SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to ___________
Commission file number 33-90696
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ANDEAN DEVELOPMENT CORPORATION
(Name of small business issuer as specified in its charter)
Florida 65-0648697
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1 Brickell Square
801 Brickell Avenue, Suite 900
Miami, Florida 33131
(Address of principal executive offices)
(305) 371-0056
(Issuer's telephone number)
----------------
Check whether the Issuer (1) has 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 [X] No [ ]
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, 2000, 2,820,100
shares of $.0001 par value common stock were outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
<PAGE>
INDEX
Part I. Financial Information.
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the "Commission"), although the
Company believes the disclosures made are adequate to make the information
presented not misleading, and, in the opinion of management, all adjustments
have been reflected which are necessary for a fair presentation of the
information shown and the accompanying notes. These condensed unaudited
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1999. The results for the nine months
ended September 30, 2000 are not necessarily indicative of the results of
operations for a full year or of future periods.
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
ASSETS
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
----------- -----------
Current Assets:
Cash $ 539,526 $ 125,163
Short-term investments 22,901 145,794
Accounts receivable 4,405,063 4,243,673
Inventory 1,848,679 923,393
Other current assets 687,383 305,859
Notes receivable 148,000 --
----------- -----------
Total Current Assets 7,651,552 5,743,882
----------- -----------
Property, Plant and Equipment, net 1,895,945 3,362,741
----------- -----------
Other Assets:
Real estate held for investment -- 96,872
Goodwill 2,582,021 2,631,359
Due from related parties 36,934 197,183
Note receivable from related party 213,750 213,750
Note receivable - other 428,500 890,000
Investment in affiliated subsidiaries 2,543 392,435
Deferred charges 201,335 138,984
Deposits and other 375,567 329,501
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3,840,650 4,890,084
----------- -----------
$13,388,147 $13,996,707
=========== ===========
The accompanying notes are an integral part of these financial statements
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ANDEAN DEVELOPMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
September 30, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Liabilities:
Obligations with banks $ 1,541,741 $ 441,553
Current portion of long-term debt -- 603,628
Accounts payable 2,738,328 1,843,189
Due to related parties 443 114,304
Income taxes payable 4,524 8,610
Accrued expenses and withholdings 18,905 223,924
Current portion of staff severance indemnities -- 34,946
Dividends payable 423,020 423,010
Deferred revenue -- 511,489
Current portion due to public entities 610,805 760,881
------------ ------------
Total Current Liabilities 5,337,766 4,965,542
------------ ------------
Long-Term Liabilities:
Long-term debt, excluding current portion -- 404,846
Staff severance indemnities, excluding current portion 69,146 66,685
Due to public entities 2,373,998 2,566,409
Other debt 21,273 --
------------ ------------
2,464,417 3,037,940
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Minority interest 334,448 540,442
------------ ------------
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 60,004 (36,268)
Cumulative translation adjustment (533,090) (235,551)
------------ ------------
Total Shareholders' Equity 5,251,516 5,452,783
------------ ------------
$ 13,388,147 $ 13,996,707
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
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ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999
2000 1999
----------- -----------
Revenues from Operations:
Revenues $ 2,646,636 $ 3,275,632
Cost of operations (2,032,965) (2,627,529)
----------- -----------
Gross Profit 613,671 648,103
Selling and Administrative Expenses (503,923) (567,265)
----------- -----------
Income from Operations 109,748 80,838
----------- -----------
Other Income (Expenses), Net (1,373) 352,675
----------- -----------
Income Before Income Taxes and Minority Interest 108,375 433,513
Income Taxes 1,133 (62,544)
----------- -----------
Income Before Minority Interest 109,508 370,969
Minority Interest (19,204) (65,068)
----------- -----------
Net Income $ 90,304 $ 305,901
=========== ===========
Net Income per Common Share $ .03 $ .11
=========== ===========
Weighted Average Shares Outstanding 2,820,100 2,820,100
=========== ===========
The accompanying notes are an integral part of these financial statements
3
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ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Income
