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, 1999.
( ) 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.)
600 Brickell Avenue, Suite 301-B, Miami, Florida 33131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 358-4440
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, 1999, 2,820,100
shares of $.0001 par value common stock were outstanding.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
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 AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
A S S E T S
SEPTEMBER 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
----------- -----------
Current Assets:
Cash $ 313,458 $ 65,036
Short-term investments 22,944 23,483
Accounts receivable 6,028,150 2,176,462
Inventory 1,166,757 --
Other current assets 470,721 230,218
----------- -----------
Total Current Assets 8,002,030 2,495,199
----------- -----------
Property, Plant and Equipment, net 3,389,503 1,689,410
----------- -----------
Other Assets:
Real estate held for investment -- 1,147,389
Due from related parties 16,224 875,550
Note receivable from related party -- 531,793
Note receivable - other 1,103,750 1,411,900
Investment in unconsolidated subsidiaries 1,020,494 1,772,569
Deferred charges 1,277,608 482,934
Deposits and other 469,923 82,132
Goodwill 2,771,276 --
----------- -----------
6,659,275 6,304,267
----------- -----------
$18,050,808 $10,488,876
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
September 30, 1999 and December 31, 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31,
(UNAUDITED) 1998
------------ ------------
<S> <C> <C>
Current Liabilities:
Obligations with banks $ 615,750 $ 157,659
Current portion of long-term debt 49,562 57,223
Accounts payable 2,990,075 181,293
Due to related parties 157,267 138,751
Income taxes payable 61,259 117,525
Accrued expenses and withholdings 132,536 57,319
Current portion of staff severance indemnities 29,999 23,954
Dividends payable 423,020 564,020
------------ ------------
Total Current Liabilities 4,459,468 1,297,744
------------ ------------
Long-Term Liabilities:
Long-term debt, excluding current portion 3,827,264 553,563
Staff severance indemnities, excluding current portion 66,270 65,093
------------ ------------
3,893,534 618,656
------------ ------------
Minority interest 812,090 62,500
------------ ------------
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 3,207,061 2,925,323
Cumulative translation adjustment (45,947) (139,949)
------------ ------------
Total Shareholders' Equity 8,885,716 8,509,976
------------ ------------
$ 18,050,808 $ 10,488,876
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues from Operations:
Revenues $ 3,159,036 $ 316,972 $ 3,481,409 $ 1,660,383
Cost of operations 2,535,851 93,142 2,730,859 566,369
----------- ----------- ----------- -----------
Gross Profit 623,185 223,830 750,550 1,094,014
Selling and Administrative Expenses 190,089 238,156 853,219 862,657
----------- ----------- ----------- -----------
433,096 (14,326) (102,669) 231,357
----------- ----------- ----------- -----------
Other Income (Expense), net (143,398) 101,813 485,939 349,274
----------- ----------- ----------- -----------
Income Before Income Taxes
and Minority Interest 289,698 87,487 383,270 580,631
Income Taxes (Benefit) 28,187 16,433 40,887 96,659
----------- ----------- ----------- -----------
Net Income Before
Minority Interest 261,511 71,054 342,383 483,972
Minority Interest (57,418) 1,376 (60,645) 40,850
----------- ----------- ----------- -----------
Net Income $ 204,123 $ 69,678 $ 281,738 $ 443,122
=========== =========== =========== ===========
Net Income per Common Share $ .07 $ .02 $ .10 $ .16
=========== =========== =========== ===========
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 AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 281,738 $ 443,122
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 64,317 74,547
Minority interest (56,587) 43,266
Translation adjustment 92,451 11,595
Gain on sale of real estate held for investment (532,059) --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 358,510 1,547,083
Inventory -- --
Other current assets 362,153 (433,962)
Note receivable -- 11,762
Other assets (375,177) (252,262)
Increase (decrease) in:
Accounts payable 193,494 (544,596)
Provision for severance indemnity 7,222 (11,506)
Accrued expenses and withholdings (27,655) 17,447
Income taxes payable (56,266) (92,579)
----------- -----------
