FORM 10-QSB/A2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT O SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _______ to _______
Commission file number 1-15575
CEVA INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 84-1423807
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
75-77 North Bridge Road, Somerville, New Jersey 08876_
(Address of Principal Executive Office) (Zip Code)
(908) 429-0030
(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.
Yes__X___ No _____
The number of shares of Registrant's Common Stock, $0.001 par value, outstanding
as of September 30, 2000, was 11,279,415 shares.
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheet
- September 30, 2000 3
Consolidated Statements of Operations
- Three, six and nine months ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows
- nine months ended September 30, 2000 and 1999 5
Consolidated Statements of Stockholders' Equity
- nine months ended September 30, 2000 6
Notes to Consolidated Financial Statements 7 - 15
Item 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations 16 - 19
PART II - OTHER INFORMATION 20
SIGNATURES 22
FINANCIAL DATA SCHEDULE 23
PART I - Item 1
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 2000
ASSETS
Current Assets
Cash $ 60,900
Accounts receivable, net of allowance for
doubtful accounts of $746,010.................................... 838,726
Escrow funds receivable.............................................. 3,936
Inventories.......................................................... 22,232
Prepaid expenses..................................................... 7,195
---------
Total Current Assets 932,989
Property, plant and equipment, net of accumulated
depreciation..................................................... 1,924,063
Intangible assets, net of accumulated amortization................... 14,496
Deferred charges, net of accumulated amortization.................... 150,000
Goodwill, net of accumulated amortization............................ 453,833
----------
TOTAL ASSETS 3,475,381
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses................................ 1,449,011
Notes/Loans payable.................................................. 299,980
Loans payable to stockholders and officers........................... 100,000
Current maturities of capital leases................................. 3,170,203
Deferred credit...................................................... 64,313
----------
Total Current Liabilities......................................... 5,083,507
Redeemable preferred stock - Series A ............................... 850,000
Capital leases, less current portion................................. 0
-----------
TOTAL LIABILITIES ........................................................ 5,933,507
STOCKHOLDERS' EQUITY
Preferred Stock, non-voting, $0.001 par value, 25,000,000 shares
authorized; Series A - redeemable, non-dividend, $50,000 stated value
per share, 100 shares authorized, 17 shares issued and outstanding
($850,000
redeemable preference in cash or convertible into common shares) (see lianilities) -
Common Stock, voting, $0.001 par value, 100,000,000 shares authorized,
11,279,415 shares are issued and outstanding............................. 11,279
Additional paid-in capital............................................... 2,827,374
Accumulated deficit...................................................... (5,354,475)
Accumulated other comprehensive income - foreign
Currency translation adjustment ..................................... 57,696
TOTAL STOCKHOLDERS' EQUITY (IMPAIRMENT) ...................................... (2,458,126)
TOTAL LIABILITIES AND EQUITY.................................................. $ 3,475,381
=========
See notes to consolidated financial statements
3
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30 September 30
------------ ------------
2000 1999 2000 1999
---- ---- ---- ----
Total revenues $144,571 $ 255,828 $ 579,388 $ 1,459,179
Cost of Goods Sold 86,996 352,114 753,566 953,790
----------------------------- -------------------------------
Gross profit 57,575 (96,286) (174,178) 505,389
Operating expenses 608,070 375,807 968,869 844,881
----------------------------- -------------------------------
Operating income (loss) (550,495) (472,093) (1,143,047) (339,492)
Other income (expense)
Interest expense, net (169,031) (378,727) (391,301) (441,170)
Income pursuant to JointVenture 620,000 -
Other income (expense) 6.563 6,563
----------------------------- -------------------------------
Total other income (expense) (169,031) (372,164) 228,699 (434,607)
----------------------------- -------------------------------
Income (loss) before provision for income
taxes (719,526) (844,257) (914,348) (774,099)
Provision for income taxes - 39,665 39,665
============================= ===============================
Net income (loss) $(719,526) $ (883,922) $(914,348) $ (813,764)
============================= ===============================
Earnings (loss) per Common Share $ (0.06) $ (0.13) $ (0.09) $ (0.14)
============================= ===============================
Weighted average Number of Common Shares 11,178,328 6,953,173 10,560,346 5,980,588
Outstanding
See notes to consolidated financial statements
4