Nine Months Ended September 30, 2000 and 1999
2000 1999
----------- -----------
Revenues from Operations:
Revenues $ 7,665,437 $ 3,481,409
Cost of operations (5,962,703) (2,730,859)
----------- -----------
Gross Profit 1,702,734 750,550
Selling and Administrative Expenses (985,253) (853,219)
----------- -----------
Income (Loss) from Operations 717,481 (102,669)
----------- -----------
Other Income, Net (582,972) 485,939
----------- -----------
Income Before Income Taxes and Minority Interest 134,509 383,270
Income Taxes (2,376) (40,887)
----------- -----------
Income Before Minority Interest 132,133 342,383
Minority Interest (35,861) (60,645)
----------- -----------
Net Income $ 96,272 $ 281,738
=========== ===========
Net Income per Common Share $ .03 $ .10
=========== ===========
Weighted Average Shares Outstanding 2,820,100 2,820,100
=========== ===========
The accompanying notes are an integral part of these financial statements
4
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ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 96,272 $ 281,738
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 483,036 64,317
Translation adjustment (297,539) 92,451
Minority interest (205,994) (56,587)
Gain (loss) on sale of real estate held for investment -- (532,059)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (161,390) 358,510
Inventory (925,286) --
Other receivables -- --
Other current assets (381,524) 362,153
Note receivable 313,500 --
Deferred charges (62,351) --
Other assets (46,066) (375,177)
Increase (decrease) in:
Accounts payable 895,139 193,494
Provision for severance indemnity (32,485) 7,222
Accrued expenses and withholdings (205,019) (27,655)
Income taxes payable (4,086) (56,266)
Deferred revenue (511,489) --
----------- -----------
Net Cash Provided by (Used in) Operating Activities (1,045,282) 312,141
----------- -----------
Cash Flows from Investing Activities:
Purchase of fixed assets 1,033,098 (188,737)
Investment in unconsolidated subsidiaries 389,892 --
Proceeds from short-term investments 122,893 539
Cash acquired in acquisition of subsidiary -- 260,916
Real estate held for investment 96,872 --
----------- -----------
Net Cash Provided by Investing Activities 1,642,755 72,718
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
ANDEAN DEVELOPMENT CORPORATION
Consolidated Statements of Cash Flows (Continued)
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Financing Activities:
Borrowings from related parties $ 46,388 $ 15,486
Proceeds from (payments on) notes payable to bank 1,100,188 (6,607)
Principal payments on long-term debt (987,201) (4,316)
Dividends paid -- (141,000)
Due to public entities (342,487) --
----------- -----------
Net Cash (Used in) Financing Activities (183,110) (136,437)
----------- -----------
Net Increase in Cash 414,363 248,422
Cash at Beginning of Period 125,163 65,036
----------- -----------
Cash at End of Period $ 539,526 $ 313,458
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the quarter for interest $ 170,789 $ 106,867
Cash paid during the quarter for taxes 2,376 20,119
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
6
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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 the
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, 1999.
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, 2000 and 1999, 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.
The accompanying notes are an integral part of these financial statements
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, regarding future events or the future financial performance of
the Company that involve risks and uncertainties. Certain statements included in
this Form 10-QSB, including, without limitation, statements related to
anticipated cash flow, and sources and uses of funds, and words including but
not limited to "anticipates", "believes", "plans", "expects", "future" and
similar statements or expressions, identify forward looking statements. Any
forward-looking statements herein are subject to certain risks and uncertainties
in the Company's business, including but not limited to, reliance on key
customers and competition in its markets, market demand, product performance,
technological developments, maintenance of relationships with key suppliers,
difficulties of hiring or retaining key personnel and any changes in current
accounting rules, all of which may be beyond the control of the Company. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth herein.
Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") should be read in conjunction with the consolidated
financial statements included herein. Further, this quarterly report on Form
10-QSB should be read in conjunction with the Company's Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in its 1999
Annual Report on Form 10-KSB. In addition, you are urged to read this report in
conjunction with the risk factors described herein.
