I haven't got enough patience to read this right now lol.:
August 14, 2002
ENVIRONMENTAL SOLUTIONS WORLDWIDE INC (ESWW.OB)
Quarterly Report (SEC form 10QSB)
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
In 2001 the Company emerged from a development stage enterprise to a sales and manufacturing company. The Company started to generate revenues from operations during its first quarter of fiscal year 2001. Below are comparisons with operating results from prior periods. Due to the transition from a development stage company and the initial generation of revenues during fiscal year 2001 there is no meaningful comparisons of results from the first six months of the current and prior fiscal years.
Revenue in the second quarter of 2002 was $534,226 compared to the second quarter of 2001 of $173,819. As previously noted, this substantial increase in revenue can be attributed to the transition from a development stage company to one that generates revenues.
Of total sales in the second quarter of 2002, Gasoline (EnviroCat) contributed approximately 27%, Diesel (CleanCat) approximately 22% and (QuiteCat) and others approximately 51% of sales.
Gross profit margin in second quarter 2002 was 44% compared to second quarter 2001 of 54% a decrease of approximately 10%. This decrease was mainly due to initial set up costs in the ramp-up of production, and delays in the receipt of raw materials, which increased overtime and additional unexpected production runs. Management believes that these costs can be attributed as initial start up cost, which should be non-recurring. Management further believes that these non-recurring costs have been addressed as current production runs have demonstrated significant improvements in operating margin.
Net loss for the second quarter 2002 operations including deprecation and other non-cash items was $216,236 compared to $397,378 in the second quarter of 2001, an improvement of approximately $181,142.
Basic and diluted loss per share in the second quarter of 2002 was $.006 per share as compared to $.012 per share for the second quarter of 2001.
By the end of 2001 the Company started EPA certification for an external OEM (Original Equipment Manufacturer) customer for one of its diesel products. The tests were completed early in the first quarter 2002 and the product was certified by the EPA for the customer.
Tests were performed on a second engine family for this same Original Equipment Manufacturer and submitted to EPA early in 2002. As a follow up, the EPA requested additional information, and additional emissions tests. Additional tests were then performed. The certification application was submitted, and is currently in review pending approval by EPA. There can be no assurances regarding whether the EPA will grant approval.
In the first quarter the Company made significant progress in its capability to produce catalyst substrates. Current capacity to produce and catalyze the new substrate designs has increased to 60,000 units per month. As this capacity is in excess of current sales, the Company is now positioned to attract additional customers.
The Company is now adjusting its sales strategy in favor of high volume customers needing catalyzed substrates. This change means less emphasis on selling completed of finished catalytic converters. As such, the Company has established relationships with outside catalytic converter assemblers and marketers that fabricate ready to install products that can incorporate our substrates. This has allowed the Company to concentrate on its core technological competency, which is manufacturing catalyzed substrates.
On July 24, 2002 the Board of Directors approved the appointment of John A. Donohoe Jr. as Vice-Chairman of the Board. Mr. Donohoe was also named as Chief Executive Officer and President of the Company. Mr. Donohoe replaces Bengt Odner, who had been serving as ESW's interim Chief Executive Officer. Mr. Odner will retain his position as Chairman of the Board.
The Company intends to continue to invest in development programs, in order to have more of its catalytic products meet EPA certification, on as many engine groups as possible. Any capital expenditures to support the ongoing operations needed during the coming year will be evaluated as the need arises. The Company expects to finance part of the capital expenditure requirements through cash flows generated from operations and through the sale of our securities.
In March 2001, the Company achieved its full compliance ISO 9001:2000 certificate. The ISO certificate requires the Company to follow strict quality guidelines, administrative protocol and safety procedures to a recognized international standardized code. The Company is audited every 6 months by ISO auditors for compliance. The Company passed its second audit in the most recently completed quarter.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2002 TO THE THREE MONTHS ENDED
JUNE 30, 2001
Revenue for the second quarter ended June 30, 2002 was $534,226 compared to $173,819 for the same period ended June 30, 2001.
Net loss from operations for the 3 months period ended June 30, 2002 was $216,236 compared to $528,279 for the 3 months period ended June 30, 2001, a decrease of $312,043. The loss for the three months period ended June 30, 2002 was $216,236 compared to $ 397,378, a decrease of $181,142.
The decrease in the loss from operations was related to a decrease in professional fees costs of $54,675, decrease in marketing, office and general costs of $143,385 which is primarily comprised of expenses relating to initial cost cutting in relation the move of the Company's head quarters to Telford.
