[OBJECT OMITTED]
ENVIRONMENTAL SOLUTIONS
WORLDWIDE INC.
FILING TYPE: 10QSB/A
DESCRIPTION: QUARTERLY REPORT
FILING DATE: APRIL 10, 2002
PERIOD END: September 30, 2001
PRIMARY EXCHANGE: OVER THE COUNTER BULLETIN BOARD
TICKER: ESWW
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended-
September 30, 2001.
[ ] 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 000-30392
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
--------------------------------------------------
(Exact name of Company as specified in its charter)
250 Shields Court, Unit #3 Markham, Ontario Canada L3R 9W7
----------------------------------------------------------
(Address of principal executive offices, including postal code.)
Florida 98-0346454
- --------------------------------------- -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
(905) 947-9923
--------------
(Issuer's telephone number, including area code)
Indicate by check mark 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 preceding 12 months (or for such shorter period that the Company 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:
TITLE OF EACH CLASS OUTSTANDING November 2,2001
------------------- -----------------------
Common Stock, par value $.001 38,154,874
TRANSACTIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [ X ]
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 2001 2
Consolidated Statements of Operations for the
Nine Months and Three Months Ended September 30, 2001
and 2000 3
Consolidated Statement of Changes in
Stockholders' Equity For the Nine Months ended
September 30, 2001 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis or Plan of Operations 9-13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports 14
PART I
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
2001 2000
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 999,598 $ 673,776
Accounts receivable 82,466 -
Inventory 140,860 -
Prepaid expenses 25,762 221,772
Other current assets 37,500 25,585
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,286,186 921,133
PROPERTY AND EQUIPMENT, NET 593,130 43,465
CONTRACT DEPOSIT - 100,000
PATENTS AND TRADEMARKS, NET 1,982,927 43,521
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,862,243 $ 1,108,119
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 123,069 $ 123,016
Officer's travel allowance payable 221,000 144,500
Demand note payable, shareholder 60,000 -
Demand note payable, officer 40,000 40,000
Demand note payable, other 120,000 -
Notes payable, shareholders 100,000 -
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 664,069 307,516
- -----------------------------------------------------------------------------------------------------------------------
Class A special shares, no par value, 700,000 shares 453,900 453,900
Authorized, issued and outstanding
- -----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000 shares authorized; 38,154,874 - 2001,
29,114,401 - 2000; shares issued and outstanding, 1,312,500 shares subscribed
and pending - 2001 39,467 30,985
Additional paid-in-capital 10,576,369 5,572,544
Stock Subscriptions Receivable (458,000)
ACCUMULATED DEFICIT (7,413,562) (5,256,826)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 2,744,274 $ 346,703
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,862,243 1,108,119
- -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-2-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
NINE MONTHS NINE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
SEP. 30, SEP. 30, SEP. 30, SEP. 30,
2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
SALES $ 397,994 $ - $ 125,162 $ -
COST OF SALES 236,329 - 97,121 -
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 161,665 - 28,041 -
- -----------------------------------------------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT 89,985 1,227,517 14,957 643,261
PROFESSIONAL FEES 104,096 123,555 20,618
CONSULTING FEES 887,828 163,089 370,800 74,606
MARKETING, OFFICE & GENERAL COSTS 1,364,802 307,609 462,342 99,392
OFFICER'S COMPENSATION AND DIRECTOR'S FEES 9,150 10,125
- -------------------------------------------------------------------------------------------------------------
2,455,861 1,831,895 868,717 817,259
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS FROM OPERATIONS $ (2,294,196) $ (1,831,895) $ (840,676) $ (817,259)
OTHER INCOME 137,460 - 6,559 -
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS $ (2,156,736) $ (1,831,895) $ (834,117) $ (817,259)
- -----------------------------------------------------------------------------------------------------------------------
Basic loss per share $ (0.06) $(0.06) $(0.02) $(0.03)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-3-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2001
(UNAUDITED)
COMMON SHARE PAID-IN
ACTIVITY STOCK VALUE CAPITAL DEFICIT TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
JANUARY 1, 2001 30,984,874 $30,985 $5,572,544 $(5,256,826) $346,703
Issuance of shares on
purchase of assets 2,000,000 2,000 2,050,450 - 2,052,450
Issuance of shares upon exercise
of options 1,020,000 1,020 28,980 - 30,000
Issuance of shares for services
provided 50,000 50 37,450 - 37,500
Conversion of debt into equity 350,000 350 160,650 - 161,000