General
The Company's services have historically been provided to both private
companies and governmental agencies. The Company has been a supplier of
equipment, spare parts and engineering services for most of the largest
utilities in Chile including, among others, private companies such as Endesa,
S.A. (the largest electrical utility company in Chile), Chilgener S.A. (the
second largest electrical utility company in Chile), Minera Valparaiso S.A. (a
mining company), CREO (Cooperative Regional Electrica de Osorno, an electrical
utility company), and Edelnor S.A. (an electrical distribution company); and
government owned companies such as Codelco (Corporacion Nacional del Cobre de
Chile, the largest government owned mining company in Chile), Colbun S.A. (an
electrical utility company), and Petrox S.A. (a petro-chemical and oil company).
The economy of Chile is reliant primarily on exports and revenues
generated by private companies. In Chile, all the utilities, highway
construction, railway construction, airlines and the educational system are
private. When exports are depressed (such as a consequence of the Asian import
collapse in 1999), private companies are adversely effected and new large
construction projects are less likely to be initiated; there is a preference for
short term projects that will generate immediate cash and net revenues.
Accordingly, projects that require three to five years to be designed and built
have been postponed or replaced by short term revenue producing projects. The
Company's core business relies on the long term three to five year projects. Any
unfavorable impact of the export market will, in turn, impact adversely on the
Company's operations, as has occurred in 1999 and 2000.
8
<PAGE>
In an effort to expand the Company's revenue base and to provide
greater diversity, the Company acquired a majority interest in Consonni U.S.A.,
Inc. ("Conusa") on June 30, 1999, and continued the acquisition of other
unrelated business in Chile, with the concept that such greater diversification
would benefit the shareholders of the Company.
This business structure did not achieve the intended results. It was
difficult and costly to manage geographically and across separate and distinct
markets, the legal and accounting expenses incurred in order to comply with
federal securities became excessive and while Conusa generated revenues, it
failed to achieve the level of profitability that offset the additional costs
incurred and management time that was required.
Over the course of the past year, the Company has therefore revised its
business and its focus:
o to simplify the Company's corporate structure by combining
subsidiaries that had the same core business function
(business derived from engineering and sales) but were
historically organized as separate entities;
o to develop the educational software business of E&A Ingesis,
S. A., a wholly owned subsidiary ("Ingesis"), which has the
endorsement and support of the government of Chile and which
management believes can be a source of substantial revenue and
profits; and
o to sell all the Company's interests in Chilean subsidiaries
whose business were inconsistent with the Company's core
business and its new education software business.
The effect of revising the Company's business is to accomplish the
following:
o consolidate the Company's business activities as a means to
make the Company more attractive to investors;
o reduce the enormous and redundant legal and auditing expenses
for numerous subsidiaries located in three continents; and
o concentrate the attention of the Company's management and
resources on the core business and the educational software
business.
Actions Taken to Effectuate the Business Plan:
1. Sale of the agricultural activities
In December 1999, the Company sold its minority interest in Vina Valle
del Itata, S.A. to the other partners of Vina Valle del Itata, S.A., at the
Company's acquisition price.
In August, 2000, Igenor Andina, S.A. ("INA"), a 99.9% owned subsidiary
of the Company,
9
<PAGE>
sold its interest in Bodegas Garcia Errazuriz S.A., a vineyard in Chillan,
Chile. The vineyard was sold for a price marginally in excess of its book value.
Under the terms of the sale, the Company received 66.6% of the consideration in
the transaction, with the remainder to be paid over three years.
2. Sale of Interests in Certain of the Company's Subsidiaries
The Company has sold its minority interests in Funditec, S.A.,
Biwater-Aguas y Ecologia S.A., Negociaciones y Servidumbre, S.A. and Nysacar,
S.A.
3. Consolidation of Certain of the Company's Subsidiaries
In June, 2000, the Company consolidated Igenor Andina S.A., Errazuriz
Asociados Division Comercial S.A., Errazuriz y Asociados Division Ingenieria
S.A. and Ingesis S.A. into E&A Ingesis S.A.. Errazuriz y Asociados Ingenieros
S.A. was not included in this consolidation since its engineering business is
not required pay value added tax and requires separate accounting treatment.
