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 - June 30, 2003.
[ ] 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)
132 Penn Avenue
Telford, PA 18969
---------------------------
(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.)
(215) 721-2188
--------------
(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 [ ]
TRANSACTIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES [ ] NO [ X ]
Indicate by check mark whether the Registrant is an accredited filer (as defined
in Rule 12b-2 of the Exchange Act. YES [ ] NO [X]
The Registrant had 49,349,490 shares of Common Stock, Par Value $0.001 as of
August 5, 2003.
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
ITEM 1 Financial Statements (unaudited)
Consolidated Balance Sheet as of June 30, 2003 F2
Consolidated Statements of Operations for the Three and F3
Six Months Ended June 30, 2003 and 2002
Consolidated Statement of Changes in Stockholders' F4
Equity for the Six Months Ended June 30, 2003
Consolidated Statements of Cash Flows for the F5
Six Months Ended June 30, 2003 and 2002
Notes to Financial Statements F6 - F12
ITEM 2 Management's Discussion and Analysis of Operations 13 - 16
ITEM 3 Controls and Procedures 16
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 17
ITEM 2 Changes in Securities 17
ITEM 3 Defaults Upon Senior Securities 17
ITEM 4 Submission of Matters to a Vote of Security Holders 18
ITEM 5 Other Information 18
ITEM 6 Exhibits and Reports 18
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2003
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 69,848
Accounts receivable 776,139
Inventory 128,855
Prepaid expenses 66,139
Other current assets 39,360
--------------------
Total current assets 1,080,341
Property and equipment, net of accumulated
depreciation of $281,425 527,599
Patents and trademarks, net of accumulated
amortization of $532,256 1,622,265
--------------------
$ 3,230,205
====================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable $ 109,258
Accrued liabilities 40,756
--------------------
Total current liabilities 150,014
--------------------
Class A special shares, no par value, 700,000
shares authorized, issued and outstanding 453,900
--------------------
Stockholders Equity
Common stock, $0.001 par value, 100,000,000
shares authorized; 49,349,490 shares
issued and outstanding 49,348
Additional paid-in capital 11,880,083
Accumulated deficit (9,303,140)
--------------------
Total stockholders' equity 2,626,291
--------------------
$ 3,230,205
====================
The accompanying notes are an integral part of these financial statements
F2
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
Six Months Ended June 30, Three Months Ended June 30,
2003 2002* 2003 2002*
------------ ------------ ------------ ------------
Revenue
Net sales $ 1,055,252 $ 924,544 $ 507,806 $ 534,226
Cost of sales 489,309 650,470 222,393 297,169
------------ ------------ ------------ ------------
Gross profit 565,943 274,074 285,413 237,057
------------ ------------ ------------ ------------
Operating expenses
Research and development 520 6,969 -- 2,556
Professional fees 78,734 60,238 25,873 7,132
Consulting fees 20,184 112,145 13,177 65,787
Marketing, office & general costs 699,774 836,837 364,716 377,818
------------ ------------ ------------ ------------
799,212 1,016,189 403,766 453,293
------------ ------------ ------------ ------------
Net loss $ (233,269) $ (742,115) $ (118,353) $ (216,236)
============ ============ ============ ============
Loss per share information
Basic and diluted $ (0.005) $ (0.019) $ (0.002) $ (0.006)
============ ============ ============ ============
Weighted average number of
shares outstanding 48,350,477 39,223,534 48,472,428 38,982,374
============ ============ ============ ============
* Reclassified for comparative purposes
The accompanying notes are an integral part of these financial statements
F3
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(UNAUDITED)
Common Stock Additional Accumulated
Shares Amount Paid-In Capital Deficit Total
---------------------------- -------------- ------------ ------------
January 1, 2003 47,352,194 $ 47,351 $ 11,635,080 $ (9,069,871) $ 2,612,560
Net loss (233,269) (233,269)
Exercise of warrants 544,354 544 (544)
Proceeds from third traunch of private placement 1,452,942 1,453 245,547 247,000
------------ ------------ ------------ ------------ ------------
June 30, 2003 49,349,490 $ 49,348 $ 11,880,083 $ (9,303,140) $ 2,626,291
============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
F4
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
2003 2002
----------------- -----------------
Net loss $(233,269) $(742,115)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 57,300 55,092
Amortization 107,171 106,916
Non-cash compensation and services -- 72,285
Change in operating assets and liabilities (174,537) 129,274
--------- ---------