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2000 1999
Net Cash Provided (Used) by Operating Activities $ (516,856) $ (941,514)
Net Cash Provided (Used) by Investing Activities 603,784 (37,040)
Net Cash Provided (Used) by Financing Activities (98,549) 959,827
-------- -------
Net Increase (Decrease) in Cash (11,621) (18,727)
Cash at Beginning of Period 72,521 72,621
------ ------
Cash at End of Period $ 60,900 $ 53,894
====== ======
See notes to consolidated financial statements
5
Ceva International Inc. And Subsidiary
Consolidated Statement of Stockholders' Equity (Impairment)
Period From December 31, 1999 to September 30, 2000
(Unaudited)
Accumulated
Other
Comprehensive
income -
Common Stock Foreign
(Post Split) Additional Retained currency
Number Paid-in Earnings translation
Of Shares Amount Capital (Deficit) adjustment Total
Balances, December 31, 1999 9,823,165 $ 9,823 $ 2,113,205 $(4,071,991) $ 61,954 $(1,887,009)
Issuances of Common Shares for services accrued in 1999 406,250 406 190,219 - - 190,625
Net (Loss), Three Months Ended March 31,2000 - - - (385,831) - (385,831)
Foreign Currency Translation Adjustment - - - - 219,841 219,841
Balances, March 31, 2000 10,229,415 10,229 2,303,424 (4,457,822) 281,795 (1,862,374)
Issuances of Common Shares for additional 35% interest
in Hungarian subsidiary 700,000 700 349,300 - - 350,000
Issuance of Common Shares pursuant to conversion
of Notes Payable 50,000 50 24950 - - 25000
Net Income, Three Months Ended June 30, 2000 - - - 241,009 - 241,009
Foreign Currency Translation Adjustment - - - - (271,056) (271,056)
Balances, June 30, 2000 10,959,415 10,959 2,677,674 (4,216,813) 10,739 (1,517,441)
Issuances of Common Shares for additional 15% interest
in Hungarian subsidiary 300,000 300 149,700 - - 150,000
Issuance of Common Shares pursuant to conversion
of Notes Payable 20,000 20 19,980 - - 20,000
Net (Loss), Three Months Ended September 30, 2000 - - - (769,526) - (769,526)
Foreign Currency Translation Adjustment - - - - (341,159) (341,159)
Balances, September 30, 2000 11,279,415 $11,279 $ 2,847,354 $(4,986,339) $ (330,420) $ (2,458,126)
See notes to consolidated financial statements
6
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
BACKGROUND
CEVA International, Inc. (the "Company") was founded as a New Jersey corporation
in 1991 for the purpose of engaging in the environmental services business in
Central and Eastern Europe ("CEE"). Since its inception, the Company's founder,
Herbert G. Case, Jr., its current President and Chief Executive Officer, has
spent most of his time living and working in CEE, residing in Budapest, Hungary.
During this period through the date hereof, Mr. Case has devoted his full time
to establishing the business operations of the Company. In 1998, the Company was
reincorporated in the State of Delaware.
On March 29, 1999, the Company and Oro Bueno, Inc., a Nevada corporation,
entered into an Agreement and Plan of Merger, pursuant to which the shareholders
of the Company were offered the opportunity to exchange their Company common
shares for common shares of Oro Bueno, Inc. On May 10, 1999, the Company merged
with Oro Bueno, Inc., as a result of which the shareholders of the Company
exchanged their holdings for approximately 77% of the common shares of Oro
Bueno, Inc. with the remaining balance of such shares, or approximately 23%,
being retained by the shareholders of Oro Bueno, Inc. As part of that merger,
Oro Bueno, Inc. changed its name to CEVA International, Inc. and the Delaware
corporation was dissolved. Currently, therefore, the Company is incorporated
under the laws of the State of Nevada. The transaction is considered a
re-capitalization of the Company for accounting purposes and all financial
information regarding operations is that of the Company.
The principal offices of the Company are located at 75-77 North Bridge Street,
Somerville, New Jersey 08876. Whenever we refer to "Company" or use the terms
"we", "us" or "our" in this report, we are referring to CEVA International, Inc.
CORPORATE STRUCTURE
Our Company is currently composed of CEVA International, Inc., a Nevada
corporation with its principal offices located in New Jersey, a Czech affiliate
(CevaTech) and a Hungarian subsidiary (CEVA Hungary Ltd.). Our Hungarian
subsidiary was previously 50% owned by Hungarian partners although our Company
was the managing shareholder. During the second quarter of 2000, two of our
Hungarian partners who owned a 35% equity interest in this subsidiary, exchanged
their ownership interest for 700,000 common shares of the Company. During the
third quarter of 2000, the remaining Hungarian partner who owned a 15% equity
interest in this subsidiary, exchanged his ownership interest for 300,000 common
shares of the Company, which resulted in the reorganization of this operation as
a wholly owned subsidiary.
Our Czech affiliate is owned 60% by Herbert G. Case, Jr., the Company's
President and Chief Executive Officer and 40% by local Czech partners. We have
control and management authority. There were no material operations during 2000
or prior years.
BUSINESS
We are engaged in the business of providing technology and services to public
and private clients in Central and Eastern Europe in the alternative energy and
environmental remediation industries.