CURRENT STATUS:
o Equipos de Control Electrico S.A. ("Ecesa"): The Company
intends to retain its interest in Ecesa, the current marketing
and sales arm of Consonni. Management of the Company believes
that Ecesa is strategic for developing new markets in Spain
for the core business and preparing the Spanish educational
software needed for the educational software business.
o Consonni: Due to Consonni's lengthy modernization process and
slow growth in revenues, management believes that the
Company's best interests may be served by selling its interest
in Consonni. Management is pursuing this option.
o Arrieta S.A. ("Arrieta"): Management is reevaluating the
potential acquisition of Arrieta.
o Core Business: The Company is preparing a report and economic
survey for Mitsubishi Corporation related to the sale of an
important Combined Cycle project in Argentina. As part of this
transaction, Mitsubishi Corporation may build the Steam Gas
Turbine and Generator and a hydro-electric plant for an 800 MW
installation in which it is anticipated that the Company will
participate in the procurement of parts. No assurances can be
given, however, that this project will be initiated or
completed.
o Engineering: Management believes that this segment of the core
business will generate greater revenues than in the previous
two years. The Company anticipates revenues to be generated
from projects such as the Taltal Power Plant, a thermal power
installation owned by Endesa, S.A. in the north of Chile and
from certain electric lines in Chile, Brazil and Argentina. In
addition, in coordination with certain Spanish companies and a
Norwegian developer, the
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Company could succeed in a bid for the development and
construction of water and sewage treatment plants for smaller
towns in Chile.
o Educational Software:
The educational software business is focused on two target markets:
i. The isolated rural communities in the native
population areas of Chile. Education instruction has
been severely limited in these communities, often
restricted by different levels of understanding,
preparation and poverty and taught by only one
teacher to a bilingual and multi-level group of
students. Management believes that the Company's
educational software business can improve the quality
of such education through the balanced use of the
Internet and educational videos in those isolated
rural communities.
ii. Union leaders and executive employees of both the
public administration and the private sector.
Educational software is intended to provide advanced
education in economics, social legislation,
administration and other relevant academic subjects.
There is a market for post degree specialization and
continuing education for this target group. Since
this target group generally cannot attend university
or conform their work schedules to university hours,
Internet education provides a practical solution to
their educational requirements.
The Company is adapting existing educational software or preparing new
educational software to be used in the aforementioned markets. It is anticipated
that the first experimental lessons will be prepared with the assistance of the
Villarrica School of the Pontificia Universidad Catolica, specializing in ethnic
group teaching. The Company intends to recruit individuals who specialize in
this type of software as well as competent instructors. The Company also intends
to develop strategic relationships with local and foreign companies that have
developed a reputation in the business of educational software and instruction.
Furthermore, the Company anticipates receiving the support of the essential
branches of the government of Chile, including the Ministry of Education and the
Board of Main Unions.
The Company is in contact with the Fundacion Frei, Fundacion Endesa and
the Unions in Chile to obtain written agreements for teaching through these
respective systems once the educational software, a pilot plan, and the overall
program is prepared. The Company expects to sign at least one contract by the
end of this year. No assurances can be given, however, that any agreements will
be consummated.
The Company has entered into a joint venture with Ibermatica S.A., a
well known Spanish company ("Ibermatica"), to serve certain Chilean, Peruvian
and Argentinean educational markets. Ibermatica is a leading software production
and related services company with more than $100 million in yearly sales in
Spain and specializes in the education business, having programmed this service
for many institutes and universities in Spain. Ibermatica brings value to the
Company in that it uses the Spanish language in its software and services. The
Company has also hired local Chilian software producers, such as "Atworks," to
develop the Company's pilot plan. The Company is investigating and developing
contacts in the American market for such educational products as a means to
develop a "state of the art" technology at a reasonable price. Finally, the
Company has filed proposals to seek additional funding for the educational
business through financial grants from entities that have shown interest in the
educational business, such as Endesa, S.A., the Fundacion Frei and the Basque
Government Ministry for External Cooperation. The Company has obtained consent
from the Government Employees Union of Chile to sponsor the business public
administration and the private sector education project for union leaders and
executive employees and, as a consequence of that relationship, the
International Association of Public Employees has initiated a study of possible
multilateral funding of the educational project.
o Consonni: While overall sales by Consonni have improved in
2000, there has not been a corresponding improvement in net
revenues. Operational, selling and administrative costs,
including the costs related to employees, have hindered any
net revenue growth. Management has appointed a member of the
Board of Directors of Consonni to determine whether the
interests of the Company are better served by selling its
interest in Consonni or replacing Consonni's management.