Options and warrants issued for
services rendered - - 711,357 711,357
Issuance of shares in private
placements, net of costs 3,750,000 3,750 1,491,250 1,495,000
Common shares subscribed and
pending 1,312,500 1,312 523,688 525,000
Stock subscriptions receivable (458,000) (458,000)
Loss from operations for the
nine month period ended
September 30, 2001 - - - (2,156,736) (2,156,736)
- -------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2001 39,467,374 $39,467 $(10,118,369) $(7,413,562) $2,744,274
- -------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-4-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE -MONTH PERIOD ENDED SEPTEMBER 30, 2001
(UNAUDITED)
- --------------------------------------------------------------------------------------------------
NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED
SEP. 30, 2001 SEP. 30, 2000
- --------------------------------------------------------------------------------------------------
Net loss $(2,156,736) $(1,831,895)
Adjustment to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation expense 251,827 3,751
Non cash compensation and services 711,357 829,379
- --------------------------------------------------------------------------------------------------
(1,193,552) (998,765)
Changes in assets and liabilities:
Changes in non-cash working capital (39,157) 64,339
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (1,232,709) (934,426)
- --------------------------------------------------------------------------------------------------
Investing activities:
Acquisition property & equipment (529,355) (25,377)
Contract deposit 100,000 --
Patents & trademarks (54,114) (41,572)
- --------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (483,469) (66,949)
- --------------------------------------------------------------------------------------------------
Financing activities:
Note payable, other 120,000 11,433
Issuances of common stock 1,785,500 1,000,390
Officer's note, shareholder and
advances payable 136,500 --
- --------------------------------------------------------------------------------------------------
Net cash provided by financing
ACTIVITIES 2,042,000 1,011,823
-----------------------------------------------------------------------------------------------
Net increase (decrease) in cash 325,822 10,448
CASH AT BEGINNING OF PERIOD 673,776 21,277
- --------------------------------------------------------------------------------------------------
Cash at end of period $ 999,598 $ 31,725
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Non-cash investing and financing activities
Purchase of Assets and Technology
- Common stock $2,052,450
- Note payable $100,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-5-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. 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 such rules and regulations. However, the
Company believes that the disclosures are adequate to make the
information presented not misleading. The condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on
Form 10KSB for the year ended December 31, 2000 filed by the Company on
April 16, 2001.
The condensed consolidated financial statements included herein reflect,
in the opinion of management, all adjustments (consisting primarily only
of normal recurring adjustments) necessary to present fairly the results
for the interim periods. The results of operations for the nine months
ended September 30, 2001 and for the three months ended September 30,
2001 are not necessarily indicative of results to be expected for the
entire year ending December 31, 2001.
The Company was incorporated in the state of Florida. On February 19,
1999 the Company changed its name to Environmental Solutions Worldwide,
Inc. ("the Company, or "ESW"). On January 11, 2001, the Company purchase
certain assets and established a manufacturing facility in Telford,
Pennsylvania. (See Note 2).
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which
contemplate continuation of the company as a going concern. The company,
however, has sustained continuing operating losses and lacks a source of
commercial income, which creates uncertainty about the Company's ability
to continue as a going concern. The Company's ability to continue
operations as a going concern and to realize its assets and to discharge
its liabilities is dependent upon obtaining additional financing
sufficient for continued operations as well as the achievement and
maintenance of a level of profitable operations.
Management believes that the current business plan if successfully
implemented may provide the opportunity for the Company to continue as a
going concern.
2. PURCHASE OF ASSETS
On January 11, 2001, the Company acquired equipment and technology
(including a patent and patents pending) from an unrelated third party.
Through this purchase the Company expects to bring its product to market.
The Company paid $400,000 in cash, $100,000 in notes, incurred
approximately $43,035 in closing costs and issued 2,000,000 shares of
Company stock valued at $.6875 per share plus contingent options valued
at $.6775 per share to purchase up to an additional one million shares
exercisable at $0.01 to the sellers.