7
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
ALTERNATIVE FUEL BUSINESS
We recover the energy-content of certain wastes by processing high
concentrations of hydrocarbons contained in petroleum wastes into Alternative
Fuel ("AF"). Our AF business is applicable to the wastes generated by heavy
industries such as the petroleum refining (by-products filter cake, oily filter
media, separator waste, sludges, acid tar, slop and waste oil, tank rail
bottoms), steel (coal tar bottoms), chemical (solvents, chemical tars) mining
(coal tars), manufactured gas and pharmaceutical industries. The processed
alternative fuel then can be used by cement kilns, power plants and other
industrial boilers as a cheaper source of energy.
Technology:
Alternative Fuel technology is used to clean up pollutants by converting them
into a reusable fuel form. The alternative fuel ("AF") is derived from either
the liquefaction or solidification of residual petroleum and oily wastes and
by-products. The Company's liquefaction process was developed in the United
States to rejuvenate solidified coal tar. Liquefying the solidified tar enables
this material to be utilized as raw materials or as supplementary fuel. The
liquefied material can be re-used in waste fuel recycling programs in cement
kilns and other industrial furnaces. Using the technology of liquefaction helps
eliminate land disposal-related liability and increases useable/saleable tar
product volume, resulting in environmental and economic benefits. The liquid
fuel is referred to as "liquid AF", or alternative fuel.
Solidification processes were developed to prepare AF into a form to replace
coal in large industrial boilers, power plants and cement kilns. A special type
of solid AF, called Cemix is produced by CEVA Hungary and it is used by cement
kilns.
End Use:
According to the 1992 Portland Cement Association's publication "A Sensible
Solution-Putting Waste to Work", both liquefied and solidified waste derived
fuels can be utilized in cement kilns. The use of cement kilns to recycle
hazardous industrial wastes has become an important component of environmentally
acceptable handling procedures in the Western world
Competitive Technologies:
AF is principally considered a clean-up technology, which is an alternative to
other forms of disposal or remediation. The fact that a valuable by-product is
created is important economically because it reduces the net cost of the clean
up. Primary alternatives are:
Hazardous waste landfill: There is limited capacity in Central and Eastern
Europe; because of their generally remote locations, landfills require
transportation and handling resulting in relatively higher costs and expenses
for disposal.
Incineration: There are only a limited number of incinerators in Central and
Eastern Europe; because of this limited capacity and the generally remote
location of these incinerators, transportation and handling costs make
incinerator disposition a very expensive alternative.
8
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
SOIL REMEDIATION BUSINESS
Heavy industries often contaminate soil and other solid mixtures by hydrocarbons
in ways where their energy content cannot be directly recovered. In these
instances, we employ Low Temperature Thermal Desorption ("LTTD"), a soil
remediation process. Sites where these sorts of contamination can be found are
often neighboring the sites of wastes processed for AF. Central and Eastern
Europe has large quantities of contaminated soil, which need to be cleaned.
Contaminated soil is found principally in heavy industries including oil and gas
refineries, railways, energy plants, mining sites, as well as in and around
former Soviet military bases.
The LTTD Technology:
We have selected a technology known as "low temperature thermal desorption"
("LTTD") as the method to clean contaminated soil in this marketplace. This
technology has been developed by Astec Industries, Inc. of Chattanooga,
Tennessee, a leading manufacturer of LTTD equipment. The LTTD system was
introduced to the United States market in 1989 and has proved to be a
successful, cost-effective method of removing light and heavy refinery and
hydrocarbon wastes from all types of soil. Contaminant destruction efficiencies
in the afterburners of these units are greater than 99.99% according to methods
prescribed by United States Environmental Protection Agency stack tests
performed on equipment manufactured by Astec Industries, Inc. Decontaminated
soil retains its physical properties and ability to support biological activity.
An LTTD unit of equipment contains several large compartments where at one end,
contaminated soil is fed into the unit on conveyor belts and is treated by heat
processing in various enclosed chambers; once treated, the "clean" soil is
deposited at the other end of the unit. The LTTD equipment heats the soil to
temperatures ranging from 90 to 320 degrees Centigrade (200-600 degrees
Fahrenheit) to vaporize the petroleum, physically separating it from the soil.
The vapor stream is then captured and sent to the afterburner where it is
thermally destroyed.
Service Agreement with Green Globe, LLC:
We partnered with a United States based LTTD operator, Green Globe, LLC, ("Green
Globe") for soil decontamination projects in Central and Eastern Europe. In the
Fall of 1998, we entered into a contract with Green Globe pursuant to the
general terms of which, we agreed to give Green Globe all soil decontamination
projects generated through our business relationships in Central and Eastern
Europe. Green Globe agreed to provide, transport, install an LTTD equipment unit
in the region and train our local workforce to operate the unit. After provision
for costs, profits generated would be shared equally between Green Globe and us.
In order to reduce importation and tariff charges, Green Globe and our Hungarian
subsidiary entered into a lease agreement for the LTTD units. In connection with
these agreements, Green Globe transported and installed a large LTTD unit to
Budapest, Hungary, in preparation to begin a soil decontamination project
commissioned by the City of Budapest for which our Hungarian subsidiary was
awarded a contract.