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o Ecesa: Prior to June 30, 2000, Ecesa has relied on its
affiliation with Consonni to sell its products. As a means to
provide Ecesa with its own source of revenues and eliminate
its sole reliance on the affiliation with Consonni, Ecsesa has
employed Mr. Horacio Civile as its executive president. Mr.
Horacio Civile is a well known civil engineer and highly
qualified industrial salesman. Prior to June 2000, Mr. Horacio
Civile was Latin American Sales Vice President for "Kvaerner
Energy A.S." of Norway, Sweden and England (a transnational
company presently operating as "GE Hydro", a subsidiary of
General Electric). It is anticipated that Ecesa's new
management will expand its customer base and revenues.
The Company is continuing its efforts to expand the core business into
markets in Argentine, Brazil and Peru. The projects in which the Company is
presently concentrating are (i) the sale of energy from Gener to Copel (Brasil)
from Salta, Argentina; (ii) studies for Piedrabuena Power Plant in Argentine;
(iii) Guarantee Penalties Advisory and solutions for Siemens and MHI relating to
the Argentine Costanera Power Plant; and (iv) finalizing agreements with EDEGEL
in Peru for the Chimay Project. Recently, Ecesa has been instrumental in
developing a business relationship with an Argintinian contractor company, "Jose
Cartellone Construcciones Civiles S.A." which results are expected to be
realized in the next quarter. The Company intends to utilize Mr. Horacio Civile
to expand its business in these markets. No assurances can be given, however,
that any of these agreements will be consummated or that the Company will be
successful in these markets.
In summary, management believes that consolidation of the Company's
business in Chile and South America and the
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expansion into the educational software business will enhance shareholder value.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999
Gross Revenues and Costs of Operations
Gross revenues decreased from $3,275,632 for the three months ended September
30, 1999 to $2,646,636 for the three months ended September 30, 2000, a decrease
of $628,996. This decrease is primarily a result of decreased sales of Consonni
products.
Cost of Operations decreased from $2,627,529 for the three months ended
September 30, 1999 to $2,032,965 for the three months ended September 30, 2000,
a decrease of $594,564. This decrease is directly related to the decrease in
gross revenues from Consonni product sales.
Selling and Administrative Expenses, Income from Operations and Other Income
(Expenses)
Selling and Administrative Expenses decreased from $567,265 for the three months
ended September 30, 1999 to $503,923 for the three months ended September 30,
2000, a decrease of $63,342. This is a result of a decrease of operating
expenses of Consonni.
Income from Operations, increased from $80,838 for the three months ended
September 30, 1999 to $109,748 for the three months ended September 30, 2000, an
increase of $28,910.
Other Income (Expenses) decreased from $352,675 for the three months ended
September 30, 1999 to a loss of ($1,373) for the three months ended September
30, 2000. The decrease is a consequence of the sale of income producing property
and certain other assets in 1999 as well as amortization expenses from Consonni
operations (not included in the three months ended September 30, 1999).
Net Income decreased from $305,901 for the three months ended September 30, 1999
to $90,304 for the three months ended September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999
Gross Revenues and Costs of Operations
Gross revenues increased from $3,481,409 for the nine months ended September 30,
1999 to $7,665,437 for the nine months ended September 30, 2000, an increase of
$4,184,028. The increase in gross revenues is due to the revenues generated by
Consonni. The core business (business derived from engineering and sales) gross
revenues increased from $831,671 for the nine months ended September 30, 1999 to
$1,001,627 for the nine months ended September 30, 2000, an increase of
$169,956. This increase in core business gross revenues was due to the Company
expanding its
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business outside of Chile to neighboring countries.