The purchase price was allocated as follows:
Equipment $ 500,000
Patents and technology 2,093,035
------------
$ 2,593,035
-6-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. OTHER INCOME
The Company was able to recover certain abandoned research and
development costs through the sale of such costs.
4. ISSUANCE OF COMMON STOCK
On January 11, 2001, the Company issued 2,000,000 shares of Company stock
valued at $.6875 per share plus contingent options valued at $.6775 per
share to purchase up to an additional one million shares exercisable at
$0.01 to Mr. Robert Marino and Duane Gulick in connection the purchase of
certain assets.
In May 2001, a debt of $161,000 was converted into 350,000 shares of the
Company.
During July 2001, the Company entered into three, (3) equity financing
agreements with accredited investors for $525,000, totalling 1,312,500
shares of common stock in the Company. The Company has received $67,000
with the balance of $458,000 payable on or before December 31, 2001.
No shares will be issued to an investor until the Company receives the
full payment for same.
During August 2001, the Company completed equity financing transactions
with four (4) accredited investors for $1,500,000. The Company issued
3,750,000 shares of restricted common stock and granted cost free
registration rights. The Company has agreed to file a registration
statement for the shares within one hundred and twenty (120) days from
the date of closing.
5. STOCK OPTIONS AND WARRANT GRANTS
A former director exercised 20,000 options at $1.00 per share during the
nine-month period ending September 30, 2001.
On January 2, 2001 the board of directors authorized the issuance of
50,000 options exercisable at $0.75 per share and expire on January 2,
2002. The options were exercised during the nine months period ending
September 30, 2001. The issuance of these shares was recorded as
compensation expense.
On January 11, 2001, the Company entered into two consulting agreements.
Both agreements run for three years and provide for annual fees of
$75,000 and $50,000, respectively. In addition, the agreements provide
for stock options allowing each consultant to acquire 500,000 shares of
common stock exercisable at $0.01 per share during the first year. As of
September 30, 2001, each consultant has exercised their options for
500,000 shares. The issuance of these shares was recorded as compensation
expense.
On April 18, 2001 the Company issued 250,000 options exercisable at $0.50
per share and expire April 18, 2003 to an employee.
On May 4, 2001 the Company issued 250,000 options exercisable at $0.50
per share and expire May 4, 2003 to an employee.
On May 30, 2001 the Company issued 100,000 options exercisable at $0.50
per share and expire May 30, 2003 to an employee.
On April 18, 2001 and May 30, 2001 the Company issued 250,000 and 100,000
options, respectively to the Chairmen of the Company. The options expire
two years from the date of issuance and are exercisable at $0.50 per
share. The issuance of these options was recorded as a compensation
expense.
-7-
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. RELATED PARTY TRANSACTIONS
The Chairmen of the Company is owed $221,000 (December 31, 2000 -
$144,500) for reimbursement of business travel expenses. The amounts
expensed in office, travel, and other costs were $76,500 and $ 76,500,
respectively, for the nine months ended September 30, 2001 and 2000. This
same officer also has a non-interest bearing note payable by the Company
of $40,000 (December 31, 2000 - $40,000).
A Shareholder of the Company advanced $60,000 (December 31, 2000 - $0)
which are due on demand.
During the nine month period ended September 30, 2001 and 2000, the
Company paid shareholders and their affiliates $311,691 and $ 0,
respectively for various services rendered.
7. CONTINGENCY
REGULATORY MATTERS
The Company has been notified by staff of the SEC's Fort Worth District
Office that they intend to recommend that the Commission institute an
enforcement action against the Company and its Chairman based on alleged
false and misleading statements contained in press releases and filings
made with the Commission. The Commission further alleged that the Company
distributed 15,000,000 shares of its common stock based upon an
inapplicable exemption under the Securities Act. The Company and its
Chairman have voluntarily provided information to the Commission in this
matter and the Company's new management intends to continue to co-operate
with the Commission in the event formal changes are made against the
Company in an effort to resolve any and all claims in the best interest
of the Company and its shareholders. The Company cannot estimate the
effects, if any, on the Company's financial statements or the ultimate
resolution of this matter.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Financial Statements and Notes thereto included elsewhere in this Form 10-QSB.
