-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cj07A6GYl+xkZE0OIM450sCVXg7/hG7wgz7Cs0V+n6P7xVqWv93LgDFmzbeoeclz +yLFDJOUh56G6gPOQCIgCQ== 0000950134-99-004281.txt : 19990518 0000950134-99-004281.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950134-99-004281 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EARTHCARE CO CENTRAL INDEX KEY: 0001057489 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 582335973 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24685 FILM NUMBER: 99624882 BUSINESS ADDRESS: STREET 1: 7200 BISHOP ROAD STREET 2: 770-449-8844 CITY: AUSTELL STATE: GA ZIP: 30168 BUSINESS PHONE: 7704498844 MAIL ADDRESS: STREET 1: 14901 QUORUM DRIVE CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SANTI GROUP INC /GA DATE OF NAME CHANGE: 19980720 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] 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: 000-24685 EarthCare Company (Exact name of registrant as specified in its charter) Delaware 58-2335973 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 14901 Quorum Drive, Suite 200 Dallas, Texas 75240 ----------------------------- ----- (Address of principal executive offices) (Zip Code) (972) 858-6025 (Registrant's telephone number, including area code) 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 reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of outstanding shares of the registrant's common stock, par value $.0001 per share, was 10,189,049 on May 7, 1999. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [X] No 2 FORWARD-LOOKING STATEMENTS Statements contained in this report, which are not historical in nature, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, the statements regarding efforts to determine Year 2000 exposure and the costs to bring the Company into Year 2000 compliance. Such forward-looking statements include uncertainties and risks that could cause actual results to differ materially from those documented in this report. These risks include the Company's ability to grow through the acquisition and development of non-hazardous liquid waste ("NLW") companies and the acquisition of ancillary businesses; the Company's ability to identify and acquire at a reasonable cost suitable acquisition candidates or to profitably operate or successfully integrate acquired operations into the Company's other operations; the Company's ability to minimize any potential liabilities, including environmental liabilities, resulting from the acquisition of NLW service providers or to obtain adequate insurance; the Company's ability to manage its growth and access to capital; the Company's ability to comply with existing and future rules and regulations of various federal, state and local governmental agencies; the Company's ability to compete with other NLW service providers; changes in general economic conditions that may affect the demand for the Company's services; and other factors as may be identified from time to time in future filings with the Securities and Exchange Commission or in other public announcements, including those set forth on Exhibit 99.1 to this report. The words "believe," "expect," "anticipate," "plan," and "intend" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. ii 3 EarthCare Company and Subsidiaries TABLE OF CONTENTS
PART I Item 1. FINANCIAL STATEMENTS Page ---- Consolidated Balance Sheet - December 31, 1998 and March 31, 1999 (unaudited).................................1 Unaudited Consolidated Statement of Operations - Three months ended March 31, 1998 and March 31, 1999.............................................................................2 Unaudited Consolidated Statement of Cash Flows - Three months ended March 31, 1998 and March 31, 1999............................................................................................3 Notes to Unaudited Consolidated Financial Statements..........................................................4 Independent Accountant's Report...............................................................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................7 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........................................10 PART II OTHER INFORMATION Item 1. Legal Proceedings..................................................................................11 Item 2. Changes in Securities..............................................................................11 Item 3. Defaults Upon Senior Securities....................................................................11 Item 4. Submissions of Matters to a Vote of Security Holders...............................................11 Item 5. Other Information..................................................................................11 Item 6. Exhibits and Reports on Form 8-K...................................................................11