Cost of Operations increased from $2,730,859 for the nine months ended September
30, 1999 to $5,962,703 for the nine months ended September 30, 2000, an increase
of $3,231,844. This increase comes primarily from Consonni operational costs and
is directly related to the increase in gross revenue derived from Consonni
products sales. Core business cost of operations decreased from $346,201 for the
nine months ended September 30, 1999 to $327,181 for the nine months ended
September 30, 2000. This slight decrease is a consequence of increased gross
revenues and reduced operational costs in the core business.
Selling and Administrative Expenses, Incomes from Operations and Other Income
(Expenses)
Selling and Administrative Expenses increased from $853,219 for the nine months
ended September 30, 1999 to $985,253 for the nine months ended September 30,
2000, an increase of $132,034. Selling and Administrative Expenses in the core
business decreased from $311,666 for the nine months ended September 30, 1999 to
$179,632 for the nine months ended September 30, 2000, a decrease of $132,034.
This is a consequence of certain cost reduction measures.
Income from Operations, increased from a loss of ($102,669) for the nine months
ended September 30, 1999 to income of $717,481 for the nine months ended
September 30, 1999, an increase of $820,150. The income is derived from income
of $481,107 from the core business and $236,374 from Consonni and Ecesa .
Other Income (Expenses) decreased from $485,939 for the nine months ended
September 30, 1999 to a loss of ($582,972) for the nine months ended September
30, 2000, a decrease of $1,068,911. The decrease is a consequence of the sale of
income producing property and certain assets in 1999 and amortization expenses
from Consonni operations (not included in the nine months ended September 30,
1999).
Net Income decreased from $281,738 for the nine months ended September 30, 1999
to $96,272 for the nine months ended September 30, 2000. Net Income is derived
from net income in the core business of $188,297 offset against a loss from
Consonni of $ 92,025.
Liquidity and Capital Resources
The Company has financed its operations and other working capital
requirements principally from operating cash flow and bank financing.
Current Assets
Accounts receivable increased from $4,243,673 at December 31, 1999 to $4,405,063
at September 30, 2000, as a consequence of the increase in the activity of
Consonni during the first three quarters of 2000.
Property, plant and equipment decreased from $3,362,741 at December 31, 1999 to
$1,895,945 at September 30, 2000. This decrease is due to the sale of the
Company's interest in Vina Valle del Itata, S.A. and Bodegas Garcia Errazuriz
S.A. to retire certain short and long term debt.
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Other assets decreased from $4,890,084 at December 31, 1999 to $3,840,650 at
September 30, 2000. This decrease is a consequence of amortization of the
goodwill of the Company and the sale of the Company's interest in Vina Valle del
Itata, S.A., Bodegas Garcia Errazuriz S.A., Bayesa, NYSA and NYSACA.
Liabilities
Current liabilities increased from $4,965,542 at December 31, 1999, to
$5,337,766 at September 30, 2000, as a result of the increase of Consonni's debt
to suppliers, arising from increased product sales by Consonni, as well as bank
debt related to Consonni's operations.
Long-term liabilities decreased from $3,037,940 at December 31, 1999 to
$2,464,417 at September 30, 2000. This decrease is due to the payment of long
term debt to certain banks in Chile, Banco Sudamericano and to Banco BICE.
The Company anticipates that its cash requirements will continue to
increase as it continues to expend substantial resources to build its
infrastructure, develop its modified business plan, establish its sales and
marketing network, operations, customer support and administrative
organizations. The Company currently anticipates that its available cash
resources and cash generated from operations will be sufficient to meet its
presently anticipated working capital and capital expenditure requirements for
the next twelve months. As of September 30, 2000, there were no commitments for
long term capital expenditures. If the Company is unable to maintain
profitability, or seeks further expansion, additional funding will become
necessary. No assurances can be given that either equity or debt financing will
be available.