9
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Applicability and Limitations:
The target contaminant groups for an LTTD system are oil and other organic
compounds (hydrocarbons). Such compounds are generated by the petroleum
refining, chemical, railroads, mining industries and governmental organizations,
such as the military, airports, and state-owned dumpsites. The low temperature
desorption processes are best suited for removal of organics from soil, sand,
gravel, or rock fractions. The high-absorption capacity of clay decreases the
partitioning of organics to the vapor phase.
The following factors may limit the applicability and effectiveness of the LTTD
technology and process: (i) specific feed size and materials handling
requirements that can impact applicability or cost at specific sites; (ii) high
moisture content of the soil decreases capacity of the LTTD equipment unit;
(iii) highly abrasive feed potentially can damage the LTTD equipment; (iv) heavy
metals in the decontaminated soil may produce a treated solid residue that
requires stabilization and further treatment.
Competitive Technologies:
There are other technologies that compete with our LTTD equipment technology for
the treatment of contaminated soil.
Bioremediation: Although not as capital intensive as the requirements to put an
LTTD equipment unit in operation, is a very time consuming process that does not
always work. In addition, bioremediation is recognized throughout the world as
effective only when treating lightly contaminated soil and requires a large
operating area and space.
"Soil washing": Soil washing is a widely used technology in Western Europe. Soil
washing is an effective technology to clean soils contaminated with heavy
metals. However, soil remediation is an expensive process and generally does not
neutralize oil and gas residue or hydrocarbon contamination.
Landfills: Another soil remediation technique is to simply transport these soils
to a hazardous waste landfill. However, there are very few licensed and
permitted hazardous waste landfills in Central and Eastern Europe. For example,
the Country of Hungary has only one hazardous waste landfill in Aszod, and it
has an annual capacity of only approximately 5,000 tons.
Incineration: Another method to dispose of decontaminated soil is to burn it in
incinerators. Incineration is the most expensive process to treat contaminated
soil. Because of its high cost, incineration is primarily used to treat the more
hazardous types of wastes. There is a very limited capacity for incinerator
disposal in Central and Eastern Europe.
LTTD technology will process difficult to process materials, such as coal tar,
heavy oils and various refinery tars in soils which cannot be efficiently
removed by bioremediation. Further, LTTD technology is designed to meet US EPA
emissions standards.
10
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Item 310 of Regulation S-B. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The unaudited financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes thereto for the years ended December 31, 1999 and 1998
which may be obtained by requesting copies from the Company's principal offices.
Going Concern Uncertainty
The report from the Company's independent auditors for the year ended December
31, 1999, contains a statement that the financial statements had been prepared
assuming that the Company will continue as a going concern. The Company had
incurred significant operating losses and had a stockholders' impairment, that
these conditions raised substantial doubt about the Company's ability to
continue as a going concern, and that the financial statements did not include
any adjustments that might result from the outcome of this uncertainty.
Management's plans with regard to those matters are described in the section
"Management's Discussion and Analysis".
Principles of Consolidation
The consolidated financial statements include the accounts of CEVA
International, Inc. and its subsidiary. All significant inter-company balances
and transactions have been eliminated in consolidation.
Depreciation and Amortization
The cost of equipment is depreciated for financial reporting on a straight-line
basis over the estimated useful lives of such assets, which is between 3 and 7
years. Maintenance and repairs which do not extend the useful lives of the
related assets are charged to operations as incurred. Deferred charges in
connection with LTTD contracts and intangibles are being amortized over 5 years.
Income Taxes
The Company is taxed as a "C" Corporation for federal purposes and deferred
taxes are recognized for operating losses that are anticipated to offset future
federal income taxes.
The basic corporate income tax rate applicable to CEVA Hungary Ltd. is 18%. In
addition, a supplementary tax of up to 35% is payable on dividends from
post-1994 profits. The actual rate of supplementary tax depends on the residence
of the recipient shareholder and the terms of the applicable tax treaty between
Hungary and the relevant foreign country. A rate of 35% applies to Hungarian
shareholders.
Revenue Recognition
Revenue is recognized in accordance with contracts as services are rendered.
11
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Net Loss Per Share
In accordance with the provisions of Financial Accounting Standards Board No.
128, "Earnings Per Share" basic earnings (loss) per common share amounts are
computed by dividing net loss by the weighted average number of shares of Common
Stock outstanding during the period. Common Stock equivalents have not been
included in this computation since the effect would be anti-dilutive.
Securities Issued for Services
The Company accounts for stock and stock purchase warrants issued for services
by reference to the fair market value of the Company's stock on the date of
stock issuance or warrant grant in accordance with Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-based Compensation".
Compensation /consulting expense is recorded for the fair market value of the
stock and warrants issued.
