Form 10QSB for ENVIRO ENERGY CORP
20-Nov-2003
Quarterly Report
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF PLANS OF OPERATION
The following discussion and analysis should be read in conjunction with the Company's Financial Statements and notes thereto included elsewhere in this Form 10-QSB. Except for historical information contained herein, the discussion in this Form 10-QSB contains certain forward looking statements that involve the risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-QSB should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-QSB. These statements include, without limitation, statements concerning potential operations and results of the company and information relating to the quarter ending September 2003 matters, described below. The company's actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, without limitation, to those factors discussed herein and in the Company's Form 10-KSB for the year ending December 31, 2002.
A. Overview
During 2002 as the Company expanded, it became apparent that to maximize the potential of the Company, management had to make critical decisions concerning focus and allocation of resources. Analysis of various factors suggested that significant growth might be realized in bio-waste conversion sectors. The remediation and reclamation sectors required more intensive investments of critical resources with perhaps more certain, but less dramatic impacts to revenue, profit and long term sustained growth. Therefore management elected to implement strategies which had the potential to rapidly develop its bio-waste business and abandon its investment in its remediation and reclamation group. Due to a lack of funds available from continuing operations in ENGY, the development of the bio-waste business has been suspended, until the cash required to operate this segment of the Company is available.
As stated above, capital continues to be an issue for the Company as its attempts to expand its business base and develop new products. A number of strategies are under consideration including; seeking traditional lines of generating operating capital with company assets, joint ventures, and direct investments into specific operating units by outside organizations seeking access to our technologies and engineering capabilities.
Bio-Waste Sector
This sector is organized under Energy Flow Management, Inc., a wholly owned subsidiary of the Company.
The Company emerged from 2002 with what is thought to be a substantial opportunity to enter a mature market in need of product. Bio-wastes are created by virtually anything that is alive or was once a living organism. Food processing, crop harvests, wastes from confined animal feeding operations such as dairies, feedlots, poultry farms and similar operations generate huge sums of bio-wastes. The subsequent disposal or reduction of bio-wastes create a market the Company deems an excellent business opportunity.
The vast majority of farms in the world are small. To be price and operationally viable any solution capable of satisfying total demands needs to be produced in some sort of manufactured mode with remote monitoring and operations controls designed into the system. This is especially true in the small herd size operations.
ENVIRO ENERGY CORPORATION
FORM 10QSB
SEPTEMBER 30, 2003
The Company believed that it had designed such a product using extensive modifications to the non-exclusive license of a patent for large scale bio-waste remediation. Preliminary results from product announcements, together with market size data, convinced management this market was segmented by size, type of CAFO (confined animal feeding operation) operation and economic strength of the prospect.. The Company also used market data to redefine its position about the small bio-waste producer; and those larger and more sophisticated operations that produce many tons per day of bio-wastes. Some geographical areas in the US have higher concentrations of CAFO operations than others. These CAFO operations may be for cattle and dairies, horse, poultry, swine or meat packing operations. Each of these separate forms of CAFO operations may well benefit from the use of an anaerobic digestion system, yet each has a quite different economic profile. These are the considerations that will determine specifically how each segment of the market is addressed.
The Company had to overcome several hurdles to enter this market successfully. First, the Company needed critical operating mass. At the conclusion of 2001 the Company was not yet large enough to carry the financial burden of this development. Second, the Company needed a strategy to support field operations. Due to energy conversion requirements, the majority of operating and maintenance costs are derived from the need for sophisticated and well trained electrical personnel. However, service loads in a small system do not support the expense of one person. Therefore the Company needed an economical solution to carry the costs of skilled staff until a given geographic area developed sufficient units to carry its overhead. Third, manufacturing requires facilities and expertise. The Company did not wish to subcontract manufacturing for a variety of reasons but did not yet have internal capacity. Finally, it was evident that the Company needed to manufacture and install a demonstration facility as soon as possible. These issues defined the acquisition strategy for the Company.
During the year 2002 and 2003, the Company initiated the process of manufacturing, installing and testing of its first facility on a dairy farm. At the end of May 2003, all testing and implementation of operating procedures were stopped due to lack of available funds. This activity will be restarted when additional funds are available from continuing operations or from other forms of capital.
Electrical Contracting Sector
On January 29, 2002 the Company completed the acquisition of Colvico, Inc., a company with sustainable revenues and profit, electrical expertise, manufacturing capacity and geographic resources within the initial market area of the Company. Due to a down turn in the construction industry, revenues and profits have been affected, resulting in less capital available to support additional business activities outside of the primary business for Colvico, Inc.
RESULTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003
COMPARED WITH THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002.
Revenues from the company were generated primarily from Colvico, Inc. a wholly owned subsidiary for both periods.
Total revenues for the nine month period ended September 30, 2003 decreased by $3,749,421 to $8,460,948 from $12,210,369 for the nine months ended September 30, 2002. The decrease was due to a tighter market in the construction industry.
COST OF SALES. The Company's cost of sales consists primarily of direct and indirect costs incurred in connection with construction projects. Total cost of sales for the nine months ended September 30, 2003 decreased by $3,000,290 to $7,553,771 from $10,554,061 for the nine months ended September 30, 2002. As a
ENVIRO ENERGY CORPORATION
FORM 10QSB
SEPTEMBER 30, 2003
result of the foregoing, gross profit for the nine months ended September 30, 2003 decreased by $ 749,131 to $ $907,177or 10.72% of net revenues, compared to $1,656,308, or 13.55% of net revenues, for the nine months ended September 31, 2002.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses for the nine months ended September 30, 2003 increased by $ 210,234 to $ 1,081,132 from $870,898 for the nine months ended September 30, 2002. This increase was due to legal costs and bad debt write-off's.
OTHER INCOME (EXPENSE) . Other income for the nine months ended September 30, 2003 decreased by $423,458 to an expense of $364,061 as compared to income for the nine months ended September 30, 2002 of $ 123,146. Other expenses increase due to a payment for a lease guaranteed by Colvico, Inc., of $314,056 and loss on sale of depreciable assets of $46,798.
LIQUIDITY AND CAPITAL RESOURCES. From its inception through September 30, 2003, the Company has incurred cumulative losses of approximately $16,000,000. The Company has financed its operations to date through borrowings, and the issuance of common stock.
As of September 30, 2003 the company had working capital of $703,980. Including contracts and accounts receivable of $882,068, other receivables of $548,221 Costs and estimated earnings in excess of billings of $1,827,193 and prepaid expense of $40,910 offset by accounts payable of $1,545,121, disbursements in excess of deposits of $153,262, line of credit of $240,548 note from shareholder and related parties of $71,665, current maturities of long-term debt of $207,031, billings in excess of costs and estimated earnings on uncompleted contracts of $155,569 and accrued expenses of $222,715.
The company has incurred cumulative losses since its inception and, therefore, has not been subject to federal income taxes. Through September 30, 2003, the Company has generated net operating losses in excess of $16,000,000 that may be available to reduce future taxable income and future tax liabilities. These carry forwards expire incrementally through 2018.
Based on its current operating plan, the Company projects that the cash available as a result of cash flow from operations and the available line of credit will be sufficient to satisfy its operational and capital requirements through December 2003. Accordingly the Company is actively seeking additional capital. However, as yet the Company has no firm commitments for any future funding and may not be able to obtain capital in the future on satisfactory terms or at all. If the Company does not obtain additional financing, it would be unable to continue its development and marketing of the bio-waste sector.
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