iii 4 EARTHCARE COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 31, MARCH 31, ASSETS 1998 1999 ------ ------------ ------------ (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 1,039,594 $ 168,368 Accounts receivable, net of allowance for doubtful accounts of $277,985 and $472,434 in 1998 and 1999, respectively 3,960,520 4,982,026 Prepaid expenses 557,669 1,129,363 Note receivable 67,959 292,658 Deferred income taxes 377,147 418,000 ------------ ------------ Total current assets 6,002,889 6,990,415 ------------ ------------ PROPERTY AND EQUIPMENT, NET 4,910,004 9,798,390 OTHER NONCURRENT ASSETS: Intangibles, net 20,166,445 28,811,650 Deferred income taxes 246,913 206,060 Other assets 1,964,028 2,030,031 ------------ ------------ 22,377,386 31,047,741 ------------ ------------ $ 33,290,279 $ 47,836,546 ============ ============ LIABILITIES AND STOCKHOLDERS EQUITY ------------------- CURRENT LIABILITIES: Accounts Payable $ 2,761,451 $ 3,165,540 Accrued Expenses 2,184,818 3,202,929 Notes payable -- 190,506 Current portion of long-term debt 118,500 118,500 ------------ ------------ Total current liabilities 5,064,769 6,677,475 ------------ ------------ LONG-TERM DEBT, NET OF CURRENT PORTION 9,209,440 16,408,623 STOCKHOLDERS' EQUITY: Preferred stock, $.0001 par value; 30,000,000 shares authorized, -0- shares issued and outstanding -- -- Common stock, $.0001 par value; 70,000,000 shares authorized, 9,571,533 and 9,963,711 shares issued and outstanding in 1998 and 1999, respectively 957 996 Additional paid-in capital 20,702,555 26,261,461 Accumulated defecit (1,687,442) (1,512,009) ------------ ------------ Total stockholders' equity 19,016,070 24,750,448 ------------ ------------ $ 33,290,279 $ 47,836,546 ============ ============
See accompanying notes to the unaudited consolidated financial statements 1 5 EARTHCARE COMPANY AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1999 ----------- ----------- REVENUES $ 2,634,722 $ 7,815,637 EXPENSES Cost of Operations 1,647,530 5,093,594 General and Administrative Expense 1,524,389 1,969,417 Depreciation and Amortization 177,900 354,884 ----------- ----------- INCOME (LOSS) FROM OPERATIONS (715,097) 397,742 Other expense (income): Interest 106,713 222,309 ----------- ----------- INCOME (LOSS) BEFORE TAXES (821,810) 175,433 INCOME TAX PROVISION (BENEFIT) (318,536) -- ----------- ----------- NET INCOME (LOSS) $ (503,274) $ 175,433 =========== =========== NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED $ (0.10) $ 0.02 =========== ===========
See accompanying notes to the unaudited consolidated financial statements 2 6 EARTHCARE COMPANY AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
THREE-MONTHS ENDED MARCH 31, ------------------------------ 1998 1999 ------------ ------------ Cash Flows From Operating Activities: Net Income (Loss) $ (503,274) $ 175,433 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 177,900 354,884 Deferred income taxes (318,536) -- Bad debt expense -- (37,737) Changes in assets and liabilities, excluding effect of acquired businesses: Account receivable (989,724) (328,291) Prepaid expenses (76,405) (454,688) Other current assets (85,051) -- Accounts payable 1,084,464 241,500 Accrued expenses 798,145 (797,998) ------------ ------------ Total adjustments 590,793 (1,022,330) Net cash provided by (used in) - operating activities 87,519 (846,897) Cash Flows from Investing Activities: Capital expenditures -- (1,036,481) Business acquisitions (11,480,220) (6,232,085) Other assets -- 8,997 ------------ ------------ Net cash used in investing activities (11,480,220) 7,259,569 Cash flows from Financing Activities: Net borrowings under lines of credit 12,152,948 -- Proceeds from long-term debt -- 7,199,183 Payments of long-term debt (50,832) -- Sales of common stock 12,600,000 -- Exercise and issuance of stock options and warrants -- 36,057 ------------ ------------ Net cash provided by financing activities 24,702,116 7,235,240 Net increase (decrease) in cash and cash equivalents 13,309,415 (871,226) Cash and Cash Equivalents, Beginning of Period 195,552 1,039,594 ------------ ------------ Cash and Cash Equivalents, End of Period $ 13,504,967 $ 168,368 ============ ============ Supplemental Noncash Investing and Financing Activities: Notes payable issued for business acquisitions $ 2,000,000 $ 200,000 ============ ============ Common stock issued for business acquisitions $ 232,000 $ 5,625,000 ============ ============ Fair value of warrant issued for debt issuance costs $ -- $ 75,000 ============ ============