This Form 10-QSB contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. In
connection with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions investors that actual financial and
operating results may differ materially from those projected in forward-looking
statements made by, or on behalf of, the Company. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance, or achievements of the Company
to be materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements.
GENERAL
At the end of December 2000, the Company was still a development stage
enterprise. We had not generated any revenues from operations during the last
two completed fiscal years. Accordingly, there are no meaningful comparisons
with operating results from prior periods.
In the last three quarters, we have begun to generate revenues by initiating
sales of our catalytic products and testing services. Sales for the three months
ended September 30, 2001, were $125,162. Sales for the nine months ended
September 30, 2001 were $397,994.
As part of our business plan for the next twelve months we intend to use the
purchased assets of Applied Diesel Technology (ADT) as a platform for further
testing, developing and manufacturing activities. We believe that our research
and development costs will decrease as a result of our ability to do a major
portion of testing in house. We have the ability to test catalytic converter
products of our own design, for various engine sizes on behalf of engine
manufacturers. We have received many requests to produce catalytic products
using our technology.
The Company does not intend to purchase or sell any significant amounts of
equipment during the next twelve (12) months. As part of our overall plan to
improve efficiency and cut costs the company is effecting plans to consolidate
its administrative and marketing functions.
In March of 2001,the Company formed three wholly owned subsidiaries, ESW
America, Inc., (a Delaware Corporation) ESW Canada, Inc. (an Ontario
Corporation) and ESW Technologies Inc. (a Delaware Corporation). Effective April
1 2001, the Company transferred certain assets to these subsidiary corporations
in exchange for all of the issued and outstanding shares of stock in each
corporation as well as receiving a secured, interest bearing demand notes as
consideration for the transfer of assets to the wholly owned corporations. BBL
Technologies Inc. (an Ontario Corporation) is a wholly owned subsidiary of the
Company. As a result of monies loaned to BBL by the parent Corporation for
previous research and development, a secured, interest bearing demand note was
also received.
Environmental Solutions Worldwide, Inc., is a holding company with its primary
operations and assets being its investments in its wholly owned subsidiaries.
Effective April 1, 2001 the parent company transferred certain assets acquired
from ADT into its subsidiary ESW America, Inc. This entity will continue to sell
and service the Company's products. The patent and patent pending technology was
transferred to ESW Technologies, Inc. These subsidiaries will act as the
Company's operating vehicles to conduct our daily business.
-9-
Recently the Company launched two new product lines, an industrial duty
converter line called Air Sentinel(TM) and a small utility engine
catalyst/muffler called Quiet Cat(TM). The Company believes that over the next
few years the demand for diesel particulate controls will intensify.
Additionally, small utility engines have come under stringent government
regulations for emission controls. We anticipate that these products will
represent a growing and important portion of the Company's future business
plans. In October 2001 the Company exhibited at the AAPEX Automotive Industry
Show in Las Vegas. These products as well as the Company's automotive catalytic
converter lines were on display and were well received at the show. The Company
plans to exhibit at the POWER-GEN International show, starting December 11th, a
3-day global power event, where the Company's Air Sentinel (TM) line will be on
display.
The Company initiated ISO 9001;2000 procedures late in the fourth quarter last
year, which was subsequently achieved on March 28, 2001. On October 9, 2001 the
Company passed it's first 6-month ISO surveillance test. ISO tests are conducted
routinely in order to maintain this standard. The achievement of this ISO
standard for our manufacturing process will allow our process to be recognized
around the world by leading distribution and engine manufacturing companies.
This potentially exposes our products to broader markets.
On August 16, 2001 the Board retained Mr. Kenneth R. Nichols, an auto industry
veteran as the Company's Chief Executive Officer. In October 2001, the Board of
directors appointed Mr. Nichols to the Company's board of directors. Mr. Nichols
founded Ventra Group, Inc., a company that was listed on the Toronto Stock
Exchange up until October 2001 when it was acquired by a private company. Mr.
