditures will
be funded by a combination of cash flows from operations and loans from
equipment financing companies.
Cash flows from operating activities. For the nine months ended
September 30, 1995, the Company's cash flows used in operations was
$1,477,349 as compared to $705,403 for the nine months ended September
30, 1996. Of the net cash used in operating activities for the nine months
ended September 30, 1995, $807,630 were used in continuing operations as
compared to $619,153 for the nine months ended September 30, 1996. The
decrease in cash flows used in continuing operations was primarily
attributable to the increased cash flows generated from internal growth
and from acquired operations.
Cash flows from investing activities. Cash provided by investing
activities in the nine months ended September 30, 1996 of $136,089 was
derived primarily from the liquidation of marketable securities. This
was partly offset by capital expenditures of $717,773 for the nine months
ended September 30, 1996 which related mainly to the purchase of application
equipment.
Cash flows from financing activities. The Company repaid a total
of $780,632 of its borrowings during the nine months ended September 30,
1996 which included the repayment of the promissory note of $500,000 issued
in connection with the AmerAquatic Acquisition in October 1995. In April
1996, the Company entered into a sale and leaseback capital lease agreement,
for a principal amount of $300,000, with a commercial equipment financing
company to refinance the capital expenditures for application equipment.
In June 1996, the Company completed three equity private placements totaling
375,000 shares of the common stock of the Company at a price of $4 per share
for a total cash consideration of $1,500,000. Of the total, 125,000 shares
were issued to Mr. Jeffrey T. Katz, a director of the Company. On July 23,
1996, the Company completed another private placement of 62,500 shares of
the common stock of the Company at a purchase price of $4 per share for an
aggregate amount of $250,000. The proceeds from these equity placements will
primarily be used to finance working capital and future acquisitions. The
Company continues to pursue potential acquisitions and to seek financing
alternatives such as private debt or equity offerings with potential investors
or an increase in credit facilities with banking institutions.
Discontinued operations. During the nine months ended September 30, 1996,
the Company repaid all advances made to the discontinued operations under
the previous revolving line of credit with SunTrust which amounted to
approximately $818,000 and the long-term loan of $1,975,000 to SunTrust
which was used to finance the acquisition of HES in 1995. The repayments
were funded primarily from the proceeds of the liquidation of marketable
securities and the loan from USL Capital Corporation. The repayments of
these liabilities combined with net income from discontinued operations
for the nine months ended September 30, 1996 resulted in net assets of
discontinued operations of $141,682 at September 30, 1996 compared to
net liabilities of $449,550 at December 31, 1995.
In March 1996, the Company entered into an agreement with SunTrust for
a one-year extension to February 10, 1997 of the loan of $760,000 (the
"FUPTC Loan") advanced under a revolving line of credit for FUPTC relating
to a specific remediation project. The new terms included a monthly
principal repayment of $5,000 and interest at 1-1/2% above prime. In July
1996, the entire outstanding loan was repaid, so as to reduce interest
expenses, using primarily the proceeds from the refund of income taxes.
On April 25, 1996, the Company sold substantially all of the assets and
liabilities of HES to Heart Environmental Services, Inc. (the "Buyer"),
a New Jersey corporation for a total consideration of $1,907,021. The
total consideration comprises (i) $681,000 in cash, (ii) a three-year
promissory note of $600,000 issued by the Buyer, bearing interest at 9%
per annum and collaterized by the pledge of 499 shares of the Buyer's
Common Stock pursuant to a Stock Pledge Agreement, (iii) the
cancellation of total obligations due to H&H Investments Corporation,
Mr. Eugene M. Haas and Mr. Robert E. Haas (collectively known as the
"Haas Shareholders") which amounted to $626,021. In connection with the
HES Sale, the Company and the Haas Shareholders entered into a
lock-up agreement relating to the 219,000 shares of the Company's common
stock (the "Shares") owned by the Haas Shareholders. The lock-up agreement
provides that any sale or transfer of the Shares by the Haas Shareholders
will be restricted to an amount of not greater than 20,000 Shares for every
three-month period. As a result of the HES sale, the Company has agreed not
to pursue any claims against the Haas Shareholders in connection with the
Haas acquisition in February 1995.
The proceeds from the HES sale have been used to repay a portion of the
loan from USL Capital which amounted to $405,722 which includes $391,044
principal and $14,678 interest payments. The proceeds were also used for
a principal repayment of the FUPTC Loan in the amount of $100,000 in May
1996 and to settle certain remaining liabilities of HES.
The Company has been vigorously continuing its collection efforts in order
to improve the cash flows of its remediation segment until disposal. Gross
accounts receivable for the remediation segment, excluding a long-term
receivable of $1,048,222 at December 31, 1995 and $1,269,909 at September
30, 1996, has decreased by $2,988,350 from $3,661,354 at December 31, 1995
to $673,004 at September 30, 1996. Collections accounted for approximately
$1,200,000. The remainder of the decrease was mainly due to the transfer of
the uncollected portion of the accounts receivable of HES which amounted to
approximately $1,188,000 back to Mr. Eugene M. Haas and Mr. Robert E. Haas,
pursuant to the Haas Purchase Agreement dated as of February 28, 1995 and
the sale of the receivables of HES in April 1996 which amounted to $565,909.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On July 30, 1996, the Company's subsidiary, Environmental Waterway
Management, Inc. changed its name to Aquagenix Land-Water
Technologies, Inc. which better describes the full scope of services
currently provided by the company and allows the company to market
one logo.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AQUAGENIX, INC.
Date: November 14, 1996 By: /s/ Andrew P. Chesler
Andrew P. Chesler,
Chairman of the Board,
Chief Executive Officer,
President and Treasurer
(Principal Executive Officer)
Date: November 14 , 1996 By: /s/ Helen Chia
Helen Chia,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,342,237
<SECURITIES> 0
<RECEIVABLES> 1,023,434
<ALLOWANCES> 67,449
<INVENTORY> 391,063
<CURRENT-ASSETS> 3,388,680
<PP&E> 2,589,412
<DEPRECIATION> 620,549
<TOTAL-ASSETS> 12,126,550
<CURRENT-LIABILITIES> 1,692,291
<BONDS> 0
0
0
<COMMON> 11,640,197
<OTHER-SE> (6,434,874)
<TOTAL-LIABILITY-AND-EQUITY> 12,126,550
<SALES> 0
<TOTAL-REVENUES> 7,805,398
<CGS> 0
<TOTAL-COSTS> 4,352,527
<OTHER-EXPENSES> 2,633,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 436,240
<INCOME-PRETAX> 383,625
<INCOME-TAX> 0
<INCOME-CONTINUING> 383,625
<DISCONTINUED> 464,689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 848,314
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
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