Foreign Currency Translation
For CEVA Hungary Ltd. whose functional currency is the Hungarian Forint, balance
sheet accounts are translated into U.S. Dollars at exchange rates in effect at
the end of the reporting period (US$1.00:HUF291 at September 30, 2000) and
income statement accounts are translated at average exchange rates for the
periods covered. Translation gains and losses are included as a separate
component of stockholders' equity (impairment).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CONCENTRATION OF BUSINESS AND CREDIT RISK
At times throughout the reporting periods the Company may maintain certain bank
accounts in excess of FDIC limits.
The Company conducts its business primarily in Eastern European countries.
The Company has contracts with a small number of customers; the loss of one of
the major ones would have a near-term severe impact on the Company.
12
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 2000:
Equipment under capital leases $ 2,447,275
Field and office equipment 878,067
--------------
Subtotal 3,325,342
Less accumulated depreciation 1,401,279
--------------
Total $ 1,924,063
==============
PROFIT SHARING ARRANGEMENT / DEFERRED CHARGES
In 1997 the Company entered into an agreement to share profits with a vendor on
its Low Temperature Thermal Desorption (LTTD) contracts. The vendor also has the
exclusive right to provide equipment and services that might be required under
any LTTD contracts. This agreement has a term of ten years and may be terminated
earlier by mutual consent of the parties. In 1998, the vendor provided for a
$250,000 portion of an agreed upon $500,000 advance, whereby the amount of
$500,000 was included in a lease obligation to be repaid (see "CAPITAL LEASES").
The remaining $250,000 was recorded as a deferred charge, and amortizes over the
repayment term of the 5 year lease. Amortization expense totaled $50,000 and
$12,500 during the years ended December 31, 1999 and 1998, respectively, and
$37,500 during the three quarters ended September 30, 2000.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses totaled $1,449,011 at September 30, 2000
and consisted primarily of trade accounts payable, accrued interest and
compensations and professional fees payable.
NOTES PAYABLE
At September 30, 2000, the Company had borrowings under short term loan
agreements with the following terms and conditions:
Note payable accruing interest at 12% per year, due in full on December 31, 1999. Maturity $ 149,980
has been extended to June 30, 2000, with interest accruing at the rate of 24% per year,
starting with January 1, 2000. The note is guaranteed by the principal stockholder.
Non-interest bearing note originally due April 30, 2000, subsequently extended, payable
either in cash or convertible into common shares of the Company at $0.50 per share. The note
was subsequently converted into common shares.
Officers loan 200,000
Note payable accruing interest at 12% per year, due in full on December 31, 2000., 150,000
convertible at holder's option into common stock of the Company at the rate of $0.50 per share
Total $ 499,980
=======
13
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
LOANS PAYABLE TO STOCKHOLDER
The majority stockholder has advanced working capital to the Company. Such
advances included a $200,000 unsecured loan, due on demand, accruing interest at
10% per year, of which $100,000 has been repaid during the third quarter.
Repayment may be made either in cash, or, at the option of the stockholder, the
loan may be converted into common shares at a conversion rate of $0.25 per
share, with a 10% dividend rate.
CAPITAL LEASES
The Company leases certain equipment under capital leases expiring in various
years through 2003. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
value of the asset at the inception of the lease. The assets are amortized over
the lesser of their related lease terms or their estimated productive lives.
Amortization of assets under capital leases is included in depreciation expense.
At December 31, 1999, the Company was in default on payments under an equipment
lease with Green Globe LLC which default has not been cured as of September 30,
2000, and the entire liability under that lease of approximately $2,593,000
(present value) had been reclassified as current liability even though no formal
demand for payment had been issued.
Liabilities from capital leases are as follows at September 30, 2000:
Payments due under capital leases $ 3,170,203
Less current portion 3,170,203
---------------
Capital leases, less current portion $ 0
DEFERRED CREDIT
CEVA Hungary Ltd. sold equipment, which was then leased back in a
sale-leaseback transaction. Total profits from the sale amounted
to $102,638 at December 31, 1999 and are recognized over the term of the lease.
INCOME TAXES
At December 31, 1999, the Company had approximately $800,000 of federal net
operating loss carry-forwards available for income tax purposes, which expire on
December 31, 2019.
The Company's total deferred tax asset and valuation allowance at December 31,
1999 are as follows:
Total deferred tax asset $ 225,000
Less valuation allowance 225,000
Net deferred tax asset $ -
================
14
CEVA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
RELATED PARTY TRANSACTIONS
During the third quarter 2000, Herbert G. Case, Jr., the President and
Chief Executive Officer of the Company, received approximately $24,000 in
salary and the Company paid approximately $17,000 in Mr. Case's expenses.
Additionally, the Company paid Joseph J. Tomasek, a director,
approximately $13,350 in legal fees and expenses during the third quarter.
PREFERRED STOCK
There are issued and outstanding 17 shares of redeemable Series A
preferred stock with a stated value of $850,000, held by the Company's
president and CEO. The shares were issued originally pursuant to the
conversion of outstanding loans in the approximate same amount. These
shares have certain redemption rights and liquidation preferences (see
Exhibit 4 of Form 10-QSB for the quarter ended March 31, 2000, as filed
with the Commission, included herein by reference). This redeemable stock
has been classified as a long-term liability.