Nichols served as Chairman and Chief Operating Office of Ventra Group, Inc. from
its formation until February, 2001. In addition, Mr. Nichols has served as
Chairman of the Canadian Automotive Parts Manufacturing Association and in 1996
was the recipient of Ontario Business Magazine's Entrepreneur of the Year award.
On August 14, 2001 the Board of directors accepted Mr. Mark Nicole's resignation
as the Companies CEO and Director. Mr. Nicole tendered his resignation to the
Board on August 14, 2001 citing personal reasons and did not have any
disagreements with the Company or its management.
We are currently engaged in the certification process of our catalytic converter
products in the United States and Mexico. The company anticipates launching a
certification program in Europe in 2002. Presently we are in the process of
certifying one of our Clean Cat(R) converters, for a manufacturer of generators,
in a specific application. The Company believes that the successful completion
of this program and the attainment of a certification for this Clean Cat(R)
product may ultimately lead to increased orders for our products.
During the last quarter, the Company's wholly owned subsidiary, ESW Canada Inc.,
executed an exclusive distribution contract with Nissho Iwai Canada Ltd. The
agreement pertains to the sale and distribution of ESW's Enviro-Cat(TM) gas
catalytic converters, Clean Cat(R) diesel catalytic converters as well as the
RC-2 converter cleaning consoles into the country of Mexico. Nissho Iwai Canada
Ltd. is in the process of obtaining Mexican government emissions certification
for both the ESW Enviro-Cat(TM) and Clean Cat(R) automotive converter product
lines. Subject to Nissho Iwai Canada Ltd. obtaining Mexican government emissions
certification, the potential for sales orders from this market will increase.
We believe that the catalytic converter technologies are reaching the point of
commercial viability as we have started to receive repeat orders. We believe we
are no longer a development stage company as we are generating revenue from the
sale of our products and services. We expect our sales order base to increase.
We have generated our medium term cash requirements through an equity financing
and short term loans.
-10-
RESULTS OF OPERATIONS
At the end of December 2000, the Company was still a development stage
enterprise. We had not generated any revenues from operations during the last
two completed fiscal years. Accordingly, there are no meaningful comparisons
with operating results from prior periods.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2001 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
Revenue for the three-month period ended September 30, 2001 was $125,162
compared to $0 for the three-month period ended September 30, 2000. During this
period last year the Company was still in development stage and this quarter
marked the continuation of our marketing and sales effort.
Net loss from operations for the three-month period ended September 30, 2001 was
$501,926 compared to $817,259 for the three-month period ended September 30,
2000, a decrease of $315,333. The net loss for the three-month period ended
September 30, 2001 was $495,367 compared to $817,259 for the three-month period
ended September 30, 2000, a decrease of $321,892.
The gross margin for the three-month period ended September 30, 2001 was 22.40%.
The decrease in the loss from operations was related to a decrease in research
and development costs of $628,304 as the Company graduated from a development
stage company to an operating company, increase in marketing, office and general
costs of $ 362,950, which is primarily comprised of expenses relating to
investor relations, depreciation and operational costs of the Company's Telford,
Pennsylvania manufacturing facility and an decrease in consulting fees of
$42,558. The reduced loss from operations was also affected by a gross profit
contribution of $28,041 relating to the sales of the Company's products and
services.
The decrease in the net loss of $321,892 was related to the decrease in the
Company's loss from operations and the recovery of certain abandoned research
and development costs.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2000.
Revenue for the nine-month period ended September 30, 2001 was $397,994 compared
to $0 for the nine-month period ended September 30, 2000. During this period
last year the Company was still in development stage and this period marked our
first sales.
Net loss from operations for the nine-month period ended September 30, 2001 was
$2,294,196 compared to $1,831,895 for the nine-month period ended September 30,
2000, an increase of $462,301. The net loss for the nine-month period ended
September 30, 2001 was $2,156,736 compared to $1,831,895 for the nine-month
period ended September 30, 2000, an increase of 324,841.
The gross margin for the nine-month period ended September 30, 2001 was 40.62%.