Net Cash Provided by Operating Activities 312,141 813,917
----------- -----------
Cash Flows from Investing Activities:
Purchase of fixed assets (188,737) (1,318,131)
Purchase of land held for sale -- (357,938)
Investment in unconsolidated subsidiaries -- 868,839
Cash acquired in acquisition of subsidiary 260,916 --
Proceeds from short-term investments 539 504,397
----------- -----------
Net Cash Provided by (Used in) Investing Activities 72,718 (302,833)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Advances to related parties $ 15,486 $ (70,638)
Net borrowings (payments) on notes payable to bank (6,607) (209,257)
Principal payments on long-term debt (4,316) (26,735)
Dividends paid (141,000) (432,200)
----------- -----------
Net Cash (Used in) Financing Activities (136,437) (738,830)
----------- -----------
Net Increase (Decrease) in Cash 248,422 (227,746)
Cash at Beginning of Period 65,036 324,556
----------- -----------
Cash at End of Period $ 313,458 $ 96,810
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 106,867 $ 55,829
Cash paid during the period for taxes 20,119 124,888
Supplemental Disclosure of Non-Cash Investing Activities:
Details of acquisition:
Assets acquired 8,142,896 --
Liabilities assumed 7,704,678 --
Minority interest 671,074 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
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, 1998.
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, 1999 and 1998, 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 AND SUBSIDIARIES
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 the 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 1999 the Company initiated a
business strategy that is intended to improve the financial position of
the Company by: (i) improving the sales opportunities through
reassigning human resources to maximize marketing and sales efforts and
(ii) a cost-cutting program during August 1999, very sharp payroll
and administrative cost reductions.
During the third quarter of 1999, the Company continued working in one
important step of its business strategy implementation - the
improvement of sales and productive process within Construcciones
Electromecanicas Consonni S.A. of Bilboa, Spain ("Consonni S.A.") and
Equipos de Control Electricos S.A. ("ECESA"). Management believes that
the economic potential of this CONSONNI Spain and ECESA will provide
Andean Development Corporation ("ADC") profitability, cash flow
stabilization and synergy to the Company's Business.
CONSONNI USA, INC.'S ACQUISITION - During the second quarter ADC
acquired 43.45% of Consonni USA, Inc. ("CONUSA") in exchange for
certain assets, including certain non-performing assets, some long-term
receivables, as well as the forgiveness of debt due from Mr. Pedro P.
Errazuriz, Chairman of ADC, bringing its equity position to 54.96% of
that corporation. The shares of CONUSA were owned by Mr. Errazuriz.
CONSONNI USA, INC. - CONUSA is a holding company and its main assets
are 88% of Consonni S.A., a manufacturing company established in 1952,
that manufactures low, medium and high voltage control systems, and 88%
of ECESA, a trading company based in Madrid, Spain. The total sales of
the Consonni Group (consolidating Consonni S.A. and ECESA) during 1998
exceeded $11,500,000 and its net profit was $687,954 as audited by
Price Waterhouse Coopers (Spanish GAAP Standards).
1
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
As an effect of the acquisition, the assets and liabilities will be
consolidated within ADC and will increase substantially the total
revenues of ADC, historically at approximately $3,500,000, but now at a
considerably lower level.
Total assets of the Consonni Group at December 31, 1998, were slightly
above $11 million, of which more than $7 million are current assets.
Long-term liabilities are $3 million and current liabilities are $5
million.
The Board of Directors believe that the acquisition of an additional
equity interest in CONUSA has provided the Company with a new base of
sales and increased amount of revenues and profits. Additionally,
revenues will be diversified between Latin America and Europe, adding a
broader range of clients, increasing stability during periods in which
some economies suffer more than others, and providing a more permanent
profile of sales and cash flow.
To justify the transaction, ADC's Board of Directors obtained an
appraisal of both companies, prepared by ACEC and American Appraisal
(Spain).