RISK FACTORS
The following risk factors, as well as the risks described under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may cause actual results to differ materially from those in any
forward-looking statements contained in the MD&A or elsewhere in this report or
made in the future by the Company or its representatives. Such forward-looking
statements involve known risks, unknown risks and uncertainties and other
factors, which may cause the actual results, performance or achievements
expressed or implied by such forward-looking statements to differ significantly
from such forward looking statements.
Risk of New Phase of Business
Results of operations in the future will be influenced by numerous
factors, including market acceptance of the Company's products, particularly its
educational software, in Chile and possibly through South America, the Company's
capacity to develop and manage its projects, competition, and the ability of the
Company to control costs. There can be no assurance that revenue growth will be
sustained or that these products or businesses will be profitable. Additionally,
the Company will be subject to all the risks incidental to a business entering
new markets. Accordingly, there can be no assurances that the Company will be
able to implement its revised business plan, expand its operations, or develop
and sustain profitable operations.
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Reliance on Third Party Manufacturers May Disrupt Operations
The core business of the Company does not manufacture or sell any
equipment. Rather, the Company, on a contract basis, relies on third-party
manufacturers for the equipment sold. Reliance on such manufacturers may subject
the Company to various risks associated with scheduling and timely production
and delivery of equipment, availability of completed products, as well as
administrative problems dealing with one or more manufacturers or suppliers.
These risks include, among others, the possibility of a change in the amount of
commission payable and a postponement of a commission owed to the Company. Any
such disruption could have a material adverse effect on the Company's financial
results.
Competition
In its core business, the Company is engaged in a highly-competitive
segment of an industry which is very active and consistently attracts new
competitors. The Company, in its core business, competes directly or indirectly
with a number of companies, many of which are larger, better capitalized, more
established and have greater access to resources necessary to produce a
competitive advantage. The Company's major competitors represent well-known
manufacturers in Chile and include Gildemeister S.A.C. (Caterpillar), Sigdo
Koppers Comercial S.A.C. (Dresser International Bridgestone), Pfeninger and Co.
(Sulzer Escher Wyss, Joy Manufacturing) and the local offices of larger
manufacturers or traders such as Marubeni, Babcock Wilcox, Mitsubishi, General
Electric, and GEC Alsthom.
Control by Management and Present Shareholders of the Company
Pedro Pablo Errazuriz, the President, Chief Executive Officer and
Chairman of the Board of the Company, and his immediate family, directly or
indirectly, own approximately 71% of the Company's issued and outstanding Common
stock. Since holders of the Common Stock do not have any cumulative voting
rights and directors are elected by plurality vote, Mr. Errazuriz is in a
position to control the election of directors as well as the other affairs of
the Company.
Dependence on Key Personnel
The success of the Company is highly dependent upon the continued
services of Pedro Pablo Errazuriz and of Mr. Jose Luis Yrarrazaval, Vice
Chairman of the Board, Chief Financial Officer and Director. The loss of the
services of any of these individuals could have a material adverse effect on the
business of the Company.
With the implementation of the Company's revised business strategy, it
will become necessary for the Company to hire additional experienced
professionals to meet its expanding and novel needs. The Company intends to use
certain of its existing staff to perform a number of these duties and to
participate in the selection of new personnel, as required. Such individuals may
include engineers, technicians, management, marketing personnel or specialized
consultants. While the Company believes that by offering competitive salaries
and benefit packages, it will be able to hire qualified individuals, no
assurances can be given that such individuals will accept employment with the
Company or will continue to be employed by the Company, or that qualified
individuals will be available to the Company when needed.
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Consonni Operations
The Company's pursuit of the sale of Consonni may be a lengthy process.
No assurances can be given that a suitable purchaser will be found or that a
satisfactory sales price and other terms can be negotiated. In the meantime, the
Company's revenues and profitability will be materially affected by Consonni's
operations. Accordingly, the Company's financial results will be dependent to a
significant extent upon economic conditions in Spain and Europe in general.