Net cash used in operating activities (243,335) (378,548)
--------- ---------
Investing activities:
Acquisition of property and equipment (29,493) (23,751)
Increase in patents and trademarks (15,108) (421)
--------- ---------
Net cash used in investing activities (44,601) (24,172)
--------- ---------
Financing activities:
Notes payable -- (25,000)
Stock subscription receipts -- 204,990
Issuance of common stock 247,000 150
--------- ---------
Net cash provided by financing activities 247,000 180,140
--------- ---------
Net decrease in cash (40,936) (222,580)
Cash, beginning of period 110,784 243,830
--------- ---------
Cash, end of period $ 69,848 $ 21,250
========= =========
Non cash financing activities
Exercise of warrants $ 544 $ --
========= =========
The accompanying notes are an integral part of these financial statements
F5
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION
The Company develops, manufactures and sells environmental technology solutions,
and is currently focused on the international automotive, transportation and
utility engine industries. It manufactures and markets a line of catalytic
control products including a boutique line of finished products, proprietary
catalytic converter substrates and catalytic conversion technologies for a
multitude of applications as well as provide testing and certification services.
The accompanying condensed financial statements 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 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 10-KSB for the year
ended December 31, 2002 filed by the Company with the Securities and Exchange
Commission on March 19, 2003.
The accompanying condensed consolidated financial statements 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 three and six months ended June 30,
2003 are not necessarily indicative of results to be expected for the entire
year ending December 31, 2003.
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 consistent and sufficient
source of revenue, 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 discharge its liabilities is
dependent upon obtaining additional financing sufficient for continued
operations as well as achieving and maintaining profitable operations.
Management believes its current business plan, if successfully implemented, will
allow the Company to continue as a going concern.
F6
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - ACCOUNTS RECEIVABLE AND CONCENTRATIONS OF CREDIT RISK
The Company monitors its customer's receivables and while it may, on occasion,
request advance payments, it generally does not require collateral from those
customers. One customer of the Company's ESW America, Inc. subsidiary accounted
for 45% of consolidated product revenues for the six months ended June 30, 2003
and two customers accounted for 66% and 11% respectively, of accounts receivable
as of June 30, 2003. Management periodically reviews Accounts Receivable and
determined that no reserve or allowance is necessary.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the Financial Accounting Standards Board's ("FASB") issued FASB
Interpretation ("FIN") No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES,
which requires variable interest entities (commonly referred to as SPEs) to be
consolidated by the primary beneficiary of the entity if certain criteria are
met. FIN No. 46 is effective immediately for all new variable interest entities
created or acquired after January 31, 2003. The adoption of this statement does
not impact the Company's historical or present financial statements, as the
Company has not created or acquired any variable interest entities, nor does it
expect to in the future.
In December 2002, The FASB issued SFAS No. 148 ACCOUNTING FOR STOCK-BASED
COMPENSATION, TRANSITION AND DISCLOSURE. SFAS No 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the
pro forma effect in interim financial statements. The transition and annual
disclosure requirements of SFAS No. 148 are effective for fiscal years ended
after December 15, 2002. The interim disclosure requirements of SFAS No. 148 are
effective for interim periods beginning after December 15, 2002. The adoption of
the provisions of SFAS No. 148 did not have a material impact on the Company's
consolidated financial statements. The Company will modify its disclosures in
its quarterly reports, as provided for in the new standard.
F7
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on
EITF No. 00-21, REVENUE ARRANGEMENTS WITH MULTIPLE DELIVERABLES. EITF No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and or rights to use assets. The
provisions of EITF No. 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company believes that its
current accounting is consistent with the provisions of EITF 00-21 and therefore
does not expect that the application of the provisions of EITF 00-21 will have a
material impact on the Company's consolidated financial statements.