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3 7 EARTHCARE COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying financial statements for EarthCare Company ("EarthCare" or the "Company") and subsidiaries as of March 31, 1999 and for the three month periods ended March 31, 1998 and 1999 are unaudited. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial statements. Quarterly results of operations are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K filed with the Securities and Exchange Commission ("Form 10-K"). 2. INCOME PER SHARE Income (loss) per common share is computed in accordance with Statement of Financial Accounting Standards No. 128 ("FAS 128"). Presented below is a reconciliation of income (loss) available to common shareholders and the differences between actual weighted average shares outstanding, which are used in computing basic income (loss) per share and diluted weighted average shares, which are used in computing diluted income (loss) per share.
For the three months ended For the three months ended March 31, 1998 March 31, 1999 ----------------------------------------- ----------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount --------- ---------- --------- --------- --------- --------- Net Income (loss) $(503,274) $ 175,433 Basic EPS: Income (loss) available to common shareholders (503,274) 4,874,434 $ (.10) 175,433 9,698,531 $ .02 Effect of Dilutive Securities: Options -- 341,412 Warrants -- 107,843 Diluted EPS: Income available to common shareholders $(503,274) 4,874,434 $ (.10) $ 175,433 10,147,786 $ .02
As of March 31, 1999, there were 869,200 options outstanding at an exercise price of $15 and 635,000 options outstanding at exercise prices ranging from $20 to $25 which were excluded from the EPS calculation due to their anti-dilutive impact. 3. ACQUISITIONS During the first three months of 1999, the Company acquired the following businesses: On March 1, 1999, the Company acquired all of the outstanding capital stock of Reifsneider Transportation, Inc. ("Reifsneider"), a Pennsylvania corporation. Reifsneider is engaged in the nonhazardous liquid waste and septic waste collection, transportation, management, and disposal business in and around Pennsylvania, New Jersey, New York, Maryland, and Delaware. Consideration for the acquisition consisted of $5,050,000 in cash, 350,000 shares of EarthCare common stock (the "Common Stock"), the delivery of a $200,000 note payable to the former owner of Reifsneider and a working capital adjustment of approximately $750,000, as defined in the Stock Purchase Agreement. On March 31, 1999, the Company acquired all of the outstanding capital stock of Brehm's Cesspool, Inc. ("Brehm's"), a Pennsylvania. corporation. Brehm's is engaged in the nonhazardous liquid waste and septic waste collection, transportation, management, and disposal business in and around eastern Pennsylvania. Consideration for the acquisition consisted of $1,000,000 in cash and 35,367 shares of Common Stock. Subsequent to March 31, 1999, the Company acquired the following businesses: Effective April 1, 1999, EarthCare acquired all of the outstanding capital stock of National Plumbing & Drain ("National"), a Georgia corporation, in exchange for $1,325,000 in cash, the issuance of 125,159 shares of Common Stock, and the assumption of up to $513,000 in liabilities. National is a residential and commercial sewer and drain services company servicing customers in Georgia. On May 1, 1999, EarthCare acquired the assets of Rooter Plus, a Georgia corporation, in exchange for $2,600,000 in cash and the issuance of 100,000 shares of Common Stock. Rooter Plus is a residential and commercial sewer and drain services company servicing customers in Georgia. 4 8 The acquisitions of Reifsneider and Brehm's were accounted for using the purchase method of accounting; accordingly, the purchase prices have been allocated to the assets acquired and liabilities assumed based on their respective fair values on the dates of acquisition. The resulting excess of purchase prices over fair values of assets acquired and liabilities assumed was recorded as goodwill. Goodwill recorded in the purchases of Reifsneider and Brehm's was $6,536,455 and $1,350,000, respectively. The Company's unaudited pro forma consolidated results of operations for the three month periods ended March 31, 1998 and 1999, shown below are presented assuming that the Reifsneider and Brehm's acquisitions had been consummated on January 1, 1998:
Three months ended March 31, ------------------------- 1998 1999 ----- ----- Pro forma revenue $10,245,964 $9,447,378 Pro forma net income (loss) (322,042) 252,033 Pro forma net income (loss) per share $ (.05) $ .02