INVESTMENT IN JOINT VENTURE
In May 2000, the Company signed an agreement with Holderbank Cement
("Holderbank"), one of the world's largest cement producers whereby the
Company would receive a 49% ownership interest in a joint venture, to set
up and operate alternative fuel processing facilities in Romania, with
working capital to be provided by the 51% joint venture partner. In
consideration of the Company's agreement to accept a minority shareholder
position in the joint venture, the partner agreed to and has paid a
one-time non-refundable signing fee of $620,000 which has been recognized
as extraordinary income during the quarter ended June 30, 2000. On August
24, 2000, Holderbank and the Company signed a final agreement. For further
details refer to Item 2 "Management's Discussion and Analysis".
INCREASE OF OWNERSHIP INTEREST IN CEVA HUNGARY LTD.
In April 2000, the Company acquired an additional 35% ownership interest
from two minority shareholders in its Hungarian subsidiary, bringing the
Company's share in CEVA Hungary Ltd. to 85%. In exchange, the Company
issued 700,000 shares of its common stock valued at $0.50 per share, or
$350,000.
In August the Company acquired the remaining 15% ownership interest from
the minority shareholder in the Hungarian subsidiary, thus CEVA
International is now the 100% shareholder of CEVA Hungary. The Company
issued 300,000 share of its common stock, valued at $150,000 which has
been capitalized as Goodwill during the quarter. The value of all shares
issued exceeds the fair value of net assets (equity) of CEVA Hungary. Thus
total Goodwill recognized on the above transactions is $453,833 on the
consolidated balance sheet of September 30, which will be amortized over a
period of 10 years.
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
CEVA International, Inc. specializes in the application of waste-to-energy
alternative fuel and environmental remediation technologies. Its primary target
market and current operations focus on Central- and Eastern Europe, specifically
Hungary, Romania, and the Czech Republic. These countries not only have rapidly
growing energy needs but at the same time are burdened with a legacy of
significant problems in the areas of environmental pollution coupled with a
scarcity of technical and managerial know-how in addressing these problems.
However, the region has started developing and implementing a regulatory,
socio-economic and judicial infrastructure which orientates itself on Western
standards and that can, when fully implemented, effectively deal with the legacy
of decades of centrally controlled state owned economies. CEVA during the last
several years has succeeded in establishing a presence and creating a wide
ranging network of business contacts and working relationships which facilitates
the day-to-day management of the Company's operations and which management
expects will bear fruit in the years to come. Despite this progress, however,
and although basing its projects and operations on traditional and proven
technologies, timing and success of individual projects often depend on factors
beyond the control of the Company and the resulting uncertainties make reliable
projections difficult. Except where the processing of oil and tar contaminated
soil and water depositories results in the manufacture of alternate fuels that
produce tangible cost savings when utilized in industrial processes such as
cement plants, a general relative scarcity of public or private funding for
remedial projects addressing environmental contamination has until now limited
the revenue potential for the Company.
Economic Conditions
Our business in Central and Eastern Europe is sensitive to the local financial
condition of the economies in which we work, government environmental regulation
as well as the condition of worldwide financial markets. We have extensively
discussed these topics above. A downturn in economic conditions in one or more
of our Central and Eastern European markets, a governmental failure to develop
and enforce environmental regulations as well as unforeseen governmental
legislation could have a material adverse effect on our results of operations,
financial condition, business and prospects. Although we attempt to stay
informed of economic and market conditions, government environmental
initiatives, changing permit requirements, any continuing failure on our part to
identify potentially adverse developments and to respond to such trends would
have a material adverse effect on our results of operations, financial
condition, business and prospects. Political and economic imperatives, however,
are dictating a gradual improvement in this area, and management expects that
the Company will be a primary beneficiary in view of its rapidly growing
physical presence and investments in the region.
Results of Operations for the Three and Nine Months Periods Ended September 30,
2000 compared to Nine Months September 30, 1999
For the three and nine months periods ended September 30, 2000, the Company had
gross revenues of $144,571 and $579,388 respectively (compared to $255,828 and
$1,459,179 during the same periods a year ago), most of which was generated by
its Hungarian subsidiary. Ceva Hungary accounted for $114,749 for the quarter
and $489,568 for the nine months period ended September 30, 2000. These revenues
were primarily from contracts with MOL, RT., the Hungarian Oil and Gas Company
("MOL") for treatment and processing of waste repositories at the Nyirbogdany
and Csepel Island sites owned by MOL. The Company has constructed a processing
facility jointly with MOL at the Nyirbogdany site where we converted material
into a liquid AF fuel. Activities in Romania in connection with the CIMUS
alternative fuel processing project accounted for the remaining $29,822 (last
quarter) and $89,822 (nine months) revenues.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The decrease in revenues from CEVA Hungary compared to the same periods in 1999
is attributable to the fact that a major project involving soil remediation for
the City of Budapest District XVIII ("District 18") that accounted for most of
the revenues during the first six months in 1999 did not extend into 2000. The
Hungary revenues during 2000 therefore are attributable primarily to only one
customer, MOL, in connection with soil remediation at the two MOL-owned sites.