In November 2002, the EITF reached a consensus on EITF No. 02-16, ACCOUNTING FOR
CONSIDERATION RECEIVED FROM A VENDOR BY A CUSTOMER. EITF No. 02-16 provides
guidance as to how customers should account for cash consideration received from
a vendor. EITF No. 02-16 presumes that cash received from a vendor represents a
reduction of the prices of the vendor's products or services, unless the cash
received represents a payment for assets or services provided to the vendor or a
reimbursement of costs incurred by the customer to sell the vendor's products.
The provisions of EITF No. 02-16 will apply to all agreements entered into or
modified after December 31, 2002. Management does not expect the provisions of
EITF No. 02-16 to have a material impact on the Company's consolidated financial
statements.
In November 2002, the FASB issued FIN No. 45, GUARANTOR'S ACCOUNTING AND
DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF
INDEBTEDNESS OF OTHERS. FIN No. 45 requires that a liability be recorded in the
guarantor's balance sheet upon issuance of a guarantee. In addition, FIN No. 45
requires disclosures about the guarantees that an entity has issued, including a
reconciliation of changes in the entity's product warranty liabilities. The
initial recognition and initial measurement provisions of FIN No. 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements of FIN No. 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company does not
guarantee the indebtedness of others, therefore there will not be any impact on
the Company's consolidated financial statements and there is no need for the
Company to modify its disclosures herein as required.
F8
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In July 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH
EXIT OR DISPOSAL ACTIVITIES. SFAS NO. 146 nullifies the accounting for
restructuring costs provided in EITF Issue No. 94-3, LIABILITY RECOGNITION FOR
CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY
(INCLUDING CERTAIN COSTS INCURED IN A RESTRUCTURING). SFAS No. 146 requires that
a liability associated with an exit or disposal activity be recognized and
measured at fair value only when incurred. In addition, one-time service
termination benefits should be recognized over the period employees will render
service, if the service period required is beyond a minimum retention period.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. Management does not expect that the application of the
provisions of SFAS No. 146 will have a material impact on the Company's
consolidated financial statements.
In January 2002, the Financial Accounting Standards Board's ("FASB") Emerging
Issues Task Force ("EITF") reached a consensus on EITF No. 01-14, INCOME
STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR "OUT-OF-POCKET"
EXPENSE. EITF No. 01-14 requires that reimbursements received for out-of-pocket
expenses be classified as revenue on the income statement. This opinion has no
material impact on the Company's historical and present financial statements.
NOTE 4 - ISSUANCE OF COMMON STOCK
In March of 2003, the Company completed the third traunch of a Unit Placement
and issued 1,452,942 units for $247,000, net of costs. Under the terms of the
Unit Placement, the subscription price was $0.17 per unit and each unit consists
of one share of common stock and one warrant to purchase one-half share of
common stock. Each warrant has an exercise price of $0.15, and can only be
exercised for full shares.
In May 2003, 750,000 warrants (issued in 2000) were exercised. Utilizing a
"cashless" feature (as defined in the warrants), 544,354 shares were issued.
F9
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 - STOCK OPTIONS AND WARRANT GRANTS
The Company adopted Statement of Financial Accounting Standards No. 123 (SFAS
No. 123), "Accounting for Stock-Based Compensation" since its inception and
adopted Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB No.
123", in December 2002. In conjunction with the adoption of these standards, the
Company will continue to apply the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" with pro forma disclosure of net income and earnings per
share as if the fair-value based method prescribed by SFAS No. 123 had been
applied. In general, no compensation cost related to the Company's non-qualified
stock option plan is recognized as options are issued for no less than 85% of
fair market value on date of grant.
In August 2003, the board of directors ratified the issuance of 650,000 options
at an exercise price of $0.27 (fair-market-value on date of grant) per share as
compensation for their service on the board. The options expire in ten years
from date of issuance and vest over three years.