4. SIGNIFICANT EVENTS In addition to the acquisitions discussed in note 3, the following significant events occurred during the three months ended March 31, 1999: On June 26, 1998, the Company entered into a $40 million revolving credit agreement with Bank of America, which was amended effective March 31, 1999, (the "Credit Agreement"). The Company may also obtain up to $5 million in letters of credit, subject to availability under the Credit Agreement. Interest is payable monthly at variable rates, depending on the Company's current debt to cash flow ratio, but is capped at LIBOR plus 2.25%. The Credit Agreement expires September 26, 2001, is secured by a first lien on substantially all assets of the Company and requires the Company to maintain certain financial ratio covenants beginning September 30, 1998. In connection with amending the Credit Agreement, the Company issued Bank of America warrants to purchase 35,000 shares of Common Stock at $14 per share in lieu of fees associated with the modification. These warrants have been valued at $75,000 based on the cost of the bank fee that would have been charged. Such amount has been recorded as debt issue costs in the March 31, 1999 financial statements. On April 26, 1999, the Company entered into a financial commitment to loan up to $3 million to Crossroads Environmental Corporation ("Crossroads"). Crossroads has permits in Texas to drill deep injection wells for the disposal of nonhazardous liquid waste. The permitted capacity of the first well that Crossroads plans to drill is 180 million gallons per year. EarthCare has an equity conversion privilege that could enable the Company to own a majority of the equity in the business. 5 9 INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors and Shareholders of EarthCare Company: We have reviewed the accompanying consolidated balance sheet of EarthCare Company and Subsidiaries as of March 31, 1999 and the related consolidated statements of operations and cash flows for the three-month period ended March 31, 1999. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of the interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1998, and the related consolidated statements of operations, stockholder's equity and cash flows for the year then ended (not presented herein); and in our report dated February 13, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1998 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. PricewaterhouseCoopers LLP Tulsa, Oklahoma May 12, 1999 6 10 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is management's representation of the financial position of the Company as of March 31, 1999 and the results of operations of the Company for the three months ended March 31, 1998 and 1999. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes thereto, and with the Company's consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1998. OVERVIEW EarthCare engages in businesses relating to the Non-hazardous Liquid Waste ("NLW") industry. These businesses include grease trap pumping, septic tank services (including designing, pumping, installation and maintenance), sewer and drain cleaning services; high pressure jetting services, portable toilet servicing; bulk liquid waste transportation; on-site biotreatment systems; biosolids management; and liquid waste processing and disposal. The customers of EarthCare include restaurants, hospitals, military bases, office buildings, apartments, schools, municipalities, industrial businesses and single family residences. EarthCare intends to expand its business in the NLW industry through internal growth and the acquisition of local service providers throughout the United States. These acquisitions will be made with cash, shares of Common Stock or a combination of cash and Common Stock. GENERAL The Company derives the majority of its revenues from commercial and residential septic services (including designing, pumping, installation and maintenance) (approximately 44% of current revenues) and to a lesser extent sewer and drain services (approximately 18% of current revenues). Collection fees charged to customers vary per gallon by waste stream according to constituents of the waste, expenses associated with processing the waste and competitive factors. Cost of operations consist of fixed costs such as salaries and benefits of vehicle operators and construction labor and variable costs such as supplies, fuel and equipment rentals. General and administrative costs consist primarily of compensation and related benefits for executives and administrative staff, advertising, office rent, communications and professional fees. Depreciation and amortization expense primarily relates to the depreciation of capital assets, the amortization of excess cost over the fair value of net assets acquired (goodwill) and other intangible assets. The Company's policy is to amortize goodwill over a 40 year life. RESULTS OF OPERATIONS The following table sets forth operating results expressed as a percentage of net sales for the periods indicated. All information is derived from the accompanying unaudited consolidated financial statements. Results for any one or more periods are not necessarily indicative of annual results or continuing trends. 7 11