INGESIS S.A. - Ingesis S.A. is presently negotiating a joint-venture
with Ibermatica, a Spanish computer company with more than $100 million
of yearly sales to develop an educational program transmitted through
the Internet and a private TV network. This activity is focused on
isolated and extremely abandoned Mapuche communities in the south of
Chile. A formal agreement will be ready by the end of the year. In
addition, the Company has explored some financial alternatives
including worldwide financial support programs dedicated to these kinds
of projects.
NYSA S.A. - NYSA is in the business of performing engineering
appraisals and negotiating with the owners of land to be used for
various energy projects and also in the selection of sites for future
developments. During the third quarter, the Company successfully
finished a contract with Dock-Sud, an Argentinean utility, of the
negotiations for one power line in Buenos Aires. Future plans involve
the expansion of different types of operations including B.O.T.
projects, whereby the private sector invests in public projects such as
road and port development.
BODEGAS GARCIA ERRAZURIZ S.A. - The vineyard continues the activity of
planting and growing grapes to fulfill its program of having 200 Hs.
planted by 2001 for the ultimate production of wine. 200 acres are
already planted and the drop-to-drop irrigation system is almost
finished. The first wine production is anticipated during the year
2002.
2
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
VINA VALLE DEL ITATA S.A. - During this year's harvest period the wine
processing plant produced 871,000 lts. of wine of which 500,000 lts.
were exported to England. The remaining wine has been sold to Vina
Concha y Toro, the largest and internationally well known Chilean wine
producer. It was considered a big success to have access to this very
well known company in the second year of wine production.
NEW OPERATIONS PLAN - The Company is currently working on a project as
agent in a sales process. Specifically, 2 Gas Fired Combined Cycle TG
groups that will produce approximately 750MW located in two countries
in Latin America.
Projects to sell a 230 MW hydropower TG set for Emgesa (Colombia) and
one TG set based on an open cycle 160 MW gas turbine produced by
Westinghouse for Cachoeira Dourada, a Brazilian utility, are still
viable but delayed because of the internal reorganization of Endesa's
investments in South America. The Company is currently providing some
services to their suppliers and is also acting as a consultant on the
sale of a package of 1000MW from CIEN, an Argentinean consortium to a
Brazilian utility, anticipating the sale of an 800-km power line.
The Company has been requested to act as a consultant for a Swedish
utility that intends to participate in the sale of Alto Cachapoal, an
important hydroelectric project in the south of Chile.
The Company is working in a joint venture with PRIDESA, a Spanish
manufacturing and engineering Company, on a project of desalting plants
to obtain potable water for human consumption from sea water in
Antofagasta, north of Chile.
The Company, in association with Norconsult from Norway, is working on
the first engineering steps for the feasibility study of a 350 M
hydroelectric project called "Los Bronces" and located close to
Santiago, in Chile. The owner of the project, GENER S.A., and
Norconsult - in association with the Company - have already performed
the prefeasibility study for this project.
The Company is working on a project consisting of the development of
several micro-hydroelectric projects in the south of Chile. The aim is
to obtain the engineering design of each micro-project as well as the
study of the financial alternatives. The initial approach for this
project has been made with Electricite du France.
Consonni S.A. received an important order in Egypt to build the medium
voltage controls for an important desalting unit sold by PRIDESA, a
well known manufacturer and operator of this kind of installation.
3
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
RESULTS OF OPERATIONS - September 30, 1999 compared to September 30,
1998.
Gross revenues increased from $1,660,383 in 1998 to $3,481,409 in 1999,
an increase of $1,821,026 or 110%. This increase is due principally to
the incorporation of CONUSA. CONSONNI and ECESA had revenues of
$2,649,738 in the third quarter.
Cost of operations increased from $566,369 at September 30, 1998 to
$2,730,859 at September 30, 1999, an increase of $2,164,490 or 382% due
to the incorporation of costs from CONSONNI and ECESA, which accounted
for $2,384,658 in the third quarter.
Selling and administrative expenses decreased from $862,656 at
September 30, 1998 to $853,219 at September 30, 1999, a decrease of
$9,437 or 1%.