Had compensation cost for the company's stock option plan been determined on the
fair value at grant date consistent with the provisions of SFAS No. 123, the
Company's net loss and loss per share would have been as follows:
PRO FORMA INFORMATION
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net loss - as reported $ (233,269) $ (742,115) $ (118,353) $ (216,236)
Deduct: Total stock-based
compensation expense
determined under fair
value based method, net (14,100) - (14,100) -
------------- ------------- ------------- -------------
Net earnings - pro forma $ (247,369) $ (742,115) $ (132,453) $ (216,236)
============= ============= ============= =============
Basic and diluted loss per share -
as reported $ (0.005) $ (0.019) $ (0.002) $ (0.006)
============= ============= ============= =============
pro forma $ (0.005) $ (0.019) $ (0.003) $ (0.006)
============= ============= ============= =============
F10
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SFAS No. 123 requires that the fair value of options and warrants issued to
non-employees for goods and services be recorded in the financial statements as
an expense.
In May 2002, the board of directors authorized the issuance of 200,000 options
exercisable at $0.01 per share that expired October 1, 2002. The Company
recorded compensation expense of $68,000.
In February 2002, the board of directors authorized the issuance of 50,000
options at an exercise price of $0.52 per share. The options expire three years
from the date of issuance. The Company recorded compensation expense of $4,285.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of June 30, 2002, the then Chairman of the Company was owed $222,000 for
reimbursement of business travel expenses. The amounts expensed in office,
travel, and other costs were $25,500. This Director also had a non-interest
bearing note payable to him by the Company in the sum of $15,000.
During the six-month periods ended June 30, 2003 and 2002, the Company paid
shareholders and their affiliates $19,128 and $122,725, respectively for various
services rendered. No one transaction exceeded $60,000.
NOTE 7 - LITIGATION
The Company was contacted by the Securities and Exchange Commission ("SEC"), and
subsequently, on November 29, 2000 its 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. On March
7, 2001, the SEC Fort Worth, Texas district office, also notified Mr. Bengt
Odner, a current director and former chairman, that it also intended to
recommend an enforcement action against him individually.
F11
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Subsequently on August 8, 2002, the SEC filed a civil lawsuit in the United
States District Court for the District of Columbia claiming that ESW, Mr. Odner
and others purportedly associated both directly and/or indirectly with the
Company allegedly violated certain anti-fraud, securities registration, periodic
reporting, record keeping, beneficial ownership reporting, false statements to
auditors and stock ownership disclosures provisions of federal securities laws
from 1998 through 2000. The complaint sought injunctive relief against all
defendants and fines and civil penalties from certain individual defendants.
The Company and Mr. Odner entered into individual stipulations and consents that
were confirmed by the United States District Court for the District of Columbia.
Pursuant to the terms of the stipulation and consent, the Company is permanently
enjoined from engaging in transactions, acts or practices which would constitute
a violation of the securities laws.
In January 2002, Royal Extruders in Ontario Canada commenced an action against
the Company for approximately $50,000 U. S. plus costs. The claim by Royal
Extruders alleges breach of contract. The Company is vigorously contesting the
matter and believes that a final determination of the claim will not have an
adverse effect on the financial position of the Company.
F12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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
The Company develops, manufactures and sells environmental technology solutions,
and is currently focused on the international automotive, transportation and
utility engine industries. It manufactures and markets a line of catalytic
control products including a boutique line of finished products, proprietary
catalytic converter substrates and catalytic conversion technologies for a
multitude of applications as well as provide testing and certification services.
The Company has developed commercially viable catalytic converter technology for
both diesel and gasoline products. The combined technologies of the wire mesh
substrate and the wash coat forms the basis for the woven stainless steel mesh
catalytic converter. This product can be produced in almost any size and shape.
The wire mesh substrate creates a turbulent environment, which increases
catalytic activity and serves as a filter of particulate matter, important in
diesel emission control.
The Company's products have been extensively tested and management believes they
demonstrate superior performance to comparable competing products. ESW's
customers have applied the Company's products to meet their own needs, and have,
where appropriate, received certification by the Environmental Protection Agency
(EPA), the California Air Resources Board (CARB) and other authorities.
Customers have had their engines certified using the Company's Clean Cat (R),
Pro Cat (TM), Quiet Cat (TM) and Air Sentinel (TM) products. Its products are
now being marketed both domestically and internationally, including in such
countries as China, India and Mexico.
