FORM 10-QSB
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________________ to ______________________.
Commission file number: 33-90696
ANDEAN DEVELOPMENT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0648697
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1900 GLADES ROAD, SUITE 351, BOCA RATON, FLORIDA 33431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 416-8930
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and has been subject to such
filing requirements for the past 90 days.
Yes X No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of September 30, 1998, 2,820,100
shares of $.0001 par value common stock were outstanding.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
INDEX
Part I. Financial Information.
Item 1. Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
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<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
A S S E T S
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 96,810 $ 324,556
Short-term investments 24,178 528,575
Accounts receivable 1,658,302 3,205,385
Due from related parties 711,620 520,000
Other current assets 552,000 118,038
------------ -----------
Total Current Assets 3,042,910 4,696,554
------------ -----------
Property, Furniture and Equipment, net 1,916,459 672,875
------------ -----------
Other Assets:
Undeveloped real estate, held for investment 1,147,385 789,447
Note receivable from related party 522,134 606,031
Note receivable - other 1,411,901 1,339,766
Investment in unconsolidated subsidiaries 761,159 1,629,998
Other assets 1,324,605 1,072,343
------------ -----------
5,167,184 5,437,585
------------ -----------
$10,126,553 $10,807,014
============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets (Continued)
September 30, 1998 and December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Obligations with banks $ 367,499 $ 576,756
Current portion of long-term debt 29,356 30,320
Accounts payable 222,559 767,155
Due to related parties 145,246 24,264
Income taxes payable 104,443 197,022
Accrued expenses and withholdings 94,978 77,531
Current portion of staff severance indemnities 32,750 21,530
Dividends payable -- 150,000
------------ ------------
Total Current Liabilities 996,831 1,844,578
------------ ------------
Long-Term Liabilities:
Long-term debt, excluding current portion 92,983 118,754
Staff severance indemnities, excluding current portion 64,591 87,317
------------ ------------
157,574 206,071
------------ ------------
Shareholders' Equity:
Preferred stock, $.0001 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000 shares
authorized, 2,820,100 shares issued and outstanding 282 282
Additional paid-in capital 5,724,320 5,724,320
Retained earnings 3,296,633 3,135,713
Minority interest 43,266 --
Cumulative translation adjustment (92,353) (103,950)
------------ ------------
Total Shareholders' Equity 8,972,148 8,756,365
------------ ------------
$ 10,126,553 $ 10,807,014
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Income
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues from Operations:
Revenues $ 316,972 $ 858,547 $ 1,660,383 $ 3,568,286
Cost of operations 93,142 481,470 566,369 1,689,404
------------- ------------- ------------- -------------
Gross Profit 223,830 377,077 1,094,014 1,878,882
Selling and Administrative Expenses 238,156 84,917 862,657 674,008
------------- ------------- ------------- -------------
(14,326) 292,160 231,357 1,204,874
------------- ------------- ------------- -------------
Other Income (Expense), net 101,813 (50,684) 349,274 (25,686)
------------- ------------- ------------- -------------
Income Before Income Taxes
and Minority Interest 87,487 241,476 580,631 1,179,188
Income Taxes 16,433 57,241 96,659 178,589
------------- ------------- ------------- -------------
Net Income Before Minority Interest 71,054 184,235 483,972 1,000,599
Minority Interest 1,376 -- 40,850 --
------------- ------------- ------------- -------------
Net Income $ 69,678 $ 184,235 $ 443,122 $ 1,000,599
============= ============= ============= =============
Net Income per Common Share $ .02 $ .07 $ .16 $ .35
============= ============= ============= =============
Weighted Average Shares Outstanding 2,820,100 2,820,100 2,820,100 2,820,100
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 443,122 $ 1,000,599
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 74,547 14,322
Profit on sale of fixed asset -- (6,031)
Minority interest 43,266 --
Translation adjustment 11,595 (2,792)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,547,083 (202,846)
Other current assets (433,962) (491,354)
Note receivable 11,762 (1,339,763)
Employee advances -- (26,060)
Other assets (252,262) (335,192)
Increase (decrease) in:
Accounts payable (544,596) (91,765)