THREE MONTHS ENDED MARCH 31, 1998 1999 ------ ------ Revenues 100.0% 100.0% Expenses: Cost of Operations 62.5 65.2 General and Administrative 57.9 25.2 Depreciation and Amortization 6.7 4.5 Total Operating Expenses 127.1 94.9 ------ ------ Operating income (loss) (27.1) 5.1 Interest expense 4.1 2.9 ------ ------ Income (loss) before income taxes (31.2) 2.2 Provision (benefit) for income tax (12.1) -- ------ ------ Net income (loss) (19.1) 2.2 ====== ======
As a result of the Company's recent acquisitions and the limited period of ownership of the acquired businesses, the Company believes that the period-to-period comparisons and percentage relationships within the periods set forth below are not meaningful. THREE MONTHS ENDED MARCH 31, 1999 NET INCOME: For the three months ended March 31, 1999, the Company reported net income of $175,433 on revenues of $7,815,637 versus a net loss of $503,274 on revenues of $2,634,722 for the three months ended March 31, 1998. REVENUES: Revenues were $7,815,637 for the three months ended March 31, 1999 compared to $2,634,722 for the comparable period in the prior year. Current period revenues include revenues from each of the businesses acquired during 1998 plus revenues from businesses acquired during the first three-months of 1999 from the date of each 1999 acquisition. Revenues from 1999 acquisitions contributed approximately $.7 million or 9% of revenues for the three months ended March 31, 1999. Prior period revenue includes only revenue from the dates of those acquisitions made within that quarter. The Company's septic and pumping operations were negatively affected by a drought in the southeastern United States during the three months ended March 31, 1999. COST OF OPERATIONS: Cost of operations for the three months ended March 31, 1999 was $5,093,594 compared with $1,647,530 for the comparable period in the prior year. The increase is due to the growth of the Company through acquisitions, but as a percentage of revenue remained relatively constant at 62.5% in 1998 and 65.2% in 1999. Operating costs in the first quarter of 1999 were negatively affected by seasonality of the business and severance costs associated with combining acquisitions with current operations. GENERAL AND ADMINISTRATIVE EXPENSE: For the three months ended March 31, 1999, general and administrative expense was $1,969,417 compared with $1,524,389 recorded in the comparable period in the prior year. Current period expense includes additional payroll cost of the chief executive officer and the chief operating officer who did not draw a salary prior to 1999, as well as several other employees hired during the latter part of 1998 and early 1999 to support the Company's growth. Prior year expense of $1,524,389 included $600,000 of expense associated with registering the Company as a reporting company with the Securities and Exchange Commission. DEPRECIATION AND AMORTIZATION: Depreciation and amortization was $354,884 or 4.5% of revenues for the three months ended March 31, 1999 compared to $177,900 or 6.7% of revenues for the comparable period of 1998. The increase is due to the 1998 and 1999 acquisitions. INCOME (LOSS) FROM OPERATIONS: Income (loss) from operations increased from a loss of $715,097 in the three months ended March 31, 1998 to income of $397,742 in 1999, for the reasons discussed above. 8 12 INTEREST EXPENSE: Interest expense for the three months ended March 31, 1999 was $222,309, compared to $106,713 in the comparable 1998 period. Interest was incurred at an average rate of approximately 7.09% during the three months ended March 31, 1999 and 8.1% in the compared 1998 period. The increase in interest expense resulted primarily from the debt incurred in connection with the 1998 and 1999 acquisitions. INCOME TAX PROVISION : The Company recorded no provision for income taxes for the three months ended March 31, 1999, due to the effects of the Company's loss carryforward and valuation allowance. As the Company continues to grow, management will evaluate the realizability of the loss carryforward and adjust the valuation allowance accordingly. SEASONALITY AND INFLATION The Company's operations are affected by the weather. Rainy weather requires more frequent septic and grease trap maintenance and snow cover or frozen conditions prevent installation and need for servicing septic systems. Although the Company experiences a certain degree of seasonality in its operations due to weather, this seasonality is lessened through its operations in various geographic areas. The Company believes that inflation and changing prices have not had, and are not expected to have, any material adverse effect on its results of operations in the near future. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the Company had cash of approximately $168,368 and working capital of $312,940. On June 26, 1998, the Company entered into the $40 million revolving credit agreement with Bank of America, which was amended as of March 31, 1999 (the "Credit Agreement"). The Company may also obtain up to $5 million in letters of credit, subject to availability under the Credit Agreement. Interest is payable monthly at variable rates, depending on the Company's Funded Debt to EBITDA (as defined in the Credit Agreement), but is capped at LIBOR plus 2.25%. The Credit Agreement expires September 26, 2001, is secured by a first lien on substantially all assets of the Company and requires the Company to maintain certain financial covenants beginning September 30, 1998. As of March 31, 1999, the Company was in compliance with the financial covenants. Availability of funds under the Credit Agreement is limited by the requirement that the Company comply with various loan covenants. As of March 31, 1999 the outstanding balance under the Credit Agreement was $14,914,123. The Company's primary requirements for capital (other than those related to acquisitions) consists of purchasing vehicles and equipment used in the operation of its businesses. In the first three months of 1999, the Company acquired two businesses for an aggregate consideration of $6,050,000 in cash, $200,000 in seller notes and 385,367 shares of Common Stock. Funding of the cash portion of the purchase prices was provided by borrowings under the Credit Agreement. During the three months ended March 31, 1999, the Company used $1,036,481 in other capital expenditures. The Company believes that the funds provided by operations, together with cash on hand and funds available under the Credit Agreement, will be adequate to meet the Company's anticipated capital expenditures for the remainder of 1999. The Company intends to continue to pursue internal growth and acquisition opportunities. The timing, size or success of any acquisitions effort and the associated potential capital commitments are unpredictable. The Company expects to fund future acquisitions primarily through a combination of cash on hand, borrowings under the Credit Agreement and the issuance of shares of Common Stock. YEAR 2000 The Company has conducted operations for less than two years and has only recently grown large enough to require sophisticated computing systems. A complete review of all of the Company's computing needs has recently been undertaken and completed, including various Year 2000 compliant computer programs. The Company has selected Year 2000 compliant hardware and software for its computing needs and anticipates beginning implementation of these new systems during the fourth quarter of 1999, which implementation should ensure proper processing of transactions relating to the Year 2000 and beyond. The Company expects the conversion of all 9 13 systems to be completed in the third quarter of 1999 and estimates the capital costs of the new Year 2000 compliant hardware, systems and software to be under $1,000,000. As of March 31, 1999, approximately $500,000 in hardware and software implementation costs have been incurred and capitalized. The Year 2000 issue is expected to affect the systems of various entities with which the Company interacts, including the Company's vendors and customers. There can be no assurance that the systems of other companies on which the Company's systems rely will be timely converted or that a failure by another company's systems to be Year 2000 compliant would not have a material adverse effect on the Company. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 10 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. As of March 31, 1999, the Company did not have any pending legal proceedings that separately or in the aggregate would be likely to have a material adverse effect on the business or results of operations of the Company. In the future, the Company may be a party to litigation or administrative proceedings which arise in the normal course of its business. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not Applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form 10 (Commission File No. 000-24685) as amended 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form 10 (Commission File No. 000-24685) as amended 27.1 Financial Data Schedule (For SEC use only) 99.1 Cautionary Statements (b) Reports on Form 8-K 11 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: May 13, 1999 By: /s/ James E. Farrell ------------------------------------------ James E. Farrell, Vice President and Chief Financial Officer 12 16 INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- 3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form 10 (Commission File No. 000-24685) as amended 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form 10 (Commission File No. 000-24685) as amended 27.1 Financial Data Schedule (For SEC use only) 99.1 Cautionary Statements