13
ESW is in full compliance with ISO 9001:2000, the ISO standards developed by the
International Organization for Standardization which provide an international
benchmark for quality systems and foundation for continuous improvement and
assurance in design, development and manufacturing. The ISO mandates that the
Company follow strict quality guidelines, administrative protocol and safety
procedures to a recognized international standardized code. ISO auditors confirm
compliance by auditing the Company periodically. The Company passed its most
recent audit in May 2003, and is in full compliance with the ISO requirements.
An ISO certification is considered essential for the Company to do business with
many export customers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002:
The Company has continued to expand its product offerings to meet the needs of
its existing customers and to expand its customer base. While it has been
successful in expanding its customer base, there may still be occasions when the
Company experiences reduced revenue, due to the timing and other needs of
customers. While the Company has adequate resources to carry on its existing
work, it does not deem it advisable at this time to produce large amounts of
completed inventory significantly in advance of known customer requirements.
Revenue for the Quarter ended June 30, 2003 decreased approximately $26 thousand
(5%) from the same period in 2002. Management attributes no significance to
this, as it maintains an adequate backlog, and customer inquiries and orders
continue to increase. Direct costs declined substantially by $75 thousand (25%);
and as a result, gross profit actually improved to 56.2% from 44.4% for the same
period last year. This is largely attributable to continued improvements in
production efficiencies and from receiving better pricing from its suppliers.
Operating expenses, generally, continued to decrease in the current quarter as
compared to the same period a year ago. The current period includes the costs
($24 thousand) associated with the Company's Annual Meeting of Shareholders;
which occurred in June. As a result of the foregoing, the Company recorded a
loss of $118 thousand in the current quarter as compared to a loss of $216
thousand in the year ago period.
14
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
Revenue for the Six Months period ended June 30, 2003 increased nearly $131
thousand (14%) over the prior year, largely as the result of the Company's
continued development of products and expansion of its customer base. Despite
this increase, cost of sales actually decreased by $161 thousand (25%); which
represents both better pricing from suppliers and improved efficiencies in
operations.
Some of the pricing improvement is believed to have resulted from the Company's
ability to pay its trade suppliers in a timelier manner. As a result, gross
profit improved to 53.6% from 29.6% as compared to the same period a year ago.
Operating costs reflect reductions previously implemented, and decreased by $217
thousand or 21% from the year-ago period. Of particular note was the decrease of
consulting fees of $92 thousand from the previous period.
The Company's loss of $233 thousand for the current year reflects a reduction of
nearly 69% ($509 thousand) from the year ago period.
LIQUIDITY AND CAPITAL RESOURCES:
While cash declined by $41 thousand from year-end, working capital actually
increased by $131 thousand. Much of the loss of $233 thousand consisted of
non-cash expense, including $107 thousand in amortization and $57 thousand in
depreciation. The improvement in working capital primarily results from an
increase of $114 thousand in receivables, $55 thousand in prepaid expense and
reduction in accrued liabilities of $34 thousand, substantially offset by the
decrease in inventory and cash.
Although receivables increased by 17%, the average age of receivables increased
only slightly (5%) to 133 days from 127 days. At June 30, two customers
accounted for approximately 77% of the Company's receivables. The Company
closely monitors its receivables and maintains contact with its customers and
does not presently consider the increase in receivables to be a matter of undue
concern.
Cash provided by financing activities amounted to $247 thousand in the current
period as compared to $180 thousand in the same period a year ago; while cash
used in operating activities decreased to $243 thousand from $378 thousand in
the same period a year ago. Investing activities increased to $45 thousand from
$24 thousand as compared to the same period a year ago.
15
Seventy percent (70%) of the reported loss was in non-cash items, such as
depreciation and amortization. The Company's business plan contemplates that
profitable operations may be achieved during the current fiscal year, subject to
certain unforeseen economic and business factors that may be beyond the control
of the Company. Management believes profitable operations are essential for the
Company to become viable; however, in the event profitable operations are not
achieved, present financial resources should allow a continuation of operations
through early to mid 2004.