Gross profit decreased from $1,094,014 at September 30, 1998 to
$750,550 at September 30, 1999, a decrease of $343,464 or 31% due to
the decrease of the Core Business activity during this whole year due
to the incertitude that the world crisis brought to the development
plans of companies in South America.
Other income shows an increase from $349,274 at September 30, 1998 to
$485,939 at September 30, 1999, an increase of $136,665 or 39%. This
increase is due to the sale of a real estate held for investment during
the first quarter of 1999.
Income taxes have decreased from $96,659 at September 30, 1998 to
$40,887 at September 30, 1999, a decrease of $55,772 or 58%. This is
primarily due to the lower level of net income.
LIQUIDITY AND CAPITAL RESOURCES - September 30, 1999, as compared to
December 31, 1998
During this period there were significant changes in the liquidity, the
type of assets and the structure of the debt. The main reason for those
changes was the acquisition of CONUSA, and its subsidiaries, Consonni
and ECESA.
Other assets have increased from $6,304,267 for the period ended
December 31, 1998 to $6,659,275 for the period ended September 30,
1999. This increase is due to the investment made by the Company to
acquire 55% of CONUSA and the consequential consolidation. As the
acquisition was due interchanging some assets, most of them previously
also included in "other assets", the main effect are seen in other
accounts detailed hereafter:
Deferred charges increased $794,674, which reflects the licenses,
patents and investigations and development costs of Consonni in Spain.
4
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
Current assets increased from $2,495,199 at December 31, 1998 to
$8,002,030 at September 30, 1999, an increased of $5,506,831 or 221%
due to the consolidation with CONUSA. CONUSA has accounts receivable of
$4,536,223 among other receivables.
Fixed assets increased from $1,689,410 at December 31, 1998 to
$3,389,503 at September 30, 1999, an increase of $1,700,093, or 101%,
mainly due to the incorporation of the industrial properties owned by
the subsidiaries of CONUSA and the execution of the program of planting
the vineyard in the farm owned by ADC's subsidiary, Igenor Andina, in
the south of Chile.
Current liabilities increased from $1,297,744 at December 31, 1998 to
$4,459,468 at September 30, 1999, an increase of $3,161,724 or a 244%
increment due to the consolidation with CONUSA. Most of this increment
comes from obligations with banks $464,693 and CONUSA's accounts
payable of $2,615,288.
Long-term liabilities increased from $618,656 at December 31, 1998 to
$3,893,534 at September 30, 1999. This increase of $3,274,878 is due to
long-term debt incurred by Bodega Garcia Errazuriz for the vineyard to
develop its program ($406,490) normal banking activity and an increase
of the long-term liabilities coming from CONUSA, mainly long-term debts
to the Basque Government, totaling $3,230,317.
YEAR 2000 COMPLIANCE - The Company believes that 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 is ending its
processes for evaluating and managing the risks and costs associated
with this problem. Some areas of potential business impact have been
identified and conversion efforts are underway. The Company also has
communicated with suppliers, dealers, financial institutions to
coordinate year 2000 conversion. Once having evaluated the answers from
such communications, the Company prepared a contingency plan to
mitigate year 2000 issues.
5
<PAGE>
ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
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
Item 6. Exhibits and Reports on Form 8-K
None
A. EXHIBITS:
- ------------
27 Financial Data Schedule
B. Reports on Form 8-K
None
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 313,458
<SECURITIES> 0
<RECEIVABLES> 6,028,150
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,002,030
<PP&E> 5,312,391
<DEPRECIATION> 1,922,888
<TOTAL-ASSETS> 18,050,808
<CURRENT-LIABILITIES> 4,459,468
<BONDS> 0
0
0
<COMMON> 282
<OTHER-SE> 8,885,998
<TOTAL-LIABILITY-AND-EQUITY> 18,050,808
<SALES> 0
<TOTAL-REVENUES> 3,481,409
<CGS> 2,730,859
<TOTAL-COSTS> 853,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,867
<INCOME-PRETAX> 322,625
<INCOME-TAX> 40,887
<INCOME-CONTINUING> 281,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281,738
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