We expect to be able to significantly increase our revenues in Hungary, based on
further cooperation with MOL. A test burning of alternative fuel, "Cemix",
processed from MOL-site originated waste materials - which itself generates
modest revenues - started in October in the Vac Cement factory, which belongs to
the Heidelberger Cement Group and will last until the end of December 2000. The
first results of this test burning are favorable, and on this basis it is
possible that next year we are going to produce Cemix for Vac and other cement
factories on a larger scale. We are now working jointly with MOL to obtain
permits for cement kilns and other outlets so that we can supply them with our
processed AF solid and liquid fuel.
Management expected operations in Romania to increase to more significant levels
already much earlier this year, primarily from our contract with S.C. CIMUS
S.A., a cement company located in Campulung, Romania, which called for the
supply of supplemental alternative fuels derived from refinery wastes. The
contract, initially executed in August, 1998, is exclusive and runs for a
20-year period. In December 1998 we installed a small processing facility at
CIMUS. The Company, however, did not have available sufficient funding for plant
and equipment to support full-scale production, and operations until now have
been very limited. This situation is expected to change significantly during the
first quarter 2001, in the aftermath of the December 1999 purchase of CIMUS by
Holderbank Cement ("Holderbank"), a global cement company that owns two other
cement facilities in Romania, and the signing of joint venture agreements
between Holderbank and the Company in May and August this year (see "Joint
Ventures" below).
We also entered into a ten year contract with the VEGA S.A. refinery in 1997 to
remove and treat that refinery's waste byproducts, with the resulting
alternative fuel materials to be owned by the Company for further use and sale.
No operations have started at that site. On August 1, 2000, VEGA and the Company
signed a new agreement which superceded the previous contract and grants the
Company exclusive rights to certain remedial operations at VEGA's site for five
years. The VEGA refinery, previously owned by the Romanian state, was recently
purchased by the Rompetrol Group ("Rompetrol"), a Dutch oil and gas producer and
distributor, who also purchased another refinery plant in Romania. These
acquisitions require the purchaser to embark on a remedial clean up program for
refinery wastes, on both sites. Rompetrol and the Company have just signed a
cooperation and joint venture agreement (see "Joint Ventures" below).
Gross profits for the quarter ended September 30, 2000, amounted to $57,575
(negative $96,286 in 1999). A large portion of period costs-of-goods-sold are
incurred from level amortization expenses in connection with capitalized
equipment leases for plant and equipment used in the treatment of contaminated
soils and depositories. The effect of unused processing capacities is therefore
a significant factor influencing operating margins. In addition, margins
fluctuate from project to project depending upon local factors and individually
negotiated terms, and any given reporting period's overall results are affected
by the mix and timing of such projects. This volatility represents a major risk
factor in predicting the Company's future performance and will relatively
diminish only upon the Company achieving significantly more revenues when a
larger number of projects are in progress and in combination contribute to a
more level gross margin profile.
17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
After deducting operating expenses of $608,070 which increased from $375,807
during the same period last year, the Company incurred an operating loss of
$550,495 for the quarter (compared to an operating loss of $472,093 in 1999).
The increase in expenses during the quarter is first and foremost attributable
to an increase in the allowance set up for the District XVIII receivable
position, from $314,000 to $746,000, and, to a lesser extent, to higher
personnel related expenses associated with the start up of tests at the Vac
Cement factory in Hungary (see above, and foreign exchange losses due to the
decrease in value of the Hungarian currency relative to the US Dollar.
Non-operating expenses in form of interest charges totaled $304,213, primarily
in connection with capital leases, with such expenses reduced by interest income
of $135,182. The interest income was primarily derived from District XVIII (see
"Legal Proceedings"), for late payments in connection with the first phase of
the project. Additionally, we received minor amounts from other customers and
from banks. The quarter concluded with a net loss of $719,526 or $0.06 per
share, for a nine-months aggregate loss of $914,348 or $0.09 per share.
Joint Ventures
The "Holderbank Joint Venture"
On May 24, 2000, we signed an agreement with Holderbank Cement to jointly
develop regional AF processing facilities to produce alternative fuel and raw
material replacements for Holderbank Cement's plants in Romania. On August 24,
2000, Holderbank and the Company signed an agreement which calls for the
creation of a Dutch company, in which the Company has a 49% ownership interest,
with the remaining 51% owned by Holderbank. This company, named SOTEM BV, was
formed on November 30, 2000, and is currently engaged in setting up a wholly
owned Romanian subsidiary which will conduct the operations envisioned in the
above agreements. As part of this transaction, we agreed to contribute all of
our rights and interests in the CIMUS and VEGA contracts as well as certain
processing equipment already installed at the CIMUS site to SOTEM, and assign
certain technical and administrative staff to the joint venture. Holderbank
will, during the first quarter 2001, contribute $2.5 million in long-term debt
financing to SOTEM on terms to be determined, as working capital and for other
corporate purpose.