Considerations Relating to Chile
In the past, geopolitical frictions have existed between countries
located in the southern areas of South America, which includes Argentina,
Brazil, Bolivia, Chile, Paraguay, Peru and Uruguay (the "Southern Cone"
countries). This tension has resulted in difficulties in foreign trade, and
particularly the inherent adverse effects that may develop when goods (including
equipment sold through the Company) are delayed by customs. Additionally, there
have been problems with citizens of one Southern Cone country freely traveling
to other Southern Cone countries. Furthermore, countries have been reluctant to
hire nationals of one country for executive positions in other Southern Cone
countries.
Although recently, travel and commerce among the Southern Cone
countries have become increasingly easier and the Company has not been adversely
affected by geopolitical, economical, legal or other problems inherent in doing
business with foreign countries, there can be no assurances that such problems
will not occur in the future.
Currency Flunctuations
Economic policies in Chile and Spain and any future changes in the
value of the Chilean peso and/or the Spanish pesata against the United States
dollar could aversely affect the value of the Company's common stock. The
Chilean peso has been subject to large devaluations in the past and may be
subject to significant fluctuations in the future.
Currency fluctuations may have an effect on the Company's current
activities by the fact that the Company's operational expenses (costs) are tied
to the Chilean peso and Spanish pesata, while revenues are generally tied to the
United States dollar or other foreign currencies (depending from whom equipment
is purchased or for whom services are provided). A weakening of the United
States dollar (or other foreign currencies) against the Chilean peso and/or
Spanish pesata means that while the Company's revenues may remain unaffected by
the weakening of the United States dollar against the currencies, the Company's
costs (which are paid in these currencies) will increase. Conversely, if the
Chilean peso and/or Spanish pesata is weak against foreign currencies, the cost
of local goods and services are less expensive. While currency fluctuations have
not had a material effect on the financial condition of the Company, no
assurances can be made that any such currency fluctuation will not adversely
affect the Company.
Foreign Corrupt Practices Act
Substantially all of the Company's operations are transacted in South
America and Spain. To the extent that the Company conducts operations and sells
its products outside the United States, the Company is subject to the Foreign
Corrupt Practices Act which makes it unlawful for any issuer to
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corruptly pay or offer to pay, any money or anything of value to any foreign
official, foreign political party or official thereof or any candidate for
foreign political office ("Foreign Officials") or any person with knowledge that
all or a portion of such money or thing of value will be offered, given, or
promised, directly or indirectly, to any Foreign Official. Although the Company
has implemented a policy designed to deter such activities, no assurances can be
given that such activities will not occur or be detected.
Volatility of Stock Prices
The over-the-counter markets for securities such as the Company's
common stock historically have experienced extreme price and volume fluctuations
during certain periods. Other factors that also may affect the market price of
the Company's common stock include, but are not limited to the following:
o New product developments
o Fluctuations in the financial markets
o Changes in market valuations of companies in our industry
o General economic conditions
o Quarterly variations in the Company's results of operations
o The loss of a major customers, suppliers or business partners
o The addition or departure of key personnel
Limited trading market for common stock.
The Company's common stock is listed on the "pink sheets" at this time.
The common stock has only a limited trading market. The Company cannot assure
the shareholders that a more active trading market will develop or, if
developed, that it will be maintained. As a result, a shareholder might find it
difficult to dispose of, or to obtain accurate quotations as to the value of,
the common stock. Although the Company will attempt to regain a listing on the
OTC-Bulletin Board, no assurances can be given as to when such listing will
occur.
The Company's common stock is subject to additional market regulations.
Trading in the common stock is subject to the requirements of Rule
15g-9 promulgated under the Exchange Act. Under such rule, broker-dealers who
recommend low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. The
common stock is also subject to the Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, which requires additional disclosure in connection
with any trades involving a stock defined as a penny stock (generally, according
to regulations adopted by the Securities and Exchange Commission, any equity
security not traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions). Such requirements
could severely limit the market liquidity of the common stock and the ability of
shareholders to sell their securities in the secondary market.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of the Quarterly
Report on Form 10-QSB
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ANDEAN DEVELOPMENT CORPORATION
By: /s/ Pedro Pablo Errazuriz
---------------------------------------
Date: November 30, 2000 Pedro Pablo Errazuriz
President and Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