Provision for severance indemnity (11,506) 29,663
Accrued expenses and withholdings 17,447 7,212
Income taxes payable (92,579) 82,115
----------- -----------
Net Cash Provided by (Used in) Operating Activities 813,917 (1,361,892)
----------- -----------
Cash Flows from Investing Activities:
Purchase of fixed assets (1,318,131) (73,283)
Purchase of land held for sale (357,938) --
Proceeds from sale of fixed assets -- 4,797
Investment in unconsolidated subsidiaries 868,839 (531,127)
Purchase of bridge loan warrants -- (87,000)
Proceeds from short-term investments 504,397 2,224,845
----------- -----------
Net Cash Provided by (Used in) Investing Activities (302,833) 1,538,232
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows (Continued)
Nine Months Ended September 30, 1998 and 1997
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows from Financing Activities:
Cost of public offering $ -- $ (71,255)
Advances to related parties (70,638) (141,315)
Proceeds from payments on notes payable to bank (209,257) 5,686
Principal payments on long-term debt (26,735) (22,723)
Dividends paid (432,200) --
--------- ---------
Net Cash Provided by (Used in) Financing Activities (738,830) (229,607)
--------- ---------
Net Increase (Decrease) in Cash (227,746) (53,267)
Cash at Beginning of Period 324,556 168,156
--------- ---------
Cash at End of Period $ 96,810 $ 114,889
========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 55,829 $ 13,963
Cash paid during the period for taxes 124,888 97,023
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The quarterly financial information
included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments)
which are, in opinion of management, necessary for a fair statement
of results for the interim period. For further information, refer
to the financial statements and notes thereto included in the
Company's form 10-KSB as of and for the year ended December 31,
1997.
FUNCTIONAL CURRENCY - The financial statements have been translated
in accordance with the provisions set forth in Statement of
Financial Accounting Standards No. 52, from Chilean pesos (the
functional currency) into US dollars ( the reporting currency).
EARNINGS PER COMMON SHARE - Earnings per common share are based on
the weighted average number of shares outstanding of 2,820,100 for
the periods ended September 30, 1998 and 1997, respectively, after
giving effect to common stock equivalents which consist of warrants
issued with the initial public offering that would have a dilutive
effect on earnings per share. Warrants issued with exercise prices
greater than the existing market value of the company stock are
deemed anti-dilutive and are not components of earnings per share.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL - The following discussion regarding the Company and its
business and operations contains "forward-looking statements" within
the meaning of Private Securities Litigation Reform Act of 1995. Such
statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking
terminology such as "may", "expect", "anticipate", "estimate" or
"continue" or the negative thereof or other variations thereon or
comparable terminology.
The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties
that could cause actual events or results to differ materially from
those referred to in such forward looking statements.
The Company does not have a policy of updating or revising
forward-looking statements and thus it should not be assumed that
silence by management of the Company over time means that actual
events are bearing out as estimated in such forward looking
statements.
OVERVIEW - During the third quarter of 1998 the Company has continued
implementing its business strategy on its subsidiaries with an effort
to increase the revenues of its Core Business as explained in its most
recent 10-K.
Ingesis S.A., one of its newly acquired subsidiaries in the computer
technology, has recently hired a new General Manager who is highly
regarded within the industry. His main focus will be attempting to
improve the subsidiaries sales volume. At the same time Ingesis S.A.
has been developing computer software that once complete would assist
in improving productivity of workers within Consonni S.A., a Spanish
subsidiary of ADC.
NYSA S.A.., another subsidiary is in the business of performing
engineering appraisals, selecting sites for development, and
negotiations with the owners of land to be used for various energy
projects. During the third quarter the company continued its
profitable operations, which are expected through the balance of 1998.
Future plans involve and expansion of the type of operations including
B.O.T. projects, whereby the private sector invests in public projects
for such things as road and port development.