The increase in the loss from operations was related to an increase in
consulting fees of $724,739 which includes a non-cash compensation expense
relating to the purchase of the ADT assets of $677,500 and additional consulting
fees relating to the operations of the Company, an increase in marketing, office
and general costs of $ 1,057,193 which is primarily comprised of expenses
relating to investor relations, depreciation and operational costs of the
Company's Telford, Pennsylvania manufacturing facility. These increase costs
were offset by a decrease in research and development costs of $ 1,137,532 as
the company graduated from a development stage company to a operating company, a
reduction in professional fees of $19,459 and a reduction in officer's
compensation and director's fees and contribution of gross profit of $161,665
from the sale of the Company's products and services.
The increase in the net loss of $324,841 was related to the increase in
consulting fees referred to above and reduced by the recovery of certain
abandoned research and development costs.
-11-
LIQUIDITY AND CAPITAL RESOURCES
The company's cash and cash equivalents were $999,598 on September 30, 2001 as
compared to $673,776 at December 31, 2000.
Accounts receivable amounted to $82,466 on September 30, 2001 compared to $0 on
December 31, 2000.
Inventories were $140,860 on September 30, 2001 compared to $0 on December 31,
2000.
Current liabilities amounted to $664,069 on September 30, 2001 as compared to
$307,516 on December 31, 2000 an increase of $356,553. The increase is primarily
attributed to an increase in, amounts due to an officer and a shareholder of the
Company and a demand note payable to a third party.
Investing activities amounted to $483,469 during the nine -month period ended
September 30, 2001 as compared to $66,949 for the same period last year. The
investing activities primarily related to the net purchase of property and
equipment of $529,355 and patents and trademarks of $54,114 and the receipt of
funds related to a contract deposit.
Net cash provided by financing activities during the nine-month period ended
September 30, 2001 amounted to $2,042,000 as compared to $1,011,823 for the same
period last year. The financing activities during the nine-month period ended
September 30, 2001 is related to loans from an officer and a shareholder of the
company of $136,500,the issuance of common stock of $1,785,500 which is
comprised of the exercise of options in the amount of $62,500 and the issuance
of common stock in the amount of $1,785,500 and issuance of a demand note by the
Company in the amount of $120,000.
Net cash used in operating activities amounted to $1,232,709 during the
nine-month period ended September 30, 2001 as compared to $934,426 for the same
period last year. This decrease in cash flows from operating activities was due
primarily to the increase in accounts receivable, inventories and other current
assets combined with a decrease in non- cash compensation, an increase in
depreciation and a decrease in prepaid expenses.
As of September 30, 2001, we have continued to obtain reorders from customers.
Management believes that we will increase our orders as we move forward with our
business plan. Although we do not need certification of our products in order to
sell them in many markets, the successful certification of our products in the
United States and Mexico should lead to increased volumes as certification are
required to gain full customer acceptance. We intend to expand our current
capacity and improve our efficiencies of scale to be able to meet future
anticipated increase in orders. We believe that this increased capacity and
efficiency will occur in early 2002, but there is no assurance that this will
not be delayed. Accordingly, the successful completion of the sale of equity
securities and/or other financing will be essential for us to continue in
operation until such time as we will be able to generate sufficient revenue.
We continue to deplete our current cash resources, and do not presently have the
total funds needed to expand our capacity or fully develop our existing and new
technologies and sustain our operations until we anticipate our operating cash
flow will be positive. We presently expect to raise additional money through the
sale of our securities and or operational business lines of credit until such
time as we obtain a positive cash flow. Under our present business plan we
anticipate that we have enough cash to sustain our operations until Q3 of 2002.
-12-
During July 2001, the Company entered into three two, (3) equity financing
agreements with accredited investors for $525,000, totaling 1,312,500 shares of
common stock in the Company. The Company has received $67,000 with the balance
of $458,000 payable on or before December 31, 2001. No shares will be issued to
an investor until the Company receives the full payment for same.
During August 2001, the Company completed equity financing transactions with
four (4) accredited investors for $1,500,000. The Company issued 3,750,000
shares of restricted common stock and granted cost free registration rights. The
Company has agreed to file a registration statement for the shares within one
hundred and twenty (120) days from the date of closing.