In any event, should the Company receive a large order (defined as one in which
monthly production and deliveries would exceed $1 million), it would need to
either negotiate extremely favorable payment terms providing for at least some
advance payment or it will need to obtain either debt or equity financing to
allow it to purchase sufficient materials and meet its working capital needs.
There can be no assurance that such financing would be available.
ITEM 3. CONTROLS AND PROCEDURES
The Company is not required to furnish the information required by Item 307 of
Regulation S-B until its year ended December 31, 2005.
16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 2002, an action was commenced against the Company by Royal Extruders
in Ontario Canada for approximately $50,000 U.S. plus cost. The claim by Royal
Extruders alleges breach of an agreement. The Company is vigorously contesting
the matter and believes that a final determination of the claim will not have an
adverse effect on the financial position of the Company.
The Company was contacted by the Securities and Exchange Commission ("SEC") and
subsequently on November 29, 2000 its 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. On
March 7, 2001, the SEC Fort Worth, Texas district office, also notified Mr.
Bengt Odner, a current director and our former chairman, that it also intended
to recommend an enforcement action against him individually.
Subsequently on August 8, 2002, the SEC filed a civil lawsuit in the United
States District Court for the District of Columbia claiming that ESW, Mr. Odner
and others purportedly associated both directly and/or indirectly with the
Company allegedly violated certain anti-fraud, securities registration, periodic
reporting, record keeping, beneficial ownership reporting, false statements to
auditors and stock ownership disclosures provisions of federal securities laws
from 1998 through 2000. The complaint sought injunctive relief against all
defendants and fines and civil penalties from certain individual defendants.
The Company and Mr. Odner entered into individual stipulations and consent that
were confirmed by the United States District Court for the District of Columbia
on June 3, 2003. Pursuant to the terms of the stipulation and consent, the
Company is permanently enjoined from engaging in transactions, acts or practices
which would constitute a violation of the securities laws.
ITEM 2. CHANGE IN SECURITIES: NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NONE
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
During the second quarter of the current fiscal year, the following
proposals were submitted to Shareholders for consideration at the Company's
Annual Meeting of Shareholders held on June 12, 2003. In accordance with the
Company's by-laws and Florida law, all proposals obtained shareholder approval.
1. The election of seven (7) directors, namely: John A. Donohoe, Jr.,
Barry Gross, Nitin Amersey, David Johnson, Robert Marino, Bengt Odner
and William J. Sifer to serve as members of the board of directors
until their successors have been elected and qualified.
2. Ratification of the appointment of Goldstein & Morris, Certified
Public Accountants, P. C. as independent public accountants for the
fiscal year. Of a total of 26,471,871 shares of common stock voted on
this proposal, 26,402,576 shares voted in favor, 32,695 shares were
voted against and 36,600 shares abstained.
ITEM 5. OTHER INFORMATION: NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS: NONE
(B) REPORTS ON FORM 8-K:
A Form 8-K report regarding Other Events and Regulation FD Disclosure
was filed June 6, 2003 reporting that the United States District Court for the
District of Columbia issued an order confirming the stipulation and consent
voluntarily entered into by the Company with the Securities and Exchange
Commission whereby the Company is permanently enjoined from engaging in
transactions, acts or practices that would constitute a violation of securities
laws.
A Form 8-K report regarding Financial Statements and Regulation FD
Disclosure was filed May 9, 2003 reporting the Company's unaudited first quarter
financial results in the current fiscal year.
18
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: AUGUST 8, 2003, TELFORD, PA
ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.
BY: /S/ JOHN A. DONOHOE, JR.
--------------------------
JOHN A. DONOHOE, JR.
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
19
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, John A. Donohoe, Jr, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Environmental
Solutions Worldwide, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other Certifying Officer's and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other Certifying Officer's and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other Certifying Officer's and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 8, 2003
/S/ JOHN A. DONOHOE, JR.
- ---------------------------------
John A. Donohoe, Jr
Chairman, Chief Executive Officer
and President
20
CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Robert Marino, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Environmental
Solutions Worldwide, Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other Certifying Officer's and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing of this
annual report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other Certifying Officer's and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other Certifying Officer's and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 8, 2003
ROBERT MARINO
- -------------------------
Robert Marino
Vice President of Finance
21