Bodegas Garcia Errazuriz, the vineyard continues to development its
land for the eventual growing of grapes and ultimate production of
wine. Plans continue to be to produce the first wine production during
2001.
The core business has been recovering from the most recent Asiatic
Crisis which put a halt on the completion of negotiations for
increased investment and development in utility plants from concerned
investors, worldwide. This impacted the core business heavily and the
losses seen in the recent quarters should now diminish for the balance
of the year.
1
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ANDEAN DEVELOPMENT CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
However, with the Asiatic Crisis last year, the Company's American
markets could potentially be impacted. Several U.S. customers, usually
involved in the development of power plants in South America, are a
little more hesitant in their approach to invest as quickly as has
been seen in the past. This situation as well has recently shown signs
of recovery. We are now of the belief that the worst of the problems
are behind us. As a result, we anticipate a busy fourth quarter
closing contracts that have been lingering for longer than expected
periods.
PLAN OF OPERATIONS
CORE BUSINESS - The Company is presently giving support as an advisor
to Siemens, in two technical matters related to their 1996 purchases
of Combined Cycle Plants, one of them through the collaboration of
ADC. The Company is involved in technical support for sales of one
Hydropower station for Endesa (Chile) implying a sale of more than 70
million. ADC has been requested to provide project engineering to a
consortium trying to sell a 230MW hydropower TG set for Emgesa
(Colombia) and one TG set based on an open cycle 160MW gas turbine
from Westinghouse for Cachoeira Dourada, A Brazilian Utility. The
Company is also consulting on the sale of a package of 1000 MW from
CIEN (an Argentinean consortium) to a Brazilian utility, anticipating
the sale of an 800-km power line.
NEW DEVELOPMENTS - The new four projects in which ADC is working are
(i) 1.000 MW and 500 KV High tension power line between Buenos Aires,
Argentina and Brasil over a large of 500 km, (ii) 650MW
Hidroelectrical Generation Central "Ralco" located south of Santiago
in Biobio river, (iii) Investment of Vattenfall on a 400 MW
Hidroelectrical Project in Chile, (iv) Acquisition of three groups of
100 MW Gas Turbines JT8 by ENDESA, S.A. from Pratt & Whitney.
Errazuriz y Asociados will operate as commercial agent when ENDESA
decides to buy the equipment directly or below a leasing contract.
We are studying a joint venture between the Company through Ingesis
with Ibermatica to serve the Chilean and Argentinean markets,
Ibermatica is a leading Spanish company in industrial programming
services with more than $100 million in yearly sales in Spain. We are
also studying the involvement in a foundry, manufacturing facility
dedicated to produce parts and pieces for the pumping and water pipes
industries. In both business opportunities, the Company will not take
debts but will use its resources and income. The earnings will be
initially small but the business potential is very high. At the same
time Ingesis is continuing its collaboration with the Chilean IRS to
develop the already announced cash register machine that will
incorporate in it an inventory control and a VAT automatic paying
system.
2
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
RESULTS OF OPERATIONS (SEPTEMBER 30, 1998 COMPARED TO
SEPTEMBER 30, 1997)
GROSS REVENUES, COSTS OF OPERATIONS AND GROSS PROFIT - GROSS REVENUES
decreased from $3,568,286 to $1,660,383 (53%) while GROSS PROFIT
decreased from $1,878,882 to $1,094,014 (42%). This high decrease in
sales (gross revenues) is due to the impact of minimal sales activity
as referenced earlier in this discussion. It is also due to the fact
that during the second quarter of 1997 the Company had a single
project (El Peral business) with a very high and unusual profit.
Also, during June 1998, Mr. Pedro P. Errazuriz, past CEO in ADC,
ceased being an employee and getting a salary from the Company which
decreased the costs of operations. Finally, gross profit was also
affected by the reduced revenue situation discussed above.
