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 June 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
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(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
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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 June 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.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
A S S E T S
June 30, December 31,
1998 1997
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(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 64,400 $ 324,556
Short-term investments 143,513 528,575
Accounts receivable 1,546,427 3,205,385
Due from related parties 725,046 520,000
Inventory 40,366 -
Other current assets 589,253 118,038
------------- --------------
Total Current Assets 3,109,005 4,696,554
------------- --------------
Furniture and Equipment, net 1,694,350 672,875
------------- --------------
Other Assets:
Undeveloped real estate, held for investment 1,147,385 789,447
Note receivable from related party 493,159 606,031
Note receivable - other 1,339,766 1,339,766
Investment in unconsolidated subsidiaries 722,821 1,629,998
Other assets 1,328,450 1,072,343
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5,031,581 5,437,585
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$ 9,834,936 $ 10,807,014
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Balance Sheets (Continued)
June 30, 1998 and December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Obligations with banks $ 171,191 $ 576,756
Current portion of long-term debt 29,145 30,320
Accounts payable 139,454 767,155
Due to related parties 129,760 24,264
Income taxes payable 134,393 197,022
Accrued expenses and withholdings 85,074 77,531
Current portion of staff severance indemnities 24,394 21,530
Dividends payable - 150,000
------------- --------------
Total Current Liabilities 713,411 1,844,578
------------- --------------
Long-Term Liabilities:
Long-term debt, excluding current portion 99,580 118,754
Staff severance indemnities, excluding current portion 66,120 87,317
------------- --------------
165,700 206,071
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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 3,227,157 3,135,713
Minority interest 106,744 -
Cumulative translation adjustment (102,678) (103,950)
------------- --------------
Total Shareholders' Equity 8,955,825 8,756,365
------------- --------------
$ 9,834,936 $ 10,807,014
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------------- ------------------- -------------------- -------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues from Operations:
Revenues $ 956,951 $ 1,800,478 $ 1,343,411 $ 2,709,739
Cost of operations 232,887 986,686 473,227 1,207,934
--------------- -------------- -------------- --------------
Gross Profit 724,064 813,792 870,184 1,501,805
Selling and Administrative Expenses 256,633 356,651 624,501 589,091
--------------- -------------- -------------- --------------
467,431 457,141 245,683 912,714
--------------- -------------- -------------- --------------
Other Income (Expense), net (62,492) (3,383) 247,461 24,998
--------------- -------------- -------------- --------------
Income Before Income Taxes
and Minority Interest 404,939 453,758 493,144 937,712
Income Taxes 60,053 71,094 80,226 121,348
--------------- -------------- -------------- --------------
Net Income Before Minority Interest 344,886 382,664 412,918 816,364
Minority Interest - - 39,474 -
--------------- -------------- -------------- -------------
Net Income $ 344,886 $ 382,664 $ 373,444 $ 816,364
=============== ============== ============== ==============
Net Income per Common Share $ .12 $ .14 $ .13 $ .29
=============== ============== ============== ==============
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>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 373,444 $ 816,364
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 51,123 8,993
Profit on sale of fixed asset - (6,031)
Minority interest 106,744 -
Translation adjustment 1,272 -
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,658,958 249,839
Inventory (40,366) -
Other current assets (471,215) (287,337)
Note receivable 112,872 (1,639,744)
Other assets (256,107) (197,295)
Increase (decrease) in:
Accounts payable (627,701) 58,271
Provision for severance indemnity (18,333) 16,495
Accrued expenses and withholdings 7,543 5,659
Income taxes payable (62,629) 24,874
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Net Cash Provided by (Used in) Operating Activities 835,605 (949,912)
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Cash Flows from Investing Activities:
Purchase of fixed assets (1,072,598) (56,032)
Purchase of land held for sale - (768,114)
Proceeds from sale of fixed assets - 4,767
Investment in unconsolidated subsidiaries 549,239 -
Proceeds from short-term investments 385,062 1,282,343
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Net Cash Provided by (Used in) Investing Activities (138,297) 462,964
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</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash Flows from Financing Activities:
Advances to related parties $ (99,550) $ (108,337)
Payments on notes payable to bank (405,565) -
Principal payments on long-term debt (20,349) 682,856
Dividends paid (432,000) -
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Net Cash Provided by (Used in) Financing Activities (957,464) 574,519
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Net Increase (Decrease) in Cash (260,156) 87,571
Cash at Beginning of Period 324,556 168,156
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Cash at End of Period $ 64,400 $ 255,727
============== =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 33,884 $ 8,810
Cash paid during the period for taxes 125,606 -
</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 June 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 second quarter of 1998, the Company acquired
controlling interests in two companies related to its Core
Business; Ingesis, is dedicated to computer technology, the other,
NYSA, is dedicated to preparing engineering appraisals, siting
selections and negotiations with the owners of property to be used
for utility plant sites.