The "Rompetrol Joint Venture"
On December 8, 2000, we signed an agreement with Rompetrol, subject to approval
by their board, which agreement is expected during December 2000, for
cooperation in the sourcing, processing, and sale of waste derived fuels with a
geographic focus on Romania. The vehicle of choice is a Dutch company already in
existence but currently a shell, RENSCO BV, to be jointly owned at 50%/50% by
Rompetrol and the Company. RENSCO will form a Romanian environmental services
company to start operations during the first quarter 2001, initially at the
Rompetrol owned VEGA refinery. The Company will supply its technical expertise
and professional staff and know-how, and Rompetrol will make extend to RENSCO a
$2 million loan with a first installment of $500,000 to be made available during
the first quarter of 2001, and the balance to follow during the remainder of the
year. The agreement also foresees the possible purchase, on terms to be
negotiated and acceptable to the parties involved, of certain LTTD equipment
currently leased by the Company and situated in Hungary.
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Through the date of this submission, the Company has not yet been able to obtain
payment for a past due receivables position of approximately $835,000 in
connection with the project involving a municipality in Budapest (see "Legal
Proceedings"). A cash shortage, evident throughout most of 2000, has been
somewhat ameliorated by the receipt of the $620,000 fee payment in connection
with the joint venture project. However, the Company's overall liquidity remains
strained, because the level of operations and revenues is still not adequate to
finance ongoing operations and the required infrastructure. In addition, the
projects pursued by the Company necessitate significant investments in capital
equipment that the Company largely financed through capital lease agreements
with resulting fixed payment obligations, which total in excess of $4 Million
between the years 2000 to 2003. At September 30, 2000, the working capital
deficit amounted to $2,269,673 as compared with a deficit of $2,041,625 at
December 31, 1999. Cash flow from operations during the nine months in 2000 was
negative, at $516,856, mostly compensated for by the above mentioned $620,000
joint venture payment.
Management expects to be able to alleviate the cash shortage by the anticipated
liquidation of approximately $835,000 tied up in the dispute with District XVIII
in Budapest as described above, to the benefit of operations in Hungary, and, in
the short term, by private borrowings and equity placements. In the medium term,
the joint venture described above is expected to not only introduce substantial
new funding into operations in Romania and elsewhere but also create the basis
for a rapid expansion of customer base and on-going soil remediation and
alternate fuel processing activities which will accelerate cash flows from
operations and make for more efficient utilization of plant capacity.
19
PART 2 OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings except as follows:
In 1998, together with our soil remediation technology partner, Green Globe,
LLC, we entered into a contract with District XVIII to remove contamination from
approximately 32,000 tons of soil. Utilizing its low temperature thermal
desorption unit or "LTTD" unit, Green Globe, LLC completed this soil remediation
project in December, 1998. Since that time, we have attempted to obtain the
payment due to us under our District XVIII contract through negotiations which
were unsuccessful. Accordingly, we commenced a lawsuit to collect the monies due
us in January, 2000 in the above identified Hungarian Court. At the first trial
date on April 20, 2000, the Hungarian Court awarded us a judgment in the
approximate amount of $65,700 U.S. for late contract payments against District
XVIII and recognized our principal claim of approximately $835,000 at current
exchange rates ($1,000,000 originally) for the contract payments due us. Our
next trial date was set for October 2000, however, the Court decided to invite
additional witnesses and postpone the trial until January 2001. We intend to
vigorously pursue our claim against District XVIII in the further proceedings.
Item 2 CHANGES IN SECURITIES -None
c) Issuance of unregistered securities
During the third quarter of 2000, the Company issued the following
unregistered securities:
(i) 300,000 shares of the common stock of the Company to one former
shareholder of CEVA Hungary Ltd. in return for his 15% interest in
that subsidiary.
(ii) 20,000 shares of the common stock of the Company to one former
creditor in return for cancellation of a $10,000 promissory
note.
Item 3 DEFAULTS ON SENIOR SECURITIES - None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES' HOLDERS - None
Item 5 OTHER INFORMATION - None
20
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit (3)(i) - Articles of Incorporation and Amendments *
Exhibit (3)(ii) - By-laws of the Company *.
Exhibit (27) - Financial Data Schedule - attached hereto.
- -------------
* Previously Filed
(b) Reports on Form 8-K: - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 2 to Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
CEVA INTERNATIONAL, INC.
Date: January 31, 2001 /s/ Herbert G. Case, Jr.
----------------------------
Herbert G. Case, Jr.
President and Chief Executive Officer