SELLING AND ADMINISTRATIVE EXPENSES, INCOMES FROM OPERATIONS AND
OTHER INCOMES (EXPENSES) - SELLING AND ADMINISTRATIVE EXPENSES
increased from $674,008 at September 30, 1997 to $862,657 at
September 30, 1998 (27%) as a result of increased marketing costs in
an attempt to improve revenues. INCOME FROM OPERATIONS, decreased
from $1,204,874 at September 1997 to $231,357 at September 1998 as
referred to above. On the contrary, OTHER INCOME (EXPENSES) increased
from $(25,686) to $349,274, which is due to non-operating income from
the sale of land and interest income.
NET INCOME AND INCOME TAX - INCOME TAXES decreased from $178,589 to
$96,659 as a consequence of the lower level of INCOME BEFORE TAXES,
decreasing from $1,179,188 to $580,631.
NET INCOME decreased from $1,000,599 for September 1997 to $443,122
for September 1998, a decrease of 56% again as a result of the
decrease in revenues. The results are explained because the existing
Core business fluctuates from one quarter to another, which is why a
diversification strategy to obtain more stable revenues, cash flows
and profit during business year is being developed.
LIQUIDITY AND CAPITAL RESOURCES - During the period ended in
September 30, 1998 as compared to December 31, 1997 there were
significant changes in the liquidity, type of assets and structure of
debt.
3
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Property, furniture & equipment increased from $672,875 at December
31, 1997 to $1,916,459, primarily due to increased investments in a
vineyard in Chile.
Other assets have decreased from $5,437,585 for the period ended
December 31, 1997 to $5,167,185 for the period ended September 30,
1998. This decrease corresponds to investments in subsidiaries that
were unconsolidated at December 31, 1997 due to immateriality on the
consolidated financial statements, but were consolidated on the
September 30,1988 financial statements.
Current liabilities decreased from $1,844,578 for the period ended
December 30, 1997 to $996,830 for the period ended September 30, 1998,
as a results of payments on lines of credit, accounts payable and
income taxes due to increased reductions in accounts receivable.
Long-term liabilities decreased from $206,071 for the period ended
December 31, 1997 to $157,574 for the period ended September 30, 1998.
This decrease corresponds to reductions of long-term debt.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures
due to processing errors potentially arising from calculations using
the year 2000 date are a known risk. The Company is addressing this
risk to the availability and integrity of financial systems and the
reliability of operational systems. The Company has established
processed for evaluating and managing the risks and costs associated
with this problem.
Major areas of potential business impact have been identified and
initial conversion efforts are underway. The Company also is
communicating with suppliers, dealers, financial institutions and
others with which it does business to coordinate year 2000 conversion.
After evaluations of the responses from such communications, the
Company will prepare a contingency plan to mitigate year 2000 issues,
if necessary. The total cost of compliance and its effect on the
Company's future results of operations is being determined as part of
the detailed conversion planning.
4
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ANDEAN DEVELOPMENT CORPORATION
Part II. Other Information
Item 1. Legal Proceeds
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a vote of Securities Holders
None
Item 5. Other Information
Subsequent Events
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
27 Financial Data Schedule
(B) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, Andean Development Corporation has caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANDEAN DEVELOPMENT CORPORATION
DATE: May 20, 1998 By: /s/ Mauricio De La Barra
-------------------------------
Mauricio De La Barra,
Chief Executive Officer,
Chief Financial Officer and
Authorized Signatory
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 120,998
<SECURITIES> 0
<RECEIVABLES> 1,658,302
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,263,620
<PP&E> 2,092,957
<DEPRECIATION> 176,498
<TOTAL-ASSETS> 10,126,553
<CURRENT-LIABILITIES> 996,831
<BONDS> 0
0
0
<COMMON> 282
<OTHER-SE> 8,971,866
<TOTAL-LIABILITY-AND-EQUITY> 10,126,553
<SALES> 0
<TOTAL-REVENUES> 1,660,383
<CGS> 566,369
<TOTAL-COSTS> 862,657
<OTHER-EXPENSES> (293,445)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,289
<INCOME-PRETAX> 539,781
<INCOME-TAX> 96,659
<INCOME-CONTINUING> 443,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 443,122
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