These companies have contributed revenues to the Company and are
expected to provide a steady cash flow from their activities.
The Company is in negotiations with Consonni and we expect to
receive stockholder approval of the acquisition of this company at
the next shareholder's meeting. The Company has not provided
pro-forma financial statements of the acquisition of Consonni
because Consonni's financial information is not readily available
at this time.
The Core Business has started to recover, after the worst of the
impact of the Asiatic Crisis. The negative effect of the losses
coming from some areas of the Company as a consequence of the
initiation of new activities, as reported in our last yearly
statements and comments, has diminished. It can be seen, in the
diagrams and figures hereafter, that the last quarter of the last
year was very bad, and that the recovery started shortly
thereafter, bringing the second quarter close to normality.
However, the Company has no evidence to indicate that the third
quarter will be as profitable and thus secure profitability for
the year. Some impacts of the Asiatic crisis are now affecting the
American Market, thus frightening our customers and delaying their
decisions to invest. Most of them are located in the
infrastructure area. But the Company has had important signs of
recovery in the activity of its Core Business, even if an
important part of the quarterly profit, (no less than 25%), came
directly from the acquisition of the new companies. This was an
early trial of our plans for future stages, when the Company
decided to broaden its activities to mitigate risks.
1
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
The results have been grouped hereafter to show the quarter
results and also the yearly results on a quarterly moving basis.
PLAN OF OPERATIONS
CORE BUSINESS - The Company is presently working as an advisor to
Siemens, in two technical matters related to 1996 purchases of
Combined Cycle Plants, sold with the collaboration of ADC. The
Company is providing technical support for the sale of a
Hydropower station for Endesa (Chile). ADC has been requested to
provide project engineering services 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
serving as a technical advisor on the sale of a 1000 MW package
from CIEN (an Argentinean consortium) to a Brazilian utility.
NEW DEVELOPMENTS - We are evaluating a joint venture between the
Company's subsidiary Ingesis and Ibermatica, a leading Spanish
company in industrial programming services with more than $100
million in yearly sales in Spain, to serve the Chilean and
Argentinean markets. We are also evaluating the involvement in a
foundry, manufacturing facility dedicated to produce parts and
pieces for the pumping and water pipes industries. The Company
plans to finance these ventures with its own capital and
resources. The equities will be little and the companies will
start almost from zero, but the business potential is very high.
At the same time Ingesis is continuing its collaboration with the
Chilean IRS to develop the publicly announced cash register
machine that will incorporate in it an inventory control and a VAT
automatic paying system.
RESULTS OF OPERATIONS (JUNE 30, 1998 COMPARED TO JUNE 30, 1997)
GROSS REVENUES, COSTS OF OPERATIONS AND GROSS PROFIT - GROSS
REVENUES decreased from $2,709,739 to $1,343,411 (50%) while COSTS
OF OPERATIONS decreased from $1,207,934 to $473,229 (61%). As a
consequence, GROSS PROFIT decreased from $1,501,805 to $870,184.