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EARTHCARE COMPANY FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EX-27.1 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-1-1999 MAR-31-1999 168,368 0 5,454,460 472,434 0 6,990,415 10,834,266 1,035,876 47,836,546 6,677,475 0 0 0 996 24,749,452 47,836,546 0 7,815,637 0 7,417,895 0 0 222,309 175,433 0 0 0 0 0 175,433 0.02 0.02
EX-99.1 3 CAUTIONARY STATEMENTS 1 EXHIBIT 99.1 CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q, including information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," constitute "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "1933 Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company desires to take advantage of certain "safe harbor" provisions of the 1933 Act and the 1934 Act and is including this exhibit to enable the Company to do so. Forward-looking statements included in this Form 10-Q, or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties, and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ materially from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. The Company believes the following risks, uncertainties and other factors could cause such material differences to occur: 1. The Company's ability to grow through the acquisition and development of non-hazardous liquid waste companies or the acquisition of ancillary businesses. 2. The Company's ability to identify suitable acquisition candidates or to profitably operate or successfully integrate acquired operations into the Company's other operations. 3. The Company's ability to acquire acquisition candidates at a reasonable cost. The Company expects competition to exist in the industry to acquire these candidates, which may limit the number of acquisition opportunities and may lead to higher acquisition prices. 4. The Company's ability to minimize any potential liabilities, including environmental liabilities, resulting from the acquisition of NLW service providers or to obtain adequate insurance to mitigate any potential exposure to the Company from these liabilities. The Company has obtained representations from the sellers of the acquired businesses that no undisclosed liabilities exist and certain rights to indemnification from the sellers for any liabilities. There can be no assurance, however, that undisclosed liabilities do not exist or that the Company will receive full or partial compensation pursuant to its rights to indemnification. 5. The Company's ability to manage its growth and access to capital. 6. The Company's ability to comply with existing and future rules and regulations of various federal, state and local governmental agencies. Environmental laws and regulations are, and will continue to be, a principal factor affecting the marketability of the services provided by the Company. Changes in these laws or regulations may affect the operations of the Company by imposing additional regulatory compliance costs on the Company, requiring the modification of or adversely affecting the market for the Company's non-hazardous liquid waste ("NLW") services. 7. The Company's ability to compete with other NLW service providers. The NLW business is highly competitive and the entrance of new competitors or the expansion of operations by existing competitors in the Company's markets could adversely affect the Company's plans and results of operations. 8. The development of internal methods for disposition of NLW by current and potential customers of the Company. 9. The Company's strategies, objectives, expectations and intentions are subject to change at any time at the discretion of management and the Board of Directors. 10. The Company's ability to attract qualified management and retain key personnel of acquired NLW service providers. 1 2 11. Changes in general economic conditions that may affect the demand for the Company's services. The foregoing review of significant factors should not be construed as exhaustive or as an admission regarding the adequacy of disclosures previously made by the Company. 2 -----END PRIVACY-ENHANCED MESSAGE-----