Consulting fees decreased by $6,160 this decrease is mainly due to stock options given in 2001 in respect of two consulting agreements which were recorded as compensation expenses in 2001.
The gross margin for the 3 months period ended June 30, 2002 was 44%. The gross margin in 2001 for the same period was 54%. The decrease in gross margin was related to initial set up costs in the ramp- up of production, delays in the receipt of raw materials, and increased inventory cost, which increased overtime and additional unexpected production runs.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2002 TO THE SIX MONTHS ENDED JUNE
30, 2001
Revenue for the six-month period ended June 30, 2002 was $924,544 compared to $272,832 for the same period ended June 30, 2001.
Net loss from operations for the six months period ended June 30,2002 was $742,115 compared to $1,453,520 for the six months period ended June 30, 2001, a decrease of $711,405. The loss for the six months period ended June 30, 2002 was $742,115 compared to $1,322,619, a decrease of $580,504.
The decrease in the loss from operations was related to a decrease in research and development costs of $68,059 as the Company transitioned from a development stage company to an operating company, decrease in marketing, office and general costs of $188,348 which is primarily comprised of expenses relating to initial cost cutting in relation the move of the company's head quarters to Telford.
Consulting fees decreased by $404,883 this decrease is mainly due to stock options given in 2001 in respect of two consulting agreements, which were recorded as compensation expenses in 2001.
The gross margin for the six months period ended June 30, 2002 was 30%. The gross margin in 2001 for the same period was 49%. The decrease in gross margin was related to initial set up costs in the ramp up of production, delays in the receipt of raw materials, and increased inventory cost, which increased overtime and additional unexpected production runs.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's cash and cash equivalents were $21,250 on June 30, 2002 as compared to $243,830 at December 31, 2001.
Accounts receivable amounted to $145,597 on June 30, 2002 compared to $116,518 on December 31, 2001 an increase of $29,079 for the period.
Inventories were $196,763 on June 30, 2002 compared to $133,701 on December 31, 2001 an increase of $ 63,062 for the period.
Current liabilities amounted to $632,735 on June 30, 2002 as compared to $489,911 on December 31, 2001 an increase of $142,824. The increase is primarily attributed to an increase in, trade payables and amounts due to an officer and a shareholder of the Company for the period.
Investing activities amounted to $24,172 during the six month period ended June 30, 2002 as compared to $456,008 for the same period in 2001.The investing activities primarily related to the net purchase of property and equipment.
Net cash provided by financing activities for the six month ended June 30, 2002 amounted to $180,140 as compared to $479,500 for the same period in 2001.
Net cash used in operating activities amounted to $378,548 during the six month ended June 30 2002 as compared to $642,879 for the same period in 2001.
Management believes that the Company will increase orders as it moves forward with the Company business plan.
Although we do not need certification of our products in order to sell them in many markets, the successful EPA certifications recently received for our diesel product is encouraging. Further successful certifications of our products in the United States, Mexico and China should lead to increased sales volumes, as certifications are required to gain full customer acceptance. However there can be no assurances that the Company will obtain additional sales if it successfully obtains certifications.
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 and account receivables to sustain our operations until the end of Q3 of 2002. However, there can be no assurance that we will be able to sustain our operation, through Q3 of 2002 as our business plan is subject to variables beyond our control. 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.
During 2001, the Company entered into equity financing agreements with accredited investors for $525,000, totaling 1,312,500 shares of common stock in the Company. To date, the Company has received $271,990. $58,000 is still outstanding to the Company, the Company expects to receive these payment in due course. No shares will be issued to an investor until the Company receives the full payment for same. During the second quarter of 2002, a subscription for 500,000 shares was deemed to be in default and the subscription was cancelled. The canceled agreement was for $200,000 of which $195,000 was in default by the subscriber.
The Company will require additional equity in the near future in order to fully implement its operational and marketing plans; however, there is no assurance that it 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, sell, and market our catalytic converter technology. In such event, we may be forced to cease operations.
In November of 2000 the Company received notice from the Securities and Exchange Commission (SEC) that it was subject to an order of investigation by the Commission. Subsequently on August 8, 2002, the SEC filed a civil law suit in the United States District Court for the District of Columbia claiming that the Company its chairman 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 touting disclosure provisions of federal securities laws from 1998 through 2000. The complaint seeks injunctive relief against all defendants and discouragement and civil penalties from certain individual defendants.
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.
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