This high decrease in sales (gross revenues) is due to the impact
of a poor first quarter, in which gross revenues were only
$386,460. It is also due to the fact that during the second
quarter of 1997 the Company obtained a large transaction (El
Peral) which provided higher than expected results. Costs of
Operations decreased more than revenues because the first quarter
of 1997 showed higher costs resulting from the El Peral business.
Finally, Gross Profit was also affected by the bad experience of
the first quarter. In fact, of the $870,183 obtained in the first
six months only $146,120 was produced in the first quarter, while
$724,063 was generated in the second quarter of 1998. This
$724,063 compares reasonably well, under the present
circumstances, with the $813,792 of Gross Profit obtained during
the second quarter of 1997.
2
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
SELLING AND ADMINISTRATIVE EXPENSES, INCOMES FROM OPERATIONS AND
OTHER INCOMES (EXPENSES) - SELLING AND ADMINISTRATIVE EXPENSES
increased from $589,091 at June 30, 1997 to $624,501 at June 30,
1998. During May 1998, Mr. Pedro P. Errazuriz, past CEO of ADC,
ceased being an employee and getting a salary from the Company.
Mr. Errazuriz is an independent consultant to the Company.
However, as a consequence of the poor results of the first quarter
of 1998, INCOME FROM OPERATIONS, decreased from $912,714 to
$245,683 (representing only 27% for the same period in 1997). In
fact the second quarter cooperated with $224,552 to the
operational net income of the semester, a clear increase from the
$68,032 obtained during the first quarter as operational net
income, but far from the extraordinarily high results of the
second quarter of 1997, ($479,014) explained before. On the other
hand, OTHER INCOME (EXPENSES)) increased from $24,998 to $247,461,
which is due to non-operational income arising from the sale of
land by the Company.
NET INCOME AND INCOME TAX - INCOME TAXES decreased from $121,348
to $80,226 as a result of the lower level of INCOME BEFORE TAXES
(decreasing from $937,712 to $493,144).
NET INCOME before minority interest decreased from $816,364 at
June 1997 to $412,918 at June 1998, a decrease of 49%. This result
must be considered in conjunction with the Net Income of both
second quarters (the second quarter of 1998 obtained $344,886 of
net incomes which is very close to the $382,664 seen in the second
quarter of 1997). Again, this is good news if it is compared to
the $68,032 of net income produced during the first quarter of
1998 and a clear recovery by comparison to the $62,696 net losses
of the last year last quarter.
LIQUIDITY AND CAPITAL RESOURCES - During the period ended in June
30, 1998 as compared to December 31, 1997 there were significant
changes in the liquidity, type of assets and structure of debt.
Other assets have increased from $5,437,585 for the period ended
December 31, 1997 to $5,031,583 for the period ended June 30,
1998. This decrease corresponds to investments in subsidiaries
that were unconsolidated at December 31, 1997 because of lack of
material impact on the consolidated financial statements but were
consolidated in 1998.
Current liabilities decreased from $1,844,578 for the period ended
December 31, 1997 to $713,411 for the period ended June 30, 1998,
a decrease of $405,565 due to the repayment of obligations with
bank and an 82% decrease in accounts payable.
Long-term liabilities decreased from $206,071 for the period ended
December 31, 1997 to $165,700 for the period ended June 30, 1998.
This decrease corresponds to payments made on long-term debt.
3
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED)
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. 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
<PAGE>
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
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 207,913
<SECURITIES> 0
<RECEIVABLES> 1,546,427
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,354,665
<PP&E> 1,847,424
<DEPRECIATION> 153,074
<TOTAL-ASSETS> 9,834,936
<CURRENT-LIABILITIES> 713,411
<BONDS> 0
0
0
<COMMON> 282
<OTHER-SE> 9,834,654
<TOTAL-LIABILITY-AND-EQUITY> 9,834,936
<SALES> 0
<TOTAL-REVENUES> 1,343,411
<CGS> 473,227
<TOTAL-COSTS> 624,501
<OTHER-EXPENSES> 241,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,884
<INCOME-PRETAX> 453,670
<INCOME-TAX> 80,226
<INCOME-CONTINUING> 373,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373,444
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