A total financing amount of $1,728,000 has been received and an additional
$458,000 of equity financing is pending and is expected to be received by
December 31, 2001. The company anticipates raising additional equity in the near
future in order to fully implement our operational and marketing plans; however,
there is no assurance that we will be successful in raising the additional
capital.
If we are unable to secure the required financing, we may be forced to take
steps to reduce expenses, such as reducing our staff or our research and
development efforts and/or selling off any assets. Any such action, however, may
result in an inability to further develop the catalytic converter technology. In
such event, we may be forced to cease operations.
We are currently subject to an order of investigation by the Securities and
Exchange Commission (Commission). In the event the Commission commences an
enforcement action against us, the Commission may, among other remedies, impose
a civil monetary penalty or seek an order of permanent injunction if it is
determined that we have violated securities laws. The imposition of a monetary
penalty could have an adverse effect on our liquidity position.
Additionally, although we have not received any notice of claims from
stockholders, we may potentially face claims for rescission and damages stemming
from a prior offering made under a claimed exemption under Regulation D of the
Securities Act. The Commission has alleged that a specific offering conducted by
our prior management was based upon an inapplicable exemption under Rule 504 of
the Security Act.
During the course of the Commission's investigation, we have voluntarily
provided information to the Commission and have cooperated with its inquiry. Our
new management intends to continue to cooperate with the Commission, in the
event formal charges are asserted against the Company, management intends to
make every effort to resolve any claims in the best interest of its
shareholders.
-13-
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was initially contacted by the Securities and Exchange Commission
(Commission), and subsequently on November 29, 2000 the Company's securities
counsel, was notified by the staff of the Commission's Fort Worth, Texas
District Office that it intended to recommend that an enforcement action be
instituted against the Company. The recommended enforcement action would be
based on alleged false and misleading statements contained in Company press
releases, filings with the Commission and other information provided to the
public market. The Commission alleges that the false and misleading statements
and omissions included, among other things, the identity, background and stock
ownership of the Company's management. Additionally it is alleged that the
Company made false and misleading statements concerning test results, production
schedules and anticipated revenues to be derived from catalytic converters, the
Company's principal product. The Commission has also alleged that the Company
has made false and misleading statements in connection with its future stock
price. The Commission has further alleged that the Company in January 1999
distributed 15,000,000 shares of its common stock based upon an inapplicable
exemption under Rule 504 of the Securities Act. The Company has been advised
that the Commission may seek an order of permanent injunction and the imposition
of civil monetary penalties against the Company.
Mr. Bengt Odner, the Company's Chairman was subsequently informed on March 7,
2001 by the Fort Worth, Texas District Office that the Commission intended to
recommend an enforcement action against him individually in connection with his
affiliation with the Company. Specifically, the recommended enforcement action
against Mr. Odner is based upon similar allegations of alleged false and
misleading statements contained in Company press releases, postings on the
Company's web site, and in filings with the Commission. The claimed false and
misleading statements concern among other things, the performance of the
Company's catalytic converter and the identity, background and role of the
Company's management. Mr. Odner has been advised that the Commission may seek an
order of permanent injunction and the imposition of civil money penalties.
The Company and Mr. Odner have voluntarily provided information and testimony to
the Commission and have cooperated with its inquiry. The Company's new
management intends to continue to cooperate with the Commission in the event
formal charges are made against the Company in an effort to resolve all claims
in the best interest of the Company and its shareholders. In the event the
Company is required to take action against founders, insiders, former management
or others to obtain damages or reimbursement, it intends to do so to protect the
interests of the Company and its stockholders. The Company's board of directors
intends to establish a specific independent committee to investigate the matter
and make recommendations to the board of directors.
ITEM 2. CHANGE 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
In accordance with the terms of warrants issued by the Company to six (6)
accredited investors for 1,500,000 warrants, the exercise price of the warrants
has been re-priced from $1.20 to $0.40 per warrant due to the recently completed
regulation D placement by the company. The warrants contained an automatic
re-price provision in the event the Company issued common stock at a price less
than the original warrant price.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
-14-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: TELFORD, PENNSYLVANIA
APRIL 8, 2002
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
BY: /S/ BENGT ODNER
-----------------------
BENGT ODNER
CHAIRMAN OF THE BOARD
-15-